Oilman Jim's Letter - 15 May 2024

GeoPark (GPRK) announced that it has signed an asset purchase agreement with Phoenix Global Resources, a subsidiary of Mercuria Energy Trading, for the acquisition of non-operated working interest in four adjacent unconventional blocks in the Neuquén Basin in Argentina. A 45% working interest is being acquired in each of the Mata Mora Norte producing block and Mata Mora Sur exploration block, located in Neuquén Province, and a 50% working interest in each of the Confluencia Norte and Confluencia Sur exploration blocks, located in Rio Negro Province. The Vaca Muerta shale formation is said to be the best onshore hydrocarbons play in Latin America today. It holds an estimated 16 billion barrels of oil and 300+ trillion cubic feet of unconventional gas resources with less than 10% developed to date. Oil production from Vaca Muerta has grown almost 4x since 2019 to 352,715 barrels of oil per day. It is currently contributing 50% of Argentina’s total oil production and has the potential to triple again over the next six years. Vaca Muerta has been significantly de-risked since 2009 with the drilling of almost 7,000 exploration and development wells. The new assets will increase GeoPark’s 2024 production by an estimated 5,500-6,500 net barrels of oil equivalent per day, subject to when the closing date of the transaction occurs. Approximately 150 more gross drilling locations have been identified for the full development of the Mata Mora Norte Block. Under the agreed indicative development program, production from the Mata Mora Norte Block is expected to reach approximately 40,000 gross barrels of oil equivalent per day by 2028. The Mata Mora Norte Block is expected to generate net adjusted EBITDA of $90-100 million in full year 2024. At expected plateau production of 40,000 gross barrels of oil equivalent per day in 2028-2030, the assets are expected to contribute $290-295 million of EBITDA to GeoPark at a $70/barrel Brent oil price. GeoPark will pay $190 million for a total of 122,315 gross acres (58,402 net acres). In addition to the upfront consideration, GeoPark will fund 100% of exploratory commitments up to $113 million gross ($57 million of net carry), to be funded over two years, an acquisition of midstream capacity according to the WI of $11 million, and a $10 million bonus contingent on results in the Confluencia exploration campaign. The transaction is expected to close before the end of 3Q2024. Andrés Ocampo, Chief Executive Officer, describes the transaction as transformational for GeoPark.

New Stratus Energy (NSE.V RDRIF) announced that it has entered into definitive agreements with an arm’s-length vendor for the acquisition of an initial 49% equity interest in Operaciones Petroleras Soledad, a private Mexican oil & gas company, with the exclusive right for NSE to negotiate the purchase up to an additional 41% of the equity interest. OPS is the third-party contractor and operator of a hydrocarbons production contract awarded by Pemex Exploracion y Produccion, a subsidiary of Petroleos Mexicanos, the Mexican national oil company, on the Soledad block located in the State of Veracruz in eastern Mexico. NSE is paying $2 million for the initial 49% tranche and has agreed to fund capital expenditure requirements under the production contract. The maximum capital exposure of NSE under the facility at any point in time will be approximately $12.5 million. Soledad Block proved reserves are estimated at 43.3 million barrels of oil equivalent and gross production is approximately 1,430 barrels of oil equivalent per day. NSE will have a right of first refusal to negotiate the second tranche of the acquisition.

i3 Energy (I3E.L ITEEF ITE.TO) announced its operating and financial results for the three months ended 31 March 2024. Free cash flow for Q1 2024 was $15.0 million compared to $9.9 million for the same 2023 period. Highlights of the quarter were a new C$75 million reserve-based senior secured credit facility with the National Bank of Canada, comprised of a C$55 million revolving facility and a C$20 million operating loan facility, repayment of approximately C$57 million, representing the outstanding balance of i3 Energy's existing C$75 million loan facility with Trafigura, and average Q1 2024 production of 19,410 barrels of oil equivalent per day. Dividends of £3.084 million ($3.911 million) were declared and paid in Q1 2024. Post quarter-end, i3 entered into a definitive agreement to sell most of the company's royalty assets for a total gross cash consideration of $24.81 million (C$33.50 million). As at 31 March 2024, i3 had Net Debt of $21.0 million, which was eliminated at the close of the royalty disposition. The company says it is set up for a busy operational period for the second half of the year, during which it will drill a diversified inventory of drilling locations across its Canadian portfolio, designed to grow production and advance development of key assets.

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