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Investing in Cheap Latin American Oil Production through GeoPark Limited
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In the current oil market, investors must look into exploration and production companies operating in the utmost of efficiencies with little to no downside projects. GeoPark Limited (GPRK - Free Report) is an explorer, operator and consolidator of oil and gas currently standing up to the poor oil market with strong finances and impressive operational efficiencies made possible by the inexpensive nature of Latin America.
Their operations primarily take place in low-cost countries such as Colombia, Peru, Chile and Brazil. Latin America remains one of the most underexplored and technically capable oil destinations in the world. The region’s competitive advantage has allowed GeoPark to achieve profits in the majority of its operations through the oil slump. 85% of the company’s projects have remained cash flow positive maintaining profits at $25-$30/bbl. The remaining production sees profitable returns at a very reasonable $40/bbl price level. To put this into perspective, consider the major oil players’ struggle to get anywhere near these numbers. Royal Dutch Shell reported a breakeven price point of $55/bbl. Brazil based Petrobas (PBR - Free Report) targets a breakeven in the range of $45-$52. Meanwhile, BP (BP - Free Report) is banking on $60 oil as they struggle to achieve profits at lower oil prices.
Their overall financial position substantially beats competitors through the industry downturn. GeoPark has $72 million in cash on hand with an additional $141 million in secured credit lines - the majority of which was generated from its Colombian crude oil sale to the Swiss commodity trader Trafigura at the end of 2015. Excess cash flow allows them flexibility to immediately add or expand projects pending on upward trends in the oil market. GeoPark has been able to increase cash flows year to year and we can expect this trend to continue.
Operational expenses have been slashed by 43% with drilling costs dropping by upwards of 25%. The company’s healthy financial position is defined by management’s tendency to heavily rely on internal self-funding in order to expand drilling and exploration projects. Projects continue to deliver quick sources of cash flow while enabling a capital expenditure cut of 80%.
GeoPark has an impressive track record of consistent and conservative low risk growth in production and reserves. Starting from nothing, in the last 10 years the oil producer has steadily ramped up daily production and expects to hit an all-time high of 22,500 boe/d this year. The company has seen its strongest historical growth in proven and probable reserves, rising from 92 million boe in 2014 to 125 million boe last year. The net present value of this reserve base is estimated at $1.6 billion.
The Latin based explorer continues to find success in its exploration projects as they recently expanded drilling in the Janaca Oil Field part of Colombia’s Llanos 34 Block acquired in 2012. The company currently holds 45% interest in Llanos 34. Since the acquisition four years ago, GeoPark has taken the once unproductive oil field to 34,000 boe/d of output through cost effective innovations in drilling technology combined with efficient facilities and infrastructure. At $40/bbl, the oil producer has seen paybacks on Llanos 34 operations within 12 months and this expansion is likely to be no different. GeoPark’s continued display of efficiency suggests geological expertise and improving technologies will likely extend the company’s running trend of year over year cost cutting to drive margin growth.
Analysts have upped their F1 earnings estimates by 15.5% following the Llanos 34 drilling success. 2016 first quarter earnings produced a +44% EPS surprise. GeoPark is part of Zacks #1 Rank and the target price stands at $3.75.
Rex Energy Corporation and Abraxas Petroleum (AXAS - Free Report) are other Zacks #1 Rank oil producers with similar market caps.
Chevron (CVX - Free Report) stock is another conventional gateway to invest in Latin American oil and gas production. Most notably, they have partnered with Colombia’s Ecopetrol (EC - Free Report) in producing oil and gas through both onshore and offshore operations Colombian projects.
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Investing in Cheap Latin American Oil Production through GeoPark Limited
In the current oil market, investors must look into exploration and production companies operating in the utmost of efficiencies with little to no downside projects. GeoPark Limited (GPRK - Free Report) is an explorer, operator and consolidator of oil and gas currently standing up to the poor oil market with strong finances and impressive operational efficiencies made possible by the inexpensive nature of Latin America.
Their operations primarily take place in low-cost countries such as Colombia, Peru, Chile and Brazil. Latin America remains one of the most underexplored and technically capable oil destinations in the world. The region’s competitive advantage has allowed GeoPark to achieve profits in the majority of its operations through the oil slump. 85% of the company’s projects have remained cash flow positive maintaining profits at $25-$30/bbl. The remaining production sees profitable returns at a very reasonable $40/bbl price level. To put this into perspective, consider the major oil players’ struggle to get anywhere near these numbers. Royal Dutch Shell reported a breakeven price point of $55/bbl. Brazil based Petrobas (PBR - Free Report) targets a breakeven in the range of $45-$52. Meanwhile, BP (BP - Free Report) is banking on $60 oil as they struggle to achieve profits at lower oil prices.
Their overall financial position substantially beats competitors through the industry downturn. GeoPark has $72 million in cash on hand with an additional $141 million in secured credit lines - the majority of which was generated from its Colombian crude oil sale to the Swiss commodity trader Trafigura at the end of 2015. Excess cash flow allows them flexibility to immediately add or expand projects pending on upward trends in the oil market. GeoPark has been able to increase cash flows year to year and we can expect this trend to continue.
Operational expenses have been slashed by 43% with drilling costs dropping by upwards of 25%. The company’s healthy financial position is defined by management’s tendency to heavily rely on internal self-funding in order to expand drilling and exploration projects. Projects continue to deliver quick sources of cash flow while enabling a capital expenditure cut of 80%.
GeoPark has an impressive track record of consistent and conservative low risk growth in production and reserves. Starting from nothing, in the last 10 years the oil producer has steadily ramped up daily production and expects to hit an all-time high of 22,500 boe/d this year. The company has seen its strongest historical growth in proven and probable reserves, rising from 92 million boe in 2014 to 125 million boe last year. The net present value of this reserve base is estimated at $1.6 billion.
The Latin based explorer continues to find success in its exploration projects as they recently expanded drilling in the Janaca Oil Field part of Colombia’s Llanos 34 Block acquired in 2012. The company currently holds 45% interest in Llanos 34. Since the acquisition four years ago, GeoPark has taken the once unproductive oil field to 34,000 boe/d of output through cost effective innovations in drilling technology combined with efficient facilities and infrastructure. At $40/bbl, the oil producer has seen paybacks on Llanos 34 operations within 12 months and this expansion is likely to be no different. GeoPark’s continued display of efficiency suggests geological expertise and improving technologies will likely extend the company’s running trend of year over year cost cutting to drive margin growth.
Analysts have upped their F1 earnings estimates by 15.5% following the Llanos 34 drilling success. 2016 first quarter earnings produced a +44% EPS surprise. GeoPark is part of Zacks #1 Rank and the target price stands at $3.75.
Rex Energy Corporation and Abraxas Petroleum (AXAS - Free Report) are other Zacks #1 Rank oil producers with similar market caps.
Chevron (CVX - Free Report) stock is another conventional gateway to invest in Latin American oil and gas production. Most notably, they have partnered with Colombia’s Ecopetrol (EC - Free Report) in producing oil and gas through both onshore and offshore operations Colombian projects.