Bare and Vaca Muerta
GeoPark, a Latin American E&P company active in Vaca Muerta, has completed its entry into Venezuela, with Colombia's Grupo Gilinski becoming its controlling shareholder.
The company announced on November 2 that its 25-year production participation contract (CPP) for the Bare Block in Venezuela's Orinoco Oil Belt, signed with PDVSA Petróleo S.A., a unit of Venezuela's state oil company Petróleos de Venezuela S.A. (PDVSA), had taken effect. It also completed the purchase of the remaining 95% of Energy Assets International S.A., the Panamanian company that indirectly controls Beta Resources (V), C.A., the contract's signatory. GeoPark has held the initial 5% since June, according to a filing it made with the U.S. Securities and Exchange Commission (SEC) in October. The company said the contract took effect ahead of the 120-day deadline it set, following approval of the development plan and receipt of the required authorizations.
The milestone delivers on what GeoPark set out two months ago, when it announced its entry into Venezuela and closing of the corporate deal depended on the contract taking effect. In the interim, the company announced a bond to refinance debt, won a block in Neuquén province and reported the tie-in of five wells at Loma Jarillosa Este.
The purchase was paid in shares. According to the SEC filing, on October 30 GeoPark instructed its transfer agent to issue 42,135,872 shares to Panamerican Energy Holdings S.A., Grupo Gilinski's Panamanian company. Once those shares are issued, the group will hold about 56.3% of the company's capital and become its controlling shareholder.
Development, by contrast, falls to GeoPark. As operator, it will hold a 65% net participating interest and must fund 100% of capital expenditures under the approved work programs. The operational takeover is expected before year-end, and the company plans to begin consolidating the block in its financial statements once it assumes that control. The first phase aims to stabilize production and reactivate wells: GeoPark says it has already assessed 300 to 400 candidates.
CEO Felipe Bayón described a change of phase: “Our focus now fully shifts to operational execution, starting with a safe and disciplined takeover.”
Grupo Gilinski Takes Shareholder Control of the Company
In September, Shale24 detailed the terms of the governance agreement, which applies from closing. As long as it holds at least half of the shares, the group may nominate at least five directors, up from the three it could previously nominate, and at least two of them must be independent. GeoPark will remain listed on the New York Stock Exchange.
The stake could rise further. The group could receive up to 5,421,589 additional shares, which would take it to about 58.4%. Those shares hinge on a single variable set in the September share purchase agreement: a cut in the Venezuelan income tax rate applicable to the contract. The scale starts below 50% and reaches its maximum at a rate of 45% or lower. Because closing came early, an amendment signed on October 26 and attached to the Form 6-K filed with the SEC extended to December 1 the date for measuring that rate. If the cut occurs after closing and on or before that date, GeoPark must issue those shares within five business days after December 1.
The agreement also requires the group to launch, within 90 days of closing, a partial tender offer for the shares it does not control, at $12.22 per share and for up to $100 million in total. Should its stake ever exceed 70%, it must offer to buy all remaining shares.
Vaca Muerta Reaches This Stage With Higher Output
The Argentine operation, in the Vaca Muerta formation, one of the world's largest shale plays, located in the Neuquén Basin, comes off a quarter of growth. Between July and September, GeoPark averaged 2,108 gross barrels of oil equivalent per day (boe/d) in the country, 50.6% more than in the previous quarter, after tying in five wells at Loma Jarillosa Este with 180 frac stages. As of October 15, the block was producing more than 5,000 gross boe/d. At Puesto Silva Oeste, the environmental impact study for the central processing facility was approved on October 13. In the fourth quarter, the company plans to begin delivering crude by pipeline to third-party processing facilities and to start factory-mode drilling, a high-cadence pad development approach.
On October 21, GeoPark added Corralera Noreste, with a commitment of about $95 million, of which $60.5 million is an access bonus, plus two horizontal wells over four years. GeoPark will hold 90% and act as operator. That day, the company said it would fund the commitment with cash and committed liquidity, without changing its capital allocation priorities.
In parallel, GeoPark announced changes to its debt. In September, the Gilinski agreement required it to resolve the fate of its bonds due 2027 and 2030, which totaled $551.3 million in book value as of June 30. On October 21, the company priced a $550 million, 9.5% bond due 2033, to be guaranteed by, among other entities, GeoPark Argentina S.A. Settlement was scheduled for October 28, subject to customary conditions. According to the announcement, the proceeds will be used to buy back the 2030 bond, repay other debt, including the 2027 notes, fund 18 months of investment in Vaca Muerta and for general corporate purposes. In the tender offer for the 2030 bonds, $266.8 million of the $441.7 million outstanding was tendered, so that, upon settlement, $174.8 million would remain.
Three Fronts Compete for GeoPark's Capital
With Bare, the company adds an asset it paid for in shares and whose investment it must fund in full. The 2033 bond announcement earmarks part of the proceeds for 18 months of investment in Vaca Muerta, Corralera requires its own outlay, and Colombia contributes most of the production. How capital is split among the three countries is one of the open questions for the new GeoPark.
The company will report third-quarter results on November 3 after market close and discuss them on a conference call on November 4 at 10 a.m. Argentina time. The figures cover the period through September 30, before closing, but on the call investors will be able to ask about settlement of the 2033 bond and the actual use of those proceeds, the capital the Bare takeover will require, and the timing of the controlling group's tender offer.