GeoPark Limited Annual Report 2008

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FY2008 Annual Report · GeoPark Limited

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ANNUAL REPORT 2008

ASSETS CAPABILITIES PERFORMANCE OPPORTUNITY COMMITMENT

CONTENTS

Letter to Shareholders from Chairman & CEO

Performance

Assets

Capabilities

32 Opportunity

Commitment

Directors’ Report

Corporate Governance

Directors’ Remuneration Report

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

Notes to the Consolidated Financial Statements

Board of Directors

Directors, Secretary & Advisors

BOTTOM LINE

Production Up
Boepd

Reserves Up
3P mmboe

180 %

123 %

Acreage Up
mm acres

517 %

8000

7000

6000

5000

4000

3000

2000

1000

200

180

160

140

120

100

3.5

2.5

1.5

0.5

2007

2008

2007

2008

2007

2008

Revenues Up
US$ mm

248 %

Operating
Cash Flow Up
US$ mm

Profits Up
US$ mm

-3

-5

-10

-15

-20

2007

2008

2007

2008

2007

2008

DEAR SHAREHOLDERS

For GeoPark, 2008 was a year of results. Positive bottom-line

results produced by the drill bit.

During the year, we exceeded our targets and gained in every

measurement of value growth in our business: oil and gas

production increased, oil and gas reserves grew, revenues and

operating cash flow were higher, net income became positive, the

balance sheet was strengthened, the project portfolio expanded

and our team was improved.

GeoPark's vision to build a successful upstream oil and gas company

has always been based on patiently laying the necessary foundation.

This required long term investments in people, blocks, tools,

know-how, and assembling the right mix of strategic partners.

Our strong performance this year - despite the severity of the world

economic crisis - demonstrates the momentum of our growth

and the durability of our business plan.

In 2006, when GeoPark became a publicly-listed company in

London, our Fell Block in Chile was a nonproducing asset. Today, less

than three years later, GeoPark has developed the Fell Block into

a valuable asset with production of approximately 8,000 barrels

of oil equivalent per day (boepd), a solid base of proven oil and gas

reserves, a reliable operations infrastructure and continuing

attractive and high potential growth prospects. In this short period,

GeoPark became the first private oil and gas producer in Chile - such

that it now produces over 30% of Chile's total oil production and

25% of Chile's total gas production.

The science, capital, experience and drive required to achieve this

result represent the true measure of your Company - as well as the

engine for delivering our continued success.

Letter to Shareholders

LETTER TO SHAREHOLDERS

FOR GEOPARK, 2008 WAS A YEAR OF DELIVERING RESULTS:

IMPORTANT BOTTOM-LINE RESULTS PRODUCED BY THE DRILL BIT

Letter to Shareholders

2008 Performance

•

180% Increase in Oil and Gas Production: Year-end exit

GeoPark's drilling successes in 2008 and 2009 year to date, which

production of over 6,500 barrels of oil equivalent per day (boepd)

are expected to significantly increase the Company's oil and gas

exceeded GeoPark's 2008 production target of 6,000 boepd and

reserves in its next independent engineering appraisal.

represented a 180% increase from its 2007 exit production. Average

annual oil and gas production increased by 138% from 1,425 boepd

•

Attractive Blocks Acquired: In Chile, GeoPark acquired a 30%

during 2007 to 3,390 boepd during 2008. Current production (May

interest in the Tranquilo Block (with Pluspetrol, IPR and Manas) and

2009) is approximately 8,000 boepd consisting of approximately

was awarded, following the Chilean bidding round, a 42% interest

38 million cubic feet per day (mmcfpd) of gas and 1,500 barrels per

in the Otway Block (with Wintershall and Methanex). Both consortia

day (bpd) of oil.

have requested GeoPark to be the Operator. The Otway and

Tranquilo blocks are located in southern Chile near GeoPark's Fell

•

90% Oil and Gas Drilling Success: GeoPark's track record of finding

Block and contain both short term production opportunities and

oil and gas is illustrated by its record of drilling 10 productive

attractive exploration targets. These new blocks, which comprise

wells out of 11 wells completed during 2008 and the rapid

over 12,000 square kilometres (over 3.1 million acres), represent a

commercialisation of this success into production revenue. During

major growth opportunity and demonstrate GeoPark's expansion

the first quarter 2009, two additional wells were successfully tested

strategy in the Southern Cone.

and put on production - resulting in a record of 12 successful wells

out of the last 13 wells completed. The drilling program represented

•

Strategic Funding: In May 2008, GeoPark raised US$23.6 million in

a balance of exploration, appraisal and development wells - and

equity from Chilean institutional investors, the International Finance

included five new field discoveries.

Corporation of the World Bank (IFC) and certain London financial

institutions. The strong interest from the Chilean investment

•

248% Revenues Increase: Oil and gas production revenue

community provides a regional foundation and security for the

increased by over 248% from US$11.0 million in 2007 to US$38.4

Company’s activities and growth plans. The IFC continues to provide

million in 2008.

long term financial and advisory support to the Company as both a

•

Profitability and Cash Flow Growth: GeoPark achieved its first

shareholder and lender.

positive earnings result with a net income of US$3.7 million in 2008

•

Increased Potential: Following the continuous acquisition and

versus a net loss of US$13.8 million in 2007. This positive result

interpretation of geological, geophysical and engineering data on

occurred during an intensive capital investment program of US$58

GeoPark's large block position (3.7 million acres) by the Company’s

million in 2008 and US$39 million in 2007. The Group also reduced

experienced geoscience team, additional new prospects were added

its operating costs per produced barrel by approximately 25% with a

to the expanding portfolio -- thereby ensuring an attractive

consequent reduction in GeoPark's overall breakeven operating cost

inventory of high potential drilling opportunities for 2009 and future

position.

years.

•

41% Growth in Proved Oil and Gas Reserves: As informed

•

Oil and Gas Sales Price Increase: GeoPark increased its gas sale

previously, engineering consultants DeGolyer & MacNaughton

prices by 45% and crude oil sale prices by 56% during 2008.

reported a 123% increase in GeoPark's overall 3P reserves in

GeoPark's Chilean Fell Block gas production was sold at an average

its appraisal of March 2008 - and which included a 41% increase in

price of US$4.70 per thousand cubic feet (mcf ) during 2008

proved reserves to 16.8 million barrels of oil equivalent (mmboe); a

compared to an average gas sales price of US$3.23 per mcf during

9% increase in P2 reserves to 18.8 mmboe; and a 231% increase in

2007 as a result of its new long term gas contract with the Methanex

possible reserves to 91.9 mmboe. These figures do not yet include

Corporation of Canada. The price for Fell Block gas is dependent on

4 Letter to Shareholders

LETTER TO SHAREHOLDERS

Letter to Shareholders 5

IN 2008, GEOPARK GAINED IN EVERY

MEASUREMENT OF VALUE GROWTH: OIL

AND GAS PRODUCTION INCREASED, OIL

AND GAS RESERVES GREW, REVENUES AND

OPERATING CASH FLOW WERE HIGHER, NET

INCOME BECAME POSITIVE, THE BALANCE

SHEET WAS STRENGTHENED, THE PROJECT

PORTFOLIO EXPANDED AND THE TEAM

WAS IMPROVED.

6 Letter to Shareholders

LETTER TO SHAREHOLDERS

2009 Outlook

global methanol prices and current gas prices have declined due

The extent of the global economic crisis and the accompanying oil

to weaker methanol prices worldwide. Crude oil prices increased in

and gas price volatility have compounded the uncertainty in

Chile to an average of US$96 per barrel in 2008 from US$59 per

accurately forecasting future activities. GeoPark, like virtually every

barrel in 2007 and in Argentina to an average of US$46 per barrel

enterprise in every industry today, faces a period of adjustment.

from US$39 per barrel in 2007.

Following its successes in 2008, GeoPark is in the fortunate position

•

Client Project Funding: During 2008, the Company drew down

of having a secure production base and positive cash flow stream -

US$26.3 million to fully utilise the US$40 million funding

coupled with low operating costs and the flexibility of a

facility provided by its gas purchaser, Methanex. The objective of

discretionary investment program that can be maintained, reduced

the financing is to increase gas deliveries to Methanex's large

or increased in the short term depending on the severity or duration

methanol plant located in southern Chile by accelerating GeoPark's

of the downturn. The Company's cost structure allows it to sustain

development of the Fell Block. It is structured as a gas pre-sale

itself in a very low oil and gas price environment.

agreement with a six year pay-back period with an interest rate

of LIBOR even.

Our priorities during this period will be to increase and protect

cash flow by lowering our breakeven operating cost position and by

•

Market Access Infrastructure Expanded: The Company expanded

accessing quick cash flow producing investments within our

the Kimiri Aike Gas Treatment and Compression Plant in Chile during

portfolio. GeoPark's 2009 capital investment program is designed to:

2008, which increased GeoPark's total gas processing and selling

capacity in the Fell Block to over 40 million cubic feet per day

1. Increase oil and gas production and reserves: By drilling new

(mmcfpd). The Kimiri Aike facility permits access for Fell Block gas to

wells (6-9) and performing workovers to explore for new fields and

the regional gas pipeline infrastructure and to the Methanex

to develop existing fields; optimising reservoir performance by

methanol plant - as well as rapid hook-up and commercialisation

hydraulic fracturing and stimulation; performing geological and

of any new discovery wells. During 2008, the Company also

geophysical surveys to increase inventory of drilling opportunities;

constructed new production and storage facilities and 75 kilometres

and constructing additional production facilities to accommodate

of new gas pipelines in Chile.

new well discoveries and production.

•

Strengthened Cost-Effective Organization: During 2008, GeoPark

2. Increase cash flow and improve project economics and

continued to invest in its oil and gas finding, drilling and production

performance: By reducing costs and increasing efficiency in

capabilities. Important improvements were made to the manage-

production operations and administrative management; reducing

ment team, and to the drilling, reservoir engineering, production,

capital expenditures (drilling and facilities) by technological and

geological and finance and administrative departments resulting in

design improvements; continue strengthening core competences

increased cost-efficient operations and increased overall capabilities.

(i.e. the ability to economically find and produce oil and gas); and

The Company also expanded its employee share plans to include

expanding SPEED (GeoPark's integrated safety, shareholder,

all employees.

employee, environmental and community development program).

3. Manage risk: By prioritising projects with short cycle time to

production; re-balancing production profile between oil and gas;

balancing work program exposure between production,

development and exploration projects; expanding funding exposure

and capital sources; and farming-out higher risk / non-core areas.

Letter to Shareholders 7

4. Grow and expand portfolio: By exploiting exceptional current

•

Secure Cash Flow and Asset Base: Our record shows a profitable

availability of growth opportunities by acquiring new projects /

and growing platform of acreage, production, revenues and reserves.

acreage at attractive terms.

In 2009, GeoPark is projecting to invest US$25-35 million (dependent

shows an exceptional technical team supported by the equipment

on oil and gas prices throughout the year) in Chile and Argentina

necessary to do the job and by reliable capital partners.

with the expectation of approximately doubling total annual oil and

•

Right People with Necessary Tools and Capital: Our record

gas production.

Investment Case

•

Proven Performance: Our record shows the ability to plan, execute,

overcome obstacles, seize opportunities and achieve results.

We believe the investment case for GeoPark rests on the substance

consisting of both organic growth and new project acquisition

of five basic building blocks of our business plan. This 2008 Annual

opportunities - coupled with the commercial abilities to buy right.

•

High Growth Potential: Our record shows an attractive portfolio

Report details our collective progress in each area and provides

the rationale for your support.

•

Commitment: Our record shows an in-house culture which values

and protects our shareholders, employees, environment and

communities.

8 Letter to Shareholders

LETTER TO SHAREHOLDERS

We again salute the GeoPark team and express our appreciation and

admiration for its many accomplishments in 2008. The ability and

persistence demonstrated by our Employees, Management and

Directors during these formative years remain our principal strength

and the key to our ability to consistently deliver value growth now

and in the future.

Additionally, we express our appreciation to our Shareholders for

your continued support during 2008. Your management and

employees look forward to the challenges and opportunities of 2009

and to further demonstrating our performance and achievements

throughout the year.

Sincerely,

Gerald E. O'Shaughnessy,

Chairman

James F. Park,

Chief Executive Officer

Letter to Shareholders 9

GEOPARK'S VISION TO BUILD A SUCCESSFUL

COMPANY HAS ALWAYS BEEN BASED ON

PATIENTLY LAYING THE NECESSARY FOUNDATION

--INVOLVING CONTINUOUS INVESTMENTS IN

PEOPLE, BLOCKS, TOOLS AND ASSEMBLING THE

RIGHT MIX OF STRATEGIC PARTNERS

BUSINESS PLAN

Gas Production
Gas Mm3/d

1,000

900

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10 Year in Review / Performance

PERFORMANCE

Tranquilo Block

Otway Block

OUR STRONG PERFORMANCE

THIS YEAR DESPITE
THE SEVERITY OF THE WORLD

ECONOMIC CRISIS PROVES THE

MOMENTUM AND DURABILITY

OF OUR BUSINESS PLAN

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Year in Review / Performance

Argentina

Chile

TRANQUILO

OTWAY

12 Year in Review / Assets

DEL
MOSQUITO

FELL BLOCK

Strait of Magellan

ASSETS

GeoPark's portfolio of oil and
gas assets consists of six
hydrocarbon blocks totaling
approximately 3.7 million gross
acres - with oil and gas
production, proven oil and gas
reserves, operating licenses,
associated infrastructure and
production facilities, an
extensive technical database -
and managed by a team with
a record of success in the region.
The properties represent high
potential blocks (with multiple
play types and objectives that
are offset by major oil and gas
fields) with a large risk-balanced
basket of opportunities
including well reactivation,
stranded and producing field
development and multiple
exploration projects.

Atlantic Ocean

Year in Review / Assets 13

YEAR IN REVIEW

14 Year in Review / Assets

RESERVES AND PRODUCTION / ASSETS

Oil and Gas Reserves

GeoPark has achieved strong oil and gas reserve growth from its

investment activities on its properties and DeGolyer &

MacNaughton, independent petroleum engineers, appraised an

123% increase in 3P reserves in its report dated March 2008. In this

report, DeGolyer & MacNaughton estimated, on four of GeoPark's

six blocks, a total of 16.8 million barrels oil equivalent (mmboe) of

proved reserves, a total of 18.8 mmboe of probable reserves, and a

total of 91.9 mmboe of possible reserves. DeGolyer & MacNaughton

also appraised 45.6 mmboe of contingent resources (best estimate).

Country
Chile

Argentina

GeoPark's important drilling successes realised during the last

three quarters of 2008 and first quarter of 2009 have not yet been

appraised by DeGolyer & MacNaughton. A new reserve appraisal

Total

report is targeted for completion in the third quarter 2009.

Reserve
Type
P1

P1+P2

P1+P2+P3

P1+P2

P1+P2+P3

P1+P2

P1+P2+P3

Oil
(MMBO)
2.0

3.3

7.1

5.3

12.4

0.9

1.8

4.0

2.7

6.7

2.9

5.1

11.1

8.0

19.1

Gas
(BCF)
82.0

81.9

485.5

163.9

649.4

1.0

0.0

1.0

83.0

81.9

485.5

164.9

650.4

BOE
(MMBOE)
15.7

17.0

88.0

32.6

120.6

1.1

1.8

4.0

2.9

6.9

16.7

18.8

92.0

35.5

127.5

The chart to the right summarises the reserves appraised by

DeGolyer & MacNaughton in March 2008. Approximately 95% of the

Company's total oil and gas reserves are in Chile and approximately

5% in Argentina. In this appraisal, gas represents approximately

85% of total reserves and oil represents approximately 15% of total

reserves.

Oil and Gas Production

Production

GeoPark's oil and gas production currently is generated from the

Fell Block in Chile and the Del Mosquito Block in Argentina.

During 2008, approximately 98% of the Company's total oil and

gas production was produced in Chile and approximately 2%

in Argentina. During 2008, gas represented approximately 90% of

the total production and oil represented approximately 10% of

the total production volume.

Oil and gas production is shown in the chart to the right:

500

450

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350

300

250

200

150

100

1,200

1,100

1,000

900

800

700

600

500

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100

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Oil m3/d
Gas Mm3/d

Year in Review / Assets

YEAR IN REVIEW

CHILE

GeoPark became the first private-sector oil and gas producer in

Chile when it began production on the Fell Block in May 2006 and

currently is producing approximately 25% of Chile's oil and gas

production. Its substantial acreage position with over 3.4 million

gross acres (14,420 square kilometres) in Chile represents an

important platform for continued growth and expansion. GeoPark's

blocks in Chile consist of:

GEOPARK PIONEERED PRIVATE

SECTOR OIL AND GAS DEVELOPMENT

IN CHILE - AND NOW CONTRIBUTES

APPROXIMATELY 25% OF

CHILE'S DOMESTIC HYDROCARBON
PRODUCTION

16 Year in Review / Assets

CHILE BLOCKS / ASSETS

Block
Fell

Tranquilo

Otway

Area (Sq Km)
1,780

6,648

5,992

Operator
GeoPark

GeoPark

Basin
Magellan / Austral

Magellan / Austral

Substantial technical data (seismic, drilling and production

information) provides an 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.

Shut-in and abandoned fields also have the potential to be put back

The Blocks are located in the continental Magallanes region in a

on production by constructing new pipelines and plants.

proven oil and gas producing basin (Magellan or Austral Basin) and

Geophysical reinterpretations by GeoPark suggest additional

on trend with recent discoveries to the north in Argentina and to the

development potential in known fields and exploration potential in

south in Tierra del Fuego. The Magallanes region currently produces

new un-drilled prospects and plays - including opportunities in the

all of Chile's oil and gas production. Although it has been producing

Springhill, Tertiary, Tobifera, and Estratos con Favrella formations.

for over 50 years, the basin remains relatively undeveloped with

new exploration frontiers being opened.

Year in Review / Assets

YEAR IN REVIEW

FELL BLOCK

The Fell Block has an area of approximately 440,000 acres (1780

production. Since GeoPark has been Operator, it has carried out

sq km) and its center is located approximately 140 km northeast

693 sq km of 3D seismic and drilled 22 exploration, appraisal and

from the city of Punta Arenas. The Fell Block's northern border

development wells resulting in current oil and gas production of

coincides with the international border between Argentina and

approximately 38 mmcfpd of gas and 1,500 bpd of oil.

Chile and its southern limit is bordered by the Magellan Straits.

The Block is located geologically in the Cretaceous depocenter of

The first exploration efforts began on the Fell Block in the 1950's and

the Magellan Basin - in the northwest area comprising the structural

from then until 2005, ENAP (the Chilean State Oil Company) carried

platform (developing to the east) and the slope (developing

out 2,400 km of 2D seismic and 256 sq km of 3D seismic and drilled

to the west). The source rocks relate to the Estratos con Favrella

146 wells. In 2006, GeoPark became Operator and 100% interest

(Cretaceous) deposits. The principal producing reservoir is

owner of the Fell Block when the Fell Block had no oil and gas

the Springhill formation sandstone (Lower Cretaceous) at depths of

Year in Review / Assets

CHILE BLOCKS / ASSETS

2,500 - 3,500 metres. Other potential reservoirs, which have tested

and produced hydrocarbons, include the Tobifera (Jurassic)

volcaniclastics (2,600 to 3,600 metres) and the Upper Tertiary and

Upper Cretaceous sandstones (700 to 2,000 metres). Trap types are

fundamentally structural traps defined by anticlines developed in

the basement and involving the Cretaceous and Tertiary sequences.

Stratigraphic and combined traps are developed in the southern

and northern sector of the Block.

GeoPark's geoscience team has identified a large and attractive

inventory of prospects and drilling opportunities on the Fell Block -

Year in Review / Assets

SantiagoAtacama desertPampasPatagoniaChileArgentinaFellBuenos AiresArgentinaChileFellStrait ofMagellanYEAR IN REVIEW

GEOPARK'S TRACK RECORD OF FINDING

OIL AND GAS IS DEMONSTRATED BY

ITS RECORD OF DRILLING 12 PRODUCTIVE

WELLS OUT OF THE LAST 13 WELLS

COMPLETED - AND THE RAPID

COMMERCIALISATION OF THIS SUCCESS

INTO PRODUCTION REVENUE

including both exploration and development projects - and the

Company intends to continue its successful drilling program over

the coming years. The recent oil discoveries in the Alakaluf and

Aonikenk fields have opened up a new oil potential in the

northeastern portion of the Block where additional prospects have

been identified. Increased oil production on the Fell Block will

further balance the hydrocarbon stream which is currently weighted

towards gas. In the Santiago Norte Field Complex, DeGolyer &

MacNaughton estimated approximately 427 bcf of 3P gas reserves

and approximately 174 bcf of contingent gas resources. GeoPark is

currently developing a reservoir stimulation and development

program to further test and exploit this substantial gas resource

potential.

The chart below summarises GeoPark's successful drilling program

on the Fell Block during 2008:

Well name

Selknam 1

Cerro Sutlej 1

Puesto Ranger 1

Bump Hill 1

Aonikenk 1

Nika Oeste 3

Santiago Norte 5

Estancia Zunilda 1

Ovejero 2

Dicky 15

Manekenk 1

Aonikenk 2

Alakaluf 1

Monte Aymond 33

Yagan 1*

Well type

Exploration
Appraisal
Exploration

Exploration

Development

Appraisal

Development

Appraisal

Exploration

Appraisal

Exploration

Appraisal

Hydrocarbon /

Formation
Oil / Springhill

Gas / Springhill

Status

Waiting on Completion

On Production

Gas / Springhill

Temporarily Abandoned

Gas / Springhill

Oil / Springhill

Gas / Springhill

On Production

Oil / Springhill

Waiting on Completion

Oil / Springhill

Gas / Springhill

On Production

* Drilled and completed first quarter 2009.

Year in Review / Assets

CHILE BLOCKS / ASSETS

Year in Review / Assets 21

YEAR IN REVIEW

Year in Review / Assets

OTWAY BLOCK

The Otway Block consists of an area of approximately 1,480,000

acres (5,992 sq km) and is located approximately 110 km from the

city of Punta Arenas. The Block consists of onshore areas (Peninsula

Brunswick and Isla Riesco) and offshore areas (Seno Skyring and

Seno Otway). The first hydrocarbon exploration activities began in

the 1920's and during the 30's and 40's several wells were drilled

with gas manifestations. To date, 31 wells have been drilled and 875

km of 2D seismic carried out on the Block. During a drilling

campaign in the 1970's, gas was tested in three structures on the

Block.

GeoPark is the Operator of the Otway Block and holds a 42%

working interest participation. Other partners in the Block are

Wintershall Energia of Germany (42%) and Methanex Corporation of

Canada (16%). Historically, the Block has tested and produced oil

and gas, however, there is currently no oil or gas production and no

reserves have been independently appraised by GeoPark's

engineering consultants on the Block.

Geologically, the Block is located in the Magellan Basin's northwest

area comprising the Folded Belt and Thrust Front and the Tertiary

Foreland Basin. The source rocks relate to the deep marine basal

Cretaceous deposits. The proven reservoirs with production history

relate to the Agua Fresca formations marine and/or deltaic

sandstones at depths of 200-1,500 metres. Other potential reservoirs

include the Chorillo Chico sandstones (1,500 to 1,900 metres)

and the Loreto formation (Upper Tertiary) and Rocallosa and Rosa

formations (Upper Cretaceous). Trap types are fundamentally

SantiagoAtacama desertPampasPatagoniaChileArgentinaOtwayTranquiloBuenos AiresChileOtway BlockChileArgentinaTranquiloArgentinaChileFellStrait of`Magallanes
CHILE BLOCKS / ASSETS

structural traps defined by anticlines developed in the Folded Belt

Pluspetrol Corporation of Argentina (30%), IPR Energy of USA (20%)

and Thrust Front and involving the basement and Cretaceous

and Manas Petroleum of Switzerland (20%). Historically, the Block

and Tertiary sequences. Stratigraphic traps are developed toward

has tested and produced oil and gas, however, there is currently no

the Foreland Basin in the northern sector of Peninsula Brunswick

oil or gas production and no reserves have been independently

including Upper Cretaceous and Lower Tertiary deltaic and

appraised by GeoPark's engineering consultants on the Block.

turbiditic deposits.

Geologically, the Tranquilo Block is located in the Magellan Basin's

GeoPark's current exploration focus is in the Folded Belt (southern

northwest area, comprising the Folded Belt and Thrust Front and the

and central areas of Peninsula Brunswick and western portion of

Tertiary Foreland Basin. The source rocks relate to the deep marine

Isla Riesco). In the eastern sector, there is the potential of gas

basin Cretaceous deposits. The proven reservoirs with production

accumulations in stratigraphic traps in the Upper Tertiary. GeoPark is

history relate to the Loreto formations deltaic sandstones at depths

currently performing geological and geophysical surveys to further

of 500-700 metres. Other potential reservoirs include the Chorillo

delineate the Block's potential. Existing wells are also being studied

Chico (Basal Tertiary) sandstones and the Rocallosa (Upper

to determine the feasibility of early production opportunities in

Cretaceous) sandstones. Trap types are fundamentally structural

the sector of Peninsula Brunswick.

traps defined by anticlines developed in the Folded Belt and Thrust

TRANQUILO BLOCK

Front involving the basement and Cretaceous and Tertiary

sequences. Stratigraphic traps are developed toward the Foreland

Basin including Upper Tertiary deltaic and turbiditic deposits.

The Tranquilo Block extends over an area of approximately

GeoPark's current exploration focus is in the Folded Belt, Esperanza,

1,643,000 acres (6,648 sq km) and is located approximately 110 km

Kerber and Diana areas. In the southeast sector, there is the potential

northwest of Punta Arenas. The first hydrocarbon exploration efforts

of gas accumulations in stratigraphic traps. GeoPark is currently

began in the 1940's and the Tranquilo gas field was discovered in

performing geological and geophysical surveys to further delineate

1958. To date, ENAP has drilled 21 wells and carried out 1,428 km of

the Block's potential. Early geological re-interpretations suggest the

2D seismic on the Block.

potential for a very large structure in the Esperanza-Gales region.

Existing wells are also being evaluated to determine the feasibility of

GeoPark is the Operator of the Tranquilo Block and holds a 30%

early production opportunities in the Esperanza area.

working interest participation. Other partners in the Block are

Year in Review / Assets

YEAR IN REVIEW

ARGENTINA

GeoPark has interests in the following blocks in Argentina:

Block
Del Mosquito

Cerro Doña Juana

Loma Cortaderal

Area (Sq Km)
485

115

Operator
GeoPark

GeoPark

Basin
Austral

Neuquén

DEL MOSQUITO BLOCK

CERRO DOÑA JUANA &
LOMA CORTADERAL BLOCKS

The Cerro Doña Juana and Loma Cortaderal Blocks (47,959 total

acres) are located in the Neuquén Basin (west-central Argentina)

which represents 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 Del Mosquito Block is located in the Austral basin in southern

Argentina. The Austral Basin produces nearly ten per cent of

The blocks are located in the Andean fold and thrust belt, along a

Argentina's total oil production and nearly twenty per cent of its

proven producing fairway, where large hydrocarbon accumulations

total gas production. (Although the Fell and Del Mosquito Blocks

exist. There are excellent source rocks, multiple reservoir objectives

are located in different countries, they are situated in the

and large structural traps. The oil potential on the blocks can be

same geological basin and, at their closest point, are less than 20

characterized as high risk with potentially high associated costs.

kilometres apart.)

GeoPark is the operator of the Cerro Doña Juana and Loma

The Del Mosquito Block (120,000 acres) is surrounded by

Cortaderal Blocks and has a 100 per cent working interest in each

producing oil and gas fields to the north, south, east and west.

block. In 2007, GeoPark established oil production on the Loma

There is oil production currently from two fields and there is good

Cortaderal Block after repairing an existing well. (The well is currently

infrastructure, nearby gas plants and pipelines and an easily

shut-in waiting for a workover). In accordance with prevailing

accessible crude oil market (40 kilometres by truck). Eighty per cent

regulations, GeoPark relinquished approximately 36% of the two

of the block is at an early stage of exploration covered by few wells.

blocks back to the province of Mendoza at the end of 2007.

Two 3D seismic surveys, totaling an area of 355 square kilometres,

Further geological studies were performed on the blocks during

cover approximately 73 per cent of the block and GeoPark's

2008 with the expectation of developing a future exploration and

geoscience team has identified and delineated multiple potential

development program and providing a basis for potentially

hydrocarbon-bearing prospects. The potential of the

farming-out the blocks.

Lower Magallanes and Tobifera geological formations has been

underexplored.

GeoPark is the operator of the Del Mosquito Block and has a 100

per cent working interest. GeoPark established oil production

on the block 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. In accordance with prevailing regulations, GeoPark

relinquished approximately 38% of the Del Mosquito Block back to

the province of Santa Cruz at the end of 2008. GeoPark is evaluating

potential drilling opportunities on Del Mosquito and also

evaluating the option of bringing a partner into the project to

increase investment activity.

24 Year in Review / Assets

ARGENTINA BLOCKS / ASSETS

Year in Review / Assets

SantiagoAtacama desertPampasPatagoniaChileArgentinaDel MosquitoBuenos AiresLoma CortaderalDoña JuanaChileArgentinaDelMosquitoAtlanticOceanLomaCortaderalBlockCerro Doña JuanaBlockArgentinaYEAR IN REVIEW

THE UNDERLYING PRINCIPLE OF

GEOPARK'S LONG TERM STRATEGY IS TO

ATTRACT AND INVEST IN THE BEST

PEOPLE AND SUPPORT THOSE PEOPLE

WITH THE PROPER TOOLS AND

FINANCIAL RESOURCES NECESSARY
TO ACHIEVE SUCCESS

Year in Review / Capabilities

GeoPark deems it critical to continuously develop creative and long

term solutions to build its capabilities and acquire the capital, tools,

and people necessary to achieve its growth plans. The Company’s

record of performance demonstrates that its attention to these basics

are creating an important differentiating factor and 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 and endure in an international

PEOPLE / CAPABILITIES

oil and gas venture. GeoPark's team has a history of proven technical

organizational restructuring to insure the right people are in the

and commercial performance in frontier and complex projects in

right jobs. As GeoPark continues to grow, its management and

Latin America and around the world, as well as in the specific

structure need to continuously evolve to meet new demands and

geological basins where the Company operates. Most of GeoPark's

opportunities. The Company also is continuously working to reduce

employees joined from other larger companies with the ambition to

costs in order to increase profitability and to expand its range of

help build GeoPark into a successful and unique company -

new opportunities. A lower cost structure permits the Company to

incorporating the best they had learned over their careers.

reduce risks and participate in a broader range of projects.

During 2008, GeoPark continued to improve its organization to

GeoPark is managed from its head office in Buenos Aires, Argentina and

ensure its ability both to effectively develop and cost-efficiently

from its field operating and administrative offices in Punta Arenas and on

manage its assets. This included adding key managers and

the Fell Block in Chile and in Rio Gallegos and on the Del Mosquito Block

employees in Senior Management, Geoscience, Drilling, Production,

in Argentina.The Company has legal offices located in Santiago, Chile

Safety, Environmental and Support Departments - as well as

and Hamilton, Bermuda and a representative office in London, England.

Year in Review / Capabilities

YEAR IN REVIEW

Year in Review / Capabilities

TOOLS AND INFRASTRUCTURE / CAPABILITIES

TOOLS AND INFRASTRUCTURE

In new regions such as Chile where oilfield services are scarce or

in tight oilfield equipment supply markets (as recently experienced),

GeoPark works to develop solutions to ensure the availability of

needed services and equipment - including drilling and workover

rigs. In order to commercialise its oil and gas reserves, GeoPark also

invests in and builds the infrastructure (plants and pipelines)

necessary to produce, process, store and transport its hydrocarbon

reserves to market.

Examples of these projects in 2008 include:

•

Operated a drilling rig with a depth capacity of 10,500 feet

contracted from Quintana WellPro (US/Argentine drilling contractor)

under a three year contract, with an option for an additional two

years. This rig was imported from China as a result of the tight local

rig market. The Quintana rig was used to drill thirteen wells in 2008.

•

Created a new service company subsidiary - Southern Cross Services

- to own and operate a workover rig for testing and completion

operations. The workover rig was assembled and rebuilt during 2007

and, during 2008, was used to test and complete fourteen wells.

•

Expanded the capacity of the Kimiri Aike gas production plant (dew

point and compression facility) on the Fell Block from 24 million

cubic feet per day of gas to 35 million cubic feet per day with the

addition of another compressor. This expanded GeoPark's total gas

processing and selling capacity to 40 million cubic feet per day.

The Kimiri Aike facility, which originated in Bolivia and is being

leased from the Exterran Compression Company under a long term

contract, was put into operation during 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.

•

Built new oil and gas production gathering centers and constructed

an additional 75 kilometres of gas pipelines on the Fell Block to

connect new oil and gas fields to production. Approximately 125

kilometres of gas pipelines have been built on the Block since 2006.

Year in Review / Capabilities

YEAR IN REVIEW

CAPITAL

To successfully participate in the capital-intensive oil and gas

•

2007

business, GeoPark is continuously developing potential funding

Methanex Gas Pre-Sale Facility providing for GeoPark to borrow up

sources to ensure the efficient development of its assets. To date,

to US$40 million from Methanex in order to increase development

over US$150 million has been raised by GeoPark - demonstrating its

investment on the Fell Block.

ability to attract the capital and strong shareholders needed to

Conditions include:

facilitate its future growth.

- Pay back in gas production over six years

- Interest rate paid on borrowed funds of LIBOR flat

Each year, GeoPark has made progress in strengthening its

balance sheet through new funding, increased revenues and debt

•

2008

repayments. Key financings included:

New equity funding of approximately US$24 million (3,080,000

•

2006

shares at GBP 3.94) in May 2008 from a strategic block of Chilean

investors and pension funds, the IFC and certain London

International Finance Corporation of the World Bank (“IFC”) equity

institutional investors. The placing, which was limited to 10% of the

investment in February 2006 for US$10 million following a thorough

current issued share capital of the Company, was significantly

technical, financial and environmental review of GeoPark.

oversubscribed.

Admission to the London Stock Exchange Alternative Investment

•

2009

Market (AIM) in May 2006 which resulted in:

New equity funding of approximately US$11.7 million (3,437,000

- US$35 million for new capital investment

shares at GBP 2.25) in May 2009 from a strategic block of GeoPark's

- Access to the capital markets

founders, directors and shareholders and including the IFC and

- A base of strong institutional shareholders

certain London and Chilean institutional investors. The placing,

- Improvement in GeoPark's ability to attract, recruit and retain key

which was limited to 10% of the current issued share capital of the

employees

- Potential acquisition currency

Company, was significantly oversubscribed. (This event and funding

occurred following the issue of the 2008 accounts and was not

reviewed by the Auditors or included in the 2008 audited results).

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.

30 Year in Review / Capabilities

World Bank GroupInternationalFiananceCorporationCAPITAL / CAPABILITIES

TO SUCCESSFULLY PARTICIPATE IN THE

CAPITAL-INTENSIVE OIL AND GAS BUSINESS,

GEOPARK IS CONTINUOUSLY DEVELOPING

STRATEGIC FUNDING SOURCES TO

ENSURE THE EFFICIENT DEVELOPMENT

OF ITS ASSETS.

Year in Review / Capabilities 31

YEAR IN REVIEW

GEOPARK INTENDS TO LEVERAGE ITS STRATEGIC OPERATING

BASE AND TECHNICAL CAPABILITIES TO EXPAND

THROUGHOUT LATIN AMERICA -- A RICH UNDEREXPLORED

REGION WITH AN ECONOMIC FUTURE DEPENDENT

ON THE DEVELOPMENT OF SECURE ENERGY SUPPLIES.

32 Year in Review / Opportunity

OPPORTUNITY

GeoPark is focused on Latin America because of its:

•

Resource Base: vast under-explored areas and opportunity for expansion

Regulatory Environment: competitive 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 risk balance

Market: substantial immediate and long term energy requirements

Trends: regional industry reorientation favours smaller technically-

proficient companies

Year in Review / Opportunity 33

SantiagoChileArgentinaBuenos AiresYEAR IN REVIEW

GROWTH

GeoPark's management believes shareholder value is increased most

Its full-cycle exploration and production work program allows the

by the discovery and addition of new oil and gas reserves and that

Company to move forward along different lines simultaneously and

these reserves are most economically discovered and developed

independently. This available mix of rehabilitation, development,

in areas in or nearby existing oil and gas fields. GeoPark's business

exploration and acquisition opportunities allows GeoPark to balance

plan is based on its:

its risk exposure and ensure continuous growth.

•

Technical strength in economically finding, developing and

Organic Growth

producing new and bypassed oil and gas reserves;

Commercial capabilities in acquiring high potential assets at

With over 3.7 million gross acres and a large and balanced prospect

attractive prices; and

inventory, GeoPark has an attractive land position and high growth

Risk-management in expanding the portfolio, increasing options

potential from its existing properties.

and protecting against uncertainties.

GeoPark's opportunity portfolio includes multiple in-house projects

to drill 6-9 new wells and to expand its production facilities and

and a strategic base from which to pursue a targeted acquisition

infrastructure in Chile and Argentina. The program is targeted

plan, which is expected to include both asset and corporate targets.

to develop existing fields and discover new fields in order to both

In 2009, GeoPark will pursue a US$25-35 million investment program

34 Year in Review / Opportunity

GROWTH / OPPORTUNITY

GEOPARK'S GROWING OPPORTUNITY PORTFOLIO

CONSISTS OF A LARGE RISK-BALANCED DRILLING

PROSPECT INVENTORY ON EXISTING ACREAGE AND

AN ATTRACTIVE CATALOGUE OF UNDERVALUED

ACQUISITION PROJECTS.

increase oil and gas production and increase oil and gas reserves -

development opportunities with attractive exploration acreage,

with the objective of increasing total annual oil and gas production

utilising where applicable, various forms of participation including

(boepd) by approximately 100%. Efforts also will be focused on

block acquisitions, farm-ins, corporate transactions, work and

increasing oil production to balance current high gas production,

investment commitments and/or operator-earned interests. In the

improving reservoir performance by fracture stimulation programs,

current world economic climate, GeoPark has identified several

expanding the prospect inventory, and increasing the efficiency

attractive properties which have become available for acquisition

of all expenditures. Exploration and early production start-up efforts

at favorable terms.

will also begin on GeoPark's large new blocks in Chile - Tranquilo

and Otway - where some attractive targets are now being identified.

With its team and platform in Latin America, GeoPark is well

New Projects

positioned to assess and participate in these opportunities. This

position is further enhanced by GeoPark's strategic relationships

with the IFC (World Bank), ENAP (Chilean State Oil Company),

GeoPark intends to leverage its strategic operating and

and Methanex (largest regional gas consumer) - as well as its

management base and its technical and commercial capabilities to

extensive Latin American operating experience.

acquire new assets where suitable opportunities arise. The Company

is targeting assets which bring a mix of production and

Year in Review / Opportunity

YEAR IN REVIEW

36 Year in Review / Opportunity

MARKET / OPPORTUNITY

MARKET

Natural Gas

Crude Oil

GeoPark has continued to benefit from the major changes

Crude oil markets in the region are both accessible and secure.

undergoing the regional gas markets. In particular, the supply of gas

In Chile, GeoPark's crude oil and condensate production are sold to

from Argentina to Chile has been severely limited and, as the only

ENAP (the Chilean State Oil Company) and delivered by truck from

private-sector oil and gas producer currently in Chile, this market

the GeoPark wells to ENAP's refining facilities or pipeline access.

shift has substantially increased the value of GeoPark's Chilean gas

The sales price is equivalent to WTI less quality adjustments (based

reserves.

on degrees API and mercury content). To accommodate increased oil

deliveries, GeoPark has also built truck reception, metering and

Located approximately 140 kilometres from GeoPark's Fell Block,

storage facilities at the ENAP San Gregorio refinery.

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

In Argentina, GeoPark's oil production is sold to Petrobras (the

produce over 10 per cent of the world's methanol supply. Over sixty

Brazilian State Oil Company) at WTI less quality and Argentina

percent of the Methanex gas supply, which historically has

retention tax adjustments. GeoPark's crude oil is trucked to a local

originated in Argentina, was cut-off by Argentina export duties and

facility located 40 kilometres from the Del Mosquito field.

restrictions in 2007; thereby creating an important market

opportunity for GeoPark. As a result, GeoPark entered into a strategic

alliance with Methanex providing for a ten year gas purchase and

supply contract at an improved gas price (linked to the international

price of methanol) and with the opportunity to pre-sell gas to

generate future work program funding and to jointly acquire new

hydrocarbon blocks in Chile. This marketing alliance has

substantially de-risked GeoPark's Chile investment activities.

Year in Review / Opportunity

YEAR IN REVIEW

COMMITMENT

Long term success for international resource companies depends

•

GeoPark is committed to minimising the impact of our projects on

upon solving complex logistical and operational challenges,

the environment. As our footprint becomes cleaner and smaller - the

overcoming competition for new opportunities and good people,

more areas and opportunities will be opened up for us to work in.

and meeting a broadening set of demands and standards from local

Our long term well-being requires us to properly fit within our

governments and core constituencies. Meeting these challenges

natural surroundings.

and performing to these new standards are what differentiate a

successful company from the rest of the pack.

GeoPark's specific methodology is focused on undertaking realistic

and practical programs based on best world practices. Our emphasis

“Creating Value and Giving Back” represents GeoPark's integrated

is on building key principles and company-wide ownership and

and market-based approach for meeting these challenges

then expanding programs from within as we continue to grow. Our

and achieving our objectives through the alignment of our values,

comprehensive in-house designed EHSS management program,

responsibilities and business goals.

entitled S.P.E.E.D. (for Safety, Prosperity, Employees, Environment and

Community Development), is being developed in accordance with:

GeoPark's overall business plan is to create long term value by

ISO 14001 for environmental management issues; OSHA 18001

finding and producing energy, based on good science and efficient

for occupational health and safety management issues; SA 8000

operations, and to return that value to our core constituencies,

for social accountability and worker rights issues; the Development

which we define as our: Shareholders, Employees, Communities

Standards of the World Bank; and the Quoted Companies Alliance

and Environment.

standards for good corporate governance.

•

GeoPark is committed to delivering significant bottom-line financial

“Creating Value and Giving Back” represents GeoPark's underlying

value to our shareholders. Only a financially-healthy company

value system which provides us the leadership, confidence

can continue to grow, attract needed resources and create real long

and foundation required for long term success. It is our competitive

term benefits.

advantage. And, it reflects our pride in achieving an important

mission in the right way.

•

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, protect, retain

and train the best team with the best attitude will always prevail.

•

GeoPark is committed to being the preferred neighbour 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.

38 Year in Review / Commitment

COMMITMENT

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.

Year in Review / Commitment 39

40 Directors’ Report

Directors’ Report

The Directors submit their report together with the audited consolidated

A description of financial risk management objectives and policies of the

financial statements of GeoPark Holdings Limited (the Company) for the year

Group, together with the principal risks to which the Group is exposed,

ended 31 December 2008. The Company and its subsidiaries together are

is contained in Note 30 to the financial statements.

referred to herein as the Group.

Addresses
The business address of the Group’s Head Office is Florida 981, 4th Floor,

Costs of Exploration and Appraisal
Oil and gas exploration and production properties and assets are accounted

for by the Group in accordance with the “successful efforts” method of

1005 Buenos Aires, Argentina.

accounting for exploration and appraisal costs:

The Registered office address is Milner House, 18 Parliament Street, Hamilton

- Drilling costs of the exploratory wells, including wells for stratigraphical

HM 12, Bermuda. The Company has a representative office at 35 Piccadilly,

tests, and 3D seismic are capitalised as intangible fixed assets in cost centres

London, United Kingdom.

by field or exploration area as appropriate, pending the determination of

commercial reserves. If those reserves are not found, these costs are written

Principal Activity
The principal activity of the Group in the period under review was to

off. Following the discovery of a commercially viable field, the attributable

costs are transferred to property, plant and equipment in single field cost

produce, develop and explore for oil and gas reserves in the Fell and Tranquilo

centres.

Blocks in Chile and in the Del Mosquito, Cerro Doña Juana and Loma

Cortaderal Blocks in Argentina. In addition, the Group was awarded, following

- Exploration expenditures incurred in the process of determining exploration

the Chilean bidding round, an interest in the Otway Block in Chile.

targets and other exploration costs not directly relating to drilling of

Business Review
The business review contains the following components:

- Development and property acquisition costs incurred in development wells

- a fair review of the business of the Company; and

(including seismic surveys for development purposes) and production

- a description of the principal risks and uncertainties facing the Group.

facilities and machinery are capitalised within property, plant and equipment.

exploratory wells are written off as incurred.

The business review is a balanced and comprehensive analysis of the

- Costs related to works that increase the total commercially recoverable

development and performance of the business of the Company during the

reserves or speed up the extraction of reserves are included in the carrying

year and its position at the year end. The review includes an analysis using

amount of the asset and are depreciated using the unit of production

financial and non financial key performance indicators to the extent that

method.

these are necessary for an understanding of the development, performance

and position of the Group. Where appropriate, the Annual Report uses other

- Licence acquisition costs are included in the total exploration cost to be

performance indicators, including information relating to employees, health

tested for impairment if any indicators exist.

and safety and the environment. The review, where appropriate, includes

references to, and explanations of, amounts included in the annual accounts.

- Commercial reserves are proved and probable oil and gas reserves

The requirements of the business review are fulfilled in the disclosures

contained within the Year In Review on pages 10 to 39 ; the Chairman’s and

Chief Executive’s Letter to Shareholders on pages 2 to 9 and the Corporate

Governance report on pages 44 to 45.

as defined in chapter 19 of the listing rules of the United Kingdom Listing
Authority (UKLA).

Directors’ Report 41

Functional 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). The functional currency of

Group companies incorporated in Bermuda (including the parent company)

is the US Dollar.

For the Argentine subsidiaries, the functional currency continues to be the

Argentine Peso.

Results and Dividends
The Group’s profit after tax for the year has increased to US$3,651,000 from a

loss of US$ 13,808,000 in 2007. The cumulative earnings for the Group are

negative (US$ 19,207,000), and therefore the Directors do not recommend the

The consolidated financial statements are presented in US Dollars, which is

payment of any dividend for the period ended 31 December 2008; (2007: nil).

the Group’s presentational currency.

The Group is currently reinvesting all cash generated by its operations and

intends to continue to reinvest these funds for the near future.

Based on the rapid growth of the Company’s operations in Chile during 2008

and the funding strategy followed, the Directors have concluded that the

functional currency for the Chilean subsidiaries has effectively changed to

Events since the Balance Sheet Date
Since 31 December 2008, GeoPark successfully completed and tied into

US Dollars. Therefore, effective from 1 January 2008, the Chilean subsidiaries

production the Alakaluf 1 and Monte Aymond 33 wells and drilled, completed

changed the functional currency from Chilean Pesos to US Dollars.

and tied into production the Yagan 1 well. These results together with the

As there has been a change in the underlying transactions, conditions and

success of the 2008 drilling program enabled the Group to reach

events, IAS 21 requires the change to be accounted for prospectively

approximately 8,000 boe per day of oil and gas production during April 2009.

from the date of change and the comparatives have not been restated.

Directors’ Interests
The Directors who served the Company during the year and subsequently,

together with their (and their families’) beneficial interests in shares in the

Company, were as follows:

Name

Re-Appointment

Audit

Nomination

Remuneration

31 December 2008

Ordinary Shares of

Committees

USD 0.001 Each at

Gerry O’Shaughnessy
Executive Chairman

James F. Park
Chief Executive Officer

Sir Michael Jenkins
Non Executive Director

Christian Weyer
Non Executive Director

Juan Cristóbal Pavez
Non Executive Director

Peter Ryalls
Non Executive Director

13 August
2008 (*)
13 August
2008 (*)
13 August
2008 (*)
13 August
2008 (*)
13 August
2008 (*)
13 August
2008 (*)

6,617,925

6,943,068

32,370

203,596

658,709

(**) 25,230

Committee Member

Committee Chairman

(*) Most recent reappointment date

(**) Not issued

Directors’ Report

Supplier Payment Policy
The Group makes payments to its suppliers in accordance with the agreed

Going Concern
The current global economic conditions have created uncertainties,

terms of each transaction. Trade creditors of the Group at 31 December 2008

particularly over future oil and gas prices and the availability and cost of new

were equivalent to 73 days’ purchases (2007: 62), based on the year end

finance. The Directors regularly monitor the Group’s cash position and

balance.

Charitable and Political Donations
During 2008, the Group made charitable donations of US$ 16,645 (2007:
US$ 14,285). For its community development efforts, the Group encourages
the development of new local businesses by contracting services and

liquidity risks throughout the year to ensure that it has sufficient funds to

meet forecast operational and investment funding requirements. Sensitivities

are run to reflect latest expectations of expenditures, oil and gas prices

and other factors to enable the Group to manage the risk of any funding

short falls and/or potential loan covenant breaches. As highlighted in Note 30,

the Group remains in discussion with different financing sources to assist

people for its needs and work program where it operates.

with funding its 2009 capital expenditure program.

No political donations are made by the Group.

The Directors prepare detailed cash flow forecasts under different scenarios

that include the Group not obtaining additional financing. Such detailed

Directors’ Remuneration
Executive and Non Executive Directors remuneration is discussed in the

short term cash flow forecasts are prepared for a period in excess of one year

from the balance sheet date. These cash flow forecasts are based on current

Director’s Remuneration Section.

Safety and Environment
GeoPark seeks to ensure that its operations are conducted in a safe manner

oil and gas prices and operating costs. In the event that global economic

conditions worsen and oil and gas prices fall further, the Directors would

be able to manage the resulting impact on the Group’s cash position by

implementing cost reductions, deferring capital expenditure commitments

and to minimise any impact on the environment. During 2008, the Group

and selling non core assets.

has continued to develop its integrated SPEED Program which establishes

objectives, benchmarks and monitoring processes regarding Safety,

After making enquiries, the Directors have formed a judgement, at the time

Prosperity, Employees, Environment and Community Development. The

of approving the financial statements, that there is a reasonable expectation

SPEED Program is described in the section titled “Commitment”.

that the Group has adequate resources to continue in operational existence

Auditor
Grant Thornton UK LLP offers themselves for reappointment as auditor.

for the foreseeable future. For this reason, the Directors have continued

to adopt the going concern basis in preparing the consolidated financial

statements.

Nomad
Oriel Securites Limited is the Company’s Nominated Advisor under the AIM

On behalf of the Board

rules of the London Stock Exchange.

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.

James F. Park

Further details will be set forth in the formal Notice of Meeting.

5 May 2009

Chief Executive Officer

Directors’ Report

Corporate Governance

GeoPark is committed to maintaining high standards of corporate

and policy, acquisition and divestment proposals, approval of major capital

governance which it defines as managing the Group in an efficient, effective

investments, risk management policy, significant financing matters and

and entrepreneurial manner for the benefit of all shareholders over the

statutory shareholder reporting.

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.

Board Members
The composition of the Board is a key factor in ensuring that the right mix of

skills and experience are in place to lead the Group. Chairman and Chief

GeoPark’s good corporate governance goals include:

Executive roles are not exercised by the same individual and the Company

has at least two independent non Executive directors. All directors are

- Efficiency: a governing body of an appropriate size to permit efficient

submitted to re-election at regular intervals. The Board is responsible to

decision-taking with transparency for major decisions, clear definition

shareholders for the proper management of the Group.

of responsibilities and performance targets, and procedures in place to

protect and ensure protection of the Company’s assets.

The Chairman is responsible for the effective running of the Board, ensuring

that the Board plays a full and constructive part in the development and

- Effectiveness: a governing body with the required skills, provided with

determination of the Group’s strategy, and acting as guardian and facilitator

the proper information and collectively involved to make the best decisions

of the Board’s decision-making process.

for the Company.

- Entrepreneurial: definition of a vision for the Company with an

proposing and developing the Group’s strategy and overall commercial

understanding of goals, timing and necessary resources.

objectives in consultation with the Board and, as leader of the Executive team,

implementing the decisions of the Board and its Committees. In addition,

- Shareholder Common Good: decisions taken which consider the good of

the Chief Executive is responsible for maintaining regular dialogue with

all shareholders and which, if they involve management, major shareholders

shareholders as part of the Group’s overall investor relations program.

The Chief Executive is responsible for managing the Group’s business,

and other related parties, are reported in a transparent manner.

Board Matters
The role of the Board is to provide strategic leadership, guidance and

The Board comprises:

Executive Directors:

- Gerald E. O’Shaughnessy - Chairman

perspective to the business on behalf of the shareholders and to ensure that

- James F. Park - Chief Executive Officer

the risks and rewards of the business are properly managed through

different phases of the industry’s cycle.

Non Executive Directors:

- Sir Michael R. Jenkins

The Board sets the Group’s strategic aims, ensuring that the necessary

- Christian M. Weyer

resources are in place to achieve those aims, and reviews management

- Juan Cristóbal Pavez

and financial performance. It is accountable to shareholders for the creation

- Peter Ryalls

and delivery of strong, sustainable financial performance and long-term
shareholder value. To achieve this, the Board directs and monitors the Group’s

Together, the Executive and Non Executive Directors bring a broad range

affairs within a framework of controls which enable risk to be assessed

of business, commercial and other relevant experience to the Board, which is

and managed effectively through clear procedures, lines of responsibility and

vital to the management of an expanding company.

delegated authorities. The Board also has responsibility for setting the

Group’s core values and standards of business conduct and for ensuring that

these, together with the Group’s obligations to its stakeholders, are widely

Timely Information
Directors have access to a regular supply of financial, operational, strategic

understood throughout the Group. The Board meets at least quarterly and

and regulatory information to assist them in the discharge of their duties.

when issues arise and has a schedule of matters reserved for decisions of

Much of this information is provided as part of the normal management

the Board. In addition to those formal matters required by relevant local laws

reporting process. Board papers are circulated in time to allow Directors to

to be set before a Board of Directors, the Board will also consider strategy

be properly briefed in advance of meetings. In addition, Board meetings

Corporate Governance

generally include a review of the history, performance and future potential

are independent Non Executive Directors. The Committee is chaired by

of a material individual asset or business unit. This is designed to ensure

Sir Michael Jenkins and meets as required. The Nomination Committee

that all material assets are considered on a cyclical basis and to enable Board

considers the size, structure and composition of the Board, retirements and

members to familiarise themselves with the key assets and operations

appointments of additional and replacement Directors and makes

of the Group.

appropriate recommendations to the Board.

Internal Control Review
Directors review on an ongoing basis, inter alia, financial, operational,

Remuneration Committee
The Remuneration Committee is comprised of two independent Non

compliance matters and risk management, and approve the annual budget

Executive Directors (currently being Mr. Ryalls and Mr. Weyer). The Committee

and monitor performance. The Board has the responsibility to establish

is chaired by Mr. Ryalls and is responsible for reviewing the performance of

and maintain the Group’s system of internal controls and to review its

the Executive Directors and for setting the scale and structure of their

effectiveness. The procedures are reviewed on an ongoing basis. The Group

remuneration, paying due regard to the interests of Shareholders as a whole

has defined an approval system for capital expenditures and expenses.

and the performance of the Group. The Committee meets as required

This system includes different levels of authorisation based on functions

during the year. (As described in note 28, Mr. Peter Ryalls provided operating

and position of individuals. The Board has approved the annual budget.

consultancy to the Group in 2008. It is the Board’s opinion that his role

Performance against budget is monitored and reported to the Board.

as a consultant does not affect his effectiveness, performance or independent

The internal control system can only provide reasonable and not absolute

judgment in carrying out his duties as a Director.) The Director’s

assurance against material misstatement or loss. The Board has considered

Remuneration report on pages 46 to 47 contains further details of the role

the need for an internal audit function but does not consider it necessary

and activities of the Remuneration Committee.

at the current time.

Induction
All new Directors receive an induction as soon as practicable after

Shareholder Relations
Communication with shareholders is given high priority and there is

regular dialogue with institutional investors, as well as general presentations

appointment. This includes meetings with senior management, functional

to analysts at the time of the release of the annual and interim results.

and business unit heads and where appropriate, visits to the Company’s

Throughout 2008, Executive Directors and senior management met with

main properties. The Company Secretary also provides new Directors with

institutional investors in Europe, as well as in North America and Chile.

an overview of their duties as Directors, corporate governance policies

and established Board procedures as part of the induction process.

Press releases have been issued throughout the year and the Company

Insurance
The Company maintains Directors’ and Officers’ liability insurance coverage,

the level of which is reviewed annually.

maintains a website (www.geo-park.com) on which all press releases

are posted and which also contains major corporate presentations and the

Financial Statements. Regular updates to record news in relation to the

Group and the status of exploration and development programs are also

included on the website. Additionally, this Annual Report, which is sent to all

Audit Committee
The Audit Committee is comprised of two independent Non Executive
Directors (currently being Mr. Weyer and Sir Michael Jenkins), is chaired by

registered shareholders, contains extensive information about the Group’s

activities. Enquiries from individual shareholders on matters relating to their
shareholdings and the business of the Group are welcomed. Shareholders

Mr. Weyer and meets at least twice a year. The Audit Committee will review

are also encouraged to attend the Annual General Meeting to discuss

the Group’s interim and annual financial statements before submission

the progress of the Group.

to the Board for approval. The Audit Committee also reviews reports

from management and the external auditors on accounting and internal

control matters.

Nomination Committee
The Nomination Committee is comprised of three Directors (currently Sir

Michael Jenkins, Mr. Ryalls and Mr. O’Shaughnessy), the majority of whom

Financial Accounts
A statement of Director’s responsibilities in respect of the accounts is set out

on page 48.

Corporate Governance

Directors’ Remuneration Report

The following information is not subject to audit.

certain employees the right to buy GeoPark shares during a defined period

Remuneration Committee
The Company has a Remuneration Committee. The members of the

of time (allocating a percentage of their salary), at the end of which they will

be awarded a determined amount of free “matching shares”.

Committee during 2008 were Peter Ryalls (Chairman) and Christian Weyer

- Program D: Stock Appreciation Rights - Under this program, the Board may

who are Non Executive Directors.

decide to pay an employee a cash amount related to the market value

appreciation of GeoPark shares during a certain period of time. (This scheme

The Remuneration Committee agrees with the Board the framework for the

does not need to be counted within the 12% limit for employee

remuneration of the Chief Executive, the Chairman of the Company and such

compensation programs.)

other members of the Executive Management as it is designated to consider.

There are approximately 2.6 million shares available for distribution under the

No Director plays a part in any discussion about his own remuneration.

Employee Long Term Incentive Program

Executive remuneration packages are designed to attract, motivate and retain

Directors of the calibre required to grow the business and enhance value

IPO Award Program and Executive Stock Option Plan
On admission to AIM, the Executive Directors, the management and key

to Shareholders. The performance measurement of the Executive Directors

employees of the Company received the following options over Common

and the determination of their annual remuneration package are undertaken

shares of the Company granted under the Executive stock options plan:

by the Committee.

Management and Key Employees

The Company’s policy is that a substantial proportion of the remuneration of

the Executive Directors should be performance related.

No. of

% of

Issued

Underlying

Common

Performance-Based Employee Long Term Incentive Program - Key Terms
Intending to align the interests of its management, employees and

Common

key advisors with those of the Company and its shareholders, the Directors

Capital

Approxi-

established a new Performance-based Employee Long Term Incentive

605,000 mately 1.8%

Program (“the Plan”). At the Annual General Meeting held on 19 November

2007, Shareholders voted to authorise the Board to use up to 12% of the

Executive Directors

Grant

Date

15 May

2006

Exercise

Price

(US$)

4.00

Earliest

Exercise

Date

15 May

2008

Expiry

Date

15 May

2013

issued share capital of the Company at the relevant time for the purposes

of the Plan. GeoPark’s Shareholders authorised the Board of Directors to

implement this Plan and determine the specific conditions for each program

within some broadly-defined guidelines.

Name

Gerald

During 2008, the Directors considered and approved the following programs:

O’Shaughnessy

James F. Park

- Program A: Stock Awards - Under this program, the Board grants the

participant a certain number of shares for nominal (USD 0.001 per share) or

nil value - which can only be exercised after a defined period of time subject

to meeting specific performance conditions.

No. of

Underlying

Common

153,345

306,690

153,345
306,690

Exercise

Price (£)

Earliest

Exercise

Date

Expiry

Date

3.20

4.00

3.20
4.00

15 May 2008

15 May 2013

15 May 2008

15 May 2013

15 May 2008
15 May 2008

15 May 2013
15 May 2013

2008 Awards Program:
Since no awards were made in 2007, the Directors approved the award

of approximately 1,000,000 shares to employees for the 2008 Program. The

- Program B: Stock Options - Under this program, the Board grants the

awards will have the following characteristics:

participant a certain number of stock options - to be exercised after a defined

period of time, subject to meeting specific performance conditions, and at a

- Stock Awards (Program A).

predetermined exercise price.

- Program C: Stock Purchase Program - Under this program, the Board grants

- All GeoPark employees are eligible.

- Grant date of 15 December 2008.
- Vesting period: up to 4 years.

Directors’ Remuneration Report

2008 Stock Awards will be determined for each employee in accordance with

The remuneration package approved for Non Executive Directors, which is

a formula and procedure that takes into consideration their individual

detailed in the corresponding service contracts, contains the following

contribution to the Company and recruitment conditions. Awards are based

components:

on exceptional performance and contributions to the growth of the Company.

The specific award amounts have been reviewed and approved by the

in shares. The share price to determine the quantity of shares is the simple

Executive Directors and the Remuneration Committee of the Board of Directors.

average to the daily closing price of the stock in the quarter prior to the

a) Annual salary of £35,000 payable quarterly in arrears; 50% in cash and 50%

payment date.

Considering the previously issued IPO Awards, the total share capital being

b) Committee Chairman fee: annual remuneration of £5,750 payable quarterly

awarded to employees represents approximately 14% of the shares issued.

in arrears in cash.

Executive Directors’ Contracts
It is the Group’s policy that Executive Directors should have contracts of an

The following chart summarises the detail of payments made to Non

c) Notice for contract termination: 2 months.

indefinite term providing for a maximum of one year’s notice. The details

Executive Directors.

of the Director’s contracts are summarised below:

Gerald O’Shaughnessy
Gerald O’Shaughnessy has a service contract with the Company which

2008 Cash Payment

Stock Payment

Non Executive

Committee

Director Fees

Director’s Fees

Chairman Fees

Paid in Shares

provides for him to act as Executive Chairman of the Company at a salary of

Sir Michael Jenkins (1)

£75,000 per annum. The agreement is stated to continue indefinitely, subject

Peter Ryalls (2)

to it being terminable by either party by giving not less than 12 months’

Christian Weyer (3)

notice in writing at any time. The payment of any bonus to Mr. O’Shaughnessy

Juan Cristóbal Pavez

£17,500

£4,375

£5,750

4,295
(*) 4,295
4,295

1,159

is at the Company’s discretion. Mr. O’Shaughnessy’s service agreement

contains restrictive covenants which restrict him, for a period of 12 months

Additionally Mr. Peter Ryalls received US$ 123,000 corresponding to operating

following the termination of employment, from soliciting senior employees of

consultancy in 2008 (2007: US$ 124,000).

the Company and, for a period of 6 months following the termination of

employment, from being involved in any competing undertaking.

(1) Nomination Committee Chairman

James F. Park
James F. 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

(2) Remuneration Committee Chairman

(3) Audit Committee Chairman

(*) Not issued

per annum. The agreement is stated to continue indefinitely, subject to it

Approval

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

This report was approved by the Board of Directors on 5 May 2009 and signed

Company’s discretion. Mr. Park’s service agreement contains restrictive
covenants which restrict him, for a period of 12 months following the

on its behalf by:

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.

No bonuses were awarded in 2008 to the Executive Directors.

Non Executive Directors Contracts
In August 2008, at the Annual General Meeting the shareholders re-elected

the Non Executive Directors, and approved the nomination of Juan Cristóbal

Pavez to become a Non Executive Director of the Company.

Peter Ryalls

Chairman, Remuneration Committee

5 May 2009

Directors’ Remuneration Report

Statement of Directors’ Responsibilities

The Directors are responsible for preparing the Annual Report and

the financial statements. The Directors have elected to prepare financial

statements for the 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 for the Company’s and Group’s financial

position, financial performance 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 are 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 Group 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 Group’s auditors are

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.

Statement of Directors’ Responsibilities

Report of the Independent Auditor
to the Members of GeoPark Holdings Limited

We have audited the Group financial statements of GeoPark Holdings

Limited for the year ended 31 December 2008 which comprise

Basis of Audit Opinion
We conducted our audit in accordance with International Standards

the consolidated income statement, the consolidated balance sheet, the

on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit

consolidated statement of changes in equity, the consolidated cash flow

includes examination, on a test basis, of evidence relevant to the amounts

statement and notes 1 to 30. These Group financial statements have been

and disclosures in the Group financial statements. It also includes an

prepared under the accounting policies set out therein.

assessment of the significant estimates and judgments made by the Directors

in the preparation of the Group financial statements, and of whether the

This report is made solely to the Company’s members, as a body, in

accounting policies are appropriate to the Group’s circumstances,

accordance with International Auditing Standards (UK and Ireland). Our audit

consistently applied and adequately disclosed.

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

We planned and performed our audit so as to obtain all the information

for no other purpose. To the fullest extent permitted by law, we do not accept

and explanations which we considered necessary in order to provide us with

or assume responsibility to anyone other than the Company and the

sufficient evidence to give reasonable assurance that the Group financial

Company’s members as a body, for our audit work, for this report, or for the

statements are free from material misstatement, whether caused by fraud or

opinions we have formed.

other irregularity or error. In forming our opinion, we also evaluated the

overall adequacy of the presentation of information in the Group financial

Respective Responsibilities of Directors and Auditors
The Directors’ responsibilities for preparing the Annual Report and the Group

statements.

financial statements in accordance with International Financial Reporting

Standards (IFRSs) as adopted by the European Union are set out in the

Opinion
In our opinion, the Group financial statements give a true and fair view

Statement of Directors’ Responsibilities.

in accordance with IFRSs as adopted by the European Union, of the state

of the Group’s affairs as at 31 December 2008 and of its profit for the

Our responsibility is to audit the Group financial statements in accordance

year then ended.

with relevant legal and regulatory requirements and International Standards

on Auditing (UK and Ireland).

We report to you our opinion as to whether the Group financial statements

give a true and fair view in accordance with IFRSs as adopted by the

European Union.

In addition we report to you if, in our opinion, we have not received all the

Registered Auditor

information and explanations we require for our audit, or if information

Chartered Accountants

specified by law regarding Directors’ remuneration and other transactions is

Gatwick

not disclosed.

5 May 2009

Grant Thornton UK LLP

We read other information contained in the Annual Report 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.

Report of the Independent Auditor

Consolidated Income Statement
1 January - 31 December

Amounts in US$ ’000

Note

2008

2007

Revenue

Production Costs

Gross Profit

Exploration Costs

Administrative Costs

Selling Expenses

Other Operating Costs

Operating Profit/ (Loss)

Financial Income

Financial Expenses

Profit / (Loss) before Tax

Income Tax

Profit / (Loss) for the Year

Earnings / (Loss) per Share (in US$) Basic

Earnings / (Loss) per Share (in US$) Diluted

38,376

(19,141)

19,235

(4,444)

(6,988)

(451)

(170)

7,182

673

(3,928)

3,927

(276)

3,651

0.11

11,028

(7,827)

3,201

(6,616)

(9,648)

(503)

(14)

(13,580)

2,036

(2,262)

(13,806)

(2)

(13,808)

(0.45)

The profit of the year is entirely attributable to the shareholders.

The notes on pages 54 to 74 are an integral part of these consolidated financial statements.

Consolidated Income Statement

Consolidated Balance Sheet
31 December

Amounts in US$ ’000

Note

Intangible Assets

Property, Plant and Equipment

Prepaid Taxes

Investments

Deferred Tax Asset

Non Current Assets

Inventory

Trade Receivables

Prepayment and Other Receivables

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

Deferred Tax Liabilities

Long Term Liabilities

Borrowings

Trade Accounts Payable

Other Liabilities

Current Liabilities

2008

37,162

67,640

3,463

2,141

110,421

1,171

8,434

1,383

2,688

5,710

2007

23,833

31,707

3,068

2,079

60,702

2,082

2,305

574

3,889

8,710

19,386

17,560

129,807

78,262

75,575

3,175

920

(19,207)

60,497

42,253

1,548

276

44,077

11,427

11,269

2,537

25,233

52,714

3,260

938

(24,337)

32,606

29,958

1,264

31,222

4,783

8,449

1,202

14,434

Liabilities

69,310

45,656

Equity and Liabilities

129,807

78,262

The notes on pages 54 to 74 are an integral part of these consolidated financial statements.

The financial statements were approved by the Board of Directors on 5 May 2009.

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity
1 January - 31 December

Amounts in US$ ’000

Capital

Premium

Reserve Adjustment

Earnings

Total

Other

Exchange

Retained

Reserve for

Equity at 1 January 2007

Foreign Currency Translation

Loss for the Year

Total Income and Expense for the Year

Share Based Payment (notes 21 and 25)

Equity Movements in the Year

52,595

3,025

119

235

881

(14,601)

41,107

881

(13,808)

881

(13,808)

(12,927)

4,072

4,426

Equity at 31 December 2007

52,714

3,260

938

(24,337)

32,606

Foreign Currency Translation

Profit for the Year

Total Income and Expense for the Year

Issue of Shares (note 21)

Costs of the Issue of Shares (note 21)

Share Based Payment (notes 21 and 25)

Equity Movements in the Year

23,612

(940)

189

22,861

(85)

(18)

3,651

1,479

(18)

3,651

3,633

23,615

(940)

1,583

24,258

Equity at 31 December 2008

75,575

3,175

920

(19,207)

60,497

The notes on pages 54 to 74 are an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement
1 January - 31 December

Amounts in US$ ’000

Profit / (Loss) for the Year

Adjustments for:

Income Tax

Depreciation of the Year

Profit on Disposal of Property, Plant and Equipment

Write off of Unsuccessful Efforts

Relinquishment of Del Mosquito Area

Accrual of Financial Expenses

Unwinding of Discount

Accrual of Stock Options and Stock Awards

Exchange Difference Generated by Borrowings

Changes in Working Capital:

Change in Prepaid Taxes

Change in Inventory

Change in Trade Receivables

Change in Prepayments and Other Receivables

Change in Legal Deposit

Change in Current Liabilities (Excluding Bank, Tax and Dividend)

Net Cash Generated by (used in) Operating Activities

Cash Flows from Investing Activities

Purchase of Intangible Assets

Purchase of Property, Plant and Equipment

Sale of Property, Plant and Equipment

Purchase of Financial Assets

Net Cash Used in Investing Activities

Cash Flows from Financing Activities

Proceeds from the Issue of Common Shares

Proceeds from Borrowings

Borrowings Paid

Interest Paid

Net Cash Generated from Financing Activities

Net Decrease in Cash and Cash Equivalents

Cash and Cash Equivalents at 1 January

Currency Translation Differences Relating to Cash and Cash Equivalents

Cash and Cash Equivalents at the End of the Year

Ending Cash and Cash Equivalents are Specified as Follows:

Cash at Bank

Cash in Hand

Cash and Cash Equivalents

2008

3,651

276

7,440

(143)

273

1,149

1,931

(434)

1,583

1,193

335

863

(6,150)

(1,053)

4,282

15,196

(40,690)

(17,452)

209

(57,933)

22,675

26,319

(7,117)

(2,183)

39,694

(3,043)

8,710

5,710

5,707

5,710

2007

(13,808)

2,084

(38)

4,522

1,775

4,426

550

(3,890)

(1,134)

(743)

(13)

4,608

(1,620)

(29,472)

(9,311)

(2,000)

(40,721)

17,311

(962)

16,349

(25,992)

34,170

532

8,710

8,707

8,710

The notes on pages 54 to 74 are an integral part of these consolidated financial statements.

Consolidated Cash Flow Statement

Notes to the Consolidated Financial Statements

Note 1

General Information

Standards, amendments and interpretations to existing standards that are

not yet effective nor adopted early by the Group.

GeoPark Holdings Limited (the Company) is a limited company incorporated

The following standards, amendments and interpretations to existing

under the laws of Bermuda. The addresses of its registered office and

standards have been published and are mandatory for the Group’s

principal places of business are disclosed in the introduction to the Directors’

accounting periods beginning on or after 1 January 2009 or later periods,

Report. The principal activities of the Company and its subsidiaries (the

but the Group has not early adopted them:

Group) are described in the Directors’ Report.

- IAS 23 (Amendment), ’Borrowing costs’ (effective from 1 January 2009).

The Company has its listing on the AIM London Stock Exchange. Also

The amendment requires an entity to capitalise borrowing costs directly

The Company has applied to the Chilean Superintendent for Companies

attributable to the acquisition, construction or production of a qualifying

(Superintendencia de Valores y Seguros or SVS) for its authorization

asset (one that takes a substantial period of time to get ready for use or sale)

to trade the Group’s shares in the Chilean off-shore market. All required

as part of the cost of that asset. The option of immediately expensing those

documentation has been submitted, and the SVS has requested formal

borrowing costs will be removed. The Group will apply IAS 23 (Amendment)

clarifications, which are currently being processed.

prospectively from 1 January 2009.

These consolidated financial statements were authorised for issue by the

January 2009). The revised standard will prohibit the presentation of items

- IAS 1 (Revised), ’Presentation of financial statements’ (effective from 1

Board of Directors on 5 May 2009.

Note 2

of income and expenses (that is, ’non owner changes in equity’) in the

statement of changes in equity, requiring ’non owner changes in equity’ to

be presented separately from owner changes in equity. All non owner

changes in equity will be required to be shown in a performance statement,

Summary of Significant Accounting Policies

but entities can choose whether to present one performance statement

(the statement of comprehensive income) or two statements (the income

The principal accounting policies applied in the preparation of these

statement and statement of comprehensive income). Where entities restate

consolidated financial statements are set out below. These policies have been

or reclassify comparative information, they will be required to present a

consistently applied to the years presented, unless otherwise stated.

restated balance sheet as at the beginning of the comparative period

in addition to the current requirement to present balance sheets at the end

Basis of Preparation
The consolidated financial statements of GeoPark Holdings Limited have

of the current period and comparative period. The Group will apply IAS 1

(Revised) from 1 January 2009. It is likely that both the income statement

been prepared in accordance with International Financial Reporting

and statement of comprehensive income will be presented as performance

Standards (IFRS).

statements.

- IFRS 2 (Amendment), ’Share-based payment’ (effective from 1 January 2009).

The consolidated financial statements are presented in United States Dollars

- IAS 32 (Amendment), ’Financial instruments: Presentation’, and IAS 1

and all values are rounded to the nearest thousand (US$ ’000), except

(Amendment), ’Presentation of financial statements’ - ’Puttable financial

where otherwise indicated.

instruments and obligations arising on liquidation’ (effective from 1
January 2009).

The consolidated financial statements have been prepared on a historical cost

- IFRS 1 (Amendment) ’First time adoption of IFRS’, and IAS 27 ’Consolidated

basis, modified by the recording of inventories at net realisable value.

and separate financial statements’ (effective from 1 January 2009).

The preparation of financial statements in conformity with IFRS requires the

from 1 July 2009).

use of certain critical accounting estimates. It also requires management

- IFRS 3 (Revised), ’Business combinations’ (effective from 1 July 2009).

to exercise its judgement in the process of applying the Group’s accounting

- IFRS 8, ’Operating segments’, replaces IAS 14, ’Segment reporting’, and

policies. The areas involving a higher degree of judgement or complexity,

aligns segment reporting with the requirements of the US standard SFAS 131,

or areas where assumptions and estimates are significant to the consolidated

’Disclosures about segments of an enterprise and related information’.

financial statements are disclosed in this note under the title “Accounting

- There are a number of minor amendments to IFRS 7, ’Financial instruments:

- IAS 27 (Revised), ’Consolidated and separate financial statements’, (effective

estimates and assumptions”.

Disclosures’, IAS 8, ’Accounting policies, changes in accounting estimates

and errors’, IAS 10, ’Events after the reporting period’, IAS 18, ’Revenue’ and

Notes to the Consolidated Financial Statements

IAS 34, ’Interim financial reporting’, which are part of the IASB’s annual

statements of subsidiaries have been adjusted where necessary to ensure

improvements project published in May 2008 (not addressed above).

consistency with the accounting policies adopted by the Group.

These amendments are unlikely to have an impact on the Group’s accounts

and have therefore not been analysed in detail.

Acquisitions of subsidiaries are dealt with by the purchase method. The

Going Concern
The current global economic conditions have created uncertainties,

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

particularly over future oil and gas prices and the availability and cost of new

the financial statements of the subsidiary prior to acquisition. On initial

finance. The directors regularly monitor the Group’s cash position and

recognition, the assets and liabilities of the subsidiary are included in

liquidity risks throughout the year to ensure that it has sufficient funds to

the consolidated balance sheet at their fair values, which are also used as

meet forecast operational and investment funding requirements. Sensitivities

the basis for subsequent measurement in accordance with the Group

are run to reflect latest expectations of expenditures, oil and gas prices

accounting policies. Goodwill is stated after separating out identifiable

and other factors to enable the Group to manage the risk of any funding

intangible assets. Goodwill represents the excess of acquisition cost

short falls and/or potential loan covenant breaches. As highlighted in note 30,

over the fair value of the Group’s share of the identifiable net assets of the

the Group remains in discussion with different financing sources to assist

acquired subsidiary at the date of acquisition.

with funding its 2009 capital expenditure program.

The Directors prepare detailed cash flow forecasts under different scenarios

Jointly Controlled Assets
The joint ventures undertaking by the Group are classified as jointly

that include the Group not obtaining additional financing. Such detailed short

controlled assets under IAS 31 “Interest in Joint Ventures”. Therefore, the

term cash flow forecasts are prepared for a period in excess of one year from

Group recognised its share of assets and liabilities as well as its share

the balance sheet date. These cash flow forecasts are based on current oil and

of expenses and income from the use of its share of the output of both

gas prices and operating costs. In the event that global economic conditions

joint ventures.

worsen and oil and gas prices fall further, the Directors would be able to

manage the resulting impact on the Group’s cash position, by implementing

cost reductions, deferring capital expenditure commitments and selling

non core assets.

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 revenue can be measured reliably

After making enquiries, the Directors have formed a judgement, at the time

and is expected to be received. Revenue is recognised exclusive of

of approving the financial statements, that there is a reasonable expectation

VAT and excluding discounts related to the sale.

that the Group has adequate resources to continue in operational existence

for the foreseeable future. For this reason, the Directors have continued

to adopt the going concern basis in preparing the consolidated financial

Production Costs
Production costs include wages and salaries incurred to achieve the

statements.

Consolidated Financial Statements
The consolidated financial statements consolidate those of the Company

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.

and all of its subsidiary undertakings drawn up to the Balance Sheet date.

Production costs also recognise the development costs that do not fulfil

Subsidiaries are entities over which the Group has the power to control

the criteria for capitalisation.

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.

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

Intercompany transactions, balances and unrealised gains on transactions

capitalised but have been written off as expensed.

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

Costs of Exploration and Appraisal
The Group applies IFRS 6 “Exploration and Evaluation of Mineral Resources”.

Notes to the Consolidated Financial Statements

Oil and gas exploration and production properties and assets are accounted

for in accordance with the “successful efforts” method of accounting for

Decommissioning
Provision for decommissioning is recognised to the extent that an

exploration and appraisal costs.

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

Expenditure incurred on the acquisition of a licence interest is initially

created and depreciated as part of the capital costs of the production

capitalised on a licence-by-licence basis. Costs are held, undepleted, within

facilities, on a unit of production basis.

exploration until such a time as the exploration phase on the licence area

is complete or commercial reserves have been discovered. Costs will either

Provisions are measured at the present value of the expenditures expected

be transferred to the development/producing assets or expensed in the

to be required to settle the obligation using a pre-tax rate that reflects current

Income Statement depending upon the success of the exploration and

market assessments of the time value of money and the risks specific to the

appraisal drilling.

obligation. The increase in the provision due to passage of time is recognised

as an interest expense.

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

Impairment Testing for Exploration and Appraisal Assets and Property,
Plant and Equipment
An impairment loss is recognised for the amount by which the asset’s or

targets and other exploration costs not directly relating to drilling of

cash-generating unit’s carrying amount exceeds its recoverable amount. The

exploratory wells are written off as incurred.

recoverable amount is the higher of fair value, reflecting market conditions

less costs to sell, and value in use based on an internal discounted cash flow

Drilling costs of the exploratory wells, including wells for stratigraphical tests

evaluation.

and 3D seismic are capitalised as intangible assets in cost centres by field or

exploration area as appropriate, pending the determination of commercial

Where there are indicators that an exploration asset may be impaired, the

reserves. If those reserves are not found, these costs are written off. Following

exploration and appraisal assets are grouped with all development/producing

the discovery of a commercially viable field, the attributable costs are

assets belonging to the same geographic segment to form the Cash

transferred to property, plant and equipment in single field cost centres.

Generating Unit (CGU) for impairment testing. Where there are indicators

that an property, plant and equipment asset is impaired, assets are grouped

Works costs that increase the total commercially recoverable reserves or

at the lowest levels for which there are separately identifiable cash flows to

speed up the extraction of reserves are included in the carrying amount of the

form the CGU. The combined cost of the CGU is compared against the CGU’s

asset and are depreciated using the unit of production method. Workovers

net present value and any resulting impairment loss is written off to the

that merely restore production to its original level are charged to the Income

Income Statement. No impairment has been recognised during the year.

Statement during the fiscal period in which they are incurred.

Commercial reserves are proven and probable oil and gas reserves as defined

Other Property, Plant and Equipment
Furniture, equipment and vehicles are measured at cost less accumulated

in chapter 19 of the listing rules of the United Kingdom Listing Authority

depreciation and impairment. The cost includes the acquisition price

(UKLA).

and costs incurred directly in connection with the acquisition until the time
when the asset is ready for use.

Development and property acquisition costs incurred in development wells

(including seismic surveys for development purposes) and production

The cost of an asset is divided into separate components which are

facilities and machinery are capitalised within property, plant and equipment.

depreciated individually if the useful lives are not identical.

Depletion
All expenditure carried within each field is amortised from the commencement

Subsequent costs of replacement of components are recognised as property,

plant and equipment when it is likely that they will lead to future economic

of production, on a unit of production basis, which is the ratio of oil and gas

benefits. The carrying amount of the replaced components is recognised in

production in the period to the estimated quantities of commercial

the Income Statement. All other costs of repair and maintenance are

developed reserves at the end of the period plus the production of the

recognised in the Income Statement when incurred.

period on a field by field basis.

A field is an area consisting of a single reservoir or multiple reservoirs which

expected useful lives of the assets and their residual value, as follows:

Straight-line depreciation is provided on the basis of an assessment of the

are grouped or related to the same individual geographical structural feature

and/or stratigraphic condition.

Notes to the Consolidated Financial Statements

Communication and EDP equipment

Furniture and fixtures

Vehicles and production facilities

Useful life

an asset or liability in a transaction other than a business combination that at

3 years

the time of the transaction affects neither accounting nor taxable profit or

10 years

loss. Deferred income tax is determined using tax rates (and laws) that have

5 years

been enacted or substantially enacted by the balance sheet date and are

expected to apply when the related deferred income tax asset is realised or

Depreciation is recognised in the Income Statement as production and selling

the deferred income tax liability is settled.

and administrative expenses, respectively.

The principal temporary differences mainly arise from:

The assets’ residual values and useful lives are reviewed, and adjusted if

- Exploration costs that have been capitalized for accounting or tax purposes

appropriate, at each balance sheet date.

and have been expensed for tax or accounting purposes, respectively.

- Differences in depreciation rates on property, plant and equipment for tax

An asset’s carrying amount is written down immediately to its recoverable

and accounting purposes.

amount if the asset’s carrying amount is greater than its estimated

- Inflation adjustments for tax purposes.

recoverable amount.

Profit or loss on the disposal of property, plant and equipment is calculated

tax credits to the Group are assessed for recognition as deferred tax assets.

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

Deferred tax liabilities are provided in full, with no discounting. Deferred

profit or operating expenses in the Income Statement.

tax assets are recognised to the extent that it is probable that the underlying

In addition, tax losses available to be carried forward as well as other income

deductible temporary differences will be able to be offset against future

Lease Contracts
All current lease contracts are considered to be operating leases on the basis

taxable income.

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

Financial Assets
Financial assets are divided into the following categories: loans and

rental agreements are recognised in the Income Statement on a straight line

receivables; financial assets at fair value through the profit or loss; available-

basis over the term of the contract. The Group’s total commitment relating

for-sale financial assets; and held-to-maturity investments. Financial assets

to operating leases and rental agreements is disclosed in note 27.

are assigned to the different categories by management on initial

Inventories
Inventories comprise crude oil and materials.

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.

Crude oil is measured at net realisable value. The net realisable value of

All financial assets are recognised when the Group becomes a party to the

inventories is stated at sales price less costs incurred to execute the sale.

contractual provisions of the instrument. All financial assets are initially

Materials are measured at the lower between cost and recoverable amount.

recognised at fair value, plus transaction costs, unless they are classified as at

Cost is determined using the first-in, first-out (FIFO) method. The cost
of materials and consumables is calculated at acquisition price with the

fair value through profit or loss.

addition of transportation and similar costs.

De-recognition of financial assets occurs when the rights to receive cash flows

from the investments expire or are transferred and substantially all of the risks

Current and Deferred Income Tax
The tax expense for the year comprises current and deferred tax. Tax is

and rewards of ownership have been transferred. An assessment for

impairment is undertaken at each balance sheet date.

recognised in the income statement.

The current income tax charge is calculated on the basis of the tax laws

recognised in the Income Statement when receivable, regardless of how the

enacted or substantially enacted at the balance sheet date in the countries

related carrying amount of financial assets is measured.

where the Company’s subsidiaries operate and generate taxable income.

Interest and other cash flows resulting from holding financial assets are

Loans and receivables are non derivative financial assets with fixed or

Deferred income tax is recognised, using the liability method, on temporary

determinable payments that are not quoted in an active market. They are

differences arising between the tax bases of assets and liabilities and their

included in current assets, except for maturities greater than 12 months after

carrying amounts in the consolidated financial statements. However, the

the balance sheet date. These are classified as non current assets. The Group’s

deferred income tax is not accounted for if it arises from initial recognition of

loans and receivables comprise trade receivables, prepayments and other

Notes to the Consolidated Financial Statements

receivables and cash and cash equivalents in the balance sheet. They arise

At date of issue, the fair value of the liability component is estimated using

when the Group provides money, goods or services directly to a debtor with

the prevailing market interest rate for a similar debt instrument. The liability

no intention of trading the receivables. Loans and receivables are subsequently

component is accounted for as a financial liability.

measured at amortised cost using the effective interest method, less

provision for impairment. Any change in their value through impairment or

The residual is the difference between the net proceeds of issue and the

reversal of impairment is recognised in the Income Statement.

liability component (at time of issue) and is the equity component, which is

accounted for as an equity instrument.

Provision against trade receivables is made when objective evidence is

received that the Group will not be able to collect all amounts due to

The interest expense on the liability component is calculated applying the

it in accordance with the original terms of those receivables. The amount

effective interest rate for the liability component of the instrument. The

of the write-down is determined as the difference between the asset’s

difference between this amount and any repayments is added to the carrying

carrying amount and the present value of estimated future cash flows.

amount of the liability in the balance sheet.

Cash and Cash Equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with

If a company revises its estimates of payments or receipts, the entity shall

adjust the carrying amount of the financial asset or financial liability

banks, other short-term highly liquid investments with original maturities

(or group of financial instruments) to reflect actual and revised estimated

of three months or less, and bank overdrafts. Bank overdrafts are shown

cash flows. The Group recalculates the carrying amount by computing

within borrowings in the current liabilities section of the Balance Sheet.

the present value of estimated future cash flows at the financial instrument’s

original effective interest rate. The adjustment is recognised as income or

Investments
Non current investments relate solely to the cash collateral account required

expense in profit or loss.

under the terms of the borrowing obtained from the IFC. This investment

accrues interests and will be recovered once the borrowing is fully paid.

Equity
An equity instrument is any contract that evidences a residual interest in the

Financial Liabilities
Financial liabilities are obligations to pay cash or other financial assets and

Equity comprises the following:

are recognised when the Group becomes a party to the contractual

- “Share capital” representing the nominal value of equity shares.

assets of the entity after deducting all of its financial liabilities.

provisions of the instrument.

- “Share premium” representing the excess over nominal value of the fair

value of consideration received for equity shares, net of expenses of the

The Group has no financial liabilities categorised as at fair value through

share issue.

profit or loss at the reporting date. Therefore, all other financial liabilities are

- “Other reserve” representing the equity element attributable to compound

recorded at amortised cost using the effective interest method, with

or linked financial instruments and shares granted according to IFRS 2 but

interest-related charges recognised as an expense in finance cost in the

not issued at year end, as noted above.

income statement.

- “Reserve for exchange adjustment” representing the differences arising

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

from translation of investments in overseas subsidiaries.
- “Retained earnings” representing retained profits and losses.

Stock Options Plan and Stock Awards
The Group operates a number of equity-settled, share-based compensation

of the borrowings using the effective interest method.

plans comprising share awards payments and stock options plans to certain

Finance charges, including premiums payable on settlement or redemption,

services received in exchange for the grant of the options is recognised as

and direct issue costs are charged to the Income Statement on an accruals

an expense. The total amount to be expensed over the vesting period is

basis using the effective interest method and are added to the carrying

determined by reference to the fair value of the options granted calculated

amount of the instrument to the extent that they are not settled in the

using the Black-Scholes model, excluding the impact of any non market

employees and other third party contractors. Fair value of the employee

period in which they arise.

vesting conditions (for example, profitability and sales growth targets).

Non market vesting conditions are included in assumptions about the

Compound Instruments
Compound instruments comprise both a liability and an equity component.

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.

Notes to the Consolidated Financial Statements

It recognises the impact of the revision to original estimates, if any, in the

Income Statement, with a corresponding adjustment to equity. The proceeds

b) Transactions and Balances
Foreign currency transactions are translated into the functional currency

received net of any directly attributable transaction costs are credited to share

using the exchange rates prevailing at the dates of the transactions. Foreign

capital (nominal value) and share premium when the options are exercised.

exchange gains and losses resulting from the settlement of such transactions

Foreign Currency Translation

a) Functional and Presentational Currency
The consolidated financial statements are presented in US Dollars, which is

the Group’s presentational currency.

Items included in the financial statements of each of the Group’s entities are

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 profit or other

operating expenses.

measured using the currency of the primary economic environment in

which the entity operates (the functional currency). The functional currency

c) Group Companies
The results and financial position of all the Group entities (none of which has

of Group companies incorporated in Bermuda (including the parent

the currency of a hyper-inflationary economy) that have a functional currency

company) is the US Dollar.

different from the presentation currency are translated into the presentation

For the Argentine subsidiaries the functional currency is the Argentine Peso.

currency as follows:

Sales are predominantly based on US Dollar pricing but influenced by the

(a) assets and liabilities for each balance sheet presented are translated at

local government policies. However, a significant proportion of operating

the closing rate at the date of that balance sheet;

costs (particularly labour) arises in Argentine Peso. Accordingly, changes

(b) income and expenses for each income statement are translated at average

in the exchange rates between these currencies and the US Dollar will impact

exchange rates (unless this average is not a reasonable approximation of

on the Group’s reported results. Subsidiaries hold certain monetary financial

the cumulative effect of the rates prevailing on the transaction dates, in which

liabilities denominated in currencies other than their functional currency,

case income and expenses are translated at the rate on the dates of the

in particular US Dollar denominated financial loans, and to a lesser extent,

transactions); and

cash and cash equivalents. Monetary assets and liabilities are converted

into functional currencies at the closing rate. The resultant differences are

component of equity.

accounted for in the Income Statement in accordance with IFRS.

Effective from 1 January 2008, the Chilean subsidiaries changed the functional

investment in foreign operations, and of borrowings are taken to shareholders’

currency from Chilean Peso to the US Dollar.

equity. On disposal of a foreign operation the cumulative translation

As there has been a change in the underlying transactions, conditions and

transferred to the Income Statement as part of the gain or loss on disposal.

differences (including, if applicable, gains and losses on related hedges) are

On consolidation, exchange differences arising from the translation of the net

events, IAS 21 requires the change to be accounted for prospectively from the

date of change and the comparatives have not been restated.

In 2008 there have been several circumstances that lead to change the

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

functional currency from the Chilean Peso to the US Dollar in order to better

management’s best knowledge of current events and actions, actual results

represent the transactions and balances of the Group’s Chilean subsidiaries.

may differ from them.

The most significant changes occurred during the year were driven by

Estimates and judgments are continually evaluated and are based on

the international financial crisis which had an impact on the ability

historical experience and other factors, including expectations of future

of the subsidiaries to finance their own operations from domestic financial

events that are believed to be reasonable under the circumstances.

institutions. The Group changed its expectations to finance its capital

expenditure program through its current or other borrowers and in US Dollars.

The key estimates and assumptions used in these consolidated financial

statements are noted below:

Due to the abovementioned, the importance of US Dollars in the operations

increased in 2008 and will continue to do so because GeoPark Chile increased

- The Group adopts the successful efforts basis of accounting. The Board

working with international suppliers rather than local ones. In 2008 most

of Directors of the Company makes assessments and estimates regarding

of the operating costs were influenced by the US Dollar.

whether an exploration asset should continue to be carried forward as

Notes to the Consolidated Financial Statements

an intangible asset not yet determined or when insufficient information

- The total calculation of the decommissioning provision is estimated by the

exists for this type of cost to remain as an asset. In making this assessment

Group’s engineers, based on individual well filling and coverage (note 23).

the Directors take professional advice from qualified independent

experts (note 14).

- As detailed in the relevant accounting policies the selection of functional

currencies for each entity in the Group is dependent on the primary economic

- Cash flow estimates for the Group’s impairment assessments require

environment in which they operate which is determined by considering a

assumptions about two primary elements-future prices and reserves.

number of factors. As detailed the Board consider that the primary economic

Estimates of future prices require significant judgments about highly uncertain

environment in which the Argentinean subsidiary operates is the Argentine

future events. Historically, oil and gas prices have exhibited significant

Peso and for the Chilean subsidiaries is the US Dollar. The Board considers this

volatility. Forecasts for oil and gas revenues are based on prices derived from

assessment to be a significant judgement as it gives rise to exchange

future price forecasts amongst industry analysts and the Group’s assessments.

differences as detailed in note 30.

Our estimates of future cash flows are generally based on assumptions of

long-term prices and operating and development costs. Given the significant

assumptions required and the possibility that actual conditions will differ,

Cash Flow Statement
The Cash Flow Statement shows the Group’s cash flows for the year for

management considers the assessment of impairment to be a critical

operating, investing and financing activities and the change in cash and cash

accounting estimate.

equivalents during the year.

The process of estimating reserves is complex. It requires significant

Cash flows from operating activities are computed from the results for the

judgements and decisions based on available geological, geophysical,

year adjusted for non cash operating items, changes in net working capital,

engineering and economic data. The estimation of economically recoverable

and corporation tax. Tax paid is presented as a separate item under

oil and natural gas reserves and related future net cash flows was performed

operating activities.

based on the Reserve Report dated March 2008 prepared by Degoyler and

MacNaughton, an international consultancy to the oil and gas industry based

The following chart describes non cash transactions related to the Cash Flow

in Dallas, and updated for subsequent changes by the Group’s management.

Statement:

It incorporates many factors and assumptions including:

• expected reservoir characteristics based on geological, geophysical and

31 December 2008

engineering assessments;

• future production rates based on historical performance and expected

future operating and investment activities;

Movements Movements

Other

from

Derived from Arising from Non Cash Consolidated

Movements

• future oil and gas prices and quality differentials;

Balance Sheet

Consolidated

Balance Sheet Translation

Currency Movements
(*)

Cash Flow

Statement

• assumed effects of regulation by governmental agencies; and

Items

• future development and operating costs.

Property, plant

and equipment

Management believes these factors and assumptions are reasonable based

Intangible assets

on the information available at the time the estimates are prepared. However,
these estimates may change substantially as additional data from ongoing

Prepaid taxes
Inventory

development activities and production performance becomes available and

Trade receivables

as economic conditions impacting oil and gas prices and costs change.

Prepayment and

other receivables

- The advances received under the gas pre-sale agreement entered into

Investments

with Methanex Corporation bears interest at a rate of LIBOR (note 22).

Cash and cash

35,933

13,329

(806)
(911)

6,129

809

332

338

471
48

244

(26,319)

25,601

-
-

(62)

9,946

39,268

(335)
(863)

6,150

1,053

The Board of Directors considers that the advances are at fair value as a result

equivalents

(3,000)

(43)

(3,043)

of the security in the natural gas supply which Methanex have obtained

Provision for

through the agreement.

decommissioning

Borrowings

(284)

(18,939)

(1,266)

- The fair value of the stock option rights were determined based upon the

Trade accounts payable

Black-Scholes model. For this purpose the Group has used appropriate risk

Deferred tax

free rates and volatilities of comparable oil and gas companies traded on AIM.

Other liabilities

Details of these assumptions and the result charged to the Income Statement

Equity

(2,820)

(276)

(1,335)

(27,891)

(83)

(44)

(18)

are provided in note 25.

718

276

(276)

434

(20,143)

(2,903)

(1,379)

(28,185)

(*) Mainly transfers, increase in the asset retirement obligation and deferred tax.

Notes to the Consolidated Financial Statements

31 December 2007

The property, plant and equipment of a segment include the assets that are

Movements Movements

Other

from

assets that are related directly to the operation of the segment, including

Derived from Arising from Non Cash Consolidated

inventory and accounts receivable.

Movements

used directly in the segment. The current assets of a segment include

Balance Sheet

Consolidated

Balance Sheet Translation

Currency Movements
(*)

Cash Flow

Statement

The liabilities of a segment include liabilities that are related directly to the

operation of the segment, including trade payables and other debts.

7,203

24,950

Segment Areas (Geographical Segments)

3,890

(11)

Amounts in US$ ’000

Argentina

Chile

Corporate

Total

23,471

10,358

3,487

(11)

1,214

853

2,079

(71)

(462)

403

(80)

(110)

(18)

(16,197)

15,054

1,134

743

2008
Revenue

Gross profit / (loss)

Profit / (Loss) before tax

(79)

2,000

Profit / (Loss) for the year

Capital expenditure

1,066

(306)

(4,503)

879

(610)

37,310

19,541

13,248

12,972

57,263

(6,762)

(25,460)

(532)

(25,992)

Depreciation

Total assets

13,842

109,834

(1,171)

(18,236)

(4,785)

(331)

8,501

(517)

477

881

1,143

(28)

Liabilities

(2)

(18,674)

Cash flows from operations

(4,308)

Cash flows from investing

(300)

Cash flows from financing

(1,648)

9,380

Employees (average)

(6,756)

(4,371)

(691)

(62,283)

24,121

(57,242)

18,667

(4,818)

(68)

6,131

(271)

(4,554)

22,675

38,376

19,235

3,927

3,651

58,142

(7,440)

129,807

(69,310)

15,196

(57,933)

39,694

161

Items

Property, plant

and equipment

Intangible assets

Prepaid taxes

Legal deposit

Inventory

Trade receivables

Prepayment and

other receivables

Investments

Cash and cash

equivalents

Provision for

decommissioning

Borrowings

Trade accounts payable

Other liabilities

Equity

(*) Mainly transfers, increase in the asset retirement obligation and deferred tax.

Amounts in US$ ’000

Argentina

Chile

Corporate

Total

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.

2007
Revenue

Gross profit (loss)

Loss before tax

Cash flows from financing activities include changes in Shareholders’ equity,

Loss for the year

and proceeds from borrowings and repayment of loans.

Capital expenditure

Cash and cash equivalents include bank overdraft and liquid funds with a
term of less than three months.

Depreciation

Total assets
Liabilities

Cash flows from operations

Certain reclassification have been made to the cash flows reported in 2007

Cash flows from investing

to ensure that the presentation is consistent with the 2008 balances.

Cash flows from financing

Employees (average)

Segment Information
The Group explores and operates in two different countries: Argentina and

Chile. As operations are similar in both countries, the primary segments

Note 3

of the Group have been made on a geographical basis, based on the location

Net Revenue

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

Amounts in US$ ’000

segment and items that can be distributed among the segments. Non

Sale of crude oil

distributed items include the Group’s administration, financial income,

Sale of gas

expenses and taxes.

1,341

(767)

(7,250)

4,735

(564)

14,752
(8,911)

(3,347)

(4,700)

2,751

9,687

3,968

(67)

(69)

34,044

(1,452)

58,620
(36,635)

4,946

(34,021)

13,598

(6,489)

(68)

4,890
(110)

(3,219)

(2,000)

11,028

3,201

(13,806)

(13,808)

38,783

(2,084)

78,262
(45,656)

(1,620)

(40,721)

16,349

2008

8,901

29,475

38,376

2007

3,123

7,905

11,028

Notes to the Consolidated Financial Statements

Note 4

Production Costs

Amounts in US$ ’000

Wages and salaries

Depreciation

Royalties

Gas Plant lease

Insurance costs

Other costs

Note 5
Depreciation

Amounts in US$ ’000

Oil and gas properties

Furniture, equipment and vehicles

Production facilities and machinery

Buildings and improvements

Depreciation, property plant and equipment

Recognised as follows:

Production costs

Exploration costs

Administrative expenses

Depreciation total

Note 6

Employees

Average number of employees

Amounts in US$ ’000
Wages and salaries (*)
Social security charges

Shared-based payment

2008

2,173

7,108

2,173

2,147

469

5,071

19,141

2008

4,579

241

2,486

134

7,440

7,108

277

7,440

2008
161

4,876

666

816

6,358

Board of Directors’ and key managers’ remuneration

Salaries and fees

Shared-based payment

Other benefits in kind

Note 7

Exploration Costs

Amounts in US$ ’000

Wages and salaries

Other services

Relinquishment of Del Mosquito Block (a)

Write off of unsuccessful efforts (b)

2008

2007

1,601

644

117

2,362

1,569

1,728

3,381

2008

1,406

1,616

1,149

273

4,444

2007

1,220

874

4,522

6,616

(a) See note 14.

(b) The 2007 write offs relate to two exploratory wells in Del Mosquito

during that period. These have been included within Exploration costs within

2007

1,552

1,815

486

400

250

3,324

7,827

2007

810

192

965

117

2,084

the Income Statement in 2007. Additional costs were incurred during 2008

in relation to these exploratory wells. During 2008 there have not been any

unsuccessful exploratory wells.

1,815

202

2,084

2007
72

4,360

Note 8

Administrative Costs

Amounts in US$ ’000

Administrative expenses

Stock awards and ESOP (note 25)

Note 9

Financial Income

492

Amounts in US$ ’000

2,047

6,899

Exchange difference

Interest receivable

2008

5,509

1,479

6,988

2007

5,576

4,072

9,648

2008

281

392

673

2007

1,077

959

2,036

(*) The 2008 amount does not include US$ 1,632,000 (2007 nil) of salaries paid

for drilling hours that were capitalised.

In 2007, when the functional currency was the Chilean Peso, the exchange

difference arose from the net exposure related to the existence of financial

liabilities in US Dollars mainly in Chile.

Notes to the Consolidated Financial Statements

Note 10

Financial Expenses

Amounts in US$ ’000

Bank charges and other financial costs

Exchange difference

Interest and amortisation of debt issue costs

2008

1,654

2,209

3,928

211

197

1,854

2,262

The Group has significant tax losses available which can be utilised against

future taxable profit in those countries as set out below:

2007

Amounts in US$ ’000

Argentina

Total tax losses at 31 December

2008

13,144

2007

6,066

At the balance sheet date deferred tax asset in respect of tax losses in

Argentina have not been recognised as there is insufficient evidence of future

In 2008, both the Chilean Peso and the Argentine Peso weakened against

taxable profits before the statute of limitation of these tax losses causes

the US Dollar. The Group’s exchange differences arose from the net exposure

them to expire.

related to the existence of financial liabilities in US Dollars in Argentina and

from the net exposure related to the existence of financial assets in Chilean

Expiring dates for tax losses accumulated at 31 December 2008 are:

Expiring date

Amounts in US$ ’000

Pesos in Chile.

Note 11

Income Tax

Amounts in US$ ’000

Current tax

Deferred tax

2010

2011

2012

2013

2008

(276)

2007

(2)

Note 12
Deferred Income Tax

The tax on the Group’s profit before tax differs from the theoretical amount

Amounts in US$ ’000

that would arise using the weighted average tax rate applicable to profits

Deferred tax at 1 January

of the consolidated entities as follows:

Amounts in US$ ’000

Profit / (loss) before tax

Results in countries where no income tax is paid

Tax losses where no deferred

income tax is recognised

Taxable profit / (loss)
Effective tax rate in respect of taxable profit.
Income tax calculated at statutory tax rate

Expenses not deductible for tax purposes

Difference between functional

currency and tax currency

Non taxable profit

Income tax

2008

3,927

4,818

4,503

13,248
15%
1,987

158

(1,862)

(7)

276

Exchange rate adjustment

Movement in deferred tax

2007

(13,806)

6,489

Deferred tax at 31 December
Deferred tax asset (liability) relates to:
Taxable losses (*)
Property, plant and equipment

7,250

Other temporary differences

(*) In Chile, taxable losses have no expiration date.

(67)
15%
(10)

(16)

The tax rate in Bermuda where GeoPark Holdings Limited is registered is 0%.

Income tax rates in those countries where the Group operates ranges from

15% to 35%.

748

1,885

6,590

3,921

2007

(17)

2008

(276)

(261)

3,669

(4,091)

161

(261)

Notes to the Consolidated Financial Statements

Note 13

Earnings / (Loss) per Share

Amounts in US$ ’000

Numerator:

Profit / (loss) for the year

Denominator:

In Argentina, on 30 December 2008 the Group relinquished 38.43% of the

Del Mosquito Block back to the government in accordance with the terms of

the Del Mosquito licence, effectively from 1 January 2009. This area includes

2008

2007

135 square kilometres of seismic surveys which represents 33.75% of the total

seismic surveys (400 square kilometres). The relinquished seismic survey

3,651

(13,808)

was charged within the income statement to Exploration costs.

Weighted average number of shares

During 2008, the 3D seismic registered in the Fell Block, relating to the areas

used in basic EPS

32,984,875

30,683,536

that have been developed (243 square kilometres) has been transferred

Earnings / (loss) after tax per share (US$) - basic

0.11

(0.45)

to property, plant and equipment within “Oil & gas properties” and is being

depreciated considering the unit of production method.

Amounts in US$ ’000

Weighted average number of shares

2008

2007

Included in the carrying amount are 8 wells for US$ 22,013,000 that form

part of the drilling campaign in Chile, 1 well in Argentina for US$ 752,000 and

used in basic EPS

32,984,875

30,683,536

4 wells that formed part of the workover campaign in Chile for US$ 1,448,000.

Effect of dilutive potential common shares

Stock awards to employees at US$ 0.001

Stock option at £4.00

Executive Directors stock option at £3.20

Non Executive Directors fees (note 21)

Stock awards to Non Executive Directors (note 21)

Weighted average number of common shares

48,425

10,938

10,397

Four of the Chilean wells entered into production in 2009. It is planned that

613,380

the remaining wells will be refractured or retested in 2009 or 2010. Therefore,

1,218,380

the carrying amounts of these wells has been retained in Intangible assets.

306,690

11,716

21,876

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

for the purposes of diluted earnings per share

33,054,635

32,855,578

same geographic segment to form the Cash Generating Unit (CGU) for

Earnings / (loss) after tax per share (US$) - diluted

0.11

(0.45)

impairment testing. The combined cost of the CGU is compared against the

Note 14

Intangible Assets

CGU’s net present value and any resulting impairment loss is written off

to the Income Statement.

The Group has the exclusive right to explore and exploit the Fell Block. The

exploration phases are divided in four exploration periods, which will last for

Amounts in US$ ’000

Exploration and evaluation assets

six years in total, beginning on 25 August 2004. For exploitation, the CEOP

Carrying amount at 1 January 2007

Additions

Exchange rate adjustment

Write off of unsuccessful efforts

Transfers to property, plant and equipment

Carrying amount at 31 December 2007
Additions

Exchange rate adjustment

Write off of unsuccessful efforts (note 6)

Relinquishment of Del Mosquito Block

Transfers to property, plant and equipment

Carrying amount at 31 December 2008

13,475

29,472

grants the Contractor a period of 35 years, beginning on 25 August 1997. The

exploration period ends in May 2011. Once oil or gas is discovered, that area

462

of the block which is to be produced may be converted into an exploitation

(4,522)

block and the Group has the right to exploit it until the end of the concession.

(15,054)

23,833
40,690

(338)

(273)

To do this, the Contractor must declare the commerciality of the field, by
means of a written letter to the Ministry of Mining.

The exclusive right to produce, explore and develop hydrocarbons in the

Del Mosquito Block was granted for a period of 25 years, commencing in April

(1,149)

1991, with a possible extension of 10 years. This possible extension was not

(25,601)

considered to impact the calculation of the net present value of the CGU’s

37,162

related to Del Mosquito Block.

Included in the carrying amounts are 265 (400 in 2007) square kilometres
of 3D seismic surveys registered in Del Mosquito Block for US$ 2,107,315

Net present value is based upon calculations carried out by independent

experts commissioned by the Group. On 31 December 2008 net present value

(US$ 3,471,000 in 2007) and 450 (680 in 2007) square kilometres of 3D seismic

calculations were carried out using a discount factor of 10 per cent based on

surveys registered in the Fell Block for US$ 6,578,313 (US$ 8,669,000 in 2007).

the Reserve Report dated March 2008 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.

Notes to the Consolidated Financial Statements

Furniture,

Production

Buildings

Oil & Gas

Equipment

Facilities and

and

Construction

Properties

and Vehicles

Machinery

Improvements

in Progress

634
(1)

229

(37)

825

(37)

162

950

(175)
(192)

(351)
(241)

(566)

474

384

3,683
221

3,370

5,190

4,890

17,354

(132)

3,029

6,520

26,776

(40)
(965)

(45)

(195)

(1,245)
(2,486)

(3,693)

16,109

23,083

330
3

1,022

1,434

(23)

183

1,622

(34)
(117)

(2)

(153)
(134)

(274)

717
4

5,419

(5,707)

433

(14)

9,736

(66)

(6,900)

3,189

-
-

1,281

1,348

433

3,189

Total

9,995
78

10,454

(37)

15,054

35,544

(660)

18,170

(66)

25,601

78,589

(1,759)
(2,084)

(7)

(3,837)
(7,440)

328

(10,949)

31,707

67,640

Note 15

Property, Plant and Equipment

Amounts in US$ ’000

Cost at 1 January 2007
Exchange rate adjustment

Additions

Disposals

Transfers

Transfers (from intangible assets)

Cost at 31 December 2007

Exchange rate adjustment

Additions

Disposals

Transfers (from intangible assets)

Transfers

Cost at 31 December 2008

Depreciation and write-down at 1 January 2007
Depreciation (note 5)

Exchange rate adjustment

Disposals

Transfers

Depreciation and write-down at 31 December 2007
Depreciation (note 5)

Exchange rate adjustment

4,631
(149)

1,357

(505)

10,164

15,498

(454)

5,240

25,571

197

46,052

(1,510)
(810)

195

(2,088)
(4,579)

251

Depreciation and write-down at 31 December 2008

(6,416)

Carrying amount at 31 December 2007

Carrying amount at 31 December 2008

13,410

39,636

As of 31 December 2008, the Company has pledged, as security for a

mortgage obtained for the acquisition of the operating base in Chile, assets

amounting to US$ 520,000 (US$ 667,000 in 2007). See note 22.

The additions in “Construction in progress” principally relate to the

acquisition of tubing and casing amounting to US$ 2,813,512, a compressor

amounting to US$ 628,731, the construction of a gathering system station

in Nika Sur for US$ 1,222,583 and a gathering system station in Monte

Aymond for US$ 1,369,196 as well as some other facilities in Chile.

Notes to the Consolidated Financial Statements

Note 16

Subsidiary Undertakings

Note 17

Prepaid Taxes

In August 2008, GeoPark Holdings Limited established a new company

Amounts in US$ ’000

located in Chile named GeoPark Magallanes Limitada which started

VAT

operations in September 2008.

Also in Chile, the Group acquired a 30% interest in the Tranquilo Block

Other prepaid taxes

Total prepaid taxes
Classified as follows:

(with Pluspetrol, IPR and Manas) and was awarded, following with Chilean

Current

bidding round, a 42% interest in the Otway Block (with Wintershall and

Non current

Methanex). Both consortia have requested GeoPark to be the operator.

Total prepaid taxes

The Tranquilo participation has been approved by the Chilean government

and final approval of the Otway Block is in process. GeoPark Magallanes

Limitada will hold the Group’s interests in the Tranquilo and Otway Blocks.

Note 18
Inventory

In September 2007, GeoPark Holdings Limited established a new company

located in Chile called Servicios Southern Cross Limitada, which started

Amounts in US$ ’000

operations in 2008.

Crude oil

Materials and spares

Details of the subsidiaries and jointly controlled assets of the Company are

set out below:

2008

5,651

500

6,151

2,688

3,463

6,151

2007

6,360

597

6,957

3,889

3,068

6,957

2008

464

707

1,171

2007

351

1,731

2,082

Name and Registered Office

Interest

Trade Receivables and Prepayment and Other Receivables

Ownership

Note 19

Subsidiaries

GeoPark Argentina Limited - Bermuda

GeoPark Argentina Limited - Argentine Branch

GeoPark Chile Limited - Bermuda

GeoPark Chile Limited - Chilean Branch

Servicios Southern Cross Limitada

GeoPark Magallanes Limitada

Jointly controlled assets

Tranquilo Block

Otway Block

(*) Indirectly owned.

100%
100% (*)
100%
100% (*)
100%
100% (*)

30%

42%

Amounts in US$ ’000

Trade accounts receivable

To be recovered from joint venturer

Prepayments and other receivables

2008

8,434

312

1,071

9,817

2007

2,305

574

2,879

Trade receivables that are aged by less than three months are not considered

impaired. As of 31 December 2008, trade receivables of US$ 145,000

(US$ 50,000 in 2007) were aged by more than 3 months, but not impaired.

These relate to customers for whom there is no recent history of default.

The following chart illustrates the Group structure:

GeoPark Holdings
Limited

GeoPark Chile
Limited - Bermuda

GeoPark Argentina
Limited - Bermuda

Servicios Southern Cross
Limitada

GeoPark Chile
Limited - Chilean Branch

GeoPark Magallanes
Limitada

GeoPark Argentina
Limited - Argentine Branch

Notes to the Consolidated Financial Statements

As of 31 December 2008, trade receivables of US$ 21,256 were impaired

2007

Loans and Receivables

Total

and provided for. The individually impaired receivables mainly relate

to wholesalers, which are in unexpectedly difficult economic situations.

Assets as per Balance Sheet
Trade receivables

Also prepayments and other receivables of US$ 12,259 were impaired and

Investments

provided for. The ageing of these receivables is over 12 months.

Cash and cash equivalents

2,305

2,079

8,710

2,305

2,079

8,710

13,094

Movements on the Group provision for impairment are as follows:

Amounts in US$ ’000

At 1 January

Provision for receivables impairment

The costs providing for impaired receivables have been included in

’Administrative costs’ in the income statement.

2008

2007

Other Financial Liabilities

Total

Liabilities as per Balance Sheet
Trade payables

Borrowings

Other liabilities

8,449

34,741

285

8,449

34,741

285

43,475

The credit period for trade receivables is 30 days. The maximum exposure

Credit Quality of Financial Assets
The credit quality of financial assets that are neither past due nor impaired

to credit risk at the reporting date is the carrying value of each class of

can be assessed by reference to external credit ratings (if available) or

receivable. The Group does not hold any collateral as security.

to historical information about counterparty default rates:

The carrying value of trade receivables is considered to represent a

Amounts in US$ ’000

2008

2007

reasonable approximation of its fair value due to its short term nature.

Trade receivables
Counterparties with external credit rating (Moody’s)

Note 20

Financial Instruments by Category

Amounts in US$ ’000

Loans and Receivables

Total

Ba1

Baa1

Counterparties without external credit rating
Group1 (*)
Group2 (*)
Total trade receivables

690

7,498

152

297

1,659

144

149

8,434

2,305

2008

Assets as per Balance Sheet
Trade receivables
Investments (*)
Cash and cash equivalents

2008

Liabilities as per Balance Sheet
Trade payables

Borrowings

Other liabilities

8,434

2,141

5,710

8,434

2,141

5,710

Cash at Bank and Investments
Counterparties with external credit rating (Moody’s)

16,285

AAA

7,848

10,786

Other Financial Liabilities

Total

hand.

The rest of the balance sheet item ’cash and cash equivalents’ is cash on

(*)

Group 1 - new customers (less than 6 months).

Group 2 - existing customers (more than 6 months) with no defaults in the past.

11,269

53,680

1,492

66,441

11,269

53,680

1,492

66,441

(*) Non current investments relate solely to the cash collateral account

required under the terms of the borrowing obtained from the IFC.

This investment accrues interests and will be recovered once the borrowing

is fully paid.

Notes to the Consolidated Financial Statements

Financial Liabilities - Contractual Undiscounted Cash Flows
The table below analyses the Group’s financial liabilities into relevant

GeoPark Common

Issued

Closing US$ (’000)

maturity groupings based on the remaining period at the balance sheet to

Shares History

Date

(millions)

Closing

the contractual maturity date. The amounts disclosed in the table are the

Shares outstanding

contractual undiscounted cash flows.

at the end of 2006
Issue of shares to

30.7

Between

non Executive Directors

2007

0.01

30.7

Less than

1 and 2

2 and 5

Over

Shares outstanding

Amounts in US$ ’000

1 Year

Years

5 Years

at the end of 2007
Issue of shares to

At 31 December 2008
Borrowings

Trade accounts payable

Other liabilities

At 31 December 2007
Borrowings

Trade payable

Other liabilities

13,403

11,269

1,492

26,164

13,448

8,449

285

16,818

26,472

167

non Executive Directors

2008

Placing

Share awards to

May 2008

0.03

3.08

16,818

26,472

167

officers, employees

and consultants

July 2008

0.60

34.4

11,149

13,543

301

Shares outstanding

at the end of 2008

34.4

30.7

33.8

22,182

11,149

13,543

301

On 9 May 2008, the Company issued 3,080,000 ordinary shares. Each share

Note 21

Share Capital

Issued share capital

Common stock (amounts in US$ ’000)
The share capital is distributed as follows:

Common shares, of nominal US$ 0.001

Total common shares in issue

Authorised share capital
US$ per share

Number of common shares

(US$ 0.001 each)
Amount in US$

has been placed at a price of 394 pence per share, generating a share

premium of US$ 23,612,067. Included in the placing were a new strategic

block of Chilean investors and pension funds, the International Finance

Corporation (“IFC”) of the World Bank, and certain London institutional

investors. The Placing was limited to 10% of the current issued share capital

2008

2007

of the Company.

34,399,186

30,688,202

the acquisition and work program for the Company’s farm-in on the new

30,688,202

Tranquilo block in Chile and to accelerate the investment program on

The gross proceeds of the Placing has been used principally to fund

the Company’s Fell Block in Chile.

0.001

In accordance with the requirements of IAS 32, the costs associated with

the issue of these shares and their admission to AIM of US$ 940,404 have

been deducted from equity.

5,171,969,000
5,171,949

During 2008, the Company issued 48,219 (19,235 in 2007) shares to

Non Executive Directors in accordance with contracts as compensation.

Details regarding the share capital of the Company are set out below:

Shares are issued at average price for the period, generating a share

premium of US$ 307,000 (US$ 119,000 in 2007).

Common Shares
As of 31 December 2008 the outstanding common shares confer the

following rights on the holder:

- the right to one vote per share;

Other Reserve
As stated above, the Company has issued 48,219 shares regarding Non

Executive Directors fees paid in shares. Additionally, 23,530 shares have been

granted to Non Executive Directors and have not been issued as of 31

- ranking pari-passu, the right to any dividend declared and payable

December 2008 resulting in an amount of US$ 150,000 being included within

on common shares provided that no dividends shall be declared or paid on

Other reserve. The 38,470 shares granted in 2007 have been issued during

Common shares;

2008 resulting in a decrease of US$ 235,000 of Other reserve.

Notes to the Consolidated Financial Statements

The accounting treatment of the shares is in line with the Group’s policy on

The financing is structured as a gas pre-sale agreement with a six year

share based payments.

Note 22

Borrowings

pay-back period and an interest rate of LIBOR flat. In each year, the Group will

repay principal up to an amount equal to the loan amount multiplied by

a specified percentage. Subject to that annual maximum principal repayment

amount, the Group will repay principal and interest in an amount equal to

the amount of gas specified by the price payable to the Chilean Government

for such gas.

Amounts in US$ ’000

2008

2007

Outstanding amounts as of 31 December

As of 31 December 2007, US$ 13,681,000 have been drawn-down (which

International Finance Corporation

Methanex Corporation

Banco de Crédito e Inversiones

16,245

36,898

537

20,373

13,675

according to IAS 32 has been recorded net of transaction costs at

US$ 13,618,000). During 2008, the remaining amount has been drawn-down

693

for development and investing activities on the Fell Block.

Classified as follows:

Non current

Current

53,680

34,741

Additionally, GeoPark Chile acquired a facility to establish its operational base

42,253

11,427

29,958

in the Fell Block. This facility was acquired though a mortgage loan granted

4,783

by the Banco de Crédito e Inversiones (BCI), a Chilean private bank (note 15).

The loan was granted in Chilean pesos and is repayable over a period of 8

On 12 December 2006, the Group entered into a loan agreement for an

years. The interest rate applicable to this loan is 6.6%.

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

The carrying value of these financial instruments is considered to represent

2007 Group investment program. The IFC is also a shareholder in the Group.

a reasonable approximation of fair value for 2007 but changes in the

international credit markets had affected and reduced the fair value of these

Loan disbursements made on 27 December 2006 were US$ 17,000,000

financial instruments in 2008. The fair value of these financial instruments

(which according to IAS 39 has been recorded net of transaction costs at

at 31 December 2008 amounts to US$ 45,258,000.

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.

Note 23

Provision for Decommissioning

The interest rate applicable to this loan is LIBOR plus 3 per cent.

In relation to the IFC loan, the Company has pledged the shares of GeoPark

Argentina Ltd. and GeoPark Chile Ltd. as collected security.

Under the IFC 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 under the loan agreement.

During 2007 the Group requested and was granted a waiver for some of the

Amounts in US$ ’000

At 1 January 2007
Additional provisions

Unwinding of discount

At 31 December 2007
Additional provisions
Unwinding of discount

At 31 December 2008

US$ ’000

93
1,143

1,264
718
(434)

1,548

financial covenants which was in place in 2007 and 2008. This waiver was

The provision for decommissioning relates to the estimation of future

requested pursuant to the agreement entered into with Methanex and the

disbursements related to the abandonment and decommissioning of oil and

acquisition of a facility through a mortgage as explained below.

gas wells. This provision will be utilised when the related wells are fully

In 2007, the Group, through its subsidiary GeoPark Chile Limited, entered

into an agreement with Methanex Corporation (the worlds largest methanol

producer), for a US$ 40,000,000 financing facility for development and

investing activities on the Fell Block.

depleted.

Notes to the Consolidated Financial Statements

Note 24

Trade Accounts Payable

Amounts in US$ ’000

Trade payables

at the grant date. The vesting date of these stock options was 15 May 2008

and they will expire in five years on 15 May 2013. The stock options

give no voting rights to the holders until they are exercised and converted

2008

11,269

2007

into common shares when they will rank pari-passu with all existing common

8,449

shares. The awards will vest in full in the event of a takeover, change

of control or winding up of the Company. None of these options has been

The average credit period (expressed as creditor days) during the year ended

exercised since the stock price has been below the exercise price since their

31 December 2008 was 52 days (2007: 62 days).

vesting period started.

The fair value of these short term financial instruments are not individually

ii) to the Executive Directors 306,690 stock options at an exercise price of

determined as the carrying amount is a reasonable approximation of fair value.

£3.20 and 613,380 at an exercise price of £4.00. The vesting conditions

Note 25
Share Based Payments

of these options are equal to those described in i). None of these options

has been exercised during 2008.

The fair value of the options granted was calculated using the Black-Scholes

model. Due to the short trading history of the Company, expected volatility

IPO Award Program and Executive Stock Option Plan
In 2006, the Group established an IPO Award Program and Executive Stock

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

Option plan. These schemes were established to incentivise the Directors,

trading history.

senior management and employees, enabling them to benefit from the

increased market capitalisation of the Company.

The expected life used in the model has been adjusted, based on

The costs for these Programs are expensed in the Administrative costs line

restrictions and behavioural considerations.

included in the Income Statement. Details of these costs are described

in the following table and explanations:

The main inputs used in the model to calculate the fair value of the options

management’s best estimate, for the effects of non transferability, exercise

under the Executive stock option plan are the followings:

Amounts in US$ ’000

Stock awards (a)

Stock option plan (b)

2008

687

792

1,479

2007

1,995

2,077

4,072

Grant date share price

(a) Corresponds to 613,380 IPO Awards that were granted to all of the Group’s

Exercise price

employees and certain consultants at the IPO date (May 2006). The Awards

Expected volatility

vested on 15 May 2008, the second anniversary of admission to AIM. On 3 July

Vesting period

2008, the Company issued 602,000 shares for nominal value of 0,001 each,
corresponding to the total IPO awards vested which are held in a Beneficiary

Expected life
Risk free interest rate

Trust. There are 11,380 awards that did not vest and were cancelled since they

Fair value of the option

corresponded to employees that had left the Group before vesting date.

Number of options

Directors, Senior

Management and

Executive Directors

Eligible Employees

£3.20

55%

2 years

4 years
4.73%

£1.50

306,690

£3.20

£4.00

55%

2 years

4 years
4.73%

£1.25

1,218,380

During 2008, 85,000 of these shares were sold by the employees at a

No stock options have been granted during 2007.

weighted average price of £4.1675 per share. The shares held in the

employee Beneficiary Trust rank pari-passu with GeoPark’s ordinary shares.

New Performance-Based Employee Long Term Incentive Program
During 2008 GeoPark Shareholders voted to authorize the Board to use up

(b) On admission to AIM the Company granted:

to 12% of the issued share capital of the Company at the relevant time for the

i) 605,000 stock options to the senior management and some eligible

Considering the previously issued IPO Awards, the total share capital being

employees. The exercise price of these stock options is £ 4.00 (125 per cent of

awarded to employees will be approximately 14%.

purposes of the Performance-based Employee Long Term Incentive Plan.

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

Notes to the Consolidated Financial Statements

The 2008 Program consisted of Stock Awards, with all employees eligible

Note 27

and with a vesting period of 4 years. Stock Awards will be determined

Commitments

for each employee in accordance with a formula and procedure based on:

recruitment bonus and entry into the Company and value added

and performance bonus. Specific Award amounts have been reviewed and

(a) Royalty Commitments
In Argentina, crude oil production accrues royalties payable to the Provinces

approved by the Executive Directors and the Remuneration Committee

of Santa Cruz and Mendoza equivalent to 12 per cent on estimated value

of the Board of Directors.

at mouth of well of those products. This value is equivalent to the final sales

Further details of the Plan can be found in the Director’s Remuneration

Report on page 46.

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 from wells at

Other Share Based Payments
As it is mentioned in note 21, the Company granted 14,044 shares at

“Del Mosquito”, Province of Santa Cruz, Argentina) and to Occidental

Petroleum Argentina Inc, formerly Vintage Argentina Ltd. (8 per cent on

average price for each three months period for services rendered by the Non

invoiced amount of crude oil obtained from wells at “Loma Cortaderal” and

Executive Directors of the Company. Fees paid in shares were directly

“Cerro Doña Juana”, Province of Mendoza, Argentina).

expensed in the administrative expenses line in the amount of US$ 104,405.

Note 26

Interests in Joint Ventures

The Group has interests in two joint ventures, which are involved in the

exploration of hydrocarbons in Chile (Note 16).

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 and gas revenues up to a total

amount of US$ 3,250,000.

(b) Capital Commitments
The Group has committed to drill two exploratory wells in Del Mosquito

The following amounts represent the Company’s share in the assets, liabilities

Block during 2009 and 2010. The Group estimates a cost of US$ 3,200,000 for

and results of the joint ventures which are included in the consolidated

these two wells. This commitment has been undertaken as a compensation of

balance sheet and statement of income:

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

Joint venture

Subsidiary

Interest

Assets

PP&E / E&E
Other assets

Liabilities

Non current liabilities

Current liabilities

Net liabilities

Sales

Loss before tax

Income tax

Net loss

Tranquilo Block

Otway Block

levied by the Provincial authorities and gives the right to maintain the

GeoPark

concession.

Magallanes Ltda.

30%

2008

17
-

113

96
-

42%

The Tranquilo Block Consortium has committed to drill six exploratory wells,

2008

to perform 2D and 3D seismic during 2009, 2010 and 2011. The joint

venture estimates a cost of US$ 14,360,000 for these works. Regarding this

4
-

33
-

commitment, GeoPark Magallanes holds a 38.40% share.

The Otway Block Consortium has committed to drill two exploratory wells

and to perform 3D seismic during 2009, 2010 and 2011. The joint venture

estimates a cost of US$ 10,550,000 for these works. Regarding this

commitment, GeoPark Magallanes holds a 42% share.

(c) Operating Lease Commitments - Group Company as Lessee
The Group leases various plant and machinery under non 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.

Capital commitments related to the Tranquilo and Otway Blocks are disclosed

in Note 27 (b).

Notes to the Consolidated Financial Statements

US$ 12,271,000 were charged to the income statement during 2008 related

(*) The Company paid US$ 36,000 during 2008 and US$ 36,000 during 2007 for

to operating leases.

services provided by Lario Enterprises LLC. Gerald O’Shaughnessy is a

shareholder and director of GeoPark Holdings Limited, and is the beneficial

The future aggregate minimum lease payments under non cancellable

owner of Lario Enterprises LLC through trusts.

operating leases are as follows:

(**) Corresponding to operating consultancy.

Amounts in US$ ’000

Operating lease commitments

Falling due within 1 year

Falling due within 1 - 5 years

Falling due after 5 years

Total minimum lease payments

Note 28

Related Parties

2008

2007

There have been no other transactions with the Board of Directors, Executive

13,322

14,005

1,200

28,527

2,253

5,483

1,680

9,416

Board, 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 and Executive Board.

Note 29
Fees Paid to Auditors

Amounts in US$ ’000

2008

2007

Controlling Interest
The main shareholders of GeoPark Holdings Limited, a company registered

Fees payable to the Group’s Auditors for the

audit of the consolidated financial statements

in Bermuda, as of 31 December 2008, are:

Fees payable to the Group’s Auditors for the

a) 20.16 per cent of share capital, by Energy Holdings LLC, controlled by

review of interim financial results

James F. Park (founder).

Fees payable for the audit of the Group’s

b) 18.61 per cent of share capital, by GP Investments and The Globe

subsidiaries pursuant to legislation

Resources Group, both companies controlled by Gerald O’Shaughnessy

Fees paid to auditors

164

131

217

(founder).

c) 10.07 per cent of share capital, by SCHRODER Investment Management.

d) 8.31 per cent of share capital, by IFC (International Finance Corporation).

Note 30

Balances outstanding and transactions with related parties:

Financial Instruments-Risk Management

The Group is exposed through its operations to the following financial risks:

(Amounts in ’000)

Account

2008

Transaction

Balances

Party Relationship

- Market price risk

- Foreign currency risk

- Credit risk - concentration

Share-

- Funding and Liquidity risk

IFC
Lario

holders

- Interest rate risk
- Capital risk management

Borrowings

1,993

(16,432)

Administrative expense

Enterprises

(*)

(**) Non
Executive

The policy for managing these risks is set by the Board. Certain risks are

managed centrally, while others are managed locally following guidelines

Production costs

123

- Peter Ryalls

Director

communicated from the centre. The policy for each of the above risks is

2007

described in more detail below.

Borrowings

1,814

(20,740)

IFC

Lario

Administrative expense

Enterprises

Share-

holders

(*)

(**) Non
Executive

Foreign Currency Risk
There are activities in foreign countries in which its functional currency is its

local currency (Argentine Peso). The main exposure of the Group to currency

changes is 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

Administrative expenses

124

- Peter Ryalls

Director

rate changes between the US Dollar and the Argentine Peso, the Group

Notes to the Consolidated Financial Statements

recognises gains and losses in the consolidated income statement. In Chile

the oil price is also subject to the impact of the retention tax on oil exports

where the functional currency is the US Dollar, the fluctuation of the Chilean

defined by the Argentine government.

Peso does not impact the loans, costs and revenues held in US Dollars; but

it does impact the accounts denominated in Chilean Pesos. Such is the case

The Company has signed a long term Gas Supply Contract with Methanex

of the prepaid taxes held in Chilean Pesos. As currency rate changes between

in Chile. The price of the gas under this contract is indexed to the

the US Dollar and the Chilean Peso, the Group recognises gains and losses

international methanol price.

in the consolidated income statement.

In Argentina, the main exposure comes from the IFC loan. The amount

compared to actual prices during the year, with all other variables held

outstanding at the issue of these financial statements was US$ 4.2 million,

constant, post-tax profit for the year would have been lower by US$ 3,188,110

which is fully exposed to a devaluation of the Argentine Peso. Given the

(post tax Group’s net loss would have been higher by US$ 877,000 in 2007).

high cost of a long term Peso/Dollar hedge and the relatively low amount

exposed, the management has decided not to hedge this exposure.

The Board will adopt a hedging policy when it deems it appropriate

If the market prices of the WTI and methanol would have fallen by 10%

according to the size of the business and market implied volatility.

In Chile, most of the balances are denominated in US Dollars, and since it is

the functional currency of the Chilean subsidiary, there is no exposure to

currency fluctuation except from receivables originated in Chilean Peso for

Credit Risk - Concentration
The Group’s credit risk relates mainly to accounts receivable where the credit

an amount of US$ 3,265,000, mainly corresponding to VAT credits for

risks correspond to the recognised values. There is not considered to be

US$ 2,536,000. Management is working to collect this credit during 2009,

any significant risk in respect of the Group’s major customers. Substantially all

therefore the exposure is not significant and the decision has been made

oil production in Argentina is sold to Petrobras, a Brazilian oil and gas

not to hedge this risk.

company, which has good credit standing.

The Group minimises the local currency positions in Argentina and Chile by

In Chile, all gas production is sold to the local subsidiary of the Methanex

seeking to equilibrate local and foreign currency assets and liabilities.

Corporation (a Canadian public company). All the oil produced in Chile is sold

Most of the Group’s assets are associated with oil and gas productive assets.

good credit standing and despite the concentration of the sale they do not

Such assets in the oil and gas industry even in the local markets are usually

represent a significant collection risk. See disclosure in Note 20.

to ENAP, the State owned oil and gas company. Both companies have a

settled in local currency US$ equivalents.

Exchange adjustments in respect of investments in subsidiary undertakings

are recognised directly in equity.

Funding and Liquidity Risk
The extent of the global economic crisis and the accompanying oil and gas

price volatility have created substantial uncertainty in accurately forecasting

future activities. The Group, like virtually every enterprise in every industry

During 2008, the Argentine Peso had weakened by 10% (3% in 2007)

today, faces a period of challenge and adjustment. Following its successes

against the US Dollar and the Chilean Peso had weakened by 28%

in 2008, the Group is in the fortunate position of having a secure production

(strengthened by 7% in 2007). If both the Argentine and Chilean Peso had
weakened an additional 5% against the US Dollar, with all other variables

base and cash flow stream - coupled with low operating costs and the
flexibility of a discretionary investment program that can be maintained,

held constant, post-tax profit for the year would have been lower by

reduced or increased in the short term depending on the severity or duration

US$ 597,000 (US$ 1,734,000 higher post-tax loss in 2007).

of the downturn. The Group’s cost structure allows it to sustain itself in a

very low oil and gas price environment.

Market Price Risk
The price collected for the oil produced by the Group is dependant on WTI

To manage through the current global crisis, the Group has adjusted

which is settled in the international markets in US Dollars. The market price

its 2009 investment program, restructured internal costs and refocused its

of these commodities is subject to significant fluctuation but the Board

approach to:

did not consider appropriate to manage the Group’s risk to such fluctuation

- prioritise and protect cash flow,

through futures contracts or similar because to do so would not have been

- lower its breakeven operating position by cost reductions,

economical at the achieved production levels.

- increase production by accessing quick cash flow-producing investments

In Chile, the oil price is based on WTI minus certain marketing and quality

- protect the core competences of the Company (that is, the ability to

discounts such as, inter alia, API quality and mercury content. In Argentina,

economically find and produce oil and gas).

within its portfolio, and

Notes to the Consolidated Financial Statements

Although the Group may have to raise additional funds to support its 2009

investment program, it has a strong support from its financial partners and

Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s

significant flexibility in adjusting the program to ensure the development of

ability to continue as a going concern in order to provide returns for

the key properties.

shareholders and benefits for other stakeholders and to maintain an optimal

Interest Rate Risk
As the Group has no significant interest-bearing assets, the Group’s profit

Consistent with others in the industry, the Group monitors capital on the

and operating cash flows are substantially independent of changes in market

basis of the gearing ratio. This ratio is calculated as net debt divided by total

interest rates. The Group’s interest rate risk arises from long-term borrowings

capital. Net debt is calculated as total borrowings (including ’current and

issued at variable rates, which expose the Group’s to cash flow to interest

non current borrowings’ as shown in the consolidated balance sheet). Total

rate risk. The loans from the IFC and Methanex Corporation accrue variable

capital is calculated as ’equity’ as shown in the consolidated balance sheet

capital structure to reduce the cost of capital.

interest rates which depends on the LIBOR rate. For the period covered

plus net debt.

by these financial statements, the Group has decided not to buy any coverage

for this risk.

During 2008, the Group’s strategy, which was unchanged from 2007,

was to take the gearing ratio within 45% to 55% range. The gearing ratios

The Group analyses its interest rate exposure on a dynamic basis. Various

at 31 December 2008 and 2007 were as follows:

scenarios are simulated taking into consideration refinancing, renewal of

existing positions, alternative financing and hedging. Based on these scenarios,

Amounts in US$ ’000

the Group calculates the impact on profit and loss of a defined interest rate

Net debt

shift. For each simulation, the same interest rate shift is used for all currencies.

Total equity

The scenarios are run only for liabilities that represent the major interest-

bearing positions.

Total capital

Gearing ratio

2008

53,680

60,497

114,177

47%

2007

34,741

32,606

67,347

52%

At 31 December 2008, if interest rates on currency-denominated borrowings

The decrease in the gearing ratio during 2008 resulted primarily from the

had been 1% higher with all other variables held constant, post-tax profit

proceeds from the issue of common shares.

for the year would have been US$ 356,183 lower (post tax Group’s net loss

would have been higher by US$ 178,000 in 2007), mainly as a result of higher

interest expense on floating rate borrowings.

Notes to the Consolidated Financial Statements

We express our appreciation

to Diego Dicarlo, geologist,

for his photographs of the blocks.

Notes to the Consolidated Financial Statements 75

Board of Directors

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. 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

Mr. 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 as one of the leaders of the Geneva

banking industry. Mr. Weyer also was instrumental in the growth of several large oil trading firms; as well as supporting the 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.

Juan Cristóbal Pavez | Non Executive Director

Mr. Pavez graduated from the Universidad Católica de Chile (Catholic University of Chile) in 1992 with a degree in Commercial Engineering, and immediately

joined Grupo CB (CB Group) as a research analyst. Thereafter, he obtained a master’s degree in Business Administration from the Massachusetts Institute of

Technology. He was then portfolio analyst at Moneda Asset Management until 1998, when he joined Santana, an investment company, as CEO. At Santana he

focused mainly on investments in capital markets and real estate. While at Santana, he was appointed CEO of Laboratorios Andrómaco (Andrómaco Laboratories),

one of Santana’s principal assets. In 1999, Mr. Pavez co-founded Eventures, an internet company with subsidiaries in Argentina and Brazil. Since 2001 he has

been CEO at Centinela, a company with diversified global investments and a special focus in the energy industry through the development of wind parks and

run-of-the-river hydropower plants. Mr. Pavez is also a board member of Grupo Security, Vida Security, Quintec, Inversiones Frimetal, Trayenko and Norvind.

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 after reaching an oil

production rate exceeding 20,000 bopd. 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.

76 Board of Directors

Directors, Secretary & Advisors

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)
Juan Cristóbal Pavez (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 Pérez de Solay

Nominated Advisor
and Broker

Solicitors to the Company
as to English Law

Solicitors to the Company
as to Bermuda Law

Solicitors to the Company
as to Chilean Law

Solicitors to the Company
as to Argentine Law

Reporting Accountants
and Auditors

Petroleum Consultant

Registrar

Registrar to the
Depositary

Oriel Securities

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

Aylwin Abogados
Avenida Isidora Goyenechea 3162 Of. 801
Las Condes, Santiago
Chile

Maciel, Norman & Asociados
San Martín 323, Piso 19
C1004AAG Buenos Aires
Argentina

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 7 NH
United Kingdom

Realization:

Chiappini + Becker

Tel. +54 11 4314 7774

www.ch-b.com

77
Notes to the Consolidated Financial Statements 76

Directors, Secretary & Advisors

A N N UA L R E P O R T 2 0 0 8

W W W. G E O - PA R K . CO M