Latin American Oil Firm with 60% Upside?

You might not realize it yet, but Latin America has some of the world’s richest and most underexplored fossil fuel reserves anywhere on the planet. This represents a considerable opportunity for oil companies, who are keen to capitalize on these abundant natural resources and become major players in the global energy market.

In fact, GeoPark Limited, one of the continent’s leading exploration specialists, has already made headway in identifying possible hydrocarbon deposits in many of its current mining concessions.

Indeed, GeoPark has a long track record of growth and success in Latin America. With its integrated asset base spread throughout Colombia, Ecuador, Chile, and Brazil, it is strategically positioned to leverage its expertise across the entire value chain.

This allows the company to develop efficient and innovative business models while maximizing the utility of its investments. Therefore, GPRK is poised to make the most of the opportunities presented by Latin America’s untapped oil and gas supplies.

What’s more, its proactive approach to exploration and development has enabled GeoPark to lead the way in unlocking the region’s energy potential. The company uses advanced technologies and techniques to realize the value of its assets, including 3D seismic surveying, horizontal drilling, and multistage fracturing to maximize production.

In addition, GPRK has a dedicated team of engineers and geologists who constantly monitor and analyze data to ensure the company remains at the forefront of developments in the sector.

For investors, GeoPark offers a unique chance to gain exposure to this nascent and burgeoning market. And it’s this opportunity that we’ll examine further in this article.

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What Does GeoPark Do?

GeoPark is a diversified energy company whose operations have a particular focus on the exploration and production of oil and gas from unconventional sources.

The business enjoys strategic partnerships with a raft of major upstream and midstream companies – such as Parex Resources and SierraCol Energy – giving it vital access to additional capital, technology, and expertise.

Moreover, the company’s production portfolio includes a mix of high-performing growth platforms, ranging from shallow offshore drilling to deepwater and shale plays.

Crucially, GPRK has a history of exploration and development activities in Latin America and is ready to exploit the region’s increasing demand for energy resources.

Oil And Gas Industry In Latin America

The oil industry in Latin America is a rapidly growing sector, and exploration and production are critical components, involving activities such as subsurface mapping, drilling and testing.

For example, the process begins with an exploration phase, which aims to identify potential oil and gas deposits. During this stage, companies typically use advanced technology – such as satellite imagery and aerial photography – to assess the region’s geology and detect potential reserves.

After the first positive discoveries are made, the next phase of E&P can start. This usually involves the drilling of wells and the completion of production, storage, and transportation infrastructure needed to bring the resource to market.

For its own part, GeoPark has two decades worth of experience in the Latin American oil exploration and production game. The business has curated an admirable suite of key assets, including mining fields in Fell, Chile, and others around the Llanos basin in Colombia. Most importantly, these assets come with a long-term value proposition, promising organic growth potential and unrisked exploration upside.

Moreover, the region offers a wealth of opportunities, ranging from the conventional to the more exotic and difficult-to-extract sources. Additionally, with its close proximity to global markets, Latin America will surely become an increasingly attractive destination for oil and gas companies looking for growth catalysts and new territories to try out.

Is GPRK Undervalued?

Based on a discounted cash flow analysis, investors can expect GeoPark to be worth a present value of $22.50. This means that, given today’s share price of around $13.70, the stock has more than 60% upside at current levels.

Indeed, from a fundamental perspective, the company is performing exceptionally well. GPRK boasts a drilling success rate of over 75% and has increased its net average daily production by a compound annual growth rate of 14% in the last ten years.

Furthermore, financial results for the third quarter of 2022 were also pleasing. For instance, revenue was up 48% at $258.2 million, with adjusted EBITDA increasing 63% to $141.3 million.

Moreover, cash flow from operations grew a massive 183% to reach $141.1 million, while operating profit spiked 79% to $145.4 million. In fact, GeoPark set a new net profit record, with $1.24 earnings per share.

However, on top of its excellent business metrics, GeoPark also excels when it comes to shareholder returns. The firm has repurchased more than 3% of its total shares outstanding since November 2021 and renewed its commitment to buy back up to 10% of the company’s stock until December 2023.

Looking forward, GPRK believes it has the ability to self-fund a capital expenditure program that will result in the drilling of 50 to 55 new wells across its portfolio, with enough adjusted EBITDA to give back up to 50% of its free cash flows to investors.

In fact, with a net leverage of 0.8x – and a reduction in gross debt of $275 million since April 2021 – GeoPark has proved its credentials as a well-run enterprise. Factor in that 60% upside, and this is one oil and gas play you don’t want to pass up.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.