AnnuAl report 2011 eXecutIon rISk mAnAgement creAtIng opportunItIeS commItment CONTENTS 2 letter to Shareholders 6 Year in review 54 Directors’ report 59 corporate governance 62 Directors’ remuneration report 64 Statement of Directors’ responsibilities 65 Independent Auditors’ report 66 consolidated Statement of Income 66 consolidated Statement of comprehensive Income 67 consolidated Statement of Financial position 68 consolidated Statement of changes in equity 69 consolidated Statement of cash Flow 70 notes to the consolidated Financial Statements 92 Directors, Secretary & Advisors BOTTOM LINE Oil and Gas Production Oil and Gas Reserves 8 50 7 40 6 5 30 4 20 3 2 10 1 Average Daily Production (Mboe/d) 0 In MMboe 0 2006 2007 2008 2009 2010 2011 2006 2008 2009 2010 2011 Oil and Condensate Gas 2P Gas 2P Oil Oil Production Gas Production Total Revenues EBITDA 120 65,000 60,000 100 55,000 80 50,000 70 45,000 40,000 60 35,000 50 30,000 25,000 40 20,000 30 15,000 20 10,000 5,000 10 0 In Thousand of US$ In MM US$ 0 -5,000 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 Oil and Condensate Gas Dear Shareholders, For geopark, 2011 was again a year of delivery and growth – with our • Strategic Expansion: Asset portfolio was expanded by: sixth consecutive year of key performance improvements. Importantly, - Award of three new high potential hydrocarbon blocks in tierra del we progressed with new project acquisitions to expand our asset Fuego, chile; portfolio and set the foundation for step-change growth in 2012 with - entry by lg International (“lgI”) into geopark’s chile business via its a significant new investment programme. acquisition of a 20% interest; - Acquisition of two oil and gas exploration and production companies 2011 results in colombia, with interests in ten hydrocarbon blocks, during the First Quarter 2012. key developments included: • Organisational Strengthening: new experienced professionals • Operational Improvements: oil production increased 27% with a 9% joined the company and Board to bring further depth and structure to increase in total oil and gas production. results were led by the drill bit our technical and management capabilities. with eighteen successful wells recorded out of twenty-five wells drilled. (current production is approximately 12,000 boepd.) chile continued to be our principal area of focus where geopark has established itself as the first and only private oil and gas producer – • Financial Growth: revenues grew 40%, adjusted eBItDA increased today accounting for over 35% of chile’s total hydrocarbon 54%, net income increased 21% and year-end cash resources grew to production. our large acreage position in chile, with over 3.5 million uS$ 202 million. gross acres, contains a broad inventory of attractive production, 2 letter to Shareholders letter to ShAreholDerS development, high-impact exploration opportunities and high two acquisitions in colombia, completed in the First Quarter 2012, potential unconventional resources. As the only oecD country in latin created an attractive growth platform with a balanced mix of America, chile continues to provide an attractive base for investment production, development and exploration assets including: and an ideal platform for expansion throughout latin America. • Interests in 10 blocks (ranging from 5% to 100%) located in the llanos, lg International growth partnership magdalena and catatumbo basins, covering an area of approximately 220,000 gross acres, and with operatorship of four of the blocks. geopark and lgI cemented its strategic alliance by lgI acquiring a • crude oil production of approximately 2,800 barrels per day 20% interest in geopark’s chile business for uS$ 148 million in two (bopd) from three blocks and 2p oil reserves of approximately separate transactions. these transactions demonstrated the 10 million barrels. underlying value of the business geopark has built in chile and also • prospective oil resources (unrisked) in excess of 25 million barrels. lgI’s long-term commitment to our partnership to expand together • An active and on-going exploration and development drilling by building a portfolio of upstream assets throughout latin America. programme with a successful colombian operating and administrative team to support a smooth transition and start-up colombia Acquisitions by geopark in colombia. After proving our ability to convert under-performing projects into productive and economically attractive oil and gas assets, geopark successfully laid the groundwork for and initiated new project acquisitions to expand into new regions. letter to Shareholders 3 letter to ShAreholDerS 4 letter to Shareholders 2012 outlook Aided by our multi-year record of growth, geopark is strongly geopark has been able to develop a culture of continuous positioned for 2012 and beyond with attractive assets in chile, improvement, and, as we grow, efforts and adjustments are colombia and Argentina and secure cash flow streams. with continuously made to effectively manage our increasing scale and substantial cash reserves and the continuing support of partners scope. It is a vital and welcome challenge to successfully introduce and shareholders, we plan to accelerate capital investment on our the tools and structure necessary to run a larger company while properties and acquire new projects. we have an aggressive still maintaining and encouraging the original pioneering spirit and risk-balanced work programme, which provides a steady growth ideals which led us to be where we are today. platform and exposure to big growth opportunities. our technical and management team are built for expansion and ready to handle we express admiration for the geopark team for its important the increased activity. our low operating costs and discretionary achievements over the years and for an organisation which investment programme provide flexibility and security even continuously takes on new responsibilities and challenges to help in widely varying oil and gas price environments. make geopark better every day. we recognise and appreciate our team’s commitment to excelling in all that we do and in never For 2012, geopark has embarked on a uS$ 220-240 million capital giving-up. their professionalism, trust and kindness have made investment programmes (approximately uS$ 350 million including “working in the geopark way” mean something unique. new acquisitions) organised around the following priorities: we also express our gratitude to our investors and shareholders • Execute to Grow: Drill 45-55 new wells to increase oil and gas for your continued support during 2011 and look forward production by 80-100% and grow oil and gas reserves; and increase with confidence to continuing to deliver and grow value in 2012 operating and investment efficiency to improve economic and beyond. performance. • Manage Risk: continue to balance production profile between oil and gas; spread work programme exposure between production, development and high-impact exploration projects; expand funding Gerald E. O’Shaughnessy, exposure and capital sources; strengthen management and chairman technical team; expand country footprint; and farm-out higher risk / non-core areas. • Expand the Business: Increase our portfolio of organic growth opportunities on existing properties and acquire new projects in latin America – targeting projects with proven reserves and James F. Park, production and with development and exploration upside. chief executive officer • Strengthen Commitment: continue to build the right kind of company – with a performance-driven culture, which values and protects our shareholders, employees, environment and communities and thereby supports and enhances our long-term business plan. letter to Shareholders 5 2011 PERFORMANCE Key Operational Results Key Financial Results Key Strategic Results 8 • Oil Production Up 27%: Average • Revenues Up 40%: Total revenues • Entry by LGI into the Chilean oil production increased 27% to increased to US$ 111.6 million, Business: LGI acquired a 20% equity 2,510 bopd; total average oil and gas led by 52% increase in oil revenues to interest in GeoPark’s Chilean business production increased 9% to US$ 73.5 million. for a consideration of US$ 148 million. 7,593 boepd in 2011. Also committed to provide US$ 31.6 7 • EBITDA Up 54%: Adjusted EBITDA million over the next three years in • 72% Drilling Success: 18 wells drilled, increased to US$ 63.4 million. Cash flow Tierra del Fuego licences. completed and placed into production. from operating activities increased 106% year-on-year to US$ 63.8 million. • Three New High Potential Blocks Oil • 100% Reserve Replacement: in Tierra del Fuego: GeoPark signed DeGolyer and McNaughton certified 2P • Netbacks Up 40%: Netbacks increased three participation agreements with 6 reserves increase of 6% to 49.5 mmboe to US$ 22.90 per boe produced. ENAP to acquire the Campanario, and 3P reserves of 107 mmboe. Net Flamenco and Isla Norte blocks Present Value of 2P reserves was • Net Income Up 21%: Net Income covering 460,000 acres in Tierra del assessed to be US$ 852 million and 3P increased to US$ 5.1 million. Fuego, Chile. reserves to be US$ 1,418 million. • Capital Expenditures Up 70%: • Acquisition of Ten Block Colombia • Fell Block Conversion to Capital expenditures increased Platform: In first quarter 2012, 5 Exploitation Phase: 84% of the total to US$ 98.7 million due to increased GeoPark acquired Winchester Luna area was converted into an exploitation drilling activity on the Fell and and Hupecol – privately-held companies phase valid up to 2032. (GeoPark Tranquilo Blocks in Chile. in Colombia. GeoPark acquired ten exceeded the minimum investment exploration and production blocks for a commitment by over 75 times.) • Shareholders Equity Up 126%: total consideration of US$ 105 million. Equity increased by US$ 116.6 million 4 • Seismic Operations: In Tranquilo and to US$ 208.9 million as a result of the • Gas Purchase and Incentive Agree- Otway Blocks completed 293 km of 2D transaction with LGI and improved ment: New commercial agreement with seismic and 165 sq km of 3D seismic.