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A S S E T S C A P A B I L I T I E S O P P O R T U N I T I E S P E R F O R M A N C E
C O N T E N T S
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Letter to Shareholders from Chairman & CEO
Year in Review / Performance
Assets
Capabilities
Opportunities
Creating Value & Giving Back
Directors’ Report
Corporate Governance
Directors’ Remuneration Report
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Statement of Directors’ Responsibilities
Report of the Independent Auditor
Consolidated Income Statement
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
48 Notes to the Consolidated Financial Statements
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Board of Directors’ Biographies
Directors, Secretary & Advisors
DEAR SHAREHOLDERS,
Again in 2007, all of GEOPARK’s basic value drivers improved: oil and gas production was up,
revenues were higher, and reserves were increased.
The year also represented another active period of achievement with important groundwork laid
to anchor future growth: an aggressive multi-year drilling and investment program was initiated;
two new oil and gas fields were discovered and put on production; a new, creative capital funding
source was established; critical infrastructure and equipment was acquired and put into operation;
new seismic results indicated an increase in oil and gas reserve potential; the management team
was strengthened; and a new long term gas sales contract secured significantly higher gas prices
and de-risked further activities on our Chile project.
As a result, GEOPARK’s market value increased and outpaced many of our peers. We are pleased,
therefore, to report that your Company is financially stronger, more capable and more highly valued
than when we wrote to you last year.
Importantly, the Company also expanded its overall acreage position by the recent acquisition of an
interest in the Tranquilo block, a large new attractive exploration area (over 6,600 square kilometres)
in Chile near the Company’s Fell Block. Subject to Chilean regulatory approval, GEOPARK will
acquire a 30% working interest and be named operator of the new joint venture. Entry into the
Tranquilo block substantially builds our opportunity portfolio, and further enhances our position as
the leading private-sector oil and gas company in Chile.
GEOPARK has set ambitious growth targets – and despite our solid accomplishments during the
year – some objectives were not achieved. Some causes were outside of our control (such as the
half year delay in delivery of a drilling rig), but the Company continues to work on understanding
and resolving the causes for these variances. GEOPARK’s business plan remains focused on building
and investing in the four basic components of long term value creation: our assets, capabilities,
opportunities and performance. We believe that our steady improvement in each of these areas has
strengthened our ability to consistently deliver value growth for Shareholders now and in the future.
L E T T E R T O S H A R E H O L D E R S
AGAIN THIS YEAR, ALL OF GEOPARK’S BASIC VALUE DRIVERS IMPROVED:
OIL & GAS PRODUCTION WAS UP, REVENUES WERE HIGHER, PROVEN OIL
RESERVES INCREASED AND ACREAGE EXPANDED.
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5
2007 PERFORMANCE
During 2007, specific results include:
• Revenue Increase – up 83% to US$11.0 million vs. 2006
• Production Increase – up 56% to approximately 2,300 barrels of oil per day
equivalent (boepd) at year-end
• Reserves Increase – proven reserves up 41% to 16.8 million barrels of oil
equivalent (boe), probable reserves up 9% to 18.8 million boe, and possible
reserves up 231% to 91.9 million boe (independent preliminary appraisal of May
2008 compared to independent appraisal of May 2006)
• Earnings Loss – net loss after tax of US$13.8 million (Cash and available
facilities at year end were US$35.0 million)
• Market Value Increase – up 52% during the year
Other accomplishments during 2007 and to date include:
• Drilling Program Success – In June 2007, the Company began its drilling program in
Chile and Argentina which, to date, has resulted in five new producing wells, including
two new field discoveries. Two other new wells tested hydrocarbons but require further
testing or remedial operations before being put on stream. One well is scheduled for
sidetracking operations and two wells have been drilled and cased and await testing
operations. Two exploration wells drilled in Argentina were unsuccessful. GEOPARK
currently has two rigs (one drilling and one workover) operating in Chile with another
drilling rig being transported to Chile to begin operations in Q3 2008. The 2008 drilling
program envisages drilling 17-20 new wells in Chile and Argentina.
• New Fields on Production – During 2007, GEOPARK added production from five new
gas fields in Chile (San Miguel, Dicky, Dicky Oeste, Kimiri Aike and Kimiri Aike Norte) and
now has twelve producing oil and gas fields in Argentina and Chile.
L E T T E R T O S H A R E H O L D E R S
• Oil and Gas Reserve Growth – Based upon the results of only 7 months of drilling
operations, DeGolyer & MacNaughton, the independent petroleum engineering firm, has
provided figures for its preliminary May 2008 report which demonstrate an overall
increase in all reserve categories. Proven reserves up 41% to 16.8 million barrels of oil
equivalent (boe), probable reserves up 9% to 18.8 million boe, and possible reserves
up 231% to 91.9 million boe (independent preliminary appraisal of May 2008 compared
to independent apparaisal of May 2006). In Argentina, where little investment activity
took place and where new reserve definitions reduced forecasted production life, the
reserves declined.
• New Long Term Gas Sales Contract – The Company entered into a new 10 year sale
and purchase agreement with the Methanex Corporation of Canada (“Methanex”) for
its Chilean gas production which provides a secure long term market for the Fell Block
gas reserves and an overall increase in the gas sales price. This agreement underpins
the long term economic development of GEOPARK’s Fell Block project. During December
2007, GEOPARK’s gas sales price, which is dependent on the world price of methanol,
exceeded US$5.00 per thousand cubic feet (mcf), representing more than a doubling of
the gas price in January 2007 under the previous contract.
• New Tranquilo Block – In April 2008, GEOPARK entered into an agreement (subject to
Chilean government approval) to operate and acquire a 30% working interest in the
Tranquilo Block in southern Chile. This high potential acreage position (over 6,600 square
kilometres) is located near GEOPARK’s Fell Block and may be managed from GEOPARK’s
existing facilities. Other joint venture partners in the project include: Pluspetrol Resources
(30%) from Buenos Aires, Argentina, IPR (20%) from Dallas, Texas and Manas
Petroleum (20%) from Zurich, Switzerland.
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WE ARE PLEASED TO REPORT THAT GEOPARK IS FINANCIALLY
STRONGER, MORE CAPABLE, BETTER POSITIONED AND MORE
HIGHLY VALUED THAN WHEN WE WROTE TO YOU LAST YEAR.
• Investment Capital Secured – GEOPARK entered into an agreement with Methanex
during Q4 2007 which provides for a US$40 million financing of GEOPARK’s
development and investment activities on the Fell Block. The financing is structured
as a gas pre-sale agreement with a six year pay-back period at an interest rate of
LIBOR (“London InterBank Offered Rate”). As of 31 December 2007, approximately
US$13 million of this fund had been drawn down by GEOPARK. During January
2007, the Company received the final US$3 million tranche of the US$20 million
loan from the International Finance Corporation (IFC), the World Bank subsidiary.
IFC is also a GEOPARK shareholder.
• Expanded Infrastructure – New pipelines and plants were constructed on the Fell
Block in Chile providing a platform to enable a quick cycle time for any new
production to be connected to the regional gas infrastructure and market. Construction
of the Kimiri Aike Dew Point and Compression Plant in Chile was completed and
brought on line in November 2007. Initial plant capacity was 24 million cubic feet per
day (mmcfpd) – which was expanded to 35 mmcfpd with the installation of an
additional compressor in Q1 2008. GEOPARK also constructed approximately 30
kilometres of new gas pipelines in Chile during 2007 to tie-in new fields.
• Increased Potential – A US$7 million 3D seismic program in Chile (covering 472
square kilometres) was concluded during Q1 2007. In Q4 2007, an additional 203
square kilometres of 3D seismic was performed in Chile at a cost of US$ 2.5 million.
Following processing and interpretation, additional new prospects and opportunities
were delineated which had not been previously available from the 2D seismic
information. In addition, new structures were identified containing bright spot
anomalies which suggest the presence of gas in these structures and which will assist
in the location of new drilling opportunities.
Please see the Year in Review for further detailed results.
L E T T E R T O S H A R E H O L D E R S
2008 OUTLOOK
Supported by 2007 results, GEOPARK is pursuing a US$57 million capital investment
program in 2008 in Chile and Argentina with the following objectives:
1. Increase oil and gas production and reserves
• Drill 17-20 new wells to explore for new fields and to appraise and develop
existing fields
• Optimize reservoir performance by hydraulic fracturing and stimulation
• Prioritize projects with short cycle time to production
• Perform geological and geophysical studies to increase inventory of drilling
opportunities
2. Improve performance and project economics
•
Increase efficiency and reduce operating and administrative expenses
• Reduce capital expenditure costs by technological and design improvements
• Construct additional production facilities
3. Manage risk
• Balance risk exposure in work program between production, development and
exploration projects
• Farm-out higher risk / non-core areas
4. Growth
•
Increase acreage and acquire new projects to regenerate and expand portfolio
FOUNDATION
GEOPARK has continued to invest in and recruit a team of people which we believe will
prove to be the differentiating factor in our future success. We have been fortunate in
being able to assemble a collection of successful oil and gas professionals and dedicated
employees whose capacities exceed the norm for companies of our size.
In less than six years, we have grown from a start-up into a company operating multiple
projects in two countries and over large distances, sometimes in harsh environments
with limited resources, while carrying out a large and technically challenging investment
program. In Chile, GEOPARK pioneered the first private-sector oil and gas production. The
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L E T T E R T O S H A R E H O L D E R S
capacities, spirit and persistence required of our management and employees during
our early growth remain an important asset of our Company and can give us confi-
dence that we are prepared and able to meet the continuous challenges endemic to our
industry and our efforts to deliver value.
We appreciate the active support and counsel from our Board of Directors which has
resulted in improved corporate governance and shareholder accountability. The Board’s
involvement and its variety and depth of experience have increased our day-to-day
discipline and our opportunities for the future.
GEOPARK engages safety, health, environmental and social responsibilities with a
market-based integrated approach which we believe enhances our goal of building a
successful and profitable company. We see our commitments to shareholders,
employees, the environment and our local communities as fundamental and
interdependent elements of our overall business plan. This is not just a “box-ticking”
exercise for us, but one where we expect to reap real dividends for all our constituents.
If we are the true performer, the best place to work, the preferred partner and the
cleanest operator, our future will be bigger, better and more secure.
Again, thank you, our Shareholders, for your continued support during 2007. Your
management and employees look forward to the exciting opportunities of 2008 and to
further demonstrating our performance, improvements and achievements throughout
the year.
Sincerely,
Gerald E. O’Shaughnessy , Chairman
James F. Park, Chief Executive Officer
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Y E A R I N R E V I E W
P E R F O R M A N C E
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GEOPARK IS A LATIN AMERICAN OIL AND GAS PRODUCER
AND EXPLORER WITH PROPERTIES IN ARGENTINA AND
Santiago
CHILE. GEOPARK’S FOUR BASIC COMPONENTS OF LONG
C H I L E
TERM VALUE CREATION ARE ITS ASSETS, CAPABILITIES,
OPPORTUNITIES AND PERFORMANCE.
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D O Ñ A J U A N A
Buenos Aires
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D E L M O S Q U I T O
T R A N Q U I L O
F E L L
IFC equity investment
(US$ 10 MM)
London AIM public listing
US$40 MM raised
Independent reserve report
(3P= 55.9 MMBOE)
Start-up of production in Chile
Aquire 100% of Fell Block
3D seismic program
in Argentina
Aquisition of workover rig
Long term drilling rig
contract signed
Start-up of Santiago Norte
field in Chile
IFC Loan (US$ 20 MM)
3D seismic program
in Chile
Workover program
adds new fields
to production
New gas contract
and Methanex Alliance
Start-up Kimiri Aike gas
treatment & compression plant
Discovery of San Miguel field
Methanex gas pre-sale
agreement (US$ 40 MM)
3D Seismic program
in Chile
Discovery of Cerro Sutlej field
Aquisition of new Tranquilo Block
New equity funding
from Chile, IFC, London
(US$ 24 MM)
New independent reserve
report (3P= 127.4 MMBOE)
Beginning of
Chile long term
drilling program
Argentina drilling
program
First Half of 2006
Second Half of 2006
First Half of 2007
Second Half of 2007
First Half of 2008
)
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Y E A R I N R E V I E W
A S S E T S
GEOPARK’S PORTFOLIO OF OIL AND GAS ASSETS
CONSISTS OF FIVE HYDROCARBON BLOCKS (THREE
BLOCKS IN ARGENTINA AND TWO BLOCKS IN CHILE)
TOTALLING APPROXIMATELY 1.2 MILLION NET ACRES –
AND THE ASSOCIATED INFRASTRUCTURE, PRODUCTION
FACILITIES, OPERATING LICENSES AND A VALUABLE
TECHNICAL DATABASE.
The properties represent high potential blocks (with multiple play types and objectives that
are offset by major oil and gas fields) with a risk-balanced basket of opportunities including
well reactivation, stranded field development and new exploration projects. (Aquisition of the
Tranquilo Block is subject to Chilean government approval.)
RESERVES
Four of GEOPARK’s blocks have been appraised with proved and probable reserves and three
blocks have established oil and gas production. DeGolyer & MacNaughton, independent
petroleum engineers, have estimated in its preliminary report of May 2008 a total of 16.8
million barrels oil equivalent (boe) of proved reserves, a total of 18.8 million boe of probable
reserves, and a total of 91.9 million boe of possible reserves on the four blocks. DeGolyer &
MacNaughton also appraised 45.6 million boe of contingent resources (best estimate).
Country
Reserve Classification
Oil and
Condensate
(MMBBL)
Gas (BCF)
BOE (MMBOE)
Chile
Proven
Probable
Possible
Argentina
Proven
Probable
Possible
Total (1)
Proven
Proven plus Probable
2.0
3.3
7.1
0.9
1.8
3.9
2.9
8.0
Proven plus Probable plus Possible
19.0
82.0
81.9
485.5
1.0
–
–
83.1
164.9
650.4
15.7
17.0
88.0
1.1
1.8
3.9
16.8
35.5
127.4
Contingent Resources (Best Estimate) (1)
Prospective Resources (Best Estimate) (2)
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(1) DeGolyer & MacNaughton Preliminary May 2008 (2) GEOPARK - Internal Estimate December 2007
Hydrocarbon
Oil (MMBBL)
Gas (BCF)
Total
(MMBOE)
Oil (MMBBL)
Gas (BCF)
Chile
Argentina
Total
1.4
2.3
3.7
248.4
2.8
251.2
42.8
2.8
45.6
17.5
29.9
47.4
320.4
–
320.4
100.8
Total
(MMBOE)
70.9
29.9
Y E A R I N R E V I E W
F E L L B L O C K A S S E T S
ACREAGE
FELL BLOCK
Located in the Magallanes region (Austral Basin) in southern Chile, the Fell Block is a
large exploration, development and production block (440,000 acres) in a proven oil
and gas producing basin and on trend with recent discoveries to the north in Argentina
and to the south in Tierra del Fuego. The Magallanes region currently produces all of
Chile’s oil and gas production. Although it has been producing for over 50 years, the
basin remains sparsely developed with new exploration frontiers being opened.
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Substantial technical data (seismic, drilling and production information) provides an
Santiago
excellent base for technical re-evaluation. Log interpretations by engineers experienced
in the region indicate by-passed oil and gas production zones in certain existing wells.
C H I L E
Shut-in and abandoned fields also have the potential to be put back on production
by constructing new pipelines and plants. Geophysical interpretations by GEOPARK,
following new 3D seismic surveys, suggest additional development potential in known
fields and exploration potential in new undrilled prospects and plays such as the
Tobifera, Tertiary and Estratos con Favrella formations.
Buenos Aires
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Ten oil and gas fields are currently being produced by GEOPARK on the Fell Block and
DeGolyer & MacNaughton has appraised proven, probable and possible reserves and
F E L L
contingent resources. There is an existing market for oil and gas production and good
infrastructure throughout the block including oil and gas pipelines, facilities, terminals,
and access roads. GEOPARK is the operator of the Fell Block and has a 100 per cent
ownership interest.
GEOPARK became the first private-sector oil and gas producer in Chile when it put
five oil and gas fields into production in 2006, following the rehabilitation of selected
wells and the construction of new gas pipelines and processing facilities. These fields
included: Ovejero, Nika, Molino, Santiago Norte and Pampa Larga.
A R G E N T I N A
GEOPARK IS THE FIRST PRIVATE SECTOR OIL AND GAS PRODUCER IN CHILE.
C H I L E
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IN 2007, AFTER DRILLING NEW WELLS, REHABILITATING EXISTING WELLS
AND BUILDING NEW PIPELINES AND PROCESS FACILITIES, GEOPARK
PRODUCED OIL AND GAS FROM 10 FIELDS IN CHILE.
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F E L L B L O C K A S S E T S
In 2007, after further infrastructure construction, workovers and the drilling of new
wells, GEOPARK brought five additional oil and gas fields on-stream (Kimiri Aike, Kimiri
Aike Norte, Dicky, Dicky Oeste and San Miguel).
During Q1 2007, a 563 square kilometre (US$7 million) 3D seismic program was
completed on the block. This survey, which has been processed and interpreted
by GEOPARK, provides the basis for the current Fell Block drilling program. Results
from the 3D survey have expanded the number of potential drilling targets previously
identified by the 2D seismic coverage. During Q4 2007, another 3D seismic survey was
initiated covering an area of 203 square kilometres (US$ 2.5 million).
In June 2007, GEOPARK began its drilling program in Chile which, to date, has resulted
in five new producing wells, including two new field discoveries. Two other new wells
tested hydrocarbons but require further testing or remedial operations before being put
on stream. One well is scheduled for sidetracking operations and two wells have been
drilled and cased and await testing operations.
GEOPARK plans to drill a total of 15-18 wells on the Fell Block in 2008. Development
wells to be drilled include locations in the Pampa Larga, Nika Oeste, Ovejero, San
Miguel, Monte Aymond and Santiago Norte fields. Wells to test new prospects include
Cerro Sutlej, Zunilda, Bump Hill, and Aonikenk. GEOPARK currently has two rigs (one
drilling and one workover) operating in Chile with another drilling rig being transported
to Chile to begin operations in Q3 2008.
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Y E A R I N R E V I E W
DEL MOSQUITO BLOCK
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The Del Mosquito Block is located in the Austral basin in southern Argentina. The
Austral Basin produces nearly ten per cent of Argentina’s total oil production and nearly
twenty per cent of its total gas production. Although the Fell and Del Mosquito Blocks
are located in different countries, they are situated in the same geological basin and, at
their closest point, are less than 20 kilometres apart.
The Del Mosquito block (190,000 acres) is surrounded by producing oil and gas fields
to the north, south, east and west. There is oil production currently from two fields and
DeGolyer & MacNaughton have appraised proven, probable and possible reserves and
prospective resources on the Del Mosquito Block. Eighty per cent of the block is at an
early stage of exploration with currently only one 600 square kilometre area covered by
eight wells. Three 3D seismic surveys, totalling an area of 562 square kilometres, cover
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almost 65 per cent of the block. The geological setting of the southern portion of the
block is equivalent to the big adjacent oil and gas fields including the Condor field with
over 300 million barrels of oil equivalent. The potential of the Lower Magallanes and
Tobifera geological formations has been underexplored. There is good infrastructure,
P
nearby gas plants and pipelines and an easily accessible crude oil market (40 kilometres
by truck). GEOPARK is the operator of the Del Mosquito Block and has a 100 per cent
working interest.
GEOPARK established oil production on the bock in 2002 by rehabilitating the
abandoned Del Mosquito field. In 2004, GEOPARK discovered a new field – Del
Mosquito Norte – which currently has two producing wells. The discovery well on Del
Mosquito Norte was the first well drilled on the block since the 1980’s. During 2006, a
production facility and tank battery were constructed at the Del Mosquito Norte field.
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Buenos Aires
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D E L M O S Q U I T O
Based on a 400 square kilometre (US$3.5 million) 3D seismic survey carried out and
processed in 2006, GEOPARK’s geoscience team performed geological and geophysical
A T L A N T I C O C E A N
interpretations during 2007 which identified and delineated over 15 potential
hydrocarbon-bearing prospects.
A R G E N T I N A
THE CAPACITIES, SPIRIT AND PERSISTENCE REQUIRED OF OUR TEAM
DURING OUR EARLY GROWTH REPRESENT A KEY ASSET OF GEOPARK AND
GIVE US CONFIDENCE THAT WE ARE PREPARED AND ABLE TO MEET THE
During 2007, two unsuccessful exploration wells were drilled in the southern portion of
D E L M O S Q U I T O
CHALLENGES AHEAD.
the block on prospects delineated by 3D seismic but which proved to have inadequate
reservoir conditions. GEOPARK has budgeted two wells to be drilled during 2008
on Del Mosquito and is evaluating the option of bringing a partner into the project to
increase investment activity.
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C E R R O D O Ñ A J U A N A & L O M A C O R T A D E R A L B L O C K S A S S E T S
CERRO DOÑA JUANA & LOMA CORTADERAL BLOCKS
The Cerro Doña Juana and Loma Cortaderal Blocks (75,664 combined acres) are
located in the Neuquén Basin. The Neuquén Basin, located in west-central Argentina,
is the most prolific hydrocarbon producing basin in Argentina, accounting for over forty
per cent of its total oil production and over sixty per cent of its total gas production. The
blocks are located in the Andean fold and thrust belt, along a proven producing
fairway, where large hydrocarbon accumulations exist. There are excellent source
rocks, multiple reservoir objectives and large structural traps. The oil potential on
the blocks can be characterized as high risk with potentially high associated costs.
DeGolyer & MacNaughton have appraised proven, probable and possible reserves on
the blocks. GEOPARK is the operator of the Cerro Doña Juana and Loma Cortaderal
Blocks and has a 100 per cent working interest in each block.
Crude oil production was established on Loma Cortaderal Block following a light repair
workover on well Loma Cortaderal 2 and installation of a mechanical beam-pumping
unit. Further geological studies were performed on the blocks during 2007 with the
expectation of developing a future exploration and development program and
providing a basis to potentially farm-out the blocks.
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INDEPENDENTLY-APPRAISED OIL AND GAS RESERVES SHOWED
SUBSTANTIAL INCREASES SINCE THE IPO, THEREBY GIVING FURTHER
CONFIDENCE AND SUPPORT TO THE AGGRESSIVE WORK AND
INVESTMENT PROGRAM SCHEDULED FOR 2008.
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Y E A R I N R E V I E W
P E O P L E C A P A B I L I T I E S
THE UNDERLYING PRINCIPLE OF GEOPARK’S LONG TERM
STRATEGY IS TO ATTRACT AND INVEST IN THE BEST PEOPLE
AND SUPPORT THOSE PEOPLE WITH THE NECESSARY TOOLS
AND RESOURCES TO ACHIEVE SUCCESS.
With current tight markets for people and equipment in the global oil and gas business, GEOPARK
deems it critical to develop creative and long term solutions to build its capabilities and acquire the
capital, tools, and people necessary to achieve its growth plans. GEOPARK believes that its success
in building these capabilities represents an important differentiating factor which will provide it with a
competitive advantage over the longer term.
PEOPLE
GEOPARK’s management, professional and field operation teams provide an unusual mix of
experience and depth for a company of its size – bringing with them the diverse range of tools and
technical know-how necessary to create success in an international oil and gas venture. GEOPARK’s
team has a history of proven technical and commercial performance in frontier and complex projects
in Latin America and around the world as well as in the specific geological basins where the
Company operates.
During 2007, GEOPARK continued to add key managers and employees in all departments –
Geoscience, Operations and Support – to ensure its ability both to effectively develop existing assets
and to operate new assets. During Q1 2008, Dr. Carlos Gulisano joined the Company in a new position
of Managing Director (reporting to the CEO) to coordinate and supervise the Geoscience, Production,
Drilling, Service and Finance departments.
GEOPARK is managed from its head office in Buenos Aires, Argentina – with legal offices located in
Santiago, Chile and Hamilton, Bermuda and a representative office in London, England. In order to
ensure a more efficient and hands-on operation, field offices and administrative centres have been
established close to and on the Company’s blocks, including field offices in Punta Arenas and on the
Fell Block in Chile and in Rio Gallegos and on the Del Mosquito Block in Argentina.
The team’s history (including, for many, a time previously working together at Petrolera San Jorge
which discovered over 600 million barrels of oil in Argentina in the 1990s) enables GEOPARK to
operate as a more seasoned company with a recognized stature throughout the region. It also
represents an asset which can be leveraged by the Company in its efforts to expand.
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Y E A R I N R E V I E W
E Q U I P M E N T & I N F R A S T R U C T U R E C A P A B I L I T I E S
EQUIPMENT & INFRASTRUCTURE
In order to carry out its 2008 work program, GEOPARK requires two drilling rigs and a
completion/workover rig. To market its gas production forecasted for 2008, the Company
also requires a gas processing and compression facility to permit direct access to the
main regional gas pipeline. To satisfy these requirements, GEOPARK carried out the
following in 2007:
• Operated a workover rig which it had assembled and rebuilt with a local
Argentine partner (including both the purchase and lease of equipment) during
2006. This rig will form part of GEOPARK’s new service company:
Southern Cross.
•
Initiated a three year contract (with an option for an additional two years) for a
drilling rig with a depth capacity of 10,500 feet. This rig was imported from
China as a result of the tight local rig market and is being operated by a US/
Argentine drilling contractor.
•
Initiated the acquisition of a second drilling rig to be operated by its Southern
Cross service company. A portion of the rig was used during 2007 for the Del
Mosquito Block drilling program in Argentina and the remainder shall be
assembled and delivered to the Fell Block in Chile during Q3 2008. The rig is
expected to have a depth capacity of 10,000 feet.
• Completed the construction and installation of a gas production plant (dew
point and compression facility) on the Fell Block. This facility (the “Kimiri Aike
Plant”), which originated in Bolivia and is being leased from the Hanover
Compression Company under a long term contract, was put into operation during
Q4 2007 after an investment (including the construction of associated tank
batteries) of US$6.5 million. The plant provides direct access to the main
regional gas pipeline and allows rapid commercialization of new gas production
from the drilling program. During 2008, the plant’s capacity of 24 million cubic
feet per day of gas was increased to 35 million cubic feet per day with the
addition of another compressor.
• Constructed an additional 30 kilometres of gas pipelines on the Fell Block to
connect new oil and gas fields to production. Approximately 50 kilometres of
gas pipelines have been built on the Block since 2006.
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Y E A R I N R E V I E W
C A P I T A L C A P A B I L I T I E S
CAPITAL
To successfully participate in the capital-intensive oil and gas business, GEOPARK is continuously
developing potential funding sources to ensure the efficient development of its assets. To date, over
US$135 million has been raised by GEOPARK – demonstrating its ability to attract the capital and
strong shareholders needed to facilitate its future growth. Furthermore, the cost of financing, which
is currently LIBOR + 1%, is attractive for a company of GEOPARK’s size.
GEOPARK has made continuous progress in strengthening its balance sheet through equity issuance,
debt repayment and new loans. Key financings included:
•
International Finance Corporation of the World Bank (“IFC”) equity investment in February
2006 for US$10 million following a thorough technical, financial and environmental review
of the Group.
• Admission to the London Stock Exchange Alternative Investment Market (AIM) in May
2006 which resulted in:
• US$35 million for new capital investment
• Access to the capital markets
• A base of strong institutional shareholders
• Improvement in GEOPARK’s ability to attract, recruit and retain key employees
• Potential acquisition currency
•
IFC loan in December 2006 for US$20 million to accelerate the development program and
which reconfirmed the IFC’s long term support for GEOPARK.
• Methanex Pre-Sale Loan Facility for US$40 million in 2007. This agreement provides for
GEOPARK to borrow up to US$40 million from Methanex with conditions which include:
• Pay back in gas production over six years
• An interest rate paid on borrowed funds of LIBOR flat
• New equity funding of approximately US$24 million in 2008 from a strategic block of Chilean
investors and pension funds, the IFC and certain London institutional investors. The placing,
which was limited to 10% of the current issued share capital of the Company, was
significantly oversubscribed. (This placing occurred following the date of the independent
auditor’s report and was not reviewed by them for this report.)
At the end of 2007, GEOPARK had US$35 million of cash and available facilities.
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Y E A R I N R E V I E W
O P P O R T U N I T I E S
Specific advantages of GEOPARK’s position in Argentina and Chile include:
• Resource Base – vast under-explored areas and opportunity for expansion
• Regulatory Environment – attractive regulatory and fiscal framework
• Infrastructure – existing oil and gas services, transportation and markets
• Human Resources – availability of qualified and experienced personnel
• Security – negligible security concerns
• Economics – easy access and low cost operating environment
• Hedge – multi-country position provides political balance
• Market – substantial immediate and long term energy requirements
• Trends – regional industry reorientation favours smaller companies
In Chile, GEOPARK is currently the only private-sector oil and gas operator – although it is
expected during 2008 to include three new operators. In Argentina, GEOPARK is also one of
only approximately 50 approved oil and gas operators.
GEOPARK IS FOCUSED ON THE SOUTHERN CONE OF
LATIN AMERICA – WHICH IS A RICH UNDEREXPLORED
HYDROCARBON REGION WITH AN ECONOMIC FUTURE
DEPENDENT ON THE DEVELOPMENT OF SECURE
ENERGY SUPPLIES.
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Y E A R I N R E V I E W
P L A N O P P O R T U N I T I E S
PLAN
GEOPARK’s value creation model is based on its technical strength in economically
finding, developing and producing new and bypassed oil and gas reserves. GEOPARK’s
management believes shareholder value is increased most by the discovery and
addition of new oil and gas reserves and that these reserves are most economically
discovered and developed in areas in or nearby existing oil and gas fields.
GEOPARK’s business plan includes a portfolio of multiple in-house projects and a
strategic base from which to pursue a targeted acquisition plan, which is expected to
include both asset and corporate targets. Its full-cycle exploration and production work
program allows the Company to move forward along different lines simultaneously and
independently. This available mix of rehabilitation, development and exploration
opportunities allows GEOPARK to balance its risk exposure and ensure continuous growth.
In 2008, GEOPARK will pursue an aggressive US$57 million investment program to
drill 17-20 new wells and to expand its production facilities and infrastructure in Chile
and Argentina. The program is targeted to develop existing fields and discover new
fields in order to both increase oil and gas production and increase oil and gas reserves.
Efforts also will be focused on improving reservoir performance, expanding the prospect
inventory, acquiring new drilling and workover equipment and growing through the
acquisition of new projects and blocks.
GEOPARK’S FULL CYCLE WORK PROGRAM, CONTAINING
REHABILITATION, DEVELOPMENT, EXPLORATION AND ACQUISITION
PROJECTS, ALLOWS THE COMPANY TO ADVANCE SIMULTANEOUSLY
ON MULTIPLE OPPORTUNITIES – THEREBY BALANCING OUR RISK
EXPOSURE AND ENSURING CONTINUOUS GROWTH.
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Y E A R I N R E V I E W
M A R K E T & G R O W T H O P P O R T U N I T I E S
MARKET
As a result of increased gas demand in Argentina and newly imposed export
restrictions and duties on Argentine gas production, the regional gas markets are
undergoing major changes. In particular, the supply of gas from Argentina to Chile has
been severely impacted. As the only private-sector gas producer currently in Chile, this
market shift has substantially increased the value of GEOPARK’s Chilean gas reserves.
Located approximately 100 kilometres from GEOPARK’s Fell Block, Methanex operates
a US$1.2 billion plant in Chile which has the capacity to consume 350 million cubic
feet per day of gas and produce over 10 per cent of the world’s methanol supply. Over
sixty percent of the Methanex gas supply, which historically has originated in Argentina,
has been cut off by the recent Argentina export duties and restrictions; thereby creating
an important market opportunity for GEOPARK. GEOPARK seized this opportunity and
entered into a strategic alliance with Methanex providing for a ten year gas purchase
and supply contract at an improved gas price and with the opportunity to pre-sell gas to
generate future work program funding and to jointly acquire new hydrocarbon blocks in
Chile. As a result of these agreements, GEOPARK was able to realize gas prices of over
US$5.00 per mcf at the end of 2007 and to begin to draw down on a US$40 million
loan facility.
Crude oil markets in the region are both accessible and secure. In Chile, GEOPARK’s
oil production is sold to ENAP (the Chilean State Oil Company) at WTI less quality
adjustments (based on degrees API and mercury content). In Argentina, GEOPARK’s
oil production is sold to Petrobras (the Brazilian State Oil Company) at WTI less quality
and Argentina retention tax adjustments.
A R G EN T I N A
T R A N Q U I LO B LO C K
GROWTH
GEOPARK intends to leverage its strategic operating and management base and its
technical and commercial capabilities to acquire new assets where suitable opportunities
A T L A N T I C O C E A N
arise. The Company is targeting assets which bring a mix of production and development
opportunities with attractive exploration acreage, utilizing where applicable, various forms
of participation including block acquisitions, farm-ins, corporate transactions, work and
investment commitments and/or operator-earned interests. To date, GEOPARK has
reviewed over 100 potential opportunities throughout the region.
D EL M O S Q U I TO
B LO C K
A merger wave in the late 1990’s consolidated the Argentine industry into a relatively
small group of large companies controlling the bulk of the country’s oil and gas
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production. However, this trend is now being reversed as larger companies (including
state-owned companies) are proposing to divest of non-core assets. Further influences
are coming from:
• Governments pressing companies to invest in or sell idle properties.
• Manpower shortages which reduce focus and investment.
• Size of fields and projects favour smaller and technically-proficient low
cost independents.
Repsol YPF, Petrobras, ENAP, the State of Chile and the Argentina provincial authorities
have announced property sales and tenders.
With its team and platform in Argentina and Chile, GEOPARK is well positioned to
assess and participate in these opportunities. This position is further enhanced by
GEOPARK’s strategic relationships with the IFC (World Bank), ENAP (State Company of
Chile), and Methanex (largest regional gas consumer).
The recent acquisition by GEOPARK of the new Tranquilo Block (subject to Chilean
regulatory approval) resulted from this strategy and the need of the original block
owners to bring in an experienced Chilean operator and partner.
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35
Methanex Plant
CREATING VALUE & GIVING BACK
Long term success for international resource companies depends upon solving
complex logistical and operational challenges, overcoming fierce competition for new
opportunities and good people, and meeting a broadening set of demands and standards
from local governments and core constituencies. Meeting these challenges and
performing to these new standards are what differentiate a successful company from
the rest of the pack.
“Creating Value and Giving Back” represents GEOPARK´s integrated and market-based
approach for meeting these challenges and achieving our business plan through the
alignment of our values, responsibilities and business goals.
GEOPARK’s overall business plan is to create long term value by finding and producing
energy, based on good science and efficient operations, and to return that value to our
core constituencies, which we define as our: Shareholders, Employees, Communities
and Environment.
• GEOPARK is committed to delivering significant bottom-line financial value to
our shareholders because only a financially-healthy company can continue to
grow, attract needed resources and create real long term benefits.
• GEOPARK is committed to creating a safe and motivating workplace for
employees. With today’s shortage of capable energy professionals, the company
which is able to attract, retain and train the best team with the best attitude
will always prevail.
C R E A T I N G V A L U E & G I V I N G B A C K
IF WE ARE THE TRUE PERFORMER, THE BEST PLACE TO WORK,
THE PREFERRED PARTNER AND THE CLEANEST OPERATOR, OUR
FUTURE IS BIGGER, BETTER AND MORE SECURE.
• GEOPARK is committed to being the preferred neighbor and partner by creating
a mutually beneficial exchange with the local communities where we work.
Unlocking valuable local knowledge contributes an important asset to our
projects – and if our efforts enhance local goals and customs, we will be
invited to do more.
• GEOPARK is committed to minimizing the impact of our projects on the
environment. As our footprint becomes cleaner and smaller – the more areas
and opportunities will be opened up for us to work in. Our long term well-being
requires us to properly fit within our natural surroundings.
GEOPARK’s specific methodology is focused on undertaking realistic and practical
programs based on best world practices. Our emphasis is on building key principles
and company-wide ownership and then expanding programs from within as we
continue to grow. Our comprehensive in-house designed EHSS management program,
entitled S.P.E.E.D. (for Safety, Prosperity, Employees, Environment and Community
Development), is being developed in accordance with: ISO 14001 for environmental
management issues; OSHAS 18001 for occupational health and safety management
issues; SA 8000 for social accountability and worker rights issues; the Development
Standards of the World Bank; and the Quoted Companies Alliance standards for good
corporate governance.
“Creating Value and Giving Back” represents GEOPARK’s underlying value system
which provides us the leadership, internal confidence, opportunities and foundation
required for long term success. It is our competitive advantage. And, it reflects our
pride in achieving an important mission in the right way.
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CRE ATING VALUE & GIVING BACK
CRE ATING VALUE & GIVING BACK
37
D I R E C T O R S ’ R E P O R T
C O R P O R A T E G O V E R N A N C E
The Directors submit their report together with the audited consolidated
financial statements of GeoPark Holdings Limited for the year ended
31 December 2007.
Addresses
The business address of the Group’s Head Office is Florida 981, 4th
Floor, 1005 Buenos Aires, Argentina.
The Registered office address is Milner House, 18 Parliament Street,
Hamilton HM 12, Bermuda. The Company has a representative office
at 35 Picadilly, W1J ODW, London, United Kingdom.
Principal Activity
The principal activity of the Group in the period under review was to
produce, develop and explore for oil and gas reserves in the Fell Block
in (Chile) and the Del Mosquito, Cerro Doña Juana and Loma
Cortaderal Blocks in Argentina.
Business Review
The Chairman’s and Chief Executive’s Letter to Shareholders and the
Year in Review on pages 4 to 35 describe in more detail the significant
developments in the Group during 2007 and its risks, uncertainties
and future prospects.
Results and Dividends
The Group’s loss after tax for the year was US$13,808,000 (2006:
US$11,349,000). The Directors do not recommend payment of any
dividend (2006: nil).
Events since the Balance Sheet Date
The Group entered into a farm-in agreement in April 2008 to acquire
a 30% working interest in the Tranquilo Block in southern Chile.
DeGolyer & MacNaughton, the independent petroleum engineering
firm, has provided preliminary figures for its report to be issued in May
2008 which demonstrate an overall increase in all reserve categories.
Directors’ Interests
The Directors who served the Company during the year and subse-
quently, together with their (and their families’) beneficial interests in
shares in the Company, were as follows:
Supplier Payment Policy
The Group makes payments to its suppliers in accordance with the
agreed terms of each transaction. Trade creditors of the Group at 31
December 2007 were equivalent to 62 days’ purchases (2006: 48),
based on the year end balance.
Charitable and Political Donations
During 2007, the Group made charitable donations of US$14,285
(2006: US$7,421). The Company encourages the development of
small businesses by contracting services and people for its needs and
work program where it operates.
No political donations are made by the Group.
Directors’ Remuneration
Executive and Non-executive Directors’ remuneration is discussed in
the Director’s Remuneration Section.
Auditors
Grant Thornton UK LLP offer themselves for reappointment as auditor.
Nomad
In April 2007, Oriel Securites replaced GEOPARK’s former Nomad,
Canaccord Adams.
Annual General Meeting
At the Annual General Meeting of the Company, resolutions will be
proposed to re-elect the Directors, according to the Company’s
Bye Laws. Other resolutions may be proposed in accordance with the
circular to be sent out.
Further details will be set forth in the formal notice of meeting.
Going Concern
After making enquiries, the Directors have formed a judgment, at the
time of approving the financial statements, that there is a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. For this
reason, the Directors continue to adopt the going concern basis in
preparing the financial statements.
Committees
Ordinary Shares of
USD 0.01 each
On behalf of the Board
Name
Appointment
Audit
Nomination Renumeration 31 December 2007
Gerry O’Shaugnessy
Executive Chairman
19 November
2007 (*)
James F. Park
Chief Executive Officer
19 November
2007 (*)
Sir Michael Jenkins
Non-Executive Director
19 November
2007 (*)
Christian Weyer
Non-Executive Director
19 November
2007 (*)
Peter Ryalls
Non-Executive Director
19 November
2007 (*)
†
† ±
†
† ±
†
6,611,425
6,936,568
19,235 (**)
217,194
19,235 (**)
†
† ±
† Committee Member
± Committee Chairman
(*) Most recent reappointment date
(**) Not issued
James F. Park
Chief Executive Officer
28 April 2008
GEOPARK is committed to maintaining high standards of corporate
governance, which it defines as managing the Group in an efficient,
effective and entrepreneurial manner for the benefit of all shareholders
over the longer term. The Directors strongly intend, as is feasible given
the Group’s size and the constitution of the Board, to comply with the
guidelines on corporate governance of the Quoted Companies
Alliance for AIM companies.
GEOPARK’s goals for good corporate governance include:
• Board Members – Chairman and Chief Executive roles are not
exercised by the same individual and the Company has at
least two independent non-executive directors. All directors
are submitted to re-election at regular intervals. The Board is
responsible to shareholders for the proper management of
the Group. The Board comprises:
Executive Directors:
Gerald E. O’Shaughnessy - Chairman
James F. Park - Chief Executive Officer and Deputy Chairman
• Efficiency – a governing body of an appropriate size to permit
efficient decision-taking with transparency for major decisions,
clear definition of responsibilities and performance targets,
and procedures in place to protect and ensure protection of
the Company’s assets.
• Effectiveness – a governing body with the required skills,
provided with the proper information and collectively involved
to make the best decisions for the Company.
• Entrepreneurial – definition of a vision for the Company with
an understanding of goals, timing and necessary resources.
• Shareholder Common Good – decisions taken which
consider the good of all shareholders and which, if they involve
management, major shareholders and other related parties,
are reported in a transparent manner.
GEOPARK’s corporate governance guidelines include:
• Board Matters – the Board meets at least quarterly and when
issues arise – and has a schedule of matters reserved for
decisions of the Board. In addition to those formal matters
required by relevant local laws to be set before a Board of
Directors, the Board will also consider strategy and policy,
acquisition and divestment proposals, approval of major
capital investments, risk management policy, significant
financing matters and statutory shareholder reporting.
• Timely Information – regular operating and financial
management information in a form appropriate to enable the
Board to take effective decisions and supervise the Company.
• Internal Control Review – review on an ongoing basis, inter
alia, financial, operational, compliance matters and risk
management, and approve the annual budget and monitor
performance. The Board has the responsibility to establish
and maintain the Group’s system of internal controls and
reviewing its effectiveness on an ongoing basis. The Group
has defined an approval system for capital expenditures and
expenses. This system includes different levels of authorisation
based on functions and position of individuals. The internal
control system can only provide reasonable and not absolute
assurance against material misstatement or loss. The Board
has considered the need of an internal audit function but
does not consider it necessary at the current time.
Non-Executive Directors:
Sir Michael Jenkins
Peter Ryalls
Christian Weyer
• Audit Committee – comprised of two independent Non-
Executive Directors (currently being Mr. Weyer and Sir Michael
Jenkins), the committee is chaired by Mr. Weyer and meets
at least twice a year. The Audit Committee will review the
Group’s interim and annual financial statements before
submission to the Board for approval. The Audit Committee
also reviews regular reports from management and the
external auditors on accounting and internal control matters.
Where appropriate, the Audit Committee will monitor the
progress of action taken in relation to such matters. The Audit
Committee approves the fees and recommends the
appointment of external auditors.
• Nomination Committee – comprised of three Directors
(currently Sir Michael Jenkins, Mr. Ryalls and Mr.
O’Shaughnessy), the majority of whom are independent Non-
Executive Directors. The Committee is chaired by Sir Michael
Jenkins and meets as required. The Nomination Committee
considers the size, structure and composition of the Board,
retirements and appointments of additional and replacement
Directors and makes appropriate recommendations to the
Board.
• Remuneration Committee – comprised of two independent
Non-Executive Directors (currently being Mr. Ryalls and Mr.
Weyer). The Committee is chaired by Mr. Ryalls and is
responsible for reviewing the performance of the Executive
Directors and for setting the scale and structure of their
remuneration, paying due regard to the interests of Shareholders
as a whole and the performance of the Group. The Committee
meets as required during the year. (As decribed in note 26,
during 2007 Mr. Peter Ryalls provided operating consultancy
to the Group. It is Board’s opinion that his role as a consultant
does not impair his effectiveness and performance as a
director, nor does it affect Mr. Ryall’s ability to exercise
independent judgment in carrying out his duties as a director.)
A statement of Director’s responsibilities in respect of the accounts is
set out on page 42.
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DIRECTORS’ REPORT
CORPORATE GOVERNANCE
39
D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T
D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T
The following information is not subject to audit.
Remuneration Committee
The Company has a Remuneration Committee. The members of the
Committee during 2007 were Peter Ryalls (Chairman) and Christian
Weyer who are Non-Executive Directors.
No Director plays a part in any discussion about his own remuneration.
Executive remuneration packages are designed to attract, motivate
and retain Directors of the calibre required to grow the business and
enhance value to Shareholders. The performance measurement of the
Executive Directors and the determination of their annual remuneration
package are undertaken by the Committee.
The Company’s policy is that a substantial proportion of the remuneration
of the Executive Directors should be performance related.
2006 IPO Awards and Stock Options
In 2006, the Company established an IPO award program and share
option program. This scheme was established to incentivise the
Directors, senior management and employees who will benefit from
the increased market capitalization of the Company. The Committee
has responsibility for supervising the scheme and the grant of options
under its terms.
IPO awards were granted to all of the Group’s employees and certain
consultants at the IPO date.
No of underlying
common shares
% of issued common
share capital
Grant date
Exercise
price (US$)
Earliest
exercise date
Expiry date
613,380
Approximately 2%
15 May 2006
0.001
15 May 2008
15 May 2013
The stock option program created by the Company to incentivise
Directors, senior management and eligible employees of the Group
has a total size of up to 613,380 share options (approximately two
percent of the Company’s outstanding common shares).
The Remuneration Committee has the ability to distribute stock options
within 90 days of the publication of the financial statements of the
Group, or whenever it deems appropriate.
No of underlying
common shares
% of issued common
share capital
Grant date
Exercise
price (US$)
Earliest
exercise date
Expiry date
605,000
Approximately 2%
15 May 2006
4.00
15 May 2008
15 May 2013
The Remuneration Committee has the authority to modify any of the
programs listed above at its sole discretion.
Performance-based Employee Long Term Incentive
Program – Key Terms
Intending to align the interests of its management, employees and
key advisors with those of the Company and its shareholders, the
Directors established a new Performance-based Employee Long Term
Incentive Program (“the Plan”). At the Annual General Meeting on 19
November 2007, the maximum number of shares issuable
pursuant to share awards granted under the 2006 IPO awards and
stock options plan and this new program was increased to a maximum
of 12% of the outstanding share capital of the Company. The Directors
are authorised to amend the terms of the Plan to give effect to such
overall limit.
The Board of Directors proposed the following employee incentive plans:
• Stock Option Plans – this plan is similar to the existent stock
option plan, subject to continuing service, with an exercise
price equal to the market value of the Company’s shares at
the time of grant.
• Stock Awards Plan – this plan rewards individuals in the form
of free shares, subject to continuing service.
• Stock Purchase Plan – this plan allows individuals to buy
Company shares from their salaries as part of a periodic
scheme, with a free match to be determined by the Board.
Participation in this plan is voluntary and will be open to all
employees, including Directors.
• Stock Appreciation Plan – this is a cash-based plan which
gives individuals the right to be paid in cash the equivalent of
the appreciation in value of the shares subject to the award,
after a defined period of time.
The Directors are evaluating the implementation of this new program,
therefore no shares have been granted as of 31 December 2007.
Executive Directors’ Contracts
It is the Group’s policy that Executive Directors should have contracts
of an indefinite term providing for a maximum of one year’s notice.
The details of the Director’s contracts are summarized below:
Gerald E. O’Shaughnessy
Gerald O’Shaughnessy has a service contract with the Company
which provides for him to act as Executive Chairman of the Company
at a salary of £75,000 per annum. The agreement is stated to continue
indefinitely, subject to it being terminable by either party by giving not
less than 12 months’ notice in writing at any time. The payment of
any bonus to Mr O’Shaughnessy is at the Company’s discretion. Mr.
O’Shaughnessy’s service agreement contains restrictive covenants
which restrict him, for a period of 12 months following the termination
of employment, from soliciting senior employees of the Company and,
for a period of 6 months following the termination of employment,
from being involved in any competing undertaking.
The following chart summarizes the detail of payments made to
Non-Executive Directors.
2007 Cash payment
Stock payment
Non-Executive
Director’s fees
Committee
Chairman fees
Director fees paid
in shares
Sir Michael Jenkins (1)
£17,500
£5,750
5,279 (**)
Peter Ryalls (2)
£17,500
£5,750
5,279 (**)
Christian Weyer (3)
£17,500
£5,750
5,279
(1) Nomination Committee Chairman (2) Remuneration Committee Chairman (3) Audit Committee Chairman (**) Not Issued
Additionally, Mr. Peter Ryalls received US$ 124,000 corresponding to
operating consultancy in 2007.
Approval
This report was approved by the Board of Directors on 28 April 2008
and signed on its behalf by:
Peter Ryalls
Chairman, Remuneration Committee
28 April 2008
James F. Park
James Park has a service contract with the Company which provides
for him to act as Chief Executive Officer of the Company at a salary of
£75,000 per annum. The agreement is stated to continue indefinitely,
subject to it being terminable by either party by giving not less than
12 months’ notice in writing at any time. The payment of any bonus to
Mr. Park is at the Company’s discretion. Mr. Park’s service agreement
contains restrictive covenants which restrict him, for a period of 12
months following the termination of employment, from soliciting senior
employees of the Company and, for a period of 6 months following
the termination of employment, from being involved in any competing
undertaking.
On Admission the Executive Directors received the following options
over Common shares of the Company, granted under the Executive
stock option plan:
Name
No of underlying
common shares
Exercise price(£)
Earliest
exercise date
Expiry date
Gerald O’Shaughnessy
James F. Park
153,345
306,690
153,345
306,690
3.20
4.00
3.20
4.00
15 May 2008
15 May 2008
15 May 2013
15 May 2013
15 May 2008
15 May 2008
15 May 2013
15 May 2013
No bonuses were awarded in 2007 to the Executive Directors.
Non-Executive Directors’ Contracts
At the AGM in November 2007, the Shareholders re-elected the
Non-Executive Directors.
The remuneration package approved for Non-Executive Directors,
which is detailed in the corresponding service contracts, contains the
following components:
• Signing remuneration of £ 35,000 payable in shares at the
placing price (i.e: £ 3.20).
• Annual salary of £35,000 payable quarterly in arrears; 50%
in cash and 50% in shares. The share price to determine
the quantity of shares is the simple average to daily closing
price of the stock in the quarter prior to the payment date.
• Committee Chairman fee: annual remuneration of £ 5,750
payable quarterly in arrears in cash.
• Notice for contract termination: 2 Months.
40
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
41
S T A T E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S
R E P O R T O F T H E I N D E P E N D E N T A U D I T O R
The Directors are responsible for preparing the Annual Report and the
financial statements. The Directors have elected to prepare financial
statements for the Company and Group in accordance with
International Financial Reporting Standards (IFRS) as adopted by the
European Union.
International Accounting Standard 1 requires that financial statements
present fairly for each financial year the Group’s financial positions,
financial performances and cash flows. This requires the faithful
representation of the effects of transactions, other events and
conditions in accordance with the definitions and recognition criteria
for assets, liabilities, income and expenses set out in the International
Accounting Standard Board’s “Framework for the preparation and
presentation of Financial Statements”. In virtually all circumstances,
a fair presentation will be achieved by compliance with all applicable
International Financial Reporting Standards.
The Directors are also required to:
• select suitable accounting policies and apply them
consistently;
• make judgments and estimates that are reasonable and
prudent;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the Company and Group’s financial
position and financial performance; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume the Company will
continue in business.
The Directors are responsible for keeping proper accounting records,
for safeguarding the assets of the Group and for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website.
In so far as the Directors are aware:
•
•
there is no relevant audit information of which the Company’s
auditor is unaware; and
the Directors have taken all steps that they ought to have
taken to make themselves aware of any relevant audit
information and to establish that the auditors are aware of
that information.
estimates and judgments made by the Directors in the preparation
of the Group financial statements, and of whether the accounting
policies are appropriate to the Group’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide
us with sufficient evidence to give reasonable assurance that the
Group financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our
opinion we also evaluated the overall adequacy of the presentation of
information in the financial statements.
Opinion
In our opinion the Group financial statements give a true and fair view,
in accordance with IFRSs as adopted by the European Union, of the
state of the Group’s affairs as at 31 December 2007 and of its loss for
the year then ended.
GRANT THORNTON UK LLP
REGISTERED AUDITOR
CHARTERED ACCOUNTANTS
GATWICK
UNITED KINGDOM
28 April 2008
We have audited the Group financial statements of GEOPARK Holdings
Limited for the year ended 31 December 2007 which comprise the
consolidated income statement, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated cash
flows statement, and notes 1 to 28. These Group financial statements
have been prepared under the accounting policies set out therein.
This report is made solely to the Company’s members, as a body, in
accordance with International Auditing Standards. Our audit work has
been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report and the
Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union are
set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the Group financial statements in
accordance with relevant legal and regulatory requirements and
International Standards on Auditing.
We report to you our opinion as to whether the Group financial
statements give a true and fair view and whether the Group financial
statements have been properly prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union.
In addition we report to you if, in our opinion, the Group has not kept
proper accounting records, if we have not received all the information
and explanations we require for our audit, or if information specified
by law regarding Directors’ remuneration and other transactions is not
disclosed.
We read other information contained in the IFRS Consolidated Financial
Statements and consider whether it is consistent with the audited
Group financial statements. The other information comprises only
the Letter to Shareholders, the Year in Review, the Directors’ Report,
Corporate Governance, the Directors’ Remuneration Report and the
Statement of Directors’ Responsibilities. We consider the implications
for our report if we become aware of any apparent misstatements
or material inconsistencies with the Group financial statements. Our
responsibilities do not extend to any other information.
Basis of Audit Opinion
We conducted our audit in accordance with International Standards
on Auditing issued by the International Auditing and Assurance
Standards Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the Group
financial statements. It also includes an assessment of the significant
42
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
REPORT OF THE INDEPENDENT AUDITOR
43
C O N S O L I D A T E D I N C O M E S T A T E M E N T
C O N S O L I D A T E D B A L A N C E S H E E T
1 JANUARY - 31 DECEMBER
Amounts in US$ ‘000
REVENUE
Production costs
GROSS PROFIT
Other operating costs (loss)/income
Exploration costs
Administrative and other operating costs
Selling expenses
OPERATING LOSS
Financial income
Financial expenses
LOSS BEFORE TAX
Tax on loss
LOSS FOR THE YEAR
Note
3
6
7
8
9
10
Loss per share (in US$) basic and diluted
12
The loss of the year is entirely attributable to the shareholders.
The notes on pages 48 to 64 are an integral part of these
consolidated financial statements.
2007
11,028
(7,827)
3,201
(14)
(6,616)
(9,648)
(503)
(13,580)
2,036
(2,262)
(13,806)
(2)
(13,808)
(0.45)
2006
6,008
(4,025)
1,983
68
(1,751)
(8,524)
(621)
(8,845)
1,687
(4,175)
(11,333)
(16)
(11,349)
(0.44)
31 DECEMBER
Amounts in US$ ‘000
Note
13
14
16
11
17
18
18
16
21
22
21
23
Intangible assets
Property, plant and equipment
Prepaid taxes
Legal deposit to mining authority
Deferred tax asset
NON CURRENT ASSETS
Inventory
Trade receivables
Prepayment and other receivables
Investments
Prepaid taxes
Cash and cash equivalents
CURRENT ASSETS
ASSETS
Share capital
Share premium
Other reserve
Reserve for exchange rate adjustment
Retained earnings
EQUITY
Borrowings
Provision for decommissioning
LONG-TERM LIABILITIES
Borrowings
Trade accounts payable
Other liabilities
CURRENT LIABILITIES
LIABILITIES
EQUITY AND LIABILITIES
2007
23,833
31,707
3,068
-
15
58,623
2,082
2,305
574
2,079
3,889
8,710
19,639
78,262
31
52,714
3,260
938
(24,337)
32,606
29,958
1,264
31,222
4,783
8,449
1,202
14,434
45,656
78,262
2006
13,475
8,236
3,470
11
15
25,207
868
1,452
543
-
-
34,194
37,057
62,264
31
52,595
3,025
57
(14,601)
41,107
16,505
93
16,598
24
3,664
871
4,559
21,157
62,264
The notes on pages 48 to 64 are an integral part of these consolidated financial statements.
The financial statements were approved by the Board of Directors on 28 April 2008.
44
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED BAL ANCE SHEE T
45
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
C O N S O L I D A T E D C A S H F L O W S T A T E M E N T
1 JANUARY - 31 DECEMBER
1 JANUARY - 31 DECEMBER
Amounts in US$ ‘000
Share
capital
Share
premium
Other reserve
Equity at 1 January 2006
20
Foreign currency translation
Loss for the year
Total loss for the year
Equity component of convertible debt
Proceeds from IFC investment
Preferred stock conversion
Conversion of notes payable
Proceeds from AIM
IPO costs
Share based payment
Equity movements in the year
Equity at 31 December 2006
Foreign currency translation
Loss for the year
Total loss for the year
Share based payment (note 20)
Equity movements in the year
-
-
-
-
3
-
1
7
-
-
11
31
-
-
-
-
-
-
-
-
-
-
9,997
300
5,227
40,031
(2,960)
-
52,595
52,595
-
-
-
119
119
3,134
-
-
-
(109)
-
-
-
-
-
-
(109)
3,025
-
-
-
235
235
Reserve for
exchange
adjustment
178
(121)
-
Retained
earnings
Total
(5,617)
(2,285)
-
(121)
(11,349)
(11,349)
(121)
(11,349)
(11,470)
-
-
-
-
-
-
-
-
57
881
-
881
-
-
-
-
-
-
-
-
2,365
2,365
(14,601)
-
(109)
10,000
300
5,228
40,038
(2,960)
2,365
54,862
41,107
881
(13,808)
(13,808)
(13,808)
(12,927)
4,072
4,072
4,426
4,426
Equity at 31 December 2007
31
52,714
3,260
938
(24,337)
32,606
The notes on pages 48 to 64 are an integral part of these
consolidated financial statements.
Amounts in US$ ‘000
Loss for the year
Adjustments for:
Tax on loss
Depreciation of the year
Write off of unsuccessful efforts
Unrealised exchange gains/(losses)
Accrual of financial expenses
Accrual of stock options and stock awards
Change in prepaid taxes
Changes in working capital:
Change in inventory
Change in trade receivables
Change in prepayments and other receivables
Change in legal deposit
Change in current liabilities (ex bank, tax and dividend)
2007
2006
(13,808)
(11,349)
2
2,084
4,522
380
1,775
4,427
16
682
249
(146)
3,953
2,556
(3,487)
(2,994)
(1,214)
(853)
(31)
11
5,114
(650)
(841)
(519)
124
1,540
Net cash used in operating activities
(1,078)
(7,379)
Cash flows from investing activities
Purchase of intangible assets
(29,472)
(12,830)
Purchase of property, plant and equipment
(9,283)
(5,134)
Sale of property, plant and equipment
Sale/(Purchase) of short term financial assets
24
(2,000)
19
192
Net cash used in investing activities
(40,731)
(17,753)
Proceeds from the issue of common shares
Redemption from the issue of convertible debt
Redemption of preferred shares
Proceeds from borrowings
Interest paid
Net cash generated from financing activities
-
-
-
17,311
(962)
16,349
Net increase in cash, cash equivalents and bank overdrafts
(25,460)
Cash and cash equivalents at 1 January
Cash and cash equivalents at the end of the year
34,170
8,710
Ending Cash and cash equivalents are specified as follows:
47,068
(109)
(6,565)
16,505
-
56,899
31,767
2,403
34,170
Cash at bank
Cash in hand
Bank debt, bank overdraft
Cash and cash equivalents
8,707
34,191
3
-
3
(24)
8,710
34,170
46
CONSOLIDATED STATEMENT OF CHANGES IN EQUIT Y
The notes on pages 48 to 64 are an integral part of these
consolidated financial statements.
CONSOLIDATED CASH FLOW STATEMENT
47
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Note 1
General Information
Geopark Holdings Limited (the Company) is a limited company
incorporated under the law of Bermuda. The addresses of its registered
office and principal places of business are disclosed in the introduction
to the Directors’ Report. The principal activities of the Company and
its subsidiaries (the Group) are described in the Directors’ Report.
The Company has its listing on the AIM London Stock Exchange.
These consolidated financial statements were authorised for issue by
the Board of Directors on 28 April 2008.
Note 2
Summary of significant accounting policies
Basis of preparation
The consolidated financial statements of Geopark Holdings Limited
are presented in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union.
The consolidated financial statements are presented in United States
dollars and all values are rounded to the nearest
thousand (US$’000), except where otherwise indicated.
The consolidated financial statements have been prepared on a
historical cost basis, modified by the recording of inventories at net
realisable value.
The preparation of financial statements in conformity with IFRS requires
the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the
Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates
are significant to the consolidated financial statements are disclosed
in this note under the title “Accounting estimates and assumptions”.
The Group has adopted the principles of merger accounting as the
most appropriate way to record these transactions because of the
common ownership of Geopark Argentina Limited and Geopark Chile
Limited and, following the Group reorganisation, Geopark Holdings
Limited. This transaction was outside the scope of IFRS 3 and
therefore, in the absence of specific guidance under IFRS, the Group
has referred to alternate GAAP and adopted UK Accounting Standard
FRS 6 ‘Acquisitions and Mergers’ as the most appropriate accounting
treatment.
These financial statements include those transactions which reflect
the acquisition of the assets in November 2002 and subsequent
trading in order to disclose the history of the Group’s business under
its current ownership.
(a) Standards, amendments and interpretations effective in 2007:
IFRS 7, ‘Financial instruments: Disclosures’, and the
complementary amendment to IAS 1, ‘Presentation of financial state-
ments – Capital disclosures’, introduces new disclosures relating to
financial instruments and does not have any impact on the
classification and valuation of the Group’s financial instruments, or the
disclosures relating to taxation and trade and other payables.
(b) Standards, amendments and interpretations effective in 2007 but
not relevant:
The following standards, amendments and interpretations to pub-
lished standards are mandatory for accounting periods beginning
on or after 1 January 2007 but they are not relevant to the Group’s
operations:
•
•
•
•
•
IFRS 4, ‘Insurance contracts’;
IFRIC 7, ‘Applying the restatement approach under IAS 29,
Financial reporting in hyper-inflationary economies’;
IFRIC 8, ‘Scope of IFRS 2’;
IFRIC 9, ‘Re-assessment of embedded derivatives’; and
IFRIC 10, ‘Interim financial reporting and impairment’
(c) Standards, amendments and interpretations to existing standards
that are not yet effective and have not been early adopted by the
Group:
The following standards, amendments and interpretations to existing
standards have been published and are mandatory for the Group’s
accounting periods beginning on or after 1 January 2008 or later
periods, but the Group has not early adopted them:
•
•
•
IAS 23 (Amendment), ‘Borrowing costs’ (effective from 1
January 2009).
IFRS 8, ‘Operating segments’ (effective from 1 January 2009).
IFRS 3 (Amendment), “Business Combinations” (effective
from 1 January 2009).
IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset,
•
minimum funding requirements and their interaction’
•
•
(effective from 1 January 2008).
IAS 1 (Amendment), Presentation of financial statements
(effective from 1 August 2009).
IAS 27 (Amendment), “Consolidated and Separate Financial
Statements” (effective for annual reporting periods beginning
on or after July 1, 2009).
Management is currently assessing the impact of the amendment of
IAS 1, IAS 23 and IFRS 8.
The Amendment to IAS 23 is likely to result in increased capitalization
of borrowing costs related to the acquisition, construction and
production of a qualifying asset compared with current treatment.
This is because the option to expense borrowing costs attributable
to the acquisition, construction or production of such an asset as
incurred will no longer exist.
(d) Interpretations to existing standards that are not yet effective and
not relevant for the Group’s operations:
The following interpretations to existing standards have been published
and are mandatory for the Group’s accounting periods beginning on
or after 1 January 2008 or later periods but are not relevant for the
Group’s operations:
•
•
•
•
IFRIC 11: ‘Group and Treasury Share Transactions’ (effective
for annual periods beginning after 1 March, 2007). The
interpretation addresses how to apply IFRS 2 to share-based
payment arrangements involving an entity’s own equity
instruments or equity instruments of another entity in the
same group (e.g. equity instruments of its parent). The
adoption of IFRIC 11 is not expected to have a material impact
on the presentation of GEOPARK’s consolidated results of
operations, financial position or cash flows.
IFRIC 12, ‘Service concession arrangements’ (effective from
1 January 2008). IFRIC 12 applies to contractual arrangements
whereby a private sector operator participates in the
development, financing, operation and maintenance of
infrastructure for public sector services. IFRIC 12 is not
relevant to the Group’s operations because none of the Group’s
companies provide for public sector services.
IFRIC 13, ‘Customer loyalty programmes’ (effective from 1
July 2008). IFRIC 13 clarifies that where goods or services are
sold together with a customer loyalty incentive (for example,
loyalty points or free products), the arrangement is a multiple-
element arrangement and the consideration receivable from
the customer is allocated between the components of the
arrangement using fair values. IFRIC 13 is not relevant to the
Group’s operations because none of the Group’s companies
operate any loyalty programmes.
IFRIC 14 ‘Defined Benefit Assets and Minimum Funding
Requirements’ which is effective for pe-riods commencing on
or after 1 January 2008. The application of this interpretation
in 2008 would not have affected the financial statements
given the rules of the Group’s defined benefit schemes.
Consolidated financial statements
The consolidated financial statements consolidate those of the
Company and all of its subsidiary undertakings drawn up to the
Balance Sheet date. Subsidiaries are entities over which the Group has
the power to control the financial and operating policies so as to obtain
benefits from its activities, generally accompanying a shareholding of
more than one half of the voting rights. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group.
Inter-company transactions, balances and unrealised gains on
transactions between the Group and its subsidiaries are eliminated.
Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Amounts reported
in the financial statements of subsidiaries have been adjusted where
necessary to ensure consistency with the accounting policies adopted
by the Group.
Acquisitions of subsidiaries are dealt with by the purchase method.
The purchase method involves the recognition at fair value of all
identifiable assets and liabilities, including contingent liabilities of
the subsidiary, at the acquisition date, regardless of whether or not
they were recorded in the financial statements of the subsidiary prior
to acquisition. On initial recognition, the assets and liabilities of the
subsidiary are included in the consolidated balance sheet at their fair
values, which are also used as the basis for subsequent measurement
in accordance with the Group accounting policies. Goodwill is stated
after separating out identifiable intangible assets. Goodwill represents
the excess of acquisition cost over the fair value of the Group’s share
of the identifiable net assets of the acquired subsidiary at the date of
acquisition.
Revenue
Revenue from the sale of crude oil and gas is recognised in the Income
Statement if supply and risk transfer to the purchaser has taken place
before the end of the year, and if the income can be measured reliably
and is expected to be received. Revenue is recognised exclusive of
VAT and excluding discounts related to the sale.
Production costs
The Group applies IFRS 6 “Exploration and Evaluation of Mineral
Resources”. Oil and gas exploration, production properties and assets
are accounted for as detailed below.
Production costs include wages and salaries incurred to achieve the
net revenue for the year. Direct and indirect costs of raw materials and
consumables, rentals and leasing, property, plant and equipment
depreciation and royalties are also included within this account.
Production costs also recognise the development costs that do not
fulfil the criteria for capitalisation.
Financial costs
Financial costs include interest expenses, realised and unrealised
gains and losses arising from transactions in foreign currencies and
the amortisation of financial assets and liabilities. No finance costs
have been capitalised.
Costs of exploration and appraisal
The Group applies IFRS 6 “Exploration and Evaluation of Mineral
Resources”. Oil and gas exploration and production properties and
assets are accounted for in accordance with the “successful efforts”
method of accounting for exploration and appraisal costs.
Expenditure incurred on the acquisition of a licence interest is initially
capitalised on a licence-by-licence basis. Costs are held, undepleted,
within exploration until such a time as the exploration phase on the
licence area is complete or commercial reserves have been discovered.
Costs will either be transferred to the development/producing assets
or expensed in the Income Statement depending upon the success of
the exploration and appraisal drilling.
Licence acquisition costs are included in the total exploration cost to
be tested for impairment should any indicators exist.
Exploration expenditure incurred in the process of determining
exploration targets and other exploration costs not directly relating to
drilling of exploratory wells are written off as incurred.
Drilling costs of the exploratory wells, including wells for stratigraphical
tests and 3D seismic are capitalised as intangible fixed assets in cost
centres by field or exploration area as appropriate, pending the
determination of commercial reserves. If those reserves are not found,
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
49
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
these costs are written off. Following the discovery of a commercially
viable field, the attributable costs are transferred to property, plant
and equipment in single field cost centres.
Work costs that increase the total commercially recoverable reserves
or speed up the extraction of reserves are included in the carrying
amount of the asset and are depreciated using the unit of production
method. Workovers that merely restore production to its original level
are charged to the Income Statement during the fiscal period in which
they are incurred.
Commercial reserves are proven and probable oil and gas reserves as
defined in chapter 19 of the listing rules of the UKLA.
The cost of an asset is divided into separate components which are
depreciated individually if the useful lives are not identical.
Subsequent costs of replacement of components are recognised
as a tangible fixed asset when it is likely that they will lead to future
economic benefits. The carrying amount of the replaced components
are recognised in the Income Statement. All other costs of repair and
maintenance are recognised in the Income Statement when incurred.
Straight-line depreciation is provided on the basis of an assessment
of the expected useful lives of the assets and their residual value, as
follows:
Development and property acquisition costs incurred in development
wells (including seismic surveys for development purposes) and
production facilities and machinery are capitalised within property
plant and equipment.
Communication and EDP equipment
Furniture and fixtures
Vehicles and production facilities
Useful life
3 years
10 years
5 years
Depletion
All expenditure carried within each field is amortised from the
commencement of production, on a unit of production basis, which
is the ratio of oil and gas production in the period to the estimated
quantities of commercial developed reserves at the end of the period
plus the production of the period on a field by field basis.
Depreciation is recognised in the Income Statement as production
and selling and administrative expenses, respectively.
The assets’ residual values and useful lives are reviewed, and adjusted
if appropriate, at each balance sheet date.
A field is an area consisting of a single reservoir or multiple reservoirs
which are grouped or related to the same individual geographical
structural feature and/or stratigraphic condition.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
Decommissioning
Provision for decommissioning is recognised to the extent that an
obligation has arisen which is usually at the start of oil and gas
production. A corresponding asset of an amount equivalent to the
provision is also created and depreciated as part of the capital costs
of the production facilities, on a unit of production basis.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax rate
that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision
due to passage of time is recognised as interest expense.
Impairment testing for exploration and appraisal assets
Where there are indicators that an exploration asset may be impaired,
the exploration and appraisal assets are grouped with all development/
producing assets belonging to the same geographic segment to form
the Cash Generating Unit (CGU) for impairment testing. The combined
cost of the CGU is compared against the CGU’s net present value and
any resulting impairment loss is written off to the Income Statement.
No impairment has been recognised during the year.
Other property, plant and equipment
Furniture, equipment and vehicles are measured at cost less
accumulated depreciation and write-down. The cost includes the
acquisition price and costs incurred directly in connection with the
acquisition until the time when the asset is ready for use.
Profit or loss on the disposal of property, plant and equipment is
calculated as the difference between the net proceeds on disposal
and the carrying amount at the time of sale. Profit or loss is recognised
as other operating income or operating expenses in the Income
Statement.
Lease contracts
All current lease contracts are considered to be operating leases on
the basis that the lessor bears substantially all the risks and rewards
related to the ownership of the leased asset. Payments related to
operating leases and other rental agreements are recognised in the
Income Statement on a straight line basis over the term of the contract.
The Group’s total liability relating to operating leases and rental
agreements is disclosed in note 25.
Inventories
Inventories comprise crude oil and materials.
Crude oil is measured at net realisable value. The net realisable value
of inventories is stated at sales price less costs incurred to execute
the sale. Materials are measured at cost. Cost is determined using the
first-in, first-out (FIFO) method. The cost of materials and consumables
is calculated at acquisition price with the addition of transportation
and similar costs.
Tax payable and deferred tax
Current tax is the tax currently payable based on taxable profit for
the year.
Interest and other Cash Flows resulting from holding financial assets
are recognised in the Income Statement when receivable, regardless
of how the related carrying amount of financial assets is measured.
Deferred income taxes are calculated using the liability method on
temporary differences. Deferred tax is generally provided on the
difference between the carrying amounts of assets and liabilities and
their tax bases. However, deferred tax is neither provided on the initial
recognition of goodwill, nor on the initial recognition of an asset or
liability, unless the related transaction is a business combination or it
affects tax or accounting profit.
The principal temporary differences mainly arise from:
• Exploration costs that have been capitalized for accounting
or tax purposes and have been ex-pensed for tax or
accounting purposes, respectively.
• Differences in depreciation rates on property, plant and
equipment for tax and accounting purposes.
• Differences in the valuation of inventories for tax and
accounting purposes.
In addition, tax losses available to be carried forward as well as other
income tax credits to the Group are assessed for recognition as
deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting.
Deferred tax assets are recognised to the extent that it is probable
that the underlying deductible temporary differences will be able to be
offset against future taxable income. Current and deferred tax assets
and liabilities are calculated at tax rates that are expected to apply
to their respective period of realisation, provided they are enacted or
substantively enacted at the balance sheet date. Changes in deferred
tax assets or liabilities are recognised as a component of tax expense
in the Income Statement, except where they relate to items that are
charged or credited directly to equity (such as the revaluation of land),
in which case the related deferred tax is also charged or credited
directly to equity.
Financial assets
Financial assets, other than hedging instruments, are divided into the
following categories: loans and receivables; financial assets at fair
value through the profit or loss; available-for-sale financial assets; and
held-to-maturity investments. Financial assets are assigned to the
different categories by management on initial recognition, depending
on the purpose for which the investments were acquired. The
designation of financial assets is re-evaluated at every reporting date
at which a choice of classification or accounting treatment is available.
All financial assets are recognised when the Group becomes a party
to the contractual provisions of the instrument. All financial assets are
initially recognised at fair value, plus transaction costs, unless they are
classified as at fair value through profit or loss.
Derecognition of financial assets occurs when the rights to receive
Cash Flows from the investments expire or are transferred and
substantially all of the risks and rewards of ownership have been
transferred. An assessment for impairment is undertaken at each
balance sheet date.
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater
than 12 months after the balance sheet date. These are classified as
non-current assets. The Group’s loans and receivables comprise trade
receivables, prepayments and other receivables and cash and cash
equivalents in the balance sheet. They arise when the Group provides
money, goods or services directly to a debtor with no intention of
trading the receivables. Loans and receivables are subsequently
measured at amortised cost using the effective interest method, less
provision for impairment. Any change in their value through impairment
or reversal of impairment is recognised in the Income Statement.
Provision against trade receivables is made when objective evidence
is received that the Group will not be able to collect all amounts due
to it in accordance with the original terms of those receivables. The
amount of the write-down is determined as the difference between
the asset’s carrying amount and the present value of estimated future
Cash Flows.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held
at call with banks, other short-term highly liquid investments with
original maturities of three months or less, and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities on the
Balance Sheet.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial
instruments and are recognised when the Group becomes a party to
the contractual provisions of the instrument.
The Group has no financial liabilities categorised as fair value through
profit or loss at the reporting date. Therefore, all other financial liabilities
are recorded at amortised cost using the effective interest method,
with interest-related charges recognised as an expense in finance cost
in the income statement.
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortised cost;
any difference between the proceeds (net of transaction costs) and
the redemption value is recognised in the Income Statement over the
period of the borrowings using the effective interest method.
Finance charges, including premiums payable on settlement or
redemption, and direct issue costs are charged to the Income Statement
on an accruals basis using the effective interest method and are added
to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
51
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Compound instruments
Compound instruments comprise both a liability and an equity
component. At date of issue, the fair value of the liability component
is estimated using the prevailing market interest rate for a similar debt
instrument. The liability component is accounted for as a financial
liability.
The residual is the difference between the net proceeds of issue and
the liability component (at time of issue). The residual is the equity
component, which is accounted for as an equity instrument.
The interest expense on the liability component is calculated applying
the effective interest rate for the liability component of the instrument.
The difference between this amount and any repayments is added to
the carrying amount of the liability in the balance sheet.
If a company revises its estimates of payments or receipts, the entity
shall adjust the carrying amount of the financial asset or financial
liability (or group of financial instruments) to reflect actual and revised
estimated cash flows. The Group recalculates the carrying amount
by computing the present value of estimated future cash flows at the
financial instrument’s original effective interest rate. The adjustment is
recognised as income or expense in profit or loss.
Equity
An equity instrument is any contract that evidences a residual interest
in the assets of the entity after deducting all of its financial liabilities.
Equity comprises the following:
• Share capital – representing the nominal value of equity
shares.
• Share premium – representing the excess over nominal value
of the fair value of consideration received for equity shares,
net of expenses of the share issue.
• Other reserve – representing the equity element attributable
to compound or linked financial instruments and shares
granted according to IFRS 2 but not issued at year end, as
noted above.
• Reserve for exchange adjustment – representing the
differences arising from translation of investments in overseas
subsidiaries.
• Retained earnings – representing retained profits.
Stock options plan and stock awards
The Group operates a number of equity-settled, share-based
compensation plans comprising share awards payments and stock
options plans to certain employees and other third party contractors.
Fair value of the employee services received in exchange for the grant
of the options is recognised as an expense. The total amount to be
expensed over the vesting period is determined by reference to the
fair value of the options granted calculated using the Black-Scholes
model, excluding the impact of any non-market vesting conditions (for
example, profitability and sales growth targets). Non-market vesting
conditions are included in assumptions about the number of options
that are expected to vest. At each balance sheet date, the entity revises
its estimates of the number of options that are expected to vest.
It recognises the impact of the revision to original estimates, if any,
in the Income Statement, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share premium
when the options are exercised.
•
income and expenses for each income statement are
translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case
income and expenses are translated at the rate on the dates
of the transactions); and
industry based in Dallas and updated for subsequent changes
by the Group’s management. It incorporates many factors and
assumptions including:
• expected reservoir characteristics based on geological,
geophysical and engineering assessments;
Foreign currency translation
• all resulting exchange differences are recognised as a separate
• future production rates based on historical performance
a) Functional and presentational currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).
Functional currency of Bermuda’s enterprises (included the parent
company) is the US dollar.
For the Argentine and Chilean subsidiaries the functional currency is
their local currency. Sales are predominantly based on US dollar
pricing. However, a significant proportion of operating costs (particularly
labour) arises in the local currency of the operations. Accordingly,
changes in the exchange rates between these currencies and the US
dollar will impact on the Group’s reported results. Subsidiaries hold
certain monetary financial liabilities denominated in currencies other
than their functional currency, in particular US dollar denominated
financial loans, and to a lesser extent, cash and cash equivalents.
Monetary assets and liabilities are converted into local currencies at
the closing rate. The resultant differences are accounted for in the
income statement in accordance with IFRS.
Transactions in foreign currencies are translated at the rate of exchange
on the transaction date. Exchange differences arising between the
rate on the transaction date and the rate on the payment date are
recognised in the income statement as a financial income or expense.
The consolidated financial statements are presented in US dollars,
which is the Group’s presentational currency.
b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at period
end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement.
Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional
currency are included in other operating income or other operating
expenses.
c) Group companies
The results and financial position of all the Group entities (none of
which has the currency of a hyper-inflationary economy) that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
component of equity.
On consolidation, exchange differences arising from the translation of
the net investment in foreign operations, and of borrowings are taken
to shareholders’ equity. On disposal of a foreign operation the
cumulative translation differences (including, if applicable, gains and
losses on related hedges) are transferred to the Income Statement as
part of the gain or loss on disposal.
Accounting estimates and assumptions
It should be noted that accounting estimates and assumptions are
used in preparing the financial statements. Although these estimates
are based on management’s best knowledge of current events and
actions, actual results may differ from them.
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The key estimates and assumptions used in these consolidated
financial statements are noted below:
• The Group adopts the successful efforts basis of accounting.
The Board of Directors of the Company makes assessments
and estimates regarding whether an exploration asset should
continue to be carried forward as an intangible asset not yet
determined or when insufficient information exists for this
type of cost to remain as an asset. In making this assessment
the Directors take professional advice from qualified
independent experts (note 13)
• Cash flow estimates for our impairment assessments require
assumptions about two primary elements—future prices and
reserves. Our estimates of future prices require significant
judgments about highly uncertain future events. Historically,
oil and gas prices have exhibited significant volatility. Our
forecasts for oil and gas revenues are based on prices derived
from future price forecasts amongst industry analysts and our
own assessments. Our estimates of future cash flows are
generally based on our assumptions of long-term prices and
operating and development costs. Given the significant
assumptions required and the possibility that actual conditions
will differ, we consider the assessment of impairment to be a
critical accounting estimate. The process of estimating
reserves is complex. It requires significant judgments and
decisions based on available geological, geophysical,
engineering and economic data. The estimatation of
economically recoverable oil and natural gas reserves and
related future net cash flows was performed based on the
Reserve Report dated April 2006 prepared by Degoyler and
MacNaughton an international consultancy to the oil and gas
and expected future operating and investment
activities;
• future oil and gas prices and quality differentials;
• assumed effects of regulation by governmental
agencies; and
• future development and operating costs.
We believe these factors and assumptions are reasonable
based on the information available to us at the time we
prepare our estimates. However, these estimates may
change substantially as additional data from ongoing
development activities and production performance
becomes available and as economic conditions
impacting oil and gas prices and costs change.
• The advances received under the gas pre-sale agreement
entered with Methanex Corporation bears interest at a rate of
LIBOR (note 21). The Board of Directors considers that the
advances are at fair value as a result of the security in the
natural gas supply which Methanex have obtained through
the agreement.
• The fair value of the stock option rights were determined
based upon the Black-Scholes model. For this purpose the
Group has used appropriate risk free rates and volatilities of
comparable oil and gas companies traded on AIM. Details of
these assumptions and the result charged to the Income
Statement are provided in note 24.
• The total calculation of the decommissioning provision is
estimated by the Group’s engineers, based on individual well
filling and coverage
• As detailed in the relevant accounting policies the selection
of functional currencies for each entity in the Group is
dependent on the primary economic environment in which
they operate which is determined by considering a number of
factors. As detailed the Board consider that the primary
economic environment in which the susbsidiaries operate is
their local currency. The Board considers this assessment to
be a significant judgment as it gives rise to exchange risk to
the assets and liabilities in US Dollars in those subsidiries as
detailed in note 28.
Cash Flow Statement
The Cash Flow Statement shows the Group’s cash flows for the year
for operating, investing and financing activities and the change in
cash and cash equivalents during the year.
Cash flows from operating activities are computed from the results for
the year adjusted for non-cash operating items, changes in networking
capital, and corporation tax. Tax paid is presented as a separate item
under operating activities.
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
53
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Note 7
Administrative and other operating costs
2007
2006
Amounts in US$ ‘000
Cash flows from investing activities include payments in connection
with the purchase and sale of property, plant and equipment and
cash flows relating to the purchase and sale of enterprises.
Cash flows from financing activities include changes in Shareholders’
equity, and proceeds from borrowings and repayment of loans.
Cash and cash equivalents include bank overdraft and liquid funds
with a term of less than three months.
Segment information
The Group explores and operates in two different countries: Argentina
and Chile. As operations are similar in both countries, the primary
segments of the Group have been made on a geographical basis,
based on the location of the assets (which is similar to the location of
the customers). Segment revenue and costs include items that are
attributable directly to the relevant segment and items that can be
distributed among the segments. Non-distributed items include the
Group’s administration, financial income, expenses and taxes.
The property, plant and equipment of a segment include the assets
that are used directly in the segment. The current assets of a segment
include assets that are related directly to the operation of the segment,
including inventory and accounts receivable.
The liabilities of a segment include liabilities that are related directly
to the operation of the segment, including trade payables and other
debts.
Segment areas (geographical segments):
Amounts in US$ ‘000 2007
Argentina
Chile
Corporate
Total
2007
Revenue
Gross profit (loss)
Loss before tax
Loss for the year
Capital expenditure
Depreciation
Total assets
Liabilities
1,341
(767)
(7,250)
(7,250)
4,707
(564)
9,687
4,012
(67)
(69)
34,044
(1,452)
-
-
11,028
3,245
(6,489)
(13,806)
(6,489)
(13,808)
4
(68)
38,755
(2,084)
14,752
58,620
4,890
78,262
(8,911)
(36,635)
(110)
(45,656)
Cash flows from operations
(2,824)
3,919
(3,219)
(2,124)
Cash flows from investing
(4,703)
(34,028)
(2,000)
(40,731)
Cash flows from financing
2,751
13,598
Employees (average)
49
22
-
-
-
16,349
1
72
6,008
1,983
(9,250)
(11,333)
(9,250)
(11,349)
202
68
17,964
682
3,168
706
(1,927)
(1,943)
6,116
577
2,840
1,277
(156)
(156)
11,646
37
12,196
29,569
20,499
62,264
3,796
17,089
272
21,157
2006
Revenue
Gross profit
Loss before tax
Loss for the year
Capital expenditure
Depreciation
Total assets
Liabilities
Note 4
Depreciation
Amounts in US$ ‘000
Oil and gas properties
Furniture and equipment
Production facilities
Buildings and improvements
Depreciation, property plant and equipment
Profit or loss on sale
Depreciation total
Recognised as follows:
Production costs
Administrative expenses
Depreciation total
Note 5
Employees
Average number of employees
Amounts in US$ ‘000
Wages and salaries
Social security charges
Shared-based payment
Cash flows from operations
(2,086)
(734)
(4,559)
(7,379)
Cash flows from investing
(5,874)
(11,646)
(233)
(17,753)
Cash flows from financing
7,951
25,893
23,055
56,899
Employees (average)
34
7
-
41
Board of Directors’ and key managers’ remuneration
Salaries and fees
Shared-based payment
Other benefits in kind
Note 3
Net revenue
Amounts in US$ ‘000
Sale of crude oil
Sale of gas
2007
3,123
7,905
11,028
2006
3,466
2,542
6,008
Note 6
Exploration Costs
Amounts in US$ ‘000
Wages and salaries
Other services
Write off of unsuccessful efforts (a)
810
192
965
117
2,084
(38)
2,046
1,882
164
2,046
2007
72
6,645
492
2,047
9,184
2007
1,569
1,728
84
3,381
2007
1,410
684
4,522
6,616
479
132
37
34
682
(68)
614
581
33
614
2006
41
3,048
336
1,232
4,616
2006
1,071
1,218
48
2,337
2006
1,025
477
249
1,751
Administrative expenses
Other operating costs
IPO costs
Stock awards and ESOP (note 24)
2007
5,129
447
-
4,072
9,648
2006
3,737
473
1,758 (1)
2,556
8,524
(1) In accordance with the requirements of IAS 32, costs associated
with the admission of the Company to AIM of US$2,960,000 which
relate to the issue of new shares have been deducted from equity.
Costs wich do not qualify to be charged directly to equity as issue
costs of US$1,758,000 are included within selling and administrative
expenses.
Note 8
Financial income
Amounts in US$ ‘000
Exchange difference
Interest receivable
2007
1,077
959
2,036
2006
900
787
1,687
In 2007, the exchange difference arise from the net exposure related
to the existence of financial liabilities in US dollars mainly in Chile. In
2006, the main portion of the exchange difference gain, corresponds
to the difference between the IPO proceeds in GBP converted to US$
on the day offered and the actual total amount received when the
proceeds were transferred.
Note 9
Financial expenses
Amounts in US$ ‘000
Bank charges and other financial costs
Exchange difference
Finance charges accrued in respect of preferred shares
and convertible loan notes (note 20)
Interest and amortisation of debt issue costs
2007
(211)
(197)
-
(1,854)
(2,262)
2006
(13)
(36)
(3,907)
(219)
(4,175)
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
55
(a) These write-offs correspond to three unsuccessful workovers in the
Fell Block and two exploratory wells in Del Mosquito area during 2007.
These have been included within Exploration costs within the Income
Statement.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Note 13
Intangible assets
Note 14
Property, plant and equipment
2007
2006
Amounts in US$ ‘000
Exploration and evaluation assets
Amounts in US$ ‘000
Note 10
Tax loss on ordinary activities
Amounts in US$ ‘000
Current tax
Deferred tax
2007
(2)
-
(2)
2006
-
(16)
(16)
The tax on the Group’s profit before tax differs from the theoretical
amount that would arise using the weighted average tax rate applicable
to profits of the consolidated entities as follows:
Amounts in US$ ‘000
Loss before tax
2007
(13,806)
2006
(11,333)
Results in countries where no income tax is paid
Inflation adjustment for tax purposes
Tax losses where no deferred income tax is recognised
Expenses not deductible for tax purposes
Utilisation of previously unrecognised tax losses
Non taxable income
Result subject to tax
Effective tax rate in respect of taxable profit.
Tax calculated at domestic tax rates applicable to profits
in the respective countries
6,489
770
7,307
185
(774)
(157)
14
15%
2
9,250
18
2,343
39
-
(272)
45
35%
16
The tax rate in Bermuda where Geopark Holdings Limited is registered
is 0%. Income tax rate in those countries where the Group operates
ranges from 15% to 35%.
The Group has significant tax losses available which can be utilised
against future taxable profit in those countries as set out below:
Amounts in US$ ‘000
Argentina
Chile
Total tax losses at 31 December
2007
6,066
-
6,066
2006
3,529
774
4,303
At the balance sheet date tax losses in Argentina has not been
recognised as there is insufficient evidence of future taxable profits
until the statute of limitation of these tax losses.
Note 11
Deferred tax asset
Amounts in US$ ‘000
Deferred tax at 1 January
Exchange rate adjustment
Movement in deferred tax
Deferred tax at 31 December
Deferred tax asset (liability) relates to:
Property, plant and equipment
Other timing differences
Note 12
Loss per share
15
-
-
15
(17)
32
15
32
(1)
(16)
15
(17)
32
15
Amounts in US$ ‘000
2007
2006
Numerator:
Loss for the year
Denominator:
(13,808)
(11,349)
Weighted average number of shares used in basic EPS
30,683,536
25,625,335 (*)
Loss after tax per share (US$) – basic
(0.45)
(0.44)
Weighted average number of shares used in basic EPS
30,683,536
25,625,335 (*)
Effect of dilutive potential common shares
Stock awards to employees at US$0.001
613,380
613,380
Stock option at 4.00
1,218,380
1,218,380
Executive Directors stock option at 3.20
306,690
306,690
Non Executive Directors fees (note 20)
Stock awards to Non Executive Directors (note 20)
21,876
16,594
16,406
32,813
Weighted average number of common shares for the
purposes of diluted earnings per share
32,855,578
27,004,539 (*)
Loss after tax per share (US$) – diluted
(0.45)
(0.44)
(*) The denominators for the purposes of calculating both basic and
diluted earnings per share have been adjusted to reflect the subdivision
of shares on the basis of 1 for 100 as required by IAS 33 “Earning per
Share”.
Carrying amount at 1 January 2006
Additions
Exchange rate adjustment
Write off of unsuccessful efforts
Transfers to property, plant and equipment
Carrying amount at 31 December 2006
Additions
Exchange rate adjustment
Write off of unsuccessful efforts (note 6)
Transfers to property, plant and equipment
Carrying amount at 31 December 2007
1,728
12,830
(27)
(249)
(807)
13,475
29,472
462
(4,522)
(15,054)
23,833
Included in the carrying amounts are 400 square kilometres of 3D
seismic registered in Del Mosquito field for US$3,471,000, and
680 square kilometres of 3D seismic registered in the Fell Block for
US$8,669,000.
In the carrying amount are included 2 wells for US$4,471,000 that
form part of the drilling campaign in Chile, 1 well in Argentina for
US$971,000 and 4 wells that formed part of the workover campaign
in Chile for US$1,539,000. The engineers are planning to refracture
or retest these wells, therefore, carrying amounts are maintained in
Intangible Assets.
As detailed in the Group’s accounting policies where there are
indicators that an exploration asset may be impaired, the exploration
and appraisal assets are grouped with all development/producing
assets belonging to the same geographic segment to form the Cash
Generating Unit (CGU) for impairment testing. The combined cost of
the CGU is compared against the CGU’s net present value and any
resulting impairment loss is written off to the Income Statement.
Net present value is based upon calculations carried out by independent
experts commissioned by the Group. On 31 December 2007 net
present value calculations were carried out using a discount factor of
10 per cent based on the Reserve Report dated April 2006 prepared
by DeGolyer and MacNaughton and updated for subsequent changes
by the Group’s management. No impairment was considered necessary
as a result of these calculations.
The Group has the exclusive right to explore and exploit the Fell Block
for a period of 35 years commencing on August 1997. The exploration
period ends in May 2011. Once the Group discovers and brings into
production a new field it has the right to exploit it until the end of the
concession.
The exclusive right to produce, explore and develop hydrocarbons in
Del Mosquito Block was granted for a period of 25 years, commencing
in April 1991, with a possible extension of 10 years. This possible
extension was not considered to impact the calculation of the net
present value of the CGU’s related to Del Mosquito field.
Cost at 1 January 2006
3,715
155
242
Oil & gas
properties
Furniture,
Production
equipment
facilities and
and vehicles
machinery
Buildings and
Construction
improvements
in progress
TOTAL
(1)
23
(38)
193
522
3,372
330
717
5,134
-
-
-
-
4,112
(16)
Exchange rate adjustment
Additions
Disposals
Transfers (from intangible assets)
761
-
-
(42)
-
46
-
-
-
-
(42)
807
Cost at 31 December 2006
4,631
634
3,683
330
717
9,995
Exchange rate adjustment
(149)
(1)
221
Additions
Disposals
1,357
229
3,370
-
(37)
-
3
79
-
-
4
78
5,419
10,454
-
-
(37)
15,054
Transfers (from intangible assets)
10,164
Transfers
(505)
-
-
4,890
5,190
1,022
(5,707)
-
Cost at 31 December 2007
15,498
825
17,354
1,434
433
35,544
Depreciation and write-down at
1 January 2006
(1,042)
(66)
(4)
-
Depreciation
(479)
(132)
(37)
(34)
Exchange rate adjustment
Disposals
11
-
-
23
1
-
-
-
Depreciation and write-down at
31 December 2006
(1,510)
(175)
(40)
(34)
Depreciation (note 4)
(810)
(192)
(965)
(117)
Exchange rate adjustment
Disposals
Transfers
37
-
195
3
13
-
(45)
(2)
-
(195)
-
-
Depreciation and write-down at
31 December 2007
(2,088)
(351)
(1,245)
(153)
-
-
-
-
-
-
-
-
-
-
(1,112)
(682)
12
23
(1,759)
(2,084)
(7)
13
-
(3,837)
Carrying amount at 31
December 2006
Carrying amount at 31
December 2007
3,121
459
3,643
296
717
8,236
13,410
474
16,109
1,281
433
31,707
As of 31 December, 2007, the Company has secured assets in the
amount of US$667,000 related to the operating base in Chile
(note 21).
Note 15
Subsidiary undertakings
In September 2007, Geopark Holdings Limited established a new
company located in Chile. As the Company started its operations in
2008, no movements have been accounted for, except for the recording
of the assigned capital.
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
57
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Other financial liabilities
Total
AAA
10,786
34,191
Details regarding the share capital of the Company are set out below:
Details of the subsidiaries of the Company are set out below:
Note 19
Financial instruments by category
Name and registered office
Ownership interest
Subsidiaries
Geopark Argentina Ltd. - Bermuda
Geopark Argentina Ltd. – Argentine Branch
Geopark Chile Ltd. - Bermuda
Geopark Chile Ltd. – Chilean Branch
Servicios Southern Cross Limited
Note 16
Prepaid Taxes
Amounts in US$ ‘000
V.A.T.
Other prepaid taxes
Total prepaid taxes
Classified as follows:
Current
Non Current
Total prepaid taxes
Note 17
Inventory
Amounts in US$ ‘000
Crude oil
Materials and Spares
Note 18
Trade receivables
Amounts in US$ ‘000
Trade accounts receivable
Prepayments and other receivables
100%
100%
100%
100%
100%
2006
2,933
537
3,470
-
3,470
3,470
2006
149
719
868
2006
1,452
543
1,995
2007
6,360
597
6,957
3,889
3,068
6,957
2007
351
1,731
2,082
2007
2,305
574
2,879
Amounts in US$ ‘000
2007
Assets as per balance sheet
Trade receivables
Prepayment and other receivables
Investments
Prepaid Taxes
Cash and cash equivalents
2007
Liabilities as per balance sheet
Trade payables
Borrowings
Other liabilities
Amounts in US$ ‘000
2006
Assets as per balance sheet
Trade receivables
Prepayment and other receivables
Prepaid Taxes
Cash and cash equivalents
2006
Liabilities as per balance sheet
Trade payables
Borrowings
Other liabilities
Loans and
receivables
Available-for-sale
Total
2,305
574
-
6,822
8,710
18,411
-
-
2,079
-
-
2,305
574
2,079
6,822
8,710
2,079
20,490
8,450
34,741
1,202
44,393
8,450
34,741
1,202
44,393
Loans and
receivables
Available-for-sale
Total
1,452
543
3,470
34,194
39,659
-
-
-
-
-
1,452
543
3,470
34,194
39,659
Other financial liabilities
Total
3,664
16,505
871
21,040
3,664
16,505
871
21,040
Trade receivables that are less than three months past due are not
considered impaired. As of 31 December 2007, trade receivables of
US$50,000 were past due by less than 3 months, but not impaired.
These relate to customers for whom there is no recent history of default.
The credit period for trade receivables is 30 days. The maximum
exposure to credit risk at the reporting date is the carrying value of
each class of receivable mentioned in note 19. The Group does not
hold any collateral as security.
The carrying value of trade receivables is considered to represent as a
reasonable approximation of its fair value due to its short term nature.
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Credit quality of financial assets
The credit quality of financial assets that are neither past due nor
impaired can be assessed by reference to external credit ratings (if
available) or to historical information about counterparty default rates:
Amounts in US$ ‘000
Trade receivables
Counterparties with external credit rating (Moody’s)
2007
2006
A2
Ba1
Baa1
Counterparties without external credit rating
Group1
Group2
Total trade receivables
Cash at bank and investments
Counterparties with external credit rating (Moody’s)
297
1,659
144
149
56
2,305
266
866
261
-
59
1,452
Note 20
Share capital
Issued share capital
Common Stock
2007
2006
The share capital is distributed as follows:
Common shares, of nominal US$0.001
31
31
Total common shares in issue
30,688,202
30,668,967
Authorised share capital
30,688,202
30,668,967
US$ per share
0.001
0.001
Number of common shares (US$0.001 each)
5,171,969,000
5,171,969,000
Amount in US$
5,171,949
5,171,949
The rest of the balance sheet item ‘cash and cash equivalents’ is cash
on hand.
Common shares
As of 31 December 2007 the outstanding common shares confer the
following rights on the holder:
Group 1 – new customers (less than 6 months)
Group 2 – existing customers (more than 6 months) with no defaults in the past
Financial liabilities - contractual undiscounted cash flows
The table below analyses the Group’s financial liabilities into relevant
maturity groupings based on the remaining period at the balance
sheet to the contractual maturity date. The amounts disclosed in the
table are the contractual undiscounted cash flows.
Amounts in US$ ‘000
Less than 1 year
Between 1 and
2 years
Between 2 and
5 years
Over 5 years
At 31 December 2007
Borrowings
13,448
11,149
13,543
301
Trade accounts payable
Other liabilities
8,449
1,202
-
-
-
-
-
-
23,099
11,149
13,543
301
At 31 December 2006
Borrowings
Trade payable
Other liabilities
957
3,664
871
5,492
5,224
14,040
4,136
-
-
-
-
-
-
5,224
14,040
4,136
•
•
the right to one vote per share;
ranking pari pasu, the right to any dividend declared and
payable on common shares provided that no dividends shall
be declared or paid on Common shares;
GeoPark common shares history
Date
Change
Shares
closing
(millions)
US$ (‘000)
Closing
Beginning of the period at US$0.10
Dec 2005
Share capital divided to par value of US$0.001
6 Feb 2006
Convertible debt conversion
IFC equity subscription
6 Feb 2006
6 Feb 2006
Private placement in conjunction with AIM listing
16 May 2006
Issue of shares for conversion of loan notes
16 May 2006
-
-
1.3
2.5
6.8
0.1
Shares outstanding at the end of 2006
Issue of shares to non-executive Directors
2007
0.01
Shares outstanding at the end of 2007
.2
20.0
21.3
23.8
30.6
30.7
30.7
30.7
30.7
20
20
21
24
31
31
31
31
31
During 2007, the Company issued 19,235 shares to Non executive
Directors. Shares are issued at average price for the period, generating
a share premium of US$119,000.
All preferred shares and convertible debt were fully redeemed in May
2006 resulting in a redemption loss of US$3,907,000.
Other Reserve
The Directors of the Company considered that preferred shares and
convertible debt constituted compound financial instruments under
IAS 32, and as a result that the financial liability attributable to these
instruments US$3,024,000 is recognized as other reserve.
As it is stated above, the Company has issued 19,235 shares regarding
non executive Directors fees paid in shares. Additionally, 38,470
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
59
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
29,958
4,783
16,505
24
Note 22
Provision for decommissioning
shares have been granted to Non-Executive Directors and have not
been issued as of 31 December, 2007 resulting in an amount of
US$235,000 being included within Other reserve.
Note 21
Borrowings
Amounts in US$ ‘000
2007
2006
Outstanding amounts as of 31 December
International Finance Corporation
Methanex Corporation
Banco de Crédito e Inversiones
Others
Classified as follows
Non current
Current
20,373
13,675
693
-
16,505
-
-
24
34,741
16,529
On 12 December 2006, the Group entered into a loan agreement
for an amount of US$20,000,000 with the International Finance
Corporation (“IFC”), the private sector arm of the World Bank Group,
to partially finance the 2007 Group’s investment program. The IFC is
also a shareholder in the Group.
Loan disbursements made on 27 December 2006 were
US$17,000,000 (which according to IAS 39 has been recorded net of
transaction costs at US$16,505,000). The remaining US$3,000,000
were disbursed by the IFC in January 2007. This loan facility has a
one year grace period and it is payable in ten consecutive half year
installments commencing on January 2008.
The interest rate applicable to this loan is LIBOR plus 3 per cent.
In relation with this loan, the Company has pledged the shares of
Geopark Argentina Ltd. and Geopark Chile Ltd.
Under this facility the Group has committed to comply with some
financial covenants. Failure to comply with those covenants may result
in total or partial acceleration of any outstanding amount under the
loan agreement.
During the year the Group requested and was granted a waiver for
some of the financial covenants. This waiver was requested pursuant
the agreement entered with Methanex and the acquisition of a facility
through a mortgage as explained below.
In 2007, the Group, through its subsidiary Geopark Chile Limited,
entered into an agreement with Methanex Corporation (the largest
world wide methanol producer), which provides for a US$40,000,000
financing facility for development and investing activities on the Fell
Block.
The financing is structured as a gas pre-sale agreement with a six
year payback period and a interest rate of LIBOR flat.
enable Directors and employees to benefit from the increased market
capitalization of the Company.
The charge arising from these share options is as follows:
As of 31 December 2007, US$13,681,000 have been drawn-down
(which according to IAS 32 has been recorded net of transaction
costs at US$13,618,000).
Additionally, Geopark Chile had acquired a facility to establish its
operation base in the Fell Block. This facility was acquired though a
mortgage loan granted by the Banco de Crédito e Inversiones (BCI), a
private Chilean bank (note 14).
The loan was granted in Chilean pesos with a payback period of 8
years. The interest rate applicable to this loan is 6.6%.
The carrying value of these financial instruments is considered to
represent a reasonable approximation of fair value.
Amounts in US$ ‘000
At 1 January 2006
Increase in environmental remediation costs
At 31 December 2006
Additional provisions
Unwinding of discount
Exchange differences
At 31 December 2007
US$’000
71
22
93
1,143
28
-
1,264
The provision for decommissioning relates to the estimation of future
disbursements related to the abandonment and decommissioning of
oil and gas wells. This provision will be utilised when the related wells
are fully depleted.
Note 23
Trade accounts payable
IPO awards were granted to all of the Group’s employees and certain
consultants at the IPO date. The awards vest on the second
anniversary of admission to IPO, and can be exercised up to the
seventh anniversary of admission. The exercise price of these awards
is US$0.001 (nominal value of the shares to be issued), and they can
be exercised as long as the holder continues to be an employee of the
Group or maintains the consultancy role they had at the grant date.
These awards represent an aggregate amount of 613,380 shares
(approximately 2 per cent of the Company’s outstanding common
shares). The awards give no voting rights to the holders until they are
exercised and converted into common shares when they will rank
pari-passu with all existing common shares. The awards will vest in
full in the event of a takeover, change of control or winding up of the
Company.
The Executive Stock Option Plan created by the Company to incentivise
Directors, Senior Management and eligible employees of the Group
has a total size of 613,380 share options (approximately 2 per cent of
the Company’s outstanding common shares). On admission to AIM
the Company granted 605,000 stock options to the senior management
and some eligible employees. The exercise price of these stock
options is £ 4.00 (125 per cent of placing price), and they can be
exercised as long as the holder continues to be an employee of the
Group or maintains the consultancy role they had at the grant date.
The vesting period of these stock options is two years from granting
date and the expiry is five years after the vesting date. The stock
options give no voting rights to the holders until they are exercised
and converted into common shares when they will rank pari-passu
with all existing common shares. The awards will vest in full in the
event of a takeover, change of control or winding up of the Company.
The fair value of the options granted is calculated using the Black-
Scholes model. Due to the very short trading history of the Company,
expected volatility was determined by comparison to a sample of AIM
listed oil and gas companies with a similar market capitalisation to
the Group but a longer trading history. The expected life used in the
model has been adjusted, based on management’s best estimate, for
the effects of nontransferability, exercise restrictions and behavioural
considerations.
Amounts in US$ ‘000
Stock option plan
Stock awards
Stock awards to Non executive Directors (at IPO)
2007
2,077
1,995
4,072
-
4,072
2006
1,206
1,159
2,365
191
2,556
A total of 1,525,070 stock options were granted during May 2006 and
have been accounted for in accordance with IFRS 2. Costs for these
stock option plans have been expensed in the selling and administrative
costs in the Income Statement for the fiscal year 2007 for a total of
US$2,077,000 (US$1,206,000 for 2006). No stock options have
been granted during 2007.
Costs for IPO awards to officers, employees and certain consultants
(613,380 shares) granted in May 2006 will be accrued over the vesting
period. An amount of US$1,966,000 has been expensed in the
administrative expenses included in the Income Statement for the
fiscal year 2007 (US$1,159,000 for 2006).
IPO Stock Awards to Non-Executive Directors (32,813 shares)
have been directly expensed in the administrative expenses line for
US$191,000 in 2006.
At the 2007 Annual General Meeting, the Directors presented a new
Performance-based Employee Long Term Incentive Program and
the maximum number of shares issuable pursuant to share awards
granted under the Executive Stock Option Plan and any new share
based plan established by the Director was increased to a maximum
of 12% of the outstanding share capital of the Company. The Directors
are authorised to amend the terms of the Plan to give effect to such
overall limit. Further details of the Plan can be found in Directors’
remuneration report on Page 40.
Other share based payments
As it is mentioned in note 20, the Company granted 15,837 shares at
average price for each three months period for services rendered by
Non-Executive Directors of the Company. Fees paid in shares were
directly expensed in the administrative expenses line in the amount of
US$105,000.
Amounts in US$ ‘000
Trade payables
2007
8,450
2006
3,664
The main inputs used in the model are the following:
The average credit period (expressed as creditor days) during the year
ended 31 December 2007 was 62 days (2006: 48 days)
The fair value of these short term financial instruments is not
individually determined as the carrying amount is a reasonable
approximation of fair value.
Note 24
Share based payments
During the 2006, the Company established an IPO Award Program
and Executive Stock Option Plan. These schemes were established
to incentivise the Directors, senior management and employees, and
Grant date share price
Exercise price
Expected volatility
Vesting period
Expected life
Risk free interest rate
Fair value of the option
Number of options
Executive Directors
Directors, Senior
Management and
eligible employees
Note 25
Commitments
£ 3.20
£ 3.20
55%
2 years
4 years
4.73%
£ 1.50
£ 3.20
£ 4.00
55%
2 years
4 years
4.73%
£ 1.25
306,690
1,218,380
Royalty commitments
In Argentina, crude oil production accrues royalties payable to
Provinces of Santa Cruz and Mendoza (Argentina) equivalent to 12
per cent on estimated value at mouth of well of those products. This
value is equivalent to final sales price less transport, storage and
treatment costs.
In Argentina crude oil sales accrue private royalties payable to EPP
Petróleo S.A. (2.5 per cent on invoiced amount of crude oil obtained
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
61
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
from wells at “Del Mosquito”, Province of Santa Cruz, Argentina) and
to Occidental Petroleum Argentina INC, formerly (Vintage Argentina
Ltd.). (8 per cent on invoiced amount of crude oil obtained from wells
at “Loma Cortaderal” and “Cerro Doña Juana”, Province of Mendoza,
Argentina).
In Chile, royalties are payable to the Chilean Government, which is
calculated at 5 per cent of crude oil production and 3 per cent of gas
production. Additionally, Geopark Chile Ltd - Chilean Branch - is
committed to pay private royalties, calculated at 3 per cent on oil
revenues up to a total amount of US$3,250,000.
Capital commitments
The Group has committed to drill two exploratory wells in Del Mosquito
Block in 2008. The Group estimates a cost of US$3,200,000 for these
two wells. This commitment has been undertaken as a compensation
of the obligation of a cash payment for the exploratory annual cannon
payable in Argentina in respect of the Del Mosquito concession. This
annual cannon is levied by the Provincial authorities and gives the
right to maintain the concession.
Operating lease commitments – Group company as lessee
The Group leases various plant and machinery under cancellable
operating lease agreements.
The Group also leases offices under non-cancellable operating lease
agreements. The lease terms are between 2 and 3 years, and the
majority of lease agreements are renewable at the end of the lease
period at market rate.
The future aggregate minimum lease payments under non-cancellable
operating leases are as follows:
Note 26
Related parties
Balances outstanding and transactions with related parties
(Amounts in ’000)
Account
Transaction
Balances
Related Party
Relationship
2007
Borrowings
1,814
(20,740)
IFC
Shareholders
Administrative expense
Administrative expense
36
124
-
-
Lario Enterprises
(*)
Peter Ryalls
Non Executive
Director (**)
2006
Borrowings
16,505
(16,505)
IFC
Shareholders
Administrative expense
Administrative expense
36
50
-
-
Lario Enterprises
(*)
Christian Weyer
Non Executive
Director (***)
(*) The Company paid US$36,000 during 2007 and US$36,000 during 2006 for services provided by Lario Enterprises LLC.
Gerald O’Shaughnessy is a shareholder and director of Geopark Holdings Limited, and is the beneficial owner of Lario
Enterprises LLC through trusts.
(**) Corresponding to operating consultancy during 2007.
(***) Corresponding to consultancy provided upon IPO.
There have been no other transactions with the Board of Directors,
executive officers, significant shareholders or other related parties
during the year besides the intercompany transactions which have
been eliminated in the consolidated financial statements, and normal
remuneration of Board of Directors.
Note 27
Fees paid to Auditors
Amounts in US$ ’000
2007
2006
Fees payable to the Group’s auditors for the audit of the consolidated
financial statements
Fees payable to the Group’s auditors for the audit of the Group’s
subsidiaries pursuant to legislation
161
56
217
151
36
187
Amounts in US$ ’000
2007
2006
Fees paid to auditors
Operating lease commitments
Falling due within 1 year
Falling due within 1 – 5 years
Falling due after 5 years
Total minimum lease payments
2,253
5,483
1,680
9,416
126
85
-
211
These fees relate entirely to audit services.
Note 28
Financial Instruments-risk management
Controlling interest
The main shareholders of Geopark Holdings Limited, a company
registered in Bermuda, are:
23 per cent of share capital, by Energy Holdings LLC, controlled by James Park (founder)
22 per cent of share capital, by GP Investments and the Globe Resources Group, both companies controlled
by Gerald O’Shaughnessy (founder)
8 per cent of share capital, by IFC (International Finance Corporation)
The Group is exposed through its operations to one or more of the
following financial risks:
• Foreign currency risk
• Market price risk
• Credit risk – concentration
• Funding risk
•
• Capital risk management
Interest rate risk
The policy for managing these risks is set by the Board. Certain risks
are managed centrally, while others are managed locally following
guidelines communicated from the centre. The policy for each of the
above risks is described in more detail below.
Foreign currency risks
There are activities in foreign countries in which its functional currency
is its local currency (Argentine Peso and Chilean Peso). The main
exposure of the Group to currency changes are related to the financial
loans denominated in US dollars, and to a lower extent to receivables
and cash balances held in US dollars. As currency rate changes
between the U.S. Dollar and the Argentine and Chilean Peso, the Group
recognize gains and losses in the consolidated income statement.
Related exchange risks are generally not hedged because it is the Group
Directors’ opinion that currently hedging of such long-term investments
will not be optimal from an overall risk and cost perspective.
The Group minimises the local currency positions in Argentina and
Chile by seeking to equilibrate local and foreign currency assets and
liabilities. However, local VAT receivable is stated in local currencies
and it is unavoidably exposed to inflation and currency fluctuation.
Most of the Group’s assets are associated with oil and gas productive
assets. Such assets in the oil and gas industry, even in the local
markets, are usually settled in local currency US$ equivalents.
Exchange adjustments in respect of investments in subsidiary
undertakings are recognised directly in equity.
At 31 December 2007, the Argentine peso had weakened by 3%
against the US dollar and the Chilean peso has strengthened by 7%.
If both the Argentine and Chilean peso had weakened by 5% against
the US dollar with all other variables held constant, post-tax loss for
the year would have been US$1,734,000 higher.
Market price risks
The price collected for the oil produced by the Group is dependant
on the WTI which is settled in the international markets in US dollars.
The market price of these commodities is subject to significant
fluctuation but, during the time covered by this statement, the Board
did not consider it appropriate to manage the Group’s risk to such
fluctuation through futures contracts or similar because to do so
would not have been economical at the achieved production levels.
The long term gas supply contract in Chile is indexed to the methanol
price, adding a different risk to the traditional oil & gas exposure.
The sale of oil is subject to certain marketing and quality discounts
such as, inter alia, API quality and mercury content. In the case of the
oil sold in Argentina it is also subject to the impact of the retention tax
on oil exports defined by the Argentine government.
If the market prices of the WTI and methanol would have fallen by
10% compared to actual prices during 2007, with all other variables
held constant, the post tax Group’s net loss would have been higher
by US$877,000.
The Board will adopt a hedging policy when it deems appropriate
according to the size of the business and market implied volatility.
Credit risks – concentration
The Group’s credit risk relates mainly to accounts receivable where
the credit risks correspond to the recognised values. There is not
considered to be any significant risk in respect of the Group’s major
customer. Substantially all oil production in Argentina is sold to
Petrobras, the Brazilian-state oil and gas company, which has good
credit standing.
In Chile, all gas production is sold to the local subsidiary of the
Methanex Corporation (a Canadian public company). All oil produced
in Chile is sold to ENAP, the State-owned oil and gas company. Both
companies have a good credit standing and, despite the concentration
of sales, they do not represent a significant collection risk.
Funding risk
The Company has put together an aggressive development program
for its blocks for 2008. The funding for this program comes from
undisbursed amounts under the Methanex facility, the Company’s
operating cash flow and potential sources which the Company is
continually working on. These sources include the potential farm out of
the blocks in Argentina, the issuance of new shares and the expansion
of the existing financing program.
Interest rate risk
As the Group has no significant interest-bearing assets, the Group’s
income and operating cash flows are substantially independent of
changes in market interest rates. The Group’s interest rate risk arises
from long-term borrowings. Borrowings issued at variable rates expose
the Group to cash flow interest rate risk. The loans from the IFC and
Methanex Corporation accrue variable interest rates which depends
on the rate of LIBOR. For the period covered by these financial
statements, the Group has decided not to buy any coverage for this risk.
The Group analyses its interest rate exposure on a dynamic basis.
Various scenarios are simulated taking into consideration refinancing,
renewal of existing positions, alternative financing and hedging. Based
on these scenarios, the Group calculates the impact on profit and loss
of a defined interest rate shift. For each simulation, the same interest
rate shift is used for all currencies. The scenarios are run only for
liabilities that represent the major interest-bearing positions.
At 31 December 2007, if interest rates on currency-denominated
borrowings had been 1% higher with all other variables held constant,
post-tax loss for the year would have been US$178,000 higher, mainly
as a result of higher interest expense on floating rate borrowings.
Capital risk management
The Group’s objectives when managing capital are to safeguard the
Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may
issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on
the basis of the gearing ratio. This ratio is calculated as net debt divided
by total capital. Net debt is calculated as total borrowings (including
‘current and non-current borrowings’ as shown in the consolidated
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
63
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
B O A R D O F D I R E C T O R S
balance sheet) Total capital is calculated as ‘equity’ as shown in the
consolidated balance sheet plus net debt.
During 2007, the Group’s strategy, which was unchanged from 2006,
was to take the gearing ratio within the 45% to 55% range. The gearing
ratios at 31 December 2007 and 2006 were as follows:
Amounts in US$ ’000
Net Debt
Total Equity
Total Capital
Gearing Ratio
2007
2006
34,741
16,505
32,606
67,347
52%
41,107
57,612
29%
The increase in the gearing ratio during 2007 resulted primarily from
the accelerated investment program for developing the Fell Block
in Chile.
Gerald E. O’Shaughnessy | Executive Chairman
Mr. O’Shaughnessy graduated from the University of Notre Dame with degrees in government and law, and thereafter practiced
law until joining Lario Oil and Gas (his family company and one of the oldest independent oil and gas companies in the USA) as
Senior Vice President. From 1986 to date, Mr. O’Shaughnessy has focused on private venture capital investment activities, including
international oil and gas exploration and development through the Globe Resources Group. In 1992, Mr. O’Shaughnessy acquired
a geophysical service company which co-founded the first energy sector joint venture in Russia during perestroika and from 1992
to 1995 he initiated and managed the largest well servicing and rehabilitation project in Western Siberia, involving sophisticated
logistical operations and the rehabilitation of 700 wells (increasing production from 0 to 100,000 bpd). Mr. O’Shaughnessy’s participation in this
project made him the first western partner of OAO Lukoil, and he subsequently entered into other partnerships with OAO Lukoil including building
and managing one of the world’s largest oilfield pump repair facilities. Mr. O’Shaughnessy co-founded GEOPARK in 2002.
Sir Michael Romilly Heald Jenkins | Non-Executive Director
After graduating from Cambridge University in 1959, Sir Michael joined the British Diplomatic Service and served in several European
capitals, including ten years in the European Commission in Brussels with terms as Chef de Cabinet to the Commissioner for
Regional Policy, Principal Adviser to the EC President Roy Jenkins and Deputy Secretary-General of the Commission. Sir Michael
was Assistant Under-Secretary of State at the Foreign & Commonwealth Office responsible for European affairs and East/West
relations before becoming Minister and deputy head of mission at the British Embassy in Washington D.C from 1986 to 1988.
From 1988 to 1992, he was British Ambassador to The Netherlands. Sir Michael joined the board of investment bank Kleinwort
Benson in 1993 as an executive director and became Vice-Chairman of Dresdner Kleinwort Wasserstein in 1996 with particular focus on the investment
bank’s continental European activities. Sir Michael was a non-executive director of the Dutch insurance group AEGON from 1995 to 2001; Chairman
of the British Group of the Trilateral Commission from 1996 to 1998; and President of Boeing UK from 2003 to 2005 (where he remains as an advisor).
Sir Michael joined GEOPARK in April 2006.
Peter Ryalls | Non-Executive Director
Mr. Ryalls, who joined GEOPARK in April 2006, obtained a Master’s Degree in Petroleum Engineering from Imperial College in
London and began working in the oil industry in 1972 with oil service company Schlumberger in Angola, Gabon and Nigeria. Mr.
Ryalls then joined Mobil North Sea and later Unocal where he worked in increasingly senior positions, including Managing Director
in Aberdeen, and where he developed extensive experience in offshore production and drilling operations in the North Sea and
internationally. In 1994, Mr. Ryalls represented Unocal in the Azerbaijan International Operating Company (AIOC) as Vice President
of Operations based in Baku and was responsible for production, drilling, reservoir engineering and logistics. In 1998, Mr. Ryalls
moved to Buenos Aires, Argentina as General Manager for Unocal in Argentina. He subsequently moved to Louisiana as Vice President of Unocal’s
Gulf of Mexico oil and gas business and then Vice President Global Engineering & Construction of Unocal, responsible for the implementation of all
major capital projects ranging from deepwater developments in Indonesia and the Gulf of Mexico to conventional oil and gas projects in Thailand.
Mr. Ryalls strengths are in risk management across the project development cycle with a strong focus on health, safety and environment.
Christian Maurice Weyer | Non-Executive Director
Christian Weyer is an international banker and financier with over 50 years of experience. Mr. Weyer began his banking career with
Chase Manhattan Bank as a senior credit officer in Paris and Geneva and subsequently worked as an executive at Banque Paribas
until becoming President of Banque Paribas (Suisse) in 1984-5. During his career, Mr. Weyer has been credited with innovating
new forms of trade finance and lines of credit and was instrumental in the growth of several large oil trading firms; as well as
supporting the growth and development of oil and gas exploration companies. From 1988 to 1992, Mr. Weyer was special adviser
to Banque Indosuez for energy matters. Since 1992, he has been President of ENERFIN in Geneva, Switzerland, an advisory firm
providing investment banking services to junior oil and gas companies. Mr. Weyer joined GEOPARK in 2002 as an advisory board member and in
2003 as a Director. In April 2006, he was appointed as a Non-executive Director.
James F. Park | Chief Executive Officer and Deputy Chairman
Mr. Park has extensive experience in all phases of the upstream oil and gas business – with a strong background in the acquisition,
implementation and management of international joint ventures, including assignments in North America, Latin America, Asia,
Europe and the Middle East. He graduated from the University of California at Berkeley with a degree in geophysics, following
which he worked as a research scientist in earthquake and tectonic studies. In 1978, Mr. Park joined an oil and gas exploration
project in Guatemala (Basic Resources International Limited) which pioneered the development of commercial oil and gas production
in Central America and, as a senior executive, was closely involved in the development of the Company (including grass-roots
exploration activities, drilling and production operations, surface and pipeline construction, legal and regulatory issues, crude oil marketing and
transportation, and raising substantial investment funds). He remained as a member of the board of Directors until the company was successfully
sold in 1997. Mr. Park has also participated in projects in California, Louisiana, Argentina, Yemen, and China. Mr. Park has lived in Argentina and
Chile since co-founding GEOPARK in 2002.
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BOARD OF DIRECTORS
65
D I R E C T O R S , S E C R E T A R Y & A D V I S O R S
Directors
Registered Office
Head Office
Gerald Eugene O’Shaughnessy (Executive Chairman)
James Franklin Park (Chief Executive Officer and Deputy Chairman)
Sir Michael Romily Heald Jenkins (Non-Executive Director)
Peter Ryalls (Non-Executive Director)
Christian Maurice Weyer (Non-Executive Director)
Milner House
18 Parliament Street
Hamilton HM 12
Bermuda
Florida 981
Fourth Floor
C1005AAS Buenos Aires
Argentina
+ 54 11 4312 9400
Secretary
Martín Perez de Solay
Nominated Advisor and Broker Oriel Securities
Solicitors to the Company
as to English Law
Solicitors to the Company
as to Bermuda Law
Solicitors to the Company
as to Argentine Law
Solicitors to the Company
as to Chilean Law
Reporting Accountants
and Auditors
Petroleum Consultant
Registrar
Registrar to the Depositary
Norton Rose
Kempson House Camomile Street
London EC3A 7AN
United Kingdom
Cox Hallett Wilkinson
Milner House
18 Parliament Street PO Box HM 1561
Hamilton HMFX
Bermuda
Maciel, Norman & Asociados
San Martin 323, Piso 19
C1004AAG Buenos Aires
Argentina
Aylwin Abogados
Avenida Isodora Goyenechea 3162 Of. 801
Las Condes, Santiago
Chile
Grant Thornton UK LLP
Grant Thornton House Melton Street
London NW1 2 EP
United Kingdom
DeGolyer and MacNaughton
5001 Spring Valley Road Suite 800 East
Dallas, Texas 75244
USA
Computershare Investor Services (Channel Islands) Ltd
Ordnance House, 31 Pier Road
St Helier, Jersey JE4 8PW
Channel Islands, United Kingdom
Computershare Investor Services plc
PO Box 82
The Pavilions, Bridgewater Road
Bristol BS99 7NH
United Kingdom
66
DIRECTORS, SECRE TARY & ADVISORS
67
A N N U A L R E P O R T 2 0 0 7
W W W.G E O - PA R K .C O M