GeoPark Limited (GPRK)

Executive Summary / Key Takeaways

• Vaca Muerta transforms GeoPark from a single-country operator into a regional powerhouse: The $115 million acquisition of 100% operated interest in two Vaca Muerta blocks adds 37 million barrels of 2P reserves and a clear path to 20,000 boepd by 2028, creating a second growth engine that management expects to contribute $300-350 million in additional EBITDA over the next 3-4 years.

• Parex Resources (PXT)'s $9/share offer reveals a massive valuation disconnect: GeoPark's board unanimously rejected the unsolicited bid as "failing to reflect growth prospects," demanding a double-digit starting point. With shares trading at $7.17 and the company generating 57% EBITDA margins while trading at just 2.63x EV/EBITDA, the market is pricing GPRK as if Vaca Muerta's 74.6 million barrels of reserves and significant production growth to over 15,000 boepd since announcement don't exist.

• Colombia's cash generation provides a fortress balance sheet for the transition: Q3 2025 production of 28,136 boepd exceeded guidance with operating costs at $12.5/bbl, generating $71.4 million in quarterly EBITDA at 57% margins. This operational excellence funds the Argentina ramp without diluting shareholders, with net leverage at 1.2x—well below the 1.5x target—and no material debt due until 2030.

• Execution risk is real but asymmetrically skewed to the upside: While Colombia's regulatory uncertainty and Vaca Muerta's infrastructure requirements present genuine challenges, GeoPark's 81% drilling success rate and proven ability to reduce well costs by 25-30% demonstrate operational de-risking. The 2026 work program targeting 44,000-46,000 boepd provides a clear catalyst path, with any success in Argentina likely to force a radical repricing given the current valuation gap.

Setting the Scene: From Colombian Specialist to Latin American Consolidator

GeoPark Limited, founded in 2002 and headquartered in Bogotá, Colombia, spent two decades building a reputation as one of Latin America's most efficient conventional oil operators. The company's strategy centered on acquiring underdeveloped onshore assets and applying disciplined operational expertise to extract maximum value from mature basins. This approach yielded an 81% drilling success rate—materially higher than regional peers—and drove operating costs down from $19/bbl in 2013 to $12.5/bbl in Q3 2025. Why does this matter? Because in a commodity business where price is uncontrollable, cost structure determines survival. GeoPark's ability to remain cash-flow positive at $25-30 Brent provides a durable competitive moat that peers like Gran Tierra Energy (GTE), with negative operating margins and higher debt loads, simply cannot match.

The Latin American E&P landscape is bifurcating. State-owned giants like Ecopetrol (EC) and Petrobras (PBR) dominate through scale and preferential access, while international majors retreat from onshore assets to focus on deepwater and shale. This creates a vacuum that nimble independents can exploit—if they have the operational chops and financial discipline. GeoPark's multi-country diversification across Colombia, Argentina, Brazil, Chile, and Ecuador provides a hedge against single-market political risk that Colombia-focused peers like Parex Resources lack. Yet until recently, the company remained tethered to its Colombian roots, with over 60% of production concentrated in the Llanos Basin.

The strategic inflection point arrived on September 25, 2025, when GeoPark announced its entry into Argentina's Vaca Muerta formation. This wasn't a toe-dip into unconventional resources—it was a transformative leap. The $115 million acquisition of 100% operated interest in the Loma Jarillosa Este and Puesto Silva Oeste blocks (effective July 1, 2024, closed October 16, 2025) added 37 million barrels of 2P reserves overnight, extending the company's reserve life index to 12.7 years. More importantly, it positioned GeoPark in what management calls "one of the world's most promising unconventional basins," where only 10% of the play has been developed. The implication is stark: GeoPark is no longer a Colombian E&P company with peripheral assets. It is now a regional player with exposure to both stable conventional cash flows and high-growth unconventional upside.

Technology, Operations, and Strategic Differentiation: The Two-Engine Model

GeoPark's new strategic plan, unveiled on October 21, 2025, is built on two clear priorities: "sustaining a resilient and high-margin base in Colombia" while "rapidly scaling a transformational platform in Argentina." This two-engine approach addresses the classic E&P dilemma: mature assets generate cash but decline, while growth assets require capital and carry execution risk. The genius of the strategy lies in the sequencing—using Colombia's free cash flow to fund Argentina's ramp without external dilution.

Colombia: The Cash Generation Machine

The Colombian operations are not in harvest mode; they are being actively optimized. Llanos 34, GeoPark's flagship block (45% WI, 16,953 boepd net in Q3), demonstrates this through enhanced recovery techniques. Waterflooding contributed 5,698 boepd gross in Q3, surpassing plan by 14%, while a workover campaign on 18 wells delivered 2,250 boepd gross. This is significant because base decline rates in mature fields typically run 15-20% annually. GeoPark's ability to offset decline through operational interventions preserves cash generation without requiring new exploration capital. The polymer injection project starting in late 2025 could further boost recovery, with phased implementation designed to mitigate subsurface uncertainty risks.

CPO-5 (30% WI, non-operated) delivered 7,075 bopd net in Q3, up 16% quarter-over-quarter due to strong performance at the Indico field. This non-operated position provides diversification while requiring minimal capital. Llanos 123 (50% WI) achieved 2,180 boepd net, with the Currucutu-1 well stabilizing at 400 bopd and Toritos Sur-3 testing 1,700 bopd combined from two formations. The additional ~18 million barrels of risked reserves pending certification across Llanos 34 and 123 provide visible upside to the asset base.

Operating costs at $12.5/bbl in Q3, within the $12-14 guidance range, reflect the benefits of scale and operational efficiency. This cost structure is 30-40% lower than typical North American unconventional plays and provides a buffer against oil price volatility. The 57% EBITDA margin in Q3 demonstrates the quality of these assets—generating $71.4 million in quarterly EBITDA from $125.1 million in revenue. For context, Vista Energy (VIST), a pure-play Vaca Muerta operator, trades at 5.73x EV/EBITDA despite having higher operating costs and greater Argentina concentration risk.

Argentina: The Growth Option

Vaca Muerta represents a call option on unconventional scale. The acquired blocks were producing 1,700-2,000 boepd (95% oil) at acquisition announcement, and had already grown 50% to over 15,000 boepd gross by Q4 2024. Q3 2025 production averaged 1,660 boepd, with management planning to install artificial lift and reduce trucking costs by $200,000 per month to reach 1,600-1,700 boepd soon. The path to 20,000 boepd by 2028 involves drilling 50-55 additional wells across 15 pads with $500-600 million in investment through 2028.

The significance of this lies in the upfront capital being largely funded by Colombian cash flow, coupled with a compelling returns profile. Because the upfront capital is largely funded by Colombian cash flow, and the returns profile is compelling. The blocks hold over 60 million gross barrels of recoverable resources, implying a resource acquisition cost of less than $2/barrel. At $70 Brent, this translates to multi-hundred percent IRRs if execution matches plan. The 2026 CapEx budget of $50-70 million for Vaca Muerta is fully funded through existing credit lines and potential Argentine debt issuance, requiring no equity dilution.

The operational de-risking is evident. Martin Terrado, COO, noted that permits for new pads and a central processing facility typically take 3-6 months in Argentina due to public consultations. GeoPark expects permits by Q1 2026, with infrastructure ready by early 2027. This timeline, while aggressive, is backed by the company's experience in navigating Latin American regulatory environments. The 2026 work program targeting 44,000-46,000 boepd consolidated production (up from 28,000 boepd in 2025) embeds early Vaca Muerta contributions of 2,500-4,000 boepd, providing a clear catalyst for investors.

Financial Performance: Evidence of Strategy Working

Q3 2025 results validate the two-engine thesis. Consolidated production of 28,136 boepd exceeded 2025 guidance, up nearly 3% quarter-over-quarter despite the divestiture of non-core assets earlier in the year. Adjusted EBITDA of $71.4 million at 57% margins remained stable, demonstrating that portfolio optimization didn't sacrifice profitability. Net income of $15.9 million improved from a $10.3 million loss in Q2 (which included a non-recurring Ecuador impairment), with underlying profitability of $23.4 million after adjusting for exploration write-offs.

The balance sheet provides strategic flexibility. Q3 ended with $197 million in cash and 1.2x net leverage, well below the 1.5x target. GeoPark repurchased $108 million of its 2030 notes below par in Q3, generating $9.5 million in annual interest savings. This debt retirement, combined with the $54.5 million repurchased in Q2, demonstrates management's confidence in cash generation and reduces future interest burden. With no material debt due until 2030, refinancing risk is eliminated.

Capital allocation discipline is evident. The company divested its interest in the Llanos 32 block and Manati gas field in Q1 2025, followed by Ecuador's Perico and Espejo blocks in Q2. These divestitures streamlined the portfolio and freed capital for higher-return Vaca Muerta investment. The $115 million acquisition price, funded from cash and credit facilities, represents less than 1.6x the pro forma annual EBITDA contribution of $70-75 million from Vaca Muerta at plateau production.

Outlook and Guidance: The Path to 2030

Management's 2026 work program, announced December 1, 2025, provides unprecedented visibility. Production guidance of 44,000-46,000 boepd implies 60% growth from 2025's midpoint, driven by 72 gross wells (55 in Colombia, 17 in Argentina). CapEx of $190-220 million will be funded through internal cash generation and available facilities, with year-end 2026 cash projected at $130-140 million and leverage at 1.9-2.1x. While leverage will temporarily increase, it is projected to decline below 1.5x by 2028 as Vaca Muerta cash flows ramp.

The long-term strategic plan targets 42,000-46,000 boepd production, $520-550 million Adjusted EBITDA, and 0.8-1.0x net leverage by 2030. This implies EBITDA nearly doubling from current levels, driven by Vaca Muerta's $300-350 million incremental contribution. The 2030 targets embed conservative assumptions: $60-70 Brent, stable Colombian production, and Vaca Muerta reaching 20,000 boepd by 2028. The plan's achievability is enhanced by GeoPark's hedging program covering 9,000 boepd in H1 2026 and 8,000 boepd in H2 2026, providing price protection during the investment phase.

This valuation matters because the market appears to be pricing GeoPark as if these targets are fantasy. At $7.17 per share, the $370 million market cap plus $400 million net debt equals an enterprise value of $770 million—just 2.63x trailing EBITDA. Even if Vaca Muerta only delivers half its promised EBITDA, the combined entity would generate $100 million in annual free cash flow, implying a 27% FCF yield. For a company with no near-term debt maturities and a clear growth path, this valuation suggests either extreme skepticism or market inefficiency.

Risks: What Could Break the Thesis

The investment thesis faces three material risks, each with specific mechanisms that could impair value.

Colombia Regulatory and Political Risk: The oil and gas sector faces "lots of uncertainty still" with potential policies of "no more exploration acreage being let to industry." While GeoPark's existing production contracts are grandfathered, any restriction on new exploration would limit long-term reserve replacement. Community blockades, like the 16-day CPO-5 shut-in during Q2 2025, demonstrate operational vulnerability. The risk mechanism is direct: reduced production availability increases per-unit costs and compresses margins. Mitigation comes from GeoPark's diversified asset base and strong community relations, but the risk remains elevated given Colombia's political shift toward environmental restrictions.

Vaca Muerta Execution Risk: The 20,000 boepd target requires flawless execution on three fronts: regulatory permits, infrastructure buildout, and well performance. Permitting delays beyond Q1 2026 could push first production into 2027, deferring cash flows and increasing capital carry costs. The $500-600 million development plan assumes well costs of $10-12 million per well—if inflation or parent-child interference reduces productivity, returns could disappoint. The risk mechanism is capital inefficiency: higher CapEx per barrel reduces project NPV and strains the balance sheet. GeoPark's 81% drilling success rate and proven cost reduction capabilities (25-30% well cost savings in Colombia) partially mitigate this, but unconventional execution is inherently riskier than conventional optimization.

Parex Resources Overhang: Parex's 11.8% ownership position and halted discussions create uncertainty. While management rejected the $9/share offer as undervaluing Vaca Muerta, Parex could accumulate shares to force a sale or proxy fight. The risk mechanism is strategic distraction: management time spent on defense rather than execution, or pressure to accelerate Vaca Muerta development beyond optimal pacing. GeoPark's adoption of a poison pill and clear communication that any credible engagement requires a double-digit proposal signals board resolve, but the overhang may depress valuation until resolved.

Competitive Context and Positioning

GeoPark's competitive moats are often overlooked but quantifiably superior to peers. The 81% drilling success rate compares to Gran Tierra's 60-70% and Frontera (FEC)'s variable rates, translating to 430% reserve replacement in 2025 versus sub-100% for most peers. This means GeoPark replaces reserves four times faster than it produces them, a critical advantage in a depletion business. Operating costs of $12.5/bbl are 30-40% lower than Vista Energy's unconventional breakevens, providing superior margin resilience if oil prices fall.

The multi-country diversification creates a portfolio effect that single-basin peers lack. While Parex Resources generates 100% of its production from Colombia's Llanos Basin, GeoPark's exposure to Argentina, Brazil, Chile, and Ecuador reduces single-market political risk. This matters because Colombian regulatory risk is non-trivial—GeoPark's ability to offset potential disruptions with Argentine growth provides strategic optionality that pure-play Colombia operators cannot replicate.

Technology differentiation exists in enhanced recovery. The polymer injection project starting in December 2025 at Llanos 34, while not revolutionary, demonstrates GeoPark's willingness to deploy proven technology to maximize recovery from mature assets. The phased implementation (2 wells initially, 9 in 2026, 30 patterns for full development) limits capital at risk while providing visible production upside. This contrasts with peers who often let mature fields decline naturally, sacrificing long-term value for short-term cash.

Valuation Context: The Double-Digit Disconnect

At $7.17 per share, GeoPark trades at a market capitalization of $370 million and an enterprise value of $770 million (including $400 million net debt). Key valuation metrics include:

• P/E ratio: 10.86x trailing earnings
• EV/EBITDA: 2.63x trailing EBITDA
• Price/Operating Cash Flow: 0.86x
• Price/Free Cash Flow: 1.11x
• Return on Equity: 16.85%
• Dividend Yield: 1.67% (quarterly dividend of $0.03/share)

These multiples are anomalous for a company with 57% EBITDA margins, no near-term debt maturities, and a clear path to double production by 2028. For comparison, Vista Energy trades at 5.73x EV/EBITDA despite higher costs and greater Argentina concentration. Gran Tierra trades at 2.90x EV/EBITDA but has negative operating margins and higher debt. GeoPark's valuation implies either a 60% probability of Vaca Muerta failure or a structural discount for Latin American exposure that ignores the company's proven execution.

The Parex offer provides a floor valuation reference. At $9/share, Parex valued GeoPark at $465 million equity value, or approximately $865 million enterprise value—still only 3.1x trailing EBITDA. Management's insistence on a double-digit starting point implies they believe fair value is at least $10-12/share, representing 40-67% upside from current levels. The fact that Parex accumulated an 11.8% position before halting discussions suggests they recognize value but are unwilling to pay for Vaca Muerta's growth option.

Conclusion: Asymmetric Risk-Reward at an Inflection Point

GeoPark stands at a strategic inflection point where a $115 million acquisition could redefine its valuation multiple. The Vaca Muerta entry transforms the company from a mature cash generator into a growth-oriented regional player, with a clear path to double production and nearly double EBITDA by 2028. The market's skepticism is evident in the 2.63x EV/EBITDA multiple, which prices the stock as if Vaca Muerta's 74.6 million barrels of reserves and $300-350 million EBITDA potential are worthless.

The investment thesis hinges on two variables: execution of the Vaca Muerta ramp and resolution of the Parex overhang. If GeoPark delivers even 75% of its 20,000 boepd target by 2028, the incremental cash flow would justify a valuation re-rating to 4-5x EV/EBITDA, implying 50-90% upside. The Colombia base business, with its 57% margins and 81% drilling success, provides downside protection through consistent cash generation and no near-term debt pressures.

The rejected Parex offer, rather than being a distraction, highlights the valuation disconnect. Management's confidence in demanding double-digits, backed by a fortress balance sheet and proven operational excellence, suggests they see value the market is missing. For investors willing to underwrite Latin American execution risk, GeoPark offers an asymmetric opportunity: limited downside given the cash-generative Colombian assets and clear valuation floor, with multi-bagger upside if Vaca Muerta delivers on its promise. The 2026 work program will be the first real test, but the pieces are in place for a fundamental repricing of this misunderstood regional champion.