GEOPARK LIMITED
Fitch Ratings has assigned a 'BBB' rating to
The proceeds of the notes will be used to refinance existing indebtedness and other general corporate purposes.
HOCP's ratings reflect the company's solid capital structure reflected in its solid credit metrics. The ratings incorporate the company's manageable capex investment plan required to maintain the reserve life of blocks 88 and 56 due to the nature of the fields and amounts invested in the past. The ample reserve life of Camisea's blocks 88 and 56 and steady production levels at a low production cost, support the company's strong cash flow generation.
Key Rating Drivers
Proposed Issuance: HOCP will use the bond proceeds and cash available to repurchase all of its senior secured bonds due in 2028. The notes have an outstanding balance of
Strong Capital Structure: HOCP maintains strong credit metrics. As of LTM
Predictable Cash Flow Profile: HOCP's cash flows are supported by contracted volume and low cost of production, as all processed natural gas (NG) from Block 56 and Block 57 and small quantities of processed NG from Block 88 are sold under take-or-pay sales agreements that expire in 2028. Fitch estimates Camisea's reserve life to extend for more than 20 years; however, the license agreements for the development of blocks 88 and 56 expire in 2040 and 2044, respectively. As of
Strategic Asset in the Country: HOCP's ratings incorporate Camisea's strategic importance for
Manageable Capex Plan: HOCP's capex budget is flexible, given its strong reserve base and low decline rate. Significant amounts of capex have already been invested to develop blocks 56 and 88. Investments in 2017-2022 were modest. Given the size of the reserves, the characteristics of the field reflected in the richness of the land with a relatively low decline rate, and the sub-exploitation of the wells, no significant capex is required to maintain Camisea's reserve life and production levels. Fitch estimates HOCP's share on capex to reach approximately
Weak Linkage with Parent Company: Although HOCP's ratings are based on its individual credit risk profile, the analysis considers a weak legal and operational link to its parent company
Derivation Summary
HOCP's rating relative to peers is supported principally by its strong asset base and manageable investment requirements (approximately 8% of cumulative EBITDA over the past three years). HOCP's capital structure is expected to remain at or below 1.0x over the rating horizon. Comparatively, Fitch estimates investment requirements for
HOCP's 25.2% share of the Camisea reserves, combined with its single-asset exposure, puts its asset risk profile in line with the 'B' and 'BB' categories. However, this is mitigated by Camisea's abundant reserves of approximately 7.2 TCF of wet gas and a reserve life of approximately 20 years. Comparatively,
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Liquid prices linked to Fitch's WTI price deck at
NG exports linked to Fitch's price deck for Henry-Hub (HH) at
Domestic average NG price assumptions at
Annual liquid production from blocks 56 and 88 averaging 25,000 Mbbl, with 55% concentrated in LPG (Propane and Butane), 40% concentrated in naphtha and the remaining portion allocated to MDBS;
NG domestic sales average 270 (BCF) between 2023-2026;
Annual capex of
Dividend pay-outs adjusted to leave a cash position of approximately
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Although a positive rating action is not expected, possible upgrade sensitivity could include material diversification by HOCP, away from its single asset exposure.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A multi-notch downgrade of
Changes in regulation or otherwise political intervention that could materially impact the company's ability to generate robust cash flows;
Steep decrease in crude oil prices coupled with a significant deterioration in production levels and NG and NGL demand;
Leverage increasing on a sustained basis above 3.0x and/or debt service coverage falling below 2.0x.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: HOCP presents an adequate liquidity position to be able to support its ongoing capex requirements. Its liquidity position is supported by healthy cash flow generation and cash on hand of
The new notes will have a manageable amortization schedule, as they start amortizing in 2029 in 10 equal semi-annual payments through 2033.
Issuer Profile
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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