==
A
GEOPARK
Santiago, 23 de marzo de 2015
GeoPark Limited
Inscrito en el Registro de Valores Extranjeros bajo N* 045
Señor
Carlos Pavez Tolosa
Superintendente de Valores y Seguros
Av. Libertador Bernardo O’Higgins N* 1449, piso 1
PRESENTE
REF.: Adjunta información relevante que se
publicó el día de hoy en el U.S.
Securities and Exchange Commission
(SEC).
Señor Superintendente:
En virtud de lo establecido en la Norma de Carácter General
N*352, por medio de la presente adjunto información considerada como relevante para
la empresa, que ha sido entregada el día de hoy, en el U.S. Securities and Exchange
Commission (“SEC”), en donde se publican los estados financieros auditados de la
Compañía correspondientes al ejercicio finalizado el 31 de diciembre de 2014.
La información adjunta consiste en un documento de noventa
páginas escrito en idioma inglés.
Sin otro particular, saluda atentamente a Usted,
>
Pedro Aylwin Chiorrini
pp. GEOPARK LIMITED
Nuestra Señora de los Ángeles 179 – Las Condes, Santiago – Chile
Tel. (+56 2) 2429600 – infoWgeo-park.com – www.geo-park.com
GEOPARK LIMITED
CONSOLIDATED
FINANCIAL STATEMENTS
As of and for the year ended 31 December 2014
Contents
NO 0M0xx=xxOo0oQo mn
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flow
Notes to the Consolidated Financial Statements
GEOPARK LIMITED
31 DECEMBER 2014
GEOPARK LIMITED
31 DECEMBER 2014
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
GeoPark Limited
In our opinion, the accompanying consolidated statement of financial position and the related
consolidated statements of income, comprehensive income, changes in equity and cash flow present
fairly, in all material respects, the financial position of GeoPark Limited and its subsidiaries at December
31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2014, in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
/s/ PRICE WATERHOUSE 8 CO.
S.R.L.
By (Partner)
Carlos Martín Barbafina
Autonomus City of Buenos Aires, Argentina
March 19, 2015
GEOPARK LIMITED
31 DECEMBER 2014
CONSOLIDATED STATEMENT OF INCOME
Amounts in US$ “000 Note 2014 2013 2012
NET REVENUE 7 428,734 338,353 250,478
Production costs 8 (229,650) (179,643) (129,235)
GROSS PROFIT 199,084 158,710 121,243
Exploration costs 11 (43,369) (16,254) (27,890)
Administrative costs 12 (48,164) (46,584) (28,798)
Selling expenses 13 (24,428) (17,252) (24,631)
Impairment loss for non-financial assets 38 (9,430) – –
Other operating (loss) / income (1,849) 5,344 823
OPERATING PROFIT 71,844 83,964 40,747
Financial results 14 (50,719) (33,876) (16,308)
Bargain purchase gain on acquisition of subsidiaries 34 – – 8,401
PROFIT BEFORE INCOME TAX 21,125 50,088 32,840
Income tax 16 (5,195) (15,154) (14,394)
PROFIT FOR THE YEAR 15,930 34,934 18,446
Attributable to:
Owners of the Company 7,512 22,012 11,879
Non-controlling interest 8,418 12,922 6,567
Earnings per share (in US$) for profit attributable
to owners of the Company. Basic 18 0.13 0.50 0.28
Earnings per share (in US$) for profit attributable
to owners of the Company. Diluted 18 0.13 0.47 0.27
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Amounts in US$ “000 2014 2013 2012
Profit for the year 15,930 34,934 18,446
Other comprehensive income:
Items that may be subsequently reclassified to profit
Currency translation difference (2,448) (1,956) –
Total comprehensive Income for the year 13,482 32,978 18,446
Attributable to:
Owners of the Company 5,064 20,056 11,879
Non-controlling interest 8,418 12,922 6,567
The notes on pages 7 to 89 are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
GEOPARK LIMITED
31 DECEMBER 2014
Amounts in US$ “000 Note 2014 2013 2012
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 19 790,767 595,446 457,837
Prepaid taxes 21 1,253 11,454 10,707
Other financial assets 24 12,979 5,168 7,791
Deferred income tax asset 17 33,195 13,358 13,591
Prepayments and other receivables 23 349 6,361 510
TOTAL NON CURRENT ASSETS 838,543 631,787 490,436
CURRENT ASSETS
Inventories 22 8,532 8,122 3,955
Trade receivables 23 36,917 42,628 32,271
Prepayments and other receivables 23 13,993 35,764 49,620
Prepaid taxes 21 13,459 6,979 3,443
Cash at bank and in hand 24 127,672 121,135 48,292
TOTAL CURRENT ASSETS 200,573 214,628 137,581
TOTAL ASSETS 1,039,116 846,415 628,017
TOTAL EQUITY
Equity attributable to owners of the
Company
Share capital 25 58 44 43
Share premium 210,886 120,426 116,817
Reserves 124,017 126,465 128,421
Retained earnings (accumulated losses) 40,596 23,906 (5,860)
Attributable to owners of the Company 375,557 270,841 239,421
Non-controlling interest 103,569 95,116 72,665
TOTAL EQUITY 479,126 365,957 312,086
LIABILITIES
NON CURRENT LIABILITIES
Borrowings 26 342,440 290,457 165,046
Provisions and other long-term liabilities 27 46,910 33,076 25,991
Deferred income tax liability 17 30,065 23,087 17,502
Trade and other payables 28 16,583 8,344 –
TOTAL NON CURRENT LIABILITIES 435,998 354,964 208,539
CURRENT LIABILITIES
Borrowings 26 27,153 26,630 27,986
Current income tax liabilities 7,935 7,231 7,315
Trade and other payables 28 88,904 91,633 72,091
TOTAL CURRENT LIABILITIES 123,992 125,494 107,392
TOTAL LIABILITIES 559,990 480,458 315,931
TOTAL EQUITY AND LIABILITIES 1,039,116 846,415 628,017
The financial statements were approved by the Board of Directors on 19 March 2015.
The notes on pages 7 to 89 are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
GEOPARK LIMITED
31 DECEMBER 2014
Attributable to owners of the Company
Retained
earnings Non-
Share Share Other Translatio (accumulate controlling
Amount in US$ ‘000 Capital (Y Premium Reserve nReserve dlosses) Interest Total
Equity at 1 January 2012 43 112,231 114,270 894 (18,549) 41,763 250,652
Comprehensive income:
Profit for the year – – – – 11,879 6,567 18,446
Total Comprehensive Income for the
Year 2012 – – – – 11,879 6,567 18,446
Transactions with owners:
Proceeds from transaction with Non-
controlling interest (Notes 25 and 34) – – 13,257 – 24,335 37,592
Share-based payment (Note 29) – 4,586 – – 810 – 5,396
Total 2012 – 4,586 13,257 – 810 24,335 42,988
Balances at 31 December 2012 43 116,817 127,527 894 (5,860) 72,665 312,086
Comprehensive income:
Profit for the year – – – – 22,012 12,922 34,934
Currency translation differences – – – (1,956) – – (1,956)
Total Comprehensive Income for the
Year 2013 – – – (1,956) 22,012 12,922 32,978
Transactions with owners:
Proceeds from transaction with Non-
controlling interest (Notes 25 and 34) – – – – 9,529 9,529
Share-based payment (Note 29) 1 4,049 – – 7,754 – 11,804
Repurchase of shares (Note 25) – (440) – – – – (440)
Total 2013 1 3,609 – – 7,754 9,529 20,893
Balances at 31 December 2013 44 120,426 127,527 (1,062) 23,906 95,116 365,957
Comprehensive income:
Profit for the year – – – – 7,512 8,418 15,930
Currency translation differences – – – (2,448) – – (2,448)
Total Comprehensive Income for the
Year 2014 : – – (2,448) 7,512 8,418 13,482
Transactions with owners:
Proceeds from issue of shares 14 90,848 – – – – 90,862
Proceeds from transaction with Non- Ñ Ñ – – Ñ 35 35
controlling interest (Notes 25 and 34)
Share-based payment (Note 29) – – – – 9,178 – 9,178
Repurchase of shares (Note 25) – (388) – – – – (388)
Total 2014 14 90,460 – – 9,178 35 99,687
Balances at 31 December 2014 58 210,886 127,527 (3,510) 40,596 103,569 479,126
(1 See Note 1.
The notes on pages 7 to 89 are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOW
GEOPARK LIMITED
31 DECEMBER 2014
Amounts in US$ ‘000 Note 2014 2013 2012
Cash flows from operating activities
Income for the year 15,930 34,934 18,446
Adjustments for:
Income tax for the year 16 5,195 15,154 14,394
Depreciation of the year 9 101,657 70,200 53,317
Allowance for doubtful accounts 13-23 741 – –
Loss on disposal of property, plant and equipment 591 575 546
Impairment loss 38 9,430 – –
Write-off of unsuccessful efforts 11 30,367 10,962 25,552
Accrual of interest on borrowings 25,754 22,085 12,513
Amortisation of other long-term liabilities 27 (468) (1,165) (2,143)
Unwinding of long-term liabilities 27 1,972 1,523 1,262
Accrual of share-based payment 10 8,373 9,167 5,396
Bargain purchase gain on acquisition of subsidiaries 34 – – (8,401)
Deferred income 27 – – 5,550
Exchange difference on borrowings 14 19,163 – –
Income tax paid (1,306) (4,040) (408)
Changes in working capital 5 13,347 (32,100) 3,403
Cash flows from operating activities – net 230,746 127,295 129,427
Cash flows from investing activities
Purchase of property, plant and equipment (238,047) (215,234) (195,829)
Acquisitions of companies, net of cash acquired 34 (114,967) – (105,303)
Collections related to financial leases 8,973 6,734 –
Cash flows used in investing activities – net (344,041) (208,500) (301,132)
Cash flows from financing activities
Proceeds from borrowings 67,633 307,259 37,200
Proceeds from transaction with non-controlling interest (1) 35 40,667 12,452
Proceeds from loans from related parties 16,563 8,344 –
Proceeds from issuance of shares 90,862 3,442 –
Repurchase of shares (388) (440) –
Principal paid to related parties (8,344) – –
Principal paid (17,087) (179,360) (12,382)
Interest paid (24,558) (15,894) (10,895)
Cash flows trom financing activities – net 124,716 164,018 26,375
Net increase (decrease) in cash and cash equivalents 11,421 82,813 (145,330)
Cash and cash equivalents at 1 January 121,105 38,292 183,622
Currency translation differences (4,854) – –
Cash and cash equivalents at the end of the year 127,672 121,105 38,292
Ending Cash and cash equivalents are specified as follows:
Cash in bank 127,560 121,113 48,268
Cash in hand 112 22 24
Bank overdrafts – (30) (10,000)
Cash and cash equivalents 127,672 121,105 38,292
The notes on pages 7 to 89 are an integral part of these consolidated financial statements.
(1 Proceeds from transaction with Non-controlling interest for the year ended 31 December 2013 includes: US$ 9,529,000
from capital contributions received in the period; and US$ 31,138,000 as result of collection of receivables included in
Prepayment and other receivables as of 31 December 2012, relating to equity transactions made in 2012 and 2011.
GEOPARK LIMITED
31 DECEMBER 2014
NOTES
Note
1 General Information
GeoPark Limited (the Company) is a company incorporated under the laws of Bermuda. The Registered
office address is Cumberland House, 9′ Floor, 1 Victoria Street, Hamilton HM 11, Bermuda.
On 7 February 2014, the Securities and Exchange Commission (“SEC”) declared effective the Company’s
registration statement upon which 13,999,700 shares were issued at a price of US$ 7 per share, including
over-allotment option. Gross proceeds from the offering totalled US$ 98 million. As a result, the
Company commenced trading on the New York Stock Exchange (“NYSE”) under the ticker symbol
GPRK. Also its shares are authorized for trading on the Santiago Off-Shore Stock Exchange.
Subsequently, the Company listing cancellation on the AIM London Stock Exchange became effective on
19 February 2014.
The principal activity of the Company and its subsidiaries (“the Group”) are exploration, development and
production for oil and gas reserves in Chile, Colombia, Brazil, Peru and Argentina. The Group has
working interests and/or economic interests in 31 hydrocarbon blocks.
In Chile the Group operates 6 blocks: Fell Block, Otway Block, Tranquilo Block and Isla Norte, Flamenco
and Campanario blocks in Tierra del Fuego.
By acquiring three privately held companies in 2012, the Company obtained and maintained working
interests and/or economic interests in 9 blocks located in the Llanos, Magdalena and Catatumbo basins
in Colombia. In July and November 2014, the Company expanded its operations in Colombia through two
new blocks: VIM-3 Block in the Lower Magdalena Basin and CPO-4 Block in the Llanos Basin (see Note
34), respectively. The Company is the operator in 6 of the 11 blocks in Colombia.
In May 2013, the Company has extended its footprint into Brazil since it has been awarded 7 new
licenses in the Brazilian Round 11 of which two are in the Reconcavo Basin in the State of Bahia and five
are in the Potiguar Basin in the State of Rio Grande do Norte. In addition, in November 2013, the
Company has also been awarded 2 new concessions in a new international bidding round, Round 12, in
the Parnaíba Basin in the State of Maranháo and Sergipe Alagoas Basin in the State of Alagoas, subject
to removal of injunction for Block PN-T-597 (see Note 34.c).
GEOPARK LIMITED
31 DECEMBER 2014
Note
1 General Information (continued)
On 31 March 2014, the Company acquired a 10% working interest in the offshore Manati gas field, the
largest natural gas producing field in Brazil. The Manati Field is operated by Petrobras (see Note 34).
In the fourth quarter of 2014, the Company signed an agreement to acquire an interest on the Morona
Block in Peru, which belongs to Marañón Basin. The transaction is subject to customary conditions,
certain license modifications and a presidential decree (see Note 34.d).
Additionally, the Company was awarded with two new blocks in Argentina in which the operator will be
Pluspetrol: Puelen and Sierra del Nevado in the Neuquén Basin. The Company is the operator of the Del
Mosquito block in Argentina.
These consolidated financial statements were authorised for issue by the Board of Directors on 19 March
2015.
Note
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are
set out below. These policies have been consistently applied to the years presented, unless otherwise
stated.
2.1 Basis of preparation
The consolidated financial statements of GeoPark Limited have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”).
The consolidated financial statements are presented in thousands (US$“000) of United States Dollars and
all values are rounded to the nearest thousand (US$’000), except where otherwise indicated.
The consolidated financial statements have been prepared on a historical cost basis.
The preparation of financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. lt also requires management to exercise its judgement in the process of applying
the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated financial statements are
disclosed in this note under the title “Accounting estimates and assumptions”.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
2.1.1 Changes in accounting policy and disclosure
New and amended standards adopted by the Group
The following standards have been adopted by the Group for the first time for the financial year beginning
on or after 1 January 2014:
Amendment to IAS 32, “Financial instruments: Presentation’ on asset and liability offsetting. These
amendments are to the application guidance in IAS 32, “Financial instruments: Presentation”, and clarify
some of the requirements for offsetting financial assets and financial liabilities on the balance sheet.
Amendment to lAS 36, ‘Impairment of assets’ on recoverable amount disclosures. This amendment
addresses the disclosure of information about the recoverable amount of impaired assets if that amount is
based on fair value less costs of disposal.
IFRIC 21, ‘Levies”, is an interpretation of IAS 37, *Provisions, contingent liabilities and contingent assets’.
lAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to
have a present obligation as a result of a past event (known as an obligating event). The interpretation
addresses what the obligating event is that gives rise to the payment of a levy and when a liability should
be recognised.
Amendment to IAS 19, ‘Employee benefits” regarding employee or third party contributions to defined
benefit plans. The amendment applies to contributions from employees or third parties to defined benefit
plans and clarifies the treatment of such contributions. The amendment distinguishes between
contributions that are linked to service only in the period in which they arise and those linked to service in
more than one period. The objective of the amendment is to simplify the accounting for contributions that
are independent of the number of years of employee service, for example employee contributions that are
calculated according to a fixed percentage of salary. Entities with plans that require contributions that vary
with service will be required to recognise the benefit of those contributions over employee’s working lives.
Management assessed the relevance of new standards, amendments or interpretations and concluded
that their adoption did not have a significant impact on these financial statements.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
2.1.1 Changes in accounting policy and disclosure (continued)
New standards, amendments and interpretations issued but not effective for the financial year beginning
1 January 2014 and not early adopted.
Amendment to IFRS 11, “Joint arrangements’ regarding acquisition of an interest in a joint operation. This
amendment provides new guidance on how to account for the acquisition of an interest in a joint venture
operation that constitutes a business. The amendments require an investor to apply the principles of
business combination accounting when it acquires an interest in a joint operation that constitutes a
“business”. The amendments are applicable to both the acquisition of the initial interest in a joint operation
and the acquisition of additional interest in the same joint operation. However, a previously held interest is
not re-measured when the acquisition of an additional interest in the same joint operation results in
retaining joint control. The Group is yet to assess amendment to IFRS 11’s full impact and intends to
adopt it no later than the accounting period beginning on or after 1 January 2016.
Amendments to IFRS 10 and IAS 28 regarding the sale or contribution of assets between an investor and
its associate or joint venture. These amendments address an inconsistency between IFRS 10 and IAS 28
in the sale or contribution of assets between an investor and its associate or joint venture. A full gain or
loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a
transaction involves assets that do not constitute a business, even if those assets are in a subsidiary. The
Group is yet to assess amendment to IFRS 10 and 28’s full impact and intends to adopt it no later than
the accounting period beginning on or after 1 January 2016.
Amendment to IAS 27, ‘Separate financial statements’ regarding the equity method. The amendment
allow entities to use the equity method to account for investments in subsidiaries, joint ventures and
associates in their separate financial statements. The Group is yet to assess amendment to IAS 27’s full
impact and intends to adopt it no later than the accounting period beginning on or after 1 January 2016.
10
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
2.1.1 Changes in accounting policy and disclosure (continued)
Annual improvements 2014. These annual improvements amend standards from the 2012 – 2014
reporting cycle. It includes changes to:
+ |AS 19/’Employee benefits” – The amendment clarifies that, when determining the discount rate
for post-employment benefit obligations, it is the currency that the liabilities are denominated in
that is important, not the country where they arise. The assessment of whether there is a deep
market in high-quality corporate bonds is based on corporate bonds in that currency, not
corporate bonds in a particular country. Similarly, where there is no deep market in high-quality
corporate bonds in that currency, government bonds in the relevant currency should be used.
The amendment is retrospective but limited to the beginning of the earliest period presented and
the Group is yet to assess its full impact and intends to adopt it no later than the accounting
period beginning on or after 1 July 2016.
IFRS 15, ‘Revenue from contracts with customers’. This is the converged standard on revenue
recognition. lt replaces lAS 11, “Construction contracts”, lAS 18,’Revenue’ and related interpretations.
Revenue is recognised when a customer obtains control of a good or service. A customer obtains control
when it has the ability to direct the use of and obtain the benefits from the good or service. The core
principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. An entity recognises revenue in accordance with that
core principle by applying the following steps:
– – Step 1: Identify the contract(s) with a customer
– Step 2: Identify the performance obligations in the contract
– – Step 3: Determine the transaction price
– Step 4: Allocate the transaction price to the performance obligations in the contract
– Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
IFRS 15 also includes a cohesive set of disclosure requirements that will result in an entity providing
users of financial statements with comprehensive information about the nature, amount, timing and
uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The Group is yet
to assess amendment to IFRS 15’s full impact and intends to adopt it no later than the accounting period
beginning on or after 1 January 2017.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
2.1.1 Changes in accounting policy and disclosure (continued)
IFRS 9, “Financial instruments”. The complete version of IFRS 9 replaces most of the guidance in IAS 39.
IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement
categories for financial assets: amortised cost, fair value through OCI and fair value through P8L. The
basis of classification depends on the entitys business model and the contractual cash flow
characteristics of the financial asset. Investments in equity instruments are required to be measured at
fair value through profit or loss with the irrevocable option at inception to present changes in fair value in
OCI. There is now a new expected credit losses model that replaces the incurred loss impairment model
used in IAS 39. For financial liabilities there were no changes to classification and measurement except
for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated
at fair value, through profit or loss.
IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness
tests. It requires an economic relationship between the hedged item and hedging instrument and for the
‘hedged ratio” to be the same as the one management actually use for risk management purposes.
Contemporaneous documentation is still required but is different to that currently prepared under IAS 39.
The Group is yet to assess amendment to IFRS 9’s full impact and intends to adopt it no later than the
accounting period beginning on or after 1 January 2018.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to
have a material impact on the Group.
Management assessed the relevance of other new standards, amendments or interpretations not yet
effective and concluded that they are not relevant to Group.
2.2 Going concern
The Directors regularly monitor the Group’s cash position and liquidity risks throughout the year to ensure
that it has sufficient funds to meet forecast 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 debt covenant breaches.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.2 Going concern (continued)
Considering macroeconomic environment conditions (see Note 37), the performance of the operations,
Group’s cash position and over 80% of its total indebtedness maturing in 2020, the Directors have formed
a judgement, at the time of approving the financial statements, that there is a reasonable expectation that
the Group has adequate resources to 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.
2.3 Consolidation
Subsidiaries are all entities (including structured entities) over which the group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
fully consolidated from the date on which control is transferred to the Group. They are deconsolidated
from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities
incurred to the former owners of the acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values at the acquisition date.
Acquisition-related costs are expensed as incurred.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree
and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the
identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-
controlling interest recognised and previously held interest measured is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly
in the income statement.
Intercompany transactions, balances and unrealised gains on transactions between the Group and its
subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies
adopted by the Group.
13
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.4 Segment reporting
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 strategic
steering committee that makes strategic decisions. This committee consists of the CEO, COO, CFO and
managers in charge of the Exploration, Development, Drilling, Operations, SPEED and Finance
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.
2.5 Foreign currency translation
a) Functional and presentation currency
The consolidated financial statements are presented in US Dollars, which is the Group’s presentation
currency.
Items included in the financial statements of each of the Group’s entities are measured using the currency
of the primary economic environment in which the entity operates (the “functional currency”). The
functional currency of Group companies incorporated in Chile, Colombia, Perú and Argentina is the US
Dollar, meanwhile for the Group Brazilian company the functional currency is the local currency, which is
the Brazilian Real.
b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at period end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Income.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.6 Joint arrangements
The company has applied IFRS 11 to all joint arrangements as of 1 January 2013. Under IFRS 11
investments in joint arrangements are classified as either joint operations or joint ventures depending on
the contractual rights and obligations each investor.
The Company has assessed the nature of its joint arrangements and determined them to be joint
operations. The company combines its share in the joint operations individual assets, liabilities, results
and cash flows on a line-by-line basis with similar items in its financial statements.
2.7 Revenue recognition
Revenue from the sale of crude oil and gas is recognised in the Statement of Income when risk
transferred to the purchaser, and if the revenue can be measured reliably and is expected to be received.
Revenue is shown net of VAT, discounts related to the sale and overriding royalties due to the ex-owners
of oil and gas properties where the royalty arrangements represent a retained working interest in the
property.
2.8 Production costs
Production costs include wages and salaries incurred to achieve the net revenue for the year. Direct and
indirect costs of raw materials and consumables, rentals and leasing, property, plant and equipment
depreciation and royalties are also included within this account.
2.9 Financial costs
Financial costs include interest expenses, realised and unrealised gains and losses arising from
transactions in foreign currencies and the amortisation of financial assets and liabilities. The Company
has capitalised borrowing cost for wells and facilities that were initiated after 1 January 2009. Amounts
capitalised during the year totalled US$ 3,112,317 (US$ 1,312,953 in 2013 and US$ 1,368,952 in 2012).
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.10 Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation and impairment charge, if
applicable. Historical cost includes expenditure that is directly attributable to the acquisition of the items;
including provisions for asset retirement obligation.
Oil and gas exploration and production activities are accounted for in accordance with the successful
efforts method on a field by field basis. The Group accounts for exploration and evaluation activities in
accordance with IFRS 6, Exploration for and Evaluation of Mineral Resources, capitalizing exploration
and evaluation costs until such time as the economic viability of producing the underlying resources is
determined. Costs incurred prior to obtaining legal rights to explore are expensed immediately to the
Consolidated Statement of Income.
Exploration and evaluation costs may include: license acquisition, geological and geophysical studies
(i.e.: seismic), direct labour costs and drilling costs of exploratory wells. No depreciation and/or
amortisation are charged during the exploration and evaluation phase. Upon completion of the evaluation
phase, the prospects are either transferred to oil and gas properties or charged to expense (exploration
costs) in the period in which the determination is made depending whether they have found reserves or
not. If not developed, exploration and evaluation assets are written off after three years, unless it can be
clearly demonstrated that the carrying value of the investment is recoverable.
A charge of US$ 30,367,000 has been recognised in the Consolidated Statement of Income within
Exploration costs (US$ 10,962,000 in 2013 and US$ 25,552,000 in 2012) for write-offs in Argentina,
Colombia and Chile (see Note 11).
All field development costs are considered construction in progress until they are finished and capitalised
within oil and gas properties, and are subject to depreciation once complete. Such costs may include the
acquisition and installation of production facilities, development drilling costs (including dry holes, service
wells and seismic surveys for development purposes), project-related engineering and the acquisition
costs of rights and concessions related to proved properties.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.10 Property, plant and equipment (continued)
Workovers of wells made to develop reserves and/or increase production are capitalized as development
costs. Maintenance costs are charged to income when incurred.
Capitalised costs of proved oil and gas properties and production facilities and machinery are depreciated
on a licensed area by the licensed area basis, using the unit of production method, based on commercial
proved and probable reserves. The calculation of the “unit of production” depreciation takes into account
estimated future finding and development costs and is based on current year end unescalated price
levels. Changes in reserves and cost estimates are recognised prospectively. Reserves are converted to
equivalent units on the basis of approximate relative energy content.
Depreciation of the remaining property, plant and equipment assets (i.e. furniture and vehicles) not
directly associated with oil and gas activities has been calculated by means of the straight line method by
applying such annual rates as required to write-off their value at the end of their estimated useful lives.
The useful lives range between 3 years and 10 years.
Depreciation is allocated in the Consolidated Statement of Income as production and administrative
expenses, based on the nature of the associated asset.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount (see Impairment of non-financial assets in
Note 2.12).
2.11 Provisions and other long-term liabilities
Provisions for asset retirement obligations, deferred income, restructuring obligations and legal claims are
recognised when the Group has a present legal or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle the obligation; and the amount has been
reliably estimated. Restructuring provisions comprise lease termination penalties and employee
termination payments.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to passage of time is recognised as
interest expense.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.11.1 Asset Retirement Obligation
The Group records the fair value of the liability for asset retirement obligations in the period in which the
wells are drilled. When the liability is initially recorded, the Group capitalises the cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value at
each reporting period, and the capitalized cost is depreciated over the estimated useful life of the related
asset. According to interpretations and application of current legislation and on the basis of the changes
in technology and the variations in the costs of restoration necessary to protect the environment, the
Group has considered it appropriate to periodically re-evaluate future costs of well-capping. The effects of
this recalculation are included in the financial statements in the period in which this recalculation is
determined and reflected as an adjustment to the provision and the corresponding property, plant and
equipment asset.
2.11.2 Deferred Income
Relates to contributions received in cash from the Group’s clients to improve the project economics of gas
wells. The amounts collected are reflected as a deferred income in the balance sheet and recognised in
the Consolidated Statement of Income over the productive life of the associated wells. The depreciation
of the gas wells that generated the deferred income is charged to the Consolidated Statement of Income
simultaneously with the amortisation of the deferred income.
2.12 Impairment of non-financial assets
Assets that are not subject to depreciation and/or amortisation (i.e.: exploration and evaluation assets)
are tested annually for impairment. Assets that are subject to depreciation and/or amortisation are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units), generally a licensed area. Non-
financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the
impairment at each reporting date.
No asset should be kept as an exploration and evaluation asset for a period of more than three years,
except if it can be clearly demonstrated that the carrying value of the investment will be recoverable.
The impairment loss recognised in 2014 is explained in Note 38; no impairment loss has been recognised
during 2013 and 2012. The write-offs are detailed in Note 11.
18
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.13 Lease contracts
All current lease contracts are considered to be operating leases on the basis that the lessor retains
substantially all the risks and rewards related to the ownership of the leased asset. Payments related to
operating leases and other rental agreements are recognised in the Consolidated Income Statement on a
straight line basis over the term of the contract. The Group’s total commitment relating to operating leases
and rental agreements is disclosed in Note 31.
Leases in which substantially all of the risks and rewards of ownership are transferred to the lessee are
classified as finance leases. Under a finance lease, the Company as lessor has to recognize an amount
receivable equal to the aggregate of the minimum lease payments plus any unguaranteed residual value
accruing to the lessor, discounted at the interest rate implicit in the lease.
2.14 Inventories
Inventories comprise crude oil and materials.
Crude oil is measured at the lower of cost and net realisable value. Materials are measured at the lower
of cost and recoverable amount. The cost of materials and consumables is calculated at acquisition price
with the addition of transportation and similar costs. Cost is determined using the first-in, first-out (FIFO)
method.
2.15 Current and deferred income tax
The tax expense for the year comprises current and deferred tax. Tax is recognised in the Consolidated
Statement of Income.
The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted
at the balance sheet date in the countries where the Company’s subsidiaries operate and generate
taxable income. The computation of the income tax expense involves the interpretation of applicable tax
laws and regulations in many jurisdictions. The resolution of tax positions taken by the Group, through
negotiations with relevant tax authorities or through litigation, can take several years to complete and in
some cases it is difficult to predict the ultimate outcome.
Deferred income tax is recognised, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.15 Current and deferred income tax (continued)
In addition, the Group has tax-loss carry-forwards in certain taxing jurisdictions that are available to offset
against future taxable profit. However, deferred tax assets are recognized only to the extent that it is
probable that taxable profit will be available against which the unused tax losses can be utilized.
Management judgment is exercised in assessing whether this is the case. To the extent that actual
outcomes differ from management’s estimates, taxation charges or credits may arise in future periods.
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in
subsidiaries and joint arrangements, except for deferred income tax liability where the timing of the
reversal of the temporary difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future. The Group is able to control the timing of dividends
from its subsidiaries and hence does not expect taxable profit. Hence deferred tax is recognized in
respect of the retained earnings of overseas subsidiaries only if at the date of the statements of financial
position, dividends have been accrued as receivable or a binding agreement to distribute past earnings in
future has been entered into by the subsidiary. As mentioned above the Company does not expect that
the temporary differences will revert in the foreseeable future. In the event that these differences revert in
total (e.g. dividends are declared and paid), the deferred tax liability which the Company would have to
recognize amounts to approximately US$ 16,000,000.
Deferred tax balances are provided in full, with no discounting.
2.16 Financial assets
Financial assets are divided into the following categories: loans and receivables; financial assets at fair
value through the profit or loss; available-for-sale financial assets; and held-to-maturity investments.
Financial assets are assigned to the different categories by management on initial recognition, depending
on the purpose for which the investments were acquired. The designation of financial assets is re-
evaluated at every reporting date at which a choice of classification or accounting treatment is available.
All financial assets are recognised when the Group becomes a party to the contractual provisions of the
instrument. All financial assets are initially recognised at fair value, plus transaction costs.
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
Income Statement when receivable, regardless of how the related carrying amount of financial assets is
measured.
20
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.16 Financial assets (continued)
Loans and receivables 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. The Group’s
loans and receivables comprise trade receivables, prepayments and other receivables and cash at bank
and in hand in the balance sheet. They arise when the Group provides money, goods or services directly
to a debtor with no intention of trading the receivables. Loans and receivables are subsequently
measured at amortised cost using the effective interest method, less provision for impairment. 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 loan and receivables.
2.17 Other financial assets
Non current other financial assets include contributions made for environmental obligations according to a
Colombian government request. For 2012, non current other financial assets also relate to the cash
collateral account required under the terms of the notes issued in 2010. This investment was intended to
guarantee interest payments and was recovered at repayment date (see Note 26).
2.18 Impairment of financial assets
Provision against trade receivables is made when objective evidence is received that the Group will not
be able to collect all amounts due to it in accordance with the original terms of those receivables. The
amount of the write-down is determined as the difference between the asset’s carrying amount and the
present value of estimated future cash flows.
2.19 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term
highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank
overdrafts, if any, are shown within borrowings in the current liabilities section of the Consolidated
Statement of Financial Position.
2.20 Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary
course of the business from suppliers. Accounts payable are classified as current liabilities if payment is
due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
21
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.20 Trade and other payables (continued)
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method.
2.21 Borrowings
Borrowings are obligations to pay cash and are recognised when the Group becomes a party to the
contractual provisions of the instrument.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognised in the Consolidated Statement of Income over the period of the
borrowings using the effective interest method.
Direct issue costs are charged to the Consolidated Statement of Income on an accruals basis using the
effective interest method.
2.22 Share capital
Equity comprises the following:
e “Share capital” representing the nominal value of equity shares.
e “Share premium” representing the excess over nominal value of the fair value of consideration
received for equity shares, net of expenses of the share issue.
+ “Other reserve” representing:
– the equity element attributable to shares granted according to IFRS 2 but not issued at
year end or,
– the difference between the proceeds from the transaction with non-controlling interests
received against the book value of the shares acquired in the Chilean and Colombian
subsidiaries (see Note 34.b).
e “Translation reserve” representing the differences arising from translation of investments in
overseas subsidiaries.
+ “Retained earnings (accumulated losses)” representing accumulated earnings and losses.
GEOPARK LIMITED
31 DECEMBER 2014
Note
2 Summary of significant accounting policies (continued)
2.23 Share-based payment
The Group operates a number of equity-settled and cash-settled share-based compensation plans
comprising share awards payments and stock options plans to certain employees and other third party
contractors.
Share-based payment transactions are measured in accordance with IFRS 2.
Fair value of the stock option plan for employee or contractors services received in exchange for the grant
of the options is recognised as an expense. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the options granted calculated using the Black-Scholes
model.
Non-market vesting conditions are included in assumptions about the number of options that are
expected to vest. At each balance sheet date, the entity revises its estimates of the number of options
that are expected to vest. lt recognises the impact of the revision to original estimates, if any, in the
Consolidated Statement of Income, with a corresponding adjustment to equity.
The fair value of the share awards payments is determined at the grant date by reference of the market
value of the shares and recognised as an expense over the vesting period.
When the options are exercised, the Company issues new shares. The proceeds received net of any
directly attributable transaction costs are credited to share capital (nominal value) and share premium
when the options are exercised.
For cash-settled share-based payment transactions, the Company measures the services acquired for
amounts that are based on the price of the Company’s shares. The fair value of the liability incurred is
measured using Geometric Brownian Motion method. Until the liability is settled, the Company is required
to remeasure the fair value of the liability at each reporting date and at the date of settlement, with any
changes in value recognised in profit or loss for the period.
23
GEOPARK LIMITED
31 DECEMBER 2014
Note
3 Financial Instruments-risk management
The Group is exposed through its operations to the following financial risks:
e Currency risk
e Price risk
e Credit risk – concentration
e Funding and liquidity risk
e Interest rate risk
e Capital risk management
The policy for managing these risks is set by the Board. Certain risks are managed centrally, while others
are managed locally following guidelines communicated from the corporate office. The policy for each of
the above risks is described in more detail below.
Currency risk
In Argentina, Colombia, Chile and Perú the functional currency is the US Dollar. The fluctuation of the
local currencies of these countries against the US Dollar does not impact the loans, costs and revenues
held in US Dollars; but it does impact the balances denominated in local currencies. Such is the case of
the prepaid taxes.
In Chile, Colombia and Argentina subsidiaries most of the balances are denominated in US Dollars, and
since it is the functional currency of the subsidiaries, there is no exposure to currency fluctuation except
from receivables or payables originated in local currency mainly corresponding to VAT. The balances as
of 31 December 2014 of VAT were credits for US$ 73,000 (US$ 3,177,000 in 2013 and US$ 3,624,000 in
2012) in Argentina, credits for US$ 5,107,000 (US$ 5,288,000 in 2013 and US$ 221,000 in 2012) in Chile,
and payable for US$ 1,358,000 (US$ 5,870,000 in 2013 and US$ 2,418,000 in 2012) in Colombia.
The Group minimises the local currency positions in Argentina, Colombia and Chile by seeking to
equilibrate local and foreign currency assets and liabilities. However, tax receivables (VAT) seldom match
with local currency liabilities. Therefore the Group maintains a net exposure to them.
Most of the Group’s assets held in those countries are associated with oil and gas productive assets.
Those assets, even in the local markets, are generally settled in US Dollar equivalents.
During 2014, the Argentine Peso devaluated by 31% (devaluated by 33% and 16% in 2013 and 2012
respectively) against the US Dollar, the Chilean Peso devaluated by 16% (devaluated by 10% and
strengthened by 8% in 2013 and 2012 respectively) and the Colombian Peso devaluated by 24%
(devaluated by 9% and strengthened by 9% in 2013 and 2012 respectively).
24
GEOPARK LIMITED
31 DECEMBER 2014
Note
3 Financial Instruments-risk management (continued)
Currency risk (continued)
If the Argentine Peso, the Chilean Peso and the Colombian Peso had each devaluated an additional 10%
against the US dollar, with all other variables held constant, post-tax profit for the year would have been
lower by US$ 621,400 (higher by US$ 279,000 in 2013 and lower by US$ 91,000 in 2012). As of 31
December 2014, the balances denominated in the Peruvian local currency (Peruvian Soles) are not
material.
In Brazil the functional currency is the local currency, which is the Brazilian Real. The fluctuation of the
US Dollars against the Brazilian Real does not impact the loans, costs and revenues held in Brazilian
Real; but it does impact the balances denominated in US Dollars. Such is the case of the cash at bank
and ltaú loan. Most of the balances are denominated in Brazilian Real, and since it is the functional
currency of the Brazilian subsidiary, there is no exposure to currency fluctuation except from cash at bank
held in US Dollars and for the Itaú loan described in Note 26.
During 2014, the Brazilian Real devaluated by 13% against the US Dollar. If the Brazilian Real had
devaluated an additional 10% against the US dollar, with all other variables held constant, post-tax profit
for the year would have been lower by US$ 5,660,000 (higher by US$ 3,652,000 in 2013).
As currency rate changes between the U.S. Dollar and the local currencies, the Group recognizes gains
and losses in the Consolidated Statement of Income.
Price risk
The price realised for the oil produced by the Group is linked to WTI (West Texas Intermediate) and
Brent, US dollar denominated international benchmarks.The market price of these commodities is subject
to significant fluctuation and has historically fluctuated widely in response to relatively minor changes in
the global supply and demand for oil and natural gas, market uncertainty, economic conditions and a
variety of additional factors.
Between September 2014 and February 2015, WTI and Brent have fallen more than 40%, affecting both:
the Company’s results in 2014 and the Company’s expectations for 2015 (see Note 37).
In Colombia, the price of oil is based on Brent, adjusted for certain marketing and quality discounts based
on, among other things, API, viscosity, sulphur, delivery point and water content.
25
GEOPARK LIMITED
31 DECEMBER 2014
Note
3 Financial Instruments-risk management (continued)
Price risk (continued)
In Chile, the oil price is based on Brent minus certain marketing and quality discounts such as, inter alia,
API quality and others. In Argentina, the oil price is also subject to the impact of the retention tax on oil
exports defined by the Argentine government which limits the direct correlation to the WTI.
The Company has signed a long-term Gas Supply Contract with Methanex in Chile. The price of the gas
sold under this contract is determined based on a formula that takes into account various international
prices of methanol, including US Gulf methanol spot barge prices, methanol spot Rotterdam prices and
spot prices in Asia.
In Brazil, prices for gas produced in the Manati Field are based on a long-term off-take contract with
Petrobras. The price of gas sold under this contract is denominated in Brazilian Real and is adjusted
annually for inflation pursuant to the Brazilian General Market Price Index (Indice Geral de Pregos do
Mercado), or IGPM.
If the market prices of WTI, Brent and methanol had fallen by 10% compared to actual prices during the
year, with all other variables held constant, post-tax profit for the year would have been lower by
US$ 29,186,000 (lower by US$ 27,179,000 in 2013 and US$ 18,784,000 in 2012).
The Group has no price-hedging transaction currently outstanding. The Board could consider adopting
commodity price hedging measures, when deemed appropriate, according to the size of the business,
production levels and market implied volatility.
Credit risk – concentration
The Group’s credit risk relates mainly to accounts receivable where the credit risks correspond to the
recognised values. There is not considered to be any significant risk in respect of the Group’s major
customers.
In Colombia, the Group have diversified the customer base and for the year ended 31 December 2014,
the Colombian subsidiary made 40.1% of the oil sales to Gunvor (a global privately-held company,
dedicated to commodities trading), 31.8% to Emerald (a UK based company engaged in the exploration
and production of hydrocarbons) and 11% to Perenco (a global independent company, dedicated to oil
and gas production), with Gunvor accounting for 23%, Emerald 18.3% and Perenco 6.3% of consolidated
revenues for the same period.
26
GEOPARK LIMITED
31 DECEMBER 2014
Note
3 Financial Instruments-risk management (continued)
Credit risk – concentration (continued)
All the oil produced in Chile is sold to ENAP as well as the gas produced by TdF Blocks (28% of total
revenue, 40% in 2013 and 48% in 2012), the State owned oil and gas company. In Chile, most of gas
production is sold to the local subsidiary of the Methanex, a Canadian public company (6% of
consolidated revenues, 7% in 2013 and 12% in 2012).
In Brazil, all the hydrocarbons from Manati Field are sold to Petrobras, the operator of the Manati Field
and the State owned company.
The mentioned companies all have good credit standing and despite the concentration of the credit risk,
the Directors do not consider there to be a significant collection risk.
See disclosure in Note 24.
Funding and Liquidity risk
In the past, the Group was able to raise capital through different sources of funding including equity,
strategic partnerships and financial debt.
The Group is positioned at the end of 2014 with a cash balance of US$ 128 million and over 80% of its
total indebtedness maturing in 2020. In addition, the Group has a large portfolio of attractive and largely
discretional projects – both oil and gas – in multiple countries with over 20,000 boepd in production. This
scale and positioning permit GeoPark to protect its financial condition and selectively allocate capital to
the optimal projects subject to prevailing macroeconomic conditions.
The most significant funding transactions executed in 2014, 2013 and 2012 include:
On February 2014, the Group received a gross proceed of US$ 98 million from the issuance of new
shares (see Note 1).
On March 2014, GeoPark executed a loan agreement with Itaú BBA International (ltau) for
US$ 70.5 million to finance the acquisition of a working interest in the Manatí field (Brazil) (see Note 34.c)
maturing between 2015 and 2019.
27
GEOPARK LIMITED
31 DECEMBER 2014
Note
3 Financial Instruments-risk management (continued)
Funding and liquidity risk (continued)
On February 2013 the Group placed US$ 300 million notes maturing in 2020. These notes contain
customary incurrence covenants, which include, among others, limitations on the incurrence of additional
debt (see Note 26).
On December 2012, LGl made a capital contribution in GeoPark Colombia S.A. for US$ 14,900,000 to
acquire a non-controlling 20% equity interest in GeoPark’s Colombian business. In addition, as part of the
transaction, US$ 5,000,000 was transferred directly to the Colombian subsidiary as a loan.
Interest rate risk
The Group’s profit and operating cash flows are substantially independent of changes in market interest
rates. The Group’s interest rate risk arises from long-term borrowings issued at variable rates, which
expose the Group to cash flow to interest rate risk.
The Group does not face interest rate risk on its US$ 300,000,000 Notes which carry a fixed rate coupon
of 7.50% per annum.
At 31 December 2014 the outstanding long-term borrowing affected by variable rates amounted to
US$ 68,540,000, representing 19% of total long-term borrowings, which was composed by the loan from
Itaú Bank that has a floating interest rate based on LIBOR.
The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated
taking into consideration refinancing, renewal of existing positions, alternative financing and hedging.
Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate
shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run
only for liabilities that represent the major interest-bearing positions.
At 31 December 2014, if 1% is added to interest rates on currency-denominated borrowings with all other
variables held constant, post-tax profit for the year would have been US$ 312,000 lower (nil in 2013 and
US$ 160,866 lower in 2012).
28
GEOPARK LIMITED
31 DECEMBER 2014
Note
3 Financial Instruments-risk management (continued)
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain
an optimal capital structure to reduce the cost of capital.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This
ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including
“current and non-current borrowings’ as shown in the consolidated balance sheet) less cash at bank and
in hand. Total capital is calculated as “equity’ as shown in the consolidated balance sheet plus net debt.
The Group’s strategy is to keep the gearing ratio within a 30% to 45% range.
The gearing ratios at 31 December 2014, 2013 and 2012 were as follows:
Amounts in US$ ‘000 2014 2013 2012
Net Debt 241,921 265,952 (2) 144,740
Total Equity 479,126 365,957 312,086
Total Capital 721,047 631,909 456,826
Gearing Ratio 34% 42% 32%
(8) For the calculation of the gearing ratio the Group does not consider the cash that has been allocated for future M8.A activities. In
2013, the Group has allocated US$ 70 million for the acquisition of Río Das Contas (see Note 34.c).
Note
4 Accounting estimates and assumptions
Estimates and assumptions are used in preparing the financial statements. Although these estimates are
based on management’s best knowledge of current events and actions, actual results may differ from
them. Estimates and judgements are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
The key estimates and assumptions used in these consolidated financial statements are noted below:
e The Group adopts the successful efforts method of accounting. The Management of the
Company makes assessments and estimates regarding whether an exploration asset should
continue to be carried forward as an exploration and evaluation asset not yet determined or when
insufficient information exists for this type of cost to remain as an asset. In making this
assessment the Management takes professional advice from qualified experts.
29
GEOPARK LIMITED
31 DECEMBER 2014
Note
4 Accounting estimates and assumptions
e Cash flow estimates for impairment assessments require assumptions about two primary
elements – future prices and reserves. Estimates of future prices require significant judgments
about highly uncertain future events. Historically, oil and gas prices have exhibited significant
volatility. Our forecasts for oil and gas revenues are based on prices derived from future price
forecasts amongst industry analysts and our own assessments. Our estimates of future cash
flows are generally based on our assumptions of long-term prices and operating and
development costs.
Given the significant assumptions required and the possibility that actual conditions will differ, we
consider the assessment of impairment to be a critical accounting estimate (see Notes 37 and
38).
The process of estimating reserves is complex. It requires significant judgements and decisions
based on available geological, geophysical, engineering and economic data. The estimation of
economically recoverable oil and natural gas reserves and related future net cash flows was
performed based on the Reserve Report as of 31 December 2014 prepared by DeGolyer and
MacNaughton, an international consultancy to the oil and gas industry based in Dallas. lt
incorporates many factors and assumptions including:
o expected reservoir characteristics based on geological, geophysical and engineering
assessments;
o future production rates based on historical performance and expected future operating and
investment activities;
o future oil and gas prices and quality difterentials;
o assumed effects of regulation by governmental agencies; and
o future development and operating costs.
Management believes these factors and assumptions are reasonable based on the information
available to them at the time of preparing the estimates. However, these estimates may change
substantially as additional data from ongoing development activities and production performance
becomes available and as economic conditions impacting oil and gas prices and costs change.
e Oil and gas assets held in property plant and equipment are mainly depreciated on a unit of
production basis at a rate calculated by reference to proven and probable reserves and
incorporating the estimated future cost of developing and extracting those reserves. Future
development costs are estimated using assumptions as to the numbers of wells required to
produce those reserves, the cost of the wells and future production facilities.
30
Note
GEOPARK LIMITED
31 DECEMBER 2014
4 Accounting estimates and assumptions (continued)
Note
Obligations related to the plugging of wells once operations are terminated may result in the
recognition of significant obligations. Estimating the future abandonment costs is difficult and
requires management to make estimates and judgments because most of the obligations are
many years in the future. Technologies and costs are constantly changing as well as political,
environmental, safety and public relations considerations. The Company has adopted the
following criterion for recognising well plugging and abandonment related costs: The present
value of future costs necessary for well plugging and abandonment is calculated for each area on
the basis of a cash flow that is discounted at an average interest rate applicable to Company’s
indebtedness. The liabilities recognised are based upon estimated future abandonment costs,
wells subject to abandonment, time to abandonment, and future inflation rates.
From time to time, the Company may be subject to various lawsuits, claims and proceedings that
arise in the normal course of business, including employment, commercial, environmental, safety
and health matters. For example, from time to time, the Company receives notice of
environmental, health and safety violations. Based on what the Management of the Company
currently knows, it is not expected any material impact on the financial statements.
5 Consolidated Statement of Cash Flow
The Consolidated Statement of Cash Flow shows the Group’s cash flows tor the year for operating,
investing and financing activities and the change in cash and cash equivalents during the year.
Cash flows from operating activities are computed from the results for the year adjusted for non-cash
operating items, changes in net working capital, and corporation tax. Tax paid is presented as a separate
item under operating activities.
The following chart describes non-cash transactions related to the Consolidated Statement of Cash Flow:
Amounts in US$ ‘000 2014 2013 2012
Increase in asset retirement obligation (Note 27) 1,603 7,183 3,440
Financial leases (Note 19) – 14,133 –
Increase in provisions for other long-term liabilities (Note 27) 5,636 – –
Purchase of property, plant and equipment 1,382 12,799 2,375
31
GEOPARK LIMITED
31 DECEMBER 2014
Note
5 Consolidated Statement of Cash Flow (continued)
Cash flows from investing activities include payments in connection with the purchase and sale of
property, plant and equipment, cash flows relating to the purchase and sale of enterprises to third
parties and cash flows from financial lease transactions. Cash flows from financing activities include
changes in Shareholders’ equity, and proceeds from borrowings and repayment of loans. Cash and cash
equivalents include bank overdraft and liquid funds with a term of less than three months.
Changes in working capital shown in the Consolidated Statement of Cash Flow are disclosed as follows:
Amounts in US$ ‘000 2014 2013 2012
Increase in Prepaid taxes (3,310) (4,283) (11,046)
(Increase) / Decrease in Inventories (410) (4,166) 8,837
Decrease / (Increase) in Trade receivables 13,791 (10,357) (7,842)
Decrease / (Increase) in Prepayments and
other receivables and Other assets 12,569 (13,330) 7,384
(Decrease) / Increase in Trade and other (9,293) 36 6,070
payables
13,347 (32,100) 3,403
Note
6 Segment information
Management has determined the operating segments based on the reports reviewed by the strategic
steering committee that are used to make strategic decisions. The committee considers the business
from a geographic perspective.
The strategic steering committee assesses the performance of the operating segments based on a
measure of adjusted earnings before interest, tax, depreciation, amortisation and certain non-cash items
such as write-offs, impairments and share-based payment (Adjusted EBITDA). This 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 steering committee. Operating
Netback is equivalent to Adjusted EBITDA before cash expenses included in Administrative, Exploration
and Other operating costs. Other information provided, except as noted below, to the strategic steering
committee is measured in a manner consistent with that in the financial statements.
Note
6 Segment information (continued)
Segment areas (geographical segments):
GEOPARK LIMITED
31 DECEMBER 2014
Amounts in US$ ‘000 Argentina Brazil Colombia Perú Chile Corporate Total
2014
Net revenue 1,308 35,621 246,085 – 145,720 – 428,734
Sale of crude oil 1,304 1,541 246,054 – 118,203 – 367,102
Sale of gas 4 34,080 31 – 27,517 – 61,632
Production costs (644) (19,702) (131,680) – (77,624) – (229,650)
Depreciation (94) (11,554) (51,856) – (85,856) – (99,360)
Royalties (241) (2,794) (12,354) – (6,777) – (22,166)
Transportation costs (87) – (4,663) – (6,784) – (11,534)
Other costs (222) (5,354) (62,807) – (28,207) – (96,590)
Gross profit 664 15,919 114,405 – 68,096 – 199,084
Operating (loss) / profit (4,321) 10,658 67,212 (2,419) 11,733 (11,019) 71,844
Adjusted EBITDA (816) 22,637 130,209 (2,425) 76,420 (5,948) 220,077
Depreciation (229) (11,613) (52,713) – (37,077) (25) (101,657)
Impairment loss – – (9,430) – – – (9,430)
Write-off (31) – (1,564) – (28,772) – (30,367)
Total assets 3,839 151,770 263,070 4,813 541,481 74,143 1,039,116
Employees (average) 100 10 121 4 208 – 443
Amounts in US$ ‘000 Argentina Brazil Colombia Perú Chile Corporate Total
2013
Net revenue 1,538 – 179,324 – 157,491 – 338,353
Sale of crude oil 1,532 – 179,324 134,579 315,435
Sale of gas 6 – – 22,912 22,918
Production costs (346) – (111,712) – (67,585) – (179,643)
Depreciation (59) – (39,233) (29,287) (68,579)
Royalties (194) – (9,661) (7,384) (17,239)
Transportation costs (204) – (4,733) (6,455) (11,392)
Other costs 111 – (58,085) (24,459) (82,433)
Gross profit 1,192 – 67,612 – 89,906 – 158,710
Operating (loss) / profit (1,942) (3,107) 38,811 – 63,110 (12,908) 83,964
Adjusted EBITDA 166 (3,037) 82,611 – 96,348 (8,835) 167,253
Depreciation (225) (2) (39,406) (30,471) (96) (70,200)
Write-off – – (3,258) (7,704) (10,962)
Total assets 7,977 29,222 259,421 477,263 72,532 846,415
Employees (average) 97 3 107 184 391
33
Note
6 Segment information (continued)
GEOPARK LIMITED
31 DECEMBER 2014
Amounts in US$ ‘000 Argentina Brazil Colombia Perú Chile Corporate Total
2012
Net revenue 1,050 – 99,501 – 149,927 – 250,478
Sale of crude oil 1,045 – 99,501 – 121,018 – 221,564
Sale of gas 5 – – – 28,909 – 28,914
Production costs (3,244) – (60,197) – (65,794) – (129,235)
Depreciation (3,223) – (20,964) – (28,120) – (52,307)
Royalties (172) – (4,165) – (7,087) – (11,424)
Transportation costs (180) – (1,045) – (5,986) – (7,211)
Other costs 331 – (34,023) – (24,601) – (58,293)
Gross (loss) / profit (2,194) – 39,304 – 84,133 – 121,243
Operating (loss) / profit (6,129) – 8,500 – 47,915 (9,539) 40,747
Adjusted EBITDA 2,051 – 34,474 – 93,908 (9,029) 121,404
Depreciation (3,408) – (21,050) – (28,734) (125) (53,317)
Write-off (1,915) – (5,147) – (18,490) – (25,552)
Total assets 6,108 – 213,202 – 405,674 3,033 628,017
Employees (average) 100 – 80 – 144 – 324
Approximately 66% of capital expenditure was allocated to Chile (63% in 2013 and 70% in 2012), 29% was allocated
to Colombia (37% in 2013 and 30% in 2012) and 5% was allocated to Brazil (nil in 2013 and 2012). The capital
expenditure referred does not include total consideration for MáA activities.
A reconciliation of total Operating netback to total profit before income tax is provided as follows:
Amounts in US$ ‘000 2014 2013 2012
Operating netback 274,509 214,683 151,270
Administrative costs (9) (40,340) (39,573) (25,507)
Exploration costs (*) (14,092) (7,857) (4,359)
Adjusted EBITDA for reportable segments 220,077 167,253 121,404
Depreciation (*) (100,528) (69,968) (56,448)
Share-based payment (8,373) (9,167) (5,396)
Impairment and write-off of unsuccessful efforts (39,797) (10,962) (25,552)
Others (4) 465 6,808 6,739
Operating profit 71,844 83,964 40,747
Financial results (50,719) (33,876) (16,308)
Bargain purchase gain on acquisition of subsidiaries – – 8,401
Profit before tax 21,125 50,088 32,840
(a) Excludes depreciation and share-based payment.
(5) Includes staff costs and other services.
() Net of capitalised costs for oil stock included in Inventories.
(Includes internally capitalised costs.
34
Note
7 Net Revenue
GEOPARK LIMITED
31 DECEMBER 2014
Amounts in US$ ‘000 2014 2013 2012
Sale of crude oil 367,102 315,435 221,564
Sale of gas 61,632 22,918 28,914
428,734 338,353 250,478
Note
8 Production costs
Amounts in US$ ‘000 2014 2013 2012
Depreciation 99,360 68,579 52,307
Well and facilities maintenance 25,475 20,662 9,385
Royalties 22,166 17,239 11,424
Consumables 16,157 14,855 9,884
Staff costs (Note 10) 16,112 11,650 12,384
Share-based payment (Notes 10 and 29) 1,619 2,552 1,787
Transportation costs 11,534 11,392 7,211
Equipment rental 7,563 7,139 5,936
Non operated blocks costs 9,730 5,635 1,030
Safety and Insurance costs 5,733 4,843 1,428
Field camp 5,932 4,805 2,407
Gas plant costs 3,277 3,217 3,371
Cost of crude oil sold from acquired business – – 3,826
Other costs 4,992 7,075 6,855
229,650 179,643 129,235
Note
9 Depreciation
Amounts in US$ ‘000 2014 2013 2012
Oil and gas properties 89,651 59,234 44,552
Production facilities and machinery 9,621 9,341 7,708
Furniture, equipment and vehicles 1,862 964 713
Buildings and improvements 523 661 344
Depreciation of property, plant and equipment 101,657 70,200 53,317
Recognised as follows:
Production costs 99,360 68,579 52,307
Administrative costs 2,297 1,621 1,010
Depreciation total 101,657 70,200 53,317
35
Note
10 Staff costs and Directors Remuneration
GEOPARK LIMITED
31 DECEMBER 2014
2014 2013 2012
Average number of employees 443 391 324
Amounts in US$ ‘000
Wages and salaries 41,593 29,504 19,132
Share-based payment (Note 29) 9,178 8,362 5,396
Share-based payment – Cash awards (Note 29) (805) 805 –
Social security charges 6,597 5,291 3,636
Director’s fees and allowance 1,998 1,426 1,516
58,561 45,388 29,680
Recognised as follows:
Production costs 17,731 14,202 14,171
Exploration costs 12,939 7,676 4,418
Administrative costs 27,891 23,510 11,091
58,561 45,388 29,680
Board of Directors’ and key managers” remuneration (1
Salaries and fees 11,003 7,702 5,711
Share-based payment 3,314 2,971 846
Other benefits 130 742 –
14,447 11,415 6,557
(All the figures are included in the Staff costs and Directors Remuneration table.
Directors” Remuneration
Non- Non- Director Fees Cash
Executive Executive Executive Executive Paid in Equivalent
Directors” Directors” Directors” Directors” Shares No. of Total
Fees Bonus Fees (in £) Fees (in US$) Shares (” Remuneration
Gerald O’Shaughnessy US$ 250,000 US$ 150,000 – – US$ 400,000
James F. Park US$ 500,000 US$ 650,000 – – US$ 1,150,000
Pedro Aylwin (2 – – Ñ –
Peter Ryalls(? – £8,750 US$ 57,500 7,003 US$ 195,091
Juan Cristóbal Pavez!” – £11,625 US$ 55,000 7,003 US$ 195,036
Carlos Gulisano(* – £20,375 US$ 55,000 5,250 US$ 195,043
Steven J. Quamme(* – £11,625 US$ 55,000 7,003 US$ 195,036
* Only 2,301 shares of the 26,259 shares paid as Director Fees were issued during 2014 (see Note 29).
? Pedro Aylwin has a service contract that provides for him to act as Manager of Legal and Governance so he resigned his fees as Director.
? Technical Committe Chairman.
4 Compensation Committee Chairman.
5 Nomination Committee Chairman.
$ Audit Committee Chairman.
From the second half of 2014, an increase in the compensation program for the services of the non-executive Directors was aproved. The annual fees
correspond to US$ 80,000 to be settled in cash and US$ 100,000 to be settled in stocks, paid quaterly in equal installments.
36
GEOPARK LIMITED
31 DECEMBER 2014
Note
10 Staff costs and Directors Remuneration (continued)
In the event that a non-executive Director serves as Chairman of any Board Committees, an additional annual fee of USD 20,000
shall apply. A Director who serves as a member of any Board Committees shall receive an annual fee of USD 10,000. Total
payment due shall be calculated in an aggregate basis for Directors serving in more than one Committee. The Chairman fee shall
not be added to the member’s fee for the same Committee. Payments of Chairmen and Committee members” fees shall be made
quarterly in arrears and settled in cash only.
IPO Stock Options to Executive Directors
The following Stock Options were issued to Executive Directors during 2006:
N* of Underlying Exercise Price Earliest Exercise
Name Common Shares (£) Date Expiry Date
Gerald 153,345 3.20 15 May 2008 15 May 2013
O’Shaughnessy 306,690 4.00 15 May 2008 15 May 2013
153,345 3.20 15 May 2008 15 May 2013
James F. Park 306,690 4.00 15 May 2008 15 May 2013
During 2013 the abovementioned stock options were fully exercised by the Executive Directors.
Stock Awards to Executive Directors
The following Stock Options were issued to Executive Directors during 2012:
N* of
Underlying
Common Exercise Price Earliest
Name Shares Grant Date (US$) Exercise Date
Gerald
O’Shaughnessy 270,000 23 Nov 2012 0.001 23 Nov 2015
James F. Park 450,000 23 Nov 2012 0.001 23 Nov 2015
In addition, Dr Carlos Gulisano holds the following interests in stock options and awards as a result of the
services that he has previously provided to the Company:
e 50,000 IPO Stock Options issued on 15 May 2008 at an exercise price of £4.00 to be exercised
between 15 May 2008 and 15 May 2013. These were fully exercised during 2013.
e 100,000 Stock awards issued on 15 December 2008 at an exercise price of $0.001 to be
exercised between 15 December 2012 and 15 December 2018.
In addition, Pedro Aylwin holds the following interests in stock options and awards as a result of the
services that he has previously provided to the Company:
e 156,431 shares fully exercised.
+ 12,000 stock awards related to the 2011 Programme not yet vested.
37
Note
11 – Exploration costs
GEOPARK LIMITED
31 DECEMBER 2014
Amounts in US$ ‘000 2014 2013 2012
Write-off of unsuccessful efforts (2 30,367 10,962 25,552
Staff costs (Note 10) 11,712 6,451 3,090
Other services 2,380 1,406 1,269
Allocation to capitalised project (2,317) (2,437) (1,849)
Share-based payment (Notes 10 and 29) 1,227 1,225 1,328
Amortisation of other long-term liabilities related to
unsuccessful efforts – (600) (1,500)
Recovery of abandonments costs – (753) –
43,369 16,254 27,890
(a) The 2014 charge corresponds to the cost of ten unsuccessful exploratory wells: eight of them in Chile (three in Flamenco
Block, two in Fell Block, two in Tranquilo Block and one in Campanario Block) and two of them in Colombia (two in the
non-operated Arrendajo Block, see Note 34). The 2014 charge also includes the loss generated by the write-off of the
remaining seismic cost for Otway and Tranquilo Blocks, registered in previous years.
The 2013 charge corresponds to the cost of five unsuccessful exploratory wells: two of them in Chile (one in Fell Block
and one in Tranquilo Block) and three of them in Colombia (one well in Cuerva Block, one well in each of the non-
operated blocks, Arrendajo and Llanos 32).
The 2012 charge corresponds to the costs of eight unsuccesstul 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 well in Cuerva Block, one
well in Arrendajo Block and the remaining in Llanos 17 Block). The 2012 charge also includes the loss generated by the
relinquishment of an area in the Del Mosquito Block in Argentina.
Note
12 Administrative costs
Amounts in US$ ‘000 2014 2013 2012
Staff costs (Note 10) 20,366 16,694 7,294
Share-based payment (Notes 10 and 29) 5,527 5,390 2,281
Consultant fees 6,791 6,424 5,122
New projects 2,798 3,720 2,927
Office expenses 3,190 2,652 3,293
Director’s fees and allowance 1,998 1,426 1,516
Travel expenses 2,052 1,258 1,563
Depreciation 2,297 1,621 1,010
Other administrative expenses 3,145 7,399 3,792
48,164 46,584 28,798
38
GEOPARK LIMITED
31 DECEMBER 2014
Note
13 Selling expenses
Amounts in US$ ‘000 2014 2013 2012
Transportation 23,106 16,181 22,066
Selling taxes 433 406 202
Storage 148 665 645
Allowance for doubtful accounts 741 – –
Delivery or pay penalty – – 1,718
24,428 17,252 24,631
Note
14 Financial results
Amounts in US$ ‘000 2014 2013 2012
Financial expenses
Interest and amortisation of debt issue costs 29,466 25,209 13,114
Less: amounts capitalised on qualifying assets (3,112) (1,313) (1,369)
Exchange difference (1) 23,097 760 2,081
Bank charges and other financial costs 2,672 2,519 1,764
Unwinding of long-term liabilities 1,972 1,523 1,262
Notes GeoPark Fell SpA cancellation costs (Note 26) – 8,603 –
Financial income
Interest received (3,376) (3,425) (544)
50,719 33,876 16,308
(1 Includes in 2014, US$ 19,163,000 generated by borrowings in US Dollars held by the Brazilian subsidiary.
Note
15 Tax reforms in Colombia and Chile
Colombia
The Colombian Congress approved a Tax Reform in December 2014. This reform has introduced a
temporary net wealth tax assessed on net equity on domestic and foreign legal entities, kept the rate of
the income tax on equality (Enterprise contribution on equality, “CREE” for its Spanish acronym) at 9%,
and applied a CREE surcharge until 2018, among other changes.
The net wealth tax (NWT) assessed on net equity would apply for tax years 2015 through 2017 for
domestic and foreign entities that hold any wealthin Colombia, directly orindirectly, via
permanent establishments (PEs) or branches. In the case of foreign or domestic individuals, the NWT
would apply until 2018.
39
GEOPARK LIMITED
31 DECEMBER 2014
Note
15 Tax reforms in Chile and Colombia (continued)
NWT would apply at progressive rates ranging from 1.15% in 2014; 1% in 2015 and decrease to 0.4% in
2016 and finally disappear in 2017, for corporate taxpayers. NWT paid would not be deductible or
creditable for Colombian income tax purposes.
The Reform also extended the current 9% CREE tax rate, which was scheduled to decrease to 8% in
2016. Also, it will introduce a new CREE surcharge, beginning in 2015, from 5% in 2015, 6% in 2016, and
8% in 2017 to 9% in 2018. Therefore, the accumulated corporate income tax rate will raise to 43% in
2018. The Company has considered the effects of this rate increase in the deferred income tax
calculation.
Chile
The Chilean Congress approved a reform to the income tax law in September 2014. Under this reform the
income tax rate will increase from 20% in 2013 according to this schedule: 21% in 2014, 22.5% in 2015,
24% in 2016, 25.5% in 2017 and 27% in 2018.
The operating subsidiaries that GeoPark controls in Chile, which are GeoPark TdF S.A., GeoPark Fell
SpA and GeoPark Magallanes Limitada, are not affected by the income tax reform mentioned since they
are covered by the tax treatment established in the Special contract of operations (“CEOPs”).
Note
16 Income tax
Amounts in US$ ‘000 2014 2013 2012
Current tax 23,574 13,337 7,536
Deferred income tax (Note 17) (18,379) 1,817 6,858
5,195 15,154 14,394
40
GEOPARK LIMITED
31 DECEMBER 2014
Note
16 Income Tax (continued)
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the
weighted average tax rate applicable to profits of the consolidated entities as follows:
Amounts in US$ ‘000 2014 2013 2012
Profit before tax 21,125 50,088 32,840
Tax losses from non-taxable jurisdictions 5,010 14,348 8,373
Taxable profit 26,135 64,436 41,213
Income tax calculated at domestic tax rates applicable to profits
in the respective countries 7,606 14,011 6,290
Tax losses where no deferred income tax is recognised 148 328 2,864
Effect of currency translation on tax base (8,128) (5,146) 2,436
Expiration of tax loss carry-forwards – 1,988 –
Changes in the income tax rate (Note 15) 691 – –
Non-taxable results () 4,878 3,973 2,804
Income tax 5,195 15,154 14,394
(1 Includes non-deductible expenses in each jurisdiction and changes in the estimation of deferred
tax assets and liabilities.
Under current Bermuda law, the Company is not required to pay any taxes 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 March 2035.
Income tax rates in those countries where the Group operates (Argentina, Brazil, Colombia, Perú and
Chile) ranges from 15% to 35%.
The Group has significant tax losses available which can be utilised against future taxable profit in the
following countries:
Amounts in US$ ‘000 2014 2013 2012
Argentina 6,707 10,259 11,645
Chile (1 33,222 15,935 4,380
Brazil () 3,191 – –
Total tax losses at 31 December 43,120 26,194 16,025
(1 Taxable losses have no expiration date.
At the balance sheet date deferred tax assets in respect of tax losses in Argentina have not been
recognised as there is insufficient evidence of future taxable profits before the statute of limitation of these
tax losses causes them to expire.
41
Note
16 Income Tax (continued)
Expiring dates for tax losses accumulated at 31 December 2014 are:
GEOPARK LIMITED
31 DECEMBER 2014
Expiring date
Amounts in US$ ‘000
2015 3,222
2016 1,503
2017 1,982
Note
17 – Deferred income tax
The gross movement on the deferred income tax account is as follows:
Amounts in US$ ‘000 2014 2013 2012
Deferred tax at 1 January (9,729) (3,911) (12,659)
Acquisition of subsidiaries (3,132) – 15,606
Reclassification (1) (2,123) (4,001) –
Currency translation differences (265) – –
Income statement credit / (charge) 18,379 (1,817) (6,858)
Deferred tax at 31 December 3,130 (9,729) (3,911)
The breakdown and movement of deferred tax assets and liabilities as of 31 December 2014, 2013 and
2012 are as follows:
At the Acquisition of Currency (Charged) /
beginning of subsidiaries translation credited to net At end of year
Amounts in US$ ‘000 year differences profit
Deferred tax assets
Difference in depreciation
rates and other (2,577) – – 4,011 1,434
Taxable losses 15,935 7 (423) 16,249 31,761
Total 2014 13,358 – (423) 20,260 33,195
Total 2013 13,591 – – (233) 13,358
Total 2012 450 15,606 – (2,465) 13,591
Note
17 – Deferred income tax (continued)
GEOPARK LIMITED
31 DECEMBER 2014
At the Acquisition of (Charged) / Reclassification Currency At end
beginning of subsidiaries credited to translation of year
Amounts in US$ ‘000 year net profit differences
Deferred tax liabilities
Difference in depreciation
rates and other (23,087) (3,132) (6,533) (2,123) 158 (34,717)
Taxable losses – – 4,652 – – 4,652
Total 2014 (23,087) (3,132) (1,881) (2,123) 158 (30,065)
Total 2013 (17,502) – (1,584) (4,001) – (23,087)
Total 2012 (13,109) – (4,393) – – (17,502)
(1) Corresponas to the difference between income tax provision and the final tax return presented.
Note
18 -Earnings per share
Amounts in US$ ‘000 2014 2013 2012
Numerator:
Profit for the year 7,512 22,012 11,879
Denominator:
Weighted average number of shares used in basic EPS 56,396,812 43,603,846 42,673,981
Earnings after tax per share (US$) – basic 0.13 0.50 0.28
Amounts in US$ ‘000 2014 2013 2012
Weighted average number of shares used in basic EPS 56,396,812 43,603,846 42,673,981
Effect of dilutive potential common shares
Stock awards at US$ 0.001 2,443,600 2,928,203 1,435,324
Weighted average number of common shares for the
purposes of diluted earnings per shares 58,840,412 46,532,049 44,109,305
Earnings after tax per share (US$) – diluted 0.13 0.47 0.27
43
Note
19 Property, plant and equipment
GEOPARK LIMITED
31 DECEMBER 2014
Furniture, Production Buildings Exploration
Oil 8 gas equipment facilities and and Construction and evaluation
Amounts in US$’000 properties and vehicles machinery improvements in progress assets(“) Total
Cost at 1 January 2012 171,956 2,175 47,102 2,437 32,896 42,140 298,706
Additions 4,071 637 32,335 – 81,241 83,360 201,644
Disposals (416) – (130) – – – (546)
Write-off / Impairment loss – – – – – (25,552) (25,552)
Acquisition of subsidiaries 62,449 389 10,865 – 9,452 27,818 110,973
Transfers 106,311 375 (3,223) 761 (69,564) (34,660) –
Cost at 31 December 2012 344,371 3,576 86,949 3,198 54,025 93,106 585,225
Additions 9,367 2,060 512 – 89,976 133,301 235,216
Disposals (553) (22) (15,870)0 – – – (16,445)
Write-off / Impairment loss – – – – – (10,962) (10,962)
Transfers 140,075 117 27,246 3,820 (103,572) (67,686)
Cost at 31 December 2013 493,260 5,731 98,837 7,018 40,429 147,759 793,034
Additions 3,013 3,367 11 490 136,232 97,919 241,032
Acquisition of subsidiaries 112,646 201 – – – – 112,847
Currency translation differences (21,941) (122) – – – (988) (23,051)
Disposals – (853) (666) – – – (1,019)
Write-off / Impairment loss (9,430) – – – – (30,367) (39,797)
Transfers 172,399 3,233 13,464 2,019 (117,236) (73,879) –
Cost at 31 December 2014 749,947 12,057 111,646 9,527 59,425 140,444 1,083,046
pe on A (53,604) (1,123) (18,628) (716) . . (74,071)
Depreciation (44,552) (713) (7,708) (344) – – (53,317)
a O (98,156) (1,836) (26,336) (1,060) . . (127,388)
Depreciation (59,234) (964) (9,341) (661) – – (70,200)
Da o a ate down (157,390) (2,800) (85,677) (1,721) . . (197,588)
Depreciation (89,651) (1,862) (9,621) (523) – – (101,657)
Disposals – 278 151 – – – 429
Currency translation differences 6,602 (65) – – – – 6,537
Depreciation and write-down (249 439) (4,449) (45,147) (2,244) – – (292,279)
at 31 December 2014
Carrying amount at 31
December 2012 246,215 1,740 60,613 2,138 54,025 93,106 457,837
Carrying amount at 31
December 2013 335,870 2,981 63,160 5,297 40,429 147,759 595,446
Carrying amount at 31
509,508 7,608 66,499 7,283 59,425 140,444 790,767
December 2014
GEOPARK LIMITED
31 DECEMBER 2014
Note
19 Property, plant and equipment (continued)
As of 31 December 2014, the Group has pledged, as security for a mortgage obtained for the acquisition
of the operating base in Chile, assets amounting to US$ 482,000 (US$ 493,000 in 2013 and US$ 692,000
in 2012). See Note 26 (c).
() During 2013, the Company entered into a finance lease for which it has transferred a substantial portion
of the risk and rewards of some assets which had a book value of US$ 14,100,000. As of 31 December
2013, prepayments and other receivables include receivables under finance leases amounting to
US$ 8,000,000, which US$ 6,500,000 are maturity no later than one year and US$ 1,500,000 between
one and five years. In 2014, the finance lease finalized when the purchase option on the assets subject to
the agreement was exercised by the lessee.
(1 Exploration wells movement and balances are shown in the table below; seismic and other
exploratory assets amount to US$ 99,939,000 (US$ 117,841,000 in 2013 and US$ 65,941,000 in
2012).
Amounts in US$ ‘000 Total
Exploration wells at 31 December 2011 22,241
Additions 47,891
Write-offs (21,339)
Transfers (23,496)
Acquisition of subsidiaries 1,868
Exploration wells at 31 December 2012 27,165
Additions 77,933
Write-offs (7,934)
Transfers (67,246)
Exploration wells at 31 December 2013 29,918
Additions 87,741
Write-offs (24,339)
Transfers (52,815)
Exploration wells at 31 December 2014 40,505
As of 31 December 2014, there were two exploratory wells that have been capitalised for a period over a
year amounting to US$ 4,657,000 and ten exploratory wells that have been capitalised for a period less
than a year amounting to US$ 35,848,000.
45
Note
20
Subsidiary undertakings
GEOPARK LIMITED
31D
ECEMBER 2014
The following chart illustrates main companies of the Group structure as of 31 December 2014:
GeoPark Limited
(Bermuda)
100% 100% 99,9% 99.9% 99.9%
[ 11% ] ] [ |
GeoPark Latin 1 GeoPark GeoPark Latin GeoPark Perú GeoPark Brazil
America ! Argentina America Coóperatie Cobperatie U.A. Cobperatie U.A.
Limited y | Umited- Bermuda UA (The Netherlands) (The Netherlands)
; ((The Netherlands)
‘
100% ; 100% 80% 99.9%
GeoPark Latin : GeoPark Argentina GeoPark Colombia – |>90, 16 GeoPark Brazil
America Limited 1 Limited – Coóperatie U.A. -.. International Exploracáo e Producáo
Agencia en Chile 1 | Argentinean Branch (The Netherlands) de Petróleo e Gás Ltda
‘ (Brazi)
I
! 100% 100%
I
‘ Rio das Contas
1 e pa Produtora de Petróleo
! (Colombia) Lida (Brazil)
I
I
+ 99.9%
! GeoPark S.A.C.
80% 99.9% 100% (Perú)
I
Le [20% | GeoPark Chi IN E
Intemational S.A (Chile) (Chile) ! (Chi
¡ ¡ 99.9% 99.9%
14% : ‘ GeoPark Operadora
1 1 GeoPark Perú del Perú SAC.
! ! SAC. (Perú) úl
1 1 (Perú)
! 86% 100% 99% y
GeoPark TF GeoPark Fell E
S.A. (Chile) SpA. (Chile) Limitada (Chile)
(*) LGl is not a subsidiary, it is Non-controlling interest.
During 2013 and 2014, with the purpose of conducting its multilocation activities and for allowing future
business structures, the Company has incorporated certain wholly owned subsidiaries, that are dormant
companies at the date of the issuance of these financial statements.
Note
20
Subsidiary undertakings (continued)
Details of the subsidiaries and joint operations of the Company are set out below:
Name and registered office
GEOPARK LIMITED
31 DECEMBER 2014
Ownership interest
Subsidiaries
GeoPark Argentina Limited – Bermuda 100%
GeoPark Argentina Limited – Argentinean Branch 100% (a) (k)
GeoPark Latin America Limited 100% (9
GeoPark Latin America Limited – Agencia en Chile
GeoPark S.A. (Chile)
GeoPark Brazil Exploragáo y Producáo de Petróleo e Gás Ltda. (Brazil) 100% (a,
Rio das Contas Produtora de Petróleo Ltda (Brazil) 100% (a) (i)
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 SAS (Colombia)
GeoPark Brazil S.p.A. (Chile)
GeoPark Latin America Coóperatie U.A. (The Netherlands)
GeoPark Colombia Coóperatie U.A. (The Netherlands)
GeoPark S.A.C. (Perú)
GeoPark Perú S.A.C. (Perú)
GeoPark Operadora del Perú S.A.C. (Perú)
GeoPark Perú Coóperatie U.A. (The Netherlands) 100%(m)
GeoPark Brazil Coóperatie U.A. (The Netherlands) 100%
Joint operations Tranquilo Block (Chile) 29% (i) (f)
Otway Block (Chile) 100% (e) (1)
Flamenco Block (Chile) 50% (f)
Campanario Block (Chile) 50% ()
Isla Norte Block (Chile) 60% (f)
Llanos 17 Block (Colombia) 36.84% (1)
Yamu/Carupana Block (Colombia) 75%/54.5% (f) (1)
Llanos 34 Block (Colombia) 45% (1) (1)
Llanos 32 Block (Colombia) 10% (1)
CPO-4 Block (Colombia) 50% (1)
Puelen (Argentina) 18%
Sierra del Nevado (Argentina) 18%
Manati Field (Brazil) 10% (j)
3852122382
z
Indirectly owned.
Dormant companies.
LG International has 20% interest.
LG International has 20% interest through GeoPark Chile S.A. and a 14% direct interest, totalling 31.2%.
In September 2014, the Chilean Ministry of Energy approved that the Group will be the sole participant with a working interest of 100%.
GeoPark is the operator in all blocks.
Formerly named GeoPark Chile Limited.
During 2013, the Company finalized a merger process by which GeoPark Colombia SAS continued the operations related to GeoPark Luna SAS
(Colombia), GeoPark Llanos SAS (Colombia), La Luna Oil Co. Ltd. (Panama), Winchester Oil and Gas S.A. (Panama), GeoPark Cuerva LLC (United
States), Sucursal La Luna Oil Co. Ltd. (Colombia), Sucursal Winchester Oil and Gas S.A. (Colombia) and Sucursal GeoPark Cuerva LLC (Colombia).
At 31 December 2013, the Consortium members and interest were: GeoPark 29%, Pluspetrol 29%, Wintershall 25% and Methanex 17%. During
2014, Methanex and Wintershall announced their decision to abandon the Consortium. The new ownership is GeoPark 50% and Pluspetrol 50%.
On 17 December 2014, the ANP approved the transfer of cession of rights of the Block from Rio das Contas to GeoPark Brazil. On 31 January 2015,
both companies, Rio das Contas and GeoPark Brazil were merged into GeoPark Brazil (see Note 34.c).
In April 2014, the Company informed the Secretary of Infraestructure and Energy of the province of Mendoza of its decision to relinquish 100% of the
Cerro Doña Juana and Loma Cortaderal Concessions to the Mendoza Province.
See Note 34.a.
See Note 34.d.
47
GEOPARK LIMITED
31 DECEMBER 2014
Note
21 Prepaid taxes
Amounts in US$ ‘000 2014 2013 2012
V.A.T. 8,884 10,635 5,962
Income tax payments in advance 4,834 4,945 8,039
Other prepaid taxes 994 2,853 149
Total prepaid taxes 14,712 18,433 14,150
Classified as follows:
Current 13,459 6,979 3,443
Non current 1,253 11,454 10,707
Total prepaid taxes 14,712 18,433 14,150
Note
22 Inventories
Amounts in US$ ‘000 2014 2013 2012
Crude oil 6,719 4,464 3,838
Materials and spares 1,813 3,658 117
8,532 8,122 3,955
Note
23 Trade receivables and Prepayments and other receivables
Amounts in US$ ‘000 2014 2013 2012
Trade accounts receivable 36,917 42,628 32,271
36,917 42,628 32,271
To be recovered from co-venturers 5,931 15,508 8,773
Related parties receivables (Note 32) – – 31,138
Prepayments and other receivables 8,411 26,617 10,219
14,342 42,125 50,130
Total 51,259 84,753 82,401
Classified as follows:
Current 50,910 78,392 81,891
Non current 349 6,361 510
Total 51,259 84,753 82,401
Trade receivables that are aged by less than three months are not considered impaired. As of 31
December 2014, trade receivables of US$ 6,092 (US$ 1,143,393 in 2013 and US$ 31,984 in 2012) were
aged by more than 3 months, but not impaired. These relate to customers for whom there is no recent
history of default. There are no balances due between 31 days and 90 days as of 31 December 2014,
2013 and 2012.
48
GEOPARK LIMITED
31 DECEMBER 2014
Note
23 Trade receivables and Prepayments and other receivables (continued)
Movements on the Group provision for impairment are as follows:
Amounts in US$ ‘000 2014 2013 2012
At 1 January 33 33 33
Allowance for doubtful accounts (Note 13) 741 – –
774 33 33
The credit period for trade receivables is 30 days. The maximum exposure to credit risk at the reporting
date ¡is the carrying value of each class of receivable. The Group does not hold any collateral as security
related to trade receivables.
The carrying value of trade receivables is considered to represent a reasonable approximation of its fair
value due to their short-term nature.
Note
24 – Financial instruments by category
Amounts in US$ ‘000 Loans and receivables
2014 2013 2012
Assets as per statement of financial position
Trade receivables 36,917 42,628 32,271
To be recovered from co-venturers 5,931 15,508 8,773
Other financial assets ( 12,979 5,168 7,791
Cash at bank and in hand 127,672 121,135 48,292
183,499 184,439 97,127
() Other financial assets relate to contributions made for environmental obligations according to
Colombian and Brazilian government regulations. For 2014, they also include a non-current account
receivable. For 2012, they also include the cash collateral account required under the terms of the Notes
issued in 2010, that guarantee interest payments and was recovered at repayment date (see Note 26).
49
GEOPARK LIMITED
31 DECEMBER 2014
Note
24 Financial instruments by category (continued)
Amounts in US$ ‘000 Other financial liabilities at amortised cost
2014 2013 2012
Liabilities as per statement of financial position
Trade payables 64,457 61,130 50,590
Payables to related parties 16,591 8,456 –
To be paid to co-venturers 1,335 1,201 2,007
Borrowings 369,593 317,087 193,032
451,976 387,874 245,629
Credit quality of financial assets
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference
to external credit ratings (if available) or to historical information about counterparty default rates:
Amounts in US$ ‘000 2014 2013 2012
Trade receivables
Counterparties with an external credit rating (Moody’s)
Bal – – 4,769
Ba2 11,793 – –
Baal – – 13,488
Baa2 – 2,048 4,781
Baa3 11,292 17,321 –
Counterparties without an external credit rating
Group1 13,832 23,259 9,233
Total trade receivables 36,917 42,628 32,271
( Group 1 – existing customers (more than 6 months) with no defaults in the past.
All trade receivables are denominated in US Dollars, except in Brazil where are denominated in Brazilian
Real.
50
Note
24 Financial instruments by category (continued)
Cash at bank and other financial assets (“
GEOPARK LIMITED
31 DECEMBER 2014
Amounts in US$ ‘000 2014 2013 2012
Counterparties with an external credit rating (Moody’s,
S8P, Fitch, BRC Investor Services)
A1 17 4,812 7,408
A2 22,621 – –
A3 – – 366
Aal – – 2,131
Aa3 – 11 38,952
P1 40,402 102,390 2,537
P2 42,218 460 –
P3 21,145 3,789 –
AA+ – 2,643 –
BRC 1+ 994 3,546 –
Counterparties without an external credit rating 13,142 8,631 4,665
Total 140,539 126,282 56,059
(1 The rest of the balance sheet item ‘cash at bank and in hand” is cash on hand amounting to
US$ 112,000 (US$ 21,000 in 2013 and US$ 24,000 in 2012).
Financial liabilities – contractual undiscounted cash flows
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the
remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows.
Less than 1 Between 1 Between 2 Over 5
Amounts in US$ ‘000 year and 2 years -and5 years years
At 31 December 2014
Borrowings 41,124 40,342 109,152 322,500
Trade payables 64,457 – – –
Payables to related parties 1,325 1,325 17,226 –
106,906 41,667 126,378 322,500
At 31 December 2013
Borrowings 39,585 22,600 67,500 345,000
Trade payables 61,130 – – –
Payables to related parties 8,456 – – –
109,171 22,600 67,500 345,000
At 31 December 2012
Borrowings 36,031 10,437 181,100 –
Trade payables 50,590 – 7 –
86,621 10,437 181,100 –
51
Note
25 Share capital
GEOPARK LIMITED
31 DECEMBER 2014
Issued share capital 2014 2013 2012
Common stock (amounts in US$ *000) 58 44 43
The share capital is distributed as follows:
Common shares, of nominal US$ 0.001 57,790,533 43,861,614 43,495,585
Total common shares in issue 57,790,533 43,861,614 43,495,585
Authorised share capital
US$ per share 0.001 0.001 0.001
Number of common shares (US$ 0.001 each)
5,171,949,000
5,171,949,000
5,171,949,000
Amount in US$
5,171,949
5,171,949
5,171,949
Details regarding the share capital of the Company are set out below:
Common shares
As of 31 December 2014, the outstanding common shares confer the following rights on the holder:
+ theright to one vote per share;
e ranking pari passu, the right to any dividend declared and payable on common shares;
Shares Shares
GeoPark common shares history issued closing US$(000)
Date (millions) (millions) Closing
Shares outstanding at the end of 2011 42.5 43
Issue of shares to Non-Executive Directors 2012 0.02 42.5 43
Stock awards Oct 2012 1.01 43.5 43
Shares outstanding at the end of 2012 43.5 43
Issue of shares to Non-Executive Directors 2013 0.01 43.5 43
Stock awards Sept 2013 0.46 44.0 44
Buyback program Oct 2013 (0.1) 43.9 44
Shares outstanding at the end of 2013 43.9 44
IPO Feb 2014 14.0 57.9 58
Stock awards Feb 2014 0.0 57.9 58
Buyback program Dec 2014 (0.1) 57.8 58
Shares outstanding at the end of 2014 57.8 58
GEOPARK LIMITED
31 DECEMBER 2014
Note
25 Share capital (continued)
On 17 September 2013, 295,599 common shares were allotted to the trustee of the Employee Beneficiary
Trust (“EBT”), generating a share premium of US$ 3,441,689. On 22 October 2012, 976,211 common
shares were allotted to the trustee of the EBT, generating a share premium of US$ 4,191,000.
On 29 October 2013, the Company put into place an irrevocable, non-discretionary share purchase
program for the purchase of its common shares for the account of the EBT. This Purchase Program
expired on 31 December 2013. The common shares purchased under the program will be used to satisfy
future awards under the incentive schemes. During 2013, the Company purchased 50,000 common
shares for a total amount of US$ 440,000.
On 7 February 2014, the SEC declared effective the Company’s registration statement upon which
13,999,700 shares were issued at a price of US$ 7 per share, including over-allotment option. Gross
proceeds from the offering totalled US$ 98 million (see Note 1).
On 19 December 2014, the Company approved a program to repurchase up to US$ 10 million of common
shares, par value US$ 0.001 per share of the Company (the “Repurchase Program”). The Repurchase
Program began on 19 December 2014 and will expire at the close of business on March 27, 2015, but
may be terminated prior to such date. The Shares repurchased will be used to offset, in part, any
expected dilution effects resulting from the Company’s employee incentive schemes, including grants
under the Company’s Stock Award Plan and the Limited Non-Executive Director Plan. During 2014, the
Company purchased 73,082 common shares for a total amount of US$ 388,000. This transaction had no
impact on the Company’s results.
During 2014, the Company issued 2,301 (10,430 in 2013 and 15,100 in 2012) shares to Non-Executive
Directors in accordance with contracts as compensation, generating a share premium of US$ 22,413
(US$ 100,988 in 2013 and US$ 142,492 in 2012). The amount of shares issued is determined
considering the contractual compensation and the fair value of the shares for each relevant period.
Under the stock awards programmes and other share based payments, during 2013, 60,000 (30,000 in
2012) new common shares were issued, pursuant to a consulting agreement for services rendered to
GeoPark Limited generating a share premium of US$ 506,630 (US$ 253,315 in 2012).
The accounting treatment of the shares ¡s in line with the Group’s policy on share-based payment.
Other Reserve
During 2012, LGl acquired a 20% interest in the Colombian business by making a capital contribution for
an amount of US$ 14,920,000. 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 (see Note 34.b).
53
GEOPARK LIMITED
31 DECEMBER 2014
Note
26 Borrowings
Amounts in US$ ‘000 2014 2013 2012
Outstanding amounts as of 31 December
Notes GeoPark Latin America Agencia en Chile (a) 300,963 299,912 –
Banco Itaú (b) 68,540 – 37,685
Banco de Crédito e Inversiones (c) 90 2,143 7,859
Banco de Chile (d) – 15,002 –
Notes GeoPark Fell SpA (e) – – 129,452
Methanex Corporation (f) – – 8,036
Overdrafts (g) – 30 10,000
369,593 317,087 193,032
Classified as follows:
Non current 342,440 290,457 165,046
Current 27,153 26,630 27,986
The fair value of these financial instruments at 31 December 2014 amounts to US$ 360,181,000
(US$ 312,208,000 in 2013 and US$ 190,188,000 in 2012). The fair values are based on cash flows
discounted using a rate based on the borrowing rate of 7.40% (2013: 7.81% and 2012: 9.63%) and are
within level 2 of the fair value hierarchy.
(a) During February 2013, the Company successfully placed US$ 300 million notes which were offered
under Rule 144A and Regulation S exemptions of the United States Securities laws.
The Notes, issued by the Company’s wholly-owned subsidiary GeoPark Latin America Limited Agencia
en Chile (“the Issuer”), were priced at 99.332% and carry a coupon of 7.50% per annum to yield 7.625%
per annum. Final maturity of the notes will be 11 February 2020. The Notes are guaranteed by GeoPark
Limited and GeoPark Latin America Coóperatie U.A. and are secured with a pledge of all of the equity
interests of the Issuer in GeoPark Chile S.A. and GeoPark Colombia Coóperatie U.A. and a pledge of
certain intercompany loans. Notes were rated single B by both Standard 8 Poor’s and Fitch Ratings. The
debt issuance cost for this transaction amounted to US$ 7,637,000.
Under the terms of the Notes, the Issuer is required to comply with certain financial covenants for the
incurrence of additional debt and other specific corporate actions (dividends, mergers, etc.) consisting on:
i) Leverage Ratio, defined as Gross Debt to Adjusted EBITDA, lower than 2.75x for the year 2014 and
lower than 2.5x from 2015 onwards; and ii) Interest Coverage Ratio, defined as Adjusted EBITDA divided
by Interest Expenses, above 3.5x. As of the date of these consolidated financial statements, the
Company has complied with these covenants.
54
GEOPARK LIMITED
31 DECEMBER 2014
Note
26 Borrowings (continued)
(b) During March 2014, GeoPark executed a loan agreement with ltaú BBA International for
US$ 70,450,000 to finance the acquisition of a 10% working interest in the Manatí field in Brazil (see Note
34.c). The interest rate applicable to this loan is LIBOR plus 3.9% per annum. The interest will be paid
semi-annually; principal will be cancelled semi-annually with a year grace period. The debt issuance cost
for this transaction amounted to US$ 3,295,000. The facility agreement includes customary events of
default, and requires the Brazilian subsidiary to comply with customary covenants, including the
maintenance of a ratio of net debt to EBITDA of up to 3.5x for the first two years and up to 3.0x thereafter.
The credit facility also limits the borrower’s ability to pay dividends if the ratio of net debt to EBITDA is
greater than 2.5x. As of the date of these consolidated financial statements, the Company has complied
with these covenants.
The carrying amount as of 31 December 2012 relates to a loan agreement with Banco ltaú BBA S.A.,
Nassau Branch for US$ 37,500,000. GeoPark used the proceeds to finance the acquisition and
development of the La Cuerva and Llanos 62 blocks in Colombia (see Note 34.a). This loan was fully
repaid in February 2013.
(c) Facility to establish the operational base in the Fell Block. This facility was acquired through a
mortgage loan granted by the Banco de Crédito e Inversiones (BCI), a Chilean private bank. The loan
was granted in Chilean pesos and is repayable over a period of 8 years. The interest rate applicable to
this loan is 6.6%. The outstanding amount at 31 December 2014 is US$ 90,000 (US$ 212,000 in 2013).
In addition, during 2011, GeoPark TdF obtained financing from BCI to start the operations in the newly
acquired blocks. The outstanding amount at 31 December 2013 was US$ 1,931,000. This financing was
structured as letter of credit and was fully repaid in February 2014.
(d) Short term financing obtained in December 2013 and fully repaid in January 2014. The interest rate
applicable to this loan was 0.71% per annum.
(e) Private placement of US$ 133,000,000 of Reg S Notes on 2 December 2010. The Notes carried a
coupon of 7.75% per annum. These Notes were fully repaid in March 2013.
(f) The financing obtained in 2007, for development and investing activities on the Fell Block, was struc-
tured as a gas pre-sale agreement with a six year pay-back period and an interest rate of LIBOR flat. The
loan was fully repaid during 2013.
(g) The Group has been granted with credit lines for over US$ 69,000,000. The exercise of these credit
lines could be limited by debt covenants associated to other borrowings.
55
Note
27 Provisions and other long-term liabilities
GEOPARK LIMITED
31 DECEMBER 2014
Asset retirement Deferred Other Total
Amounts in US$ ‘000 obligation Income
At 1 January 2012 5,450 3,962 – 9,412
Addition to provision / Contributions
received 3,440 5,550 100 9,090
Acquisition of subsidiaries 6,061 – 2,309 8,370
Amortisation – (2,143) – (2,143)
Unwinding of discount 1,262 – – 1,262
At 31 December 2012 16,213 7,369 2,409 25,991
Addition to provision 7,183 – 297 7,480
Recovery of abandonments costs (753) – – (753)
Amortisation – (1,165) – (1,165)
Unwinding of discount 1,523 – – 1,523
At 31 December 2013 24,166 6,204 2,706 33,076
Addition to provision 1,603 – 5,934 7,537
Recovery of abandonments costs (1,317) – – (1,317)
Acquisition of subsidiaries 6,862 – – 6,862
Exchange difference – – (752) (752)
Amortisation – (468) – (468)
Unwinding of discount 1,972 – – 1,972
At 31 December 2014 33,286 5,736 7,888 46,910
The provision for asset retirement obligation relates to the estimation of future disbursements related to
the abandonment and decommissioning of oil and gas wells (see Note 4).
Deferred income relates to contributions received to improve the project economics of the gas wells. The
amortisation is in line with the related asset.
Other mainly relates to fiscal controversies associated to income taxes in one of the Colombian
subsidiaries. These controversies relate to fiscal periods prior to the acquisition of these subsidiaries by
the Company. In connection to this, the Company has recorded an account receivable with the previous
owners for the same amount, which is recognized under Other financial assets in the Balance sheet.
56
GEOPARK LIMITED
31 DECEMBER 2014
Note
28 Trade and other payables
Amounts in US$ ‘000 2014 2013 2012
V.A.T 3,449 8,074 4,300
Trade payables 64,457 61,130 50,590
Payables to related parties (1) (Note 32) 16,591 8,456 –
Staff costs to be paid 7,226 8,551 5,867
Royalties to be paid 2,398 3,375 3,909
Taxes and other debts to be paid 10,031 9,190 5,418
To be paid to co-ventures 1,335 1,201 2,007
105,487 99,977 72,091
Classified as follows:
Non current 16,583 8,344 –
Current 88,904 91,633 72,091
(M As of 31 December 2014, the outstanding amount corresponds to a loan granted by LGl to GeoPark Chile S.A. for financing
Chilean operations in TAF’s blocks. The maturity of this loan is July 2017 and the applicable interest rate is 8% per annum. As
of 31 December 2013, the outstanding amount relates to a loan granted by LGl as part of its funding commitment in connection
with Colombian companies acquisition (see Note 34.b). This loan was cancelled during 2014.
The average credit period (expressed as creditor days) during the year ended 31 December 2014 was 50
days (2013: 58 days and 2012: 69 days)
The fair value of these short-term financial instruments is not individually determined as the carrying
amount is a reasonable approximation of fair value.
Note
29 Share-based payment
IPO Award Programme and Executive Stock Option plan
The Group has established different stock awards programmes and other share-based payment plans to
incentivise the Directors, senior management and employees, enabling them to benefit from the
increased market capitalization of the Company.
Stock Award Programmes and Other Share Based Payments
During 2008, GeoPark Shareholders voted to authorize the Board to use up to 12% of the issued share
capital of the Company at the relevant time for the purposes of the Performance-based Employee Long-
Term Incentive Plan.
Main characteristics of the Stock Awards Programmes are:
+ All employees are eligible.
e Exercise price is equal to the nominal value of shares.
+ Vesting period is four years.
e Specific Award amounts are reviewed and approved by the Executive Directors and the
Remuneration Committee of the Board of Directors.
57
GEOPARK LIMITED
31 DECEMBER 2014
Note
29 Share-based payment (continued)
On 23 November 2012, the Remuneration Committee and the board of directors approved granting
720,000 options over ordinary shares of US$0.001 each to the Executive Directors. Options granted vest
on the third anniversary of the date on which they are granted and have an exercise price of US$0.001.
Additionally, during 2013 the Company approved two new share-based compensation programmes: i.) a
stock awards plan oriented to Managers (non-Top Management) and key employees which qualifies as
an equity-settled plan and ii.) a cash awards plan, oriented to all non-management employees which
qualifies as a cash-settled plan.
Main characteristics of these news plans are:
– – Exercise price: US$ 0.001
– – Grant date: July 2013
– – Grant price: £ 5.8
– – Vesting date: 31 December 2015
– – Conditions to be able to exercise:
e Continue to be an employee
e Obtain the Company minimum Production, Adjusted EBITDA and Reserves target for the
year of vesting
e The stock market price at the date of vesting should be higher than the share price at the
price of grant
– – Amount of shares for equity-settled plan: 500,000
– – Estimated equivalent amount of shares for cash-settled plan: 500,000
According to current market conditions, the Company estimated that for the cash awards plan, the share
price at the vesting date would not reach the threshold for granting. Therefore, no liability has been
recognized as of 31 December 2014.
Also during 2013, the Company approved a plan named Value creation plan (“VCP”) oriented to Top
Management. The VCP establishes awards payables in a variable number of shares with some limitation,
subject to certain market conditions, among others, reach certain stock market price for the Company
share at vesting date. VCP has been classified as an equity-settled plan.
58
GEOPARK LIMITED
31 DECEMBER 2014
Note
29 Share-based payment (continued)
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:
Charged to net profit
Awards
Awards at granted Awards
the in the Awards Awards at year
Year of issuance beginning year forfeited exercised end 2014 2013
2013 500,000 – 22,000 – 478,000 1,291 619
2012 443,000 – 15,000 – 428,000 1,102 1,296
2011 494,000 – 16,000 – 478,000 848 893
2010 835,600 – 18,000 – 817,600 2,623 2,779
2008 – – – – – – –
Subtotal 5,864 5,587
Stock options to Executive Directors 720,000 – – – 720,000 2,474 2,365
Shares granted to Non-Executive
Directors – 26,259 – 2,301 23,958 223 101
vCP – – – – – 617 309
2,992,600 26,259 71,000 2,301 2,945,558 9,178 8,362
The awards that are forfeited correspond to employees that had left the Group before vesting date.
Other share-based payment
As it is mentioned in Note 25, the Company granted 2,301 (10,430 in 2013 and 15,100 in 2012) shares
for services rendered by the Non-Executive Directors of the Company. Fees paid in shares were directly
expensed in the Administrative costs line in the amount of US$ 22,413 (US$ 100,988 in 2013 and
US$ 142,492 in 2012).
On 19 December 2014, the Company has approved a new share-based compensation programme for
500,000 shares oriented to new employees. This new programme, which was granted on 31 December
2014, has a vesting period of three years.
59
2012
55
926
2,929
1,087
4,997
257
142
5,396
GEOPARK LIMITED
31 DECEMBER 2014
Note
30 Interests in Joint operations
The Group has interests in nine joint operations, which are involved in the exploration of hydrocarbons in
Chile, Colombia and Brazil.
In Chile, GeoPark is the operator in all the blocks. In Colombia, GeoPark is the operator in Llanos 34 and
Yamu/Carupana blocks.
The following amounts represent the Company’s share in the assets, liabilities and results of the joint
operations which have been consolidated line by line in the consolidated statement of financial position
and statement of income:
Interest PP8E Other Total Current Total NET ASSETS/ Net Operating
Subsidiary / ESE assets Assets Liabilities Liabilities (LIABILITES) revenue profit
Joint operation (loss)
2014
GeoPark Magallanes Ltda.
Tranquilo Block 50% 109 – 109 (125) (125) (16) – (220)
Otway Block 100% 139 – 139 (146) (146) (7) – (12)
GeoPark TdF S.A.
Flamenco Block 50% 35,110 – 35,110 (1,653) (1,653) 33,457 4,385 (6,278)
Campanario Block 50% 34,309 – 34,309 (7,086) (7,086) 27,223 216 (6,151)
Isla Norte Block 60% 12,208 – 12,208 (241) (241) 11,967 901 (283)
Colombia SAS
Llanos 17 Block 36.84% 6,037 – 6,037 (122) (122) 5,915 1,292 (160)
Yamu/Carupana 90% –
Block 79.5% 16,590 2,211 18,801 (2,727) (2,727) 16,074 10,560 (2,916)
Llanos 34 Block 45% 76,726 1,514 78,240 (3,380) (3,380) 74,860 176,624 96,889
Llanos 32 Block 10% 8,909 27 8,936 (122) (122) 8,814 11,024 4,041
GeoPark Brazil Exploracáo y Producáo de Petróleo e Gas Ltda.
Manati Field 10% 46,382 43,891 90,273 (11,587) (11,587) 78,686 35,621
18,935
60
Note
30 Interests in Joint operations (continued)
GEOPARK LIMITED
31 DECEMBER 2014
Interest PP8E Other Total Current Total NET ASSETS/ Net Operating
Subsidiary / ESE assets Assets liabilities Liabilities (LIABILITES) revenue profit
Joint operation (loss)
2013
GeoPark Magallanes Ltda.
Tranquilo Block 29% 15,255 210 15,465 (391) (391) 15,074 – (275)
Otway Block 100% 6,009 175 6,184 (48) (48) 6,136 – (100)
GeoPark TdF S.A.
Flamenco Block 50% 42,048 – 42,048 (2,537) (2,537) 39,511 243 (239)
Campanario Block 50% 17,172 – 17,172 (405) (405) 16,767 – –
Isla Norte Block 60% 4,497 – 4,497 (303) (303) 4,194 – –
Colombia SAS
Llanos 17 Block 36.84% 6,448 29 6,477 – – 6,477 1,407 (544)
Yamu/Carupana 75% – 15,476 482 15,958 – – 15,958 17,727 2,127
Block 54.50%
Llanos 34 Block 45% 51,963 1,129 53,092 – – 53,092 78,390 39,192
Llanos 32 Block 10% 4,993 – 4,993 – – 4,993 5,507 1,035
2012
GeoPark Magallanes Ltda.
Tranquilo Block 29% 13,328 1,467 14,795 (3,252) (3,252) 11,543 – (544)
Otway Block 25% 6,516 1,326 7,842 (2,412) (2,412) 5,430 – (386)
Colombia SAS
Llanos 17 Block 36.84% 3,872 144 4,016 (224) (224) 3,792 144 144
Yamu/Carupana 75% – 12,626 26 12,652 – – 12,652 23,283 4,034
Block 54.50%
Llanos 34 Block 45% 25,178 72 25,250 – – 25,250 10,362 3,767
Llanos 32 Block 10% 4,384 1,484 5,868 (1,509) (1,509) 4,359 2,900 1,207
Capital commitments are disclosed in Note 31 (b).
61
GEOPARK LIMITED
31 DECEMBER 2014
Note
31 Commitments
(a) Royalty commitments
In Chile, royalties are payable to the Chilean Government. In the Fell Block, royalties are calculated at 5%
of crude oil production and 3% of gas production. In the Flamenco Block, Campanario Block and Isla
Norte Block, royalties are calculated at 5% of gas and oil production.
In Colombia, royalties on production are payable to the Colombian Government and are determined on a
field-by-field basis using a level of production sliding scale and a rate which ranges between 6%-8%. The
Colombian National Hydrocarbons Agency (“ANH”) also has an additional economic right equivalent to
1% of production, net of royalties.
Under Law 756 of 2002, as modified by Law 1530 of 2012, the royalties in connection with Colombian
production of light and medium oil are calculated on a field-by-field basis, using the following sliding scale:
Average daily production in barrels Production Royalty rate
Up to 5,000 8%
5,000 to 125,000 8% + (production – 5,000)*0.1
125,000 to 400,000 20%
400,000 to 600,000 20% + (production – 400,000)*0.025
Greater than 600,000 25%
When the API is lower than 15″, the payment is reduced to the 75% of the total calculation.
In accordance with Llanos 34 Block operation contract, when the accumulated production of each field,
including the royalties” volume, exceeds 5 million of barrels and the WTI exceeds the base price settled in
table a, the Company should deliver to ANH a share of the production net of royalties in accordance with
the following formula: Q = ((P – Po) / P) x S; where Q = Economic right to be delivered to ANH, P = WTI,
Po = Base price (see table A) and S = Share (see table B).
Table A Table B
“API Po (US$/barrel) WTI (P) Ss
>29 30.22 Po
Note
31 Commitments (continued)
(a) Royalty commitments (continued)
Additionally, under the terms of the Winchester Stock Purchase Agreement, we are obligated to make
certain payments to the previous owners of Winchester based on the production and sale of
hydrocarbons discovered by exploration wells drilled after October 25, 2011. These payments involve
both an earnings based measure and an overriding royalty equal to an estimated 4% carried interest on
the part of the vendor. As at the balance sheet date and based on preliminary internal estimates of
additions of 2P reserves since acquisition, the Company’s best estimate of the total commitment over the
remaining life of the concession is a range of US$ 50 million – US$ 60 million. During 2014, the Company
has accrued and paid US$ 24.6 million (US$ 11.5 million in 2013 and US$ 1.3 million in 2012) and
US$ 21.0 million (US$ 7.8 million in 2013), respectively.
In Brazil, the Brazilian National Petroleum, Natural Gas and Biofuels Agency (ANP) is responsible for
determining monthly minimum prices for petroleum produced in concessions for purposes of royalties
payable with respect to production. Royalties generally correspond to a percentage ranging between 5%
and 10% applied to reference prices for oil or natural gas, as established in the relevant bidding
guidelines (edital de licitacáo) and concession agreement. In determining the percentage of royalties
applicable to a particular concession, the ANP takes into consideration, among other factors, the
geological risks involved and the production levels expected. In the Manatí Block, royalties are calculated
at 7.5% of gas production.
In Argentina, crude oil production accrues royalties payable to the Provinces of Santa Cruz and Mendoza
equivalent to 12% on estimated value at well head of those products. This value is equivalent to final
sales price less transport, storage and treatment costs.
(b) Capital commitments
Chile
As of 31 December 2014 the only remaining commitments in Chile are related to Tierra del Fuego blocks.
The future investment commitments assumed by GeoPark outstanding are:
e Campanario Block: 3 exploratory wells before January 2016 (US$ 11,880,000)
e Isla Norte Block: 2 exploratory wells before November 2015 (US$ 6,480,000)
The investments made in the first exploratory period will be assumed 100% by GeoPark. As of 31
December 2014, the Company has established a guarantee for its commitments that amounts to
US$ 17,500,000.
63
GEOPARK LIMITED
31 DECEMBER 2014
Note
31 Commitments (continued)
(b) Capital commitments (continued)
Colombia
For the Llanos 17 Block, the activities were performed but there ¡is still a remaining commitment that
amounts to US$ 4,299,000 (US$ 1,584,000 at GeoPark’s working interest (36.84%)) which is expected to
be completed with an additional well.
The Llanos 62 Block (100% working interest) has committed to drill two exploratory wells before July
2015. The remaining commitment amounts to US$ 6,000,000.
The VIM 3 Block minimum investment program consists of 200 sq km of 2D seismic and drilling one
exploratory well, with a total estimated investment of US$ 22,200,000 during the initial three year
exploratory period ending in September 2018.
In accordance with the farm-in agreement, and subject to the approval of Agencia Nacional de
Hidrocarburos (ANH) in Colombia, GeoPark will operate and receive a 50% working interest (WI) in the
CPO-4 Block in exchange for its commitment to drill and fund its 50% WI (with no carry) of one
exploration well before August 2015. The financial commitment for GeoPark is approximately
US$ 6,000,000.
Brazil
On 14 May 2013, the ANP awarded GeoPark seven new concessions in Brazil in an international bidding
round, Round 11. For these seven concessions, GeoPark committed to invest a minimum of
US$ 15,300,000 (including bonuses and work program commitment) during the first three years of the
exploratory period for the concessions. GeoPark has already invested US$ 5,400,000 in seismic and
US$ 4,400,000 in bonuses paid to ANP.
On 28 November 2013, the ANP awarded GeoPark two new concessions in a new international bidding
round, Round 12. For these two concessions, GeoPark have committed to invest a minimum of
US$ 4,000,000 (including bonus and work program commitments) during the first exploratory period. For
PN-T-597 Block the commitment amounts to US$ 3,300,000 and for the SEAL-T-268 Block is
US$ 700,000. See Note 34 for further details.
GEOPARK LIMITED
31 DECEMBER 2014
Note
31 Commitments (continued)
(b) Capital commitments (continued)
Argentina
On 20 August 2014, the consortium of GeoPark and Pluspetrol was awarded two exploration licenses in
the Sierra del Nevado and Puelen Blocks, as part of the 2014 Mendoza Bidding Round in Argentina,
carried out by Empresa Mendocina de Energia S.A. (“EMESA”). The blocks cover an area of
approximately 1.7 million acres and are located in the Neuquen Basin, Argentina’s largest producing
hydrocarbon basin.
The consortium consists of Pluspetrol (Operator with a 72% working interest (“WI”), EMESA (Non-
operated with a 10% WI) and GeoPark (Non-operated with an 18% WI).
GeoPark has committed to a minimum aggregate investment of US$ 6,200,000 for its WI, which includes
the work program commitment on both blocks during the first three years of the exploratory period.
(c) Operating lease commitments – Group company as lessee
The Group leases various plant and machinery under non-cancellable operating lease agreements.
The Group also leases offices under non-cancellable operating lease 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 2014 a total amount of US$ 19,409,000 (US$ 19,110,000 in 2013 and US$ 4,531,000 in 2012)
was charged to the income statement and US$ 51,341,000 of operating leases were capitalised as
Property, plant and equipment (US$ 37,263,000 in 2013 and US$ 32,706,000 in 2012).
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Amounts in US$ ‘000 2014 2013 2012
Operating lease commitments
Falling due within 1 year 37,926 68,817 26,464
Falling due within 1 – 3 years 33,949 56,556 3,709
Falling due within 3 – 5 years 16,109 31,145 443
Falling due over 5 years 505 505 895
Total minimum lease payments 88,489 157,023 31,511
65
GEOPARK LIMITED
31 DECEMBER 2014
Note
32 Related parties
Controlling interest
The main shareholders of GeoPark Limited, a company registered in Bermuda, as of 31 December 2014,
are:
Common Percentage of outstanding
Shareholder shares common shares
Gerald E. O’Shaughnessy(” 7,533,907 13.04%
James F. Park(2) 7,441,269 12.88%
Steven J. Quamme*) 9,699,161 16.78%
IFC Equity Investments” 3,456,594 5.98%
Moneda A.F…(6) 2,741,650 4.74%
Juan Cristóbal Pavez(% 2,887,130 5.00%
BTG Pactual 4,518,886 7.82%
Charles Schwab 8 Co. 4,352,780 7.53%
Other shareholders 15,159,156 26.23%
57,790,533 100.00%
(1) Held directly and indirectly through GP Investments LLP, and The Globe Resources Group Inc., all of
which are controlled by Mr. O’Shaughnessy.
(2 Held by Energy Holdings, LLC, which is controlled by James F. Park, a member of our Board of
Directors. The number of common shares held by Mr. Park does not reflect the 588,664 common shares
held as of 31 December 2014 in the employee benefit trust described under “Management-
Compensation-Employee Benefit Trust”.
(3) Held through certain private investment funds managed and controlled by Cartica Management, LLC.
The common shares reflected as being held by Mr. Quamme include 8,189 common shares held by him
personally. Mr. Steven Quamme, one of our principal shareholders and a member of our board of
directors, is the Senior Managing Director of Cartica Management, LLC, and therefore may be deemed to
have voting and investment power over the common shares of GeoPark held by Cartica Management,
LLC.
(4) IFC Equity Investments voting decisions are made through a portfolio management process which
involves consultation from investment officers, credit officers, managers and legal staff.
(5) Held through various funds managed by Moneda A.F.I. (Administradora de Fondos de Inversión), an
asset manager.
(6) Held through Socoservin Overseas Ltd, which is controlled by Juan Cristóbal Pavez. The common
shares reflected as being held by Mr. Pavez include 9,326 common shares held by him personally.
66
Note
32 Related parties (continued)
Balances outstanding and transactions with related parties
Account (Amounts in 000)
2014
To be recovered from co-ventures
Payables account
To be paid to co-venturers
Financial expenses
Exploration costs
Administrative costs
Administrative costs
2013
To be recovered from co-ventures
Payables account
To be paid to co-venturers
Financial expenses
Exploration costs
Administrative costs
2012
To be recovered from co-ventures
Prepayment and other receivables
To be paid to co-venturers
Exploration costs
Administrative costs
Transaction
in the year
592
16
114
568
112
24
176
31
219
() Corresponding to consultancy services.
(5 Corresponding to: wages and salaries for US$ 374,000 and bonus for US$ 194,000.
Balances
at year
end
5,931
(16,591)
(1,335)
15,508
(8,456)
(1,201)
8,773
31,138
(2,007)
Related Party
Joint Operations
LGl
Joint Operations
LGl
Carlos Gulisano
Carlos Gulisano
Pedro Aylwin
Joint Operations
LGl
Joint Operations
LGl
Carlos Gulisano
Carlos Gulisano
Joint Operations
¡Ke]]
Joint Operations
Carlos Gulisano
Carlos Gulisano
GEOPARK LIMITED
31 DECEMBER 2014
Relationship
Joint Operations
Partner
Joint Operations
Partner
Non-Executive Director (?
Non-Executive Director (?
Executive Director (*
Joint Operations
Partner
Joint Operations
Partner
Non-Executive Director (”
Non-Executive Director
Joint Operations
Partner
Joint Operations
Non-Executive Director (”
Non-Executive Director
There have been no other transactions with the Board of Directors, Executive Board, Executive officers,
significant shareholders or other related parties during the year besides the intercompany transactions
which have been eliminated in the consolidated financial statements, the normal remuneration of Board of
Directors and Executive Board and other benefits informed in Note 10.
67
GEOPARK LIMITED
31 DECEMBER 2014
Note
33 Fees paid to Auditors
Amounts in US$ ‘000 2014 2013 2012
Fees payable to the Group’s auditors for the audit of the
consolidated financial statements 381 668 () 346
Fees payable to the Group’s auditors for the review of
interim financial statements 128 150 52
Fees payable for the audit of the Group’s subsidiaries
pursuant to legislation 36 273 298
Fees payable to the Group’s auditors for the review of 20-F 70 – –
Non-audit services 826 337 713
Fees paid to auditors 1,441 1,428 1,409
( Include fees related to the 2013 IPO process.
Non-audit services relates to tax services for US$ 281,000 (US$ 292,000 in 2013 and US$ 121,000 in
2012) and due diligence, consultancy fees and other services for US$ 545,000 (US$ 45,000 in 2013 and
US$ 592,000 in 2012).
Note
34 Business transactions
a. Colombia
Acquisitions in Colombia
On 14 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”). For accounting purposes, these acquisitions were computed as if they had occurred on 1
February 2012.
On 27 March 2012, a second acquisition occurred with the purchase of Hupecol Cuerva LLC (“Hupeco!”),
a privately-held company with two exploration and production blocks in Colombia. For accounting
purposes, this acquisition was computed as if it had occurred on 1 April 2012.
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.
68
GEOPARK LIMITED
31 DECEMBER 2014
Note
34 Business transactions (continued)
a. Colombia (continued)
Acquisitions in Colombia (continued)
The following table summarises the combined consideration paid for Winchester Luna and Hupecol, the
fair value of assets acquired and liabilities assumed for these transactions:
Amounts in US$ ‘000 Hupecol Winchester Luna Total
a. working capital 79,630 32,243 111,873
Total consideration 79,630 32,243 111,873
Cash and cash equivalents 976 5,594 6,570
including mineral interes. 73,791 37,182 110,973
Trade receivables 4,402 4,098 8,500
Prepayments and other receivables 5,640 2,983 8,623
Deferred income tax assets 10,344 5,262 15,606
Inventories 10,596 1,612 12,208
Trade payables and other debt (20,487) (11,981) (32,468)
Borrowings – (1,368) (1,368)
Provision for other long-term liabilities (5,632) (2,738) (8,370)
Total identifiable net assets 79,630 40,644 120,274
Bargain purchase gain on . 8,401 8,401
acquisition of subsidiaries (1
(1) The bargain purchase gain is related to the fact that the Company paid a full market price for the
proved reserves but received a discount on the probable and possible reserves and resource base
acquired due to the vendor’s limited ability to fund the future development of these assets.
The purchase price allocation above mentioned is final.
Acquisition-related costs have been charged to administrative expenses in the consolidated income
statement for the year ended 31 December 2012.
69
GEOPARK LIMITED
31 DECEMBER 2014
Note
34 Business transactions (continued)
a. Colombia (continued)
New exploratory license: VIM-3 Block
GeoPark expanded in Colombia through the award of a new exploratory license during the 2014
Colombia Bidding Rouna, carried out by the Agencia Nacional de Hidrocarburos (“ANH”) on 23 July 2014
in Cartagena, Colombia.
GeoPark was awarded the VIM-3 Block in the Lower Magdalena Basin, covering an area of
approximately 225,000 acres. The block has an attractive oil and gas exploration potential in a large area
within a proven hydrocarbon system, surrounded by existing oil and gas fields and with sparse
exploration activity carried out to date.
GeoPark’s winning bid consisted of committing to a minimum investment program of 200 sq km of 2D
seismic and drilling one exploration well, with a total estimated investment of US$ 22.2 million during the
initial three year exploratory period and a Royalty X Factor of 3% (see Note 31). GeoPark will operate and
have a 100% working interest in the block.
New exploratory license: CPO-4 Block
On 4 November 2014, the Company expanded its operations in Colombia with the addition of the CPO-4
Block to its portfolio through a partnership agreement with SK Innovation (subsidiary of SK Group, the
Korean integrated energy and petrochemical company).
The CPO-4 Block is an attractive high potential block on trend with GeoPark’s successful Llanos 34 Block
in the Llanos Basin (approximately 60 km away). The CPO-4 Block covers an area of approximately
345,600 acres (1,398 sq km) with 3D seismic coverage of approximately 880 sq km and sparse drilling
activity (with only 4 wells drilled to date). SK and GeoPark have jointly identified new prospects in CPO-4
similar to prospects and leads in GeoPark’s Llanos 34 Block where GeoPark has successfully discovered
oil.
In accordance with the farm-in agreement, and subject to the approval of Agencia Nacional de
Hidrocarburos (ANH) in Colombia, GeoPark will operate and receive a 50% working interest (WI) in the
CPO-4 Block in exchange for its commitment to drill and fund its 50% WI (with no carry) of one
exploration well. GeoPark’s total financial commitment is approximately $6.0 million (see Note 31). There
is an option to move to an additional exploration phase following the drilling of a successful well.
70
GEOPARK LIMITED
31 DECEMBER 2014
Note
34 Business transactions (continued)
a. Colombia (continued)
Swap operation
On 29 July 2014, GeoPark’s Colombian subsidiary agreed to exchange its 10% non-operating economic
interest in Arrendajo Block for additional interests held by the counterpart in the Yamú Block (GeoPark
operated) that includes a 15% economic interest in all of the Yamú fields except for the Carupana field,
where the counterparty had a 25% economic interest. According to the terms of the exchange, GeoPark
received US$ 3.2 million in cash from the exchange, adjusted by working capital. Following this
transaction, GeoPark will continue to be the operator and have a 79.5% interest in the Carupana Field
and 90% in Yamú and Potrillo Fields, all fields located in the Yamú Block. This transaction had no impact
on the results of the Company.
b. LGl partnership
On 12 March 2010, LGl and the Company agreed to form a new strategic partnership to jointly acquire
and develop upstream oil and gas projects in Latin America.
During 2011, GeoPark and LGl entered into several agreements through which LGl acquires 20% interest
in the Chilean Business of the Group.
During 2012, LGl also joined GeoPark’s operations in Colombia through the acquisition of 20% interest in
Colombian Business. In addition, LGl committed to fund Colombian operations through the granting of
loans.
In addition, in March 2013 GeoPark and LGl announced their agreement to extend their strategic alliance
to build a portfolio of upstream oil and gas assets throughout Latin America through 2015.
71
GEOPARK LIMITED
31 DECEMBER 2014
Note
34 Business transactions (continued)
Cc. Brazil
Acquisition in Brazil
GeoPark entered into Brazil with the acquisition of a 10% working interest in the offshore Manati gas field
(“Manati Field”), the largest natural gas producing field in Brazil. On 14 May, 2013, GeoPark executed a
stock purchase agreement (“SPA”) with Panoro Energy do Brazil Ltda., the subsidiary of Panoro Energy
ASA, (“Panoro”), a Norwegian listed company with assets in Brazil and Africa, to acquire all of the issued
and outstanding shares of its wholly-owned Brazilian subsidiary, Rio das Contas Produtora de Petróleo
Ltda (“Rio das Contas”), the direct owner of 10% of the BCAM-40 Block (the “Block”), which includes the
shallow-depth offshore Manati Field in the Camamu-Almada basin.
GeoPark has paid a cash consideration of US$ 140 million at 31 March 2014 or the closing date, which
was adjusted for working capital with an effective date of 30 April 2013. The agreement also provides for
possible future contingent payments by GeoPark over the next five years, depending on the economic
performance and cash generation of the Block. The Company has estimated that there are no any future
contingent payments at the acquisition date and as of the date of these financial statements either.
The Manati Field is a strategically important, profitable upstream asset in Brazil and currently provides
approximately 50% of the gas supplied to the northeastern region of Brazil and more than 75% of the gas
supplied to Salvador, the largest city and capital of the northeastern state of Bahia. The field is largely
developed with existing producing wells and an extensive pipeline, treatment and delivery infrastructure
and is not expected to require significant future capital expenditures to meet current production estimates.
Additional reserve development may be possible.
The Manati Field is operated by Petrobras (35% working interest), the Brazilian national company, largest
oil and gas operator in Brazil and internationally-respected offshore operator. Other partners in the Block
include Queiroz Galvao Exploragáo e Producáo (45% working interest) and Brasoil Manati Exploragáo
Petrolífera S.A. (10% working interest).
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.
GEOPARK LIMITED
31 DECEMBER 2014
Note
34 Business transactions (continued)
c. Brazil (continued)
The following table summarises the consideration paid, the fair value of assets acquired and liabilities
assumed for the abovementioned transaction:
Amounts in US$ ‘000 Total
Cash (including working capital adjustments) 140,100
Total consideration 140,100
Cash and cash equivalents 25,133
Property, plant and equipment (including mineral interest) 112,847
Trade receivables 9,757
Prepayments and other receivables 5,945
Other financial assets 950
Deferred income tax liabilities (3,132)
Trade and other payables (4,538)
Provision for other long-term liabilities (6,862)
Total identifiable net assets 140,100
The purchase price allocation above mentioned is final. Acquisition-related costs have been charged to
administrative expenses in the consolidated income statement for the year ended 31 December 2012.
The revenue included in the consolidated statement of comprehensive income since acquisition date
contributed by the acquired company was US$ 35,621,000. The acquired company also contributed profit
of US$ 18,952,000 over the same period.
Had Rio das Contas been consolidated from 1 January 2014 the consolidated statement of income would
show pro-forma revenue of US$ 440,298,000 and profit of US$ 23,139,000.
Round 11
On 14 May 2013, the Company has been awarded seven new licenses in the Brazilian Round 11 of which
two are in the Reconcavo Basin in the State of Bahia and five are in the Potiguar Basin in the State of Rio
Grande do Norte.
The licensing round was organized by the ANP and all proceedings and bids have been made public. On
17 September 2013, the winning bids were approved by the ANP.
For its winning bids on the seven blocks, GeoPark has committed to invest a minimum of US$ 15.3
million (including bonus and work program commitment) during the first 3 years of the exploratory period
(see Note 31). The new blocks cover an area of approximately 54,850 acres.
73
GEOPARK LIMITED
31 DECEMBER 2014
Note
34 Business transactions (continued)
c. Brazil (continued)
Round 12
On 28 November 2013, the ANP awarded GeoPark with two new concessions in a new international
bidding round, Round 12.
In Brazil, GeoPark Brazil is currently a party to a legal proceeding related to the concession agreement of
Block PN-T-597 that the ANP initially awarded to GeoPark Brazil in the 12th oil and gas bidding round. As
a result of a class action filed by the Federal Prosecutor’s Office, an injunction was issued by a Brazilian
Federal Court against the ANP, the Federal Government and GeoPark Brazil on 13 December 2013. Due
to the injunction GeoPark Brazil could not proceed to execute the concession agreement, and cannot do
so until the injunction is lifted. According to the terms of the Court’s injunction, the ANP will first need to
take certain actions, such as conducting studies that prove that drilling unconventional resources will not
contaminate the dams and aquifers in the region. On 21 February 2014, GeoPark Brazil requested that
the board of the ANP suspend the execution of the concession agreement (which entails delivery of the
financial guarantee and performance guarantee and payment of the signing bonus) for six months with a
possible extension of an additional six months, or until a firm court decision is reached that does not
prevent GeoPark Brazil from entering into the concession agreement. On 16 April 2014, the ANP’s Board
enacted a resolution stating that all proceedings related to the award of the concession of Block PN-T-
597 to GeoPark Brazil were suspended.
d. Peru
Entry in Peru
The Company has executed a Joint Investment Agreement and Joint Operating Agreement with
Petróleos del Perú S.A. (“Petroperu”) to acquire an interest in and operate the Morona Block located in
northern Peru. GeoPark will assume a 75% working interest (“WI”) of the Morona Block, with Petroperu
retaining a 25% WI. The transaction has been approved by the Board of Directors of both Petroperu and
GeoPark.
The transaction is subject to customary conditions, certain license modifications and a presidential
decree. The transaction is expected to close by the second half of 2015.
The Morona Block, also known as Lote 64, covers an area of 1.9 million acres on the western side of the
Marañón Basin, one of the most prolific hydrocarbon basins in Peru.
74
GEOPARK LIMITED
31 DECEMBER 2014
Note
34 Business transactions (continued)
d. Perú (continued)
The Morona Block contains the Situche Central oil field, which has been delineated by two wells (with
short term tests of approximately 2,400 and 5,200 bopd of 35-36” API oil each) and by 3D seismic. In
addition to the Situche Central field, the Morona Block has a large exploration potential with several high
impact prospects and plays – with exploration resources currently estimated to range from 200 to 600
mmbo.
The Morona Block includes geophysical surveys of 2,783 km (2D seismic) and 465 sq km (3D seismic),
and an operating field camp and logistics infrastructure. The expected work program and development
plan for the Situche Central oil field is to be completed in three stages.
The goal of the initial stage will be to put the field into production through a long term test to help
determine the most effective overall development plan and to begin to generate cash flow. This initial
stage requires an investment of approximately US$ 140 million to US$ 160 million and is expected to be
completed within 18 to 24 months after closing. GeoPark has committed to carry Petroperu during this
initial phase. The subsequent work program stages, which will be initiated once production has been
established, are focused on carrying out the full development of the Situche Central field, including
transportation infrastructure, and new exploration drilling of the block. Petroperu will also have the right to
increase its WI in the block up to 50%, subject to GeoPark recovering its investments in the block by
certain agreed factors.
GeoPark has already been qualified as an Operator by Perupetro, the Peruvian petroleum licensing
agency.
75
GEOPARK LIMITED
31 DECEMBER 2014
Note
35 Agreement with Methanex
The Company has signed a long-term Gas Supply Contract with Methanex in Chile, which expires in
2017.
In March 2012, the Company and Methanex signed a third addendum and amendment to the Gas Supply
Agreement to promote the development of gas reserves. Through this new agreement, the Company
completed the drilling of five new gas wells during 2012. Methanex contributed to the cost of drilling the
wells in order to improve the project economics. The Company fulfilled all the commitments under this
agreement.
The Agreement also included monthly commitments for delivering certain volumes of gas and in case of
failure, the Company could satisfy the obligation through future deliveries without penalty during a period
of three months. As of 31 December 2012, the accrued penalty for under delivered volumes amounted to
US$ 1.7 million which was recorded in Provisions for other liabilities in the Statement of Financial
Position.
On 30 August 2013, the Company signed a fourth amendment to the Methanex Gas Supply Agreement,
pursuant to which the Company committed, for a period of six months commencing 15 September, 2013,
to deliver an increased volume, in a total amount of 400,000 SCM/d per month (subject to reduction for
deliveries in excess of 200,000 SCM/d to Methanex or ENAP made between 29 April and 15 September,
2013), at an additional price per month of US$ 1.50 per mmbtu for volumes in excess of 180,000 SCM/d,
or an additional price per month of US$ 2.00 per mmbtu in any month in which we were able ro commit to
deliver at least 500,000 SCM/d (subject to certain exceptions based on methanol prices). The
amendment also provides for temporary DOP and TOP thresholds of 100% and 50%, respectively. As of
31 December 2013, the Company fulfilled the delivery volume commitment.
On 1 April 2014, the Company and Methanex executed a fifth amendment to the Gas Supply Agreement,
valid until 30 April 2015, which extended the fourth amendment conditions until 18 May 2014, and defined
new conditions for the winter 2014 period (May 2014 to September 2014) and the post winter period
(October 2014 to April 2015). During the winter 2014 period the price was fixed on US$ 4.0 per mmbtu
plus 50% of any price difference that Methanex obtained if gas were delivered to third parties. For the
post winter period the Company committed deliveries over 400,000 SCM/d, under the same price
conditions of the fourth amendment. The fifth amendment also waived the DOP and TOP thresholds for
both parties, replacing them by reasonable efforts to deliver and take, and giving GeoPark’s gas first
priority over any third party supplies to Methanex.
76
GEOPARK LIMITED
31 DECEMBER 2014
Note
36 Strategic alliance with Tecpetrol in Brazil
On 30 September 2013, the Company and Tecpetrol S.A. (“Tecpetrol”) announced the formation of a new
strategic alliance to jointly identify, study and potentially acquire upstream oil and gas opportunities
in Brazil, with a specific focus on the Parnaiba, Sao Francisco, Reconcavo, Potiguar and Sergipe-Alagoas
basins.
Tecpetrol is the oil and gas subsidiary of the Techint Group (a multinational oilfield and steel
conglomerate) with an extensive track-record as an oil and gas explorer and operator with its portfolio of
assets currently in Argentina, Peru, Colombia, Ecuador, Mexico, Bolivia, Venezuela and the United
States, and with a current net production of over 85,000 barrels of oil equivalent per day.
At 31 December 2014, there is no accounting impact of the creation of the alliance.
Note
37 Oil industry situation and the impact on GeoPark’s operations
As a consequence of oil price crisis which started in the second half of 2014 (WTI and Brent, the main
international oil price markers, fell more than 40% between September 2014 and February 2015), the
Company has undertaken a decisive cost cutting program to ensure its ability to both maximize the work
program and preserve its liquidity. The main decisions within the mentioned program for 2015 include:
– Reduction of its capital investment taking advantage of the discretionary work programme.
– – Deferment of capital projects by regulatory authority and partner agreement.
– Renegotiation and reduction of oil and gas service contracts, including drilling and civil work
contractors, as well as transportation trucking and pipeline costs.
– – Operating cost improved efficiencies and temporary suspension of certain marginal producing oil
and gas fields.
– Further cost reductions are expected to result from a general depreciation of Latin American
currencies (Colombian peso, Brazilian real, Chilean peso, Argentine peso and Peruvian sol), in
connection with operating and structure costs established in local currencies.
7
GEOPARK LIMITED
31 DECEMBER 2014
Note
38 Impairment test on Property, plant and equipment
Considering the scenario described in Note 37, the Company has addressed the process of evaluating
the recoverability of its fixed assets affected by oil price drop. From an accounting point of view, this price
drop constitutes an impairment indicator according to IAS 36 and, consequently, it triggers the need of
assessing fair value of the assets involved against their carrying amount.
The Management of the Company considers as Cash Generating Unit (CGU) each of the blocks in which
the Group has working or economic interests. The blocks with no material investment on fixed assets or
with operations that are not linked to oil prices were not subject to impairment test.
The main assumptions taken into account for the impairment tests for the blocks below mentioned were:
– – The future oil prices have been calculated taking into consideration the oil curves prices available
in the market, provided by international advisory companies, weighted through internal
estimations in accordance with price curves used by D8.M;
– Three price scenarios were projected and weighted in order to minimize misleading: low price,
middle price and high price (see below table “Oil price scenarios”);
– – The table “Oil price scenarios” was based on WTI future price estimations; the Company adjusted
this marker price on its model valuation to reflect the effective price applicable in each location
(see Note 3 “Price risk”);
– – The model valuation was based on the expected cash flow approach;
– – The revenues were calculated linking price curves with levels of production according to certified
reserves (see below table “Oil price scenarios”);
– – The levels of production have been linked to certified risked 1P, 2P and 3P reserves (see Note
4);
– Production and structure costs were estimated considering internal historical data according to
GeoPark’s own records and aligned to 2015 approved budget;
– The capital expenditures were estimated considering the drilling campaign necessary to develop
the certified reserves;
– The assets subject to impairment test are the ones classified as Oil and Gas properties and
Production facilities and machinery;
– – The carrying amount subject to impairment test includes mineral interest;
– – The income tax charges have considered future changes in the applicable income tax rates (see
Note 16).
78
GEOPARK LIMITED
31 DECEMBER 2014
Note
38 Impairment test on fixed assets (continued)
Table Oil price scenarios (*):
Amounts in US$ per Bbl
Low price (15%) Middle price (60%) High price (25%) Weighted market price
used for the
Year impairment test
2015 46,0 56,8 72,0 59,0
2016 51,8 67,1 81,0 68,3
2017 61,0 75,0 81,0 74,4
2018 64,0 75,0 90,0 77,1
2019 66,0 85,0 100,0 85,9
2020 67,0 95,0 100,0 92,1
Over 2021 67,0 100,0 100,0 96,6
(*) The percentages indicated between brackets represent the Company estimation regarding each price scenario.
Summary for Chilean blocks impairment:
o Carrying amount . . Projections year Pre-tax discount
Block name Working interest a Impairment impact
(US$ million) end rate
Flamenco 50% 15,0 No 2024 10.5%
Campanario 50% 3,6 No 2024 10.5%
Isla Norte 60% 3,7 No 2024 10.5%
Fell 100% 355,7 No 2029 10.5%
Summary for Colombian blocks impairment:
o Carrying amount . . Projections year Pre-tax discount
Block name Working interest e Impairment impact
(US$ million) end rate
Cuerva Block (1) 100% 68,0 Yes 2020 15.3%
Llanos 17 Block 36.84% 6,0 No 2016 15.3%
Yamu/Carupana Block 90% – 79.5% 17,0 No 2017 15.3%
Llanos 34 Block 45% 77,0 No 2022 15.3%
Llanos 32 Block 10% 9,0 No 2025 15.3%
(1 The Company recognized an impairment loss in Cuerva block that amounts to US$ 9,400,000;
the carrying amount of the fixed assets related to Cuerva block after deduction of impairment loss
amounts to US$ 59,600,000.
If the weighted market price used for the impairment test had been 5% lower in each of the future years,
with all other variables held constant, the impairment loss would have been higher by approximately
US$ 13,000,000.
Brazil segment did not present any impairment indicator as it produces mainly gas, which price is
established by a supply agreement; Peru and Argentina segments have no associated assets subject to
impairment.
79
GEOPARK LIMITED
31 DECEMBER 2014
Note
39 Supplemental information on oil and gas activities (unaudited)
The following information is presented in accordance with ASC No. 932 “Extractive Activities – Oil and
Gas”, as amended by ASU 2010 – 03 “Oil and Gas Reserves. Estimation and Disclosures”, issued by
FASB in January 2010 in order to align the current estimation and disclosure requirements with the
requirements set in the SEC final rules and interpretations, published on December 31, 2008. This
information includes the Company’s oil and gas production activities carried out in Chile, Colombia, Brazil
and Argentina.
Table 1 – Costs incurred in exploration, property acquisitions and development (1)
The following table presents those costs capitalized as well as expensed that were incurred during each
of the years ended as of 31 December 2014, 2013 and 2012. The acquisition of properties includes the
cost of acquisition of proved or unproved oil and gas properties. Exploration costs include geological and
geophysical costs, costs necessary for retaining undeveloped properties, drilling costs and exploratory
well equipment. Development costs include drilling costs and equipment for developmental wells, the
construction of facilities for extraction, treatment and storage of hydrocarbons and all necessary costs to
maintain facilities for the existing developed reserves.
Amounts in US$ ‘000 Chile Colombia Argentina Brazil Total
Year ended 31 December 2014
Acquisition of properties
Proved – – – 112,646 112,646
Unproved – – – – –
Total property acquisition – – – 112,646 112,646
Exploration 84,251 14,114 (123) 12,004 110,246
Development 82,742 55,336 126 1,052 139,256
Total costs incurred 166,993 69,450 3 125,702 362,148
Amounts in US$ ‘000 Chile Colombia Argentina Brazil Total
Year ended 31 December 2013
Acquisition of properties
Proved – – – – –
Unproved – – – – –
Total property acquisition – – – – –
Exploration 91,140 47,668 (1,917) 1,702 138,593
Development 61,748 37,983 124 – 99,855
Total costs incurred 152,888 85,651 (1,793) 1,702 238,448
Amounts in US$ ‘000 Chile Colombia Argentina Total
Year ended 31 December 2012
Acquisition of properties
Proved – 82,766 – 82,766
Unproved – 27,818 – 27,818
Total property acquisition – 110,584 – 110,584
Exploration 58,301 28,999 (1,602) 85,698
Development 89,669 27,479 499 117,647
Total costs incurred 147,970 167,062 (1,103) 313,929
(1) Includes capitalised amounts related to asset retirement obligations.
80
GEOPARK LIMITED
31 DECEMBER 2014
Note
39 Supplemental information on oil and gas activities (unaudited – continued)
Table 2 – Capitalised costs related to oil and gas producing activities
The following table presents the capitalized costs as at 31 December 2014, 2013 and 2012, for proved
and unproved oil and gas properties, and the related accumulated depreciation as of those dates.
Amounts in US$ ‘000 Chile Colombia Argentina Brazil Total
At 31 December 2014
Proved properties
Equipment, camps and other
facilities 81,998 28,805 843 – 111,646
Mineral interest and wells (1) 426,638 227,755 4,849 90,705 749,947
Other uncompleted projects 37,902 20,204 – 1,053 59,159
Unproved properties 113,403 18,176 – 8,865 140,444
Gross capitalised costs 659,941 294,940 5,692 100,623 1,061,196
Accumulated depreciation ( (163,217) (111,855) (5,562) (4,951) (285,585)
Total net capitalised costs 496,724 183,085 130 95,672 775,611
(1 Includes capitalised amounts related to asset retirement obligations and impairment loss in Colombia for US$ 9.4 million.
Amounts in US$ ‘000 Chile Colombia Argentina Brazil Total
At 31 December 2013
Proved properties
Equipment, camps and other
facilities 77,481 20,514 843 – 98,838
Mineral interest and wells (1) 310,364 178,048 4,849 – 493,261
Other uncompleted projects 33,176 7,053 – – 40,229
Unproved properties 109,862 37,853 31 13 147,759
Gross capitalised costs 530,883 243,468 5,723 13 780,087
Accumulated depreciation ( (127,447) (60,150) (5,470) – (193,067)
Total net capitalised costs 403,436 183,318 253 13 587,020
(1) Includes capitalised amounts related to asset retirement obligations.
Amounts in US$ ‘000 Chile Colombia Argentina Total
At 31 December 2012
Proved properties
Equipment, camps and other
facilities 69,755 16,351 843 86,949
Mineral interest and wells (1 236,499 103,023 4,849 344,371
Other uncompleted projects 44,806 8,520 – 53,326
Unproved properties 59,924 33,151 31 93,106
Gross capitalised costs 410,984 161,045 5,723 577,752
Accumulated depreciation (” (98,161) (20,917) (5,414) (124,492)
Total net capitalised costs 312,823 140,128 309 453,260
(1) Includes capitalised amounts related to asset retirement obligations.
81
GEOPARK LIMITED
31 DECEMBER 2014
Note
39 Supplemental information on oil and gas activities (unaudited – continued)
Table 3 – Results of operations for oil and gas producing activities
The breakdown of results of the operations shown below summarises revenues and expenses directly
associated with oil and gas producing activities for the years ended 31 December 2014, 2013 and 2012.
Income tax for the years presented was calculated utilizing the statutory tax rates.
Amounts in US$ ‘000 Chile Colombia Argentina Brazil Total
Year ended 31 December 2014
Net revenue 145,720 246,085 1,308 35,621 428,734
Production costs, excluding
depreciation
Operating costs (34,991) (67,470) (309) (5,354) (108,124)
Royalties (6,777) (12,354) (241) (2,794) (22,166)
Total production costs (41,768) (79,824) (550) (8,148) (130,290)
Exploration expenses (1) (36,057) (4,567) 123 (2,164) (42,665)
Accretion expense (2 (816) (547) – (609) (1,972)
Impairment loss for non-financial assets – (9,430) – – (9,430)
Depreciation, depletion and (85,856) (51,856) (94) (11,554) (99,360)
Sults of operations before income 31,223 99,861 787 13,146 145,017
Income tax (4,684) (33,953) (275) (4,470) (43,382)
Results of oil and gas operations 26,539 65,908 512 8,676 101,635
Amounts in US$ ‘000 Chile Colombia Argentina Brazil Total
Year ended 31 December 2013
Net revenue 157,491 179,324 1,538 – 338,353
Production costs, excluding
depreciation
Operating costs (30,915) (62,818) (92) – (93,825)
Royalties (7,383) (9,661) (195) – (17,239)
Total production costs (38,298) (72,479) (287) – (111,064)
Exploration expenses (13,138) (3,341) 1,928 (1,703) (16,254)
Accretion expense 2 (429) (880) (214) – (1,523)
Depreciation, depletion and (29,287) (39,233) (59) – (68,579)
Sults of operations before income 76,339 63,391 2,906 (1,703) 140,933
Income tax (11,451) (20,919) (1,017) 579 (32,808)
Results of oil and gas operations 64,888 42,472 1,889 (1,124) 108,125
GEOPARK LIMITED
31 DECEMBER 2014
Note
39 Supplemental information on oil and gas activities (unaudited – continued)
Table 3 – Results of operations for oil and gas producing activities (continued)
Amounts in US$ ‘000 Chile Colombia Argentina Total
Year ended 31 December 2012
Net revenue 149,927 99,501 1,050 250,478
Production costs, excluding
depreciation
Operating costs (30,586) (35,069) 151 (65,504)
Royalties (7,088) (4,164) (172) (11,424)
Total production costs (37,674) (39,233) (21) (76,928)
Exploration expenses (22,080) (5,528) (282) (27,890)
Accretion expense (2 (265) (803) (194) (1,262)
Depreciation, depletion and
amortization (28,120) (20,964) (3,223) (52,307)
posults of operations before income 61,788 32,973 (2,670) 92,091
Income tax (9,268) (10,881) 935 (19,214)
Results of oil and gas operations 52,520 22,092 (1,735) 72,877
(1 Do not include Perú costs.
(2 Represents accretion of ARO liability.
Table 4 – Reserve quantity information
Estimated oil and gas reserves
Proved reserves represent estimated quantities of oil (including crude oil and condensate) and natural
gas, which available geological and engineering data demonstrates with reasonable certainty to be
recoverable in the future from known reservoirs under existing economic and operating conditions.
Proved developed reserves are proved reserves that can reasonably be expected to be recovered
through existing wells with existing equipment and operating methods. The choice of method or
combination of methods employed in the analysis of each reservoir was determined by the stage of
development, quality and reliability of basic data, and production history.
The Company believes that its estimates of remaining proved recoverable oil and gas reserve volumes
are reasonable and such estimates have been prepared in accordance with the SEC Modernization of Oil
and Gas Reporting rules, which were issued by the SEC at the end of 2008.
The Company estimates its reserves at least once a year. The Company’s reserves estimation as of 31
December 2014, 2013 and 2012 was based on the DeGolyer and MacNaughton Reserves Report (the
“D8M Reserves Report”). DeGolyer and MacNaughton prepared its proved oil and natural gas reserve
estimates in accordance with Rule 4-10 of Regulation S-X, promulgated by the SEC, and in accordance
with the oil and gas reserves disclosure provisions of ASC 932 of the FASB Accounting Standards
Codification (ASC) relating to Extractive Activities-Oil and Gas (formerly SFAS no. 69 Disclosures about
Oil and Gas Producing Activities).
83
GEOPARK LIMITED
31 DECEMBER 2014
Note
39 Supplemental information on oil and gas activities (unaudited – continued)
Reserves engineering is a subjective process of estimation of hydrocarbon accumulation, which cannot
be accurately measured, and the reserve estimation depends on the quality of available information and
the interpretation and judgment of the engineers and geologists. Therefore, the reserves estimations, as
well as future production profiles, are often different than the quantities of hydrocarbons which are finally
recovered. The accuracy of such estimations depenas, in general, on the assumptions on which they are
based.
The estimated GeoPark net proved reserves for the properties evaluated as of 31 December 2014, 2013
and 2012 are summarised as follows, expressed in thousands of barrels (Mbbl) and millions of cubic feet
(MMecf):
As of 31 December 2014 As of 31 December 2013 As of 31 December 2012
Oil and Natural gas Oil and Natural gas Oil and Natural gas
condensate (MMcf) condensate (MMcf) condensate (MMcf)
(Mbbl) (Mbbl) (Mbbl)
Net proved developed
Chile 1,463.7 9,352.0 2,236.6 10,037.0 2,104.8 12,768.0
Colombia % 7,594.8 – 3,250.9 – 2,008.6 –
Brazil (* 69.0 20,863.0 – – – –
Total consolidated 9,127.5 30,215.0 5,487.5 10,037.0 4,113.4 12,768.0
Net proved
undeveloped
Chile (4 4,978.2 24,618.0 3,138.4 22,122.0 3,153.3 16,813.0
Colombia * 17,140.5 – 6,175.7 – 4,618.4 –
Brazil * 61.0 19,601.0 – – – –
Total consolidated 22,179.7 44,219.0 9,314.1 22,122.0 7,7711.7 16,813.0
Total proved reserves 31,307.2 74,434.0 14,801.6 32,159.0 11,885.1 29,581.0
(1) Fell Block accounts for 92% of the reserves (100% in 2013 and 2012) (LGl owns a 20% interest) and Flamenco Block
accounts for 8% (LGl owns 31.2% interest).
(2) Llanos 34 Block and Cuerva Block account for 79% and 17% (58% and 36% in 2013 and 31% and 53% in 2012) of the
proved developed reserves, respectively (LGl owns a 20% interest).
(3) BCAM-40 Block accounts for 100% of the reserves.
(4) Fell Block accounts for 96% of the reserves (100% in 2013 and 2012) (LGI owns a 20% interest), Flamenco Block
accounts for 3% and Isla Norte accounts for 1% (LGl owns 31.2% interest).
(5) Llanos 34 Block and Cuerva Block account for 91% and 7% (74% and 23% in 2013 and 72% and 25% in 2012) of the
proved undeveloped reserves, respectively (LGl owns a 20% interest).
s4
Note
39
GEOPARK LIMITED
31 DECEMBER 2014
Supplemental information on oil and gas activities (unaudited – continued)
Table 5 – Net proved reserves of oil, condensate and natural gas
Net proved reserves (developed and undeveloped) of oil and condensate:
(2)
(8)
Thousands of barrels
Reserves as of 31 December 2011
Increase (decrease) attributable to:
Revisions (1)
Extensions and discoveries
Purchases of minerals in place
Production
Reserves as of 31 December 2012
Increase (decrease) attributable to:
Revisions
Extensions and discoveries (2)
Production
Reserves as of 31 December 2013
Increase (decrease) attributable to:
Revisions (3)
Extensions and discoveries (4)
Purchases of minerals in place (Note 34)
Production
Reserves as of 31 December 2014
Chile
5,254.1
(1,250.8)
2,670.0
(1,415.2)
5,258.1
271.1
1,431.0
(1,585.2)
5,375.0
124.9
2,314.0
(1,372.0)
6,441.9
Colombia
7,522.8
(895.8)
6,627.0
(277.0)
5,210.0
(2,133.4)
9,426.6
2,489.7
16,477.0
(8,658.0)
24,735.3
Brazil
150.0
(20.0)
130.0
Total
5,254.1
(1,250.8)
2,670.0
7,522.8
(2,311.0)
11,885.1
(5.9)
6,641.0
(8,718.6)
14,801.6
2,614.6
18,791.0
150.0
(5,050.0)
31,307.2
The revisions are mainly related to condensate from the reduced gas and two fields in the Fell Block (Copihue and
Guanaco) where there were reductions in proved recovery based on performance.
Mainly due to 2013 discoveries in Llanos 34 (Taro Taro, Tigana and Tigana Sur) and Yamú (Potrillo).
In Chile, the revisions are mainly due to Field’s performance in Fell and TdF Blocks. In Colombia, the revisions are mainly
due to the performance of Tua Field and secondly to the performance of Max and Taro-taro Fields in Llanos 34 Block.
In Chile, the discoveries mainly due to Loij Field discovery and Konawentru Field extensions. In Colombia, the discoveries
mainly due to Tigana Field extensions wells and Aruco Field discovery in Llanos 34 Block.
85
Note
GEOPARK LIMITED
31 DECEMBER 2014
39 Supplemental information on oil and gas activities (unaudited – continued)
Net proved reserves (developed and undeveloped) of natural gas:
Millions of cubic feet
Reserves as of 31 December 2011
Increase (decrease) attributable to:
Revisions (1)
Extensions and discoveries
Purchases
Production
Reserves as of 31 December 2012
Increase (decrease) attributable to:
Revisions (2)
Extensions and discoveries
Production
Reserves as of 31 December 2013
Increase (decrease) attributable to:
Revisions (3)
Extensions and discoveries (4)
Purchases of minerals in place (Note
34)
Production
Reserves as of 31 December 2014
Chile
57,157.0
(21,860.0)
2,256.0
(7,972.0)
29,581.0
4,691.0
2,219.0
(4,332.0)
32,159.0
3,312.0
3,014.0
(4,515.0)
33,970.0
Brazil Total
– 57,157.0
– (21,860.0)
– 2,256.0
– (7,972.0)
– 29,581.0
– 4,691.0
– 2,219.0
– (4,332.0)
– 32,159.0
– 3,312.0
– 3,014.0
47,680.0 47,680.0
(7,216.0) (11,731.0)
40,464.0 74,434.0
The revisions are mainly due to the effect of having reduced the Company’s future gas production profile in Chile
because of expected reduced deliveries to the Methanex plant. This causes a significant portion of the gas reserves
to be produced below an economic level later in the productive life of the Fell Block and after the expiration of the
Methanex Gas Supplies Agreement.
The revisions are mainly due to adjustments in the Fell Block as a response to a workover in Monte Aymond field,
and associated gas from drilling campaigns in Konawentru and Yagán Norte fields.
The revisions are mainly due to Chercán Field development in TdF Block and gas and associated gas
performance/development in Fields of Fell Block.
Mainly due to the Ache Field discovery and the associated gas from Konawentru extensions wells.
Revisions refer to changes in interpretation of discovered accumulations and some technical / logistical
needs in the area obliged to modify the timing and development plan of certain fields under appraisal and
development phases.
86
GEOPARK LIMITED
31 DECEMBER 2014
Note
39 Supplemental information on oil and gas activities (unaudited – continued)
Table 6 – Standardized measure of discounted future net cash flows related to proved oil and gas
reserves
The following table discloses estimated future net cash flows from future production of proved developed
and undeveloped reserves of crude oil, condensate and natural gas. As prescribed by SEC Modernization
of Oil and Gas Reporting rules and ASC 932 of the FASB Accounting Standards Codification (ASC)
relating to Extractive Activities – Oil and Gas (formerly SFAS no. 69 Disclosures about Oil and Gas
Producing Activities), such future net cash flows were estimated using the average first day- of-the-month
price during the 12-month period for 2014, 2013 and 2012 and using a 10% annual discount factor.
Future development and abandonment costs include estimated drilling costs, development and
exploitation installations and abandonment costs. These future development costs were estimated based
on evaluations made by the Company. The future income tax was calculated by applying the statutory tax
rates in effect in the respective countries in which we have interests, as of the date this supplementary
information was filed.
This standardized measure is not intended to be and should not be interpreted as an estimate of the
market value of the Company’s reserves. The purpose of this information is to give standardized data to
help the users of the financial statements to compare different companies and make certain projections. lt
is important to point out that this information does not include, among other items, the effect of future
changes in prices, costs and tax rates, which past experience indicates that are likely to occur, as well as
the effect of future cash flows from reserves which have not yet been classified as proved reserves, of a
discount factor more representative of the value of money over the lapse of time and of the risks inherent
to the production of oil and gas. These future changes may have a significant impact on the future net
cash flows disclosed below. For all these reasons, this information does not necessarily indicate the
perception the Company has on the discounted future net cash flows derived from the reserves of
hydrocarbons.
Amounts in US$ ‘000 Chile Colombia Brazil Total
At 31 December 2014
Future cash inflows 778,820 1,732,395 307,535 2,818,750
Future production costs (250,529) (587,096) (124,265) (961,890)
Future development costs (184,352) (100,036) (19,965) (304,353)
Future income taxes (54,442) (303,090) (19,566) (377,098)
Undiscounted future net cash flows 289,497 742,173 143,739 1,175,409
10% annual discount (61,839) (158,102) (31,594) (251,535)
Standardized measure of discounted
227,658 584,071 112,145 923,874
future net cash flows
87
Note
39
GEOPARK LIMITED
31 DECEMBER 2014
Supplemental information on oil and gas activities (unaudited – continued)
Table 6 – Standardized measure of discounted future net cash flows related to proved oil and gas
reserves (continued)
Amounts in US$ ‘000 Chile Colombia Argentina Total
At 31 December 2013
Future cash inflows 610,106 686,227 1,296,333
Future production costs (164,820) (274,246) (439,066)
Future development costs (215,426) (82,964) (298,390)
Future income taxes (38,599) (118,104) (156,703)
Undiscounted future net cash flows 191,261 210,913 402,174
10% annual discount (27,401) (87,121) (64,522)
e measure of discounted 163,860 173,792 337,652
At 31 December 2012
Future cash inflows 568,647 491,578 1,060,225
Future production costs (135,525) (181,780) (317,305)
Future development costs (149,100) (45,966) (195,066)
Future income taxes (44,218) (98,773) (142,991)
Undiscounted future net cash flows 239,804 165,059 404,863
10% annual discount (87,355) (31,414) (68,769)
Standardized measure of discounted 202,449 133,645 336,094
future net cash flows
Table 7 – Changes in the standardized measure of discounted future net cash flows from proved reserves
Amounts in US$ ‘000 Chile Colombia Brazil Total
Present value at 31 December 2011 285,603 – 285,603
Sales of hydrocarbon , net of production (110,331) (10,015) (120,346)
costs
Net changes in sales price and production 45,100 Ñ 45,100
costs
Changes in estimated future development (73,255) Ñ (73,255)
costs
Extensions and discoveries less related 108,768 Ñ 108,768
costs
Development costs incurred 57,055 – 57,055
Revisions of previous quantity estimates (174,757) – (174,757)
Purchase of minerals in place – 143,660 143,660
Net changes in income taxes 23,250 – 23,250
Accretion of discount 36,215 – 36,215
4,801 – 4,801
Other changes
88
Note
39
GEOPARK LIMITED
31 DECEMBER 2014
Supplemental information on oil and gas activities (unaudited – continued)
Table 7 – Changes in the standardized measure of discounted future net cash flows from proved reserves
(continued)
Amounts in US$ ‘000 Chile Colombia Brazil Total
Present value at 31 December 2012 202,449 133,645 – 336,094
Sales of hydrocarbon , net of production (128,993) (118,417) – (247,410)
costs
Net changes in sales price and production (4,925) 4,754 – (171)
costs
Changes in estimated future development (118,760) (68,337) – (187,097)
costs
Extensions and discoveries less related 63,948 186,738 – 250,686
costs
Development costs incurred 83,983 39,922 – 123,905
Revisions of previous quantity estimates 37,389 (9,928) – 27,461
Net changes in income taxes 4,102 (17,827) – (13,725)
Accretion of discount 24,667 23,242 – 47,909
Present value at 31 December 2013 163,860 173,792 – 337,652
Sales of hydrocarbon , net of production (110,451) (208,387) (89,414) (858,202)
costs
Net changes in sales price and production 18,310 19,215 7,409 44,934
costs
Changes in estimated future development (134,272) (51,176) (22,143) (207,591)
costs
Extensions and discoveries less related 96,614 600,391 – 697,005
costs
Development costs incurred 157,988 59,272 1,340 218,600
Revisions of previous quantity estimates 25,114 103,411 1,559 130,084
Net changes in income taxes (9,751) (141,687) 4,156 (147,282)
Purchase of minerals in place – – 142,423 142,423
Accretion of discount 20,246 29,190 16,815 66,251
Present value at 31 December 2014 227,658 584,071 112,145 923,874
89
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