Impairment test on Property, plant and equipment

12 Months Ended

Dec. 31, 2018

Disclosure of impairment of assets [Abstract]

Disclosure of impairment of assets [text block]

Note

36 Impairment test on Property, plant and equipment

As a result of the oil price crisis which started in the second half of 2014, the Group recognized an impairment loss of US$ 149,574,000 in 2015 after evaluating the recoverability of its fixed assets affected by oil price drop, as such situation constitutes an impairment indicator according to IAS 36 and, consequently, it triggers the need of assessing the fair value of the assets involved against their carrying amount.

The Management of the Group considers as Cash Generating Unit (CGU) each of the blocks in which the Group has working or economic interests. The blocks with no material investment on fixed assets or with operations that are not linked to oil prices were not subject to the impairment test.

During 2016, 2017 and 2018 the impairment tests were reviewed. The main assumptions taken into account for the impairment tests for the blocks below mentioned were:

- The future oil prices have been calculated taking into consideration the oil price curves available in the market, provided by international advisory companies, weighted through internal estimations in accordance with price curves used by D&M;

- Three oil price scenarios were projected and weighted in order to minimize misleading estimations: low-price, middle-price and high-price (see below table “Oil price scenarios”);

- The table “Oil price scenarios” was based on Brent future price estimations; the Group adjusted this marker price on its model valuation to reflect the effective price applicable in each location (see Note 3 “Price risk”);

- The model valuation was based on the expected cash flow approach;

- The revenues were calculated linking price curves with levels of production according to certified reserves (see below table “Oil price scenarios”);

- The levels of production have been linked to certified risked 1P, 2P and 3P reserves (see Note 4);

- Production and structure costs were estimated considering internal historical data according to GeoPark’s own records and aligned to the 2019 approved budget;

- The capital expenditures were estimated considering the drilling campaign necessary to develop the certified reserves;

- The assets subject to impairment test are the ones classified as Oil and Gas properties and Production facilities and machinery;

- The carrying amount subject to impairment test includes mineral interest, if any;

- The income tax charges have considered future changes in the applicable income tax rates (see Note 16).

Table Oil price scenarios (a):

	Amounts in US$ per Bbl.
Year	Low price (15%)		Middle price (60%)		High price (25%)		Weighted market price used for the impairment test
2019		63.9		63.9		63.9		63.9
2020		51.2		68.2		75.0		67.3
2021		53.3		71.0		78.1		70.1
Over 2022		55.1		73.4		80.7		72.5

(a) The percentages indicated between brackets represent the Group estimation regarding each price scenario.

As a consequence of the evaluation, the following amounts of impairment loss were reversed (recognized):

Amounts in US$ '000	2018			2017		2016
Colombia (a)		11,531			-		5,664
Chile (b)		(6,549	)		-		-
Total		4,982			-		5,664

(a) Reversal of impairment losses due to increases in estimated market prices and improvements in cost structure, and also the known fair value less costs of disposal of the La Cuerva and Yamu Blocks (see Note 35.2).

(b) Recognition of impairment loss due to the termination of the sales agreement for the TdF’s blocks, with no renovation in place as of the date of these consolidated financial statements.