NEW YORK--(BUSINESS WIRE)--GeoPark Latin America Limited Agencia en Chile (GeoPark) disclosed its updated reserves assessment as of year-end 2014, which showed growth in Proved (P1) hydrocarbon reserves of 52% year-over-year to 44.2 million barrels of oil equivalent (BOE), in line with Fitch expectations. This represents a positive improvement but still demonstrates that the company's reserve life is stretched at a relatively low six years. This low reserve life poses a long-term risk as the company pares back capital spending in order to preserve cash flow. Fitch believes that cutting capex over a prolonged period, though positive in terms of liquidity preservation, could compromise the company's long-term viability.
GeoPark's P1 reserves grew to 44.2 million BOE as of year-end 2014 from 29.1 million in 2013, driven mainly by 157% growth in Colombia, whose reserves now total more than half of the company's total reserves at 24.7 million. Reserve growth in Colombia is mainly related to field delineation and appraisal of the Tigana and Tua oil field in the Llanos 34 Block. Based on record production of 7.5 million BOE in 2014, this translates to a reserve life of roughly six years. On a total debt-to-proved reserve basis, the company's debt metrics look solid at USD8.2/BOE. Given GeoPark's early development stage, the debt-to-proved/developed reserves metric is the more appropriate metric to use in analyzing the company. This metric, based on 31% of P1 reserves developed, looks high at USD26/BOE. Fitch's analysis excludes the nearly 19 million in P1 reserves at the Morona Block located in northern Peru, which GeoPark had previously agreed to acquire and operate during 2015. With expectations of sustained low crude oil prices and a significant reduction in capex, Fitch does not expect crude oil production in Peru during 2015.
GeoPark's ratings reflect its small scale of production and relatively small reserve profile as well as its production concentration, in the face of depressed global oil prices. The company's Negative Outlook reflects expected pressure on the company's liquidity and credit profile. In Fitch's view, the company has sufficient liquidity to withstand a short-term oil price shock; however, if current prices continue and/or prices decline below USD45/bbl in the near term, GeoPark's profile could be significantly harmed long term.
Additional information is available at 'www.fitchratings.com'.