Q2 2017 GeoPark Ltd Earnings Call

Aug 17, 2017 AM EDT
GPRK - GeoPark Ltd
Q2 2017 GeoPark Ltd Earnings Call
Aug 17, 2017 / 02:00PM GMT 

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Corporate Participants
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   *  Andrés Ocampo
      GeoPark Limited - CFO
   *  Augusto Zubillaga
      GeoPark Limited - COO
   *  James Franklin Park
      GeoPark Limited - Co-Founder, Deputy Chairman and CEO

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Conference Call Participants
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   *  Andre Saleme Hachem
      Itaú Corretora de Valores S.A., Research Division - Research Analyst
   *  Felipe Dos Santos
      JP Morgan Chase & Co, Research Division - Research Analyst
   *  Gavin Wylie
      Scotiabank Global Banking and Markets, Research Division - Analyst
   *  Ian Macqueen
      Eight Capital, Research Division - Research Analyst
   *  Jenny Xenos
      Canaccord Genuity Limited, Research Division - Analyst
   *  Joel P. Musante
      Euro Pacific Capital, Inc., Research Division - Director of Research and Senior Research Analyst
   *  Nathan Piper
      RBC Capital Markets, LLC, Research Division - Analyst
   *  Xavier Olave

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Presentation
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Operator   [1]
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 Good morning, and welcome to the GeoPark Limited conference call following the results announcement for the second quarter ended June 30, 2017. (Operator Instructions) If you do not have a copy of the press release, please call Sard Verbinnen & Co in New York at 1 (212) 687-8080, and we will have one sent to you. Alternatively, you may obtain a copy of the release at the Investor Support section on the company's corporate website at www.geo-park.com. A replay of today's call may be accessed through this website in the Investor Support section of GeoPark corporate website.

 Before we continue, please note that certain statements contained in the results press release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements, but are not intended to represent a complete list of the company's business. All financial figures included herein are prepared in accordance with the IFRS and are stated in U.S. dollars unless otherwise noted. Reserves figures correspond to PRMS standards.

 On the call today from GeoPark is James S. Park, Chief Executive Officer; Augusto Zubillaga, Chief Operating Officer; Andrés Ocampo, Chief Financial Officer; Stacy Steimel, Shareholder Value Director; and Dolores Santamarina, Investor Manager.

 And now I'll turn the call over to Mr. James Park. Mr. Park, you may begin.

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 James Franklin Park,  GeoPark Limited - Co-Founder, Deputy Chairman and CEO   [2]
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 Thank you, and welcome, everyone. We are joining this morning from New York City to report our second quarter results. Our team continues to deliver operational success on the ground that continues to generate financial success. Our large self-funding asset portfolio continues to produce results and drive growth. Colombia is leading us forward with a low-cost, proven, big-scale, still-expanding oil field. Argentina just had a new oil field discovery, bringing us back to this promising region. Brazil and Chile provide us stability and new opportunities, and Peru is positioning as our next big boost.

 We are excited about what is coming, with an active drilling program weighted on appraisal to build value and production. GeoPark has the team, the assets, the capital and the approach to grow and prosper for the long term in the oil markets of today, all underpinned by a 15-year operating platform across Latin America, giving us a unique competitive position in the most dynamic and promising hydrocarbon region today.

 And now, to Zubi.

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 Augusto Zubillaga,  GeoPark Limited - COO   [3]
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 Thank you, Jim. We proved again last quarter our ability to find oil and gas and our proficiency as operators as oil and gas finders. In Argentina, we discovered a new oil field in the Neuquen Basin. We were underway one expiration well provides new reserves, new production and a new cash flow base from Argentina and derisked other oil prospects on the block.

 In Colombia, we continue on looking value from Llanos 34 Block with the Jacamar oil field discovery and through development and appraisal wells on the Jacana oil field. We built Curucucu 1 exploration well from the Jacamar path, which is our longest deviated well in the Llanos 34 Block, more than 9,500 feet. This well has been chased, completed and will be tested in the next weeks.

 Now as operators, in the second quarter, our consolidated oil and gas production increased by 24% to a record of more than 26,000 barrels per day with Colombian oil production representing almost 21,000 barrels per day. Last week, we celebrate milestones of 40 million gross barrels produced in Colombia in less than 5 years. Today, our gross operating production exceeds 51,000 barrels per day.

 So what's next? In the third quarter, we will have 4 weeks working to drill 12 to 13 wells, including 6 exploration, 5 appraisal and 2 development wells. Our priority is to continue expanding, building and developing our bedrock Llanos 34 assets in Colombia. In Argentina, exploration will be focused on the Sierra del Nevado and Puelen blocks in the Neuquen Basin, targeting and unrisked net exploration resources to 20 million to 35 million barrels. For production, we are on track to hit our target of 30,000 barrels by year-end.

 So now, Andrés.

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 Andrés Ocampo,  GeoPark Limited - CFO   [4]
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 Thank you, Zubi. During the second quarter this year, following our significant production growth, our EBITDA increased by 81% to $37 million, which means an EBITDA of $122 million during the last 12 months. Our operating cash flow for the quarter of $34 million fully funded our CapEx program, serviced our financial debt and increased our cash position, which means that for every dollar invested this quarter, we generated $1.3 of operating cash flow on a consolidated basis. And in Colombia only, we generated almost $2 for every dollar invested. Our increasing cash flow generation continue to push down our leverage ratios with gross debt-to-EBITDA now going from 3.2x down to 2.8x and down to 2.2x on a net debt basis. It has also increased our interest coverage ratio to 4.1x, well above the 2020 bond incurrence test covenant of 3.5x.

 During the second quarter 2017, we have recorded almost $6 million of profits from our hedges in place, from which $2 million represents realized cash gains. We currently have different hedging contracts that cover approximately 40% to 50% of our oil production until the end of the year, giving us a secure minimum price flow range of $50 to $54 per barrel.

 Liquidity continued to improve with cash and credit facilities of approximately $200 million, of which $77 million are cash on hand, $7 million more compared to March 2017. We have also continued to broaden our audience in the markets and our stock trading volume has increased to approximately $1 million per day during the last 12 months and over $1.7 million per day during the last 3 months. We continue moving full speed ahead on our self-funded 2017 work program, targeting 20% to 25% production growth. I look forward to initiating soon our 2018 capital allocation process to refine our high-impact work program and plan for the next year.

 Thank you. And now, we invite any questions for our team and some additional insight.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Our first question comes from the line of Andre Hachem of Itau.

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 Andre Saleme Hachem,  Itaú Corretora de Valores S.A., Research Division - Research Analyst   [2]
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 My first question is related to future outlook in CapEx. First, in regards to the 14th bidding round in Brazil, do you guys plan to participate in the round. And also to Petrobras divestment program, what is your outlook? Are you guys looking to add more assets to Brazil? My second question is in regards to Argentina, the recent discovery. Could you guys please comment a little bit on what is the agreement with Wintershall? What would be the conditions for them to take the operationship of the field? And also in regards to future CapEx in Argentina, should we start seeing a more significant investment in Argentina in the coming years? Or should it still be around the same level that we're seeing this year?

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 Andrés Ocampo,  GeoPark Limited - CFO   [3]
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 Thank you for your question. So first, with respect to incoming CapEx, we're continuing -- total CapEx for the year is going to be around $80 million to $90 million, and we have already invested around $50 million so far, so we are a little bit around halfway through that process. With respect to your question about Brazil, we are -- we have done -- we have drilled a well at the beginning of the year in Brazil. We may have one more well at the end of the year, still not confirmed yet, but we may add an additional well. It could be $1 million investment, not more than that, and we continue working on trying to grab more acreage in Brazil, same as we're doing throughout the whole region, and we are going through there, 2 processes effectively, one is obviously, divestments from Petrobras, which today are, I would say, standing by, or in a standby situation, they are not moving ahead eventual divestments at this point, and we are monitoring -- there's an incoming bidding round in Brazil for onshore exploration acreage, and we're going to be evaluating assets in that round, same as we did in -- since round -- I think it was round 10. So since the last 4 bidding rounds conducted by E&P and Brazil, we expect to look at the information and evaluate any good assets that we may be taking some more. Your question about Argentina. We're very excited about this new discovery in the Neuquen Basin. We just tested the well with -- this was our first well, so it's good that we were able to confirm that this is a discovery. We own 50% and we are currently operating. Part of the agreement is that Wintershall have the right to take the operatorship after the exploration phase, and we are talking with them on when and how and if this is going to happen in the near future. And then, with respect to future development CapEx, yes, we expect to invest some more development CapEx into this field, but that is something -- the development program is going to be refined once we conducted a long-term test on the well, which is actually starting right now. So once we see the performance of the well and we have more better information, we will define jointly with our partner what the development program is going to be. So that is something that we're going to know, I would say, hopefully, before the end of the year or something for next year plan.

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Operator   [4]
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 Our next question comes from the line of Ben Wylie of Scotiabank.

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 Gavin Wylie,  Scotiabank Global Banking and Markets, Research Division - Analyst   [5]
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 Just a couple of questions here. First one, just on Jacana 9. I wanted to see if there was a little bit more detail on your guidance press release just on the result there, and wondering what you see is causing the compartmentalization, potentially, if that's the interpretation that seems to be the lead conclusion. And second is, what are you expecting from those upper Q zones in terms of maybe flow rates or something like that, if you can provide a bit of guidance? The third aspect of that question is just the implications, going forward, on the 2P and 3P reserves, if this proves to be compartmentalized or whatever the case is, what could be the impact there? And then the fourth question that I had for you is on Jacana 8. It's a great well that you guys tested in the Mirador that's previously unbooked from a reserve standpoint. And there wasn't a lot of discussion on that, and I'm just wondering if there's more that you could say on what that well is currently producing? And the second part to that would be, is there additional follow-up locations to that? Have you seen on other wells in the Jacana structure, Mirador potential that you could potentially recomplete or go back to and drill at some point?

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 Augusto Zubillaga,  GeoPark Limited - COO   [6]
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 Okay. Let's, at the beginning, put in context on the Llanos 34 Blocks. Our 2P reserves at Llanos 34 Blocks is a -- in a gross reserve base, it is a 150 million barrels. The 2P Tigana/Jacana growth reservice, almost 130 million barrels. So we got our work throughout 2017. Our objective was to define the limit to the boundaries of the Tigana/Jacana fields. So far, we had drilled 8 wells in this year, and we have to drill 8 wells between appraisal and development wells. So it's specifically going to the Jacana. So what we learned at -- in the Tigana/Jacana, we have different in compartments and also different oil in 2s. So going to the Jacana 9 well, we've drilled the Jacana 9. We love their well. We have like a transition zones, so we are -- we didn't define in that well the oil-water content. We have different zones in water loop formation. We perforate the lower zone, and we are producing 90% of water cut there. So now we cannot define that the oil-water content is in this well, but we can say that this is very near the Jacana 9. So that does maintain the Jacana 9. And in the same path, we also drilled the Jacana 10, which is producing 1,000 barrel of oil per day in the same formation, which is Guadalupe. We also have -- coming back to the Jacana 9, we are -- we perforated the lower zone. We had to open also 2 zones in the upper part of the Guadalupe, so we will understand more what's going on in the Jacana 9.

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 Gavin Wylie,  Scotiabank Global Banking and Markets, Research Division - Analyst   [7]
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 Just as a follow-up on that. Just for clarity, the Jacana 9, was that drilled outside of your 2P, or is that within 3P -- excuse me, within the 2P?

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 Andrés Ocampo,  GeoPark Limited - CFO   [8]
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 That was a well that was signed, Gavin, under this year. That was a well within the 3P. I mean, that's -- we've seen on our map, it's within the 3P area of Jacana.

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 Gavin Wylie,  Scotiabank Global Banking and Markets, Research Division - Analyst   [9]
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 And just on Jacana 8, just wanted to get clarity on that one just in terms of what you're currently producing from Jacana 8, and then, if there's additional follow-up Mirador locations?

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 Augusto Zubillaga,  GeoPark Limited - COO   [10]
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 Okay. The Jacana 8 was targeted just for mineral formation. And we also found Guadalupe and Mirador. We tested Guadalupe with oil. That thing is very near, so we have -- it was very near the Jacana 2, so we have the same reservoir there. And regarding Mirador, it is producing, right now, 1,600 barrels of oil per day, so for the Mirador formation ...

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 Andrés Ocampo,  GeoPark Limited - CFO   [11]
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 No water.

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 Augusto Zubillaga,  GeoPark Limited - COO   [12]
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 And no water.

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 Andrés Ocampo,  GeoPark Limited - CFO   [13]
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 And we see -- and there are other wells that have mineral potential within the Jacana field. The number of wells that crossed Mirador with good log-in information. Jacana 8 is the only one that is producing from Mirador, but there are a couple of more wells that were drilled through Mirador and have good log-in information on mineral potential.

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Operator   [14]
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 Our next question comes from the line of Felipe Santos of JPMorgan.

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 Felipe Dos Santos,  JP Morgan Chase & Co, Research Division - Research Analyst   [15]
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 Just some few questions. First, if the producing cost of last quarter, if you could just go over the breakeven that you have in Colombia right now and how you see this evolving, going forward. Second, I noticed that now the company has much more -- has increased the hedges around the (inaudible) dollar brand. This will guarantee the company's campaign and how -- which level of oil or what would be needed for the company so they move to drill the wells around the Guaco 1 well or the area competing there? Second, if any time you consider that you should be reviewing all of the reserves update of the company and -- sorry for the many questions, and finally, what is the company targets in terms of cash flow for this year and the next? Any talks to be around now on the debt and the negotiation on reducing the debt of the company and to the payment -- of the payment, et cetera?

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 Andrés Ocampo,  GeoPark Limited - CFO   [16]
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 Let me see if we can cover all your questions. So the first one is about the breakeven -- our breakevens in Colombia. As you know, we've been pushing down our cost significantly over the last 2 years. We've been driving our costs down significantly and today, this quarter, our OpEx was slightly higher because of some temporary or onetime issues that we explained in our release. But generally, we're seeing Colombian OpEx around $5 per barrel, we have $14 to $15 transportation. So that's effectively it. It's just around -- this block is cash flow -- generates a lot of cash in a $25 to $30 oil price. So breakevens remain low particularly in Colombia. In terms of your question about the hedges, we continue to put hedges in place, looking forward between 6 to 12 months. Our strategy is to have around 40% to 60% of our oil volumes covered, with minimum prices that are above the numbers, that the prices that we used for our budgets. So we typically would try put to floors above $50 brand, even though we use $45 to $50 for our budget. And so we just put -- we just closed the hedge recently. That covered 12,000 barrels until the end of the year, which is around half of our production -- oil production for the remainder of the year. And then you mentioned Guaco. Guaco is going to be -- more likely going to be drilled, or we hope is going to be a prospect for next year, but that is something that is going to be defined in our capital allocation. Discussions are actually starting in the next few weeks. So -- and then, your question about reserves. Can you repeat that question? I wasn't clear on what your question was.

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 Felipe Dos Santos,  JP Morgan Chase & Co, Research Division - Research Analyst   [17]
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 Yes. If you intend to -- you have a formal process on announcing reserves in every beginning of each year, right? Because in -- given the results of the drilling campaign so far this year, the wells, the Jacana wells, the Tigana wells, are you considering to anticipate giving the market an update in terms of reserves or contingent resources discovered so far?

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 Andrés Ocampo,  GeoPark Limited - CFO   [18]
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 Yes, okay. No, so far, we keep the same plan of certifying reserves every December and announcing that probably in very early February. That's how we typically do it. No, we don't have any plans to anticipate a reserve certification before year-end. And then your last question was about our cash flow and debt. So as we mentioned, we are -- last 12 months' EBITDA, we generated over 120 million barrels. So that means we're -- sorry, $120 million. We are on track to continue growing, hopefully, our operating cash flow generation. And with respect to our debt, we have a bond that matures in 2020. It's a bullet in early 2020. We're seeing that the market right now, the bond market is very -- is in a positive momentum. We're seeing companies issuing debt at fairly low costs. So we're opportunistically looking at the market and see if there's a good opportunity for us to term out our existing debt at an attractive price, but it's not -- this is something that we're going to be working on until 2018.

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 Felipe Dos Santos,  JP Morgan Chase & Co, Research Division - Research Analyst   [19]
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 Okay. Just on -- I'm sorry for the many questions, but one point, just going back on your point. Is there any oil level or anything that would been needed to trigger the drilling Guaco, or anticipating the drilling Guaco for this year instead of the next?

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 Andrés Ocampo,  GeoPark Limited - CFO   [20]
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 It's not related to -- I wouldn't say it's related to oil process. Guaco is a prospect that is an attractive prospect in current oil prices and in even lower oil prices. We -- it was part of the campaign this year, and after the results of Sinsonte, we have decided to postpone the drilling of Guaco until we understand better the play in that area of the block. So it's a more technical decision to postpone the next year rather than an economical decision.

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Operator   [21]
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 Our next question comes from the line of Jenny Xenos of Canaccord.

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 Jenny Xenos,  Canaccord Genuity Limited, Research Division - Analyst   [22]
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 I have 3 questions, please. The first one is regarding operating cost. They went up quite substantially this quarter. You mentioned that there were some onetime items and there's some discussion in the press release. I'm wondering, outside of those onetime items, what are you seeing in terms of trends? Are you seeing pressures on your costs in different regions? And what should we expect in terms of operating cost in the second half of the year by region? You mentioned $5 in Colombia. I'm wondering about Brazil and Argentina and other areas that you operate in, Chile as well. The second question is regarding Argentina. You mentioned that the new discovery derisked other oil prospects on the block. How many prospects have you identified and what is the size of these prospects? And the final question is regarding Peru, what is the status of your partner search process there?

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 Andrés Ocampo,  GeoPark Limited - CFO   [23]
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 Great. Thanks very much, Jenny. In terms of operating cost and trends, as we said -- as we had explained on the release, the second quarter was affected by onetime items, namely, we had some road maintenance and more-than-usual poolings in Colombia. We had -- in Chile, we sold -- we didn't sell the oil during the first quarter, so we have that as an inventor and it was sold in the second quarter and the oil has bigger OpEx than the gas. So that affected the mix. So it temporarily increased the OpEx in Chile, and we've had some well maintenance in Brazil. So we don't expect this to continue throughout the year. We expect OpEx to normalize closer to the first quarter levels. With -- $5 in Colombia sounds reasonable for the full year, and that's what we are targeting. In terms of trends, as you know, we continue focusing a lot on reducing our cost in every possible way that we can. In terms of -- yes, and we've been doing this -- I think I've said this before, we've been doing this for the last 2 years. In terms of Argentina, Zubi?

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 Augusto Zubillaga,  GeoPark Limited - COO   [24]
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 Jenny, yes, in terms of Argentina, we identified 3 prospects, the drilling in the CN-V block, we released Rio Grande Oeste, and we still have 2 more prospects to be drilled. Before that, we will be testing this Rio Grande Oeste. We are preparing the early production facilities in the locations. So during October, we will start with the long-term test that we're going to take at least 4 to 5 months. So we're going to understand more the size and the behavior of that kind of reservoirs.

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 Andrés Ocampo,  GeoPark Limited - CFO   [25]
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 And then with respect to Peru, we are -- we continue with our farm-out process that we received a couple of offers. We are working with potential partners and finalizing them and, hopefully, we'll have something to announce before the end of the year or we hopefully close on a partner before the end of the year. For obvious reasons, I don't have a lot more to comment on that. But it's going on the right trend.

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 Jenny Xenos,  Canaccord Genuity Limited, Research Division - Analyst   [26]
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 All right. I understand. But just to confirm once again, you mentioned that you actually received offers?

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 Andrés Ocampo,  GeoPark Limited - CFO   [27]
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 That's correct.

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Operator   [28]
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 Our next question comes from the line of Nathan Piper of RBC.

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 Nathan Piper,  RBC Capital Markets, LLC, Research Division - Analyst   [29]
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 I wanted to ask some broader questions about Block 34. And in particular, what progress and what plans are in place to establish a pipeline connection from Block 34 to the rest of the infrastructure in the Llanos station? Secondly, what kind of collateral production rate could you expect from that? And then I guess, lastly, just thinking about the 2P locations -- drilling locations you might have across the block, I mean, I realized that Jacana 9 hasn't -- results so far hasn't really set the header-alight. But I assume, given the appraisal success more broadly across Jacana/Tigana, that the 2P locations have gone up significantly from 157 that were outlined at the end of 2016?

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 Andrés Ocampo,  GeoPark Limited - CFO   [30]
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 Nathan, with respect to potential connection of 34 with the central pipelines, we continue working on environmental approvals and working with our partner on deciding which would be the best way to approach these potential connections. So we haven't made the final decision on it yet, and we haven't obtained all the approvals yet. But we're working on that and hopeful to have something soon. And once -- if we decide on that, then the execution is something for next year. Then your second question is about...

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 Nathan Piper,  RBC Capital Markets, LLC, Research Division - Analyst   [31]
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 Any idea on costs on the pipeline? I mean, it won't be a big figure, but just to get a sense of scale?

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 Andrés Ocampo,  GeoPark Limited - CFO   [32]
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 Yes. If we decide to build it out, that could be something around $30 million to $40 million on a gross basis.

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 Nathan Piper,  RBC Capital Markets, LLC, Research Division - Analyst   [33]
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 And then, sorry, plateau production rates from the block?

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 Andrés Ocampo,  GeoPark Limited - CFO   [34]
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 Second question was about production rates and potential plateau on the block. Okay, well, we are doing our own models, the dynamic models and we can reach between 70,000 barrels per day to 100,000 barrels per day. That's the range between -- that we are having in our models in a 2P and 3P reserves basis. That's according to our D&M certification of 2016. And then can you repeat your last question about -- that was about the number...

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 Nathan Piper,  RBC Capital Markets, LLC, Research Division - Analyst   [35]
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 It was kind of the same thing, I was trying to understand the sustainability of some of those production rates. So there's something like 160 2P locations at the end of 2016. Is it safe to assume, despite the Jacana 9 results, that, that number has been up significantly already and has a potential to grow further through the course of 2017?

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 Andrés Ocampo,  GeoPark Limited - CFO   [36]
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 Sorry, but 157 2P locations, that seems high. But I don't know where that number is coming from, Nathan.

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 Nathan Piper,  RBC Capital Markets, LLC, Research Division - Analyst   [37]
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 A company called Parex, you might have heard of them.

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 Andrés Ocampo,  GeoPark Limited - CFO   [38]
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 Okay. So I think we can say -- I mean, this year, we're targeting a lot of our investments to continue operating and hopefully expanding our drilling locations. But I think this is something that we will need to confirm once we have our next certification. I don't think this is something that we should throw out in a conference call like this.

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 Nathan Piper,  RBC Capital Markets, LLC, Research Division - Analyst   [39]
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 Fair enough. It's from the GLJ report at the end of 2016.

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 Andrés Ocampo,  GeoPark Limited - CFO   [40]
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 Right.

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Operator   [41]
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 Our next question comes from the line of Joel Musante of Euro Pacific Capital.

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 Joel P. Musante,  Euro Pacific Capital, Inc., Research Division - Director of Research and Senior Research Analyst   [42]
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 Most of my questions were answered, but I still -- I just had one on Jacana 9. It looks like that formation might have been displaced and you've identified the transition zone, where I think across a lot of the fields in the past, you said you didn't really -- you hadn't identified where that transition zone was. So I was just wondering if this helps you define where the transition zone is in the larger yield?

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 Andrés Ocampo,  GeoPark Limited - CFO   [43]
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 Right. Thank you, Joel. No, I think what we said is this a very large oil pool, and we're seeing different compartments in that pool. And with that, we are expecting to see different oil-water contacts or different oil down tools in the different compartments. So Jacana 9 may have helped to define -- it hasn't defined it yet, but it may give information to where the potential contact is for that specific compartment, but it doesn't change anything with respect to the rest of the field.

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Operator   [44]
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 Our next question comes from the line of Ian Macqueen of Eight Capital.

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 Ian Macqueen,  Eight Capital, Research Division - Research Analyst   [45]
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 Again, a number of questions have been answered. But obviously, the water production in 9 is an issue that investors are focusing on. It's very difficult on this front to predict the future. But what I want to understand is whether or not you're seeing in Jacana 5, which is 70-feet up dip, are you seeing a response, which you expect in that well based on what you've seen in Jacana 9? So really, are those 2 wells in communication? And are they basically doing the same thing? You've got 90% water in Jacana 9? Is the water cut increasing at Jacana 5?

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 Augusto Zubillaga,  GeoPark Limited - COO   [46]
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 Yes, we did some several buildup tests in order to understand if they will have connectivity within Jacana 9 and the other Jacanas. And we are seeing yes response between Jacana 5 and Jacana 9. So they are connected.

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 Ian Macqueen,  Eight Capital, Research Division - Research Analyst   [47]
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 Are you seeing increasing water cuts at Jacana 5?

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 Augusto Zubillaga,  GeoPark Limited - COO   [48]
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 Also, we are seeing some water in Jacana 5 as well, but not too much.

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 Ian Macqueen,  Eight Capital, Research Division - Research Analyst   [49]
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 Okay. And is it still producing around 3,500 barrels a day?

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 Augusto Zubillaga,  GeoPark Limited - COO   [50]
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 I don't have in mind that number, but yes, it's around that number.

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 Ian Macqueen,  Eight Capital, Research Division - Research Analyst   [51]
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 Okay. All right. It sounds like we just have to wait understand what's going on. Is there anything, really, that you can see -- I mean, I guess, the resolution on the seismic is not good enough, it's really a question of testing the additional zones and trying to see how that well might perform in the future. It's very difficult to guess, I'm thinking.

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 James Franklin Park,  GeoPark Limited - Co-Founder, Deputy Chairman and CEO   [52]
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 Yes.

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 Ian Macqueen,  Eight Capital, Research Division - Research Analyst   [53]
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 And just for clarification, what Nathan was referring to in the 157 locations, it is actually in the Analyst Day presentation for Parex, but that number includes Aguas Blancas, which you guys have no interest in. So Block 34, the numbers on a 1P basis are 46 development locations; on the 2Ps are 71 development locations; and on the 3P are 88 development locations. I realized that you guys use a different reserves evaluator. They use GLJ, so again, we'll have to wait and see how things happen. But in general, I would say, you guys have increased your 2P areas, so your 2P locations should go up.

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 James Franklin Park,  GeoPark Limited - Co-Founder, Deputy Chairman and CEO   [54]
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 Great. Thanks very much for that clarification, Ian. I -- we did feel that, that number was little bit off the charts. So thanks for clarifying that, that's very useful. And with those numbers, we're not really that far with GLJ. I mean, we're obviously using different reserve certificators, but they don't -- I mean, they're not that different. So yes, and we agree with your comments. And sorry, just to confirm, the Jacana 5 is producing 3,400 barrels per day, with less than 10% water.

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Operator   [55]
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 Our next question comes from the line of Xavier Olave of Deutsche Bank.

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 Xavier Olave,    [56]
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 I just had a couple of very quick questions. First of all, given you're fully funded for the year and there's potential for higher CapEx next year and the fact that you should exit the year under your incurrence covenants limits, I was wondering what would the overall plan continue to be? Would you continue to fund any incremental CapEx program via the company's cash flow generation? Or I guess, it depends on the growth prospects that you'll be forecasting? The second question is can you remind me again what the amortization the schedule is going to be for the $40 million Brazil loan?

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 James Franklin Park,  GeoPark Limited - Co-Founder, Deputy Chairman and CEO   [57]
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 The amortization on the total loan is $10 million each March and September. So $10 million next September, then March, September, until March 2019. And then we -- one of the things -- I mean, we expect to continue being self-funding. Our asset base is generating sufficient cash to fund this year what is a 20% to 25% production growth target, which is a pretty good target, and we expect that to continue being the case for next year. Obviously, if we hit discoveries that require more development capital, we may need some more or we may change it. But we don't see that really happening. I think we're going to be self-funded for next year as well.

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Operator   [58]
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 (Operator Instructions) At this time, I'm showing no further questions. I would now like to turn the call back over to James Park for any additional or closing remarks.

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 James Franklin Park,  GeoPark Limited - Co-Founder, Deputy Chairman and CEO   [59]
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 Thank you to everyone for your interest in GeoPark and your continued support of our company. We encourage you to please visit us at our operations and invite you to please call us at any time for any information. Thank you, and good day.

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Operator   [60]
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 Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.




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