UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2018
Commission File Number: 001-36298
GeoPark Limited
(Exact name of registrant as specified in its charter)
Nuestra Señora de los Ángeles 179
Las Condes, Santiago, Chile
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
| Form 20-F | X | Form 40-F |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
| Yes | No | X |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
| Yes | No | X |
GEOPARK LIMITED
TABLE OF CONTENTS
| ITEM | |
| 1. | Interim Condensed Consolidated Financial Statements and Explanatory Notes for the three-months and nine-months period ended 30 September 2017 and 2018
|
Item 1
GEOPARK LIMITED
Interim condensed consolidated
financial statements
AND explanatory notes
For the three-months and nine-months period ended 30 September 2017 and 2018
CONTENTS
| Page | |
| 3 | Condensed Consolidated Statement of Income |
| 4 | Condensed Consolidated Statement of Comprehensive Income |
| 5 | Condensed Consolidated Statement of Financial Position |
| 6 | Condensed Consolidated Statement of Changes in Equity |
| 7 | Condensed Consolidated Statement of Cash Flow |
| 8 | Explanatory Notes |
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GEOPARK LIMITED
30 SEPTEMBER 2018
CONDENSED CONSOLIDATED STATEMENT OF INCOME
| Amounts in US$ ´000 | Note | Three-months period ended 30 September 2018 (Unaudited) | Three-months period ended 30 September 2017 (Unaudited) | Nine-months period ended 30 September 2018 (Unaudited) | Nine-months period ended 30 September 2017 (Unaudited) |
| REVENUE | 3 | 166,786 | 81,909 | 449,994 | 223,844 |
| Commodity risk management contracts | 4 | (559) | (8,271) | (15,807) | 2,997 |
| Production and operating costs | 5 | (48,722) | (25,678) | (127,568) | (68,533) |
| Geological and geophysical expenses | 6 | (3,892) | (712) | (9,946) | (3,790) |
| Administrative expenses | 7 | (12,323) | (10,921) | (37,439) | (31,408) |
| Selling expenses | 8 | (1,258) | (329) | (2,783) | (866) |
| Depreciation | (24,327) | (19,450) | (68,338) | (55,132) | |
| Write-off of unsuccessful exploration efforts | 10 | (3,501) | (180) | (14,543) | (4,782) |
| Other expenses | (1,201) | (440) | (551) | (2,429) | |
| OPERATING PROFIT | 71,003 | 15,928 | 173,019 | 59,901 | |
| Financial expenses | 9 | (9,439) | (27,093) | (28,080) | (44,723) |
| Financial income | 9 | 703 | 472 | 2,132 | 1,424 |
| Foreign exchange (loss) gain | 9 | (2,934) | 3,185 | (17,903) | 1,392 |
| PROFIT (LOSS) BEFORE INCOME TAX | 59,333 | (7,508) | 129,168 | 17,994 | |
| Income tax expense | (29,654) | (11,627) | (69,081) | (32,436) | |
| PROFIT (LOSS) FOR THE PERIOD | 29,679 | (19,135) | 60,087 | (14,442) | |
| Attributable to: | |||||
| Owners of the Company | 21,393 | (19,979) | 39,154 | (19,777) | |
| Non-controlling interest | 8,286 | 844 | 20,933 | 5,335 | |
Earnings (Losses) per share (in US$) for profit (loss) attributable to owners of the Company. Basic | 0.35 | (0.33) | 0.65 | (0.33) | |
Earnings (Losses) per share (in US$) for profit (loss) attributable to owners of the Company. Diluted | 0.33 | (0.33) | 0.60 | (0.33) |
The above condensed consolidated statement of income should be read in conjunction with the accompanying notes.
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GEOPARK LIMITED
30 SEPTEMBER 2018
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Amounts in US$ ´000 | Three-months period ended 30 September 2018 (Unaudited) | Three-months period ended 30 September 2017 (Unaudited) | Nine-months period ended 30 September 2018 (Unaudited) | Nine-months period ended 30 September 2017 (Unaudited) |
| Profit (Loss) for the period | 29,679 | (19,135) | 60,087 | (14,442) |
| Other comprehensive income | ||||
| Items that may be subsequently reclassified to profit or loss: | ||||
| Currency translation differences | (546) | 1,341 | (3,349) | 1,094 |
| Total comprehensive income (loss) for the period | 29,133 | (17,794) | 56,738 | (13,348) |
| Attributable to: | ||||
| Owners of the Company | 20,847 | (18,638) | 35,805 | (18,683) |
| Non-controlling interest | 8,286 | 844 | 20,933 | 5,335 |
The above condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
4
GEOPARK LIMITED
30 SEPTEMBER 2018
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| Amounts in US$ ´000 | Note | At 30 September 2018 (Unaudited) | Year ended 31 December 2017 |
| ASSETS | |||
| NON CURRENT ASSETS | |||
| Property, plant and equipment | 10 | 572,394 | 517,403 |
| Prepaid taxes | 2,793 | 3,823 | |
| Other financial assets | 18,151 | 22,110 | |
| Deferred income tax asset | 24,843 | 27,636 | |
| Prepayments and other receivables | 475 | 235 | |
| TOTAL NON CURRENT ASSETS | 618,656 | 571,207 | |
| CURRENT ASSETS | |||
| Inventories | 12,389 | 5,738 | |
| Trade receivables | 37,589 | 19,519 | |
| Prepayments and other receivables | 7,652 | 7,518 | |
| Prepaid taxes | 36,973 | 26,048 | |
| Other financial assets | 853 | 21,378 | |
| Cash and cash equivalents | 152,737 | 134,755 | |
| TOTAL CURRENT ASSETS | 248,193 | 214,956 | |
| TOTAL ASSETS | 866,849 | 786,163 | |
| EQUITY | |||
| Equity attributable to owners of the Company | |||
| Share capital | 11 | 61 | 61 |
| Share premium | 239,516 | 239,191 | |
| Reserves | 126,257 | 129,606 | |
| Accumulated losses | (241,629) | (283,933) | |
| Attributable to owners of the Company | 124,205 | 84,925 | |
| Non-controlling interest | 54,926 | 41,915 | |
| TOTAL EQUITY | 179,131 | 126,840 | |
| LIABILITIES | |||
| NON CURRENT LIABILITIES | |||
| Borrowings | 12 | 419,114 | 418,540 |
| Provisions and other long-term liabilities | 13 | 54,958 | 46,284 |
| Deferred income tax liability | - | 2,286 | |
| Trade and other payables | 14 | 26,096 | 25,921 |
| TOTAL NON CURRENT LIABILITIES | 500,168 | 493,031 | |
| CURRENT LIABILITIES | |||
| Borrowings | 12 | 15,796 | 7,664 |
| Derivative financial instrument liabilities | 16 | 6,601 | 19,289 |
| Current income tax liability | 40,904 | 42,942 | |
| Trade and other payables | 14 | 124,249 | 96,397 |
| TOTAL CURRENT LIABILITIES | 187,550 | 166,292 | |
| TOTAL LIABILITIES | 687,718 | 659,323 | |
| TOTAL EQUITY AND LIABILITIES | 866,849 | 786,163 |
The above condensed consolidated statement of financial position should be read in conjunction with the accompanying notes.
5
GEOPARK LIMITED
30 SEPTEMBER 2018
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Attributable to owners of the Company | |||||||
| Amount in US$ '000 | Share Capital | Share Premium | Other Reserve | Translation Reserve | Accumulated losses | Non - controlling Interest | Total |
| Equity at 1 January 2017 | 60 | 236,046 | 127,527 | 2,591 | (260,459) | 35,828 | 141,593 |
| Comprehensive income (loss): | |||||||
| (Loss) profit for the nine-months period | - | - | - | - | (19,777) | 5,335 | (14,442) |
| Currency translation differences | - | - | - | 1,094 | - | - | 1,094 |
| Total comprehensive income (loss) for the period ended 30 September 2017 | - | - | - | 1,094 | (19,777) | 5,335 | (13,348) |
| Transactions with owners: | |||||||
| Share-based payment | - | 598 | - | - | 2,368 | 131 | 3,097 |
| Dividends distribution to Non-controlling interest | - | - | - | - | - | (479) | (479) |
| Total transactions with owners for the period ended 30 September 2017 | - | 598 | - | - | 2,368 | (348) | 2,618 |
| Balance at 30 September 2017 (Unaudited) | 60 | 236,644 | 127,527 | 3,685 | (277,868) | 40,815 | 130,863 |
| Balance at 31 December 2017 | 61 | 239,191 | 127,527 | 2,079 | (283,933) | 41,915 | 126,840 |
| Comprehensive (loss) income: | �� | ||||||
| Profit for the nine-months period | - | - | - | - | 39,154 | 20,933 | 60,087 |
| Currency translation differences | - | - | - | (3,349) | - | - | (3,349) |
| Total comprehensive (loss) income for the period ended 30 September 2018 | - | - | - | (3,349) | 39,154 | 20,933 | 56,738 |
| Transactions with owners: | |||||||
| Share-based payment | - | 325 | - | - | 3,150 | 167 | 3,642 |
| Dividends distribution to Non-controlling interest | - | - | - | - | - | (8,089) | (8,089) |
| Total transactions with owners for the period ended 30 September 2018 | - | 325 | - | - | 3,150 | (7,922) | (4,447) |
| Balance at 30 September 2018 (Unaudited) | 61 | 239,516 | 127,527 | (1,270) | (241,629) | 54,926 | 179,131 |
The above condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
6
GEOPARK LIMITED
30 SEPTEMBER 2018
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
| Amounts in US$ ’000 | Nine-months period ended 30 September 2018 (Unaudited) | Nine-months period ended 30 September 2017 (Unaudited) |
| Cash flows from operating activities | ||
| Profit (Loss) for the period | 60,087 | (14,442) |
| Adjustments for: | ||
| Income tax expense | 69,081 | 32,436 |
| Depreciation | 68,338 | 55,132 |
| Loss on disposal of property, plant and equipment | 268 | 191 |
| Write-off of unsuccessful exploration efforts | 14,543 | 4,782 |
| Amortisation of other long-term liabilities | (545) | (446) |
| Accrual of borrowing interests | 22,734 | 21,255 |
| Borrowing cancellation costs | - | 17,575 |
| Unwinding of long-term liabilities | 2,591 | 2,018 |
| Accrual of share-based payment | 3,642 | 3,097 |
| Foreign exchange loss (gain) | 17,903 | (1,392) |
| Unrealized (gain) loss on commodity risk management contracts | (11,508) | 687 |
| Income tax paid | (67,704) | (6,925) |
| Change in working capital | (976) | 3,398 |
| Cash flows from operating activities – net | 178,454 | 117,366 |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment | (90,937) | (80,326) |
| Acquisition of business (Note 18) | (48,850) | - |
| Cash flows used in investing activities – net | (139,787) | (80,326) |
| Cash flows from financing activities | ||
| Proceeds from borrowings | 15,000 | 425,000 |
| Debt issuance costs paid | - | (4,250) |
| Principal paid | (56) | (353,860) |
| Interest paid | (27,627) | (27,652) |
| Borrowings cancellation costs paid | - | (12,315) |
| Dividends distribution to Non-controlling interest | (8,089) | (479) |
| Cash flows (used in) from financing activities – net | (20,772) | 26,444 |
| Net increase in cash and cash equivalents | 17,895 | 63,484 |
| Cash and cash equivalents at 1 January | 134,755 | 73,563 |
| Currency translation differences | 87 | (1,817) |
| Cash and cash equivalents at the end of the period | 152,737 | 135,230 |
| Ending Cash and cash equivalents are specified as follows: | ||
| Cash at bank and bank deposits | 152,715 | 135,208 |
| Cash in hand | 22 | 22 |
| Cash and cash equivalents | 152,737 | 135,230 |
The above condensed consolidated statement of cash flow should be read in conjunction with the accompanying notes.
7
GEOPARK LIMITED
30 SEPTEMBER 2018
EXPLANATORY NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
General information
GeoPark Limited (the “Company”) is a company incorporated under the law of Bermuda. The Registered Office address is Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda.
The principal activity of the Company and its subsidiaries (the “Group” or “GeoPark”) is the exploration, development and production for oil and gas reserves in Colombia, Chile, Brazil, Argentina and Peru.
This condensed consolidated interim financial report was authorised for issue by the Board of Directors on 5 November 2018.
Basis of Preparation
The condensed consolidated interim financial report of GeoPark Limited is presented in accordance with IAS 34 “Interim Financial Reporting”. It does not include all of the information required for full annual financial statements, and should be read in conjunction with the annual financial statements as at and for the years ended 31 December 2016 and 2017, which have been prepared in accordance with IFRS.
The condensed consolidated interim financial report has been prepared in accordance with the accounting policies applied in the most recent annual financial statements,except for the changes explained in Note 15. For further information please refer to GeoPark Limited's consolidated financial statements for the year ended 31 December 2017.
Whenever necessary, certain comparative amounts have been reclassified to conform to changes in presentation in the current period.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.
The activities of the Group are not subject to significant seasonal changes.
Estimates
The preparation of interim financial information requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2017.
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GEOPARK LIMITED
30 SEPTEMBER 2018
Note 1 (Continued)
Financial risk management
The Group’s activities expose it to a variety of financial risks: currency risk, price risk, credit risk- concentration, funding and liquidity risk, interest risk and capital risk. The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at 31 December 2017.
There have been no changes in the risk management since year end or in any risk management policies.
Subsidiary undertakings
The following chart illustrates the main companies of the Group structure as of 30 September 2018 (a):
(a) LG International is not a subsidiary, it is Non-controlling interest.
There have been no changes in the Group structure since 31 December 2017.
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GEOPARK LIMITED
30 SEPTEMBER 2018
Note 1 (Continued)
Subsidiary undertakings (Continued)
Details of the subsidiaries and joint operations of the Group are set out below:
| Name and registered office | Ownership interest | |||
| Subsidiaries | GeoPark Argentina Limited (Bermuda) | 100% | ||
| GeoPark Argentina Limited – Argentinean Branch (Argentina) | 100% (a) | |||
| GeoPark Latin America Limited (Bermuda) | 100% | |||
| GeoPark Latin America Limited – Agencia en Chile (Chile) | 100% (a) | |||
| GeoPark S.A. (Chile) | 100% (a) (b) | |||
| GeoPark Brazil Exploração y Produção de Petróleo e Gás Ltda. (Brazil) | 100% (a) | |||
| GeoPark Chile S.A. (Chile) | 80% (a) (c) | |||
| GeoPark Fell S.p.A. (Chile) | 80% (a) (c) | |||
| GeoPark Magallanes Limitada (Chile) | 80% (a) (c) | |||
| GeoPark TdF S.A. (Chile) | 68.8% (a) (d) | |||
| GeoPark Colombia S.A. (Chile) | 100% (a) | |||
| GeoPark Colombia S.A.S. (Colombia) | 80% (a) (c) | |||
| GeoPark Latin America S.L.U. (Spain) | 100% (a) | |||
| GeoPark Colombia Coöperatie U.A. (The Netherlands) | 80% (a) (c) | |||
| GeoPark S.A.C. (Peru) | 100% (a) | |||
| GeoPark Perú S.A.C. (Peru) | 100% (a) | |||
| GeoPark Operadora del Perú S.A.C. (Peru) | 100% (a) | |||
| GeoPark Peru S.L.U. (Spain) | 100% (a) | |||
| GeoPark Brazil S.L.U. (Spain) | 100% (a) | |||
| GeoPark Colombia E&P S.A. (Panama) | 100% (a) | |||
| GeoPark Colombia E&P Sucursal Colombia (Colombia) | 100% (a) | |||
| GeoPark Mexico S.A.P.I. de C.V. (Mexico) | 100% (a) (b) | |||
| GeoPark E&P S.A.P.I. de C.V. (Mexico) | 100% (a) (b) | |||
| GeoPark (UK) Limited (United Kingdom) | 100% | |||
| Joint operations | Tranquilo Block (Chile) | 50% (e) | ||
| Flamenco Block (Chile) | 50% (e) | |||
| Campanario Block (Chile) | 50% (e) | |||
| Isla Norte Block (Chile) | 60% (e) | |||
| Llanos 34 Block (Colombia) | 45% (e) | |||
| Llanos 32 Block (Colombia) | 12.5% | |||
| Puelen Block (Argentina) | 18% | |||
| Sierra del Nevado Block (Argentina) | 18% | |||
| CN-V Block (Argentina) | 50% (e) | |||
| Manati Field (Brazil) | 10% | |||
| POT-T-747 Block (Brazil) | 70% (e) | |||
| REC-T-128 Block (Brazil) | 70% (e) |
| (a) | Indirectly owned. |
| (b) | Dormant companies. |
| (c) | LG International has 20% interest. |
| (d) | LG International has 20% interest through GeoPark Chile S.A. and a 14% direct interest, totaling 31.2%. |
| (e) | GeoPark is the operator. |
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GEOPARK LIMITED
30 SEPTEMBER 2018
Note 2
Segment Information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee. This committee is integrated by the CEO, COO, CFO and managers in charge of the Geoscience, Operations, Corporate Governance, Finance and People departments. This committee reviews the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports. The committee considers the business from a geographic perspective.
The Executive Committee assesses the performance of the operating segments based on a measure of Adjusted EBITDA. Adjusted EBITDA is defined as profit for the period before net finance cost, income tax, depreciation, amortization, certain non-cash items such as impairments and write-offs of unsuccessful exploration efforts, accrual of share-based payment, unrealized result on commodity risk management contracts and other non recurring events. Operating Netback is equivalent to Adjusted EBITDA before cash expenses included in Administrative, Geological and Geophysical and Other operating expenses. Other information provided to the Executive Committee is measured in a manner consistent with that in the financial statements.
Nine-months period ended 30 September 2018
| Amounts in US$ '000 | Total | Colombia | Chile | Brazil | Argentina | Peru | Corporate |
| Revenue | 449,994 | 374,273 | 27,681 | 22,837 | 25,203 | - | - |
| Sale of crude oil | 408,896 | 373,208 | 13,501 | 908 | 21,279 | - | - |
| Sale of gas | 41,098 | 1,065 | 14,180 | 21,929 | 3,924 | - | - |
| Production and operating costs | (127,568) | (89,381) | (15,241) | (6,644) | (16,302) | - | - |
| Royalties | (53,632) | (47,091) | (1,104) | (2,125) | (3,312) | - | - |
| Transportation costs | (2,089) | (1,031) | (981) | - | (77) | - | - |
| Share-based payment | (568) | (294) | (157) | (22) | (95) | - | - |
| Other operating costs | (71,279) | (40,965) | (12,999) | (4,497) | (12,818) | - | - |
| Depreciation | (68,338) | (32,821) | (20,389) | (7,919) | (6,993) | (190) | (26) |
| Operating profit / (loss) | 173,019 | 198,843 | (10,831) | 3,518 | (2,922) | (4,264) | (11,325) |
| Operating netback | 292,896 | 257,251 | 12,175 | 16,216 | 7,254 | - | - |
| Adjusted EBITDA | 244,848 | 233,812 | 7,292 | 13,631 | 3,865 | (5,052) | (8,700) |
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GEOPARK LIMITED
30 SEPTEMBER 2018
Note 2 (Continued)
Segment Information (Continued)
Nine-months period ended 30 September 2017
| Amounts in US$ '000 | Total | Colombia | Chile | Brazil | Argentina | Peru | Corporate |
| Revenue | 223,844 | 175,353 | 23,912 | 24,579 | - | - | - |
| Sale of crude oil | 186,953 | 174,845 | 11,470 | 638 | - | - | - |
| Sale of gas | 36,891 | 508 | 12,442 | 23,941 | - | - | - |
| Production and operating costs | (68,533) | (44,316) | (15,354) | (8,863) | - | - | - |
| Royalties | (17,960) | (14,777) | (958) | (2,225) | - | - | - |
| Transportation costs | (2,008) | (1,127) | (881) | - | - | - | - |
| Share-based payment | (343) | (185) | (129) | (29) | - | - | - |
| Other operating costs | (48,222) | (28,227) | (13,386) | (6,609) | - | - | - |
| Depreciation | (55,132) | (29,247) | (18,003) | (7,656) | (104) | (94) | (28) |
| Operating profit / (loss) | 59,901 | 88,784 | (14,667) | 1,680 | (1,934) | (3,045) | (10,917) |
| Operating netback | 158,472 | 134,697 | 8,170 | 15,745 | (140) | - | - |
| Adjusted EBITDA | 120,540 | 116,676 | 2,992 | 12,969 | (1,346) | (2,776) | (7,975) |
| Total Assets | Total | Colombia | Chile | Brazil | Argentina | Peru | Corporate |
| 30 September 2018 | 866,849 | 376,420 | 290,541 | 70,425 | 85,942 | 30,858 | 12,663 |
| 31 December 2017 | 786,163 | 288,429 | 301,931 | 91,604 | 30,924 | 22,099 | 51,176 |
A reconciliation of total Operating netback to total profit (loss) before income tax is provided as follows:
| Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 | Nine-months period ended 30 September 2018 | Nine-months period ended 30 September 2017 | |
| Operating netback | 113,712 | 57,530 | 292,896 | 158,472 |
| Geological and geophysical expenses | (4,506) | (2,830) | (13,354) | (8,903) |
| Administrative expenses | (10,989) | (10,096) | (34,694) | (29,029) |
| Adjusted EBITDA for reportable segments | 98,217 | 44,604 | 244,848 | 120,540 |
| Unrealized gain (loss) on commodity risk management contracts | 2,856 | (9,785) | 11,508 | (687) |
| Depreciation(a) | (24,327) | (19,450) | (68,338) | (55,132) |
| Write-off of unsuccessful exploration efforts | (3,501) | (180) | (14,543) | (4,782) |
| Share-based payment | (1,840) | (1,061) | (3,642) | (3,097) |
| Others(b) | (402) | 1,800 | 3,186 | 3,059 |
| Operating profit | 71,003 | 15,928 | 173,019 | 59,901 |
| Financial expenses | (9,439) | (27,093) | (28,080) | (44,723) |
| Financial income | 703 | 472 | 2,132 | 1,424 |
| Foreign exchange (loss) gain | (2,934) | 3,185 | (17,903) | 1,392 |
| Profit (Loss) before tax | 59,333 | (7,508) | 129,168 | 17,994 |
| (a) | Net of capitalised costs for oil stock included in Inventories. Depreciation includes US$ 1,719,000 (US$ 2,236,000 in 2017) generated by assets not related to production activities. For the three months period ended 30 September 2018 the amount included in depreciation is US$ 610,000 (US$ 648,000 in 2017). |
| (b) | Includes allocation to capitalised projects. |
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GEOPARK LIMITED
30 SEPTEMBER 2018
Note 2 (Continued)
Segment Information (Continued)
The following table presents a reconciliation of Adjusted EBITDA to operating profit (loss) for the nine-month periods ended 30 September 2018 and 2017:
| Nine-months period ended 30 September 2018 | ||||||
| Colombia | Chile | Brazil | Argentina | Other(c) | Total | |
| Adjusted EBITDA for reportable segments | 233,812 | 7,292 | 13,631 | 3,865 | (13,752) | 244,848 |
| Depreciation | (32,821) | (20,389) | (7,919) | (6,993) | (216) | (68,338) |
| Unrealized gain on commodity risk management contracts | 11,508 | - | - | - | - | 11,508 |
| Write-off of unsuccessful exploration efforts | (11,914) | (397) | (1,879) | (353) | - | (14,543) |
| Share-based payment | (546) | (288) | (60) | (465) | (2,283) | (3,642) |
| Others | (1,196) | 2,951 | (255) | 1,024 | 662 | 3,186 |
| Operating profit / (loss) | 198,843 | (10,831) | 3,518 | (2,922) | (15,589) | 173,019 |
| Nine-months period ended 30 September 2017 | ||||||
| Colombia | Chile | Brazil | Argentina | Other(c) | Total | |
| Adjusted EBITDA for reportable segments | 116,676 | 2,992 | 12,969 | (1,346) | (10,751) | 120,540 |
| Depreciation | (29,247) | (18,003) | (7,656) | (104) | (122) | (55,132) |
| Unrealized loss on commodity risk management contracts | (687) | - | - | - | - | (687) |
| Write-off of unsuccessful exploration efforts | (1,625) | - | (2,978) | (179) | - | (4,782) |
| Share-based payment | (391) | (264) | (139) | (272) | (2,031) | (3,097) |
| Others | 4,058 | 608 | (516) | (33) | (1,058) | 3,059 |
| Operating profit / (loss) | 88,784 | (14,667) | 1,680 | (1,934) | (13,962) | 59,901 |
(c)Includes Peru and Corporate.
Note 3
Revenue
| Amounts in US$ '000 | Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 | Nine-months period ended 30 September 2018 | Nine-months period ended 30 September 2017 |
| Sale of crude oil | 152,183 | 68,358 | 408,896 | 186,953 |
| Sale of gas | 14,603 | 13,551 | 41,098 | 36,891 |
| 166,786 | 81,909 | 449,994 | 223,844 |
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Note 4
Commodity risk management contracts
The Group entered into derivative financial instruments to manage its exposure to oil price risk. These derivatives are zero-premium 3 ways (put spread plus call), and were placed with major financial institutions and commodity traders. The Group entered into the derivatives under ISDA Master Agreements and Credit Support Annexes, which provide credit lines for collateral posting thus alleviating possible liquidity needs under the instruments and protect the Group from potential non-performance risk by its counterparties. The Group’s derivatives are accounted for as non-hedge derivatives as of 30 September 2018 and therefore all changes in the fair values of its derivative contracts are recognized as gains or losses in the results of the periods in which they occur.
The following table presents the Group’s derivative contracts in force as of 30 September 2018:
| Period | Reference | Type | Volume bbl/d | Price US$/bbl |
| 1 July 2018 - 30 September 2018 | ICE BRENT | Zero Premium 3 Way | 5,000 | 43.00-53.00 Put 69.00 Call |
| 1 April 2018 - 31 December 2018 | ICE BRENT | Zero Premium 3 Way | 3,000 | 45.00-55.00 Put 77.15 Call |
| 1 April 2018 - 31 December 2018 | ICE BRENT | Zero Premium 3 Way | 1,000 | 45.00-55.00 Put 77.50 Call |
| 1 July 2018 - 31 March 2019 | ICE BRENT | Zero Premium 3 Way | 2,000 | 50.00-60.00 Put 97.00 Call |
| 1 July 2018 - 31 March 2019 | ICE BRENT | Zero Premium 3 Way | 2,000 | 50.00-60.00 Put 97.05 Call |
| 1 October 2018 - 30 June 2019 | ICE BRENT | Zero Premium 3 Way | 3,700 | 55.00-65.00 Put 90.00 Call |
| 1 October 2018 - 30 June 2019 | ICE BRENT | Zero Premium 3 Way | 1,000 | 55.00-65.00 Put 90.10 Call |
| 1 October 2018 - 30 June 2019 | ICE BRENT | Zero Premium 3 Way | 1,300 | 55.00-65.00 Put 90.50 Call |
| 1 January 2019 - 30 September 2019 | ICE BRENT | Zero Premium Collar | 2,000 | 65.00 Put 92.50 Call |
| 1 January 2019 - 30 September 2019 | ICE BRENT | Zero Premium Collar | 3,000 | 65.00 Put 92.26 Call |
The table below summarizes the (loss) gain on the commodity risk management contracts:
| Amounts in US$ '000 | Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 | Nine-months period ended 30 September 2018 | Nine-months period ended 30 September 2017 |
| Realized (loss) gain on commodity risk management contracts | (3,415) | 1,514 | (27,315) | 3,684 |
| Unrealized gain (loss) on commodity risk management contracts | 2,856 | (9,785) | 11,508 | (687) |
| Total | (559) | (8,271) | (15,807) | 2,997 |
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Note 5
Production and operating costs
| Amounts in US$ '000 | Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 | Nine-months period ended 30 September 2018 | Nine-months period ended 30 September 2017 |
| Staff costs | 5,987 | 3,532 | 17,750 | 10,491 |
| Share-based payment | 321 | 115 | 568 | 343 |
| Royalties | 21,074 | 7,380 | 53,632 | 17,960 |
| Well and facilities maintenance | 7,101 | 4,202 | 14,248 | 11,476 |
| Consumables | 4,704 | 3,159 | 12,700 | 8,558 |
| Equipment rental | 2,449 | 1,562 | 7,025 | 3,922 |
| Transportation costs | 605 | 812 | 2,089 | 2,008 |
| Gas plant costs | 1,203 | 1,553 | 4,070 | 4,605 |
| Safety and insurance costs | 943 | 489 | 2,653 | 1,466 |
| Field camp | 639 | 611 | 2,229 | 1,735 |
| Non operated blocks costs | 407 | 393 | 1,096 | 998 |
| Crude oil stock variation | 1,096 | 12 | 2,672 | (88) |
| Other costs | 2,193 | 1,858 | 6,836 | 5,059 |
| 48,722 | 25,678 | 127,568 | 68,533 |
Note 6
Geological and geophysical expenses
| Amounts in US$ '000 | Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 | Nine-months period ended 30 September 2018 | Nine-months period ended 30 September 2017 |
| Staff costs | 3,770 | 2,452 | 10,987 | 7,341 |
| Share-based payment | 185 | 121 | 329 | 375 |
| Other services | 736 | 378 | 2,367 | 1,562 |
| Allocation to capitalised project | (799) | (2,239) | (3,737) | (5,488) |
| 3,892 | 712 | 9,946 | 3,790 |
Note 7
Administrative expenses
| Amounts in US$ '000 | Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 | Nine-months period ended 30 September 2018 | Nine-months period ended 30 September 2017 |
| Staff costs | 6,501 | 5,969 | 20,427 | 18,644 |
| Share-based payment | 1,334 | 825 | 2,745 | 2,379 |
| Consultant fees | 1,807 | 1,434 | 4,916 | 3,364 |
| Travel expenses | 1,140 | 559 | 2,689 | 1,871 |
| Director fees and allowance | 733 | 802 | 2,057 | 2,832 |
| Communication and IT costs | 503 | 709 | 1,424 | 1,536 |
| Allocation to joint operations | (1,779) | (1,792) | (5,739) | (5,713) |
| Other administrative expenses | 2,084 | 2,415 | 8,920 | 6,495 |
| 12,323 | 10,921 | 37,439 | 31,408 |
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Note 8
Selling expenses
| Amounts in US$ '000 | Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 |
period ended 30 September 2018 |
period ended 30 September 2017 |
| Transportation | 793 | 256 | 1,782 | 671 |
| Selling taxes and other | 465 | 73 | 1,001 | 195 |
| 1,258 | 329 | 2,783 | 866 |
Note 9
Financial results
| Amounts in US$ '000 | Three-months period ended 30 September 2018 | Three-months period ended 30 September 2017 | Nine-months period ended 30 September 2018 | Nine-months period ended 30 September 2017 |
| Financial expenses | ||||
| Bank charges and other financial costs | (859) | (1,069) | (2,755) | (3,123) |
| Interest and amortisation of debt issue costs | (7,205) | (7,465) | (21,472) | (20,643) |
| Interest with related parties | (447) | (505) | (1,341) | (1,712) |
| Borrowing cancellation costs | - | (17,575) | - | (17,575) |
| Unwinding of long-term liabilities | (988) | (671) | (2,591) | (2,018) |
| Less: amounts capitalised on qualifying assets | 60 | 192 | 79 | 348 |
| (9,439) | (27,093) | (28,080) | (44,723) | |
| Financial income | ||||
| Interest received | 703 | 472 | 2,132 | 1,424 |
| 703 | 472 | 2,132 | 1,424 | |
| Foreign exchange gains and losses | ||||
| Foreign exchange (loss) gain | (2,934) | 3,185 | (17,903) | 1,392 |
| (2,934) | 3,185 | (17,903) | 1,392 | |
| Total financial results | (11,670) | (23,436) | (43,851) | (41,907) |
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30 SEPTEMBER 2018
Note 10
Property, plant and equipment
| Amounts in US$'000 | Oil & gas properties | Furniture, equipment and vehicles | Production facilities and machinery | Buildings and improve-ments | Construction in progress | Exploration and evaluation assets | TOTAL |
| Cost at 1 January 2017 | 692,241 | 14,357 | 132,413 | 10,553 | 32,926 | 61,773 | 944,263 |
| Additions | 1,442(a) | 340 | - | - | 38,172 | 42,502 | 82,456 |
| Disposals | - | (40) | - | (188) | - | - | (228) |
| Write-off of unsuccessful exploration efforts | - | - | - | - | - | (4,782)(b) | (4,782) |
| Transfers | 53,571 | - | 20,828 | - | (47,614) | (26,785) | - |
| Currency translation differences | 2,326 | 23 | 569 | 6 | - | 430 | 3,354 |
| Cost at 30 September 2017 | 749,580 | 14,680 | 153,810 | 10,371 | 23,484 | 73,138 | 1,025,063 |
| Cost at 1 January 2018 | 776,504 | 15,398 | 157,396 | 10,361 | 37,990 | 64,368 | 1,062,017 |
| Additions | (1,782)(a) | 1,098 | - | - | 55,665 | 37,087 | 92,068 |
| Acquisitions | 52,640 | 267 | 1,616 | 134 | - | - | 54,657 |
| Disposals | (417) | - | - | - | - | - | (417) |
| Write-off of unsuccessful exploration efforts | - | - | - | - | - | (14,543)(c) | (14,543) |
| Transfers | 48,277 | 267 | 12,935 | 594 | (45,144) | (16,929) | - |
| Currency translation differences | (13,429) | (154) | (1,049) | (36) | (12) | (1,318) | (15,998) |
| Cost at 30 September 2018 | 861,793 | 16,876 | 170,898 | 11,053 | 48,499 | 68,665 | 1,177,784 |
| Depreciation and write-down at 1 January 2017 | (384,739) | (10,049) | (71,698) | (4,131) | - | - | (470,617) |
| Depreciation | (42,507) | (1,577) | (10,493) | (659) | - | - | (55,236) |
| Currency translation differences | (1,213) | (29) | (103) | (3) | - | - | (1,348) |
| Disposals | - | - | - | 37 | - | - | 37 |
| Depreciation and write-down At 30 September 2017 | (428,459) | (11,655) | (82,294) | (4,756) | - | - | (527,164) |
| Depreciation and write-down at 1 January 2018 | (441,534) | (11,916) | (86,232) | (4,932) | - | - | (544,614) |
| Depreciation | (53,767) | (1,128) | (13,396) | (591) | - | - | (68,882) |
| Currency translation differences | 7,417 | 110 | 400 | 30 | - | - | 7,957 |
| Disposals | 149 | - | - | - | - | - | 149 |
| Depreciation and write-down at 30 September 2018 | (487,735) | (12,934) | (99,228) | (5,493) | - | - | (605,390) |
| Carrying amount at 30 September 2017 | 321,121 | 3,025 | 71,516 | 5,615 | 23,484 | 73,138 | 497,899 |
| Carrying amount at 30 September 2018 | 374,058 | 3,942 | 71,670 | 5,560 | 48,499 | 68,665 | 572,394 |
| (a) | Corresponds mainly to the effect of restimation of assets retirement obligation in Colombia. |
| (b) | Corresponds to three unsuccessful exploratory wells drilled in Colombia (Llanos 34 Block), Brazil (REC-T-94 Block) and Argentina (Puelen Block) in 2017. |
| (c) | Corresponds to six unsuccessful exploratory wells drilled in Brazil (POT-T-747 and POT-T-619 Blocks), Colombia (Tiple, Llanos 34 and Llanos 32 Blocks) and Argentina (Puelen Block). The change also includes the write off of other exploration costs incurred in the Fell Block in 2015 for which no additional work would be performed. |
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Note 11
Share capital
| Issued share capital | Nine-months period ended 30 September 2018 | Year ended 31 December 2017 |
| Common stock (US$ ´000) | 61 | 61 |
| The share capital is distributed as follows: | ||
| Common shares, of nominal US$ 0.001 | 60,622,499 | 60,596,219 |
| Total common shares in issue | 60,622,499 | 60,596,219 |
| Authorised share capital | ||
| US$ per share | 0.001 | 0.001 |
| Number of common shares (US$ 0.001 each) | 5,171,949,000 | 5,171,949,000 |
| Amount in US$ | 5,171,949 | 5,171,949 |
GeoPark’s share capital only consists of common shares. The authorized share capital consists of 5,171,949,000 common shares of par value US$ 0.001 per share. All of the Company issued and outstanding common shares are fully paid and nonassessable. The company also has an employee incentive program, pursuant to which it has granted share awards to its senior management and certain key employees (see Notes 26 and 30 to the audited Consolidated Financial Statements as of 31 December 2017).
Note 12
Borrowings
The outstanding amounts are as follows:
| Amounts in US$ '000 | At 30 September 2018 | Year ended 31 December 2017 |
| 2024 Notes (a) | 419,882 | 426,124 |
| Banco de Crédito e Inversiones (b) | 21 | 80 |
| Banco Itau (c) | 15,007 | - |
| 434,910 | 426,204 |
Classified as follows:
| Current | 15,796 | 7,664 |
| Non-Current | 419,114 | 418,540 |
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Note 12 (Continued)
Borrowings (Continued)
(a) During September 2017, the Company successfully placed US$ 425,000,000 notes which were offered to qualified institutional buyers in accordance with Rule 144A under the United States Securities Act, and outside the United States to non-U.S. persons in accordance with Regulation S under the United States Securities Act.
The Notes carry a coupon of 6.50% per annum. Final maturity of the notes will be 21 September 2024. The Notes are secured with a pledge of all of the equity interests of the Company, directly or indirectly, in GeoPark Colombia Coöperatie U.A. and GeoPark Chile S.A.. The debt issuance cost for this transaction amounted to US$ 6,683,000 (debt issuance effective rate: 6.90%). The indenture governing the Notes due 2024 includes incurrence test covenants that provides among other things, that, during the first two years from the issuance date, the Net Debt to Adjusted EBITDA ratio should not exceed 3.5 times and the Adjusted EBITDA to Interest ratio should exceed 2 times. Failure to comply with the incurrence test covenants does not trigger an event of default. However, this situation may limit the Company’s capacity to incur additional indebtedness, as specified in the indenture governing the Notes. Incurrence covenants as opposed to maintenance covenants must be tested by the Company before incurring additional debt or performing certain corporate actions including but not limited to dividend payments, restricted payments and others. As of the date of these interim condensed consolidated financial statements, the Company is in compliance of all the indenture’s provisions and covenants.
(b) During February 2016, GeoPark Fell S.p.A. executed a loan agreement with Banco de Crédito e Inversiones for US$ 186,000 to finance the acquisition of vehicles for the Chilean operation. The interest rate applicable to this loan is 4.14% per annum. The interest and the principal are paid on a monthly basis, with final maturity on February 2019.
(c) During September 2018, GeoPark Latin America Limited - Agencia en Chile executed a short-term loan agreement with Banco Itau for US$ 15,000,000. The interest rate applicable to this loan is 3.59% per annum. The interest and the principal will be paid on November 2018.
As of the date of these interim condensed consolidated financial statements, the Group has available credit lines for over US$ 58,000,000.
Note 13
Provisions and other long-term liabilities
The outstanding amounts are as follows:
| Amounts in US$ '000 | At 30 September 2018 | Year ended 31 December 2017 |
| Assets retirement obligation | 48,307 | 38,075 |
| Deferred income | 907 | 1,452 |
| Other | 5,744 | 6,757 |
| 54,958 | 46,284 |
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Note 14
Trade and other payables
The outstanding amounts are as follows:
| Amounts in US$ '000 | At 30 September 2018 | Year ended 31 December 2017 |
| Trade payables | 76,964 | 52,557 |
| Payables to related parties(a) | 32,522 | 31,184 |
| Customer advance payments(b) | 2,500 | 10,000 |
| Taxes and other debts to be paid | 5,560 | 4,191 |
| Staff costs to be paid | 9,239 | 9,143 |
| V.A.T. | 673 | 1,118 |
| To be paid to co-venturers | 16,695 | 10,015 |
| Royalties to be paid | 6,192 | 4,110 |
| 150,345 | 122,318 |
Classified as follows:
| Current | 124,249 | 96,397 |
| Non-Current | 26,096 | 25,921 |
| (a) | The outstanding amount corresponds to advanced cash call payments granted by LGI to GeoPark Chile S.A. for financing Chilean operations in TdF’s blocks. The expected maturity of these balances is July 2020 and the applicable interest rate is 6.9% per annum. |
| (b) | In December 2015, the Colombian subsidiary entered into a prepayment agreement with Trafigura under which GeoPark sells and deliver a portion of its Colombian crude oil production. Funds committed were available upon request until September 2017 and will be repaid by the Group on a monthly basis through future oil deliveries until December 2018. |
Note 15
Changes in accounting policies
This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue form Contracts with Customers on the Group’s Consolidated Financial Statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods.
| (a) | IFRS 9 Financial Instruments |
IFRS 9 replaces the provisions of IAS 39 related to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.
The adoption of IFRS 9 from 1 January 2018 resulted in changes in accounting policies and a reclassification of measurement category, but no adjustments to the amounts recognised in the Consolidated Financial Statements.
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30 SEPTEMBER 2018
Note 15 (Continued)
Changes in accounting policies (Continued)
On 1 January 2018, the Group classified money market funds for US$ 44,123,000 accounted within Cash and cash equivalents as of 31 December 2017, as Financial assets at fair value through profit or loss that were previously classified as Loans and receivables. No results were generated as a consequence of this change. As of 30 September 2018, the Group holds money market funds for US$ 55,000,000.
From 1 January 2018, the Group applies the following accounting policy in relation to its financial assets.
Financial assets are divided into the following categories: amortised cost; financial assets at fair value through profit or loss and fair value through other comprehensive income. The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. The Group reclassifies debt investments when and only when its business model for managing those assets changes.
All financial assets not at fair value through profit or loss are initially recognised at fair value, plus transaction costs. Transaction costs of financial assets carried at fair value through profit or loss, if any, are expensed to profit or loss.
Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at each balance sheet date.
Interest and other cash flows resulting from holding financial assets are recognised in the Consolidated Statement of Income when receivable, regardless of how the related carrying amount of financial assets is measured.
Amortised cost are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date. These are classified as non-current assets. These financial assets comprise trade receivables, prepayments and other receivables and cash and cash equivalents in the Consolidated Statement of Financial Position. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. These financial assets are subsequently measured at amortised cost using the effective interest method, less provision for impairment, if applicable.
Any change in their value through impairment or reversal of impairment is recognised in the Consolidated Statement of Income. All of the Group’s financial assets are classified as amortised cost.
The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
| (b) | IFRS 15 Revenue from Contracts with Customers |
The Group has adopted IFRS 15 from 1 January 2018, which resulted in no changes in accounting policies or adjustments to the amounts recognised in the consolidated financial statements.
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30 SEPTEMBER 2018
Note 16
Fair value measurement of financial instruments
Accounting policies for financial instruments have been applied to classify as either: amortised cost, fair value through other comprehensive income, or fair value through profit and loss. For financial instruments that are measured in the statement of financial position at fair value, IFRS 13 requires a disclosure of fair value measurements by level according to the following fair value measurement hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
This note provides an update on the judgements and estimates made by the Group in determining the fair values of the financial instruments since the last annual financial report.
(a) Fair value hierarchy
The following table presents the Group’s financial assets and financial liabilities measured and recognised at fair value at 30 September 2018 and 31 December 2017 on a recurring basis:
| Amounts in US$ '000 | Level 1 | Level 2 | At 30 September 2018 |
| Assets | |||
| Cash and cash equivalents | |||
| Money market funds | 55,000 | - | 55,000 |
| Total Assets | 55,000 | - | 55,000 |
| Liabilities | |||
| Derivative financial instrument liabilities | |||
| Commodity risk management contracts | - | 6,601 | 6,601 |
| Total Liabilities | - | 6,601 | 6,601 |
| Amounts in US$ '000 | Level 1 | Level 2 | Year ended 31 December 2017 |
| Liabilities | |||
| Derivative financial instrument liabilities | |||
| Commodity risk management contracts | - | 19,289 | 19,289 |
| Total Liabilities | - | 19,289 | 19,289 |
There were no transfers between Level 2 and 3 during the period.
The Group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 30 September 2018.
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30 SEPTEMBER 2018
Note 16 (Continued)
Fair value measurement of financial instruments (Continued)
(b) Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments include:
| · | The use of quoted market prices or dealer quotes for similar instruments. |
| · | The market-to-market fair value of the Group’s outstanding derivative instruments is based on independently provided market rates and determined using standard valuation techniques, including the impact of counterparty credit risk and are within level 2 of the fair value hierarchy. |
| · | The fair value of the remaining financial instruments is determined using discounted cash flow analysis. All of the resulting fair value estimates are included in level 2. |
(c) Fair values of other financial instruments (unrecognised)
The Group also has a number of financial instruments which are not measured at fair value in the balance sheet. For the majority of these instruments, the fair values are not materially different to their carrying amounts, since the interest receivable/payable is either close to current market rates or the instruments are short-term in nature.
Borrowings are comprised primarily of fixed rate debt and variable rate debt with a short term portion where interest has already been fixed. They are classified under other financial liabilities and measured at their amortized cost. The Group estimates that the fair value of its main financial liabilities is approximately 99.9% of its carrying amount including interests accrued as of 30 September 2018. Fair values were calculated using discounted cash flow analysis.
Note 17
Capital commitments
Capital commitments are detailed in Note 32 (b) to the audited Consolidated Financial Statements as of 31 December 2017. The following updates have taken place during the nine-month period ended 30 September 2018:
Argentina
The second exploratory well was drilled in the CN-V Block, with completion and testing expected for the fourth quarter of the year. As of 30 September 2018, the remaining commitment amounts to US$ 300,000.
Brazil
The Brazilian National Agency of Petroleum, Natural Gas and Biofuels (“ANP”) extended the first exploratory period to fulfill our commitments in the SEAL-T-268 y REC-T-94 Blocks until 7 February 2020. The remaining commitments in the blocks amount to US$ 130,000 and US$ 910,000, respectively.
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30 SEPTEMBER 2018
Note 17 (Continued)
Capital commitments (Continued)
Brazil (Continued)
The ANP also extended the second exploratory period in the POT-T-619 Block until 16 September 2020. The Group has already fulfill its commitments in the block.
GeoPark was awarded one exploratory block, POT-T-785, in the Potiguar Basin. The assumed commitment is equivalent to reprocessing 3D seismic and acquiring an electromagnetic survey for a total amount of approximately US$ 100,000 at GeoPark’s working interest, during the first exploratory period ending 29 January 2023.
Colombia
GeoPark has fulfilled the commitments that were remaining as of 31 December 2017 in the Llanos 34 and Llanos 32 Blocks. In addition to that, the Llanos 34 Block (45% working interest) has committed to drill an additional exploratory well, which amounts to US$ 1,935,000 at GeoPark’s working interest, before 19 September 2019.
On 12 September 2018, the ANH accepted the Group’s proposal to extend the first exploratory phase in the VIM 3 Block for an additional period ending 12 May 2019.
Note 18
Business transactions
Argentina - Aguada Baguales, El Porvenir and Puesto Touquet blocks
On 27 March 2018, GeoPark acquired a 100% working interest and operatorship of the Aguada Baguales, El Porvenir and Puesto Touquet blocks, which are located in the Neuquen Basin, for a total consideration of US$ 52,000,000, less working capital adjustment of US$ 3,150,000.
In accordance with the acquisition method of accounting, the acquisition cost was allocated to the underlying assets acquired and liabilities assumed based primarily upon their estimated fair values at the date of acquisition. An income approach (being the net present value of expected future cash flows) was adopted to determine the fair values of the mineral interest. Estimates of expected future cash flows reflect estimates of projected future revenues, production costs and capital expenditures based on our business model. The excess of acquisition cost, if any, over the net identifiable assets acquired represents goodwill.
The purchase price allocation performed is preliminary, since the valuation process is ongoing. This process will be completed during 2018.
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GEOPARK LIMITED
30 SEPTEMBER 2018
Note 18 (Continued)
Business transactions (Continued)
Argentina - Aguada Baguales, El Porvenir and Puesto Touquet blocks (Continued)
The following table summarises the combined consideration paid for the acquired blocks, the preliminary allocation of fair value of the assets acquired and liabilities assumed for these transactions:
| Amounts in US$ '000 | Total |
| Cash(a) | 48,850 |
| Total consideration | 48,850 |
| Property, plant and equipment (including mineral interest) | 54,657 |
| Inventories | 3,282 |
| Provision for other long-term liabilities | (9,089) |
| Total identifiable net assets | 48,850 |
| (a) | On December 2017, GeoPark granted a security deposit of US$ 15,600,000. On March 2018, the Group completed the total consideration with an additional payment of US$ 36,400,000. On September 2018, GeoPark collected a working capital adjustment of US$ 3,150,000. |
In accordance with disclosure requirements for business combinations, the Group has calculated its revenue and profit, considering as if the mentioned acquisition had occurred at the beginning of the reporting period. The following table summarises both results:
| Amounts in US$ '000 | Nine-months period ended 30 September 2018 |
| Revenue | 461,234 |
| Profit for the period | 60,124 |
The revenue included in the consolidated statement of comprehensive income since acquisition date contributed by the acquired business is US$ 25,203,000. The acquired business has also contributed profit of US$ 1,062,000 over the same period.
As a consequence of this transaction, the Group considers that there is sufficient evidence of future taxable profits to offset tax losses and recognise a deferred tax asset for US$ 1,346,000 in respect of tax losses from previous years which can be utilised against future taxable profit.
Argentina - Los Parlamentos block
On June 2018, GeoPark acquired a 50% working interest in the Los Parlamentos exploratory block in partnership with YPF S.A. (YPF), the largest oil and gas producer in Argentina. In accordance with the partnership agreement, YPF assumed the operationship of the block and GeoPark assumed a commitment to fund its 50% working interest of one exploration well and additional 3D seismic, which amounts to US$ 6,000,000 at GeoPark’s working interest, over the next three years.
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30 SEPTEMBER 2018
Note 19
Subsequent events
Borrowings
During October 2018, GeoPark Brazil Exploração y Produção de Petróleo e Gás Ltda. executed a loan agreement with Banco Santander for Brazilian Real 77,640,000 (equivalent to US$ 20,000,000 at the moment of the loan execution) to repay an existing US$-denominated intercompany loan to GeoPark Latin America Limited - Agencia en Chile. The interest rate applicable to this loan is CDI plus 2.25% per annum. “CDI” (Interbank certificate of deposit) represents the average rate of all inter-bank overnight transactions in Brazil. The principal and the interest are paid semi-annually, with final maturity on October 2020. Resulting from this transaction, the Brazilian subsidiary has significantly reduced its exposure to foreign currency fluctuation (foreign exchange loss in Brazil of US$ 1,597,000 and US$ 10,605,000 during the three-month and nine-month periods ended September 30, 2018, respectively), considering that its functional currency is the Brazilian Real.
Business transactions
On 2 November 2018, GeoPark executed a purchase and sale agreement to sell its 100% working interest in the La Cuerva and Yamu Blocks, in Colombia. The total consideration is US$ 18,000,000, plus a contingent payment of US$ 2,000,000 (depending on oil price performance) and subject to working capital adjustments. Closing of the transaction is subject to customary regulatory approvals, which are expected to occur during 2019.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GeoPark Limited | |||||
| By: | /s/ Andrés Ocampo | ||||
| Name: | Andrés Ocampo | ||||
| Title: | Chief Financial Officer | ||||
Date: November 6, 2018