GeoPark Limited Annual Report 2011

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FY2011 Annual Report · GeoPark Limited

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AnnuAl report 2011

eXecutIon rISk mAnAgement creAtIng opportunItIeS commItment

CONTENTS

letter to Shareholders

6 Year in review

54 Directors’ report

59 corporate governance

62 Directors’ remuneration report

Statement of Directors’ responsibilities

Independent Auditors’ report

66 consolidated Statement of Income

66 consolidated Statement of comprehensive Income

67 consolidated Statement of Financial position

68 consolidated Statement of changes in equity

69 consolidated Statement of cash Flow

70 notes to the consolidated Financial Statements

92 Directors, Secretary & Advisors

Oil and Gas Production

Oil and Gas Reserves

BOTTOM LINE

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2011

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2011

Oil and Condensate

Gas

2P Gas

2P Oil

Oil Production

Gas Production

Total Revenues

EBITDA

120

100

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65,000

60,000

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

-5,000

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2011

Oil and Condensate

Gas

Dear Shareholders,

For geopark, 2011 was again a year of delivery and growth – with our

sixth consecutive year of key performance improvements. Importantly,

•

Strategic Expansion: Asset portfolio was expanded by:

Award of three new high potential hydrocarbon blocks in tierra del

we progressed with new project acquisitions to expand our asset

Fuego, chile;

portfolio and set the foundation for step-change growth in 2012 with

entry by lg International (“lgI”) into geopark’s chile business via its

a significant new investment programme.

acquisition of a 20% interest;

2011 results

key developments included:

Acquisition of two oil and gas exploration and production companies

in colombia, with interests in ten hydrocarbon blocks, during the

First Quarter 2012.

•

Organisational Strengthening: new experienced professionals

•

Operational Improvements: oil production increased 27% with a 9%

joined the company and Board to bring further depth and structure to

increase in total oil and gas production. results were led by the drill bit

our technical and management capabilities.

with eighteen successful wells recorded out of twenty-five wells

drilled. (current production is approximately 12,000 boepd.)

chile continued to be our principal area of focus where geopark has

established itself as the first and only private oil and gas producer –

Financial Growth: revenues grew 40%, adjusted eBItDA increased

today accounting for over 35% of chile’s total hydrocarbon

54%, net income increased 21% and year-end cash resources grew to

production. our large acreage position in chile, with over 3.5 million

uS$ 202 million.

gross acres, contains a broad inventory of attractive production,

2 letter to Shareholders

letter to ShAreholDerS

development, high-impact exploration opportunities and high

two acquisitions in colombia, completed in the First Quarter 2012,

potential unconventional resources. As the only oecD country in latin

created an attractive growth platform with a balanced mix of

America, chile continues to provide an attractive base for investment

production, development and exploration assets including:

and an ideal platform for expansion throughout latin America.

lg International growth partnership

•

Interests in 10 blocks (ranging from 5% to 100%) located in the llanos,

magdalena and catatumbo basins, covering an area of approximately

220,000 gross acres, and with operatorship of four of the blocks.

geopark and lgI cemented its strategic alliance by lgI acquiring a

•

crude oil production of approximately 2,800 barrels per day

20% interest in geopark’s chile business for uS$ 148 million in two

(bopd) from three blocks and 2p oil reserves of approximately

separate transactions. these transactions demonstrated the

10 million barrels.

underlying value of the business geopark has built in chile and also

lgI’s long-term commitment to our partnership to expand together

•

prospective oil resources (unrisked) in excess of 25 million barrels.

An active and on-going exploration and development drilling

by building a portfolio of upstream assets throughout latin America.

programme with a successful colombian operating and

administrative team to support a smooth transition and start-up

colombia Acquisitions

by geopark in colombia.

After proving our ability to convert under-performing projects into

productive and economically attractive oil and gas assets, geopark

successfully laid the groundwork for and initiated new project

acquisitions to expand into new regions.

letter to Shareholders 3

letter to ShAreholDerS

4 letter to Shareholders

2012 outlook

Aided by our multi-year record of growth, geopark is strongly

geopark has been able to develop a culture of continuous

positioned for 2012 and beyond with attractive assets in chile,

improvement, and, as we grow, efforts and adjustments are

colombia and Argentina and secure cash flow streams. with

continuously made to effectively manage our increasing scale and

substantial cash reserves and the continuing support of partners

scope. It is a vital and welcome challenge to successfully introduce

and shareholders, we plan to accelerate capital investment on our

the tools and structure necessary to run a larger company while

properties and acquire new projects. we have an aggressive

still maintaining and encouraging the original pioneering spirit and

risk-balanced work programme, which provides a steady growth

ideals which led us to be where we are today.

platform and exposure to big growth opportunities. our technical

and management team are built for expansion and ready to handle

we express admiration for the geopark team for its important

the increased activity. our low operating costs and discretionary

achievements over the years and for an organisation which

investment programme provide flexibility and security even

in widely varying oil and gas price environments.

continuously takes on new responsibilities and challenges to help

make geopark better every day. we recognise and appreciate our

team’s commitment to excelling in all that we do and in never

For 2012, geopark has embarked on a uS$ 220-240 million capital

giving-up. their professionalism, trust and kindness have made

investment programmes (approximately uS$ 350 million including

“working in the geopark way” mean something unique.

new acquisitions) organised around the following priorities:

•

Execute to Grow: Drill 45-55 new wells to increase oil and gas

for your continued support during 2011 and look forward

production by 80-100% and grow oil and gas reserves; and increase

with confidence to continuing to deliver and grow value in 2012

operating and investment efficiency to improve economic

and beyond.

we also express our gratitude to our investors and shareholders

performance.

•

Manage Risk: continue to balance production profile between oil

and gas; spread work programme exposure between production,

development and high-impact exploration projects; expand funding

exposure and capital sources; strengthen management and

technical team; expand country footprint; and farm-out higher risk /

non-core areas.

•

Expand the Business: Increase our portfolio of organic growth

opportunities on existing properties and acquire new projects in

latin America – targeting projects with proven reserves and

production and with development and exploration upside.

•

Strengthen Commitment: continue to build the right kind of

company – with a performance-driven culture, which values and

protects our shareholders, employees, environment and

communities and thereby supports and enhances our long-term

business plan.

Gerald E. O’Shaughnessy,

chairman

James F. Park,

chief executive officer

letter to Shareholders 5

2011 PERFORMANCE

Key Operational Results

Key Financial Results

Key Strategic Results

•

Oil Production Up 27%: Average
oil production increased 27% to
2,510 bopd; total average oil and gas
production increased 9% to
7,593 boepd in 2011.

72% Drilling Success: 18 wells drilled,
completed and placed into production.

100% Reserve Replacement:
DeGolyer and McNaughton certiﬁed 2P
reserves increase of 6% to 49.5 mmboe
and 3P reserves of 107 mmboe. Net
Present Value of 2P reserves was
assessed to be US$ 852 million and 3P
reserves to be US$ 1,418 million.

Fell Block Conversion to
Exploitation Phase: 84% of the total
area was converted into an exploitation
phase valid up to 2032. (GeoPark
exceeded the minimum investment
commitment by over 75 times.)

Seismic Operations: In Tranquilo and
Otway Blocks completed 293 km of 2D
seismic and 165 sq km of 3D seismic. A
3D seismic survey was started in ﬁrst
quarter 2012 on the Flamenco Block in
Tierra del Fuego.

Unconventional Resources
Potential: Initiated a technical
assessment of the oil and gas shale
potential in Argentina (Vaca Muerta)
and Chile (Estratos con Favrella).

•

Revenues Up 40%: Total revenues
increased to US$ 111.6 million,
led by 52% increase in oil revenues to
US$ 73.5 million.

EBITDA Up 54%: Adjusted EBITDA
increased to US$ 63.4 million. Cash ﬂow
from operating activities increased
106% year-on-year to US$ 63.8 million.

Netbacks Up 40%: Netbacks increased
to US$ 22.90 per boe produced.

Net Income Up 21%: Net Income
increased to US$ 5.1 million.

Capital Expenditures Up 70%:
Capital expenditures increased
to US$ 98.7 million due to increased
drilling activity on the Fell and
Tranquilo Blocks in Chile.

Shareholders Equity Up 126%:
Equity increased by US$ 116.6 million
to US$ 208.9 million as a result of the
transaction with LGI and improved
ﬁnancial performance.

Year-End Positive Net Cash
Position: Year-end cash resources
were US$ 201.9 million.

•

Entry by LGI into the Chilean
Business: LGI acquired a 20% equity
interest in GeoPark’s Chilean business
for a consideration of US$ 148 million.
Also committed to provide US$ 31.6
million over the next three years in
Tierra del Fuego licences.

Three New High Potential Blocks
in Tierra del Fuego: GeoPark signed
three participation agreements with
ENAP to acquire the Campanario,
Flamenco and Isla Norte blocks
covering 460,000 acres in Tierra del
Fuego, Chile.

Acquisition of Ten Block Colombia
Platform: In ﬁrst quarter 2012,
GeoPark acquired Winchester Luna
and Hupecol – privately-held companies
in Colombia. GeoPark acquired ten
exploration and production blocks for a
total consideration of US$ 105 million.

Gas Purchase and Incentive Agree-
ment: New commercial agreement with
Methanex to incentivise gas development.

Oil

Gas

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6 performance • Year in review

2011 PERFORMANCE

•

Key Operational Results

Key Financial Results

Key Strategic Results

Oil Production Up 27%: Average

oil production increased 27% to

Revenues Up 40%: Total revenues

Entry by LGI into the Chilean

increased to US$ 111.6 million,

Business: LGI acquired a 20% equity

2,510 bopd; total average oil and gas

led by 52% increase in oil revenues to

interest in GeoPark’s Chilean business

production increased 9% to

7,593 boepd in 2011.

US$ 73.5 million.

EBITDA Up 54%: Adjusted EBITDA

for a consideration of US$ 148 million.

Also committed to provide US$ 31.6

million over the next three years in

72% Drilling Success: 18 wells drilled,

increased to US$ 63.4 million. Cash ﬂow

Tierra del Fuego licences.

completed and placed into production.

from operating activities increased

100% Reserve Replacement:

in Tierra del Fuego: GeoPark signed

DeGolyer and McNaughton certiﬁed 2P

Netbacks Up 40%: Netbacks increased

three participation agreements with

106% year-on-year to US$ 63.8 million.

Three New High Potential Blocks

reserves increase of 6% to 49.5 mmboe

to US$ 22.90 per boe produced.

ENAP to acquire the Campanario,

Flamenco and Isla Norte blocks

Net Income Up 21%: Net Income

covering 460,000 acres in Tierra del

assessed to be US$ 852 million and 3P

increased to US$ 5.1 million.

Fuego, Chile.

and 3P reserves of 107 mmboe. Net

Present Value of 2P reserves was

reserves to be US$ 1,418 million.

Fell Block Conversion to

phase valid up to 2032. (GeoPark

exceeded the minimum investment

commitment by over 75 times.)

Exploitation Phase: 84% of the total

to US$ 98.7 million due to increased

GeoPark acquired Winchester Luna

area was converted into an exploitation

drilling activity on the Fell and

Capital Expenditures Up 70%:

Capital expenditures increased

Acquisition of Ten Block Colombia

Platform: In ﬁrst quarter 2012,

Tranquilo Blocks in Chile.

Shareholders Equity Up 126%:

Equity increased by US$ 116.6 million

and Hupecol – privately-held companies

in Colombia. GeoPark acquired ten

exploration and production blocks for a

total consideration of US$ 105 million.

Seismic Operations: In Tranquilo and

to US$ 208.9 million as a result of the

Gas Purchase and Incentive Agree-

Otway Blocks completed 293 km of 2D

transaction with LGI and improved

ment: New commercial agreement with

seismic and 165 sq km of 3D seismic. A

ﬁnancial performance.

Methanex to incentivise gas development.

•

3D seismic survey was started in ﬁrst

quarter 2012 on the Flamenco Block in

Year-End Positive Net Cash

Position: Year-end cash resources

were US$ 201.9 million.

Tierra del Fuego.

Unconventional Resources

Potential: Initiated a technical

assessment of the oil and gas shale

potential in Argentina (Vaca Muerta)

and Chile (Estratos con Favrella).

Oil

Gas

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Year in review • performance 7

8 Execution • Year in Review

Execution

VAluE DRIVER.
Proven technical exPerience
and excellence in finding
and Producing oil and gas
reserves – and the ability
to Plan, execute, overcome
obstacles, adaPt, seize
oPPortunities and achieve
results.

Year in Review • Execution 9

YeAr In reVIew

10 execution • Year in review

eXecutIon

DrIllIng

geopark’s growth continues to be led by the drill bit. most of the

drilling activity occurred on the Fell Block in chile, where twenty-

three wells were drilled and eighteen wells were successfully put on

production. one well was unsuccessful and four wells are waiting for

completion or are under evaluation. one well was drilled on the

tranquilo Block in chile, targeting the esperanza prospect, which is

currently under evaluation without commercial test results. In

Argentina, Del mosquito Sur 1 was drilled on the Del mosquito Block

and is currently producing minor oil amounts from the tobifera

formation.

the chart below summarises geopark’s drilling programme during 2011:

Block

Well Name Well Type

Status

nika Sur 2

exploration

under evaluation

monte Aymond 35

Development

copihue 1

exploration

on production

williche 1

exploration

waiting for completion

monte Aymond 36

Appraisal

produced /
temporarily Shut-in

konawentru 1

exploration

on production

Alakaluf 10

Development

produced /
converted to water Injector

municion oeste 2

exploration

guanaco 5

Development

Alakaluf este 1

exploration

guanaco 12

Development

guanaco 7

Development

punta Delgada norte 4

exploration

guanaco Sur 1

exploration

guanaco a-10

Appraisal

guanaco a-9

Appraisal

guanaco 21

Development

guanaco 21 St

Development

guanaco 13

Development

guanaco 8

Development

copihue 2 D

Yagan norte 3

Selknam 1A

Appraisal

on production

Abandoned

produced / converted
to water Injector

on production

Side-tracked

produced / converted
to water Injector

on production

Del mosquito Del mosquito Sur 1

exploration

tranquilo

renoval 1

exploration

under evaluation

Year in review • execution 11

Fell

YEAR IN REvIEW

OIL AND GAS RESERvES

GeoPark has achieved consistent growth in oil and gas reserves from

its investment activities since 2005. DeGolyer & MacNaughton,

independent petroleum engineers, appraised a 6% increase in 2P

Country

Chile

reserves (after allowing for production) to a total of 49.5 million

barrels oil equivalent (mmboe) in its report dated 31 December

2011. This represented approximately 100% reserve replacement

during the year.

DeGolyer & MacNaughton’s report estimated, on four GeoPark

blocks, a total of 16.5 mmboe of proved reserves, a total of 33.0

mmboe of probable reserves, and a total of 57.5 mmboe of possible

reserves as shown in the chart on the right. 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 73% of total reserves and oil represents

approximately 27% of total reserves. (Figures do not include recent

2P reserve additions from acquisitions in Colombia in the first

quarter 2012.)

OIL AND GAS PRODUCTION

In 2011, GeoPark’s oil and gas production was generated from the

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

2011, approximately 99% of the Company’s total oil and gas

production was produced in Chile and approximately 1% in

Argentina. During 2011, gas represented approximately 67% of the

total production (72% in 2010) and oil represented approximately

33% of the total production volume (28% in 2010). With respect to

revenues, gas production represented approximately 34% and

oil represented approximately 66% of the total 2011 production

revenues. (Current production is approximately 12,000 boepd.)

Oil and gas production is shown in the chart on the right.

Argentina

Total

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12 Execution • Year in Review

Reserve
Type

Oil
(MMBBL)

Gas

BOE
(BCF) (MMBOE)

P1+P2

P1+P2+P3

P1+P2

P1+P2+P3

P1+P2

P1+P2+P3

5.8

8.7

8.8

14.5

23.3

0.7

1.7

3.3

2.4

5.7

6.5

10.4

12.1

16.9

29.0

60.3

135.6

272.2

195.9

468.1

0.1

60.4

135.6

272.2

196.0

468.2

15.8

31.3

54.2

47.1

101.3

0.7

1.7

3.3

2.4

5.7

16.5

33.0

57.5

49.5

107.0

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2011

Oil and Condensate

Gas

eXecutIon

Year in review • execution 13

Argentina

Chile

trAnQuIlo

otwAY

14 execution • Year in review

ASSetS

GeoPark’s portfolio of oil and gas
assets in 2011 consisted of
nine hydrocarbon blocks totalling
approximately 3.7 million gross
acres – with oil and gas production,
proven oil and gas reserves, operating
licences, associated infrastructure
and production facilities, an
extensive technical database – and
managed by a team with a track
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 portfolio of opportunities
including well reactivation, by-passed
reservoirs, stranded and producing
field development, medium to high
impact exploration projects and
unconventional resource plays.
(Following the new acquisitions in
Colombia in First Quarter 2012,
GeoPark owns interests in nineteen
hydrocarbon blocks totalling
approximately 3.9 million gross acres.)

Del
moSQuIto

Fell

Strait of Magellan

ISlA norte

cAmpAnArIo

FlAmenco

Atlantic Ocean

Year in review • execution 15

YeAr In reVIew

chIle lIcenceS

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 65% of chile’s crude oil

production and 25% of chile’s natural gas production. Its substantial

acreage position with over 3.5 million gross acres (14,326 square

kilometres) in chile represents an important platform for continued

growth and expansion. geopark’s blocks in chile consist of:

Block

Area (sq km)

Operator

Working

Basin

Interest (%)

Fell

tranquilo

otway

Isla norte

campanario

Flamenco

1,488

4,986

5,965

527

778

582

geopark

100

magellan / Austral

the Blocks are located in the continental and tierra del Fuego

magallanes region in a proven oil and gas producing basin (magellan

or Austral Basin) and on trend with recent discoveries to the north

in Argentina and to the south in tierra del Fuego. the magallanes

region currently produces all of chile’s oil and gas production.

Although it has been producing for over 50 years, the basin remains

relatively underdeveloped with new exploration frontiers being

opened in recent years.

Substantial technical data (seismic, geological, drilling and

production information), both developed by geopark and enAp (the

chilean State oil company), provides an excellent base for new

hydrocarbon exploration and development. 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 on production by

constructing new pipelines and plants. geophysical interpretations

by geopark suggest additional development potential in known

fields and exploration potential in new undrilled prospects and plays

– including opportunities in the Springhill, tertiary, tobifera, and

estratos con Favrella formations. the estratos con Favrella shale

formation is the principal source rock of the magellan/Austral Basin

and represents a high potential unconventional resource play.

16 execution • Year in review

chIle lIcenceS • ASSetS

Year in review • execution 17

Fell Block

the Fell Block has an area of approximately 368,000 acres (1,488 sq km)

and its centre is located approximately 140 km northeast from the

city of punta Arenas. the Fell Block’s northern border coincides

with the international border between Argentina and chile and its

southern limit is bordered by the magellan Straits.

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

since then until 2005, enAp carried out 2,400 km of 2D seismic and

256 sq km of 3D seismic and drilled 146 wells. In 2006, geopark

became operator and 100% interest owner of the Fell Block when

the Fell Block had no oil and gas production. Since geopark has been

operator, it has completed more than 860 sq km of 3D seismic and

drilled over 80 exploration, appraisal and development wells

resulting in current oil and gas production of approximately 28

million cubic feet per day of gas and 4,300 barrels of oil per day.

In August 2011, the exploration period for the Fell Block was completed

and resulted in the company converting approximately 84% of the total

Fell Block area into an exploitation phase valid up to 2032. (geopark

exceeded the minimum work and investment commitment on the Fell

Block during the exploration period by over 75 times.)

18 Execution • Year in Review

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Santiago

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Chile

Fell

Strait
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Chile

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Fell

chIle lIcenceS • ASSetS

geologically, the Block is located in the cretaceous depocenter of the

oil and gas potential in the Block. An important discovery in 2011

magellan Basin – in the northwest area comprising the structural

relates to the konawentru 1 well, which initially tested in excess of

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

2,000 bopd from the tobifera formation (a non-conventional volcanic-

west). the source rocks relate to the estratos con Favrella (cretaceous)

clastic reservoir underlying the Springhill formation) and which has

deposits. the principal producing reservoir is the Springhill formation

opened up additional potentially attractive opportunities (workovers,

sandstone (lower cretaceous) at depths of 2,200-3,500 metres.

well-deepenings and new exploration and development wells) in the

Additional reservoirs have been discovered and put into production

tobifera formation throughout the Fell Block. the tobifera formation

on the Fell Block – namely tobifera volcanic-clastic rocks (Jurassic) at

is currently contributing over 50% of the oil production in the Fell Block.

depths of 2,200-3,600 metres and the upper tertiary and upper

cretaceous sandstones at depths of 700-2,000 metres. trap types in

In the Santiago norte Field complex, geopark drilled the williche 1

the Fell Block are mainly structural traps defined by anticlines

well with an inconclusive result. Further testing is being carried out

developed in the basement and involving the cretaceous and tertiary

and other approaches evaluated to develop the large potential gas

sequences. Stratigraphic and combined traps are developed in the

reserve in this field.

southern and northern sector of the Block.

geopark also initiated an evaluation of the estratos con Favrella shale

geopark’s geoscience team is continuing to identify and expand an

reservoir that represents a high potential unconventional resource

attractive inventory of prospects and drilling opportunities on the Fell

play. A broad area of the Fell Block (1,000 sq km) appears to be in the

Block – both exploration and development projects – and the

oil window for this play and geopark has begun work to reinterpret

company will be continuing its aggressive drilling programme over

core data, logs and well test information, evaluate cores and fluids

the next years. the recent oil discoveries in the konawentru, copihue,

and determine reservoir brittleness (for fracturing) through special

municion oeste and punta Delgada fields have further opened up new

field tests.

Year in Review • Execution 19

trAnQuIlo AnD otwAY BlockS

the tranquilo Block extends over an area of approximately 1,232,067

acres (4,986 sq km) and the otway Block extends over an area of

approximately 1,473,984 acres (5,965 sq km). the Blocks are located

approximately 100-120 km from punta Arenas. the first hydrocarbon

exploration activities began in the 1920’s and during the 1930’s and

1940’s several wells were drilled with gas manifestations. historically,

52 wells have been drilled and approximately 2,303 km of 2D

seismic have been carried out on the Blocks. the tranquilo gas field

was discovered in 1958. the Blocks have tested and produced oil

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

geopark is the operator of the tranquilo and otway Blocks. the partners

in the tranquilo Block consist of geopark (29%), pluspetrol (29%),

wintershall (25%) and methanex (17%). the partners in the otway Block

consist of geopark (25%), pluspetrol (25%), wintershall (25%),

International Finance corporation (12.5%), and methanex (12.5%).

geologically, the tranquilo and otway Blocks are located in the

magellan Basin’s northwest area, comprising the Folded Belt and

thrust Front and the tertiary Foreland Basin. the source rock is

related to the deep marine basin cretaceous deposits. the proven

reservoirs with production history in tranquilo are related to the

loreto Formation deltaic sandstones at depths of 700 to1, 000

metres. other potential reservoirs include the morro chico

Formation (Basal tertiary sandstones) and the rocallosa Formation

(upper cretaceous sandstones). the proven reservoirs with

production history in otway relate to the Agua Fresca formations

marine and/or deltaic sandstones at depths of 1,500-2,000 metres.

other potential reservoirs include the sandstones of the loreto

(upper tertiary), chorillo chico (lower tertiary) and rocallosa and

rosa Formations (upper cretaceous).

trap types are fundamentally structural defined by anticlines

developed in the Folded Belt and thrust Front and they are involving

the Basement, the cretaceous and the tertiary sequences.

Stratigraphic traps are developed toward the Foreland Basin

including upper tertiary sandstones (deltaic and turbiditic deposits

of the loreto and Agua Fresca Formations).

geopark’s current exploration focus in tranquilo is in the Folded Belt

and in the transition zone to the Foreland area (esperanza, gales and

kerber structures) in which the main reservoirs are the basal tertiary

sandstones (morro chico Formation). In the southeast sector, marcou

20 execution • Year in review

chIle lIcenceS • ASSetS

area, there is the potential of gas accumulations in stratigraphic

traps that are including the loreto Formation sandstones (fluvial-

deltaic to marine marginal facies). In 2011, geopark completed a

seismic programme consisting of 163 sq km of 3D seismic and 303 km

of 2D seismic. A large gas prospect (unrisked mean resources of

715 BcF) in the esperanza-gales region was drilled by the renoval

1 exploratory well during 2011. the well was stimulated with three

hydraulic fractures in three intervals in early 2012. During production

testing, gas flowed at non-commercial rates, however the test

appears inconclusive and the partners are evaluating the next steps.

geopark’s current exploration focus in otway is in the Folded Belt

(central and western areas of Isla riesco), where several structural

traps, related to hanging wall anticlines, have been identified

showing total potential unrisked mean resources of 1,570 BcF of gas

(possibility of success: 18-30%). the Aracelis Anticline with the

targeted turbidite sandstones of the Agua Fresca Formation has

estimated potential gas resources of 130 BcF. In the Foreland Basin

(north-eastern sector of peninsula Brunswick), potential gas

accumulations in stratigraphic traps in the upper tertiary (loreto

Formation), such as cabo negro norte with estimated unrisked

mean gas resources of 100 BcF (possibility of success: 20-22%).

otway’s seismic commitment programme was completed in 2011

and included 270 sq km of 3D seismic and 127 km of 2D seismic.
and included 270 sq km of 3D seismic and 127 km of 2D seismic.
and included 270 sq km of 3D seismic and 127 km of 2D seismic.

Morro Chico, Tranquilo Block
Morro Chico, Tranquilo Block

Both the Aracelis and cabo negro norte prospects are expected to

be drilled during 2012.

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Tranquilo

Chile

Santiago

Buenos Aires

Chile

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Argentina

Otway

Tranquilo
Otway

Year in review • execution 21

tIerrA Del Fuego BlockS

In September 2011, geopark signed three participation agreements

•

Flamenco Block (582 sq km): geopark is the operator with a 50%

with enAp, to acquire the campanario, Flamenco and Isla norte

working interest and enAp owns a 50% working interest (with a carry

blocks located in the centre-north of tierra del Fuego, chile. the

for the first three year investment commitment). Fifteen oil and gas

three blocks, which cover 460,000 acres (1,887 sq km), are similar

leads have been identified by geopark.

and geologically contiguous to the Fell Block and represent

high potential and strategic acreage. Following its successful

exploration in tierra del Fuego of the magellan Basin dates back to

methodology employed on the Fell Block, the company will

the 1940´s when the first surface exploration focused on obtaining

also evaluate early production opportunities from existing

stratigraphic and structural information. Anticlinal structural traps

non-producing wells. geopark has committed to spend in excess

with transgressive sandstone reservoirs (Springhill Formation) were

of uS$ 101 million on these blocks over the next three years.

outlined with refraction seismic lines and, in 1945, oil was discovered

During 1Q2012 and 2Q2012, the State of chile and geopark

on the flank of an anticline.

executed Special operations contracts for the exploration and

exploitation of hydrocarbons (“ceops”) for the three new blocks

In the specific area of the acquired blocks, the first wells were

in tierra del Fuego and 3D seismic operations were initiated

drilled in 1951 resulting in the discovery of the Sombrero oil field (a

on the Flamenco block in 1Q2012.

the three blocks include:

structural-stratigraphic trap). At the end of the 1950´s and early

1960´s, new fields were discovered to the east (catalina and cuarto

chorrillo Fields) and, following seismic reflection data acquisition,

•

Isla Norte Block (527 sq km): geopark is the operator with a 60%

new fields were discovered and existing fields were further

working interest and enAp owns a 40% working interest (with a carry

developed.

for the first three year investment commitment). Fourteen oil and

gas leads have been identified by geopark.

During the past decade, geological studies in the magellan Basin

•

Campanario Block (778 sq km): geopark is the operator with a

information, on the definition and distribution of facies of the

50% working interest and enAp owns a 50% working interest (with

deltaic and/or turbiditic depositional systems of the late cretaceous-

a carry for the first three year investment commitment). Seventeen

tertiary period, and the evolution of the oil system in terms of

oil and gas leads have been identified by geopark.

generation/timing/expulsion and trapping.

have focused on stratigraphic analysis, based on 3D and 2D seismic

22 execution • Year in review

chIle lIcenceS • ASSetS

geologically, the blocks are located on the eastern margin of the

•

Fractured tobifera play: volcanic reservoirs present in the margins of

magellan Basin that remained relatively stable during its tectonic

the late Jurassic rift basins, where intense secondary fracturing is

evolution, except for the minor reactivation of normal Jurassic faults,

superimposed on the primary reservoir porosity.

and with a sedimentary column of cretaceous and tertiary rocks

with a thickness of up to 2,000 metres. the basal sandstones of the

•

tertiary play: stratigraphic and/or structural traps related to deltaic

neocomian (Springhill Formation) and the volcanic-clastic rocks

and transgressive sandstones of the late cretaceous-tertiary,

(Series tobifera) constitute the main reservoirs for the accumulation

with reservoirs located at an estimated maximum depth of 1,000 to

of oil and gas in the magellan Basin and have been the main targets

1,500 metres.

of exploration in recent decades. A secondary target is defined

by the tertiary sandstones (paleocene-miocene) deposited during

Following the signing of the ceops, geopark initiated the

the Foreland Stage.

1,500 sq km 3D seismic program. this programme is expected to be

completed during the summer windows of 2012 and 2013.

Source rocks are represented by continental lacustrine shales (type I

and type II kerogen) deposited in late Jurassic continental basins

that were developed as isolated depocenters (manantiales, oriental

and gaviota grabens) and by the marine shales of the estratos con

Favrella Formation (type II and type III kerogen), deposited during

the early cretaceous marine transgression.

Four main exploration plays of the tierra del Fuego blocks include:

•

Springhill play: combination stratigraphic-structural traps of shallow

marine sands of the Springhill Formation generated by the

Chile

reactivation of old faults.

•

tobifera clastic play: fluvial to deltaic sandstones in structural and

stratigraphic traps present in deeper part of the grabens.

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Strait of
Magellan

Isla Norte

Campanario

Flamenco

Santiago

Chile

Buenos Aires

Argentina

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Campanario
Flamenco

Year in review • execution 23

ArgentInA lIcenceS

geopark has interests in the following blocks in Argentina:

cerro DoÑA JuAnA &
lomA cortADerAl BlockS

Block

Area (sq km)

Operator

Working

Basin

approximately 47,959 acres (195 sq km) and are located in the

Del mosquito

cerro Dona Juana

loma cortaderal

485

115

geopark

Interest (%)

100

Austral

neuquén

neuquén Basin (west-central Argentina) which represents the most

prolific hydrocarbon producing basin in Argentina, accounting

for over 40% of its total oil production and over 60% of its total gas

the cerro Doña Juana and loma cortaderal Blocks cover an area of

Del moSQuIto Block

production.

the Del mosquito Block has an area of approximately 120,000 acres

proven producing fairway, where large hydrocarbon accumulations

(485 sq km) and is located in the Austral basin in southern Argentina.

exist. there are excellent source rocks, multiple reservoir objectives

the Austral Basin produces nearly 10% of Argentina’s total oil

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

production and nearly 20% of its total gas production. (Although

characterised as high risk with potentially high associated costs.

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

the Fell and the Del mosquito Blocks are located in different

countries, they are situated in the same geological basin and, at

geopark is the operator of the cerro Doña Juana and loma cortaderal

their closest point, are less than 20 kilometres apart.)

Blocks and has a 100% working interest in each block. In 2007,

geopark established oil production on the loma cortaderal Block

the Del mosquito Block is surrounded by producing oil and gas

after repairing an existing well. (well is shut-in waiting for a workover

fields to the north, south, east and west. there is oil production

and the Blocks are not currently on production).

currently from one field and there is good infrastructure, nearby

gas plants and pipelines and an easily accessible crude oil market

After a revision of the potential resources of the block and new

(40 kilometres by truck). 80% of the block is at an early stage

available technologies for tight reservoirs and oil shales, a work

of exploration with sparse well coverage. two 3D seismic surveys,

programme has been designed to evaluate the Agrio Formation –

totalling an area of 355 square kilometres, cover approximately

including a 100 sq km 3D seismic programme and a two well drilling

73% of the block and geopark’s geoscience team has identified

programme. In addition, the blocks contain the prolific

potential hydrocarbon-bearing prospects. the potential of

unconventional Vaca muerta shale formation and the company is

the lower magellan and tobiferas geological formations has been

currently assessing its potential and required investment. geopark

underexplored.

may consider inviting a partner to join this project.

geopark is the operator of the Del mosquito Block and has a 100%

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 is shut-in due to high water cuts. the discovery well on

Del mosquito norte was the first well drilled on the block since the

1980’s. geopark is evaluating potential drilling opportunities on

Del mosquito and the option of bringing a partner into the project

to increase investment activity. During 2011, the company

drilled the new Del mosquito Sur 1 exploration well, which resulted

in minor oil production.

24 Execution • Year in Review

Loma
Cortaderal

Cerro
Doña Juana

Argentina

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Argentina

Del
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Chile

Argentina

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Buenos Aires

Del Mosquito

ArgentInA lIcenceS • ASSetS

Year in review • execution 25

YeAr In reVIew

26 execution • Year in review

colomBIA lIcenceS

In the First Quarter 2012, geopark acquired winchester oil and

the Blocks acquired in colombia include the following:

colomBIA lIcenceS • ASSetS

Block

Area (sq km)

Operator

Working

Basin

Interest (%)

la cuerva

llanos 34

llanos 62 *

Yamu

llanos 17 *

llanos 32 *

Arrendajo *

Abanico *

cerrito *

Jagüeyes *

194

333

178

440

406

316

1019

247

geopark

ramshorn

p1 energy

pacific

ramshorn

100

55-75

36.8

llanos

magdalena

catatumbo

llanos

(*) Subject to submission and approval by Anh

gas S.A. and la luna oil company limited S.A. (”winchester luna”)

– privately held exploration and production companies with eight

exploration and productions blocks in colombia – and hupecol

cuerva llc (“hupecol”) – a privately-held company with two

exploration and production blocks in colombia. the combined

hupecol and winchester luna purchases (acquired for a total

consideration of uS$ 105 million, adjusted for working capital, plus

certain possible contingent payments) provide geopark with the

following in colombia:

•

Interests in 10 blocks (ranging from 5% to 100%), located in the

llanos, magdalena and catatumbo basins, covering an area of

approximately 220,000 gross acres.

risk-balanced asset portfolio of existing reserves, low risk

development potential and attractive exploration upside.

current oil production of approximately 2,800 barrels per day (bopd)

from three blocks.

2p oil reserves of approximately 10 million barrels and prospective

oil resources (unrisked) of 25+ million barrels (company estimates).

Successful colombian operating and administrative team to support

a smooth transition and start-up by geopark in colombia.

Panama

Caribbean Sea

Venezuela

Pacific
Ocean

Cerrito

Colombia

Llanos 17 +
Yamú
Arrendajo

Abanico

Jagueyes

La Cuerva

Llanos 62
Llanos 32
Llanos 34

Ecuador

Brazil

Peru

Year in review • execution 27

YEAR IN REVIEW

Geological basins and settings of the Colombian Blocks include:

Eastern Llanos Basin (La Cuerva, Llanos 62, Llanos 34, Llanos 17,

Llanos 32, Yamu, Jagüeyes and Arrendajo Blocks)

The Eastern Llanos Basin is a Cenozoic Foreland basin covering

153,000 sq km in the eastern region of Colombia and is the most

prolific hydrocarbon basin in continental Colombia, with more than

1.5 billion barrels of recoverable oil. Two giant fields (Caño Limón

and Castilla), three major fields (Rubiales, Apiay and Tame Complex),

and approximately seventy minor fields have been discovered.

The source rock for the basin is located beneath the east flank of the

Eastern Cordillera, as a mixed marine – continental shaly basinal

facies of the Gachetá Formation. The main reservoirs of the basin are

represented by the Paleogene Carbonera (C-3, C-5 and C-7) and

Mirador sandstones. Within the Cretaceous sequence, several

sandstones have also excellent reservoirs. Porosity varies from

10-30% (decreasing from east to west), pay thickness varies from

5-180 feet, and oil gravity ranges from 17-42 degrees API. The main

regional seal is the Carbonera Formation (C-8 and C-2 Units).

Exploration drilling has been concentrated in normal, up-to-the

basin (antithetic) faults. Hanging wall anticlines related to reversal

faults, low-relief 4-way dip closures and stratigraphic traps are all

high potential exploration targets. High potential areas for

hydrocarbon accumulation are located in the southern and eastern

part of the basin where pinch-outs of reservoir sandstones are

affected by fresh water (meteoric) forming hydrodynamic traps.

Catatumbo Basin (Cerrito Block)

The Catatumbo Basin is a Cenozoic Foreland basin covering

7,350 sq km that is the Colombian portion of the Maracaibo Basin

(Venezuelan giant basin with 2% of the world’s hydrocarbon reserves).

The main source rocks are defined by Cretaceous-pelitic deposits

(La Luna, Capacho, Tibú and Mercedes Formations) which are widely

present throughout the Basin. The La Luna Formation is the principal

source rock. The main reservoirs are the Cretaceous limestones and

sandstones of the Uribante Group, Capacho and La Luna Formations.

Deltaic sandstones of Paleogene age are also good reservoirs,

such as the Catatumbo, Barco, Mirador and Carbonera Formations.

28 Execution • Year in Review••CoLoMBIA LICENCEs • AssETs

The main seals are thick marine and non-marine shales in the

Cretaceous and Cenozoic sequences.

The basin shows a wide variety of traps: normal faults

partially inverted, subthrust structures, triangle zones and structures

associated to inversion system are important structural traps. The

western zone of the Catatumbo Basin is a fold belt and recent

studies indicate potential exploration plays along thrust zones. The

basin has been moderately explored and has an attractive potential

which has been delayed due to security issues in the area.

Middle Magdalena Basin (Abanico Block)

The Middle Magdalena Basin is a rift to broken foreland, located

along the central reaches of the Magdalena River Valley between

the Central and Eastern Cordilleras of the Colombian Andes.

The basin areas covers 34,000 sq km with a history of approximately

296 wildcat wells and 41 discoveries, including the first giant in

Colombia: La Cira-Infantas Fields.

The source rocks in the basin are defined by the

Cretaceous limestones and shales of the La Luna and the simiti-

Tablazo Formations.

Most of the proven oil in the basin comes from continental

Paleogene sandstones (Paleocene-Miocene), Lisama, Esmeraldas-

La Paz, and Colorado-Mugrosa Formations. Lightly explored

reservoirs are fractured systems of the Cretaceous limestones

(Basal Limestone Group) and La Luna Formation.

The main traps identified are structural closures form by major

asymmetric anticlines, including: 1. Contractional fault-related folds

hidden beneath surface thrusts; 2. 4-way dip closures related to

duplex systems; 3. Fault-dependent closures; and 4. Traps on the low

side of sealing faults. Despite being one of the most explored basins

in Colombia, the Cretaceous carbonate plays remains a high

potential under-explored target.

Year in Review • Execution 29

•30 Risk Management • Year in Review

Value DriVer.
Understanding and continUally
bUilding to accommodate risk
among the sUbsUrface, fUnding,
organisational, partner/
shareholder, oil and gas market,
and regUlatory/political
environments.

Risk Management

Year in Review • Risk Management 31

YeAr In reVIew

Since its founding, GeoPark has approached building its business

•

Subsurface / Geological: Invest in best people and balanced projects

with a long-term view and a keen appreciation of the inherent

(proven production plus development and exploration upside).

uncertainties associated with the oil and gas industry – both above

•

Regulatory / Political: Multi-country footprint; local knowledge and

and below ground. Its business model is to build a large diversified

ownership; IFC shareholding; SPEED initiative.

portfolio that will allow the Company to sustain continuous and

•

Capital / Balance Sheet: Multiple capital sources (funders and

profitable growth – and to also participate in higher risk step-change

regions); creative and inexpensive financing.

growth opportunities. Efforts are consistently made to balance asset

•

Partners: Associating with long-term strategic partners which

types, geographic locations, work programmes and capital support.

understand the business.

GeoPark’s consistent and strong record of growth over the last six

•

Market / Infrastructure: Areas with high market demand and

years reflects the Company’s success in balancing uncertainties and

infrastructure in place; financially strong market clients.

seizing opportunities it has encountered during its history.

•

Project Economics: Balanced work programme of production,

development and exploration; invest in technology and operational

Examples of key risk management elements addressed by

efficiency.

GeoPark include:

•

Organisation / Management: Build good demographics

(seasoned professionals with new recruits); local organisations; all

employees are shareholders.

32 Risk Management • Year in Review

rISk mAnAgement

BuSIneSS plAn

geopark’s management believes shareholder value is increased most

geopark’s opportunity portfolio includes multiple in-house projects

economically by consistently pursuing a strategy of discovery and

and an asset foundation from which to pursue a targeted acquisition

development of oil and gas deposits in areas in or nearby known

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

reserves. geopark implements this strategy through a business plan

Its full-cycle exploration and production work programme allows the

which emphasises:

company to move forward along different lines simultaneously and

independently. this available mix of rehabilitation, development,

1. technical strength in economically finding, developing and

exploration and acquisition opportunities allows geopark to balance

producing new and bypassed oil and gas reserves;

its risk exposure and ensure continuous growth.

2. commercial capabilities in acquiring high potential assets at

attractive prices;

3. risk-management in expanding the portfolio, increasing options

and protecting against uncertainties; and

4. Strategic mix of partners and allies to facilitate organic and

inorganic growth.

Year in review • risk management 33

YeAr In reVIew

oIl AnD gAS 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. In

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

chile, geopark’s crude oil and condensate production are sold to

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

enAp and delivered by truck from the geopark wells to enAp’s

private-sector gas producer currently in chile, this market shift has

refining facilities or pipeline access. the sales price is equivalent to

substantially increased the value of geopark’s chilean gas reserves.

wtI less quality adjustments (based on degrees ApI and mercury

located approximately 140 kilometres from geopark’s Fell Block,

built truck reception, metering and storage facilities at the enAp

content). to accommodate increased oil deliveries, geopark has also

methanex operates one of the world's largest methanol plants which

San gregorio refinery.

has the capacity to consume 350 million cubic feet per day of gas

and produce over 10 per cent of the world’s methanol supply. over

In Argentina, geopark’s oil production is sold to oil m&S at wtI less

60% of the methanex gas supply, which historically has originated in

quality and Argentina retention tax adjustments. geopark’s crude

Argentina, was cut-off by Argentina export duties and restrictions

oil is trucked to a local facility located 40 km from the Del mosquito

in 2007, thereby creating an important market opportunity. geopark

field. Argentina prices fluctuate in relatively minor amounts as a

captured this opportunity by entering into a strategic alliance with

result of prevailing retention taxes which cap crude oil prices. During

methanex providing for a ten year gas purchase and supply

2011, crude oil prices in Argentina averaged uS$ 59.40 per barrel.

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

methanol) and with the opportunity to pre-sell gas to generate

crude oil prices in chile increased 15% during 2011 in line

future work programme funding and to jointly acquire new

with world petroleum markets to average uS$ 83.80 per barrel

hydrocarbon blocks in chile. this marketing alliance has substantially

(after discounts).

de-risked geopark’s chile gas investment activities.

In march 2011, a new commercial agreement was signed

with methanex designed to increase gas production volumes by

improving the relative economics of gas exploration and

development for 2011. In First Quarter 2012, geopark further

improved this arrangement by agreeing with methanex for

additional incentives to explore and produce gas on the Fell Block.

During 2011, in line with a global increase in commodity prices,

international methanol prices increased by 32% which resulted in

a corresponding 26% increase in natural gas prices for geopark

in chile.

34 risk management • Year in review

rISk mAnAgement

Year in review • risk management 35

YeAr In reVIew

36 risk management • Year in review

rISk mAnAgement

cApABIlItIeS

geopark deems it critical to continuously develop creative and

•

the kimiri Aike production facility, which originated in Bolivia and is

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

being leased from the exterran compression company under a

and people necessary to achieve its growth plans. the company’s

long-term contract, was put into operation during 2007 after an

record of performance demonstrates that its attention to and investment

investment (including the construction of associated tank batteries)

in these basics are creating an important differentiating factor and a

of uS$ 8 million. the plant provides direct access to the main

competitive advantage over the longer term.

regional gas pipeline and allows rapid commercialisation of new

tools and Infrastructure

wells. current plant capacity is 47 million cubic feet per day.

•

An additional gas delivery point at municion, with a capacity

of 30 million cubic feet per day, was opened in 2010 allowing gas

In new regions such as chile where oilfield services are scarce or in

production from the north eastern area of the Fell Block to be

tight oilfield equipment supply markets (as recently experienced),

transported and sold through an alternative pipeline system. this

geopark works to develop solutions to ensure the availability of

increased total Fell Block gas production delivery capacity to

needed services and equipment – including drilling and workover

77 million cubic feet per day.

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

geopark also invests in and builds the infrastructure (plants and

•

Built new oil and gas production gathering centres in guanaco and

pipelines) necessary to produce, process, store and transport its

Alakaluf fields (processing and storage facilities) and constructed an

hydrocarbon reserves to market.

additional 6 kilometres of gas pipelines on the Fell Block to connect

new oil and gas fields to production. Approximately 151 kilometres

examples of these projects in 2011 include:

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

•

operated a drilling rig with a new state-of-art hydraulic rig from

•

Built a new storage tank at the enAp San gregorio refinery to receive

petreven in Italy – which began drilling march 2011. the petreven rig

and market new crude oil deliveries. rehabilitated and leased an

was used to drill eleven wells in 2011: ten wells in Fell Block and one

existing enAp oil treatment and storage facility at Faro este to

well in the tranquilo Block.

handle the increased crude oil production until a new facility will be

constructed on the Fell Block in 2012.

•

operated a drilling rig with a depth capacity of 10,000 feet

contracted from San Antonio International under a one year contract

•

During 2011, the engineering of three new Fell Block infrastructure

– and which was used to drill nine wells in 2011.

projects was carried out in preparation for construction in 2012:

- An oil treatment plant (adjacent to kimiri Aike plant) with a capacity

•

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

of 10,000 bpd;

contracted from Quintana wellpro (uS/Argentine drilling contractor)

- two water treatment plants (located in Alakaluf and guanaco

under a three-year contract. this rig, which was imported from china

fields) for water flooding to increase oil recovery.

as a result of the tight local rig market in 2006/7, was used to drill

four wells in 2011.

•

operated two workover rigs operated by petreven and San Antonio.

the company’s Southern cross service subsidiary rig was subcontracted

to petreven and replaced by a petreven rig.

Year in review • risk management 37

38 Creating Opportunities • Year in Review

VAluE DRIVER.
initiating and creatively
building an attractive
high-imPact Portfolio of
organic and new Project
oPPortunities – couPled
with the commercial skills
to buy right and to close.

Creating Opportunities

Year in Review • Creating Opportunities 39

YeAr In reVIew

40 creating opportunities • Year in review

creAtIng opportunItIeS

A strategic pillar of geopark’s long-term business plan is based on

creatively initiating and developing growth opportunities – both

organically on existing assets and by acquiring new economically-

attractive projects. there is a strong competitive environment for new

project acquisitions and geopark is working to differentiate itself by

ensuring it has the foundation, capabilities and capital necessary to

successfully acquire new economically-attractive projects.

latin America is the focus of geopark’s growth and represents an

attractive region for geopark because of the following fundamentals:

•

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 and/or improving security concerns

economics – easy access and low cost operating environment

hedge – multi-country position provides political balance

market – substantial immediate and long-term regional energy

requirements

•

trends – regional industry reorientation favours smaller technically-

proficient companies

latin America’s economic future is dependent on the development of

secure energy supplies – and oil and gas will be the chief contributor to

this mix. with its experience in the region, strong technical team and

committed financial resources from strategic partners, geopark is well

positioned to participate in this growing opportunity.

Year in Review • Creating Opportunities 41

YeAr In reVIew

orgAnIc growth

with over 3.9 million gross acres and a large and balanced prospect

inventory on its nineteen hydrocarbon blocks in chile, Argentina,

and colombia, geopark has an attractive land position and high

growth potential from its existing properties.

Aided by its successes in 2011, geopark is well positioned for 2012

and beyond. the company has a secure production base and

positive cash flow stream capable of supporting continued growth

on the company’s assets. In addition, geopark has substantial cash

reserves to accelerate capital investment and to acquire new

projects.

the company is targeting important performance gains throughout

2012 and following an ambitious investment plan which will include:

- risk-balanced production, development and exploration

work programmes.

- capital expenditures of uS$ 220-240 mm.

- Drilling of 45-55 new wells – with approximately 35%

representing exploration.

42 Creating Opportunities • Year in Review

CREATING OPPORTUNITIES

new proJectS

After proving the business model and team’s ability to convert

under-performing assets into productive and economically attractive

oil and gas projects, geopark is now working to expand its asset base

and project portfolio into new areas where suitable opportunities

arise. Acquisition initiatives are now underway in chile, Argentina,

Brazil, ecuador, peru, and colombia.

In march 2010, geopark entered into a strategic partnership

with lgI to jointly acquire and develop upstream oil and gas projects

throughout latin America. this alliance provides geopark with a

long-term financially strong partner to facilitate and expand its

access to acquisition opportunities. During 2011, the company and

lgI executed two agreements by which lgI acquired a 20% interest

in geopark’s chilean business for a total consideration of uS$ 148

million plus certain funding obligations. these agreements further

cement the strategic relationship and demonstrate the value of

the business that geopark has built in chile.

In September 2011, geopark signed three participation agreements

with enAp, in respect of the campanario, Flamenco and Isla norte

blocks located in tierra del Fuego, chile. the three blocks, covering

460,000 acres, represent high potential and strategically attractive

acreage which is geologically contiguous to the Fell Block.

In the First Quarter 2012, geopark completed two upstream oil and

gas acquisitions in colombia consisting of winchester luna – with

interests in eight exploration and production blocks – and hupecol

– with interests in two exploration and production blocks. the

combined acquisitions provide geopark with an attractive platform

in colombia of ten hydrocarbon blocks with production,

development and exploration opportunities and new acquisition

opportunities.

Year in Review • Creating Opportunities 43

cApItAl

to successfully participate in the capital-intensive oil and gas business,

geopark is continuously developing potential funding sources to

ensure the efficient development of its assets. to date, more than

uS$ 475 million has been raised by geopark – demonstrating its ability

to attract the capital and strong shareholders needed to facilitate its

future growth.

every year, geopark has made progress in strengthening its balance

sheet through new funding, increased revenues and debt repayments.

key financings include:

2006

•

International Finance corporation of the world Bank (“IFc”) equity

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

technical, financial and environmental review of the group.

•

Admission to the london Stock exchange Alternative Investment

market (AIm) in may 2006 which resulted in:

uS$ 35 million for new capital investment

Access to the capital markets

A base of strong institutional shareholders

Improvement in geopark’s ability to attract, recruit and retain

key employees

potential acquisition currency

•

IFc loan in December 2006 for uS$ 20 million to accelerate

the development programme and which reconfirmed the IFc’s

long-term support for geopark.

2007

•

methanex gas pre-Sale loan Facility for uS$ 40 million. this

agreement provided uS$ 40 million from methanex in order to

increase development of the Fell Block. conditions include:

pay back in gas production over six years in variable instalments

An interest rate paid on borrowed funds of lIBor flat

2008

•

new equity funding of approximately uS$ 24 million (3,080,000 shares

at gBp 3.94) in may 2008 from a strategic block of chilean investors

and pension funds, the IFc and certain london institutional investors.

the placing, which was limited to 10% of the current issued share

capital of the company, was significantly oversubscribed.

44 creating opportunities • Year in review

creAtIng opportunItIeS

2009

•

new equity funding of approximately uS$ 11.8 million (3,437,000

America in side-by-side acquisitions. this partnership enables geopark

shares at gBp 2.25) in may 2009 from a block of geopark’s founders,

to both accelerate and expand its current efforts to acquire new

directors and shareholders and including the IFc and certain london

projects with initial projects targeted in the uS$ 100-500 million range.

and chilean institutional investors. the placing, which was limited to

10% of the current issued share capital of the company, was

•

uS$ 133 million reg S note. In December 2010, geopark successfully

significantly oversubscribed.

completed the private placement of a uS$ 133 million reg S note with

a coupon of 7.75% per annum and maturity on 15 December 2015.

•

new equity funding of approximately uS$ 20.5 million (3,784,000

the notes are guaranteed by geopark and secured with the pledge of

shares at gBp 3.23) in november 2009 from a new strategic investor in

51% of the shares of geopark chile. In addition, the note agreement

the uSA, a uk institutional investor, the IFc and a director of the

allows for the placement of up to an additional uS$ 27 million of notes

company. the placing was limited to 10% of the current issued share

under the same indenture subject to the maintenance of certain

capital of the company and was oversubscribed.

financial ratios.

•

methanex gas pre-Sale loan Facility for uS$ 15.0 million. this facility

2011

provided uS$ 15.0 million from methanex in order to increase

•

uS$ 70 million from lgI. As a step towards cementing the long-term

development of the Fell Block. the facility, which was repayable in gas

growth partnership with lgI, geopark agreed in may 2011 for lgI to

with an interest rate adjustable to the gas deliveries, was repaid in full

acquire a 10% interest in the chilean business (participation in Fell,

with the proceeds from the 2010 notes (see below).

otway and tranquilo blocks) for uS$ 70 million.

•

methanex loan for uS$ 3.3 million. this facility provides

•

uS$ 78 million from lgI. In october 2011, geopark and lgI signed a

uS$ 3.3 million, interest-free, from methanex in order to finance

second agreement by which lgI acquired an additional 10% in the

the exploration, development and production of natural gas

chilean business for a total consideration of uS$ 78 million. In

from the otway Block.

addition, lgI committed to provide additional equity funding of

•

IFc loan rescheduling of uS$ 14.0 million. In november 2009, the IFc

work programme of the three tierra del Fuego licences.

agreed to reschedule until 2015 the outstanding uS$ 14.0 million from

its 2006 loan to geopark. Following proceeds received from the 2010

•

performance Bond contribution. As part of the october 2011

notes (see below), this facility was repaid in full.

transaction, lgI agreed to provide Stand-by letters of credit (SBlc) for

uS$ 31.6 million over the next three years for its share of the minimum

approximately uS$ 84 million to guarantee the performance Bond

•

chile Stock exchange listing. Following the approval of the chilean

required for the new tierra del Fuego blocks (equal to approximately

Superintendencia de Valores y Seguros (SVS), geopark’s stock was

83% of the total committed three year investment).

admitted to trade on the Santiago offshore Stock exchange in chile in

october 2009. this development strengthens geopark’s foundations

•

Four stock market oil and gas analysts cover geopark and provide

in the region and ties to the chilean financial community which is

valuations on the company. these include (as of April 2012) two

becoming an increasingly active supporter of the company’s efforts.

analysts in london, one analyst in Argentina and one analyst in chile

– with all four analysts maintaining “Buy” or “outperform”

2010

recommendations.

•

Strategic partnership with lgI. In march 2010, geopark and lgI agreed

to jointly acquire upstream oil and gas assets throughout latin

International
Finance
Corporation
World Bank Group

Year in review • creating opportunities 45

VAluE DRIVER.
an in-house Performance-
driven culture which values
and Protects our
shareholders, emPloyees,
environment and communities
and suPPorts our
long-term business Plan.

Commitment

46 Commitment • Year in Review

Year in Review • Commitment 47

people

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.

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

oil and gas venture. geopark’s team has a

history of proven technical and commercial

performance in frontier and complex projects

in latin America and around the world, as

well as in the specific geological basins where

the company operates. most of geopark’s

employees joined from other larger

companies with the ambition to help build

geopark into a successful and unique

company – incorporating the best they had

learned over their careers. All of geopark’s

employees are shareholders of the company.

the continuing successful results of the

company reflect the commitment,

persistence, unique spirit and performance-

driven nature of the geopark team.

48 Commitment • Year in Review

YeAr In reVIew

S.p.e.e.D. (Safety, prosperity, employees,
environment, community Development)

long-term success for international resource companies depends

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

upon solving complex logistical and operational challenges,

natural surroundings.

overcoming competition for new opportunities and good people,

and meeting a broadening set of demands and standards from local

•

geopark is committed to being the preferred neighbour and partner

governments and core constituencies. meeting these challenges

by creating a mutually beneficial exchange with the local

and performing to these new standards are what differentiate a

communities where we work. unlocking local knowledge creates

successful company from the rest of the pack.

and supports long-term sustainable value in our projects. Simply put,

if our efforts enhance local goals and customs, we will be invited to

“Creating Value and Giving Back” represents geopark’s integrated

do more.

and market-based approach for meeting these challenges by

aligning our business objectives with our core values and

geopark’s specific methodology is focused on undertaking realistic

responsibilities. geopark’s overall business plan is to create long-

and practical programmes based on best world practices. our

term value by finding and producing energy, based on good science

emphasis is on building key principles and company-wide ownership

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

and then expanding programmes from within as we continue to

constituencies, which we define as our Shareholders, employees,

grow. our comprehensive in-house designed ehSS management

communities and environment.

programme, entitled S.p.e.e.D. (for Safety, prosperity, employees,

environment and community Development), is being developed in

•

geopark is committed to delivering significant bottom-line financial

accordance with: ISo 14001 for environmental management issues;

value to our shareholders. only a financially healthy and transparent

oShAS 18001 for occupational health and safety management

company can continue to grow, attract needed resources and create

issues; SA 8000 for social accountability and worker rights issues; the

real long-term benefits.

Development Standards of the world Bank; and the Quoted

companies Alliance standards for good corporate governance.

•

geopark is committed to creating a safe and motivating workplace

for employees. with today’s shortage of capable energy

“Creating Value and Giving Back” represents geopark’s underlying

professionals, the company which is able to attract, protect, retain

value system which provides us the leadership, confidence and

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

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

•

geopark is committed to minimising the impact of our projects on

mission in the right way. If we are the true performer, the best place

the environment. As our footprint becomes cleaner and smaller –

to work, the preferred partner and the cleanest operator – our future

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

is bigger, better and more secure.

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

50 commitment • Year in review

Above: participants in BmX championship in punta Arenas in october 2011 which was organised and sponsored by geopark and which included local and

international competitors. In 2010 in chile, geopark created the “club Deportivo geopark” [geopark Sport club] to provide a supporting environment to

young people as a way to improve their life quality and personal skills through sports and teamwork. Sports offered include volleyball, basketball, badminton,

athletics, rugby, table tennis and BmX and currently more than 450 people between ages of 6 and 65 are members of club Deportivo geopark.

"Private Company
and Social Commitment"

…The company Geopark has been organising this [BMX Contest] event

Unfortunately, nowadays many companies prefer to focus only on their own

over the last few years, with the important cooperation of the Municipality

business, avoiding any contact with the community. Or if they do have such

of Punta Arenas. The event has grown in importance over the period, as evidenced

contact, they act without any conviction, accepting it as mere imposition that is

by the fact that this edition was sponsored by 27 companies.

difficult to evade considering the circumstances.

This contest is an additional evidence of the relevant role private companies can

Therefore, a company like Geopark that bucks the trend must be congratulated…

play in the communities where they are located, above and beyond their own

business. However, this social involvement requires an effective, long-term

commitment that exceeds the specific actions companies are invited to participate

in. Such involvement must be based on a real conviction about the importance

of interacting with society on a constant basis.

Year in review • commitment 51

Financial
Statements

52 Financial Statements

Financial Statements 53

Directors’ Report

The Directors submit their report together with the audited consolidated

2. Year-End Cash and Debt Position

financial statements of GeoPark Holdings Limited (“GeoPark” or “the

Company”) for the year ended 31 December 2011. The Company and its

The Group’s year-end cash position was US$ 193.7 million. Also, the Company

subsidiaries together are referred to herein as the Group.

had cash in escrow of US$ 3.0 million for the acquisition of the Colombian

Addresses
The Registered office address is Cumberland House, 9th Floor, 1 Victoria

business completed during the first quarter of 2012 and US$ 5.2 million in a

cash collateral account required under the terms of the Bond issued in 2010.

Therefore, year-end cash resources amount to US$ 201.9 million. Year-end

Street, Hamilton HM 11, Bermuda. The Company has a representative office

debt was US$ 165.3 million.

at 35 Piccadilly, London, United Kingdom.

3. Principal Risks and Uncertainties

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

Given the nature of the upstream oil and gas business, effective operational

develop and produce for oil and gas reserves in Chile and Argentina. The

and financial risk management is a principal focus of the Group. Efforts

Group owns and operates six hydrocarbon blocks including the Fell, Otway

are continuously made to balance and manage long-term work programme,

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

capital sources, regulatory issues, oil and gas markets and organizational

Loma Cortaderal Blocks in Argentina.

issues in order to achieve continuous growth.

During 2011, the Government of Chile announced the successful farm-in by

A description of the principal risks to which the Group are exposed and a

GeoPark TdF S.A. to three new prospective exploration blocks in Tierra

description of financial risk management objectives and policies of the Group

del Fuego under a private process organised by ENAP. The three blocks of

are included in:

Isla Norte, Flamenco and Campanario cover more than 460,000 acres and are

geologically contiguous to the Fell Block. GeoPark TdF S.A. has committed

a. Year in Review (Risk Management section); and

to invest in excess of US$ 101.4 million on the three new blocks over the next

b. Note 3 to the Financial Statements (Pages 75 to 76);

three years accounting from the CEOPs signing date.

Business Review
The Business Review is intended to provide a balanced and comprehensive

The Group seeks to ensure that its operations are conducted in a safe manner

analysis of the development and performance of the business of the

and to minimise any impact on the environment. The Group’s specific

Company during the year and its position at the year end. Key elements

methodology is focused on undertaking realistic and practical programmes

of the Business Review are contained within the Annual Report and

based on best world practices, with an emphasis on building key principles

accompanying documents. The Business Review has been divided in the

and company-wide ownership and then expanding the programme from

4. Health, Safety, Environment and Community Development: SPEED

following areas:

1. Development and Performance

The Group has successfully improved and strengthened its business during

within as the Group continues to grow. The Group’s comprehensive in-house

designed EHSS management programme, entitled S.P.E.E.D. (for Safety,

Prosperity, Employees, Environment and Community Development), is being

developed in accordance with: ISO 14001 for environmental management
issues; OSHAS 18001 for occupational health and safety management issues;

2011. The Group achieved increases or improvements in oil and gas

SA 8000 for social accountability and worker rights issues; the Development

production, reserves, revenues, adjusted EBITDA, profitability, balance sheet,

Standards of the World Bank; and the Quoted Companies Alliance standards

organization and safety performance.

for good corporate governance. During 2011, the Group continued to

improve its SPEED Programme by establishing objectives, increasing the

A detailed review of the operations, development and performance of the

safety training of all its employees, effective monitoring of all incidents and

Group’s business is included in this report and in:

the benchmarking against global industry standards. The SPEED Programme

is described in further detail in the section titled “Commitment”.

a. Chairman’s and Chief Executive’s Letter to Shareholders (Pages 2 to 5); and

b. Year in Review (Pages 6 to 51).

Directors’ Report
46 Directors’ Report
54

Key Performance Indicators
The Group uses a number of financial and non-financial key performance

The Group directed most of the drilling efforts towards the development of

oil reserves, which increased the production. Investments in gas wells

indicators to measure performance, which are set out below:

resulted in an increase in production which was offset with higher internal

consumption in the operations that resulted in lower volume gas sold.

Oil and Gas 2P
Reserve Growth (1)
(millions of barrels

2011

2010

2011 vs. 2010

Net Revenues 2010 vs. 2011

of oil equivalent - boe)

49.5

49.6

+6%

120,000

Oil and Gas

Production Growth

(boe per day)

Average Realised

Sales Price (Chile)

Oil (US$ per bbl)

Gas (US$ per mcf)

Total Net Revenues

(US$ million)
Adjusted EBITDA (2)
US$ million

US$ per boe

Operating Costs

US$ per boe
Gearing Ratio (3)

7,593

6,947

+9%

100,000

18,104

(1,302)

80,000

79,550

7,212

111,580

8,016

83.8

3.93

111.6

63.4

22.9

7.9

26%

72.8

3.13

79.6

41.1

16.3

6.9

43%

+15%

+26%

+40%

+54%

+41%

+14%

-40%

’

0
0
0
$
S
U
n

60,000

40,000

20,000

31.12.10

Increase
in oil
deliveries

Decrease
in gas
deliveries

Increase in
gas price

Increase in
oil price

31.12.11

(1) As of 31 December 2011 and 31 December 2010; % change adjusted for

production during the period of 2.77 million of boe.

The revenue growth was due to a rise in prices (both oil and gas) and the

(2) As defined in Note 6.

increase in oil production.

(3) Calculated as total borrowing less cash and cash equivalent over total

capital [(borrowings - cash) / capital]. The Group does not consider the

cash that has been allocated for future M&A activities (purchase price,

adjusted for working capital, of the two Colombian acquisitions).

1. Production, Prices and Revenue

During 2011, oil and gas production increased as a result of the Group’s

successful drilling programme, which resulted in eighteen productive wells

out of twenty five wells drilled (four of them are awaiting for completion

or under evaluation). The drilling programme represented a balance between

exploration, appraisal and development prospects.

Production
Oil (in thousand of bbls)

Gas (in thousand of mcf)

2011
916

11,135

2010
719

10,901

2011 vs. 2010
27%

Directors’ Report

2. Reserves

3. Production Costs

DeGolyer and McNaughton (“D&M”), independent reservoir engineers,

Production costs in 2011 increased to US$ 54.5 million from US$ 43.9 million

certified 2P reserves of 49.5 million barrels of oil equivalent (mmboe) at

in 2010 - resulting from an increase in depreciation charges and an increase

31 December 2011 composed of 34% oil. Allowing for production of

in production volumes, of which a larger proportion represented oil.

2.78 mmboe during 2011, additions of 2P Reserves represent an increase

of 6% in respect of 2P Reserves at 31 December 2010. 2P Reserves

a. Depreciation charges

replacement ratio was 100%.

Reserves

Capitalised costs of proved oil and gas properties are depreciated on a

block-by-block basis, using the unit of production method and based on

proved and probable reserves - as defined in chapter 19 of the listing

rules of the United Kingdom Listing Authority (UKLA). Oil and gas reserves

E
O
B
M
M

49.6

2.7

49.5

for this purpose are determined in accordance with Society of Petroleum

Engineers definitions and were estimated by DeGolyer and MacNaughton,

the Group’s independent reservoir engineers. The 2011 depreciation

charge of US$ 25.8 million represented a 16% increase compared to 2010

(US$ 22.3 million) resulting principally from the increase in production

volumes. The average depreciation charge in 2011 was US$ 8.4 per barrel of

oil equivalent (boe) - (US$ 7.5 in 2010). This increase in cost is the result

of the change in the estimation of future drilling cost, associated mainly to

(2.8)

higher oil and gas prices.

b. Operating expenditures

2P DEC 2010
(D&M)

Production

Net additions

2P DEC 2011
(D&M)

Operating expenditures (OPEX) per producing unit (boe) is a key indicator

measuring the efficiency of the producing process. In 2011, OPEX per

boe rose to US$ 7.9 from US$ 6.9 in 2010. This variance was driven by the

continuous change in production mix from gas to oil, which has higher

production costs than gas. In 2011, the production mix was split 33% oil

and 67% gas, whereas in 2010, it was 27% and 73%.

4. Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest, tax, depreciation,

amortisation and certain non-cash items such as write-offs, impairments and
share-based payments. This measurement excludes the effects of non-

recurring expenditures from the operating segments, such as impairments if

it is a result of an isolated non-recurring event.

Adjusted EBITDA for 2011 of US$ 63.4 million represented an increase of 54%

from US$ 41.1 million in 2010. In terms of producing units, the 2011 Adjusted

EBITDA equalled US$ 22.9 per boe, compared to US$ 16.3 per boe in 2010,

representing an increase of 40%. This significant increase in the adjusted

EBITDA was achieved by the increase in production, coupled by the change

in production mix and also higher oil and gas prices.

Directors’ Report

5. Net Result

During 2011, the Group recognised write-offs of exploration and evaluation

assets in the Fell Block for an amount of US$ 5,919,000. The charge includes

The Group generated a net profit of US$ 5.1 million in 2011 compared to

the cost of an unsuccessful exploratory well amounting to US$ 2,331,000 and

US$ 4.2 million in 2010. The chart below shows the reconciliation in 2011 of

also in accordance with the Group’s accounting policy and considering that

the Adjusted EBITDA to the Net Result.

no additional work will be performed, wells from previous years have been

written off for an amount of US$ 3,588,000. In addition, an impairment charge

Net Result and Adjusted EBITDA Reconciliation

of US$ 1,344,000 was recognised in relation to exploration assets in Del

Mosquito Block.

63.4

$
S
U

f
o
n
o

i
l
l
i

m
n

(26.4)

(11.6)

(7.3)

Dividends
The Directors do not recommend the payment of any dividend for the period

ended 31 December 2011 (2010: nil). The Group is currently re-investing all

cash generated by its operations and intends to continue to re-invest these

funds for the near future. Cumulative losses for the Group are US$ 18.5

million. Net free available equity reserves amount to US$ 95.7 million.

Events since the Balance Sheet Date
In February 2012, GeoPark acquired two privately-held exploration and

production companies operating in Colombia, Winchester Oil and Gas S.A.

and La Luna Oil Company Limited S.A. (“Winchester Luna”).

(7.2)

(5.8)

In March 2012, a second acquisition occurred with the purchase of Hupecol

5.1

Cuerva LLC (“Hupecol”), a privately-held company with two exploration

and production blocks in Colombia.

EBITDA

Depreciation

Interests

Impairment
& write-off

Income
tax

Non cash
adjustments

Net profit

The combined Hupecol and Winchester Luna purchases (acquired for a total

consideration of US$ 105.0 million, adjusted for working capital, plus certain

Non-cash adjustments include a US$ 5.3 million charge incurred by the

possible contingent payments) provide GeoPark with interests in 10 blocks

Group due to stock awards programmes.

(ranging from 5% to 100%), located in the Llanos, Magdalena and Catatumbo

During 2011, the Company transferred 20% of its Chilean business to LGI

(see Note 34). Therefore the non-controlling interest on the profit of the year

corresponds to the profit generated by the Chilean operations. The profits

Community Development Efforts, Charitable and Political Donations
For its community development efforts, the Group encourages the

of the Chilean operations that are attributable to the owners of the Company

development of new local businesses by contracting services and people

were offset by losses incurred by the Company in its Corporate and
Argentine operations.

for its needs and work programme where it operates. The Group uses
over 150 local contracting companies in its activities in Chile and has been

Basins, covering an area of approximately 220,000 gross acres.

Oil and gas exploration and production activities are accounted for in a

manner similar to the successful efforts method on a field by field basis. The

Total charitable donations in 2011 amounted to US$ 27,551 (2010:

Group accounts for exploration and evaluation activities in accordance with

US$ 221,330 of which US$ 200,000 relates to the earthquake relief efforts).

IFRS 6, Exploration for and Evaluation of Mineral Resources, capitalizing

exploration and evaluation costs until such time as the economic viability of

In addition, the Group contributes to the GeoPark Sports Club in Punta

producing the underlying resources is determined.

Arenas, Chile to provide founded and a supporting environment to young

credited with assisting in the start-up of 14 small businesses.

people and to improve their quality of life and personal skills through sports

and team efforts. A total of US$ 315,897 was contributed in 2011. This amount

is recognised under Administrative costs.

No political donations are made by the Group.

Directors’ Report

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 2011

Committees

Ordinary share of

US$ 0.001 each at

Gerry O’Shaughnessy
Executive Chairman

James F. Park
Chief Executive Officer

3 August 2011 (*)

Sir Michael R. Jenkins
Non-Executive Director 3 August 2011 (*)

Christian M. Weyer
Non-Executive Director 3 August 2011 (*)

Peter Ryalls
Non-Executive Director 3 August 2011 (*)

Juan Cristóbal Pavez
Non-Executive Director 3 August 2011 (*)

Carlos Gulisano
Non-Executive Director 3 August 2011 (*)

Steven J. Quamme
Non-Executive Director 3 August 2011 (*)

8,172,793

6,983,068

37,344

Committee Member

Committee Chairman

216,824

(*) Most recent
reappointment date.

36,758

(1) Carlos Gulisano holds

50,000 IPO Stock options

2,165,437

vested and unexercised

and 100,000 stock

(1) 1,469

awards which will vest on

15 December 2012.

4,326,708

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

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

Director’s Remuneration Report (Pages 62 to 63).

potential loan covenant breaches.

Auditors
PriceWaterhouseCoopers LLP has completed the audit of the 2011 Financial

Considering macroeconomic environment conditions, the performance of

the operations and Group’s cash position, the Directors have formed a

Statements, as appointed in the Annual General Meeting held in August 2011

judgement, at the time of approving the financial statements, that there is

and offer themselves for reappointment.

a reasonable expectation that the Group has adequate resources to

NOMAD
Oriel Securities Limited is the Company’s Nominated Advisor under the AIM

rules of the London Stock Exchange.

continue with its investment programme in order to increase oil and gas
reserves, production and revenues and meet all its obligations for the

foreseeable future. For this reason, the Directors have continued to adopt

the going concern basis in preparing the consolidated financial statements.

Annual General Meeting
At the Annual General Meeting of the Company, resolutions will be proposed

On behalf of the Board

to re-elect the Directors, according to the Company’s Bye Laws. Other

resolutions may be proposed in accordance with the circular to be sent out.

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

Going Concern
The Directors regularly monitor the Group’s cash position and liquidity risks

James F. Park

throughout the year to ensure that it has sufficient funds to meet forecast

Chief Executive Officer

operational and investment funding requirements. Sensitivities are run to

19 April 2012

Directors’ Report

Corporate Governance

GeoPark is committed to maintain high standards of corporate governance

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

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

entrepreneurial manner for the benefit of all shareholders over the longer

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

term. The Directors strongly intend, as it is feasible given the Group’s size

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

and the constitution of the Board, to comply with the guidelines on corporate

has at least two independent Non-Executive Directors. All Directors submit

governance of the Quoted Companies Alliance for AIM companies.

themselves for re-election at the Annual General Meetings each year - a

GeoPark’s good corporate governance goals include:

shareholders for election are accompanied by a biography and a description

practice the Group has followed since 2006. All Directors proposed to

• Efficiency: Creating a governing body of an appropriate size to permit

efficient decision-taking with transparency for major decisions, clear

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

definition of responsibilities and performance targets, and procedures in

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

place to protect and ensure protection of the Company’s assets.

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

of the skills and experience that the Group feels are relevant.

of the Board’s decision-making process.

• Effectiveness: Assembling a governing body with the required skills,

provided with the proper information and collectively involved to make the

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

best decisions for the Company.

proposing and developing the Group’s strategy and overall commercial

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

• Entrepreneurial: Defining a vision for the Company with an understanding

team, implementing the decisions of the Board and its Committees.

of goals, timing and necessary resources.

In addition, the Chief Executive is responsible for maintaining regular

dialogue with shareholders as part of the Group’s overall investor relations

• Shareholder Common Good: Taking decisions which consider the good of

programme.

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

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

The Board comprises:

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

Executive Directors:

Gerald E. O’Shaughnessy - Chairman

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

James F. Park - Chief Executive Officer

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

and delivery of strong, sustainable financial performance and long-term

Non-Executive Directors:

shareholder value.

Sir Michael R. Jenkins

Christian M. Weyer

To achieve this, the Board directs and monitors the Group’s affairs within

Peter Ryalls

a framework of controls which enable risk to be assessed and managed

Juan Cristóbal Pavez

effectively through clear procedures, lines of responsibility and delegated
authorities. The Board also has responsibility for setting the Group’s

Carlos Gulisano
Steven J. Quamme

core values and standards of business conduct and for ensuring that these,

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

On 3 August 2011, following Shareholder’s approval at the Annual

understood throughout the Group.

General Meeting Steven J. Quamme joined GeoPark’s Board as a

Non-Executive Director. Mr. Quamme has an extensive and recognised

experience as securities lawyer, private equity investor and investment

banker. He is a recognised expert in corporate governance.

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

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

which is vital to the management of an expanding company.

Corporate Governance

Board Meetings
The Board meets at least quarterly and when issues arise and has a schedule

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

of matters reserved for decisions of the Board. In addition to those formal

compliance matters and risk management, and approve the annual budget

matters required by relevant local laws to be set before a Board of Directors,

and monitor performance. The Board has the responsibility to establish and

the Board will also consider strategy and policy, acquisition and divestment

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

proposals, approval of major capital investments, risk management policy,

The procedures are reviewed on an ongoing basis.

significant financing matters and statutory shareholder reporting. The Board

met eight times during 2011 and maintains regular communication with

The Group has defined an approval system for capital expenditures and

Management.

expenses. This system includes different levels of authorisation based

on functions and position of individuals. The Board has approved the annual

The Directors also regularly visit the Group’s operations. These field visits

budget and performance against the budget is monitored and reported.

provide important perspective and expose the Directors directly to the

quality and depth of the Group’s operations and workforce. In these visits,

The internal control system can only provide reasonable and not

the Directors are also able to make recommendations regarding

absolute assurance against material misstatement or loss. The Board has

improvements of the Group’s operations.

considered the need for an internal audit function but does not consider

it necessary at the current time. During 2010, with the assistance of

Independence
The Board reviews annually the independence of all Non-Executive Directors

PricewaterhouseCoopers, the Group initiated a thorough review of the key

administrative processes. As a result, all the administrative and finance

and has determined with the exception of Carlos Gulisano that all current

procedures have been reviewed and formalised. During 2011, the effort

Non-Executive Directors are independent and have no cross-directorships or

continued to improve and update the procedures in place.

significant links which could materially interfere with the exercise of their

independent judgment.

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

Board Support
Mr. Pedro Aylwin Chiorrini is currently the Company Secretary and is available

appointment. This includes meetings with senior management, functional

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

to advise all Directors and ensure compliance with Board procedures.

main properties. The Company Secretary also provides new Directors

The Board has the power to appoint and remove the Company Secretary.

with an overview of their duties as Directors, corporate governance policies

A procedure is in place to enable Directors, if they so wish, to seek

and established Board procedures as part of the induction process.

Insurance
The Company maintains Directors’ and Officers’ liability insurance cover, the

level of which is reviewed annually.

independent professional advice at the Group’s expense.

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

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

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

reporting process. Board papers are circulated in time to allow Directors to
be properly briefed in advance of meetings. In addition, Board meetings

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

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

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

members to familiarise themselves with the key assets and operations

of the Group.

Corporate Governance

Audit Committee
The Audit Committee is comprised of three independent Non-Executive

The Committee’s specific responsibilities are:

• Determining and agreeing with the Board the remuneration policy for

Directors (currently being Sir Michael Jenkins, Mr. Peter Ryalls and

the Chief Executive Officer, Chairman, Executive Directors and other members

Mr. Juan Cristóbal Pavez). The Committee is chaired by Sir Michael Jenkins

of the Executive Management;

and meets to approve the Financial Statements, as required during the year.

• Reviewing the performance of the Executive Directors and other members

The Committee’s specific responsibilities to the Board are:

• Reviewing the design of the share incentive plans for approval by the Board

of the Executive Management;

• Reviewing financial statements and formal announcements relating to the

and shareholders.

Group’s performance;

• Assessing the independence, objectivity and effectiveness of the external

The Director’s Remuneration report on pages 62 to 63 contains further details

auditors;

of the role and activities of the Remuneration Committee.

• Making recommendations for the appointment, re-appointment and

removal of the external auditors and approving their remuneration and terms

of engagement;

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

• Implementing and monitoring policy on the engagement of the external

regular dialogue with institutional investors, as well as general presentations

auditor to supply non-audit services to the Group.

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

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

Mr. Christian M. Weyer, Sir Michael Jenkins and Mr. Gerald O’Shaughnessy),

Throughout 2011, Executive Directors and Senior Management met with

institutional investors and Shareholders in Europe, North America and South

America and conducted field trips to the Group’s operations.

the majority of whom are independent Non-Executive Directors. The

The Company maintains regular contact with analysts to ensure that the

Committee is chaired by Mr. Christian M. Weyer and meets as required.

information regarding the business status and strategy is communicated to

Shareholders. Analysts also visit the Company’s field operations and have

The Committee’s specific responsibilities to the Board are:

access to management and technical staff to ask questions.

• Reviewing the structure, size and composition of the Board and making

recommendations to the Board with regard to any changes required;

Press releases have been issued throughout the year and the Company

• Identifying and nominating, for Board approval, candidates to fill Board

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

vacancies as and when they arise;

posted and which also contains major corporate presentations and the

• Making recommendations to the Board with regard to membership of the

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

Audit and Remuneration Committees in consultation with the Chairman of

and the status of exploration and development programmes are also

each Committee;

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

• Reviewing the outside directorship/commitments of the Non-Executive

registered Shareholders, contains extensive information about the Group’s

Directors;

activities. Enquiries from individual Shareholders on matters relating to their

• Succession planning for Directors and other senior executives.

shareholdings and the business of the Group are welcomed. Shareholders are

Remuneration Committee
The Remuneration Committee is comprised of three independent Non-

also encouraged to attend the Annual General Meeting to discuss the
progress of the Group. Notice of the Annual General Meeting is sent to

Shareholders at least 20 working days before the meeting and includes

Executive Directors, who currently are Mr. Peter Ryalls, Mr. Steven J. Quamme

further information on how to vote by proxy.

and Mr. Juan Cristóbal Pavez. The Committee is chaired by Mr. Peter Ryalls

and meets as required during the year.

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

on page 64.

Corporate Governance

Directors’ Remuneration Report

The following information is not subject to audit.

IPO Stock Options to Executive Directors

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

Committee during 2011 were Peter Ryalls, Chairman, and Steven J. Quamme

Name

and Juan Cristóbal Pavez, who are Non-Executive Directors.

Gerald

O’Shaughnessy

The Remuneration Committee agrees with the Board the framework for the

James F. Park

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

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

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 2013

15 May 2008

15 May 2013

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

the GeoPark Employee Benefit Trust for use in the settlement of the exercise

In accordance with the programme, 601,235 common shares were issued to

of stock options granted to certain Executive Directors and employees at the

Executive remuneration packages are designed to attract, motivate and

time of the Company’s IPO.

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

value to Shareholders. The performance measurement of the Executive

Directors and the determination of their annual remuneration package are

undertaken by the Committee.

Stock Awards to Management, Employees and Executive Directors
During 2011, the Remuneration Committee and the Board of Directors

approved the granting of 500,000 performance share awards to employees

and Management under the Plan. The 2011 awards also encompass new

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

employees that have joined the Company since the 2010 awards. The awards

the Executive Directors should be performance related.

will vest on the fourth anniversary of the grant date and will be subject

to the award holder remaining in employment during that period (following

Performance-based Employee Long-Term Incentive Programme - Key Terms
In order to align the interests of its Management, employees and key advisors

the rules set out in the Plan).

with those of the Company and its Shareholders, the Directors have

Stock Awards to Management and Employees

established a Performance-based Employee Long-Term Incentive Programme

(“the Plan”). At the Annual General Meeting held on 19 November 2007,

Nº of

% of

Issued

Shareholders voted to authorise the Board to use up to 12% of the issued

Underlying

Common

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

Common

Employee Long-Term Incentive Plan. GeoPark’s Shareholders authorised the

Board of Directors to implement this plan and determine the specific

Shares
(1)

Capital

Approxi-

conditions for each programme within some broadly-defined guidelines.

1,000,000 mately 2.4%

IPO Award Programme and Executive Stock Option plan
On admission to AIM, the Executive Directors, the Management and key
employees of the Company received the following options over common

shares of the Company granted under the Executive Stock Options Plan.

Approxi-

1,000,000 mately 2.4%

Approxi-
500,000 mately 1.2%

Grant

Date

15 Dec

2008

15 Dec

2010

15 Dec
2011

Exercise

Price

(US$)

Earliest

Exercise

Date

Expiry

Date

15 Dec

0.001

2012

2018

0.001

15 Dec

2014

15 Dec
2015

2020

15 Dec
2021

IPO Stock Options to Management and key employees

Nº of

% of

Issued

Underlying

Common

Capital

Grant

Date

Exercise

Price (£)

Earliest

Exercise

Date

(1) Dr. Carlos Gulisano holds 100,000 of these Stock awards.

Considering the previously issued IPO Awards, plus the 12% limit established

for the Plan, the total share capital awarded and to be awarded to employees,

Management and Executive Directors represents approximately 14.8% of the

Expiry

shares issued.

Date

Approxi-

15 May

545,000 mately 1.4%

2006

4.00

2008

2013

Dr. Carlos Gulisano holds 50,000 of these IPO Stock Options.

Directors’ Remuneration Report

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

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

quarterly in arrears in cash.

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

c) Notice for contract termination: 2 months.

of the Director’s contracts are summarised below:

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

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

US$ 200,000 per annum. The agreement is stated to continue indefinitely,

subject to it being terminable by either party by giving not less than

12 months’ notice in writing at any time. The payment of any bonus to

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

service agreement contains restrictive covenants which restrict him,

for a period of 12 months following the termination of employment, from

The following chart summarises the detail of payments made to

Non-Executive Directors:

Sir Michael Jenkins (1)
Peter Ryalls (2)
Christian Weyer (3)
Juan Cristóbal Pavez

2011 Cash Payment

Stock Payment

Director Fees

Non-Executive

Committee

Paid in Shares

Directors’ Fees

Chairman Fees

No. of Shares

£ 17,500

£ 35,000

£ 8,750

£ 5,750

2,633

1,496

soliciting senior employees of the Company and, for a period of 6 months

Carlos Gulisano

following the termination of employment, from being involved in any

Steven J. Quamme

competing undertaking.

James F. Park
James F. Park has a service contract with the Company which provides

Additionally Dr. Carlos Gulisano received US$ 138,000 for technical

consultancy during 2011 (US$ 410,000 in 2010).

for him to act as Chief Executive Officer of the Company at a salary of

(1) Audit Committee Chairman.

US$ 400,000 per annum. The agreement is stated to continue indefinitely,

(2) Remuneration Committee Chairman.

subject to it being terminable by either party by giving not less than

(3) Nominations Committee Chairman.

12 months’ notice in writing at any time. The payment of any bonus to

Mr. Park is at the Company’s discretion. Mr. Park’s service agreement

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

Approval
This report was approved by the Board of Directors on 19 April 2012 and

following the termination of employment, from soliciting senior employees

signed on its behalf by:

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 2011 to the Executive Directors.

Non-Executive Directors Contracts
In August 2011 at the Annual General Meeting, the Shareholders re-elected

Peter Ryalls

the Non-Executive Directors.

Chairman, Remuneration Committee
19 April 2012

The remuneration package approved for Non-Executive Directors, which is

detailed in the corresponding service contracts, contains the following

components:

a) Annual salary of £ 35,000; the fees payable shall be made up, at the

option of the Company, of an issue of new shares in the Company on the

basis determined by the Board and/or cash consideration payable quarterly

in arrears. The share price to determine the quantity of share is the

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

the payment date.

Directors’ Remuneration Report

Statement of Directors’ Responsibilities

The Directors are responsible for preparing the financial statements in

accordance with applicable laws and regulations in Bermuda. 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 the Group’s financial positions, financial

performances and cash flows. This requires the faithful representation of the

effects of transactions, other events and conditions in accordance with the

definitions and recognition criteria for assets, liabilities, income and expenses

set out in the International Accounting Standard Board’s “Framework for

the preparation and presentation of Financial Statements”. In virtually

all circumstances, a fair presentation will be achieved by compliance with

all applicable International Financial Reporting Standards.

The Directors are also required to:

• select suitable accounting policies and apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• present information, including accounting policies, in a manner that

provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific

requirements in IFRS are insufficient to enable users to understand

the impact of particular transactions, other events and conditions on

the 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 each of the Directors is 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 be aware

of any relevant audit information and to establish that the auditors are made

aware of that information.

Statement of Directors’ Responsibilities

Independent Auditors’ Report

To the Members of Geopark Holdings Limited

Opinion on financial statements
In our opinion the financial statements:

We have audited the Group financial statements (the “financial statements”)

of GeoPark Holdings Limited for the year ended 31 December 2011 which

• give a true and fair view of the state of the Group’s affairs as at 31 December

comprise the consolidated statement of income, the consolidated statement

2011 and of the Group's profit and cash flows for the year then ended;

of comprehensive income, the consolidated statement of financial position,

the consolidated statement of changes in equity, the consolidated statement

• have been properly prepared in accordance with IFRSs as adopted by the

of cash flow and the related notes. The financial reporting framework

European Union; and

that has been applied in their preparation is applicable law in Bermuda and

International Financial Reporting Standards (IFRSs) as adopted by the

• have been prepared in accordance with the requirements of the Companies

European Union.

Act 1981 (Bermuda).

Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out

Other matters
a. The maintenance and integrity of the GeoPark Holdings Limited website

on page 64 the Directors are responsible for the preparation of the financial

is the responsibility of the Directors; the work carried out by the auditors

statements and for being satisfied that they give a true and fair view. Our

does not involve consideration of these matters and, accordingly, the auditors

responsibility is to audit and express an opinion on the financial statements

accept no responsibility for any changes that may have occurred to the

in accordance with applicable law in Bermuda and International Standards

financial statements since they were initially presented on the website.

on Auditing (UK and Ireland). Those standards require us to comply with the

UK Auditing Practices Board’s Ethical Standards for Auditors.

b. Legislation in Bermuda and the United Kingdom governing the preparation

and dissemination of financial statements may differ from legislation in other

This report, including the opinion, has been prepared for and only for

jurisdictions.

the company’s members as a body in accordance with Section 90 of The

Companies Act 1981 (Bermuda) and for no other purpose. We do not,

in giving the opinion, accept or assume responsibility for any other purpose

or to any other person to whom this report is shown or into whose hands

it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures

PricewaterhouseCoopers LLP

Chartered Accountants

in the financial statements sufficient to give reasonable assurance that

London, United Kingdom

the financial statements are free from material misstatement, whether

19 April 2012

caused by fraud or error. This includes an assessment of: whether the

accounting policies are appropriate to the Group’s circumstances and have

been consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Directors; and the overall

presentation of the financial statements.

In addition, we read all the financial and non-financial information in the

annual report to identify material inconsistencies with the audited financial

statements. If we become aware of any apparent material misstatements

or inconsistencies we consider the implications for our report.

Independent Auditors’ Report

Consolidated Statement of Income

Amounts in US$ ’000

Note

2011

2010

Net Revenue

Production costs

Gross Profit

Exploration costs

Administrative costs

Selling expenses

Other operating costs

Operating Profit

Financial income

Financial expenses

Profit before Income Tax

Income Tax

Profit for the Year

Attributable to:

Owners of the Company

Non-controlling interest

Earnings per share (in US$) for

profit attributable to owners of the Company. Basic

Earnings per share (in US$) for

profit attributable to owners of the Company. Diluted

Consolidated Statement of Comprehensive Income

Amounts in US$ ’000

Income for the year

Other comprehensive income:

Total comprehensive Income for the year

Attributable to:

Owners of the Company

Non-controlling interest

111,580

(54,513)

57,067

(10,066)

(18,169)

(2,546)

(502)

25,784

162

(13,678)

12,268

(7,206)

5,062

5,008

0.0013

0.0012

2011

5,062

5,008

The notes on pages 70 to 91 are an integral part of these consolidated financial statements.

79,550

(43,923)

35,627

(5,482)

(13,764)

(2,027)

(1,130)

13,224

239

(4,427)

9,036

(4,856)

4,180

0.1000

0.0944

2010

4,180

Consolidated Statement of Income

Consolidated Statement of Financial Position

Amounts in US$ ’000

Note

2011

2010

Assets

Non Current Assets

Property, plant and equipment

Prepaid taxes

Other financial assets

Deferred income tax asset

Prepayments and other receivables

Total Non Current Assets

Current Assets

Other financial assets

Inventories

Trade receivables

Prepayments and other receivables

Prepaid taxes

Cash and cash equivalents

Total Current Assets

Total Assets

Total Equity

Equity attributable to owners of the Company

Share capital

Share premium

Reserves

Retained losses

Non-controlling interest

Total Equity

Liabilities

Non Current Liabilities

Borrowings

Provisions and other long-term liabilities

Deferred income tax liability

Total Non Current Liabilities

Current Liabilities

Borrowings

Current income tax liabilities

Trade and other payable

Provisions for other liabilities

Total Current Liabilities

Total Liabilities

224,635

159,717

2,957

5,226

450

707

2,655

5,601

374

183

233,975

168,530

3,000

584

15,929

24,984

147

193,650

238,294

472,269

112,231

115,164

(18,549)

208,889

41,763

250,652

134,643

9,412

13,109

157,164

30,613

187

28,535

5,118

64,453

221,617

252

13,071

3,158

1,341

99,411

117,233

285,763

107,858

3,919

(19,527)

92,292

143,824

3,153

6,014

152,991

25,564

12,710

2,206

40,480

193,471

Total Equity and Liabilities

472,269

285,763

The financial statements were approved by the Board of Directors on 19 April 2012.

The notes on pages 70 to 91 are an integral part of these consolidated financial statements.

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Amount in US$ ’000

Capital

Premium

Reserve

Losses

Interest

Total

Attributable to owners of the Company

Non-

Other Translation

Retained controlling

Equity at 1 January 2010

Comprehensive income:

Profit for the year

Other comprehensive income:

Currency translation differences

Total Comprehensive Income

for the Year 2010

Transactions with owners:

Share-based payment (Note 29)

Total 2010

107,524

3,056

894

(26,034)

334

(31)

4,180

2,327

Balances at 31 December 2010

107,858

3,025

894

(19,527)

85,482

4,180

2,630

92,292

Comprehensive income:

Profit for the year

Other comprehensive income:

Currency translation differences

Total Comprehensive Income

for the Year 2011

Transactions with owners:

Proceeds from transaction with

Non-controlling interest (Notes 25 and 34)

Share-based payment (Note 29)

Total 2011

111,245

4,373

111,245

5,008

5,062

5,008

5,062

924

36,755

148,000

5,298

36,755

153,298

Balances at 31 December 2011

112,231

114,270

894

(18,549)

41,763

250,652

The notes on pages 70 to 91 are an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flow

Amounts in US$ ’000

Note

2011

2010

Cash flows from operating activities

Income for the year

Adjustments for:

Income tax for the year

Depreciation of the year

Loss on disposal of property, plant and equipment

Write-off of unsuccessful efforts

Impairment loss

Accrual of borrowing’s interests

Amortisation of other long-term liabilities

Unwinding of long-term liabilities

Accrual of share-based payment

Exchange difference generated by borrowings

Changes in working capital

Cash flows from operating activities - net

Cash flows from investing activities

Purchase of property, plant and equipment

Deferred income

Purchase of financial assets

Cash flows used in investing activities - net

Cash flows from financing activities

Proceeds from borrowings

Proceeds from the issue of bond

Bond emission expenditures

Proceeds from transaction with Non-controlling interest

Principal paid

Interest paid

Cash flows from financing activities - net

5,062

7,206

26,408

2,010

5,919

1,344

11,130

(1,038)

350

5,298

(15)

63,763

(98,651)

5,000

(2,625)

(96,276)

9,668

142,000

(9,150)

(10,779)

131,739

4,180

4,856

22,700

115

3,033

2,758

259

2,630

(9,688)

30,898

(58,025)

(3,387)

(61,412)

1,853

130,296

(3,162)

(36,171)

(1,666)

91,150

Net increase in cash and cash equivalents

99,226

60,636

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 in bank

Cash in hand

Bank overdrafts

Cash and cash equivalents

84,396

183,622

193,642

(10,028)

183,622

23,760

84,396

99,408

(15,015)

84,396

The notes on pages 70 to 91 are an integral part of these consolidated financial statements.

Consolidated Statement of Cash Flow

Notes

Note 1

General Information

New standards, amendments and interpretations issued but not effective for the

financial year beginning 1 January 2011 and not early adopted

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

IFRS 9, 'Financial instruments', addresses the classification, measurement and

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

recognition of financial assets and financial liabilities. IFRS 9 was issued in

places of business are disclosed in the introduction to the Directors’ Report.

November 2009 and October 2010. It replaces the parts of IAS 39 that relate

The principal activities of the Company and its subsidiaries (the Group) are

to the classification and measurement of financial instruments. IFRS 9

described in the Directors’ Report.

requires financial assets to be classified into two measurement categories:

those measured at fair value and those measured at amortised cost. The

The Company is quoted on the AIM London Stock Exchange. Also its shares

determination is made at initial recognition. The classification depends on

are authorised for trading on the Santiago Off-Shore Stock Exchange, in

the entity’s business model for managing its financial instruments and the

US$ under the trading symbol "GPK".

contractual cash flow characteristics of the instrument. For financial liabilities,

the standard retains most of the IAS 39 requirements. The main change is

These consolidated financial statements were authorised for issue by the

that, in cases where the fair value option is taken for financial liabilities, the

Board of Directors on 19 April 2012.

Note 2

part of a fair value change due to an entity’s own credit risk is recorded in

other comprehensive income rather than the income statement, unless this

creates an accounting mismatch. The Group is yet to assess IFRS 9’s full

impact and intends to adopt IFRS 9 no later than the accounting period

Summary of significant accounting policies

beginning on or after 1 January 2015.

The principal accounting policies applied in the preparation of these

IFRS 10, 'Consolidated financial statements’' builds on existing principles by

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

identifying the concept of control as the determining factor in whether an

consistently applied to the years presented, unless otherwise stated.

entity should be included within the consolidated financial statements of

2.1 Basis of preparation
The consolidated financial statements of GeoPark Holdings Limited have

the parent company. The standard provides additional guidance to assist in

the determination of control where this is difficult to assess. The Group is

yet to assess IFRS 10’s full impact and intends to adopt IFRS 10 no later than

been prepared in accordance with International Financial Reporting

the accounting period beginning on or after 1 January 2013.

Standards as adopted by the European Union (IFRS).

The consolidated financial statements are presented in United States dollars

by entities that have an interest in arrangements that are controlled jointly.

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

IFRS 11 defines joint control and requires an entity that is a party to a joint

IFRS 11, 'Joint arrangements', establishes principles for financial reporting

otherwise indicated.

arrangement to determine the type of joint arrangement in which it is

involved by assessing its rights and obligations and to account for those

The consolidated financial statements have been prepared on a historical

rights and obligations in accordance with that type of joint arrangement.

cost basis.

The Group is yet to assess IFRS 11’s full impact and intends to adopt IFRS 11
no later than the accounting period beginning on or after 1 January 2013.

The preparation of financial statements in conformity with IFRS requires the

use of certain critical accounting estimates. It also requires management

IFRS 12, 'Disclosures of interests in other entities' includes the disclosure

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

requirements for all forms of interests in other entities, including joint

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

arrangements, associates, special purpose vehicles and other off balance

or areas where assumptions and estimates are significant to the consolidated

sheet vehicles. The Group is yet to assess IFRS 12’s full impact and intends

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

to adopt IFRS 12 no later than the accounting period beginning on or after

estimates and assumptions”.

1 January 2013.

2.1.1 Changes in accounting policy and disclosure

IFRS 13, 'Fair value measurement', aims to improve consistency and reduce

New and amended standards adopted by the Group
There are no IFRSs or IFRIC interpretations that are effective for the first time

complexity by providing a precise definition of fair value and a single source

of fair value measurement and disclosure requirements for use across IFRSs.

for the financial year beginning on or after 1 January 2011 that would be

The requirements, which are largely aligned between IFRSs and US GAAP,

expected to have a material impact on the Group.

do not extend the use of fair value accounting but provide guidance on how

it should be applied where its use is already required or permitted by other

standards within IFRSs. The Group is yet to assess IFRS13’s full impact and

Notes to the Consolidated Financial Statements

intends to adopt IFRS 13 no later than the accounting period beginning on

2.5 Foreign currency translation

or after 1 January 2012.

There are no other IFRSs or IFRIC interpretations that are not yet effective

a) Functional and presentation currency
The consolidated financial statements are presented in US dollars, which is

that would be expected to have a material impact on the Group.

the Group’s presentation currency.

2.2 Going concern
The Directors regularly monitor the Group’s cash position and liquidity risks

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

measured using the currency of the primary economic environment in

throughout the year to ensure that it has sufficient funds to meet forecast

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

operational and investment funding requirements. Sensitivities are run

of Group companies incorporated in Chile and Argentina is the US dollar.

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.

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

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

Considering macroeconomic environment conditions, the performance of

exchange gains and losses resulting from the settlement of such transactions

the operations and Group’s cash position, the Directors have formed a

and from the translation at period end exchange rates of monetary assets

judgement, at the time of approving the financial statements, that there is

and liabilities denominated in foreign currencies are recognised in the

a reasonable expectation that the Group has adequate resources to continue

Statement of Income. Transaction gains and losses that arise from exchange

with its investment programme to increase oil and gas reserves, production

rate fluctuations on transactions denominated in a currency other than the

and revenues and meeting all its obligations for the foreseeable future.

functional currency are included in other operating profit or other operating

For this reason, the Directors have continued to adopt the going concern

expenses.

basis in preparing the consolidated financial statements.

2.3 Consolidation
The consolidated financial statements consolidate those of the Company

2.6 Joint ventures
The Company’s interests in oil and gas related joint ventures and other

agreements involved in oil and gas exploration and production, have been

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

consolidated line by line on the basis of the Company’s proportional share

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

in their assets, liabilities, revenues, costs and expenses.

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.

2.7 Revenue recognition
Revenue from the sale of crude oil and gas is recognised in the Statement

of Income when risk transferred to the purchaser, and if the revenue can

be measured reliably and is expected to be received. Revenue is shown net

Intercompany transactions, balances and unrealised gains on transactions

of VAT and discounts related to the sale.

between the Group and its subsidiaries are eliminated. Unrealised losses are

also eliminated unless the transaction provides evidence of an impairment
of the asset transferred. Amounts reported in the financial statements of

2.8 Production costs
Production costs include wages and salaries incurred to achieve the net

subsidiaries have been adjusted where necessary to ensure consistency with

revenue for the year. Direct and indirect costs of raw materials and

the accounting policies adopted by the Group.

consumables, rentals and leasing, property, plant and equipment

depreciation and royalties are also included within this account.

2.4 Segment reporting
Operating segments are reported in a manner consistent with the internal

reporting provided to the chief operating decision-maker. The chief operating

2.9 Financial costs
Financial costs include interest expenses, realised and unrealised gains and

decision-maker, who is responsible for allocating resources and assessing

losses arising from transactions in foreign currencies and the amortization

performance of the operating segments, has been identified as the strategic

of financial assets and liabilities. The Company has capitalised borrowing

steering committee that makes strategic decisions. This committee consists of

cost for wells and facilities that were initiated after 1 January 2009. Amounts

the CEO, Managing Director, CFO and managers in charge of the Exploration,

capitalised totalled US$ 597,127 (US$ 397,164 in 2010).

Development, Drilling, Operations and SPEED departments. This committee

reviews the Group’s internal reporting in order to assess performance and

allocate resources. Management has determined the operating segments

2.10 Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation,

based on these reports.

and impairment if applicable. Historical cost includes expenditure that is

Notes to the Consolidated Financial Statements 71

directly attributable to the acquisition of the items; including provisions for

with Society of Petroleum Engineers definitions and were estimated by

asset retirement obligation.

DeGolyer and MacNaughton, the Group’s independent reservoir engineers.

Oil and gas exploration and production activities are accounted for in a

Depreciation of the remaining property, plant and equipment assets (i.e.

manner similar to the successful efforts method on a field by field basis. The

furniture and vehicles) not directly associated with oil and gas activities has

Group accounts for exploration and evaluation activities in accordance

been calculated by means of the straight line method by applying such

with IFRS 6, Exploration for and Evaluation of Mineral Resources, capitalizing

annual rates as required to write off their value at the end of their estimated

exploration and evaluation costs until such time as the economic viability

useful lives. The useful lives range between 3 years and 10 years.

of producing the underlying resources is determined. Costs incurred prior to

obtaining legal rights to explore are expensed immediately to the income

Depreciation is allocated in the Statement of Income as production,

statement.

exploration and administrative expenses, based on the nature of the

Exploration and evaluation costs may include: licence acquisition, geological

associated asset.

and geophysical studies (i.e.: seismic), direct labour costs and drilling costs

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

of exploratory wells. No depreciation and/or amortization are charged during

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

the exploration and evaluation phase. Upon completion of the evaluation

recoverable amount (see Impairment of non financial assets in Note 2.12).

phase, the prospects are either transferred to oil and gas properties or

charged to expense (exploration costs) in the period in which the determination

2.11 Provisions and other long-term liabilities

is made depending whether they have found reserves or not. If not

developed, exploration and evaluation assets are written off after three years

unless, it can be clearly demonstrated that the carrying value of the

investment is recoverable.

2.11.1 Asset Retirement Obligation
Provisions for asset retirement obligations and legal claims are recognised

when: the Group has a present legal or constructive obligation as a result

of past events; it is probable that an outflow of resources will be required to

A charge of US$ 5,919,000 has been recognised in the Statement of Income

settle the obligation; and the amount has been reliably estimated.

within Exploration costs (US$ 3,033,000 in 2010) for write-offs in Chile (see

Restructuring provisions comprise lease termination penalties and employee

Note 11).

termination payments. Provisions are not recognised for future operating

All field development costs are capitalised within oil and gas properties, and

losses.

subject to depreciation. Such costs may include the acquisition and

Provisions are measured at the present value of the expenditures expected

installation of production facilities, development drilling costs (including dry

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

holes, service wells and seismic surveys for development purposes), project-

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

related engineering and the acquisition costs of rights and concessions

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

related to proved properties.

as interest expense.

Workovers of wells made to develop reserves and/or increase production are
capitalised as development costs. Maintenance costs are charged to income

The Group records the fair value of the liability for asset retirement
obligations in the period in which the wells are drilled. When the liability

when incurred.

is initially recorded, the Group capitalises the cost by increasing the carrying

amount of the related long-lived asset. Over time, the liability is accreted

Capitalised costs of proved oil and gas properties are depreciated on a

to its present value at each reporting period, and the capitalised cost is

licenced area by the licenced area basis, using the unit of production method,

depreciated over the estimated useful life of the related asset. According to

based on commercial proved and probable reserves. The calculation of the

interpretations and application of current legislation and on the basis of the

“unit of production” depreciation takes into account estimated future finding

changes in technology and the variations in the costs of restoration necessary

and development costs and is based on current year end unescalated price

to protect the environment, the Group has considered it appropiate to

levels. Changes in reserves and cost estimates are recognised prospectively.

periodically re-evaluate future costs of well-capping. The effects of this

Reserves are converted to equivalent units on the basis of approximate

recalculation are included in the financial statements in which this

relative energy content.

recalculation is determined and reflected as an adjustment to the provision

and the corresponding property, plant and equipment asset.

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

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

(UKLA). Oil and gas reserves for this purpose are determined in accordance

2.11.2 Deferred Income
Relates to contributions received in cash from the Group’s clients to improve

Notes to the Consolidated Financial Statements

the project economics of gas wells. The amounts collected are reflected as

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

a deferred income and recognised in the Consolidated Statement of Income

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

via amortization. The depreciation of the gas wells that generated the

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

deferred income is charged to the Statement of Income simultaneously with

the amortization of the deferred income.

2.12 Impairment of non-financial assets
Assets that are not subject to depreciation and/or amortization (i.e.:

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

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

carrying amounts in the consolidated financial statements. Deferred income

tax is determined using tax rates (and laws) that have been enacted or

exploration and evaluation assets) are tested annually for impairment. Assets

substantially enacted by the balance sheet date and are expected to apply

that are subject to depreciation and/or amortization are reviewed for

when the related deferred income tax asset is realised or the deferred

impairment whenever events or changes in circumstances indicate that the

income tax liability is settled.

carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s

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

carrying amount exceeds its recoverable amount. The recoverable amount is

the higher of an asset’s fair value less costs to sell and value in use. For the

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

purposes of assessing impairment, assets are grouped at the lowest levels for

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

which there are separately identifiable cash flows (cash-generating units),

deductible temporary differences will be able to be offset against future

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

generally a licenced area. Non-financial assets other than goodwill that

taxable income.

suffered impairment are reviewed for possible reversal of the impairment at

each reporting date.

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

No asset should be kept as an Exploration and Evaluation asset for a period

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

of more than three years, except if it can be clearly demonstrated that the

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

carrying value of the investment will be recoverable.

are assigned to the different categories by management on initial recognition,

A charge of US$ 1,344,000 has been recognised within Exploration costs as

The designation of financial assets is re-evaluated at every reporting date at

a result of the impairment test performed regarding operating fields in

which a choice of classification or accounting treatment is available.

depending on the purpose for which the investments were acquired.

Argentina in 2011 (No impairment loss was recognised in 2010).

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

that the lessor retains substantially all the risks and rewards related to the

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

contractual provisions of the instrument. All financial assets are initially

recognised at fair value, plus transaction costs.

ownership of the leased asset. Payments related to operating leases and other

Derecognition of financial assets occurs when the rights to receive cash flows

rental agreements are recognised in the Income Statement on a straight line
basis over the term of the contract. The Group’s total commitment relating

from the investments expire or are transferred and substantially all of the
risks and rewards of ownership have been transferred. An assessment for

to operating leases and rental agreements is disclosed in Note 31.

impairment is undertaken at each balance sheet date.

2.14 Inventories
Inventories comprise crude oil and materials.

Interest and other cash flows resulting from holding financial assets are

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

related carrying amount of financial assets is measured.

Crude oil is measured at the lower of cost and net realisable value. Materials

are measured at the lower between cost and recoverable amount. Cost is

Loans and receivables are non-derivative financial assets with fixed or

determined using the first-in, first-out (FIFO) method. The cost of materials

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

and consumables is calculated at acquisition price with the addition of

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

transportation and similar costs.

2.15 Current and deferred income tax
The tax expense for the year comprises current and deferred tax. Tax is

recognised in the Statement of Income.

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

loans and receivables comprise trade receivables, prepayments and other

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

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

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

Notes to the Consolidated Financial Statements

measured at amortised cost using the effective interest method, less

Direct issue costs are charged to the Statement of Income on an accruals

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

basis using the effective interest method.

reversal of impairment is recognised in the Statement of Income. All of the

Group’s financial assets are classified as loan and receivables.

2.22 Share capital
Equity comprises the following:

2.17 Other financial assets
Non current other financial assets relate solely to the cash collateral account

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

required under the terms of the Bond issued in 2010 (see Note 26). This

• ”Share premium” representing the excess over nominal value of the fair

investment is intended to guarantee interest payments and will be recovered

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

once the borrowing is fully paid.

share issue.

• ”Other reserve” representing:

Current other financial assets relate solely to the cash down escrow payment

- the equity element attributable to shares granted according to IFRS 2 but

that has been released on closing of the purchase of Colombian assets (see

not issued at year end or

Note 35).

- the difference between the proceeds from the transaction with

non-controlling interest received over the book value of the shares acquired

2.18 Impairment of financial assets
Provision against trade receivables is made when objective evidence is

in the subsidiary GeoPark Chile S.A. (see Note 34).

• ”Reserve for exchange adjustment” representing the differences arising

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

from translation of investments in overseas subsidiaries.

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

• ”Retained earnings” representing retained profits and losses.

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

amount and the present value of estimated future cash flows.

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

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

2.23 Share-based payment
The Group operates a number of equity-settled, share-based compensation

plans comprising share awards payments and stock options plans to certain

employees and other third party contractors.

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

Fair value of the stock option plan for employee or contractors services

shown within borrowings in the current liabilities section of the Statement

received in exchange for the grant of the options is recognised as an expense.

of Financial Position.

The total amount to be expensed over the vesting period is determined by

reference to the fair value of the options granted calculated using the Black-

2.20 Trade and other payable
Trade payables are obligations to pay for goods or services that have been

Scholes model.

acquired in the ordinary course of the business from suppliers. Accounts

Non-market vesting conditions are included in assumptions about the

payable are classified as current liabilities if payment is due within one year

number of options that are expected to vest. At each balance sheet date, the

or less (or in the normal operating cycle of the business if longer). If not,

entity revises its estimates of the number of options that are expected to

they are presented as non-current liabilities.

vest. It recognises the impact of the revision to original estimates, if any, in
the Statement of Income, with a corresponding adjustment to equity.

Trade payables are recognised initially at fair value and subsequently

measured at amortised cost using the effective interest method.

The fair value of the share awards payments is determined at the grant date

by reference of the market value of the shares and recognised as an expense

2.21 Borrowings
Borrowings are obligations to pay cash and are recognised when the Group

over the vesting period.

becomes a party to the contractual provisions of the instrument.

When the options are exercised, the Company issues new shares. The

proceeds received net of any directly attributable transaction costs

Borrowings are recognised initially at fair value, net of transaction costs

are credited to share capital (nominal value) and share premium when the

incurred. Borrowings are subsequently stated at amortised cost; any difference

options are exercised.

between the proceeds (net of transaction costs) and the redemption value

is recognised in the Statement of Income over the period of the borrowings

using the effective interest method.

Notes to the Consolidated Financial Statements

Note 3

Financial Instruments-risk management

Price risk
The price realised for the oil produced by the Group is linked to WTI (West

Texas Intermediate) which is settled in the international markets in US dollars.

The Group is exposed through its operations to the following financial risks:

The market price of these commodities is subject to significant fluctuation

• Currency risk

• Price risk

• Credit risk - concentration

• Funding and Liquidity risk

• Interest rate risk

• Capital risk management

but the Board does not consider it appropriate to manage the Group’s risk to

such fluctuation through futures contracts or similar because to do so would

not have been economic at the achieved production levels.

In Chile, the oil price is based on WTI minus certain marketing and quality

discounts such as, inter alia, API quality and mercury content. In Argentina,

the oil price is also subject to the impact of the retention tax on oil exports

defined by the Argentine government which limits the direct correlation

The policy for managing these risks is set by the Board. Certain risks are

to the WTI.

managed centrally, while others are managed locally following guidelines

communicated from the corporate office. The policy for each of the above

The Company has signed a long-term Gas Supply Contract with Methanex in

risks is described in more detail below.

Chile. The price of the gas under this contract is indexed to the international

methanol price.

Currency risk
In Argentina and Chile the functional currency is the US dollar. The

If the market prices of WTI and methanol had fallen by 10% compared to actual

fluctuation of the Argentine peso and the Chilean peso does not impact the

prices during the year, with all other variables held constant, post-tax profit

loans, costs and revenues held in US dollars; but it does impact the balances

for the year would have been lower by US$ 9,501,000 (US$ 6,619,000 in 2010).

denominated in local currency. Such is the case of the prepaid taxes.

As currency rate changes between the US dollar and the Argentine peso or

The Board will consider adopting a hedging policy against commodity price

the Chilean peso, the Group recognises gains and losses in the consolidated

risk, when deemed appropriate, according to the size of the business and

Statement of Income.

market implied volatility.

In both countries, most of the balances are denominated in US dollars, and

since it is the functional currency of the subsidiaries, there is no exposure

Credit risk - concentration
The Group’s credit risk relates mainly to accounts receivable where the credit

to currency fluctuation except from receivables originated in local currency

risks correspond to the recognised values. There is not considered to be any

mainly corresponding to VAT credits for US$ 3,630,000 in Argentina

significant risk in respect of the Group’s major customers. Substantially all oil

(US$ 2,661,000 in 2010). During 2011, the VAT position in Chile is a payable

production in Argentina is sold to Oil Combustibles.

US$ 955,000 (US$ 646,892 credit in 2010).

The Group minimises the local currency positions in Argentina and Chile by

Corporation, a Canadian public company (34% of total revenue). All the oil

seeking to equilibrate local and foreign currency assets and liabilities.
However, tax receivables (VAT) are very difficult to match with local currency

produced in Chile is sold to ENAP (65% of total revenue), the State owned
oil and gas company. Both companies have a very good credit standing and

liabilities. Therefore the Group maintains a net exposure to them.

despite the concentration of the credit risk, the Directors do not consider

In Chile, all gas production is sold to the local subsidiary of the Methanex

that this would give rise to a significant collection risk.

Most of the Group’s assets are associated with oil and gas productive assets.

Such assets in the oil and gas industry even in the local markets are usually

See disclosure in Note 24.

settled in US$ equivalents.

During 2011, the Argentine peso weakened by 8% (5% in 2010) against

Funding and Liquidity risk
Following its successes in 2011 and 2010, the Group is in the fortunate

the US dollar and the Chilean peso weakened by 11% (strengthened by

position of having a secure production base and cash flow stream - coupled

8% in 2010). If the Argentine peso and the Chilean peso had weakened an

with a strong cash position that enables the Group to fully fund the

additional 5% against the US dollar, with all other variables held constant,

committed work programmes of the new Blocks. Producing Blocks combine

post-tax profit for the year would have been lower by US$ 41,000

low operating costs and the flexibility of a discretionary investment

(US$ 127,000 in 2010).

programme that can be maintained, reduced or increased in the short-term

depending on the environment economic conditions.

Notes to the Consolidated Financial Statements

The Group has strong support from its financial partners and significant

and cash equivalent. Total capital is calculated as 'equity' as shown in the

flexibility in adjusting the programme to ensure the development of the

consolidated balance sheet plus net debt.

key properties.

During 2011, the Group was able to secure US$ 148,000,000 from the

disposal of 20% of the Chilean business. The existing cash position is held in

Particularly, in 2011 the gearing ratio has been affected by the transactions

Banks with good credit ratings where immediate access is available if required

with non-controlling interests, by which the Group received proceeds of

The Group’s strategy is to keep the gearing ratio within a 40% to 55% range.

to pay for an acquisition.

See disclosure in Note 24.

US$ 142,000,000.

The gearing ratios at 31 December 2011 and 2010 were as follows:

Interest rate risk
As the Group has no significant interest-bearing assets, the Group’s profit and

operating cash flows are substantially independent of changes in market interest

Amounts in US$ ’000
Net Debt (a)
Total Equity

rates. The Group’s interest rate risk arises from long-term borrowings issued

Total Capital

at variable rates, which expose the Group to cash flow to interest rate risk.

Gearing Ratio

The Group does not face interest rate risk on its US$ 133,000,000 Reg S Notes

2011

86,768

250,652

337,420

26%

2010

69,977

92,292

162,269

43%

which carry a fixed rate coupon of 7.75% per annum.

(a) For the calculation of the gearing ratio, the Group does not consider

the cash that has been allocated for future M&A activities. Excluding the

The loan from Methanex Corporation accrues variable interest rates which

purchase price, adjusted for working capital, of the two Colombian

depend on the LIBOR rate. For the period covered by these financial

acquisitions, the gearing ratio for 2011 was 26%.

statements, the Group has decided not to buy any coverage for this risk.

At 31 December 2011 the outstanding long-term borrowing affected by

variable rates amounted to US$ 15,229,000, representing 10% of total long-

Note 4

term borrowings.

Accounting estimates and assumptions

The Group analyses its interest rate exposure on a dynamic basis. Various

Estimates and assumptions are used in preparing the financial statements.

scenarios are simulated taking into consideration refinancing, renewal of

Although these estimates are based on management’s best knowledge

existing positions, alternative financing and hedging. Based on these scenarios,

of current events and actions, actual results may differ from them. Estimates

the Group calculates the impact on profit and loss of a defined interest rate

and judgements are continually evaluated and are based on historical

shift. For each simulation, the same interest rate shift is used for all currencies.

experience and other factors, including expectations of future events that

The scenarios are run only for liabilities that represent the major interest-

are believed to be reasonable under the circumstances.

bearing positions.

The key estimates and assumptions used in these consolidated financial

At 31 December 2011, if interest rates on currency-denominated borrowings
had been 1% higher with all other variables held constant, post-tax profit for

statements are noted below:

the year would have been US$ 144,267 lower (US$ 448,992 in 2010), mainly as

• The Group adopts an approach similar to the successful efforts method

a result of higher interest expense on floating rate borrowings.

of accounting. The Management of the Company makes assessments and

estimates regarding whether an exploration asset should continue to be

Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s

carried forward as an exploration and evaluation asset not yet determined or

when insufficient information exists for this type of cost to remain as an asset.

ability to continue as a going concern in order to provide returns for

In making this assessment the Management takes professional advice from

shareholders and benefits for other stakeholders and to maintain an optimal

qualified independent experts.

capital structure to reduce the cost of capital.

Consistent with others in the industry, the Group monitors capital on the

about two primary elements - future prices and reserves. Estimates of future

basis of the gearing ratio. This ratio is calculated as net debt divided by total

prices require significant judgments about highly uncertain future events.

capital. Net debt is calculated as total borrowings (including 'current and non-

Historically, oil and gas prices have exhibited significant volatility. Our

current borrowings' as shown in the consolidated balance sheet) less cash

forecasts for oil and gas revenues are based on prices derived from future

• Cash flow estimates for impairment assessments require assumptions

price forecasts amongst industry analysts and our own assessments.

Notes to the Consolidated Financial Statements

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

and judgments because most of the obligations are many years in the

of long-term prices and operating and development costs.

future. Technologies and costs are constantly changing as well as political,

environmental, safety and public relations considerations. The Company

Given the significant assumptions required and the possibility that actual

has adopted the following criterion for recognizing well plugging and

conditions will differ, we consider the assessment of impairment to be a

abandonment related costs: The present value of future costs necessary for

critical accounting estimate.

well plugging and abandonment is calculated for each area on the basis

of a cash flow that is discounted at an average interest rate applicable to

The process of estimating reserves is complex. It requires significant

Company’s indebtedness. The liabilities recognised are based upon

judgements and decisions based on available geological, geophysical,

estimated future abandonment costs, wells subject to abandonment, time

engineering and economic data. The estimation of economically recoverable

to abandonment, and future inflation rates.

oil and natural gas reserves and related future net cash flows was performed

based on the Reserve Report dated December 2011 prepared by DeGolyer

and MacNaughton, an international consultancy to the oil and gas industry

Note 5

based in Dallas. It incorporates many factors and assumptions including:

Statement of Cash Flow

- expected reservoir characteristics based on geological, geophysical and

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

engineering assessments;

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

- future production rates based on historical performance and expected

equivalents during the year.

future operating and investment activities;

- future oil and gas prices and quality differentials;

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

- assumed effects of regulation by governmental agencies; and

year adjusted for non-cash operating items, changes in net working

- future development and operating costs.

capital, and corporation tax. Tax paid is presented as a separate item under

Management believes these factors and assumptions are reasonable based

operating activities.

on the information available to us at the time we prepare our estimates.

The following chart describes non-cash transactions related to the Cash Flow

However, these estimates may change substantially as additional data from

Statement:

ongoing development activities and production performance becomes

available and as economic conditions impacting oil and gas prices and costs

31 December 2011

change.

As part of its impairment analysis in 2011, management has carried out an

impairment test on the oil and gas assets within property, plant and

equipment of the Argentine subsidiary. This test compares the carrying

Balance Sheet Items

value at the balance sheet date with the expected discounted cash flows

from the relevant projects (value in use). For the discounted cash flows
to be calculated, management has used a production profile based on its

Property, plant and equipment
Prepaid taxes

best estimate of proven and probable reserves and a range of assumptions

Inventory

including a 10% pre-tax discount rate and an estimated oil price profile.

Trade receivables

Prepayment and other receivables

• Oil and gas assets held in property plant and equipment are mainly

Other financial assets

depreciated on a unit of production basis at a rate calculated by reference to

Cash and cash equivalents

proven and probable reserves and incorporating the estimated future cost

Borrowings

of developing and extracting those reserves. Future development costs are

Trade accounts payable

estimated using assumptions as to the numbers of wells required to produce

Deferred tax

those reserves, the cost of the wells, future production facilities and operating

Current income tax liabilities

costs together with assumptions on oil and gas realisations.

Other liabilities

Equity

• Obligations related to the plugging of wells once operations are terminated

may result in the recognition of significant obligations. Estimating the future

abandonment costs is difficult and requires management to make estimates

Movements

derived from

Movements

Other

from

Consolidated

Non-Cash Consolidated

Financial Movements

Cash Flow

Position

(*)

Statement

64,918
(892)

332

2,858

22,350

2,625

99,226

(855)

(15,825)

(7,019)

(187)

(9,171)

(158,360)

(1,948)
-

(6,000)

(187)

187

1,948

6,000

62,970
(892)

332

2,858

16,350

2,625

99,226

(855)

(15,825)

(7,206)

(7,223)

(152,360)

Notes to the Consolidated Financial Statements

31 December 2010

Movements

derived from

Note 6

Movements

Segment information

Other

from

Balance Sheet Items

Position

(*)

Statement

decisions.

Consolidated

Non-Cash Consolidated

Management has determined the operating segments based on the reports

Financial Movements

Cash Flow

reviewed by the strategic steering committee that are used to make strategic

Property, plant and equipment

34,050

(1,873)

32,177

The committee considers the business from a geographic perspective.

Prepaid taxes

Inventory

Trade receivables

Prepayment and other receivables

Other financial assets

Cash and cash equivalents

Borrowings

Trade accounts payable

Deferred tax

Other liabilities

Equity

363

1,214

7,163

1,578

3,387

60,636

(93,963)

213

(4,856)

(2,975)

(6,810)

1,873

363

1,214

7,163

1,578

3,387

The strategic steering committee assesses the performance of the operating

segments based on a measure of adjusted earnings before interest, tax,

depreciation, amortization and certain non-cash items such as write-offs,

impairments and share-based payments (Adjusted EBITDA). This

60,636

measurement basis excludes the effects of non-recurring expenditure from

(93,963)

the operating segments, such as impairments when it is result of an isolated,

213

non-recurring event. Interest income and expenses are not included in the

(4,856)

(1,102)

(6,810)

result for each operating segment that is reviewed by the strategic steering

committee. Other information provided, except as noted below, to the

strategic steering committee is measured in a manner consistent with that

in the financial statements.

(*) Mainly transfers, increase in the asset retirement obligation and deferred

tax. The movement amounting to US$ 6,000,000 relates to the difference

Segment areas (geographical segments):

between the proceeds from transactions with Non-controlling interest and

the total consideration of these transactions (see Notes 25 and 34).

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 to third parties.

2011
Net revenue

Gross profit
Adjusted EBITDA (1)

Cash flows from financing activities include changes in Shareholders’ equity,

Depreciation

and proceeds from borrowings and repayment of loans.

Impairment and write-off

Cash and cash equivalents include bank overdraft and liquid funds with a

Total assets

1,477

179

(1,081)

(1,083)

(1,344)

10,895

110,103

56,888

70,421

(25,297)

(5,919)
(2) 453,384

(5,949)

(28)

7,990

111,580

57,067

63,391

(26,408)

(7,263)

472,269

term of less than three months.

Employees (average)

182

Change in working capital shown in the Statement of Cash Flow is disclosed

as follows:

Amounts in US$ ’000

Argentina

Chile

Corporate

Total

Amounts in US$ ’000

Change in Prepaid taxes

Change in Inventory

Change in Trade receivables

Change in Prepayments and other receivables

Change in Current liabilities

2011

892

(332)

(2,858)

(16,350)

18,737

2010
Net revenue

Gross profit
Adjusted EBITDA (1)

Depreciation

2010

(363)

(1,214)

(7,163)

(1,578)

630

Impairment and write-off

(9,688)

Total assets

1,119

180

(905)

78,431

35,447

49,973

(798)

(240)

10,806

(21,900)

(2,793)
(2) 273,450

(7,976)

(2)

1,507

79,550

35,627

41,092

(22,700)

(3,033)

285,763

Employees (average)

111

182

(1) Corporate expenses included in the Adjusted EBITDA are allocated within

the Statement of Income as Exploration costs for an amount of US$ 1,001,000

Notes to the Consolidated Financial Statements

(US$ 1,093,000 in 2010), Production costs for an amount of US$ 1,261,000

Note 9

(US$ 1,012,000 in 2010) and the remaining amount corresponds to

Depreciation

Administrative costs.

(2) Includes cash received from bond issuance in 2010 and disposal of 20% of

Amounts in US$ ’000

the Chilean business in 2011.

Over 95% of CAPEX is allocated to Chile in 2011 and 2010.

A reconciliation of total Adjusted EBITDA to total profit before income tax is

Oil and gas properties

Production facilities and machinery

Furniture, equipment and vehicles

Buildings and improvements

Depreciation of property, plant and equipment
Recognised as follows:

provided as follows:

Amounts in US$ ’000

Adjusted EBITDA for reportable segments
Depreciation

Accrual of stock options and stock awards

Impairment and write off of unsuccessful efforts
Others (a)
Operating profit
Net finance cost

Profit before tax

(a) Includes internally capitalised costs.

Note 7

Net Revenue

Amounts in US$ ’000

Sale of crude oil

Sale of gas

Note 8

Production costs

Amounts in US$ ’000

Depreciation

Royalties

Staff costs (Note 10)

Gas plant costs

Transportation costs

Facilities maintenance

Well maintenance

Consumables

Share-based payments (Notes 10 and 29)

Vehicle rental and personnel transportation

Pulling costs

Field camp

Landowners

Insurance costs

Other costs

2011

63,391
(26,408)

(5,298)

(7,263)

1,362

25,784
(13,516)

12,268

Production costs

2010

Administrative expenses

Other operating costs

Depreciation total

41,092
(22,700)

(2,630)

(3,033)

495

Note 10

Staff costs

13,224
(4,188)

9,036

Average number of employees

Amounts in US$ ’000

Wages and salaries

Shared-based payment

Social security charges

2011

73,508

38,072

2010

48,186

31,364

Board of Directors’ and key managers’ remuneration

111,580

79,550

Salaries and fees

Other benefits

2011

20,096

5,767

343

202

2010

16,171

6,209

185

135

26,408

22,700

25,844

22,301

501

290

109

26,408

22,700

2011

182

9,914

5,298

2,228

2010

182

7,665

2,630

1,446

17,440

11,741

2011

2010

4,045

2,257

6,302

2,786

1,422

4,208

2011

25,844

4,843

4,568

3,242

2,541

2,302

1,692

1,687

1,447

1,404

1,086

1,009

344

316

Note 11

2010

Exploration costs

Amounts in US$ ’000

Staff costs (Note 10)

Share-based payments (Notes 10 and 29)
Impairment loss (a)
Write-off of unsuccessful efforts (b)
Amortisation of other long-term liabilities (Note 27)

Other services

2011

2,292

985

1,344

5,919

(600)

126

10,066

2010

1,749

299

3,033

401

5,482

(a) The 2011 impairment charge relates to exploration assets in Del Mosquito

Block based on an impairment test performed.

22,301

3,940

2,936

3,067

1,876

2,206

1,293

1,319

372

870

614

955

239

312

2,188

54,513

1,623

43,923

Notes to the Consolidated Financial Statements

(b) The 2011 charge corresponds to the write off of exploration and

Note 15

evaluation assets in the Fell Block. The charge includes the cost of

Financial expenses

an unsuccessful exploratory well amounting to US$ 2,331,000 and also in

accordance with the Group’s accounting policy and considering that

Amounts in US$ ’000

no additional work will be performed, wells from previous years have been

Bank charges and other financial costs

written off for an amount of US$ 3,588,000. The 2010 charge corresponds to

Exchange difference

the write off of exploration and evaluation assets amounting to US$ 2,793,000

Unwinding of long-term liabilities

and US$ 240,000 in the Fell Block and Del Mosquito Block, respectively.

Interest and amortization of debt issue costs

Less: amounts capitalised on qualifying assets

2011

1,856

496

350

11,573

(597)

13,678

2010

534

921

259

3,110

(397)

4,427

2011

187

7,019

7,206

2010

4,856

Note 16

Income Tax

Amounts in US$ ’000

Current tax

Deferred income tax (Note 17)

2010

3,826

1,959

2,499

974

696

822

242

454

290

2,002

The tax on the Group’s profit before tax differs from the theoretical amount

that would arise using the weighted average tax rate applicable to profits

of the consolidated entities as follows:

13,764

Amounts in US$ ’000

Profit before tax

Tax losses from non-taxable jurisdictions

Taxable profit

2011

12,268

8,565

20,833

2010

9,036

11,134

20,170

Income tax calculated at statutory tax rate

5,473

2,230

2010

Tax losses where no deferred income tax

109

is recognised

1,021

1,130

Difference between functional currency

and tax currency

Non-taxable profit

Income tax

2,560

1,454

(761)

(66)

7,206

1,228

(56)

4,856

Under current Bermuda law, the Company is not required to pay any taxes

in Bermuda on income or capital gains. The Company has received an

2010

undertaking from the Minister of Finance in Bermuda that, in the event of

237

any taxes being imposed, they will be exempt from taxation in Bermuda until

March 2016. Income tax rates in those countries where the Group operates

239

range from 15% in Chile to 35% in Argentina.

The Group has significant tax losses available which can be utilised against

future taxable profit in those countries as set out below:

Note 12

Administrative costs

Amounts in US$ ’000

Staff costs (Note 10)

Share-based payments (Notes 10 and 29)

Consultant fees

New projects

Office expenses

Director fees

Travel expenses

Communication and IT costs

Depreciation

Other administrative expenses

Note 13

Other operating costs

Amounts in US$ ’000

Depreciation

Other expense

Note 14

Financial income

Amounts in US$ ’000

Exchange difference

Interest received

2011

5,282

2,866

1,896

1,726

1,025

903

686

539

501

2,745

18,169

2011

439

502

2011

130

162

Notes to the Consolidated Financial Statements

Amounts in US$ ’000

Argentina

Total tax losses at 31 December

2011

18,656

2010

18,095

At the balance sheet date deferred tax assets in respect of tax losses in

Argentina have not been recognised as there is insufficient evidence

Amounts in US$ ’000

Deferred tax liabilities
Difference in depreciation rates

of future taxable profits before the statute of limitation of these tax losses

Taxable losses (*)

causes them to expire.

Expiring dates for tax losses accumulated at 31 December 2011 are:

Expiring date

Amounts in US$ ’000

Borrowings

Other

Total 2011

Total 2010

(Charged) /

At the

credited

beginning

of year

to net

profit

At end

of year

(13,340)

332

(13,008)

7,971

(948)

303

(6,014)

(1,086)

(7,971)

177

367

(7,095)

(4,928)

(771)

670

(13,109)

(6,014)

2012

2013

2014

2015

2016

Note 17

Deferred income tax

5,336

3,827

725

5,743

3,025

(*) In Chile, taxable losses have no expiration date.

Note 18

Earnings per share

Amounts in US$ ’000

Numerator:

Profit for the year

Denominator:

The gross movement on the deferred income tax account is as follows:

Weighted average number of shares

Amounts in US$ ’000

Deferred tax at 1 January

Income statement charge

Deferred tax at 31 December

used in basic EPS

Earnings after tax

per share (US$) - basic

2011

(5,640)

(7,019)

(12,659)

2010

(784)

(4,856)

(5,640)

2011

2010

4,180

41,912,685

41,673,256

0.0013

0.1000

The breakdown and movement of deferred tax assets and liabilities as of 31

Weighted average number of shares

December 2011 and 2010 are as follows:

used in basic EPS

41,912,685

41,673,256

Amounts in US$ ’000

2011

2010

Effect of dilutive potential common shares

(Charged) /

At the

credited

Stock award at US$ 0.001

Stock option at £ 4.00

beginning
of year

to net
profit

At end
of year

Executive Directors stock option at £ 3.20
Weighted average number of

common shares for the purposes

2,004,482

1,101,414

1,218,380

306,690

(936)

1,310

374

302

(490)

566

(1,426)

of diluted earnings per shares

43,917,167

44,299,740

1,876

Earnings after tax

per share (US$) - diluted

0.0012

0.0944

450

374

Amounts in US$ ’000

Deferred tax assets
Difference in depreciation rates
Taxable losses (*)

Total 2011

Total 2010

Notes to the Consolidated Financial Statements

Furniture,

Production

Buildings

Exploration

Oil & gas

equipment

facilities and

and

Construction

and evaluation

properties

and vehicles

machinery

improvements

in progress

Note 19

Property, plant and equipment

Amounts in US$ ’000

Cost at 1 January 2010
Additions

Disposals

Write-off / Impairment

Transfers

Cost at 31 December 2010

Additions

Disposals

Write-off / Impairment

Transfers

Cost at 31 December 2011

Depreciation and write-down

at 1 January 2010
Depreciation

Disposals

Depreciation and write-down

82,906
2,129

(141)

41,732

126,626

2,318

(227)

43,239

171,956

(17,382)
(16,171)

989
418

(43)

1,445

825

(177)

2,175

(690)
(185)

29,970
379

7,793

38,142

1,261

(1,852)

9,551

47,102

(7,099)
(6,209)

at 31 December 2010

(33,508)

(851)

(13,308)

Depreciation

Disposals

Depreciation and write-down

(20,096)

(343)

(5,767)

447

at 31 December 2011

(53,604)

(1,123)

(18,628)

1,803
199

2,076

156

205

2,437

(379)
(135)

(514)

(202)

(716)

14,475
32,344

(30,622)

16,197

56,570

(272)

(39,599)

32,896

-
-

assets

21,074
24,429

(3,033)

(19,058)

23,412

39,469

(7,263)

(13,478)

42,140

-
-

Total

151,217
59,898

(184)

(3,033)

207,898

100,599

(2,528)

(7,263)

298,706

(25,550)
(22,700)

(48,181)

(26,408)

518

(74,071)

Carrying amount

at 31 December 2010

Carrying amount

at 31 December 2011

93,118

594

24,834

1,562

16,197

23,412

159,717

118,352

1,052

28,474

1,721

32,896

42,140

224,635

As of 31 December 2011, the Group has pledged, as security for

a mortgage obtained for the acquisition of the operating base in

Chile, assets amounting to US$ 638,000 (US$ 708,000 in 2010).

See Note 26.

On 25 August 2011 the exploratory period in the Fell Block ended.

The exploration programme carried out during the exploration

period enabled the Company to declare commerciality on

approximately 84% of the total area of the Block. The remaining

area not declared as commercial was relinquished, which did not

generate any loss for the Group.

Notes to the Consolidated Financial Statements

Note 20

Subsidiary undertakings

Details of the subsidiaries and jointly controlled assets of the Company are set

(a) Indirectly owned.

out below:

Subsidiaries

Name and registered office

interest

(e) On 14 April 2011 following Governmental approval the new ownership

Ownership

(d) LGI has 20% interest through GeoPark Chile S.A. and a 14% direct interest.

(b) Dormant companies.

GeoPark Argentina Ltd. - Bermuda

GeoPark Argentina Ltd. - Argentine Branch

Servicios Southern Cross Limitada (Chile)

GeoPark Chile Ltd. - Bermuda

GeoPark Chile Ltd. - Chilean Branch

GeoPark S.A. (Chile)

GeoPark Chile S.A. (Chile)

GeoPark Fell S.p.A. (Chile)

GeoPark Magallanes Limitada (Chile)

GeoPark TdF S.A. (Chile)

GeoPark Colombia S.p.A. (Chile)

GeoPark Brazil S.p.A. (Chile)

Jointly controlled assets

Tranquilo Block (Chile)

Otway Block (Chile)

Flamenco Block (Chile)

Isla Norte Block (Chile)

Campanario Block (Chile)

100%
100% (a)
100%

100%
100% (a)
100% (a)(b)
80% (a)(c)
80% (a)(c)
80% (a)(c)
69% (a)(d)
100% (a)
100% (a)(b)

29% (e)
25% (f)
50% (g)
60% (g)
50% (g)

of the Tranquilo Block was confirmed. The other partners in the JVs are

Pluspetrol (29%), Methanex (17%) and Wintershall (25%).

(f) On 15 July 2010 following Governmental approval the new ownership of

the Otway Block was confirmed. The other partners in the JVs are Pluspetrol

(25%), Methanex (12.5%), Wintershall (25%) and IFC (12.5%).

(g) After participating in a farm-in process organised by ENAP, GeoPark was

awarded 3 blocks in Tierra del Fuego, Chile (Isla Norte Block, Flamenco Block

and Campanario Block). GeoPark will be the operator in all blocks with a

share of 60% for Isla Norte Block and 50% for the other 2 blocks.

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 - Agencia
en Chile

GeoPark Argentina
Limited -
Argentine Branch

GeoPark Chile S.A.

GeoPark Colombia S.p.A.

GeoPark Fell S.p.A.

GeoPark
Magallanes
Limitada

GeoPark TdF S.A.

Notes to the Consolidated Financial Statements

Note 21

Prepaid taxes

Amounts in US$ ’000

V.A.T.

Other prepaid taxes

Total prepaid taxes
Classified as follows:

Current

Non current

Total prepaid taxes

Note 22
Inventories

Amounts in US$ ’000

Crude oil

Materials and spares

2011

2,669

435

3,104

147

2,957

3,104

2011

499

584

Note 23

Trade receivables and Prepayments and other receivables

Amounts in US$ ’000

Trade accounts receivable

To be recovered from co-venturers

Prepayments and other receivables

Total

Classified as follows:

Current
Non current

Total

2011

15,929

15,929
537

25,154

25,691

41,620

Movements on the Group provision for impairment are as follows:

Amounts in US$ ’000

At 1 January

Provision for receivables impairment

2011

2010

The credit period for trade receivables is 30 days. The maximum exposure

to credit risk at the reporting date is the carrying value of each class of

receivable. The Group does not hold any collateral as security related to

2010

3,347

649

3,996

1,341

2,655

3,996

trade receivables.

The carrying value of trade receivables is considered to represent a

reasonable approximation of its fair value due to their short-term nature.

2010

Note 24

199

252

Financial instruments by category

Amounts in US$ ’000

2011

2010

2011

Loans and receivables

Assets as per statement

of financial position
Trade receivables

Other financial assets (*)

15,929

8,226

2010

Cash and cash equivalents

193,650

13,071

5,601

99,411

15,929

8,226

193,650

Total

2010

13,071

5,601

99,411

13,071

13,071
1,890

1,451

3,341

217,805

118,083

217,805

118,083

Amounts in US$ ’000

2011

2010

2011

Other financial liabilities

Total

2010

16,412

Liabilities as per statement

40,913
707

41,620

16,229
183

16,412

of financial position
Trade payables

Borrowings

27,580

165,256

11,592

169,388

27,580

165,256

11,592

169,388

192,836

180,980

192,836

180,980

(*) Other financial assets relate to the cash collateral account required

Trade receivables that are aged by less than three months are not

under the terms of the Bond issued in 2010. This investment is intended to

considered impaired. As of 31 December 2011, trade receivables of US$ 4,019

guarantee interest payments and will be recovered once the borrowing

(US$ 26,174 in 2010) were aged by more than 3 months, but not impaired.

is fully paid. In 2011, also includes the cash down escrow payment that has

These relate to customers for whom there is no recent history of default.

been released on closing of the purchase of Colombian assets (Note 34).

There are no balances due between 31 days and 90 days as of 31 December

2011 and 2010.

Credit quality of financial assets
The credit quality of financial assets that are neither past due nor impaired

can be assessed by reference to external credit ratings (if available) or to

historical information about counterparty default rates:

Notes to the Consolidated Financial Statements

Amounts in US$ ’000

2011

2010

Note 25

Trade receivables
Counterparties with external credit rating (Moody’s)

Share capital

Ba1

Baa1

Counterparties without external credit rating

Group1 (*)

Total trade receivables

11,333

4,089

5,977

6,731

334

Issued share capital

Common stock (amounts in US$ ’000)
The share capital is distributed as follows:

Common shares, of nominal US$ 0.001

507

Total common shares in issue

2011

2010

42,474,274

41,703,011

15,929

13,071

(*) Group 1 - existing customers (more than 6 months) with no defaults in

the past.

Authorised share capital
US$ per share

Number of common shares

(US$ 0.001 each)

Amount in US$

0.001

5,171,969,000

5,171,969

All trade receivables are denominated in US dollars.

Cash at bank and investments (1)
Amounts in US$ ’000

Counterparties with external credit rating (Moody’s)

Aa1

Aa2

Aa3

Total

(1) The rest of the balance sheet item 'cash and cash equivalents' is cash on

hand amounting to US$ 8,000 (US$ 3,000 in 2010).

Financial liabilities - contractual undiscounted cash flows
The table below analyses the Group’s financial liabilities into relevant

maturity groupings based on the remaining period at the balance sheet to

the contractual maturity date. The amounts disclosed in the table are the

contractual undiscounted cash flows.

2011

2010

Details regarding the share capital of the Company are set out below:

2,139

7,631

50,000

3,694

Common shares
As of 31 December 2011 the outstanding common shares confer the

following rights on the holder:

139,594

101,315

• the right to one vote per share;

2,450

• ranking pari passu, the right to any dividend declared and payable on

201,868

105,009

common shares provided that no dividends shall be declared or paid on

common shares.

GeoPark

issued

closing

US$(’000)

common shares history

Date

(millions)

Closing

Shares outstanding

at the end of 2009
Issue of shares to

Non-Executive Directors

2010

Stock awards

Dec 2010

Between

Shares outstanding

Less than

1 year

1 and 2

years

2 and 5

years

at the end of 2010
Issue of shares to

Non-Executive Directors

2011

8,265

179,489

Stock awards

8,265

179,489

IPO stock options

May 2011

Oct 2011

7,391

212,182

at the end of 2011

Shares outstanding

30,613

27,580

58,193

25,834

11,592

37,426

0.02

0.01

0.06

0.10

0.60

41.7

41.8

41.9

42.5

7,391

212,182

During 2011, the Company issued 12,028 (14,704 in 2010) shares to

Non-Executive Directors in accordance with contracts as compensation.

Shares are issued at average price for the period, generating a share

premium of US$ 130,733 (US$ 91,000 in 2010).

Notes to the Consolidated Financial Statements

Amounts in US$ ’000

At 31 December 2011
Borrowings

Trade payables

At 31 December 2010
Borrowings

Trade payables

During 2011, 158,000 (22,000 in 2010) new common shares were issued,

(b) Facility to establish the operational base in the Fell Block. This facility

pursuant to a consulting agreement for services rendered to GeoPark

was acquired through a mortgage loan granted by the Banco de Crédito e

Holdings Limited generating a shared premium of US$ 1,730,000

Inversiones (BCI), a Chilean private bank (Note 19). The loan was granted

(US$ 243,000 in 2010).

in Chilean pesos and is repayable over a period of 8 years. The interest rate

applicable to this loan is 6.6%. The outstanding amount at 31 December

On 6 October 2011, 601,235 common shares were allotted to the trustee

2011 is US$ 410,000.

of the EBT in anticipation of the exercise of the 2006 Stock Option Plan

(Note 29).

In addition, during the last quarter of 2011, GeoPark TdF obtained short-term

financing from BCI to start the operations in the new blocks acquired.

The accounting treatment of the shares is in line with the Group’s policy on

This financing is structured as letter of credit. The maturity is within a year.

share-based payments.

The outstanding amount at 31 December 2011 is US$ 8,435,000.

Other Reserve
During 2011, LGI acquired a 20% interest in GeoPark Chile S.A., the subsidiary

that owns the Chilean assets for a total consideration of US$ 148,000,000. The

US$ 15,000,000.

difference between this amount and the net equity of the Company as per

(d) Private placement of US$ 133,000,000 of Reg S Notes on 2 December 2010.

the book value was recorded as a reserve for an amount of US$ 111,245,000.

The Notes carry a coupon of 7.75% per annum and mature on 15 December

Note 26

Borrowings

2015. The Notes are guaranteed by the Company and secured with the

pledge of 51% of the shares of GeoPark Fell. In addition, the Note agreement

allows for the placement of up to an additional US$ 27,000,000 of Notes

under the same indenture, subject to the maintenance of certain financial

ratios. The net proceeds of the Notes are being used to support the Group’s

Amounts in US$ ’000

2011

2010

growth strategy and improve the Group’s financial flexibility.

Outstanding amounts as of 31 December
Methanex Corporation (a)
Banco de Crédito e Inversiones (b)
Overdrafts (c)
Bond (d)

Classified as follows:

Non current

Current

18,068

8,845

10,028

25,848

The fair value of these financial instruments at 31 December 2011 amounts to

541

US$ 159,602,000 (US$ 158,492,000 in 2010).

15,015

128,315

127,984

165,256

169,388

Note 27

Provisions for other long-term liabilities

134,643

143,824

30,613

25,564

(a) The financing obtained in 2007, for development and investing activities

Amounts in US$ ’000

on the Fell Block, is structured as a gas pre-sale agreement with a six year
pay-back period and an interest rate of LIBOR flat. In each year, the Group will

At 1 January 2010
Revision to provision

repay principal up to an amount equal to the loan amount multiplied by a

Unwinding of discount

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 in the contract at the effective selling price.

At 31 December 2010
Revision to provision /

Contributions received

Amortisation

In addition, on 30 October 2009, another financing agreement was signed

Unwinding of discount

with Methanex Corporation under which Methanex have funded GeoPark’s

At 31 December 2011

portions of cash calls for the Otway Joint Venture for US$ 3,100,000. The loan

Assets

retirement

Deferred

obligation

income

1,021
1,873

259

3,153

1,947

350

5,450

-
-

5,000

(1,038)

3,962

Total

1,021
1,873

259

3,153

6,947

(1,038)

350

9,412

is being repaid by GeoPark funding Methanex’s portion of cash calls made

The provision for decommissioning relates to the estimation of future

between August 2011 and 11 May 2012 (or earlier). If any amount of loan

disbursements related to the abandonment and decommissioning of oil and

remains outstanding on 11 May 2012, it will be repaid in a lump sum on that

gas wells. This provision will be utilised when the related wells are fully

date. The purpose is to finance the exploration, development and production

depleted.

of natural gas from the Otway Block. This financing does not bear interest.

Notes to the Consolidated Financial Statements

Deferred income relates to contributions received to improve the project

Amount

Shares not

economics of the gas wells. The amortization is in line with the related asset.

Year

Grant Date

of Shares

vested

2011

2010

Note 28

Trade and other payable

Amounts in US$ ’000

V.A.T.

Trade payables

2011

955

27,580

28,535

15 December

2011

500,000

15 December

2010

1,000,000

136,900

2,776

253

15 December

2008

1,000,000

41,686

2011

2010

2008

925

3,738

1,017

1,270

2010

1,118

11,592

Subtotal
Stock awards

12,710

for service

October

contracts

2010

300,000

120,000

672

1,300

The average credit period (expressed as creditor days) during the year ended

Stock awards

31 December 2011 was 74 days (2010: 49 days).

for service 31 August

The fair value of these short-term financial instruments is not individually

contracts

2011

90,000

757

determined as the carrying amount is a reasonable approximation of fair value.

granted to

Note 29

Share-based payments

IPO Award Programme and Executive Stock Option plan
The Group has established IPO Award Programme and Executive Stock

Non-Executive

Directors

131

5,298

2,630

The awards that do not vest are cancelled since they correspond to

employees that had left the Group before vesting date.

Option plans. These schemes were established to incentivise the Directors,

A total of 613,380 IPO Awards were granted to all of the Group’s employees

senior management and employees, enabling them to benefit from the

and certain consultants at the IPO date (May 2006). The Awards vested on

increased market capitalization of the Company.

15 May 2008, the second anniversary of admission to IPO. On 3 July 2008,

the Company issued 602,000 shares for nominal value of $ 0.001 each,

During 2008, GeoPark Shareholders voted to authorise the Board to use up

corresponding to the total IPO awards vested which are held in a Beneficiary

to 12% of the issued share capital of the Company at the relevant time for the

Trust. There are 11,380 awards that did not vest and were cancelled since

purposes of the Performance-based Employee Long-Term Incentive Plan.

they involved employees that had left the Group before the vesting date.

Main characteristics of the Stock Awards Programmes are:

During 2011, 15,000 (241,500 in 2010) of these shares were sold by the

• All employees are eligible.

• Exercise price is equal to the nominal value of shares.
• Vesting period is four years.

• Specific Award amounts are reviewed and approved by the Executive

employees at a weighted average price of £ 7.45 (£ 5.81 in 2010) per share.

The shares held in the employee Beneficiary Trust rank pari-passu with
GeoPark’s ordinary shares.

Directors and the Remuneration Committee of the Board of Directors.

On admission to AIM the Company granted:

Details of these costs and the characteristics of the different stock awards

i) 605,000 stock options to the senior management and some eligible

programmes are described in the following table and explanations:

employees, from which 60,000 have expired. The exercise price of these stock

options is £ 4.00 (125 per cent of placing price). The vesting date of these

stock options was 15 May 2008 and they expire in five years from that date,

on 15 May 2013. The stock options give no voting rights to the holders until

they are exercised and converted into common shares when they will rank

pari-passu with all existing common shares.

ii) to the Executive Directors 306,690 stock options at an exercise price of

£ 3.20 and 613,380 at an exercise price of £ 4.00. The vesting conditions of

these options are equal to those described in i).

Notes to the Consolidated Financial Statements

The fair value of the options granted was calculated using the Black-Scholes

Joint venture

model. Due to the short trading history of the Company, expected volatility

was determined by comparison to a sample of AIM listed oil and gas

companies with a similar market capitalisation to the Group but a longer

trading history.

In addition, a simplified procedure for the exercise of the Options was

approved by the Board. It is a payment mechanism available to option

holders that enables a cash-free exercise of their Options. The mechanism

Subsidiary

Interest

Assets

PP&E / E&E

Other assets

Total assets

allows participating option holders to exercise their options utilizing fully

Liabilities

issued shares made available by the EBT (Employee Beneficiary Trust)

Current liabilities

according to a formula (the “Stock Option cash-free payment option”).

Total liabilities

This allows participating option holders to exercise options to buy shares for

Net assets / (liabilities)

the same number of shares they would have obtained with borrowed cash

Sales

and then sell sufficient shares to repay the borrowed sums.

Net loss

Tranquilo Block

GeoPark

Otway Block

GeoPark

Magallanes Ltda.

29%

2011

8,438

2,458

10,896

(1,048)

9,848
-

569

2010

3,114

435

3,549

(495)

3,054
-

547

25%

2011

2,561

262

2,823

(332)

2,491

232

2010

1,108

176

1,284

(98)

1,186
-

219

On 6 October 2011, 601,235 common shares each credited as fully paid, were

Capital commitments related to the Tranquilo and Otway Blocks are disclosed

allotted to the trustee of the EBT in anticipation of the exercise of the Options.

in Note 31 (b).

This number of shares issued was estimated assuming that all beneficiaries

will adopt the cash-less exercise mechanism at market price £ 6.5.

Other share-based payments
As it is mentioned in Note 25, the Company granted 12,028 (14,704 in 2010)

shares at average price for each three month period for services rendered

by the Non-Executive Directors of the Company. Fees paid in shares

Note 31

Commitments

(a) Royalty commitments
In Argentina, crude oil production accrues royalties payable to the Provinces

were directly expensed in the Administrative costs line in the amount of

of Santa Cruz and Mendoza equivalent to 12 per cent on estimated value

US$ 130,745 (US$ 60,815 in 2010).

at well head of those products. This value is equivalent to final sales price less

Note 30

Interests in Joint Ventures

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

“Del Mosquito”, Province of Santa Cruz, Argentina) and to Occidental

The Group has interests in five joint ventures, which are involved in the

Petroleum Argentina INC, formerly Vintage Argentina Ltd. (8 per cent on

exploration of hydrocarbons in Chile (Note 20). Three of them are related

invoiced amount of crude oil obtained from wells at “Loma Cortaderal” and

to the new blocks acquired in Tierra del Fuego (TdF), Chile. These joint
ventures had no operations during 2011; however operations have started

during the first quarter of 2012.

GeoPark is the operator in Tranquilo and Otway Blocks and will be the

operator in all TdF blocks with a share of 60% for Isla Norte Block and 50%

for the other 2 blocks.

“Cerro Doña Juana”, Province of Mendoza, Argentina).

In Chile, royalties are payable to the Chilean Government, which is calculated

at 5 per cent of crude oil production and 3 per cent of gas production.

(b) Capital commitments
The Tranquilo Block Consortium has committed to drill four exploratory wells,

to perform 2D and 3D seismic until July 2011. An extension of eighteen

The following amounts represent the Company’s share in the assets, liabilities

months has been granted. The joint venture estimates that the remaining

and results of the joint ventures which have been consolidated line by line

commitment amounts to US$ 4,350,000 at GeoPark’s working interest (29%).

in the consolidated statement of financial position and statement of income:

The Otway Block Consortium has committed to drill two exploratory wells

and to perform 3D seismic until May 2012. The joint venture estimates that

the remaining commitment amounts to US$ 3,750,000 at GeoPark’s working

interest (25%).

Notes to the Consolidated Financial Statements

After participating in a farm-in process organised by ENAP, GeoPark was

c) 10.18 per cent of share capital, by Cartica Corporate Governance Fund, L.P.

awarded 3 blocks in Tierra del Fuego (Isla Norte Block, Flamenco Block

d) 8.14 per cent of share capital, by IFC (International Finance Corporation).

and Campanario Block).

e) 5.10 per cent of share capital, by Socoservin Overseas Ltd controlled

by Juan Cristóbal Pavez (Non- Executive Director).

Future investment commitments assumed by GeoPark were:

f) 4.86 per cent of share capital, by MONEDA A.F.I.

• 3 exploratory wells and 350 km2 of Seismic on Isla Norte Block

• 8 exploratory wells and 578 km2 of Seismic on Campanario Block

Balances outstanding and transactions with related parties

• 10 exploratory wells and 570 km2 of Seismic on Flamenco Block

(Amounts in ’000)

As part of the agreement, the investments made in the first exploratory

Account

Transaction

Balances

Party Relationship

period will be carried 100% by GeoPark and will not be recoverable in the

future (commitment of 21 exploratory wells and 1,498 km2 of Seismic).

2011
To be recovered

from co-ventures

Once the related CEOPs are signed, the Group shall assume the commitment

to guarantee US$ 101,430,000 for the work commitment through a stand-by

537

Ventures

Joint

Non-

Carlos

Executive

letter or collateral. In any case, the applicable instrument will be issued by an

Exploration costs

138

Gulisano Director (*)

international financial institution.

(c) Operating lease commitments - Group company as lessee
The Group leases various plant and machinery under non-cancellable

2010
To be recovered

from co-ventures

1,890

Ventures

Joint

operating lease agreements.

Borrowings

1,061

IFC

Share-

holders

Non-

The Group also leases offices under non-cancellable operating lease

Carlos

Executive

agreements. The lease terms are between 2 and 3 years, and the majority of

Exploration costs

162

Gulisano Director (*)

lease agreements are renewable at the end of the lease period at market rate.

During 2011 a total amount of US$ 3,313,000 was charged to the income

statement and US$ 28,132,000 of operating leases were capitalised as

There have been no other transactions with the Board of Directors,

Property, plant and equipment (US$ 11,676,000 in 2010).

Executive Board, Executive officers, significant shareholders or other related

The future aggregate minimum lease payments under non-cancellable

have been eliminated in the consolidated financial statements, and normal

operating leases are as follows:

remuneration of Board of Directors and Executive Board.

parties during the year besides the intercompany transactions which

(*) Corresponding to geosciences consultancy.

Amounts in US$ ’000

Operating lease commitments
Falling due within 1 year

Falling due within 1 - 5 years

Total minimum lease payments

Note 32

Related parties

2011

2010

34,126

25,019

59,145

Note 33

Fees paid to Auditors

13,224

30,301

43,525

Amounts in US$ ’000

2011

2010

Fees payable to the Group’s auditors for the

audit of the consolidated financial statements

Fees payable to the Group’s auditors for the

review of interim financial results

Fees payable for the audit of the Group’s

subsidiaries pursuant to legislation

Non-audit services

Fees paid to auditors

120

113

239

504

115

146

387

Controlling interest
The main shareholders of GeoPark Holdings Limited, a company registered

in Bermuda, as of 31 December 2011, are:

a) 19.24 per cent of share capital, by Gerald O’Shaughnessy (founder).

b) 16.44 per cent of share capital, by Energy Holdings, LLC controlled by

Non-audit services relate to tax services for US$ 123,000 (US$ 94,000 in 2010)

James F. Park (founder).

and other services for US$ 116,000 (US$ 52,000 in 2010).

Notes to the Consolidated Financial Statements

Note 34

Business transactions

Note 35

Subsequent Events

LGI partnership
On 12 March 2010, LGI and the Company agreed to form a new strategic

Acquisitions in Colombia
In February 2012, GeoPark acquired two privately-held exploration and

partnership to jointly acquire and develop upstream oil and gas projects in

production companies operating in Colombia, Winchester Oil and Gas S.A.

Latin America.

and La Luna Oil Company Limited S.A. (“Winchester Luna”).

During 2011, GeoPark and LGI entered into the following agreements through

In March 2012, a second acquisition occurred with the purchase of Hupecol

which LGI acquires an equity interest in the Chilean Business of the Group:

Cuerva LLC (“Hupecol”), a privately-held company with two exploration and

production blocks in Colombia.

• On 20 May 2011, the Company (through its wholly owned subsidiaries

GeoPark Chile Chilean Branch and GeoPark Chile S.A.) and LGI signed a

The combined Hupecol and Winchester Luna purchases (acquired for a total

subscription agreement in which LGI subscribed 10 million of ordinary shares

consideration of US$ 105,000,000, adjusted for working capital, plus certain

representing 10% equity interest in GeoPark Chile S.A., the Company owner

possible contingent payments) provide GeoPark with the following in

of the Chilean assets, for a total consideration of US$ 70,000,000.

Colombia:

• On 4 October 2011, an addendum to the agreement dated 20 May 2011

was signed whereby 12.5 million of ordinary shares in GeoPark Chile S.A. were

• Interests in 10 blocks (ranging from 5% to 100%), with licence operations

subscribed by LGI, for a consideration of US$ 78,000,000, representing an

in four of them, located in the Llanos, Magdalena and Catatumbo Basins,

additional 10%.

covering an area of approximately 220,000 gross acres.

The transactions mentioned above have been considered to be a deemed

• Risk-balanced asset portfolio of existing reserves, low risk development

disposal and in accordance with IAS 27 it has been accounted for as a

potential and attractive exploration upside. With current oil production of

transaction with Non-controlling interest. Consequently, the gain as a result

approximately 2,800 barrels per day (bopd) from three blocks.

of US$ 111,245,000 has been recognised through equity rather than in the

income statement for the year.

• 2P oil reserves of approximately 10 million barrels and prospective oil

Under the terms of this agreement LGI also committed to provide additional

resources (unrisked) of 25+ million barrels (Company estimates).

equity funding of US$ 18 million to GeoPark Chile S.A. over the next three

years, being LGI’s share of GeoPark Chile S.A.’s commitments under the

• Successful Colombian operating and administrative team to support

minimum work programme of the three Tierra del Fuego licences (see note 31).

a smooth transition and start-up by GeoPark in Colombia together with

Associations and JVs with principal Colombian operators.

Tierra del Fuego blocks
In 2011, after participating in a farm-in process organised by ENAP, GeoPark

The acquisitions were afforded from the existing cash resources as of

was awarded three blocks in Tierra del Fuego (Isla Norte Block, Flamenco

31 December 2011. In the same way, the Company will fund the investment

Block and Campanario Block).

programme from the same source.

GeoPark is the operator in all blocks with a share of 60% for Isla Norte Block

and 50% for the other 2 blocks.

Future investment commitments assumed by GeoPark were:
- 3 exploratory wells and 350 km2 of Seismic on Isla Norte Block

Agreement with Methanex
In March 2012, the Company and Methanex signed a third addendum and

amendment to the Gas Supply Agreement to incentivise the development

of gas reserves. Through this new agreement, the Company is undertaking

a programme consisting of drilling a minimum of five new gas wells during

- 8 exploratory wells and 578 km2 of Seismic on Campanario Block

2012. Methanex will contribute to the cost of drilling the wells in order to

- 10 exploratory wells and 570 km2 of Seismic on Flamenco Block

improve the project economics.

As part of the agreement, the investments made in the first exploratory

period will be carried 100% by GeoPark and will not be recoverable in the

future (commitment of 21 exploratory wells and 1,498 km2 of 3D Seismic).

If commercial production is reached, both parties will fund the development

and operating expenses on a pro rata basis.

Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements 91

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 onshore
Gulf of Mexico oil and gas business and then Vice President
Global Engineering & Construction of Unocal, responsible
for the implementation of all major capital projects ranging
from deepwater developments in Indonesia and the Gulf
of Mexico to conventional oil and gas projects in Thailand.
Mr. Ryalls strengths are in risk management across the
project development cycle with a strong focus on health,
safety and environment.

Christian Maurice Weyer | Non-Executive Director
Christian Weyer is an international banker and financier with
over 50 years of experience. Mr. Weyer began his banking
career with Chase Manhattan Bank as a senior credit officer in
Paris and Geneva and subsequently worked as an executive
at Banque Paribas until becoming President of Banque
Paribas (Suisse) in 1984-5. During his career, Mr. Weyer has
been credited with innovating new forms of trade finance
and lines of credit 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.

Board of Directors

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 then joined Grupo CB (CB
Group) as a research analyst. Thereafter, he obtained an MBA
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
interim 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, with 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, and Chairman of Hidroeléctrica
Totoral. Mr. Pavez became a Non-Executive Director of
GeoPark in August 2008.

Carlos Gulisano | Non-Executive Director
Dr. Gulisano is a respected leader in the fields of petroleum
geology and geophysics in Latin America and has
over 30 years of successful exploration, development and
management experience in the oil and gas industry.
Dr. Gulisano has worked with YPF, Petrolera Argentina San
Jorge, Chevron and GeoPark and has been a leader on teams
credited with significant oil and gas discoveries (including
the giant Trapial Field in Argentina). He has worked in Argentina,
Bolivia, Peru, Ecuador, Colombia, Venezuela, Brazil, Chile,
and USA. Dr. Gulisano holds a B.Sc in Geology, a postgraduate
degree in Petroleum Engineering and a PhD in Geology
from the University of Buenos Aires and has authored and
co-authored over 40 technical papers. He is a former adjunct
professor at the Universidad del Sur, a former thesis director
at the University of La Plata, and a former scholarship director
at CONICET (the national technology research council) in
Argentina. Dr. Gulisano has been a key element of GeoPark’s
growth – as an adviser since 2002 and as the Managing
Director from February 2008 until June 2010.

Steven J. Quamme | Non-Executive Director
Mr. Quamme has 25 years of successful experience as a
securities lawyer, private equity investor and investment
banker. He is a recognised expert in corporate governance and
has been a member of over fifteen Boards of Directors
including public companies, private companies and non-profit
organizations. Mr. Quamme is the co-founder and President
of Cartica Management, a registered investment advisor
focused exclusively on emerging markets. Cartica manages
a series of private investment funds investing in listed equities
in 24 countries. From 2005-2007, Mr. Quamme was the
co-founder and COO of Breeden Partners, a US$ 1.5 billion
corporate governance fund. In addition, from 2002-2007,
Mr. Quamme was a Senior Managing Director of Richard C.
Breeden & Co., the leading professional services firm focused
exclusively \on corporate governance and crisis management.
From 2000-2005, Mr. Quamme was the founder and CEO
of Milestone Merchant Partners -- a full service merchant bank
based in Washington D.C. and the parent of International
Equity Partners, a sponsor of emerging markets private equity
funds for many of the world’s largest institutional investors.
Mr. Quamme received a BA in Economics from Northwestern
University and a Juris Doctor degree from the Northwestern
University School of Law where he is a member of the Law
School Board. He began his career as a securities and M&A
attorney at Baker Botts.

James F. Park | Chief Executive Officer and Deputy Chairman
Mr. Park has over 35 years of 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 which pioneered the development of commercial
oil and gas production in Central America and, as a senior
executive, and Board member, 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) until its sale in 1997. Mr. Park
has also participated in projects in California, Louisiana,
Argentina, Yemen, and China. Mr. Park has lived in Argentina
and Chile since co-founding GeoPark in 2002 and has been
the Chief Executive Officer since its founding.

Directors, Secretary & Advisors

Directors

Registered Office

Buenos Aires
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)
carlos gulisano (non-executive Director)
Steven J. Quamme (non-executive Director)

cumberland house 9th Floor,
1 Victoria Street
hamilton hm11 – Bermuda

Florida 981
2th Floor
c1005AAS Buenos Aires
Argentina
+ 54 11 4312 9400

Secretary

pedro Aylwin chiorrini

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

Independent Auditors

Petroleum Consultant

Registrar

Registrar to the
Depositary

oriel Securities
150 cheapside
london ec2V 6et,
united kingdom

norton rose
3 more london riverside
london Se1 2AQ,
united kingdom

cox hallett wilkinson
cumberland house 9th Floor,
1 Victoria Street
hamilton hm11 - Bermuda
p.o. Box hm 1561
hamilton hmFX - Bermuda

Aylwin Abogados
Avenida Isidora goyenechea 3162, 8th Floor, of. 801
las condes, Santiago
chile

maciel, norman & Asociados
cerrito 1136, 10th Floor
c1010AAX - Buenos Aires
Argentina

pricewaterhousecoopers llp
1 embankment place
london wc2n 6rh, united kingdom
www.pwc.com

Degolyer and macnaughton
5001 Spring Valley road Suite 800 east
Dallas, texas 75244
uSA

computershare Investor Services (Jersey) ltd
Queensway house
hilgrove Street. St helier – Jersey Je1 1eS
united kingdom

computershare Investor Services plc
po Box 82
the pavilions, Bridgewater road
Bristol BS99 7 nh
united kingdom

chiappini + Becker

tel. +54 11 4314 7774

www.ch-b.com

photographer:

Diego Dicarlo, geologist.

carlos gulisano, geologist.

Directors, Secretary & Advisors 92

AnnuAl report 2011