Looking at the upside in ArgentinaMay 17, 2018
Alberto Matamoros, director of GeoPark in Argentina, Chile and Brazil, talks to TOGY about the company’s recent progress in Argentina, community relationships and what opportunities will become available as large companies move towards unconventionals.
Founded in 2002, GeoPark is an E&P company based in Santiago, Chile. The company also has operations in Argentina, Colombia, Brazil and Peru. In Argentina, GeoPark is working in six Neuquén Basin blocks. In Q1 2018, the company closed a deal with Pluspetrol for the acquisition of 100% stakes in the mature, conventional Aguada Baguales, El Porvenir and Puesto Touquet blocks, which also have Vaca Muerta exposure and tight gas upside potential.
On benefits for everyone: “It would be interesting for big companies to divest mature conventional fields that are no longer of interest or no longer profitable to them, so that independent companies could create value – mostly through implementing efficiencies, know-how and efforts – so that everyone is benefited.”
On argentina’s treasures: “Companies such as Statoil and Shell are investing in Argentina. We have world-class unconventional resources and the second-largest unconventional gas reserves in the world. I think that makes the country very interesting.”
Most TOGY interviews are published exclusively on our business intelligence platform, TOGYiN, but you can find the full interview with Alberto Matamoros below.
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What opportunities do you expect to become available in Argentina as companies shift their focus to developing unconventional resources?
This is a very interesting moment because companies have returned to the country to invest, especially in unconventionals. Companies that were already investing in the country, such as Chevron or Shell, have reinforced their presence. In addition, new companies have come to the country, such as Norwegian NOC Statoil.
Most of the companies are investing in unconventionals. This is a very interesting opportunity, though in our case, we plan to continue focusing on conventional oilfields, which offer very interesting opportunities, especially for agile independent companies and low-cost producers with broad experience in the region like us.
It would also be interesting for big companies to divest mature conventional fields that are no longer of interest or no longer profitable to them, so that independent companies could create value – mostly through implementing efficiencies, know-how and efforts – so that everyone is benefited.
What is the role of EOR in Argentina at a time of declining conventional oil production?
There has been a lot of capital injection in unconventionals and the big companies seem to have lost interest in improving secondary and tertiary recovery. We think that the most important basins in Argentina are underdeveloped and underexplored with regards to conventional oil.
There are extremely interesting opportunities for companies such as GeoPark, especially for performing secondary recovery in mature oilfields, such as the ones we just acquired. Cost optimisations and agreements with the unions all contribute to focusing on mature oilfields with upsides in secondary recovery and development, as well as on exploration.
Can we expect the entrance of smaller and mid-sized E&P players in Argentina in the coming years?
I think that we are moving in that direction because the biggest upstream asset holder is YPF, and as it begins to focus more and more on unconventionals, at some point, it may start getting rid of mature, conventional fields. This is where companies with GeoPark’s size and/or know-how will profit the most. If companies similar to GeoPark had greater participation in oilfields that major companies don’t place importance on, the country’s oil and gas production could benefit substantially.
How have logistics and infrastructure impacted the development of viable projects?
For assets in the middle of the Neuquén Basin, such as Centenario, Cutral Có, Plaza Huincul or Rincón de los Sauces, I believe there is a good supply of infrastructure and services companies. In places such as Río Gallegos, the Austral Basin or southern Mendoza, it is not so easy to get get drilling or pulling equipment overnight, though we are seeing that conditions are moving in that direction.
How much impact do local communities have in upstream operations throughout the region?
In Argentina, communities have not been a strong problem. The biggest challenge here over the past few years has been reaching good and long-term agreements with unions.
In Colombia, if you don’t have a good understanding with local communities, then it is very hard to operate. We are doing very well, as over the past three years we have had no production stoppages there, which is the result of the excellent social approach that GeoPark has in that region which is the result of building trust, openly sharing our plans and hearing the needs and requests of the people. We plan to replicate the same approach with local communities in the Amazon in Peru. Of course, it is a huge challenge, but we have the right team devoted to this.
We are fully aware that in today’s world, you can be the best operator, but if your social approach fails, then being the best operator means nothing.
How attractive is Argentina to investors compared to other markets in the region?
Companies such as Statoil and Shell are investing in Argentina. We have world-class unconventional resources and the second-largest unconventional gas reserves in the world. I think that makes the country very interesting. Brazil could be a direct competitor for Argentina in terms of attracting investment, mostly through offshore bidding rounds, which is a different thing and requires heavy capital commitments.
Colombia offers good opportunities that Canadian companies were able to profit from in the past couple of years. Peru is probably slightly behind, though it offers very good conditions, with world-class assets and good fiscal conditions, especially like the asset we have in the Marañon Basin.
What were GeoPark’s main developments in 2017?
We have engaged in exploration activities with very good results, as in September 2017, we discovered a light oil field in Mendoza in the CN-V block. This discovery came very early, as it was our first well drilled in Argentina since 2011. This newly discovered oilfield is currently undergoing a long-term test, after which we will define future development and appraisal plans.
How have the sectorial productivity agreements signed in early 2017 impacted your operations?
We had a positive experience when we drilled our first exploratory well in Mendoza, as we were able to apply whole drilling procedures and long-term testing without any inconvenience. In fact, we had a good synergy and partnership with the local unions.
We really think that these kinds of agreements help the industry, as long as they are focused on the long term and are not just agreements used to resolve circumstantial issues without a long-term view. They have to be contracts with long-term productivity as a goal. We are taking some significant steps in that direction.
What does the company’s 2018 investment plan entail?
GeoPark’s investment plan for next year is very ambitious. We will be investing more than USD 100 million in LatAm and we expect to increase production by about 15-20%.
This plan includes an increasing capital allocation to Argentina versus previous years. Investments in Argentina will be devoted to both exploration and development opportunities aimed at increasing production and reserves.
With respect to the new assets acquired, efforts will be mostly focused on implementing previously identified efficiencies, assessing response to our secondary recovery plans and initiating a low-cost well intervention campaign. With data gathered from the above, we plan to initiate a more aggressive drilling campaign towards 2019.
How will GeoPark finance its 2018 investment plan?
All our plans are self-funded. To achieve this, we design flexible work programmes that can be adjusted to different price scenarios, and also hedge a portion of our production.
2017 was a fantastic year, as in September, GeoPark issued a seven-year bond for USD 425 million, which allowed the company to lower the cost of its debt and also extended maturities until 2024, so that our balance sheet was significantly strengthened.
Can you tell us about the block acquisition from Pluspetrol that was completed in Q1 2018?
We recently acquired three additional blocks in the Neuquén Basin – Aguada Baguales, El Porvenir and Puesto Touquet – mostly containing mature, conventional fields. The blocks are very well located in the heart of the Neuquén Basin and offer very interesting development and exploration opportunities, with Vaca Muerta exposure and tight gas upside potential.
Is GeoPark most interested in owning or operating assets?
We are open to all possibilities, but what we are most interested in is being an operator. Through the years we gained a lot of experience and know-how regarding primary and secondary recovery, and you can profit from that experience most if you are the operator. Being the operator allows you to design the most efficient development plan and also be able to undertake a more aggressive approach to cost reductions, efficiencies and efficient execution and development.
Are you looking to acquire assets in any particular basins in Argentina?
We are mostly focused on the Neuquén and San Jorge Gulf basins, but other basins such as Cuyo and Austral are also being considered. We are also looking at the Austral Basin due to the possible synergies we could have with our fields located in the Magallanes Basin in Chile, which is the Austral Basin to the other side of the Andes mountain range.
Where has GeoPark been able to optimise costs and improve efficiency?
We have achieved many efficiencies in drilling and operating costs. This was mainly achieved by renegotiating every contract we have and looking at every line of the income statement, especially in the oil downturn, but most importantly, through an internal culture that encourages people to constantly innovate and search for efficiencies. Resulting from the above we were able to reduce drilling costs and opex by close to 50%, versus existing conditions at the end of 2014 or the beginning of 2015.
What does GeoPark expect to accomplish in Argentina in 2018 to solidify a mid-term strategy?
We are increasing our capital allocation to Argentina. Our goal in Argentina for the next couple of years is to produce 25,000-30,000 boepd if the right conditions are given. We plan to accomplish this with organic growth, which means developing the reserves we already have, both in Neuquén and Mendoza; and through inorganic growth, based on the acquisition of new assets that already have production and that have exploration upside. That is the compass that will be guiding us for the next two or three years here.
What does your next project in Peru entail?
It’s a very interesting project and a world-class asset. The project is located in the middle of the Amazon, on the border with Ecuador, extending across nearly 2 million acres [8,095 square kilometres]. We are partnering with Petroperú there. Our asset includes an already discovered oilfield with more than 80 million barrels of light oil in reserves, with reserve potential of more than 200 million barrels. Existing infrastructure includes a regional pipeline that runs through our block. We are currently moving forward with all required environmental impact studies with the goal of putting the Situche Central oilfield into production by the end of 2019.
During these past couple of months, we continued data collection required for the environmental impact study and signed an agreement with the Smithsonian Institute to conduct biodiversity research in the Morona block, aimed at implementing best practices. We are also carrying out engineering and facility design works at Situche Central. We expect to present environmental impact studies to local authorities in late Q2 2018 or early Q3 2018. We expect regulatory approvals by the end of 2018.
For more information on GeoPark in Argentina, including the company’s plans for further recovery at its mature fields, see our business intelligence platform, TOGYiN.
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