GeoPark Limited: Issuing U.S.$550,000,000 8.750% Senior Notes Due 2030

GeoPark Limited (NYSE: GPRK), a leading independent Latin American oil and gas explorer, operator, and consolidator, recently announced the pricing of a U.S.$550,000,000 aggregate principal amount of 8.750% senior notes due 2030. The issue price for the Notes is 101.875%, and the yield to maturity is 8.750%. The Notes were offered in a private placement to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, and outside the United States to non-U.S. persons in accordance with Regulation S under the Securities Act. The Notes will be fully and unconditionally guaranteed jointly and severally by GeoPark Chile SpA and GeoPark Colombia S.L.U. The settlement of the Notes offering is expected to take place on January 17, 2020, subject to customary closing conditions.

The net proceeds from the Notes offering will be used by the Company to pay the purchase price in connection with the previously announced acquisition by the Company of Amerisur Resources Plc. (the "Amerisur Acquisition") and for general corporate purposes, including capital expenditures. On January 14, 2020, the Amerisur Acquisition was approved by the UK courts without condition. No other regulatory conditions must be satisfied before consummating the acquisition.



The high yield of 8.750% on the Notes indicates that investors are demanding a higher return to compensate for the perceived risk of investing in GeoPark's Notes. This higher yield translates to a higher cost of capital for the company, which could impact GeoPark's overall cost of financing and potentially reduce its net income. The high yield could also impact GeoPark's future earnings in a couple of ways:

1. Interest Expense: The higher yield means that GeoPark will have to pay more in interest expenses on the Notes. This increased interest expense could reduce the company's net income and, consequently, its earnings per share (EPS). For instance, if GeoPark issues $550 million in Notes with an 8.750% yield, the annual interest expense would be approximately $47.1875 million, which would directly impact the company's earnings.
2. Potential Dilution: If GeoPark uses the proceeds from the Notes offering to issue new shares, it could lead to dilution, reducing the earnings per share for existing shareholders. However, the press release does not mention any plans to issue new shares, so this is not a direct implication from the given information.

The 2030 maturity date of the Notes influences GeoPark's long-term debt management strategy and cash flow projections in several ways:

1. Debt Maturity Profile: The 2030 maturity date extends GeoPark's debt maturity profile, providing the company with more time to manage its debt obligations. This allows GeoPark to plan its cash flows more effectively over a longer period, reducing the risk of liquidity crises.
2. Interest Payments: The 8.750% interest rate on the Notes means that GeoPark will have to make regular interest payments until 2030. These payments will impact the company's cash flow, but the extended maturity date allows GeoPark to spread these payments out over a longer period, reducing the immediate strain on cash flow.
3. Refinancing Risk: The 2030 maturity date reduces the risk of refinancing in the near term. If GeoPark had issued debt with a shorter maturity, it would have had to refinance the debt sooner, potentially at higher interest rates if market conditions had deteriorated.
4. Flexibility in Capital Expenditures: With the extended maturity date, GeoPark has more flexibility in planning its capital expenditures. It can allocate more funds to exploration and development activities, which are crucial for the company's growth, without being constrained by immediate debt repayment obligations.
5. Potential Impact on Credit Ratings: The extension of the maturity date could potentially improve GeoPark's credit ratings, as it demonstrates the company's ability to manage its debt obligations over a longer period. This could make it easier and less expensive for GeoPark to access capital markets in the future.

In conclusion, the issuance of U.S.$550,000,000 aggregate principal amount of 8.750% senior notes due 2030 by GeoPark Limited impacts its capital structure, cost of capital, and future earnings. The high yield on the Notes increases the company's cost of capital and could impact its future earnings through increased interest expenses and potential dilution. The 2030 maturity date influences GeoPark's long-term debt management strategy and cash flow projections by extending its debt maturity profile, reducing refinancing risk, and providing more flexibility in capital expenditures.