Geopark Ltd
Annual Report 2012

Plain-text annual report

ANNUAl REPORT 2012 1 1 0 2 T R O P E R l A U N N A k r a P o e G EXECUTION RISK MANAGEMENT CREATING OPPORTUNITIES COMMITMENT CONTENTS BOTTOM LINE Oil and Gas Production Oil and Gas Reserves 12 11 10 9 8 7 6 5 4 3 2 1 0 ) d / e o b M ( n o i t c u d o r P y l i a D e g a r e v A 60 50 40 30 20 10 0 e o b M M n I 2007 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Oil and Condensate Gas 2P Gas 2P Oil Oil Production Gas Production Total Revenues EBITDA 2 Letter to Shareholders 6 Year in Review 56 Company Overview 58 Corporate Governance 60 Directors’ Remuneration Report 62 Summary Financial Statements Consolidated Statement of Income Consolidated Statement of Comprehensive Income 63 Consolidated Statement of Financial Position 64 Consolidated Statement of Changes in Equity 65 Consolidated Statement of Cash Flow 66 Notes to the Consolidated Financial Statements 78 Appendix - Independent Auditors’ Statement 81 Directors, Secretary & Advisors 260 240 220 200 180 160 140 120 100 80 60 40 20 $ S U M M 0I n 2007 2008 2009 2010 2011 2012 Oil and Condensate Gas 130 120 110 100 90 80 70 60 50 40 30 20 10 0 -10 $ S U f o M M n I 2007 2008 2009 2010 2011 2012 LETTER TO ShAREhOLDERS Dear Shareholders, GeoPark’s performance in 2012 proved to be consequential in terms 114.4 million boe of 3P reserves discovered and certified. of growth and continued a string of seven consecutive years of operational expansion and financial improvement. This tangible track record is reflective of many intangible factors within a strong performance-driven culture which supports our long-term business plan. During 2012, oil and gas production grew by 49% (with oil production increasing by nearly two times), cash flow increased more than 90% (with a 35% increase in netbacks per boe produced) and proved and probable reserves increased by 15%. GeoPark expanded its operations in Chile with new attractive acreage in Tierra del Fuego and entered into a new country, Colombia, where we hit the ground running and achieved immediate success with the • • • • • • Oil and gas production of 13,500 boepd (1Q 13). Capital expenditures in 2012 in excess of US$ 195 million consisting of 44 new wells. (GeoPark has drilled and completed over 120 wells since 2007 with a success rate of 66%). Licensed operator now in four countries with a record of safe and clean operations and continuous annual growth in production, reserves and cash flow. EBITDA over US$ 120 million in 2012 with US$ 31/boe netbacks. An attractive high potential asset portfolio consisting of 27 blocks (over 3 million acres) in four countries with a risk-balanced mix of production, development, exploration and unconventional resource opportunities. Strategic long-term partner network including the IFC (of the drill bit. In addition, our team and management were strengthened World Bank) and LG International (LG) from Korea. and deepened and new capital acquired to support further expansion. Asset Platforms Building on these 2012 achievements, GeoPark, in early 2013, successfully raised a US$ 300 million international bond (which was In 2012, our Chile asset base (6 blocks) continued to be a solid substantially over-subscribed) and made a strategic entry into Brazil platform for growth with new oil discoveries made in the Tobífera with a significant production acquisition and the award of seven formation that underlies the more traditional Springhill hydrocarbon new exploration blocks in the highly competitive Brazil Round 11 reservoirs. We also contracted with the State of Chile for three new auction. This production acquisition, which is subject to the approval high potential blocks in Tierra del Fuego, across the Magellan of the Brazilian regulatory agencies, is expected to increase Straits from our current operations, and initiated a 1,500 sq km 3D GeoPark’s 2012 cash flow by 30%. seismic survey. Drilling in Tierra del Fuego began during the first Business Approach half of 2013 and management is optimistic about this programme. Our new Colombian asset base (10 blocks) – resulting from two GeoPark’s record of delivery is attributable to the continuous corporate acquisitions in the first half of 2012 – represents an development of three core and complimentary capacities that we exciting new production, development and exploration portfolio. believe are necessary for long-term success in the upstream oil and GeoPark was able to efficiently merge and take over operations gas business. These represent our team’s capabilities as: from the acquired companies and to immediately have exploration success. This included two new field discoveries – the Max and 1. Explorers – with the know-how to take managed risks to discover Tua oil fields – on the Llanos 34 Block operated by GeoPark. Our and develop oil and gas reserves in the subsurface. team’s achievements in Colombia are evident by a doubling of 2. Operators – with the ability to execute in a timely manner and crude oil production (approximately 5,000 bpd in 1Q 13) in less than economically drill for, produce, process, transport and market oil a year since acquiring these new assets. We have a strong team and gas. in place and view Colombia as an important platform for future 3. Consolidators – with the experience to assemble the right asset expansion for GeoPark. mix in the right hydrocarbon basins with the right partners at the right price. Our strategic growth partner, LG International, is continuing to work with us to build a portfolio of upstream assets throughout Latin These capabilities are evidenced by our track record of: America. Following their entry into Chile in 2011, LG joined us in our • 56.9 million barrels of oil equivalent (boe) in 2P reserves and Colombian project with the acquisition of a 20% interest in 2012. 2 Letter to Shareholders Letter to Shareholders 3 LETTER TO ShAREhOLDERS • - - - • • • Thank You In the first half of 2013, GeoPark moved into Brazil – one of the As we embark on another new important year, we wish to recognise world’s most attractive hydrocarbon regions – with the strategic and thank the GeoPark team which has successfully continued to acquisition of a 10% interest in the Manati gas field (the largest grow, meet new challenges, and improve daily – while unfailingly gas-producing field in Brazil) for US$ 140 million and the award of maintaining a unique spirit of teamwork, professionalism, trust and seven new onshore Brazilian exploration blocks. We also fight that has led to an impressive record of achievement. We also established an experienced technical team in Brazil to develop wish to thank all the talented men and women who have newly these properties and pursue new opportunities. joined us this year for their important contributions, confidence and 2013 Outlook commitment. Our team clearly recognises the great opportunities ahead and is working relentlessly to build GeoPark into the leading independent Latin American exploration and production company. With our underlying asset base, ambitious and balanced work programme, supporting cash flow, strong balance sheet, and During early 2013, we were deeply saddened by the passing and partnership backing, GeoPark has never been stronger and better loss of Sir Michael Jenkins (77) who was a valued Board member, positioned for further growth. Our platforms in Chile, Colombia an accomplished man and a good friend. We also reluctantly and Brazil will continue to provide steady organic growth – with acknowledged the decision of Christian Weyer (88) – one of the opportunity for additional inorganic expansion. Our business GeoPark’s founding Board members and early investors – to retire development efforts are also underway to position us, with our from the Board. We are immensely grateful for the contribution, partner, LG, in other key Latin American countries. wisdom and leadership of both of these gentlemen. For 2013, GeoPark will undertake a US$ 200-230 million capital We also express our gratitude to you – our shareholders, investors investment programme (approximately US$ 350 million including and partners – for your strong support during 2012 and look new acquisitions) with the following priorities: forward with confidence to continuing to deliver and grow value Execute to Grow: Drill 35-45 new wells to increase oil and gas production by 20% and grow oil and gas reserves. Continuously Sincerely, increase operating and investment efficiency to improve economic performance. in 2013 and beyond. Manage Risk: Continue to balance production profile between oil and gas; spread work programme exposure between production, development and high-impact exploration projects; expand Gerald E. O’Shaughnessy, funding exposure and capital sources; strengthen management Chairman and technical team; expand country footprint; and farm-out higher risk / non-core areas. Expand Business: Increase our portfolio of organic growth opportunities on existing properties and acquire new projects in Latin America – targeting assets with proven reserves and production and with development and exploration upside. Strengthen Commitment: Continue to build the right kind of company that values and protects our shareholders, employees, environment and communities to enhance our long-term business plan. James F. Park, Chief Executive Officer 4 Letter to Shareholders Letter to Shareholders 5 Oil Gas 2012 PERFORMANCE Key Operational Results Key Financial Results Key Strategic Results Colombian Acquisitions: During 1Q 2012, GeoPark acquired three privately-held companies, Winchester Oil and Gas S.A. and La Luna Oil Company Limited S.A. and hupecol Cuerva LLC. GeoPark acquired ten exploration and production blocks for a total consideration of US$ 105 million. Entry by LGI into the Colombian Business: In December 2012, LGI joined GeoPark’s operations in Colombia through the acquisition of a 20% interest in GeoPark Colombia S.A. A capital contribution in GeoPark Colombia S.A. for an amount of US$ 14.9 million and assumption of US$ 5 million in debt. LGI Strategic Alliance Extension: GeoPark and LGI announced their agreement to extend their strategic alliance to build a portfolio of upstream oil and gas assets throughout Latin America through 2015. Revenues Up 124%: Total revenues increased to US$ 250 million, led by 201% increase in oil revenues to US$ 222 million. EBITDA Up 92%: Adjusted EBITDA increased to US$ 121 million. Cash flow from operating activities increased 91% year-on-year to US$ 132 million. Netbacks Up 35%: Netbacks increased to US$ 30.8 per boe produced. Net Income Up 264%: Net Income increased to US$ 18 million. Capital Expenditures Up 70%: Capital expenditures increased to US$ 198 million due to increased drilling activity on the Fell and Tranquilo Blocks in Chile and the operations in Colombia. In addition, US$ 105 million was invested for the acquisition of the Colombian operations. Total Equity Up 25%: Equity increased to US$ 312 million as a result of the transaction with LGI and improved financial performance. Available Cash Resources: GeoPark had US$ 48 million in cash and cash equivalents at the end of 2012 (US$ 38 million net of overdrafts), with a liquidity ratio of 1.28x (current assets divided by current liabilities), and total financial debt of US$ 193 million. As of 31 March 2013, after the issuance of the US$ 300 million Notes, total cash amounted to US$ 179 million. Oil Production Up 198%: Average oil production increased 198% to 7,480 bopd; total average oil and gas production increased 49% to 11,276 boepd in 2012. 57% Drilling Success: GeoPark’s 44 wells drilling programme during 2012 represented a balance between exploration, appraisal and development. 36 wells (operated by GeoPark) were drilled achieving a success rate of 57%. 2P Reserves Up 15%: DeGolyer and McNaughton certified 2P reserves increase of 15% to 56.9 mmboe and 3P reserves of 114.4 mmboe. Net Present Value of 2P reserves was assessed to be US$ 1,005 million and 3P reserves to be US$ 1,758 million. Tranquilo Block: First gas discovery in Tranquilo Block (Chile) in 40 years, Palos Quemados (with a production test of 4.6 mmcf/day). Seismic Operations: In Chile, GeoPark carried out 67 km of 2D seismic in the Otway and Tranquilo Blocks, 289 km2 of 3D seismic in the Flamenco Block in Tierra del Fuego and 244 km2 of 3D seismic in Fell Block. In Colombia, GeoPark carried out 111 km2 of 3D seismic work in the Llanos 62 Block. Unconventional Resource Potential: GeoPark's acreage in the Magallanes Basin in Chile contains the Estratos con Favrella shale formation which has previously been tested and produced oil. GeoPark has initiated studies of diagnostic fracture injection tests ("DFIT") on a selection of six to eight wells on the Fell Block to determine fracturability and reservoir properties of the shale. Operations commenced in Tierra del Fuego, Chile: Final approval to start operations on Flamenco (GeoPark 50% working interest) and Isla Norte Blocks (GeoPark 60% working interest) in Tierra del Fuego, Chile. The Company has started its drilling campaign in 2Q 2013. 2007 2008 2009 2010 2011 2012 12 10 8 6 4 2 0 ) d / e o b M ( n o i t c u d o r P y l i a D e g a r e v A 6 Performance • Year in Review Year in Review • Performance 7 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. Execution 8 Execution • Year in Review Year in Review • Execution 9 YEAR IN REVIEW DRILLING GeoPark’s growth continues to be led by the drill bit. In Chile, twenty two wells were drilled with eleven wells put on production. Six wells were unsuccessful and five wells are waiting for completion or are under evaluation. In Colombia twenty two wells were drilled and fifteen wells were successfully put on production. Five wells were unsuccessful and two wells are waiting for completion or are under evaluation. The chart below summarises GeoPark’s drilling results during 2012: Working Interest Block ChILE Well Name Well Type Status Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Fell Otway Otway Tranquilo Tranquilo Tranquilo 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Dicky Oeste 4 D Development Dry / Abandoned Martín 2 D Exploration On Production Guanaco 16 Development On Production Konawentru 2 D Development On Production Tiuque 1 Exploration Dry / Abandoned Munición Oeste 3 Appraisal Dry / Abandoned Kosten 1 D Exploration On Production Pampa Larga 14 D Appraisal Under Evaluation Kiuaku 1 D Exploration On Production Maku 1 D Exploration On Production 100% Cerro Iturbe Oeste 1 Exploration 100% Nika Oeste 4 D Development Waiting to be fractured Waiting to be fractured 100% 100% 100% 100% 100% 25% 25% 29% 29% 29% Yagán 2 D Appraisal On Production Konawentru 4 Appraisal On Production Yagán Norte 4 Development On Production Manekenk 2 Development On Production Konawentru 3 Development Waiting for W/O Tatiana 1 Exploration Dry / Abandoned Cabo Negro 1 Exploration Dry / Abandoned Marcou Sur 1 Exploration Waiting for completion Palos Quemados 1 Exploration On Production María Antonieta 1 Exploration Dry / Abandoned EXECUTION Block Working Interest Well Name Well Type Status COLOMBIA Arrendajo Arrendajo Arrendajo Cuerva Cuerva Cuerva Cuerva Cuerva Cuerva Cuerva Cuerva Cuerva Cuerva 10% Arrendajo Norte 1 Exploration Dry / Abandoned 10% 10% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Azor 2 Azor 3 Development On Production Development On Production Cuerva 5B Development On Production Cuerva 5C Development On Production Cuerva 5D Development Converted into water injector Cuerva 6 Development On Production Cuerva 10C Development On Production Cuerva 5K Cuerva 8A Cuerva 5G Appraisal Dry / Abandoned Appraisal On Production Appraisal Dry / Abandoned Cuerva 5E Development Dry / Abandoned Cuerva 10D Development On Production Llanos 17 36.8% Celeus 1 Exploration Temporary shut down Llanos 17 Llanos 32 Llanos 32 Llanos 32 Llanos 34 Llanos 34 Llanos 34 Llanos 34 36.8% Mapora 1 Exploration Dry / Abandoned 10% 10% 10% 45% 45% 45% 45% Maniceño 1 Injector Water Injector Samaria 1 Exploration Temporary shut down Maniceño 1 D Exploration On Production Agami 1 Exploration Water Injector Tua 1 Tua 2 Tua 3 Exploration On Production Appraisal On Production Development On Production 10 Execution • Year in Review Year in Review • Execution 11 YEAR IN REVIEW EXECUTION OIL AND GAS RESERVES OIL AND GAS PRODUCTION GeoPark has achieved consistent growth in oil and gas reserves from its investment activities since 2005. DeGolyer & MacNaughton, independent petroleum engineers, appraised a 15% increase in 2P reserves to a total of 56.9 million barrels oil equivalent (mmboe) in its Country Chile report dated 31 December 2012. DeGolyer & MacNaughton’s report estimated, on eight GeoPark blocks, a total of 18.7 mmboe of proved reserves, a total of 38.2 Colombia mmboe of probable reserves, and a total of 57.5 mmboe of possible reserves as shown in the chart below. From the 2P oil and gas reserves approximately 80% are in Chile and 20% are in Colombia and approximately 49% are oil and 51% gas. The 2012 figures consider a write-off of the Argentinian reserves due to lack of activity and proximity of the end of concession. The net Present Value (unrisked) of the Company reserves was estimated by DeGolyer & MacNaughton’s at 31 December 2012 to be US$ 1,005 million for 2P reserves and US$ 1,758 million for 3P reserves. Total Reserve Type Oil (MMBO) Gas BOE (BCF) (MMBOE) P1 P2 P3 P1+P2 P1+P2+P3 P1 P2 P3 P1+P2 P1+P2+P3 P1 P2 P3 P1+P2 P1+P2+P3 5.5 10.9 10.8 16.3 27.2 6.7 4.8 4.5 11.4 15.9 12.1 15.7 15.3 27.8 43.1 39.4 135.0 253.5 174.4 427.9 - - - - - 39.4 135.0 253.5 174.4 427.9 12.0 33.4 53.1 45.4 98.5 6.7 4.8 4.5 11.4 15.9 18.7 38.2 57.5 56.9 114.4 12 Execution • Year in Review In 2012, GeoPark’s average oil production increased 198% to 7,480 bopd and total average oil and gas production increased 49% to 11,276 boepd. Currently, GeoPark’s oil and gas production is generated from the Fell Block in Chile, La Cuerva, Llanos 34, Yamú, Llanos 32, Arrendajo, Abanico and Cerrito Blocks in Colombia and the Del Mosquito Block in Argentina. During 2012, approximately 69% of the Company’s total oil and gas production was produced in Chile, 30% in Colombia and approximately 1% in Argentina. During 2012, gas represented approximately 34% of the total production (67% in 2011) and oil represented approximately 66% of the total production volume (33% in 2011). Gas sales represented approximately 12% and oil represented approximately 88% of total 2012 revenues. Oil and gas production is shown in the chart on the right: 12 11 10 9 8 7 6 5 4 3 2 1 0 ) d / e o b M ( n o i t c u d o r P y l i a D e g a r e v A 2007 2008 2009 2010 2011 2012 Oil and Condensate Gas Year in Review • Execution 13 Year in Review • Execution 13 Argentina Chile DEL MOSQUITO FELL Strait of Magellan ISLA NORTE CAMPANARIO TRANQUILO OTWAY ASSETS GeoPark’s portfolio of oil and gas assets in 2012 consists of nineteen hydrocarbon blocks totalling approximately 4.1 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. FLAMENCO Atlantic Ocean 14 Execution • Year in Review 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 is currently producing approximately 62% of Chile’s crude oil production and 18% of Chile’s natural gas production. Its substantial acreage position represents an important platform for continued growth and expansion. GeoPark’s blocks in Chile are: ChILE LICENCES • ASSETS Block Area (sq km) Operator Working Basin Interest (%) Fell Tranquilo Otway Isla Norte Campanario Flamenco 1,488 * 4,986 5,965 527 778 572 GeoPark GeoPark GeoPark GeoPark GeoPark GeoPark 100 Magellan / Austral 29 25 60 50 50 Magellan / Austral Magellan / Austral Magellan / Austral Magellan / Austral Magellan / Austral the Marcou Sur, María Antonieta and Palos Quemados prospects. Nacional del Petróleo ("ENAP"), the Chilean State Oil Company, provides an excellent base for new hydrocarbon exploration and The blocks are located in the continental and Tierra del Fuego development. Log interpretations by engineers experienced in the Magallanes region in a proven oil and gas producing basin (Magellan region indicate by-passed oil and gas production zones in certain or Austral Basin) and on trend with recent discoveries to the north existing wells. Shut-in and abandoned fields also have the potential in Argentina and to the south in Tierra del Fuego. The Magallanes to be put back on production by constructing new pipelines and region currently produces all of Chile’s oil and gas production. plants. Geophysical interpretations by GeoPark suggest additional Although it has been producing for over 60 years, the basin remains development potential in known fields and exploration potential in (*) In January 2013, GeoPark formally advised the Ministry of Energy relatively underdeveloped with new exploration frontiers being new undrilled prospects and plays – including opportunities in the of a decision by the Tranquilo Block JV partners to not proceed with opened in recent years. the Second Exploratory Period on the Tranquilo Block CEOP. GeoPark Springhill, Tertiary, Tobífera, and Estratos con Favrella formations. The Estratos con Favrella shale formation is a main source and its partners relinquished the Tranquilo Block, except for an Substantial technical data (seismic, geological, drilling and rock of the Magellan/Austral Basin and represents a high potential area of 92,417 acres consisting of protected exploitation zones for production information), both developed by GeoPark and Empresa unconventional resource play. 16 Execution • Year in Review Year in Review • Execution 17 ChILE LICENCES • ASSETS YEAR IN REVIEW FELL BLOCK The Fell Block has an area of approximately 368,000 acres (1,488 sq km) GeoPark’s geoscience team continues to identify and expand an and its centre is located approximately 140 km northeast from the attractive inventory of prospects and drilling opportunities on the Fell city of Punta Arenas. The Fell Block’s northern border coincides with Block – both exploration and development projects – and the Company the international border between Argentina and Chile and its southern expect to continue its comprehensive drilling programme in the coming limit is bordered by the Magellan Straits. years. The recent oil discoveries in the Konawentru, Yagan, Yagan Norte, Copihue and Munición Oeste fields have opened up new oil and gas The first exploration efforts began on the Fell Block in the 1950’s and potential in the block. During 2012, important drilling and production since then until 2005, ENAP carried out 2,400 km of 2D seismic and 256 results were obtained from the Tobífera formation (a non-conventional sq km of 3D seismic and drilled 146 wells. In 2006, GeoPark became volcanic-clastic reservoir underlying the Springhill formation) and Operator and 100% interest owner of the Fell Block. At the time GeoPark which has opened up additional potentially attractive opportunities acquired the Fell Block, the Fell Block had no oil nor gas production. (workovers, well-deepenings and new exploration and development Since then, GeoPark acquired more than 1,000 sq km of 3D seismic and wells) in the Tobífera formation throughout the Fell Block. The drilled over 90 exploration, appraisal and development wells resulting successful Tobífera drilling campaign in 2012 has resulted in the in current average production (1Q 2013) of approximately 18 million Tobífera formation currently contributing over 80% of the oil production cubic feet per day of gas and 5,500 barrels of oil per day. in the Fell Block. Since 2006, when GeoPark became operator of Fell Block through GeoPark also initiated an evaluation of the Estratos con Favrella shale August 2011, more than US$ 210 million have been invested in reservoir that represents a high potential unconventional resource exploring and developing the Fell Block, which allowed the transition of play. A broad area of the Fell Block (1,000 sq km) appears to be in the oil approximately 84% of the Fell Block’s original area into an exploitation window for this play and GeoPark has begun work to reinterpret licence valid until 2032. GeoPark exceeded the minimum work and core data, logs and well test information, evaluate cores and fluids and investment commitment required by the CEOP on the Fell Block during determine reservoir brittleness (for fracturing) through diagnostic the exploration period by over 75 times. field tests. Geologically, the block is located in the Magellan Basin, comprising a structural platform (developing to the east) and a slope (developing to the west). The source rocks relate basically to the Estratos con Favrella lower Cretaceous platform deposits. The principal producing reservoir is the Springhill formation sandstone (Lower Cretaceous) at depths of 2,200-3,500 metres. Additional reservoirs have been discovered and put into production on the Fell Block – namely Tobífera volcanic-clastic rocks (Jurassic) at 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 the Fell Block are mainly structural traps defined by anticlines developed in the basement and involving the Cretaceous and Tertiary sequences. Stratigraphic and combined traps are developed in the southern and northern sector of the block. t r e s e D a m a c a t A s a p m a P Argentina Santiago Buenos Aires Chile Fell Chile i a n o g a t a P Argentina Fell 18 Execution • Year in Review Year in Review • Execution 19 YEAR IN REVIEW ChILE LICENCES • ASSETS TIERRA DEL FUEGO BLOCKS In September 2011, GeoPark signed three participation agreements Exploration in Tierra del Fuego of the Magellan Basin dates back to (Series Tobífera) constitute the main reservoirs for the accumulation • Tertiary Play: stratigraphic and/or structural traps related to deltaic with ENAP, the State Oil Company of Chile, to acquire the Campanario, the 1940´s when the first surface exploration focused on obtaining of oil and gas in the Magellan Basin and have been the main targets and transgressive sandstones of the Late Cretaceous-Tertiary, Flamenco and Isla Norte Blocks located in the centre-north of Tierra stratigraphic and structural information. Anticlinal structural of exploration in recent decades. A secondary target is defined by the with reservoirs located at an estimated maximum depth of around del Fuego, Chile. The three blocks, which cover 1,877 sq km (463,782 traps with transgressive sandstone reservoirs (Springhill Formation) Tertiary sandstones (Paleocene – Miocene) deposited during the 1,000 to 1,500 m. acres), are similar and geologically contiguous to the Fell Block and were outlined with refraction seismic lines and in 1945 oil was Foreland Stage. represent high potential and strategic acreage. Following the discovered on the flank of an anticline. During the first six months of 2012, GeoPark executed Special successful methodology employed on the Fell Block, the Company Source rocks are represented by continental lacustrine shales (Type I Operations Contracts for the Exploration and Exploitation of will also evaluate early production opportunities from existing In the specific area of the acquired blocks, the first wells were drilled in and Type II Kerogen) deposited in Late Jurassic continental basins that hydrocarbons (“CEOPs”) with the Republic of Chile for the three new non-producing wells in Tierra del Fuego. GeoPark has committed 1951 resulting in the discovery of the Sombrero oil field (a structural- were developed as isolated depocenters (Manantiales, Oriental and blocks in Tierra del Fuego and 3D seismic operations were initiated to pay 100% of the required minimum investment of US$ 101.4 stratigraphic trap). At the end of the 1950´s and early 1960´s, new Gaviota Grabens) and by the marine shales of the Estratos con Favrella on the Flamenco Block in the first quarter of 2012 as part of its full million in these blocks over the next three years. The minimum work fields were discovered to the east (Catalina and Cuarto Chorrillo Formation (Type II and Type III Kerogen), deposited during the Early 1,500 sq km 3D seismic programme. commitment comprises 1,500 sq km of 3D seismic and the drilling Fields) and, following seismic reflection data acquisition, new fields Cretaceous marine transgression. of 21 wells. were discovered and existing fields were further developed. • • • The three blocks include: During the past decade, geological studies in the Magallanes Basin been defined: Isla Norte Block (527 sq km): GeoPark is the Operator with a 60% have focused on stratigraphic analysis, based on 3D and 2D seismic working interest and ENAP owns a 40% working interest (with a carry information, on the definition and distribution of facies of the deltaic • Springhill Play: combination of stratigraphic-structural traps of for the first three year investment commitment). and/or turbiditic depositional systems of the Late Cretaceous-Tertiary shallow marine sands of the Springhill Formation generated by the period, and the evolution of the oil system in terms of generation/ reactivation of old faults. Campanario Block (778 sq km): GeoPark is the Operator with a 50% timing/expulsion and trapping. working interest and ENAP owns a 50% working interest (with a carry for the first three year investment commitment). Geologically, the blocks are located on the eastern margin of the Magellan Basin that remained relatively stable during its tectonic Flamenco Block (582 sq km): GeoPark is the Operator with a 50% evolution, except for the minor reactivation of normal Jurassic faults, • • Tobífera Clastic Play: fluvial to deltaic sandstones in structural and stratigraphic traps present in deeper part of the grabens. Fractured Tobífera Play: volcanic reservoirs present in the margins working interest and ENAP owns a 50% working interest (with a carry and with a sedimentary column of Cretaceous and Tertiary rocks with of the late Jurassic rift basins, where intense secondary fracturing is for the first three year investment commitment). a thickness of up to 2,000 metres. The basal sandstones of the superimposed on the primary reservoir porosity. Four main exploration plays of the Tierra del Fuego Blocks have • Year in Review • Year in Review 20202020 Execution • Year in Review 20 Execution • Year in Review Execution • Year in Review Execution • Year in Review Execution • Year in Review Execution • Year in Review Execution • Year in Review Execution Execution Neocomian (Springhill Formation) and the volcanic-clastic rocks t r e s e D a m a c a t A s a p m a P Chile Isla Norte Campanario Flamenco Santiago Chile Buenos Aires Argentina i a n o g a t a P Isla Norte Campanario Flamenco Year in Review • Execution 212121 Year in Review • Execution 21 Year in Review • Execution Year in Review • Execution Year in Review • Execution Year in Review • Execution Year in Review • Year in Review • Execution Execution YEAR IN REVIEW t r e s e D a m a c a t A s a p m a P Santiago Chile Buenos Aires Argentina i a n o g a t a P Tranquilo Otway Argentina Tranquilo Chile ChILE LICENCES • ASSETS 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. In January 2013, GeoPark formally advised the Ministry of Energy of a decision by the Tranquilo Block JV partners to not proceed within the Second Exploratory Period of the Tranquilo Block CEOP. GeoPark and its partners will relinquish the Tranquilo Block, except for an area of 92,417 acres consisting of Provisionally Protected Areas for the Marcou Sur, María Antonieta and Palos Quemados prospects. 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 within Chilean territory, comprising the frontal part of the folded and thrusted belt of the Tertiary foreland basin. The source rock is related to the deep marine basin Cretaceous deposits. The proven reservoirs with production history in Tranquilo Block are related to the Loreto Formation deltaic sandstones at depths of 700 to 1,000 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 Block 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). 22 Execution • Year in Review Year in Review • Execution 23 ChILE LICENCES • ASSETS YEAR IN REVIEW Trap types are fundamentally structurally defined anticlines developed in the folded belt, which involves 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 Block is in the folded belt and the transition zone to the foreland basin (Esperanza, Gales and Kerber structures) in which the main reservoirs are the During 2012, two prospects were drilled on the Otway Block by the basal Tertiary sandstones (Morro Chico Formation). In the southeast Tatiana well in the eastern part of Riesco Island and the Cabo Negro sector, Marcou area, there is a potential for gas accumulations in Norte 1 well in the southern part of the block. Both wells were stratigraphic traps that includes the Loreto Formation sandstones plugged and abandoned. (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. GeoPark’s current exploration focus in Otway Block is in the folded belt in Isla Riesco where big structures were defined by the 2D seismic survey. Otway Block’ seismic commitment programme was completed in 2011 and included 270 sq km of 3D seismic and 127 km of 2D seismic. A large gas prospect (unrisked mean resources of 715 BCF) in the Esperanza-Gales region in Tranquilo Block 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, but the test was not conclusive due to mechanical problems which lead to the decision to abandon the well. During 2012, three exploratory prospects, Marcou Sur, Palos Quemados and Estancia María Antonieta, were drilled on the Tranquilo Block with one successful well on Palos Quemados. A test conducted in Palos Quemados well in El Salto formation, resulted in a production rate of 4.0 million cubic feet per day of gas, through a choke of 10 millimetres, with a well-head pressure of 1,050 pounds per square inch. Further production history will be required to determine stabilised flow rates and the extent of the reservoir. The Palos Quemados field is the first gas discovery in the Tranquilo Block by GeoPark and the first hydrocarbon discovery in the Magallanes fold and thrust belt in more than 40 years. This well completed GeoPark’s work commitment in the Tranquilo Block. t r e s e D a m a c a t A s a p m a P Santiago Chile Buenos Aires Argentina i a n o g a t a P Tranquilo Otway Otway 24 Execution • Year in Review Year in Review • Execution 25 YEAR IN REVIEW COLOMBIA LICENCES • ASSETS COLOMBIA LICENCES In the First Quarter 2012, GeoPark acquired Winchester Oil and Gas The Blocks acquired in Colombia include the following: Geological basins and settings of the Colombian blocks include: S.A. and La Luna Oil Company Limited S.A. (”Winchester Luna”) – privately held exploration and production companies operating in Block Area (sq km) Operator Working Basin • Eastern Llanos Basin (La Cuerva, Llanos 62, Llanos 34, Llanos 17, Colombia – and hupecol Caracara LLC (“hupecol”) – a privately-held company with exploration and production blocks in Colombia. The combined hupecol and Winchester Luna purchases (acquired La Cuerva Llanos 34 Llanos 62 * for a total consideration of US$ 105 million, adjusted for working Yamu capital) provide GeoPark with the following in Colombia: • Working interest and/or economic interests in 10 blocks (ranging Llanos 17 * Llanos 32 * Arrendajo * Abanico * from 5% to 100%), located in the Llanos, Magdalena and Catatumbo Cerrito * basins, covering an area of approximately 575,000 gross acres. Jagüeyes * 190 333 178 45 440 406 316 130 41 247 GeoPark GeoPark GeoPark GeoPark Ramshorn P1 Energy Pacific Pacific Pacific Columbus Interest (%) 100 45 100 54.5-75 36.8 10 10 10 10 5 Llanos Llanos Llanos Llanos Llanos Llanos Llanos Magdalena Catatumbo Llanos (*) Subject to approval by ANh • Risk-balanced asset portfolio of existing reserves, low risk development potential and attractive exploration upside. • Experienced Colombian operating and administrative team to support a smooth transition and start-up by GeoPark in Colombia. 26 Execution • Year in Review 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. Year in Review • Execution 27 YEAR IN REVIEW COLOMBIA LICENCES • ASSETS Exploration drilling has been concentrated in normal, up-to-the sandstones of the Uribante Group, Capacho and La Luna Formations. basin (antithetic) faults. hanging wall anticlines related to reversal Deltaic sandstones of Paleogene age are also good reservoirs, such faults, low-relief 4-way dip closures and stratigraphic traps are all as the Catatumbo, Barco, Mirador and Carbonera Formations. The high potential exploration targets. high potential areas for main seals are thick marine and non-marine shales in the Cretaceous hydrocarbon accumulation are located in the southern and eastern and Cenozoic sequences. part of the basin where pinch-outs of reservoir sandstones are affected by fresh water (meteoric) forming hydrodynamic traps. The basin shows a wide variety of traps: normal faults partially inverted, subthrust structures, triangle zones and structures GeoPark operates and has a 45% working interest in the Llanos 34 associated to inversion system are important structural traps. Block. The Tua oil field was discovered in July 2012 with the Tua 1 The western zone of the Catatumbo Basin is a fold belt and recent well, which is currently producing at a rate of approximately studies indicate potential exploration plays along thrust zones. 927 bopd. The Tua 3 well, drilled in November 2012, is currently The basin has been moderately explored and has an attractive producing at a rate of approximately 982 bopd. Both Tua 1 and Tua 3 potential which has been delayed due to security issues in the area. wells are being produced from the Mirador formation. GeoPark drilled the Tua 2 well in January 2013 which is currently producing • Middle Magdalena Basin (Abanico Block) at a rate of approximately 1,800 bopd. Preliminary interpretations of available seismic data provide along the central reaches of the Magdalena River Valley between evidence that the Tua structure contains multiple drilling the Central and Eastern Cordilleras of the Colombian Andes. opportunities and further development of the field will include the The basin areas covers 34,000 sq km with a history of approximately drilling of the Tua 4 and Tua 5. 296 wildcat wells and 41 discoveries, including the first giant in The Middle Magdalena Basin is a rift to broken foreland, located The Max oil field was discovered in March 2012 with the Max 1 well, which is currently producing at a rate of approximately 1,031 bopd. The source rocks in the basin are defined by the Cretaceous GeoPark drilled the Max 2 well in March 2013 which is currently limestones and shales of the La Luna and the Simiti-Tablazo Colombia: La Cira-Infantas Fields. producing at a rate of 1,400 bopd. Preliminary interpretations of Formations. available seismic data provide evidence that the Max structure contains multiple drilling opportunities and further development of Most of the proven oil in the basin comes from continental the field will include the drilling of the Max 3 and Max 4. Paleogene sandstones (Paleocene-Miocene), Lisama, Esmeraldas - • Catatumbo Basin (Cerrito Block) reservoirs are fractured systems of the Cretaceous limestones (Basal La Paz, and Colorado-Mugrosa Formations. Lightly explored Limestone Group) and La Luna Formation. The Catatumbo Basin is a Cenozoic Foreland basin covering 7,350 sq km that is the Colombian portion of the Maracaibo Basin The main traps identified are structural closures form by major (Venezuelan giant basin with 2% of the world’s hydrocarbon reserves. asymmetric anticlines, including: 1. Contractional fault-related folds hidden beneath surface thrusts; 2. 4-way dip closures related to The main source rocks are defined by Cretaceous-pelitic deposits duplex systems; 3. Fault-dependent closures; and 4. Traps on the low (La Luna, Capacho, Tibú and Mercedes Formations) which are widely side of sealing faults. Despite being one of the most explored basins present throughout the Basin. The La Luna Formation is the principal in Colombia, the Cretaceous carbonate plays remains a high source rock. The main reservoirs are the Cretaceous limestones and potential under-explored target. 28 Execution • Year in Review Year in Review • Execution 29 YEAR IN REVIEW ARGENTINA LICENCES GeoPark has interests in the following blocks in Argentina: Block Area (sq km) Operator Working Basin Del Mosquito Cerro Doña Juana Loma Cortaderal 70 115 80 GeoPark GeoPark GeoPark Interest (%) 100 100 100 Austral Neuquén Neuquén DEL MOSQUITO BLOCK The Del Mosquito Block has an area of approximately 17,300 acres (70 sq km) and is located in the Austral basin in southern Argentina. In November 2012, GeoPark voluntary relinquished approximately 102,500 non-producing acres in the Del Mosquito Block to the Argentine authorities. The Austral Basin produces nearly five per cent of Argentina’s total oil production and nearly twenty five per cent of its total gas production. Although the Fell and the Del Mosquito Blocks are located in different countries, they are situated in the same geological basin and, at their closest point, are less than 50 kilometres apart. The Del Mosquito Block is surrounded by producing oil and gas fields to the north, south, east and west. There is oil production currently from one field and there is good infrastructure, nearby gas plants and pipelines and an easily accessible crude oil market (40 kilometres by truck). The potential of the Lower Magallanes and Tobífera geological formations has been underexplored. GeoPark is the operator of the Del Mosquito Block and has a 100 per cent working interest. GeoPark established oil production on the block in 2002 by rehabilitating the abandoned Del Mosquito field. In 2004, GeoPark discovered a new field – Del Mosquito Norte – which currently is shut-in. 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. 30 Execution • Year in Review ARGENTINA LICENCES • ASSETS CERRO DOÑA JUANA & LOMA CORTADERAL BLOCKS The Cerro Doña Juana and Loma Cortaderal Blocks cover an area of approximately 47,959 acres (195 sq km) and are located in the Neuquén Basin (west-central Argentina) which represents the most prolific hydrocarbon producing basin in Argentina, accounting for over forty per cent of its total oil production and over fifty per cent of its total gas production. The blocks are located in the Andean fold and thrust belt, along a proven producing fairway, where large hydrocarbon accumulations exist. There are excellent source rocks, multiple reservoir objectives and large structural traps. The oil potential on the blocks can be characterised as high risk with potentially high associated costs. GeoPark is the operator of the Cerro Doña Juana and Loma Cortaderal Blocks and has a 100 per cent working interest in each block. In 2006, GeoPark established oil production on the Loma Cortaderal Block after repairing an existing well. This well was shut-in pending for a workover, and the blocks are not currently in production. The blocks contain the prolific unconventional Vaca Muerta shale formation and the Company is currently assessing its potential and required investment. GeoPark may consider inviting a partner to join this project. Loma Cortaderal Cerro Doña Juana Argentina t r e s e D a m a c a t A s a p m a P Santiago Loma Cortaderal Doña Juana Buenos Aires (cid:33)(cid:84)(cid:76)(cid:65)(cid:78)(cid:84)(cid:73)(cid:67) (cid:47)(cid:67)(cid:69)(cid:65)(cid:78) Chile (cid:33)(cid:82)(cid:71)(cid:69)(cid:78)(cid:84)(cid:73)(cid:78)(cid:65) (cid:36)(cid:69)(cid:76) (cid:45)(cid:79)(cid:83)(cid:81)(cid:85)(cid:73)(cid:84)(cid:79) (cid:35)(cid:72)(cid:73)(cid:76)(cid:69) Argentina i a n o g a t a P Del Mosquito Year in Review • Execution 31 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 32 Risk Management • Year in Review Year in Review • Risk Management 33 YEAR IN REVIEW RISK MANAGEMENT BUSINESS PLAN Since its founding, GeoPark has approached building its business GeoPark’s management believes shareholder value is increased most with a long-term view and a keen appreciation of the inherent economically by consistently pursuing a strategy of discovery and uncertainties associated with the oil and gas industry – both above development of oil and gas deposits in areas in or nearby known and below ground. Its business model is to build a large diversified reserves. GeoPark implements this strategy through a business plan portfolio that will allow the Company to sustain continuous and which emphasises: profitable growth – and to also participate in higher risk step-change growth opportunities. Efforts are consistently made to balance 1. Technical strength in economically finding, developing and asset types, geographic locations, work programmes and capital producing new and bypassed oil and gas reserves; support. GeoPark’s consistent and strong record of growth over 2. Commercial capabilities in acquiring high potential assets at the last seven years reflects the Company’s success in balancing attractive prices; uncertainties and seizing opportunities it has encountered 3. Risk-management in expanding the portfolio, increasing options during its history. and protecting against uncertainties; and 4. Strategic mix of partners and allies to facilitate organic and Examples of key risk management elements and mitigants inorganic growth. addressed by GeoPark include: GeoPark’s opportunity portfolio includes multiple in-house projects Subsurface / Geological: Invest in best people and balanced and an asset foundation from which to pursue a targeted acquisition projects (proven production plus development and exploration plan, which is expected to include both asset and corporate targets. upside). Its full-cycle exploration and production work programme allows the Regulatory / Political: Multi-country footprint; local knowledge Company to move forward along different lines simultaneously and and ownership; IFC shareholding; SPEED initiative. independently. This available mix of rehabilitation, development, Capital / Balance Sheet: Multiple capital sources (funders and exploration and acquisition opportunities allows GeoPark to balance regions); creative and inexpensive financing. its risk exposure and ensure continuous growth. Partners: Associating with long-term strategic partners which understand the business. Market / Infrastructure: Areas with high market demand and infrastructure in place; financially strong market clients. Project Economics: Balanced work programme of production, development and exploration; invest in technology and operational efficiency. Organisation / Management: Build good demographics (seasoned professionals with new recruits); local organisations; all employees are shareholders. • • • • • • • 34 Risk Management • Year in Review Year in Review • Risk Management 35 OIL AND GAS MARKET Crude Oil RISK MANAGEMENT Crude oil markets in the region are both accessible and secure. In Crude oil prices in Colombia during 2012 averaged US$ 105.40 per Located approximately 140 kilometres from GeoPark’s Fell Block, During 2012, the natural gas prices for GeoPark in Chile increased by Chile, GeoPark’s crude oil and condensate production are sold to barrel (after discounts). Methanex operates a major plant in Chile which has the capacity to 2%, to average US$ 4.04 per Mcf. ENAP (the Chilean State Oil Company) and delivered by truck from consume 350 million cubic feet per day of gas and produce over 10 the GeoPark wells to ENAP’s refining facilities or pipeline access. In Argentina, GeoPark’s oil production is sold to Oil M&S at WTI less per cent of the world’s methanol supply. Over sixty percent of the Methanex idled its Chile plant in April 2013 and expects to restart it The sales price is equivalent to WTI less quality adjustments (based quality and retention tax adjustments. GeoPark’s crude oil is trucked Methanex gas supply, which historically has originated in Argentina, later in the present year due to anticipated insufficient natural gas on degrees API and mercury content). To accommodate increased to a local facility located 40 km from the Del Mosquito field. was cut-off by Argentina export duties and restrictions in 2007, supply. Gas supply for the plant is expected to decrease during the oil deliveries, GeoPark has also built truck reception, metering Argentina prices fluctuate in relatively minor amounts as a result of thereby creating an important market opportunity. GeoPark winter months of 2013 given the seasonal gas demand increase from and storage facilities at the ENAP San Gregorio refinery. prevailing retention taxes which cap crude oil prices. During 2012, captured this opportunity by entering into a strategic alliance with the city of Punta Arenas, which is 100% supplied by the Chilean crude oil prices in Argentina averaged US$ 69 per barrel. Methanex providing for a ten year gas purchase and supply contract State Oil Company ENAP, and whose gas production is supplemental Crude oil prices in Chile increased 2% during 2012 to average US$ 85.40 per barrel (after discounts). Natural Gas at an improved gas price (linked to the international price of to GeoPark's gas supply to the Methanex plant. methanol) and with the opportunity to pre-sell gas to generate future work programme funding and to jointly acquire new Despite this temporary stoppage, Methanex has agreed to continue In Colombia, the oil sales price is based on Brent adjusted for certain GeoPark’s revenues from gas currently represent approximately hydrocarbon blocks in Chile. This marketing alliance has to purchase gas from GeoPark in 2013 in accordance with the marketing and quality discounts including API, viscosity, sulphur and 7% of total revenues (1Q 2013). In Chile, GeoPark has continued to substantially de-risked GeoPark’s Chile gas investment activities. minimum committed gas volumes per the Gas Sales Agreement. water content. Crude oil transport infrastructure in Colombia is benefit from the major changes undergoing the regional gas however, taking in account that ENAP supply might probably not be currently limited, which impacts transportation costs. Sales contracts markets. In particular, the supply of gas from Argentina to Chile has In March 2011, a new commercial agreement was signed with enough to satisfy the demand from the cities, additional volumes are one-year agreements which do not commit parties to a minimum been severely limited and, as the only private-sector gas producer Methanex designed to increase gas production volumes may likely being produced to as a complement to ENAP’s volume and are subject to availability of either party to receive or currently in Chile, this market shift has substantially increased the by improving the relative economics of gas exploration and production. Furthermore, a new deal is being negotiated with deliver the production. During 2012, most of the Colombian value of GeoPark’s Chilean gas reserves. development for 2011. In First Quarter 2012, GeoPark further Methanex in order to receive a premium price for the gas delivered production was sold to hocol, an Ecopetrol-affiliated company. improved this arrangement by agreeing with Methanex for above the minimum committed gas once the plant restart additional incentives to explore and produce gas on the Fell Block. operations after the winter season. GeoPark's total gas revenues for 2013 are expected to represent less than 5% of total revenues. 36 Risk Management • Year in Review Year in Review • Risk Management 37 YeaR iN ReVieW Capabilities Geopark deems it critical to continuously develop creative and long-term solutions to build its capabilities and acquire the capital, tools, and people necessary to achieve its growth plans. the Company’s record of performance demonstrates that its attention to and investment in these basics are creating an important differentiating factor and a competitive advantage over the longer term. tools and infrastructure in new regions such as Chile where oilfield services are scarce or in tight oilfield equipment supply markets (as recently experienced), Geopark works to develop solutions to ensure the availability of needed services and equipment – including drilling and workover rigs. in order to quickly commercialise its oil and gas reserves, Geopark also invests in and builds the infrastructure (plants and pipelines) necessary to produce, process, store and transport its hydrocarbon reserves to market. examples of these projects in 2012 include: • • • Operated a drilling rig with a new state-of-art hydraulic rig of petreven from italy – which began drilling March 2011. the petreven rig was used to drill twelve wells in 2012. Operated a drilling rig with a depth capacity of 10,000 feet contracted from san antonio international under a one year contract – and which was used to drill three wells in 2012. Operated a drilling rig with a depth capacity of 10,500 feet contracted from Quintana Wellpro (Us/argentine drilling contractor) under a three year contract. this rig, which was imported from China as a result of the tight local rig market in 2006/7, was used to drill seven wells in 2012. RisK MaNaGeMeNt • Operated two workover rigs managed by petreven and san antonio. • the Kimiri aike production facility, which originated in bolivia and is being leased from the exterran Compression Company under a long-term contract, was put into operation during 2007 after an investment (including the construction of associated tank batteries) of Us$ 8 million. the plant provides direct access to the main regional gas pipeline and allows rapid commercialisation of new wells. Current plant capacity is 47 million cubic feet per day. • an additional gas delivery point at Munición, with a capacity of 30 million cubic feet per day, was opened in 2010 allowing gas production from the north eastern area of the Fell block to be transported and sold through an alternative pipeline system. this increased total Fell block gas production delivery capacity to 77 million cubic feet per day. • Over 120 kilometres of gas pipelines have been built on the block since 2006. • built a new storage tank at the eNap san Gregorio refinery to receive and market new crude oil deliveries. Rehabilitated and leased an existing eNap oil treatment and storage facility at Faro este to handle the increased crude oil production until a new facility will be constructed on the Fell block in 2013. • During 2012 the construction of the following projects begun: - an oil treatment plant (adjacent to Kimiri aike plant) with a capacity of approximately 10,000 bpd; - two water treatment plants (located in alakaluf and Guanaco fields) for water flooding projects in the Guanaco and alakaluf fields in Chile, aimed to increase oil recovery. 38 Risk Management • Year in Review Year in Review • Risk Management 39 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 40 Creating Opportunities • Year in Review Year in Review • Creating Opportunities 41 YeaR iN ReVieW CReatiNG OppORtUNities a strategic pillar of Geopark’s long-term business plan is based on latin america is the focus of Geopark’s growth and represents an • Human Resources – availability of qualified and experienced latin america’s economic future is dependent on the development creatively initiating and developing growth opportunities - both attractive region for Geopark because of the following fundamentals: personnel of secure energy supplies – and oil and gas will be the chief 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 insuring it has the foundation, capabilities and capital necessary to successfully acquire new economically- attractive projects. • • • Resource base – vast under-explored areas and opportunity for expansion Regulatory environment – competitive regulatory and fiscal • • • • security – negligible and/or improving security concerns contributor to this mix. With its experience in the region, strong economics – easy access and low cost operating environment technical team and committed financial resources from Hedge – multi-country position provides political balance strategic partners, Geopark is well positioned to participate in this Market – substantial immediate and long-term regional energy growing opportunity. framework requirements infrastructure – existing oil and gas services, transportation and • trends – regional industry reorientation favours smaller markets technically-proficient companies 42 Creating Opportunities • Year in Review Year in Review • Creating Opportunities 43 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 brazil, Colombia, ORGaNiC GROWtH Chile, perú, argentina, and ecuador. With a large and balanced prospect inventory on its nineteen in March 2010, Geopark entered into a strategic partnership with lG hydrocarbon blocks in Chile, argentina, and Colombia, Geopark has international to jointly acquire and develop upstream oil and gas an attractive land position and high growth potential from its projects throughout latin america. this alliance provides Geopark existing properties. this portfolio has been expanded to twenty with a long-term financially strong partner to facilitate and expand seven blocks by the new acquisitions in brazil during 2013. its access to acquisition opportunities. During 2011, the Company aided by its successes in 2012, Geopark is well positioned for 2013 interest in Geopark’s Chilean business for a total consideration of and beyond. the Company has a secure production base and Us$ 148 million plus certain funding obligations. these agreements positive cash flow stream capable of supporting continued growth further cement the strategic relationship and demonstrate the value on the Company’s assets. in addition, Geopark has substantial of the business that Geopark has built in Chile. and lGi executed two agreements by which lGi acquired a 20% cash reserves to accelerate capital investment and to acquire new projects. in the First Quarter 2012, Geopark completed two upstream oil and gas acquisitions in Colombia consisting of Winchester luna – with the Company is targeting important performance gains throughout interests in eight exploration and production blocks – and Hupecol 2013 and following an ambitious investment plan which will include: – with interests in two exploration and production blocks. the combined acquisitions provide Geopark with an attractive platform Risk-balanced production, development and exploration work in Colombia of ten hydrocarbon blocks with production, programmes. development and exploration opportunities and new acquisition Capital expenditures of Us$ 200-230 million. opportunities. Drilling of 35-45 new wells – with approximately 40% representing - - - exploration wells. in December 2012, lGi acquired a 20% equity interest in Geopark Colombia on a ground floor basis. in addition, the agreement with lGi provides Geopark to earn back additional equity depending on the success of the project. in December 2012, Geopark and lGi also agreed to extend our strategic partnership to build a portfolio of upstream oil and gas assets throughout latin america through 2015. 44 Creating Opportunities • Year in Review Year in Review • Creating Opportunities 45 Capital CReatiNG OppORtUNities 2009 to successfully participate in the capital-intensive oil and gas • New equity funding of approximately Us$ 11.8 million (3,437,000 business, Geopark is continuously developing potential funding shares at Gbp 2.25) in May 2009 from a block of Geopark’s founders, sources to ensure the efficient development of its assets. directors and shareholders and including the iFC and certain london to date, more than Us$ 795 million has been raised by Geopark – and Chilean institutional investors. the placing, which was limited demonstrating its ability to attract the capital and strong to 10% of the current issued share capital of the Company, was shareholders needed to facilitate its future growth. significantly oversubscribed. every year, Geopark has made progress in strengthening its • New equity funding of approximately Us$ 20.5 million (3,784,000 balance sheet through new funding, increased revenues and debt shares at Gbp 3.23) in November 2009 from a new strategic investor repayments. Key financings include: in the Usa, a UK institutional investor, the iFC and a director of the 2006 • international Finance Corporation of the World bank (“iFC”) equity Company. the placing was limited to 10% of the current issued share capital of the Company and was oversubscribed. investment in February 2006 for Us$ 10 million following a thorough • Methanex Gas pre-sale loan Facility for Us$ 15.0 million. this facility technical, financial and environmental review of the Group. provided Us$ 15.0 million from Methanex in order to increase • • - - - - - • • - - • admission to the london stock exchange alternative investment gas with an interest rate adjustable to the gas deliveries, was repaid completed the private placement of a Us$ 133 million Reg s Note bond required for the new tierra del Fuego blocks (equal to development of the Fell block. the facility, which was repayable in • Us$ 133 million Reg s Note. in December 2010, Geopark successfully for approximately Us$ 84 million to guarantee the performance 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 • • • in full with the proceeds from the 2010 Notes (see below). with a coupon of 7.75% per annum and maturity on 15 December approximately 83% of the total committed three year investment). Methanex loan for Us$ 3.3 million. this facility provides Us$ 3.3 pledge of 51% of the shares of Geopark Chile. in addition, the Note 2012 2015. the Notes are guaranteed by Geopark and secured with the million, interest-free, from Methanex in order to finance the agreement allows for the placement of up to an additional exploration, development and production of natural gas from the Us$ 27 million of Notes under the same indenture subject to the Otway block. maintenance of certain financial ratios. iFC loan Rescheduling of Us$ 14.0 million. in November 2009, the 2011 iFC agreed to reschedule until 2015 the outstanding Us$ 14.0 million • Us$ 70 million from lGi. as a step towards cementing the long-term • • Us$ 37.5 million term loan from banco itaú bba. to finance the acquisition and development of the la Cuerva and llanos 62 blocks from Hupecol. the loan was fully prepaid with the proceeds of the Notes issued in early 2013. Us$ 20 million from lGi. as a step towards cementing the long-term from its 2006 loan to Geopark. Following proceeds received from the growth partnership with lGi, Geopark agreed in May 2011 for growth partnership with lGi, Geopark agreed in December 2012 for lGi 2010 Notes (see below), this facility was repaid in full. lGi to acquire a 10% interest in the Chilean business (participation to acquire a 20% interest in the Colombian business for a capital in Fell, Otway and tranquilo blocks) for Us$ 70 million. contribution of Us$ 14.9 million plus assumption of Us$ 5 million in debt. Chile stock exchange listing. Following the approval of the Chilean Methanex Gas pre-sale loan Facility for Us$ 40 million. this superintendencia de Valores y seguros (sVs), Geopark’s stock • Us$ 78 million from lGi. in October 2011, Geopark and lGi signed a 2013 agreement provided Us$ 40 million from Methanex in order to was admitted to trade on the santiago Offshore stock exchange in second agreement by which lGi acquired an additional 10% in the • Us$ 300 million notes under Rule 144a and Regulation s exemptions increase development of the Fell block. Conditions include: Chile in October 2009. this development strengthens Geopark’s Chilean business for a total consideration of Us$ 78 million. in of the U.s. securities laws. the Notes, issued by the Company's pay back in gas production over six years in variable instalments foundations in the region and ties to the Chilean financial addition, lGi committed to provide additional equity funding of wholly-owned subsidiary Geopark latin america limited agencia en an interest rate paid on borrowed funds of libOR flat community which is becoming an increasingly active supporter of Us$ 31.6 million over the next three years for its share of the Chile ("the issuer"), were priced at 99.332% and will carry a coupon of 2008 notes will be 11 February 2020. Notes were rated single b by both New equity funding of approximately Us$ 24 million (3,080,000 2010 • performance bond Contribution. as part of the October 2011 standard & poor's and Fitch Ratings. j.p. Morgan, banco itaú and btG shares at Gbp 3.94) in May 2008 from a strategic block of Chilean • strategic partnership with lG international (lGi). in March 2010, transaction, lGi agreed to provide stand-by letters of Credit (sblC) pactual participated as joint bookrunners. the Company’s efforts. minimum work programme of the three tierra del Fuego licences. 7.50% per annum to yield 7.625% per annum. Final maturity of the investors and pension funds, the iFC and certain london Geopark and lGi agreed to jointly acquire upstream oil and gas institutional investors. the placing, which was limited to 10% of the assets throughout latin america in side-by-side acquisitions. this current issued share capital of the Company, was significantly partnership enables Geopark to both accelerate and expand its oversubscribed. current efforts to acquire new projects with initial projects targeted in the Us$ 100-500 million range. International Finance Corporation World Bank Group 46 Creating Opportunities • Year in Review Year in Review • Creating Opportunities 47 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 48 Commitment • Year in Review Year in Review • Commitment 49 YeaR iN ReVieW 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. 50 Commitment • Year in Review Year in Review • Commitment 51 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. is being developed in accordance • Geopark is committed to delivering significant bottom-line 18001 for occupational health and safety management issues; financial value to our shareholders. Only a financially healthy and sa 8000 for social accountability and worker rights issues; transparent company can continue to grow, attract needed the Development standards of the World bank; and the Quoted resources and create real long-term benefits. Companies alliance standards for good corporate governance. with: isO 14001 for environmental management issues; OsHas • Geopark is committed to creating a safe and motivating workplace “Creating Value and Giving Back” represents Geopark’s underlying for employees. With today’s shortage of capable energy value system which provides us the leadership, confidence and professionals, the company which is able to attract, protect, retain foundation required for long-term success. it is our competitive above: participants in bMX championship in punta arenas in august 2012 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. "GeoPark’s Presence in Magallanes" It has been ten years since GeoPark, the Latin American company whose shares employs 158 people, while indirectly it has created jobs for another 900 people. are listed in London, started operating in the Fell Block in cooperation with ENAP. This year, GeoPark targets an investment of US$ 240 million in Chile, Colombia and The assignment by ENAP of its interest in the Block in 2006 gave rise to objections Argentina, its goal being to double the Company’s oil and gas production. from a number of ENAP workers and professional who considered this assignment unjustifiable, particularly in view of the successes subsequently obtained by In Magallanes, this year will conclude with more that 20 drilled wells, and an GeoPark in the area. investment of around US$ 110 million. After the latest award of prospecting areas, the Company will be operating six blocks by next December. and train the best team with the best attitude will always prevail. advantage. and, it reflects our pride in achieving an important Regardless of whether or not the transaction was convenient in terms of ENAP’s • Geopark is committed to minimising the impact of our projects on to work, the preferred partner and the cleanest operator – our future mission in the right way. if we are the true performer, the best place the environment. as our footprint becomes cleaner and smaller is bigger, better and more secure. – more areas and opportunities will be opened up for us to work in. capabilities and interests, the private company demonstrated what can be done From 2009 to this year, GeoPark has paid about US$ 300 million in services, labor with the right technology and plans. When GeoPark received the Fell Block, and supplies in the area. production here was zero, while over the 40-year period ENAP had operated the Block, total production amounted to 10 million barrels of oil equivalent, extracted The Company has also played a proactive role in promoting sports by fostering a from 147 drilled wells. Since 2006, the private company has drilled 80 wells, number of activities practiced at Club Deportivo GeoPark (GeoPark Sports Club). extracting 12 million BOE from the area. One of its main merits in this area has been, in addition to directly providing The initial objections overcome, today GeoPark’ presence has an undeniable to bid for funding from the National Sports Institute. impact on the economy of the region as the Company has become a major player in terms of job creation, particularly for the more skilled technical personnel On the balance, GeoPark’s presence can be positively evaluated and, in general, its and professionals, who receive a remuneration that is in accordance with demeanour can be regarded as worthy of being imitated by other companies. financial support to the Club, to help the Club attain self management, enabling it the level of expertise required in the hydrocarbon industry. The Company directly 52 Commitment • Year in Review Year in Review • Commitment 53 2012 Full Year results 54 2012 Full Year Results 2012 Full Year Results 55 Company Overview The information included under this section “2012 Full Year Results” including the summary financial statements is a summary of the information disclosed in the 2012 Report Consolidated Financial Statements and approved by the Board of Directors on 9 April 2013. The independent auditor’s report issued on 9 April 2013 in respect of the 2012 consolidated financial statements was unqualified. The independent auditors statement on the summary financial statements is included on page 78. A copy of the 2012 consolidated financial statements and report is available on the GeoPark web-site: www.geo-park.com GeoPark Holdings Limited (“GeoPark” or “the Company”) and its subsidiaries together are referred to herein as the Group. LGI partnership During 2011, the Company transferred 20% of its Chilean business to LGI Directors’ Interests The Directors who served the Company during the year and subsequently, (see Note 29). Therefore the non-controlling interest on the profit of that year together with their (and their families’) beneficial interests in shares in the Addresses The Registered office address is Cumberland House, 9th Floor, 1 Victoria corresponds to the profit generated by the Chilean operations. The profits Company, were as follows: of the Chilean operations that are attributable to the owners of the Company Street, Hamilton HM 11, Bermuda. The Company has a representative office were offset by losses incurred by the Company in its Corporate and Argentine at 35 Piccadilly, London, United Kingdom. operations. Committees Ordinary shares of US$ 0.001 each at Name Re-Appointment Audit Nomination Remuneration 31 December 2012 Principal Activity The principal activity of the Group in the period under review was to explore, During 2012, the Company transferred 20% of its Colombian business to LGI (see Note 29). As the transaction occurred at the end of the year, there was develop and produce for oil and gas reserves in Chile, Colombia and no profit attributable to a non-controlling interest. Argentina. The Group owns a solid and well-balanced portfolio of assets that includes 19 hydrocarbon blocks in which we have working interests and/or In addition, in March 2013, GeoPark and LGI announced their agreement to economic interests. Business transactions extend their strategic alliance to build a portfolio of upstream oil and gas assets throughout Latin America through 2015. Acquisitions in Colombia In February 2012, GeoPark acquired two privately-held exploration and Dividends The Directors do not recommend the payment of any dividend for the year production companies operating in Colombia, Winchester Oil and Gas S.A. ended 31 December 2012 (2011: nil). The Group is currently re-investing and La Luna Oil Company Limited S.A. (“Winchester Luna”). all cash generated by its operations and intends to continue to re-invest these In March 2012, a second acquisition occurred with the purchase of Hupecol Net free available equity reserves, defined as Other Reserve plus Accumulated Cuerva LLC (“Hupecol”), a privately-held company with two exploration and Losses, amount to US$ 121.7 million. funds for the near future. Cumulative losses for the Group are US$ 5.9 million. production blocks in Colombia. The combined Hupecol and Winchester Luna purchases were acquired for a total consideration of US$ 105 million, adjusted for working capital. Under the terms of the sale and purchase agreement entered into in 2012 in respect of the acquisition of Winchester Luna, the Company has to make certain payments to the former owners arising from the production and sale of hydrocarbons discovered by exploration wells drilled after 25 October 2011 on the working interests of the companies at that date. These payments which involve both, an earnings based measure and an overriding revenue royalty, equate to an estimated 4% carried interest on the part of the vendor. Gerry O’Shaughnessy Executive Chairman James F. Park Chief Executive Officer 6 August 2012 (*) 6 August 2012 (*) Sir Michael R. Jenkins Non-Executive Director 6 August 2012 (*) Christian M. Weyer Non-Executive Director 6 August 2012 (*) Peter Ryalls Non-Executive Director 6 August 2012 (*) Juan Cristóbal Pavez Non-Executive Director 6 August 2012 (*) Carlos Gulisano Non-Executive Director 6 August 2012 (*) Steven J. Quamme Non-Executive Director 6 August 2012 (*) 8,172,793 6,983,068 40,364 219,844 39,778 Committee Member Committee Chairman 2,168,457 (*) Most recent reappointment date. (1) 1,469 (1) Carlos Gulisano holds 50,000 IPO stock options 4,906,488 and 100,000 stock awards. Auditors PricewaterhouseCoopers LLP has completed the audit of the 2012 Financial Going Concern The Directors regularly monitor the Group’s cash position and liquidity risks Statements, as appointed in the Annual General Meeting held in August 2012 throughout the year to ensure that it has sufficient funds to meet forecast and offer themselves for Re-Appointment. NOMAD Oriel Securities Limited is the Company’s Nominated Advisor under the AIM rules of the London Stock Exchange. operational and investment funding requirements. Sensitivities are run to reflect latest expectations of expenditures, oil and gas prices and other factors to enable the Group to manage the risk of any funding short falls and/or potential loan covenant breaches. Annual General Meeting At the Annual General Meeting of the Company, resolutions will be proposed Considering macroeconomic environment conditions, the performance of the operations, the US$ 300 million debt fund raising completed in February 2013 and the Group’s cash position, the Directors have formed a judgement, to re-elect the Directors, according to the Company’s Bye Laws. Other at the time of approving the financial statements, that there is a reasonable resolutions may be proposed in accordance with the circular to be sent out. expectation that the Group has adequate resources to continue with its Further details will be set forth in the formal Notice of Meeting. 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. 56 Company Overview Company Overview 57 Corporate Governance GeoPark is committed to maintaining high standards of corporate governance which it defines as managing the Group in an efficient, effective Independence The Board reviews annually the independence of all Non-Executive Directors Audit Committee The Audit Committee is comprised of three independent Non-Executive Remuneration Committee The Remuneration Committee is comprised of three independent and entrepreneurial manner for the benefit of all shareholders over the and has determined that, with the exception of Carlos Gulisano, all current Directors (being Sir Michael Jenkins (up until his death on 31 March 2013), Non-Executive Directors, who currently are Mr. Juan Cristóbal Pavez, longer term. The Directors strongly intend, as is feasible given the Group’s Non-Executive Directors are independent and have no cross-directorships or Mr. Peter Ryalls and Mr. Juan Cristóbal Pavez). During the year the Mr. Steven J. Quamme and Mr. Peter Ryalls. The Committee is chaired by size and the constitution of the Board, to comply with the guidelines on significant links which could materially interfere with the exercise of their Committee was chaired by Sir Michael Jenkins and met to approve the Mr. Juan Cristóbal Pavez and meets as required during the year. corporate governance of the Quoted Companies Alliance for AIM companies. independent judgment. Financial Statements, as required during the year. The Committee’s specific responsibilities are: GeoPark’s corporate governance goals include: Board Support Mr. Pedro Aylwin Chiorrini is currently the Company Secretary and is available The Committee’s specific responsibilities to the Board are: • Determining and agreeing with the Board the remuneration policy for the • Reviewing Financial Statements and formal announcements relating to the Chief Executive Officer, Chairman, Executive Directors and other members • Efficiency: Creating a governing body of an appropriate size to permit to advise all Directors and ensure compliance with Board procedures. Group’s performance; of the Executive Management; efficient decision-making with transparency for major decisions, clear The Board has the power to appoint and remove the Company Secretary. • Assessing the independence, objectivity and effectiveness of the external • Reviewing the performance of the Executive Directors and other members definition of responsibilities and performance targets, and procedures in place to protect and ensure the protection of the Company’s assets. • Effectiveness: Assembling a governing body with the required skills, Internal Control Review Directors review on an ongoing basis, inter alia, financial, operational, compliance matters and risk management, and approve the annual budget auditors; of the Executive Management; • Making recommendations for the appointment, re-appointment and • Reviewing the design of the share incentive plans for approval by the Board removal of the external auditors and approving their remuneration and terms and shareholders. of engagement; and provided with the proper information and collectively involved to make the and monitor performance. The Board has the responsibility to establish and • Implementing and monitoring policy on the engagement of the external best decisions for the Company. maintain the Group’s system of internal controls and review its effectiveness. auditor to supply non-audit services to the Group. The procedures are reviewed on an ongoing basis. • Entrepreneurial: Defining a vision for the Company with an understanding of goals, timing and necessary resources. The Group maintains an approval procedure for capital expenditures and Nomination Committee The Nomination Committee is comprised of three Directors (being Mr. • Shareholder Common Good: Taking decisions which consider the good of position of individuals. The Board has approved the annual budget and and Mr. Gerald O’Shaughnessy), the majority of whom are independent all shareholders and which, if they involve management, major shareholders performance against the budget is monitored and reported. Non-Executive Directors. The Committee is chaired by Mr. Christian M. Weyer and other related parties, are reported in a transparent manner. and meets as required. expenses. It includes different levels of authorisation based on functions and Christian M. Weyer, Sir Michael Jenkins (up until his death on 31 March 2013) The internal control system can only provide reasonable and not absolute Board Members assurance against material misstatement or loss. The Board has considered The Committee’s specific responsibilities to the Board are: the need for an internal audit function but does not consider it necessary • Reviewing the structure, size and composition of the Board and making Executive Directors: Gerald E. O’Shaughnessy - Chairman James F. Park - Chief Executive Officer at the current time. recommendations to the Board with regard to any changes required; • Identifying and nominating, for Board approval, candidates to fill Board During 2012, the company implemented an Ethics Line in order to provide vacancies as and when they arise; employees a channel to report any irregularity or concerns on working • Making recommendations to the Board with regard to membership of the Non-Executive Directors: environment, through an anonymous and independent service held Audit and Remuneration Committees in consultation with the Chairman Sir Michael R. Jenkins (up until his death on 31 March 2013) by a subcontracted company. An internal ethics committee is in charge of of each Committee; Christian M. Weyer Peter Ryalls Juan Cristóbal Pavez Carlos Gulisano Steven J. Quamme 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. reviewing any allegations received and to provide advice and • Reviewing the outside directorship/commitments of the Non-Executive recommendations if applicable. Directors; • Succession planning for Directors and other senior executives. 58 Corporate Governance Corporate Governance 59 Directors’ Remuneration Report The following information is not subject to audit. In accordance with the programme, 601,235 common shares were issued to Stock Awards to Executive Directors Remuneration Committee The Company has a Remuneration Committee. The members of the Committee during 2012 were Juan Cristóbal Pavez, Chairman, Peter Ryalls and Steven J. Quamme, who are Non-Executive Directors. the GeoPark Employee Benefit Trust for use in the settlement of the exercise of stock options granted to certain Executive Directors and employees at the time of the Company’s IPO. Stock Awards to Management, Employees and Executive Directors In order to align the interests of its Management, employees and key The Remuneration Committee agrees with the Board the framework for the advisors with those of the Company and its Shareholders, the Directors have remuneration of the Chief Executive, the Chairman of the Company and such established a Performance-based Employee Long-Term Incentive Programme other members of the Executive Management as it is designated to consider. (“the Plan”). At the Annual General Meeting held on 19 November 2007, N° of % of issued Underlying Common Common Shares Share Capital Approxi- Name Gerald O’Shaughnessy 270,000 mately 0.6% James F. Park Approxi- 450,000 mately 1.0% Non-Executive Directors Contracts In August 2012 at the Annual General Meeting, the Shareholders re-elected Earliest the Non-Executive Directors. The remuneration package approved for Grant Exercise Exercise Non-Executive Directors, which is detailed in the corresponding service Date Price (US$) Date contracts, contains the following components: 23 Nov 2012 23 Nov 2012 23 Nov 0.001 2015 a) Annual salary of £ 35,000; the fees payable shall be made up, at the 23 Nov option of the Company, of an issue of new shares in the Company on the 0.001 2015 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 Shareholders voted to authorise the Board to use up to 12% of the issued Considering the previously issued IPO Awards, plus the 12% limit established average to the daily closing price of the stock in the quarter prior to the No Director plays a part in any discussion about his own remuneration. share capital of the Company at the relevant time for the purposes of the for the Plan, the total share capital awarded and to be awarded to employees, payment date. Executive remuneration packages are designed to attract, motivate and Board of Directors to implement this plan and determine the specific the shares issued. retain Directors of the calibre required to grow the business and enhance conditions for each programme within some broadly-defined guidelines. quarterly in arrears in cash. c) Notice for contract termination: 2 months. value to Shareholders. The performance measurement of the Executive Directors and the determination of their annual remuneration package are During 2012, the Remuneration Committee and the Board of Directors Executive Directors’ Contracts It is the Group’s policy that Executive Directors should have contracts of an The following chart summarises the detail of payments made to undertaken by the Committee. approved the granting of 500,000 performance share awards to employees indefinite term providing for a maximum of one year’s notice. The details Non-Executive Directors: Employee Long-Term Incentive Plan. GeoPark’s Shareholders authorised the Management and Executive Directors represents approximately 13.4% of b) Committee Chairman fee: annual remuneration of £ 5,750 payable and Management under the Plan. The 2012 awards also encompass new of the Director’s contracts are summarised below: The Company’s policy is that a substantial proportion of the remuneration of employees that have joined the Company since the 2011 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 the rules set out in the Plan). IPO Award Programme and Executive Stock Option plan On admission to AIM, the Executive Directors, the Management and key Stock Awards to Management and Employees employees of the Company received the following options over common N° of % of issued shares of the Company granted under the Executive Stock Options Plan. Underlying Common IPO Stock Options to Management and key employees N° of % of issued Underlying Common Common Share Shares Capital Approxi- 545,000 mately 1.3% Grant Date 15 May 2006 Exercise Price (£) 4.00 Earliest Exercise Date 15 May 2008 Expiry Date 15 May 2013 Dr. Carlos Gulisano holds 50,000 of these IPO Stock Options. Common Shares (1) Share Capital Approxi- 976,211 mately 2.2% Approxi- 852,100 mately 2.0% Approxi- 500,000 mately 1.1% Approxi- 500,000 mately 1.1% Grant Date 15 Dec 2008 15 Dec 2010 15 Dec 2011 15 Dec 2012 Exercise Price (US$) 0.001 0.001 0.001 0.001 Earliest Exercise Date 15 Dec 2012 15 Dec 2014 15 Dec 2015 15 Dec 2016 Expiry Date 15 Dec 2018 15 Dec 2020 15 Dec 2021 15 Dec 2022 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$ 250,000 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 Sir Michael Jenkins (1) Peter Ryalls (2) Christian Weyer (3) Juan Cristóbal Pavez service agreement contains restrictive covenants which restrict him, Carlos Gulisano for a period of 12 months following the termination of employment, from Steven J. Quamme soliciting senior employees of the Company and, for a period of 6 months 2012 Cash Payment Stock Payment Director Fees Non-Executive Committee Paid in Shares Directors’ Fees Chairman Fees No. of Shares £ 17,500 £ 17,500 £ 17,500 £ 17,500 £ 35,000 £ 17,500 £ 5,750 £ 5,750 £ 5,750 - - - 3,020 3,020 3,020 3,020 - 3,020 following the termination of employment, from being involved in any Additionally Dr. Carlos Gulisano received US$ 250,000 for technical competing undertaking. consultancy during 2012 (US$ 138,000 in 2011). During 2012 a bonus for a total amount of US$ 150,000 was awarded to (1) Audit Committee Chairman Gerald O’Shaughnessy (no bonus in 2011). James F. Park James F. Park has a service contract with the Company which provides for him to act as Chief Executive Officer of the Company at a salary of (2) Remuneration Committee Chairman before the 2012 AGM designated Juan Cristóbal Pavez. (3) Nominations Committee Chairman Approval This report was approved by the Board of Directors on 9 April 2013. IPO Stock Options to Executive Directors with the programme, 976,211 common shares were issued to the subject to it being terminable by either party by giving not less than (1) Dr. Carlos Gulisano holds 100,000 of these Stock awards. In accordance US$ 500,000 per annum. The agreement is stated to continue indefinitely, N° of Underlying Common Shares 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 Name Gerald O’Shaughnessy James F. Park GeoPark Employee Benefit Trust for use in the settlement of the exercise 12 months’ notice in writing at any time. The payment of any bonus to of stock awards. Mr. Park is at the Company’s discretion. Mr. Park’s service agreement contains restrictive covenants which restrict him, for a period of 12 months following the termination of employment, from soliciting senior employees of the Company and, for a period of 6 months following the termination of employment, from being involved in any competing undertaking. During 2012 a bonus for a total amount of US$ 300,000 was awarded to James F. Park (no bonus in 2011). 60 Directors’ Remuneration Report Directors’ Remuneration Report 61 Summary Financial Statements Consolidated Statement of Income Consolidated Statement of Financial Position Amounts in US$ ’000 Note 2012 2011 Amounts in US$ ’000 Note 2012 2011 5 6 9 10 11 12 13 29 14 Net Revenue Production costs Gross Profit Exploration costs Administrative costs Selling expenses Other operating income (expenses) Operating Profit Financial income Financial expenses Bargain purchase gain on acquisition of subsidiaries Profit before Income Tax Income tax Profit for the Year Attributable to: Owners of the Company Non-controlling interest Earnings per share (in US$) for profit attributable to owners of the Company. Basic 16 Earnings per share (in US$) for profit attributable to owners of the Company. Diluted 16 Consolidated Statement of Comprehensive Income Amounts in US$ ’000 Income for the year Other comprehensive income: Total comprehensive Income for year Attributable to: Owners of the Company Non-controlling interest 250,478 (129,235) 121,243 (27,890) (28,798) (24,631) 823 40,747 892 (17,200) 8,401 32,840 (14,394) 18,446 11,879 6,567 0.2784 0.2693 2012 18,446 - 18,446 11,879 6,567 The notes on pages 66 to 78 are an integral part of these summarised consolidated financial statements. 111,580 (54,513) 57,067 (10,066) (18,169) (2,546) (502) 25,784 162 (13,678) - 12,268 (7,206) 5,062 54 5,008 0.0013 0.0012 2011 5,062 - 5,062 54 5,008 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 at bank and in hand Total Current Assets Total Assets Total Equity Equity attributable to owners of the Company Share capital Share premium Reserves Accumulated losses Attributable to owners of the Company 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 17 18 15 20 19 20 20 18 21 22 23 15 22 24 25 457,837 10,707 7,791 13,591 510 490,436 - 3,955 32,271 49,620 3,443 48,292 137,581 628,017 43 116,817 128,421 (5,860) 239,421 72,665 312,086 165,046 25,991 17,502 208,539 27,986 7,315 54,890 17,201 107,392 315,931 224,635 2,957 5,226 450 707 233,975 3,000 584 15,929 24,984 147 193,650 238,294 472,269 43 112,231 115,164 (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 62 Consolidated Statement of Income Consolidated Statement of Financial Position 63 Total Equity and Liabilities 628,017 472,269 The notes on pages 66 to 78 are an integral part of these summarised consolidated financial statements. Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flow Amount in US$ ’000 Capital Premium Reserve Reserve Losses Interest Total Attributable to owners of the Company Non- Share Share Other Translation Accumulated controlling Equity at 1 January 2011 Comprehensive income: Profit for the year Total Comprehensive Income for the Year 2011 Transactions with owners: Proceeds from transaction with Non-controlling interest (Notes 21 and 29) Share-based payment (Note 26) Total 2011 42 107,858 3,025 894 (19,527) - 92,292 - - - 1 1 - - - - - 111,245 4,373 - 4,373 111,245 - - - - - 54 54 5,008 5,062 5,008 5,062 - 924 924 36,755 148,000 - 5,298 36,755 153,298 Balances at 31 December 2011 43 112,231 114,270 894 (18,549) 41,763 250,652 Comprehensive income: Profit for the year Total Comprehensive Income for the Year 2012 Transactions with owners: Proceeds from transaction with Non-controlling interest (Notes 21 and 29) Share-based payment (Note 26) Total 2012 - - - - - - - - - 13,257 - 13,257 4,586 4,586 - - - - - 11,879 6,567 18,446 11,879 6,567 18,446 - 810 810 24,335 - 37,592 5,396 24,335 42,988 Amounts in US$ ’000 Note 2012 2011 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 interest on borrowings Amortisation of other long-term liabilities Unwinding of long-term liabilities Accrual of share-based payment Exchange difference generated by borrowings Gain on acquisition of subsidiaries Deferred income Income tax paid Changes in working capital 14 7 9 9 23 23 8 23 3 18,446 14,394 53,317 546 25,552 - 12,478 (2,143) 1,262 5,396 35 (8,401) 5,550 (408) 5,778 5,062 7,206 26,408 2,010 5,919 1,344 11,130 (1,038) 350 5,298 (15) - 5,000 - 89 Cash flows from operating activities - net 131,802 68,763 Cash flows from investing activities Purchase of property, plant and equipment Acquisitions of companies, net of cash acquired 29 Purchase of financial assets Cash flows used in investing activities - net Cash flows from financing activities Proceeds from borrowings (198,204) (105,303) - (303,507) 37,200 12,452 (12,382) (10,895) 26,375 (98,651) - (2,625) (101,276) 9,668 142,000 (9,150) (10,779) 131,739 Balances at 31 December 2012 43 116,817 127,527 894 (5,860) 72,665 312,086 Proceeds from transaction with non-controlling interest The notes on pages 66 to 78 are an integral part of these summarised consolidated financial statements. Principal paid Interest paid Cash flows from financing activities - net Net (decrease) increase in cash and cash equivalents (145,330) 99,226 Cash and cash equivalents at 1 January 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 183,622 38,292 48,268 24 (10,000) 38,292 84,396 183,622 193,642 8 (10,028) 183,622 The notes on pages 66 to 78 are an integral part of these summarised consolidated financial statements. 64 Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flow 65 Notes Note 1 General Information Note 4 Segment information Amounts Note 5 in US$ ’000 Argentina Colombia Chile Corporate Total Net Revenue GeoPark Holdings Limited (the Company) is a company incorporated under Management has determined the operating segments based on the reports the laws of Bermuda. The addresses of its registered office and principal reviewed by the strategic steering committee that are used to make strategic places of business are disclosed in the introduction to the Directors’ Report. decisions. The committee considers the business from a geographic The principal activities of the Company and its subsidiaries (the Group) are perspective. described in the Directors’ Report. The Company is quoted on the AIM London Stock Exchange. Also its shares segments based on a measure of adjusted earnings before interest, tax, are authorised for trading on the Santiago Off-Shore Stock Exchange, in depreciation, amortisation and certain non-cash items such as write-offs, US$ under the trading symbol “GPK”. impairments and share-based payments (Adjusted EBITDA). This The strategic steering committee assesses the performance of the operating Note 2 Accounting policies measurement basis excludes the effects of non-recurring expenditure from the operating segments, such as impairments when it is the result of an isolated, non-recurring event. Interest income and expenses are not included in the result for each operating segment that is reviewed by the strategic 2011 Net revenue Gross profit Adjusted EBITDA 1,477 179 (1,081) Depreciation (1,083) Impairment and write-off Total assets (1,344) 10,895 Employees (average) 83 - - - - - - - 110,103 56,888 - - 111,580 Amounts in US$ ’000 57,067 Sale of crude oil 70,421 (5,949) 63,391 (25,297) (28) (26,408) Sale of gas Note 6 (5,919) (1) 453,384 - (7,263) Production costs 7,990 472,269 Amounts in US$ ’000 Depreciation 98 1 182 Royalties Staff costs (Note 8) steering committee. Other information provided, except as noted below, to (1) Includes cash received from disposal of 20% of the Chilean business Gas plant costs The summarised consolidated financial statements of GeoPark Holdings the strategic steering committee is measured in a manner consistent with in 2011. Limited have been prepared in accordance with International Financial that in the financial statements. Reporting Standards as adopted by the European Union (IFRS). Segment areas (geographical segments): The summarised consolidated financial statements are presented in thousands (US$ ’000) of United States Dollars and all values are rounded to Amounts Approximately 70% of capital expenditure was allocated to Chile (95% Well maintenance in 2011) and 30% was allocated to Colombia (0% in 2011). Consumables A reconciliation of total Adjusted EBITDA to total profit before income tax Vehicle rental and personnel transportation Share-based payments (Notes 8 and 26) Transportation costs Facilities maintenance the nearest thousand (US$ ’000), except where otherwise indicated. in US$ ’000 Argentina Colombia Chile Corporate Total is provided as follows: The summarised consolidated financial statements have been prepared on a historical cost basis. 2012 Net revenue Gross 1,050 99,501 149,927 (loss) / profit (2,194) 39,304 84,133 - - 250,478 121,243 A full listing of the accounting policies and estimates applied by the Company Adjusted are available in the report on our web site www.geo-park.com. EBITDA 2,051 34,474 93,908 (9,029) 121,404 Note 3 Consolidated Statement of Cash Flow Changes in working capital shown in the Consolidated Statement of Cash Depreciation (3,408) (21,050) (28,734) (125) (53,317) Impairment and write-off (1,915) Total assets 6,108 (5,147) 213,202 (18,490) 405,674 - 3,033 (25,552) 628,017 Amounts in US$ ’000 Adjusted EBITDA for reportable segments Depreciation Share-based payment Impairment and write-off of unsuccessful efforts Others (a) Operating profit Financial results Gain on acquisition of subsidiaries Profit before tax 2012 121,404 (53,317) (5,396) (25,552) 3,608 40,747 (16,308) 8,401 32,840 Pulling costs Field camp 2011 Landowners 63,391 (26,408) (5,298) (7,263) Safety and insurance costs Non-operated blocks costs Equipment rental Cost of crude oil sold from acquired business 1,362 Other costs 25,784 (13,516) - 12,268 Note 7 Depreciation 2012 221,564 28,914 2011 73,508 38,072 250,478 111,580 2012 52,307 11,424 12,384 3,371 7,211 3,277 3,803 9,884 1,787 1,680 2,305 2,407 845 1,428 1,030 5,936 3,826 4,330 129,235 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 - - - 2,188 54,513 Employees (average) 100 80 144 - 324 (a) Includes internally capitalised costs. Flow are disclosed as follows: Amounts in US$ ’000 Change in Prepaid taxes Change in Inventories Change in Trade receivables Change in Prepayments and other receivables and Other assets Change in liabilities 2012 (11,046) 8,837 (7,842) 2011 892 (332) (2,858) 9,759 6,070 5,778 (16,350) 18,737 89 Amounts in US$ ’000 Oil and gas properties Production facilities and machinery Furniture, equipment and vehicles Buildings and improvements Depreciation of property, plant and equipment Recognised as follows: Production costs Administrative costs Other operating costs Depreciation total 2012 44,552 7,708 713 344 2011 20,096 5,767 343 202 53,317 26,408 52,307 1,010 - 25,844 501 63 53,317 26,408 66 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 67 Note 8 Staff costs Average number of employees Amounts in US$ ’000 Wages and salaries Shared-based payment Social security charges Note 9 Exploration costs Amounts in US$ ’000 Staff costs (Note 8) Allocation to capitalised project Share-based payments (Notes 8 and 26) Write-off of unsuccessful efforts (a) Impairment loss (b) Amortisation of other long-term liabilities related to unsuccessful efforts Other services Note 10 Administrative costs 2012 324 19,132 5,396 3,636 2011 Amounts in US$ ’000 182 Staff costs (Note 8) Share-based payments (Notes 8 and 26) 9,914 5,298 2,228 Consultant fees New projects Office expenses 28,164 17,440 Director fees and allowance Travel expenses Communication and IT costs Depreciation Public relations Other administrative expenses 2012 3,089 (1,849) 1,329 25,552 - (1,500) 1,269 27,890 2011 2,292 (1,471) 985 Note 11 5,919 1,344 (600) 1,597 Selling expenses Amounts in US$ ’000 Transportation Delivery or pay penalty 10,066 Storage Selling taxes (a) The 2012 charge corresponds to the cost of eight unsuccessful exploratory wells: five of them in Chile (two in Fell Block, two in Otway Block and the remaining in Tranquilo Block) and three of them in Colombia (one in Cuerva Block, one in Arrendajo Block and the remaining in Llanos 17 Block). Note 12 The 2012 charge also includes the loss generated by the relinquishment of an Financial income area in the Del Mosquito Block in Argentina. The 2011 charge corresponds to the write-off of exploration and evaluation Exchange difference assets in the Fell Block. The charge includes the cost of an unsuccessful exploratory well amounting to US$ 2,331,000 and also in accordance with the Interest received Amounts in US$ ’000 Group’s accounting policy and considering that no additional work would be performed, wells from previous years were written-off for an amount of US$ 3,588,000. Note 13 Financial expenses (b) The impairment charge relates to assets located in Del Mosquito Block based on the impairment test performed in 2011. Amounts in US$ ’000 Bank charges and other financial costs Exchange difference Unwinding of long-term liabilities Interest and amortisation of debt issue costs Less: amounts capitalised on qualifying assets 2012 7,295 2,280 5,122 2,927 3,293 1,516 1,563 889 1,010 919 1,984 2011 5,282 2,866 1,896 1,726 1,172 903 686 539 501 1,289 1,309 Note 14 Income tax Amounts in US$ ’000 Current tax Deferred income tax (Note 15) The breakdown and movement of deferred tax assets and liabilities as of 31 December 2012 and 2011 are as follows: 2012 7,536 6,858 14,394 2011 187 7,019 7,206 At the Acquisition credited/ (Charged) Amounts in US$ ’000 of year subsidiaries beginning of to net profit At end of year The tax on the Group’s profit before tax differs from the theoretical amount Deferred tax assets Difference in depreciation that would arise using the weighted average tax rate applicable to profits rates and other of the consolidated entities as follows: Amounts in US$ ’000 Profit before tax Tax losses from non-taxable jurisdictions Taxable losses (*) Total 2012 2011 Total 2011 12,268 8,565 20,833 2012 32,840 8,373 41,213 28,798 18,169 Taxable profit Income tax calculated at statutory tax rate 6,290 5,473 Tax losses where no deferred income tax is recognised Difference between functional currency and tax currency Expenses not deductible for tax purposes Non-taxable profit Income tax 2,864 2,560 Amounts in US$ ’000 Deferred tax liabilities Difference in depreciation 3,784 1,903 (447) (761) rates and other - Borrowings (66) Total 2012 14,394 7,206 Total 2011 2012 22,066 1,718 645 202 2011 1,886 - 508 152 (1,426) 1,876 450 374 11,313 4,293 15,606 - (676) (1,789) (2,465) 76 9,211 4,380 13,591 450 (Charged) / At the credited beginning of year to net profit At end of year (12,338) (4,564) (16,902) (771) (13,109) (6,014) 171 (4,393) (7,095) (600) (17,502) (13,109) 24,631 2,546 Under current Bermuda law, the Company is not required to pay any taxes (*) In Chile, taxable losses have no expiration date. 2012 348 544 892 2011 32 130 162 2012 1,764 2,429 1,262 13,114 (1,369) 17,200 2011 1,856 496 350 11,573 (597) 13,678 in Bermuda on income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, they will be exempt from taxation in Bermuda until Note 16 March 2016. Income tax rates in those countries where the Group operates Earnings per share (Argentina, Colombia and Chile) ranges from 15% to 35%. Note 15 Deferred income tax Amounts in US$ ’000 Numerator: Profit for the year Denominator: Weighted average number of 2012 2011 11,879 54 The gross movement on the deferred income tax account is as follows: shares used in basic EPS 42,673,981 41,912,685 Earnings after tax per share (US$) - basic 0.2784 0.0013 Amounts in US$ ’000 Deferred tax at 1 January Acquisition of subsidiaries Income statement charge 2012 (12,659) 15,606 (6,858) 2011 (5,640) - Amounts in US$ ’000 (7,019) Weighted average number of 2012 2011 Deferred tax at 31 December (3,911) (12,659) shares used in basic EPS 42,673,981 41,912,685 Effect of dilutive potential common shares Stock award at US$ 0.001 Weighted average number of shares used in diluted EPS 1,435,324 2,004,482 44,109,305 43,917,167 Earnings after tax per share (US$) - diluted 0.2693 0.0012 68 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 69 Note 17 Property, plant and equipment Amounts in US$ ’000 Cost at 1 January 2011 Additions Disposals Write-off / Impairment Transfers Cost at 31 December 2011 Additions Disposals Write-off / Impairment Acquisition of subsidiaries Transfers Cost at 31 December 2012 Depreciation and write-down at 1 January 2011 Depreciation Disposals Depreciation and write-down at 31 December 2011 Depreciation Depreciation and write-down Furniture, Production Buildings Exploration Oil & gas equipment facilities and and Construction and evaluation properties and vehicles machinery improvements in progress 126,626 2,318 (227) - 43,239 171,956 4,071 (416) - 62,449 106,311 344,371 (33,508) (20,096) - (53,604) (44,552) 1,445 825 (177) - 82 2,175 637 - - 389 375 3,576 (851) (343) 71 (1,123) (713) 38,142 1,261 (1,852) - 9,551 47,102 32,335 (130) - 10,865 (3,223) 86,949 (13,308) (5,767) 447 (18,628) (7,708) 2,076 156 - - 205 2,437 - - - - 761 3,198 (514) (202) - (716) (344) 16,197 56,570 (272) - (39,599) 32,896 81,241 - - 9,452 (69,564) 54,025 - - - - - - assets 23,412 39,469 - (7,263) (13,478) 42,140 83,360 - (25,552) 27,818 (34,660) 93,106 - - - - - - Total 207,898 100,599 (2,528) (7,263) - 298,706 201,644 (546) (25,552) 110,973 - 585,225 (48,181) (26,408) 518 (74,071) (53,317) (127,388) at 31 December 2012 (98,156) (1,836) (26,336) (1,060) Carrying amount at 31 December 2011 Carrying amount at 31 December 2012 118,352 1,052 28,474 1,721 32,896 42,140 224,635 246,215 1,740 60,613 2,138 54,025 93,106 457,837 Note 18 Prepaid taxes Amounts in US$ ’000 V.A.T. Withholding tax Income tax credits Other prepaid taxes Total prepaid taxes Classified as follows: Current Non current Total prepaid taxes Note 19 Inventories Amounts in US$ ’000 Crude oil Materials and spares Note 21 Share capital 2012 5,962 3,347 4,692 149 2011 2,669 - - Issued share capital Common stock (amounts in US$ ’000) The share capital is distributed as follows: Common shares, of nominal US$ 0.001 435 Total common shares in issue 2012 43 2011 43 43,495,585 43,495,585 42,474,274 42,474,274 14,150 3,104 3,443 10,707 14,150 147 2,957 3,104 Authorised share capital US$ per share Number of common shares (US$ 0.001 each) Amount in US$ 0.001 0.001 5,171,969,000 5,171,969,000 5,171,969 5,171,969 Details regarding the share capital of the Company are set out below: 2012 3,838 117 3,955 2011 499 85 584 Common shares As of 31 December 2012 the outstanding common shares confer the following rights on the holder: Note 20 Trade receivables and Prepayments and other receivables • the right to one vote per share; • ranking pari-passu, the right to any dividend declared and payable on common shares; Amounts in US$ ’000 Trade accounts receivable To be recovered from co-venturers Related parties receivables Prepayments and other receivables Total Classified as follows: Current Non current Total 2012 32,271 32,271 8,773 31,138 10,219 50,130 82,401 Other Reserve During 2011, LGI acquired a 20% interest in GeoPark Chile S.A., the subsidiary 2011 15,929 that owns the Chilean assets, for a total consideration of US$ 148,000,000. 15,929 537 During 2012, LGI also acquired a 20% interest in GeoPark Colombia S.A., the 6,000 subsidiary that owns the Colombian assets, by making a capital contribution 19,154 in GeoPark Colombia S.A. for an amount of US$ 14,920,000. In addition, 25,691 41,620 as part of the transaction, US$ 5,000,000 was transferred directly to the Colombian subsidiary as a loan. The differences between total consideration and the net equity of the Companies as per the book value, were recorded as Other Reserve in the Consolidated Statement of Changes in Equity. 81,891 510 40,913 707 82,401 41,620 70 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 71 Note 22 Borrowings Note 24 Trade and other payable IPO Executive Stock Option Programme On admission to AIM the Company granted: 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 - The average credit period (expressed as creditor days) during the year ended 129,452 128,315 31 December 2012 was 69 days (2011: 74 days). 193,032 165,256 The fair value of these short-term financial instruments is not individually £ 3.20 and 613,380 at an exercise price of £ 4.00. The vesting conditions of • Exercise price is equal to the nominal value of shares. 134,643 determined as the carrying amount is a reasonable approximation of fair these options are equal to those described in i. • Vesting period is four years. Amounts in US$ ’000 2012 2011 Amounts in US$ ’000 Outstanding amounts as of 31 December Methanex Corporation Banco de Crédito e Inversiones Overdrafts Banco Itaú Bond Classified as follows: Non current Current V.A.T. 18,068 Trade payables 8,845 10,028 8,036 7,859 10,000 37,685 165,046 27,986 30,613 value. The fair value of these financial instruments at 31 December 2012 amounts to US$ 190,188,000 (US$ 159,602,000 in 2011). Note 25 Note 23 Provisions and other long-term liabilities Asset Provisions for other liabilities Amounts in US$ ’000 Staff costs to be paid Royalties to be paid Other taxes to be paid Amounts in US$ ’000 obligation income Other Total Other retirement Deferred To be paid to co-venturers 2012 4,300 50,590 54,890 2011 955 27,580 28,535 2012 5,867 3,909 5,418 2,007 - 2011 3,859 458 155 - 646 17,201 5,118 3,153 6,947 (1,038) Note 26 350 Share-based payments At 1 January 2011 Addition to provision / Contributions received Amortisation Unwinding of discount At 31 December 2011 Addition to provision / Contributions received Acquisition of subsidiaries Amortisation Unwinding of discount 3,153 1,947 - 350 5,450 3,440 6,061 - 1,262 At 31 December 2012 16,213 - 5,000 (1,038) - 3,962 5,550 - (2,143) - 7,369 - - - - - 100 2,309 - - 9,412 9,090 8,370 (2,143) 1,262 IPO Award Programme and Executive Stock Option plan The Group has established IPO Award Programme, an Executive Stock Option Programme and Stock Award Programmes plans. These schemes were established to incentivise the Directors, senior management and employees, enabling them to benefit from the increased market capitalisation of the 2,409 25,991 Company. i. 605,000 stock options to the senior management and some eligible trading history. employees, from which 60,000 have expired. The exercise price of these stock options is £ 4.00 (125% of placing price). The vesting date of these Stock Award Programmes and Other Share Based Payments During 2008, GeoPark Shareholders voted to authorise the Board to use up stock options was 15 May 2008 and they expire in five years from that date, to 12% of the issued share capital of the Company at the relevant time for the on 15 May 2013. The stock options give no voting rights to the holders purposes of the Performance-based Employee Long-Term Incentive Plan. until they are exercised and converted into common shares when they will rank pari-passu with all existing common shares. ii. 306,690 stock options to the Executive Directors at an exercise price of Main characteristics of the Stock Awards Programmes are: • All employees are eligible. The fair value of the options granted was calculated using the Black-Scholes Directors and the Remuneration Committee of the Board of Directors. model. Due to the short trading history of the Company, expected volatility • Specific Award amounts are reviewed and approved by the Executive Details of these costs and the characteristics of the different stock awards programmes and other share based payments are described in the following table and explanations: Awards at the Awards granted Awards Awards Awards at Charged to net profit beginning in the year forfeited exercised year end Year 2012 2011 2010 2008 Subtotal Stock awards for service contracts Stock options to Executive Directors Shares granted to Non-Executive Directors - 500,000 500,000 863,100 976,211 90,000 - - - - - - 720,000 3,020 - - 11,000 - - - - - - - 976,211 500,000 500,000 852,100 - 2012 55 926 2,929 1,087 4,997 2011 - 37 2,776 925 3,738 30,000 60,000 - 1,429 - 720,000 257 - 3,020 - 142 5,396 131 5,298 The provision for asset retirement obligation relates to the estimation of future disbursements related to the abandonment and decommissioning IPO Award Programme A total of 613,380 IPO Awards were granted to all of the Group’s employees of oil and gas wells. and certain consultants at the IPO date (May 2006). The Awards vested on 15 May 2008, the second anniversary of admission to IPO. On 3 July 2008, Deferred income and other mainly relates to contributions received to the Company issued 602,000 shares for nominal value of $ 0.001 each, improve the project economics of the gas wells. The amortisation is in line corresponding to the total IPO awards vested which are held in a Beneficiary with the related asset. Trust. There are 11,380 awards that did not vest and were cancelled since they involved employees that had left the Group before the vesting date. 72 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 73 The awards that are forfeited correspond to employees that had left the Note 27 Group before vesting date. Commitments In addition, a simplified procedure for the exercise of the Options was approved by the Board. It is a payment mechanism available to option (a) Royalty commitments In Argentina, crude oil production accrues royalties payable to the Provinces holders that enables a cash-free exercise of their Options. The mechanism of Santa Cruz and Mendoza equivalent to 12% on estimated value at exploratory phase, and after fulfilling the commitment previously mentioned, The Llanos 17 Block Consortium has committed to drill either two exploratory it had been decided not to continue to the second exploratory period. wells or one exploratory well and perform 3D seismic between 2013 GeoPark and its partners relinquished the Tranquilo Block, except for an and 2014. The joint operation estimates that the remaining commitment area of 92,417 acres consisting of protected exploitation zones for the Cabo amounts to US$ 2,450,000 at GeoPark’s working interest (36.84%). Negro, Marcou Sur, Maria Antonieta and Palos Quemados prospects. The Llanos 62 Block (100% working interest) has committed to drill two allows participating option holders to exercise their options utilising fully well head of those products. This value is equivalent to final sales price The Otway Block Consortium has committed to drill two exploratory wells exploratory wells between 2013 and 2014. The remaining commitment issued shares made available by the EBT (Employee Beneficiary Trust) less transport, storage and treatment costs. and to perform 3D seismic until May 2013. The joint operation estimates that amounts to US$ 3,000,000. according to a formula (the “Stock Option cash-free payment option”). the remaining commitment amounts to US$ 2,400,000 at GeoPark’s working This allows participating option holders to exercise options to buy shares In Argentina crude oil sales accrue private royalties payable to EPP Petróleo interest (25%). for the same number of shares they would have obtained with borrowed S.A. (2.5% on invoiced amount of crude oil obtained from wells at “Del The Cuerva Block (100% working interest) has committed to drill two exploratory wells between 2013 and 2014. This represents an approximately cash and then sell sufficient shares to repay the borrowed sums. Mosquito”, Province of Santa Cruz, Argentina) and to Occidental Petroleum After participating in a farm-in process organised by ENAP, GeoPark was amount of US$ 4,800,000. On 6 October 2011, 601,235 common shares each credited as fully paid, of crude oil obtained from wells at “Loma Cortaderal” and “Cerro Doña and Campanario Block). Argentina INC, formerly Vintage Argentina Ltd. (8% on invoiced amount awarded three blocks in Tierra del Fuego (Isla Norte Block, Flamenco Block On 6 November 2012, the Chilean Government signed the CEOPs related to operating lease agreements. (c) Operating lease commitments - Group company as lessee The Group leases various plant and machinery under non-cancellable were allotted to the trustee of the EBT in anticipation of the exercise Juana”, Province of Mendoza, Argentina). of the Options. This number of shares issued was estimated assuming that all beneficiaries will adopt the cash-less exercise mechanism at market In Chile, royalties are payable to the Chilean Government, which is calculated Flamenco and Isla Norte Blocks. Subsequently, on 9 January 2013, the Chilean price £ 6.5. at 5% of crude oil production and 3% of gas production. Government also signed the CEOP for Campanario Block. The Group also leases offices under non-cancellable operating lease On 22 October 2012, a total of 976,211 common shares were allotted to the In Colombia, royalties on production are payable to the Colombian trustee of the EBT in anticipation of the exercise of the 2008 Stock Awards Government and are determined at a rate of 8%. Additionally, under the Plan generating a shared premium of US$ 4,191,000. terms of the Winchester Stock Purchase Agreement, we are obligated During 2012, 21,000 (15,000 in 2011) of these shares were sold by the production and sale of hydrocarbons discovered by exploration wells drilled employees at a weighted average price of £ 6.61 (£ 7.45 in 2011) per share. The shares held in the employee Beneficiary Trust rank pari-passu with GeoPark’s ordinary shares. after October 25, 2011. These payments involve both an earnings based measure and an overriding royalty equal to an estimated 4% carried interest on the part of the vendor. As at the balance sheet date and based on to make certain payments to the previous owners of Winchester based on the Future investment commitments assumed by GeoPark were: • 3 exploratory wells and 350 km2 of seismic surveys on Isla Norte Block (US$ 16,330,000) • 8 exploratory wells and 578 km2 of seismic surveys on Campanario Block (US$ 41,530,000) • 10 exploratory wells and 570 km2 of seismic surveys on Flamenco Block (US$ 43,570,000) agreements. The lease terms are between 2 and 3 years, and the majority of lease agreements are renewable at the end of the lease period at market rate. During 2012 a total amount of US$ 4,531,000 (US$ 3,313,000 in 2011) was charged to the income statement and US$ 32,706,000 of operating leases were capitalised as Property, plant and equipment (US$ 28,132,000 in 2011). The future aggregate minimum lease payments under non-cancellable On 23 November 2012, the Remuneration Committee and the board the Company’s best estimate of the total commitment over the remaining life period will be assumed 100% by GeoPark. of directors approved granting 720,000 options over ordinary shares of of the concession is a range of US$ 35 million - US$ 42 million (assuming a US$ 0.001 each to the Executive Directors. Options granted vest on discount rate of 9.7% and oil price of US$ 94 per barrel). Colombia preliminary internal estimates of additions of 2P reserves since acquisition, As part of the agreement, the investments made in the first exploratory the third anniversary of the date on which they are granted and have an exercise price of US$ 0.001. (b) Capital commitments The Yamu Block Consortium has committed to drill one exploratory well Falling due within 3 - 5 years during 2013. Falling due over 5 years operating leases are as follows: Amounts in US$ ’000 Operating lease commitments Falling due within 1 year Falling due within 1 - 3 years 2012 2011 26,464 3,709 443 895 34,126 24,797 222 - Other share-based payments As it is mentioned in Note 25, the Company granted 15,100 (12,028 in 2011) Chile The Llanos 34 Block Consortium has committed to drill one exploratory well Total minimum lease payments 31,511 59,145 shares at average price for each three month period for services rendered The Tranquilo Block Consortium has committed to drill four exploratory between 2013 and 2014. The joint operation estimates that the remaining by the Non-Executive Directors of the Company. Fees paid in shares were wells, to perform 2D and 3D seismic in the period to January 2013. commitment amounts to US$ 3,555,000 at GeoPark’s working interest (45%). directly expensed in the Administrative costs line in the amount of The joint operation estimates that the remaining commitment amounts to The Arrendajo Block (10% working interest) Consortium has committed to US$ 142,492 (US$ 130,745 in 2011). US$ 5,500,000 at GeoPark’s working interest (29%), related to the first drill one exploratory well during 2013. exploratory phase. In January 2013, the Energy Ministry were informed that, In October 2010 and August 2011 the company issued a total of 180,000 in accordance with the article 3.3 of the Special Operations Contract for the The Llanos 32 Block Consortium has committed to drill two exploratory wells options over US$ 0.001 shares with an exercise price equal to their nominal Exploration and Exploitation (CEOP) that after the termination of the first between 2013 and 2014. The joint operation estimates that the remaining value in consideration for certain consultancy services. commitment amounts to US$ 750,000 at GeoPark’s working interest (10%). 74 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 75 Note 28 Related parties Under the terms of the sale and purchase agreement entered into in 2012 Acquisition-related costs have been charged to administrative expenses in In December 2012, LGI has also joined GeoPark’s operations in Colombia in respect of the acquisition of Winchester Luna, the Company has to make the consolidated income statement for the year ended 31 December 2012. through the acquisition of a 20% interest in GeoPark Colombia S.A., a certain payments to the former owners arising from the production and sale company that holds GeoPark’s Colombian assets and which includes interests Controlling interest The main shareholders of GeoPark Holdings Limited, a company registered in of hydrocarbons discovered by exploration wells drilled after 25 October In accordance with disclosure requirements for business combinations, the in 10 hydrocarbon blocks. A capital contribution in GeoPark Colombia S.A. 2011 on the working interests of the companies at that date. These payments Company has calculated its net revenue and profit, considering as if the for an amount of US$ 14,920,000 was made in 2013. In addition, as part Bermuda, as of 31 December 2012, are: which involve both, an earnings based measure and an overriding revenue mentioned acquisitions had occurred at the beginning of the reporting of the transaction, US$ 5,000,000 was transferred directly to the Colombian royalty, equate to an estimated 4% carried interest on the part of the vendor. period. The following table summarises both results: subsidiary as a loan. a) 18.79% of share capital, by Gerald O’Shaughnessy (founder). b) 16.05% of share capital, by Energy Holdings, LLC controlled by James F. In Colombia, royalties on production are payable to the Colombian Park (founder). Government and are determined at a rate of 8%. c) 11.44% of share capital, by Cartica Corporate Governance Fund, L.P. d) 7.95% of share capital, by IFC (International Finance Corporation). In accordance with the acquisition method of accounting, the acquisition cost Amounts in US$ ’000 Net revenue Profit for the year Total In addition, in March 2013 GeoPark and LGI announced their agreement to 275,051 extend their strategic alliance to build a portfolio of upstream oil and gas 22,087 assets throughout Latin America through 2015. e) 4.99% of share capital, by Socoservin Overseas Ltd controlled by Juan was allocated to the underlying assets acquired and liabilities assumed The revenue included in the consolidated statement of comprehensive Cristóbal Pavez (Non- Executive Director). f) 5.21% of share capital, by MONEDA A.F.I. based primarily upon their estimated fair values at the date of acquisition. An income since acquisition date contributed by the acquired companies was income approach (being the net present value of expected future cash flows) US$ 99,501,000. The acquired companies also contributed profit of Note 30 Subsequent Events g) 7.60% of share capital, by Pershing Keen, New Jersey (ND). was adopted to determine the fair values of the mineral interest. Estimates US$ 1,152,000 over the same period. Note 29 Business transactions of expected future cash flows reflect estimates of projected future revenues, production costs and capital expenditures based on our business model. LGI partnership On 12 March 2010, LGI and the Company agreed to form a new strategic Notes issuance During February 2013, the Company successfully placed US$ 300 million notes which were offered under Rule 144A and Regulation S exemptions of The following table summarises the combined consideration paid for partnership to jointly acquire and develop upstream oil and gas projects in the United States Securities laws. Winchester Luna and Hupecol, the fair value of assets acquired and liabilities Latin America. Acquisitions in Colombia 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”). assumed for these transactions: Amounts in US$ ’000 Cash (including working In March 2012, a second acquisition occurred with the purchase of Hupecol capital adjustments) Cuerva LLC (“Hupecol”), a privately-held company with two exploration and Total consideration production blocks in Colombia. Cash and cash equivalents Property, plant and equipment The combined Hupecol and Winchester Luna purchases (acquired for a total (including mineral interest) consideration of US$ 105 million, adjusted for working capital) provide Trade receivables GeoPark with the following in Colombia: Prepayments and other receivables Deferred income tax assets • Interests in 10 blocks (ranging from 5% to 100%), with licence operationship in four of them, located in the Llanos, Magdalena and Catatumbo Basins, Inventories Trade payables and other debt covering an area of approximately 220,000 gross acres. Borrowings • Risk-balanced asset portfolio of existing reserves, low risk development Provision for other long-term liabilities potential and attractive exploration upside. Total identifiable net assets • Successful Colombian operating and administrative team to support a Gain on acquisition of subsidiaries smooth transition and start-up in Colombia together with Associations and 79,630 79,630 976 73,791 4,402 5,640 10,344 10,596 (20,487) - (5,632) 79,630 - JVs with principal Colombian operators. The purchase price allocation above mentioned is final. Winchester through which LGI acquires an equity interest in the Chilean Business of will carry a coupon of 7.50% per annum to yield 7.625% per annum. Final During 2011, GeoPark and LGI entered into the following agreements America Limited Agencia en Chile (“the Issuer”), were priced at 99.332% and The Notes, issued by the Company’s wholly-owned subsidiary GeoPark Latin Hupecol Luna Total the Group: maturity of the notes will be 11 February 2020. The Notes are guaranteed by GeoPark Holdings and GeoPark Latin America Limited Chilean Branch and 32,243 32,243 5,594 111,873 111,873 6,570 • On 20 May 2011, the Company (through its wholly owned subsidiaries are secured with a pledge of all of the equity interests of the Issuer in GeoPark GeoPark Latin America Limited Chilean Branch and GeoPark Chile S.A.) Chile S.A. and GeoPark Colombia S.A. and a pledge of certain intercompany and LGI signed a subscription agreement in which LGI subscribed 10 million loans. Notes were rated single B by both Standard & Poor’s and Fitch Ratings. 37,182 110,973 the Company owner of the Chilean assets, for a total consideration of The net proceeds of the notes will be used to finance the Company’s of ordinary shares representing 10% equity interest in GeoPark Chile S.A., 4,098 2,983 5,262 1,612 (11,981) (1,368) (2,738) 40,644 8,401 8,500 8,623 15,606 12,208 (32,468) (1,368) (8,370) 120,274 8,401 US$ 70,000,000. expansion plans in the region and also to repay existing debt of • On 4 October 2011, an addendum to the agreement dated 20 May 2011 was approximately US$170 million, including the existing Reg S Notes due signed whereby 12.5 million of ordinary shares in GeoPark Chile S.A. were 2015 and the Itaú loan. The transaction extends GeoPark’s debt maturity subscribed by LGI, for a consideration of US$ 78,000,000, representing an additional 10%. significantly, allowing the Company to allocate more resources to its investment and inorganic growth programmes in the coming years. The transactions mentioned above have been considered to be a deemed disposal and in accordance with IAS 27 it has been accounted for as a transaction with Non-controlling interest. Consequently, the gain of US$ 111,245,000 has been recognised through equity rather than in the income statement for the year. Under the terms of this agreement LGI also committed to provide additional 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 minimum work programme of the three Tierra del Fuego licences (see Note 27). 76 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 77 appendix independent auditors statement to the shareholders of Geopark Holdings limited We have examined the summary financial statements for the year ended 31 December 2012 set out on pages 62 to 77. respective responsibilities of the directors and the auditor the directors are responsible for preparing the summarised annual report. Our responsibility is to report to you our opinion on the consistency of the summary financial statements within the summarised annual report with the full annual financial statements, the Directors Remuneration Report and the Directors Report. We also read the other information contained in the summarised annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the summary financial statement. the other information comprises only the letter to shareholders and the Year in Review. We conducted our work in accordance with bulletin 2008/3 issued by the auditing practices board. Our report on the company s full annual financial statements describes the basis of our opinion on those financial statements, the Directors Remuneration Report, and the Directors Report. Opinion in our opinion the summary financial statement is consistent with the full annual financial statements, the Directors Report and the Directors Remuneration Report of Geopark Holdings limited for the year ended 31 December 2012. We have not considered the effects of any events between the date on which we signed our report on the full annual financial statements (9 april 2013) and the date of this statement. pricewaterhouseCoopers llp Chartered accountants london, United Kingdom 30 july 2013 78 independent auditors statement independent auditors’ statement 79 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. Juan Crist bal Pavez | Non-executive Director Mr. pavez graduated from the Universidad Cat lica 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 andr maco (andr maco 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 Hidroel ctrica 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 organisations. 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 Corporate Offices 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 Buenos aires Office Florida 981 - 2th Floor C1005aas buenos aires argentina | + 54 11 4312 9400 Santiago Office Nuestra señora de los angeles 176 las Condes, santiago Chile | + 56 2 242 9600 Secretary pedro aylwin Chiorrini Nominated advisor and Broker Solicitors to the Company as to english law Solicitors to the Company as to Bermuda 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 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 Designed by: Chiappini + becker tel. +54 11 4314 7774 www.ch-b.com photographer: Diego Dicarlo, geologist 80 board of Directors Directors, secretary & advisors 81 AnnuAl report 2012 www.geo-pArk.com 

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