The expected return to production this month of GeoPark Ltd.'s (GPRK:NYSE) Indico 6 and 7 wells has been pushed back to July, reported Auctus Advisors analyst Stephane Foucaud in a May 5 research note.
"There is improved confidence that date can be achieved," Foucaud wrote.
To offset the resulting drop in full-year 2023 (FY23) cash flow, the oil and gas company reduced its capex guidance for the year.
158% possible return
On this news, Auctus revised its model on GeoPark, updating its production and capex estimates and reducing its 2023 Brent oil price assumptions to $89 barrel from $92. This led to a $1 per share reduction in Auctus' target price on the Bermuda-based energy firm to $25 from $26.
Despite the change in target, potential return for investors remains substantial, at 158%, from its current share price of $10.24.
Offsetting effect on cash flow
Recommencement of production from Indico 6 and 7 in Colombia's CPO-5 block is being delayed until the definitive surface facilities are finished; they are 60–65% complete. GeoPark expects them to be ready in two months.
Because these two wells produce about 2,400–3,300 barrels of oil equivalent per day (2.4–3.3 Mboe/d) net to GeoPark, the delay will decrease expected FY23 cash flow, Foucaud noted. As such, GeoPark lowed its FY23 production guidance to 38–40 Mboe/d from 39.5–41.5. H2/23 production guidance remains unchanged, at 39–42 Mboe/d.
Also, GeoPark lowered its FY23 capex guidance by $20 million ($20M), to $180–200M to offset the reduced cash flow.
"This mostly (75%) reflects more efficient operations and cost reductions but also (25%) a rescheduling of drilling in Ecuador with only one to two wells expected to be drilled in the country in H2/23," Foucaud explained.
Performance bodes well
Some good news for GeoPark, Foucaud reported, is that its first horizontal well in the Tigana heavy oilfield (LL-34) in Colombia is still performing well, producing about 3,000 bbl/d with little drawdown and no water.
"This is important as other horizontal wells are expected to be drilled and they could increase production at LL-34 to the high end of the FY23 guidance and potentially extend plateau production," wrote Foucaud.
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