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Type of situation: Large buyback by cheap oil producer plus Dutch Tender Offer - 20% of shares to be bought back in 2024

Why look at this?

Geopark is a small but solidly profitable oil producer with the majority of its operations in Colombia. The company screens very cheap on comparison with peers which can be partly explained by its geographic focus and uncertainty around that. The weak oil price has also weighed on the share price. On March 6, the company announced a very significant buyback program of up to 20% of its shares outstanding in 2024, partly as an extension to its regular buyback program, partly through a modified Dutch Tender Offer.

Dutch Tender Offer Quick Info

A Dutch Tender or modified Dutch Tender is a tender offer in which a company offers to purchase back its own stock within a certain price range. The total amount that the company intends to spend on the buyback is usually fixed. The shareholders of the company can decide to tender their shares within the offer period and specify the lowest price that they will accept. Following this, the company purchases the maximum number of shares that were tendered up to the fixed amount. Shareholders that tender at a higher price run the risk of not getting filled if the tender offer is oversubscribed.

Perhaps important to note is that a Dutch Tender is an auction type in which a company buys something from you (shares) as opposed to a Dutch Auction, where one usually buys something (from a company). In a typical Dutch Auction, the auction process starts with a very high price and the auctioneer then counts down the price until someone steps in to accept a price. This is opposed to the “classic” auction process that starts with a low price that can then be bid up.

Metrics of GPRK’s tender offer

Anyway, in this instance the price corridor will be set between $9-10/share for an aggregate amount of $50m (market cap at around $500m post announcement) and will begin sometime before the end of March and last for about 20 days. Perhaps interestingly for smaller shareholders is that often, companies will include an odd-lot provision for tendering fewer than 100 shares which excludes smaller shareholders from proration in case the offer is oversubscribed. Given the low share price, this is not quite relevant, though.

GPRK plans to announce the specifics of the tender offer sometime later this month with all details.

Continuation of regular buyback program

Geopark last year bought back 3.1m shares / 5.5% of all shares outstanding and announced in its FY2023 preliminary results that is was planning to purchase back an additional 10% of shares until December 2024. This is on top of the 10% buyback that GPRK plans to buyback through the above mentioned Dutch Tender offer, bringing the total of planned share retirement to 20% for the full year. This additional significant buyback program should support the share price and with this backdrop, it is not unlikely that the Dutch Tender will be undersubscribed.

GeoPark Ltd.

Geopark is a small ($500m market cap) oil producer founded in 2002 with the majority of its operations in Colombia and additional activities in Chile, Brazil, Peru, Argentina and Ecuador. 90% of the company’s production is cash flow positive at $25-30/bbl Brent. The company has hedged its complete 2024 production with a lower floor of $65/bbl Brent (with an upward ceiling of $92-99/bbl Brent). The company currently has net debt of $368m (0.8x EBITDA) and has been paying down debt in recent years.  

Shares (trading around $9/share) also trade at significant discount to its reserves at $15/share for 1P NAV and $26/share for 2P NAV.

Geopark last year repurchased 5.5% of shares and paid a 6% dividend yield, bringing the company’s capital return yield to 13% over the year by paying out 40-50% of FCF (based on December ‘23 market cap).

Geopark’s largest shareholder is the company’s founder, James Franklin Park who holds 15% of shares outstanding. Further shareholders include CapFinancial Partner LLC (8.2%), GPK Holdings LLC (6.1%) and Compass Group (5.9%).