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| Tranquilo and Otway UJVs |
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| Summary of Proposed Investment |
| This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
| Project number | 28614 |
| Company name | Geopark UJV |
| Country |
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| Sector | Oil and Gas Exploration |
| Environmental category | B |
| Department | Gbl Infrastructure & Natural Resources |
| Status | Active |
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| Date SPI disclosed | November 25, 2009 |
| Projected board date | December 28, 2009 |
| Previous Events | Invested: June 3, 2011
Signed: May 15, 2011
Approved: January 6, 2010 |
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| View Environmental & Social Review Summary (ESRS), click here |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
| GeoPark Holdings Limited (“GeoPark” or the “Company”) has invited IFC to consider an equity investment as an unincorporated joint venture (“UJV”) partner for up to 15% working interest in the Tranquilo and Otway exploration blocks, located in the Austral basin of the Magallanes and Antarctica Chilena region in southern Chile. GeoPark, through its wholly owned subsidiary GeoPark Magallanes Limitada (“GeoPark Magallanes”), holds 30.0% and 33.6% in Tranquilo and Otway blocks, respectively. GeoPark Magallanes is the operator of both blocks. |
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| Project sponsor and major shareholders of project company |
GeoPark is a junior exploration and production (“E&P”) company, established in 2002 and headquartered in Buenos Aires, Argentina, with producing assets in both Argentina and Chile. It is listed on the AIM market of the London Stock Exchange. The Company founders, Gerald E. O’Shaughnessy and James F. Park (through Energy Holdings LLC) hold 20.96% and 18.45% respectively. Other shareholders include a private investment company Schroder Investment Management (10.96%) and IFC (8.3%). The largest shareholder below 5% is a Chilean fund Moneda Asset Management that holds 4.17%.
Current participation in the two exploration blocks, Tranquilo and Otway, is as follows:
Tranquilo Block: GeoPark Magallanes (30%), Pluspetrol Corporation of Argentina (30%), IPR Energy of USA (20%), and Manas Petroleum of Switzerland (20%);
Otway Block: GeoPark Chile (33.6%), Wintershall of Germany (33.6%), Pluspetrol (20%), and Methanex Corporation of Canada (12.8%). |
| Total project cost and amount and nature of IFC's investment |
| Total project cost is estimated to be $91 million and includes commitments for a seven-year exploration phase in both blocks. IFC is considering becoming a partner in both blocks for a total investment of up to $20 million. |
| Location of project and description of site |
The location of exploration blocks is as follows:
Tranquilo block (6,648 km²) – onshore southern Chile (sparsely populated area)
Otway block (5,965 km²) – onshore and offshore southern Chile (sparsely populated area) |
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| Anticipated development impact of the project |
Fit with World Bank Group Strategy
The World Bank Group’s (“WBG”) 2007-2010 Country Partnership Strategy for Chile has been developed to meet the changing needs of a globally integrated middle-income country and assist the country in its efforts to (i) accelerate sustainable growth and (ii) increase equality of opportunity. While Chile has not been reliant on World Bank financing given its strong financial position in recent years and investment grade status, the Government of Chile (“GoC”) values continued World Bank engagement as a knowledge partner. Within the integrated WBG strategy, IFC continues to focus on areas where it can support the GoC in its development objectives of encouraging growth and competitiveness, with emphasis on projects with strong demonstration effect in sectors identified as high priority by GoC, including, increasingly, energy and gas development. In the oil and gas sector, IFC aims to provide long term strategic support to companies that seek to attain international standards in their operations, including environmental and social practices, and help the countries of their operation develop domestic natural resources in a sustainable manner.
Development Impact
The Government of Chile has set up a priority of developing the country’s energy resources and the public tender in 2007 of ten blocks was a significant step in this process, as well as in the Government’s aim to achieve greater energy security. IFC’s investment in this initial exploration stage will help signal to the private sector the importance of development in this region. If the Project progresses successfully to commercial production it is expected to have the following development impacts:
Increased development of domestic sources of energy. If the joint venture is successful in its exploration efforts, the Project will help support the Government’s objective to both increase and diversify its domestic energy sources and suppliers. It will help maximize the use of local natural resources, in particular through exploration and potentially development of natural gas, a cleaner source of fuel, and potentially contribute to development of local industries and downstream activities.
Employment and local community development. Outside of Punta Arenas, the capital of the Magallanes and Antártica Chilena region, employment opportunities are rather limited. If successful, the Project is expected to help sustain and generate additional employment opportunities in the area. The UJV partners are expected to benefit from GeoPark’s knowledge of the region’s socioeconomic condition, given that the company’s Fell block is located in the same region.
Benefits to the government. The GoC is expected to benefit from fiscal receipts, such as hydrocarbon production share in the form of royalties and corporate taxes, generated by the Project. The Contracts state that the operator will pay 17% income tax if the funds are re-invested in the Project, and 35% income tax if there is no re-investment or if funds are repatriated abroad.
Local and regional spending. The Project is expected to contribute to increased local and regional spending as the majority of oilfield services and operational supplies are expected to be procured locally and regionally.
The following development outcome indicators will be monitored on an ongoing basis during the exploration phase: (i) investment and work commitments; (ii) discovery of hydrocarbons that can be commercially developed. |
| Governance risks assessment |
| If the Project progresses to commercial production, it is expected to generate development benefits through payments to the Government of Chile in the form of royalties and taxes. In evaluating this investment, IFC took into account governance and other risks to these potential benefits. Specifically, IFC considered a range of governance metrics, including the World Bank Institute’s Governance Indicators and the Transparency International’s Corruption Perception Index (CPI), as well as the World Bank Group’s relationship with the Government of Chile. In the 2008, CPI, Chile was ranked 23 out of 180 countries. Chile is generally considered to have strong governance capacity, including with regard to management and use of revenues. Having considered the potential benefits and governance risks, IFC believes that the Project should be supported. |
| IFC's expected development contribution |
Environmental and social risk mitigation. IFC will assist GeoPark as operator of the Blocks in developing a comprehensive Environmental, Health, Safety and Social Management System that will provide the UJV partners with a tool to manage the Blocks with consistent standards and procedures. These procedures will also include the development of action plans to address any current and potential environmental and social issues.
Local knowledge and sector expertise. Over the past 25 years, IFC has made a number of investments in the southern Patagonia region and as a result, has excellent knowledge with respect to the prospectivity and the major producing reservoirs of the region. IFC will bring value to the technical and operating committee meetings (IFC’s engineer will sit on these committees), especially since IFC participates in other UJVs in the Southern Cone and therefore has valuable experience and insights to share.
Long term strategic partnership through growth stages. In 2005, GeoPark became the first private oil and gas operator in Chile and with IFC’s financing and support the company grew to establish a successful track record in operation of marginal fields. The proposed investment would further support private participation in Chile’s oil and gas sector, and will create a strong demonstration effect for other E&P companies, encouraging their participation in the sector. |
| Environmental and social issues - Category B |
This is a Category B project according to IFC’s Policy for Environmental and Social Review of Projects because it has limited adverse social or environmental impacts that are site specific and will largely be reversible and readily addressed through mitigation measures. GeoPark is an existing IFC client and its current operations in Argentina and Chile (Fell Block) are in compliance with the Performance Standards, the ESRR for the existing project is B-2-Average.
GeoPark’s activities will take place in scarcely populated areas with the nearest town center, Punta Arenas, located within the Otway block. The main prospects in Otway are approximately 50 km from Punta Arenas. Tranquilo Block border is approximately 30 km from Punta Arenas, but the main prospects located approximately 110 km from Punta Arenas. Current land use on the blocks involves large sheep raising ranches called estancias and the majority of the project’s activities will take place within these areas. The project activities will include seismic surveys and possible exploration drilling that will result in increased road traffic, possible increase in migration and disruptions to estancia activities. Potential impacts to sheep raising activities can be avoided and/or minimized through adequate planning of project activities with the estancia owners and adhering to international best practices and guidelines. The project is not expected to result in permanent livelihood loss and/or decrease in production.
The Tranquilo and Otway blocks have environmental liabilities that pre-date GeoPark’s activities and which will be addressed by the Chilean national oil and gas company, ENAP. GeoPark conducted a rapid assessment, which identified the existence of environmental liabilities in both the Tranquilo and Otway blocks. In the Tranquilo Block, the 20 identified environmental liabilities included 2 high (logging, drilling waste, hydrocarbons), 14 moderate (primarily scrap metal) and 4 low liabilities. In the Otway Block, the 30 identified liabilities included 5 high (solid waste, hydrocarbons), 19 moderate (scrap metal, septic), 4 low and 2 none. Under relevant legislation, GeoPark has no responsibility for environmental liabilities created by previous operators. Nonetheless, GeoPark has proposed remediation agreements measures to the former operators and is in the process of seeking resolution of the issue with relevant stakeholders.
GeoPark’s seismic activities will be less intrusive and mitigation measures can be readily defined and it is anticipated that the project will not result in any adverse or irreversible impacts.
GeoPark will apply the IFC’s Performance Standards in assessment and management of social and environmental risks associated with its activities. |
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| For inquiries about the project, contact: |
Martin Perez de Solay
Chief Financial Officer
Address: Florida 981, Piso 4 (C1005AAS) Buenos Aires, Argentina Tel: +54 0(11) 4312-9400 Fax: +54 0(11) 4312-1235 E-mail: mpsolay@geo-park.com |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
| Local access of project documentation |
Environmental documentation will be made available at the following locations:
Geopark Argentina Limited
Address: Florida 981, Piso 4 (C1005AAS) Buenos Aires, Argentina
Geopark Chile Limited
Address: Maipu 979, Punta Arenas, Chile |
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