GEOPARK LIMITED
Fitch Ratings has affirmed
Fitch has removed the ratings from Negative Watch and assigned a Stable Rating Outlook.
The ratings were removed from Negative Watch, as there is now less risk of nationalizing the asset or modifying Camisea's licensing agreement, which would have impacted HOCP's cash flow and credit profile. Given the unstable political environment, Fitch no longer deems this risk as imminent nor viable. The Stable Outlook, reflects Camisea's low cost of production, coupled with contracted volumes over the rated horizon.
Key Rating Drivers
Improved Regulatory Risk: The risk of nationalizing or amending Camisea's licensing agreement no longer appears viable, as doing so requires congressional approval. The political environment in
Strong Capital Structure: HOCP maintains strong credit metrics. As of
Competitive Structure Supports Cash Flow: HOCP's has a strong and predictable cash flow profile, supported by contracted volume and low cost of production. Fitch's estimates the company lifting costs to be below
Robust Operating Metrics: HOCP's operating metrics are strong for the rating category. Fitch estimates Camisea's reserve life to extend for more than 25 years; however, the license agreements for the development of blocks 88 and 56 expire in 2040 and 2044, respectively. As of
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 2017-2021 were modest, and Fitch expects HOCP's share on capex (related primarily to investments in compression equipment) 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 11% of cumulative EBITDA over the past three years). Although more levered than its regional peers, HOCP's capital structure is expected to remain below 2.5x 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. In this respect, it fares poorly relative to
Key Assumptions
Liquid prices linked to Fitch's WTI price deck at
Natural gas exports linked to Fitch's price deck for Henry-Hub (HH) at
Domestic natural gas price assumptions at an average of
Annual liquid production from blocks 56 and 88 averaging 24,800 Mbbl, with 55% concentrated in LPG (Propane and Butane), 41% concentrated in naphtha and the remaining portion allocated to MDBS;
Natural gas domestic sales in the range of 254 (BCF) during 2021, increasing to 265 (BCF) during 2022;
Natural gas exports in the range of 131 (BCF) during 2021, increasing to 299 (BCF) during 2022-2025;
Capex of
Dividend pay-outs at
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:
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 natural gas 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 estimated cash on hand of
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Issuer Profile
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.
RATING ACTIONS
Entity / Debt
Rating
Prior
LT IDR
BBB
Affirmed
BBB
LC LT IDR
BBB
Affirmed
BBB
senior unsecured
LT
BBB
Affirmed
BBB
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