Fitch Affirms GeoPark’s B+ Credit Rating While Raising Concerns on Falling Reserve Life

Credit rating agency Fitch Ratings affirmed its credit rating of oil and gas company GeoPark Limited to B+, but noted worries over GeoPark’s dwindling fossil fuel reserves have caused the agency to dampen its future outlook for the company. 

Fitch noted in its report that GeoPark’s fossil fuel reserves have fallen below seven years, something the firm would be unable to “dramatically reverse” within the next 12 months. Specifically, the big three credit rating agency stated that the company only has a “1P reserve life of 5.4 years” when based on 2022 production standards. And despite the company employing new capital from Ecuador and Colombia to build up its reserves, Fitch believes that GeoPark’s reserve life would likely decrease to 4.6 years by the end of 2023.

In comparison to other independent oil producers in the area, its reserve life is now lower than that of SierraCol (8.0 years), Frontera Energy (8.7 years), and Gran Tierra (7.5 years) while coming in around the same level as CGC Energy (5.4 years).

GeoPark is also noted to have decreased its diversification of resources after the sale of Argentine and Brazilian oil fields, with the company being reliant on the continued steady oil production in Colombia. 

Despite the lack of optimism on that front, however, Fitch believes that GeoPark can increase output to per day to 40,000 barrels of oil equivalent per day by 2024 based on the existing strength of their oil fields in Colombia. This comes even with 2022’s production remaining in comparison to 2021.

A recent report from the company itself showed that its second quarter consolidated average oil and gas production is at 36,581 barrels of equivalent per day, largely due to the stalling of some of its operations in Colombia and Chile. 

In another optimistic turn, Fitch also believes that GeoPark’s gross leverage, or its overall debt to EBITDA ratio, will improve due to rising oil prices, with this number having decreased to 0.8x in 2022 in comparison to the 2.2x the company reported in 2021. 

GeoPark’s conservative financial policies will also likely grant it better financial flexibility in the future, and while its 1P reserve life is below seven years, the credit agency predicts that it will be enough to weather any price volatility in the market in the future. 

The company recently announced that, at predicted oil prices of $80-90 per barrel, it will likely have an EBITDA $490-$560 million USD as well as $120-$140 million USD in free cash flow, of which 40-50% of it will go to the company after taxes.

Photo credit: GeoPark