Q4 2019 Earnings Call

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Good day and welcome to the valkyrie energy Inc. Fourth quarter and year-end 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a Conference Specialists are pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question. You may press * then 1 and your touch tone phone to enjoy your question, please press * then two, please note this event is being recorded. Oh. Let's try the conference over to your host today. I'll Petrie investor relations coordinator, please go ahead sir. Good morning everyone and welcome to vaalco energy Thursday 4th quarter and full-year 2019 conference call after I cover the forward-looking statements carry bounds. Our chief executive officer will review key highlights along with operational results with Iraq. Now our Chief Financial Officer will then provide a more in-depth financial review. Kerry will then return for some closing comments before we take your questions. I asked that question answer session. We ask you to limit your questions to one in the follow-up. You can always ran to the Q with additional questions. I'd like to point out that we posted an updated investor deck on our website.

This morning that has additional financial analysis comparison and guidance that should be helpful with that. Let me proceed with our forward-looking statements comments during the course of this cock called the company will be making forward-looking statements investors are cautioned that forward-looking statements are not guarantees of future performance and those actual results or developments. They differ materially from those projected in the forward-looking statements Valco disclaims any intention or obligation to update or revise any part looking statements where there's a result of new information, future events, or otherwise accordingly. You should not Place undue Reliance on forward-looking statements these and other risks are described in yesterday's press release with the presentation wage posted on our website this morning and in the reports, we file with the SEC including the 10K that was filed yesterday. Please note that this conference call is being recorded. Let me turn it over to carry wage.

Good morning, everyone and Welcome to our fourth quarter and year-end 2019 earnings conference call before I discuss our results. I would like to reflect on a number of dead significant accomplishments. We achieved over the past several years in 2018. We were able to pay off all of our outstanding debt and start building our cash position to fund scheduling program. Also in 2018. We were able to negotiate aps-c extension of up to twenty years that provided Valco the runway to maximize value pack reserves and increased production from our world-class Atomic Atomic asset offshore Gabon in the first half of 2019. We were able to remove Financial risk factor in certainty by completing a settlement agreement with Sonnen golf to exit Angela with no outstanding liabilities and obligations for valko.

on September twenty

2019 We Begin trading on the London Stock Exchange, which complements our listing on the New York Stock Exchange by providing us the opportunity to diversify our shareholder base wage attract additional research coverage and provide Valco with access to additional sources of capital to help fund our growth objectives. Also in September of last year. We kicked off our 2019-2020 drilling campaign by drilling the atomic nine P appraisal well board. This was the first step in a drilling program which has thus far resulted in to suggest full appraisal Wells to development Wells that are exceeding production expectations and another development. Well that should be adding production when it is completed and brought online later this month.

As a result of our operational excellence, we have increased production meaningfully since the third quarter of 2019 and we expect 2020 production to be approximately 35% higher than our actual 2019 average production rate. I would like to thank all of our employees and contractors for their hard work and contribution to these critical Milestones off with that said these past few days have seen prices declined below forty dollars per barrel for Brent crude as a result of macro concerns on both the supply and demand side dish a cyclical business and we are well-positioned to manage through this downturn by focusing on both operating expenses as well as capital expenditures as Liz will discuss in more detail. We estimate our twenty-twenty operational break-even cost to be approximately $31 per barrel based on twenty-twenty production guidance and cash at year-end was 45 South

But nine million dollars Valco will continue to evaluate all uses of cash and whether to pursue further growth opportunities in light of the dynamic commodity price environment right now.

Turning to operational results in the fourth quarter of 2019. We produced an average of 3664 barrels of oil per day, which was above the high end of our guidance range of 3100 to 3,500 net barrels of oil per day as a result of strong production from the atomic 912

For the full year production averaged 3476 net barrels of oil per day. We announced in our release yesterday that we expect production in the first quarter of 2018 to be in the range of $4,700 to 5000 net barrels of oil per day for the full year twenty-twenty. We expect net production to be in the range of 4400 to 5,000 barrels of oil per day. The significant increase in 2020 production is driven by our successful drilling campaign. This increase in volumes should help generate solid even even in a lower price environment and the fourth quarter, we reported strong adjusted ebit acts of ten point four million dollars and for the full year 2019, we generated $37 and $5 in adjusted. Ebitda ducks are unit. Operating costs declined in the fourth quarter due to the fact that approximately 90% of our costs are fixed and we can add production. Yep.

with minimal increase in cost

Which significantly improves overall margins now, I'd like to give you additional details on the many achievements. We have made during our 2019-2020 drilling campaign that we are in the process of completing now all of the accomplishments through mid 2019 that I highlighted earlier paved the way for a drilling campaign that began in September of last year. The most important accomplishment was the PSC extension in Gabon as part of the as part of that extension. We committed to drilling at least 2 development Wells and two appraisal while bored by September 29th as previously announced the atomic nine P appraisal. Well bore was drilled successfully and encountered both the Gamba and dental reservoirs based on the information. We gathered in the attack the appraisal well for the gumbo soil column was thicker than pre-drill expectations, which was a positive indicator for both the atomic nine H and the Tom 11h development Wells table.

Things have gone but Reservoir in addition preliminary analysis indicated that the atomic nine P appraisal while bored encountered at least 45 feet of good quality dental oil Samsung with estimated gross recoverable oil resources of five to six million barrels of oil in the dental Reservoir. These Dental resources could be the target of future drilling campaigns Halloween the nine P appraisal. Well, we remained on the same platform and drilled two development Wells the atomic age and the Tom 11h both Wells exceeded production expectations end up help boost our production significantly since the fourth quarter of last year. The atomic 9h was brought online at fifty five hundred barrels of oil per day gross or 1500 truck roll per day net to Vallco in December and the atomic 11h was brought online in January at $5,200 per day gross or fourteen hundred barrels of oil per month.

Active ankle after completion of the atomic age development. Well the rig remained on the atomic platform to perform a planned work over on the atomic NH. Well, this was done that optimize work over costs by using the drilling rig to replace an electric submersible pump that it failed during 2019. We were successful with that work over and brought the well back online. It's January 2020. It is currently producing at a rate of 730 barrels of oil per day gross or 200 barrels of oil per day. Net to Vallco at around the same time in late 2019. We also restored production from the atomic for a 12 by repairing the subsea Wellhead, the well was brought online in December 2019. And his end is currently flowing at a rate of approximately 700 barrels of oil per day gross or 190 barrels of oil per day net to Vallco.

Following the the successful work over of the atomic. Well, we moved the rig to the southeast of Tom nor chabala platform to drill the south east of town for p appraisal wage or to evaluate a gumbo step out area in southeast of Tom the southeast of town for p appraisal. Well, well board verified the president presents of good quality service, oil sands in the step out area. We then drilled the southeast of Tom 4-H development well and encountered approximately 750 feet of good quality gumbo reservoirs in the horizontal section. We have now fully satisfied are drilling commitment as part of the PSC extension that we signed in 2018. Once we complete the south east of town for a month. We we plan to conduct to work overs and likely release the rig in April.

Well, we had some initial.

No cost overruns primarily in the atomic nine P appraisal. Well before we have been able to make those costs up with efficient Drilling and completion operations. We now believe that our total Capital cost would be $29 which is within the original forecast of twenty-five to Thirty million dollars net to Vallco for all three development Wells and both appraisal. Well bores. Additionally. I'm very proud to say that there have been no environmental or safety incidents during the 2019-2020 drilling campaign and we have not encountered H2S in either the Gamba or Gentile reservoirs in this drilling campaign, as you can see the program was very successful and we remain excited about the long-term opportunities at at all. Our vision is to repeat similar scheduling programs and continue adding reserves and production over the next several years at a time after the completion of the southeast of Tom 4-H. Well, we plan to perform at least two more p.m.

Work Rovers to replace esps on March 7th the southeast of Tom to stop producing due to an ESP failure. The well was originally brought online in July 2015 and the ESP has lasted through its design line for five years and the failure was not premature. The drilling rig is on the set platform now and was already scheduled to replace the Thursday in the 212 after finishing the south east of town for a 12. The impact of the ESP failure is estimated to be 10 days of deferred production for the southeast of Tom to 8:12 a.m. And the well was producing 2400 barrels of oil per day gross or 650 barrels of oil per day net when the ESP failed after this work over we will perform at least one official work over to preemptively replace esps that are still operating but near the end of their design Life Next. I would like to spend a few minutes talking about our year-end reserves dead.

As a result of our drilling program, we added 1.1 million barrels of net SEC proved reserves through a combination of converting probable reserves to proved developers month plus other performance additions that were offset by downward revision of zero point two million barrels of oil net do to lower average crude oil prices Valco SEC Reserves at December 31st, 2019 were five million barrels of oil net the pv-10 value of these proved SEC Reserves at year end 2019 decreased wage is seventy point four million from 80.1 million at December 31st, 2018. The 2019 SEC pricing used in the pv-10 calculation was $63.60 per barrel of crude oil, which is the average of monthly rent prices on the first day of each month for calendar year 2019 adjusted for Price differentials, the 2018.

SEC pricing was

$90.83 per barrel of crude oil our year-end 2019 to PCP. Our estimate of proven plus probable reserves is 10.6 million barrels of oil to valko's working interest the pv-10 of alco's to PCP our Reserves at year end 2019 is $109.

The to PCP our estimate of proven and probable reserves was prepared in accordance with prms standards using internal assumptions at year-end for future Brent off crude oil pricing and operating costs. Our year end 2019 reserves were fully engineered by valko's third-party independent Reserve consultant Netherland Sewell and Associates are very familiar with our assets and and have provided annual independent estimates of balco's year-end reserves for over fifteen years. I would now like to give you a quick update on our activities in Equatorial ghenet as a reminder Valco has a 31% working interest in Block P offshore equatorial today on November 12th, 2019, the Equatorial Guinea pig history of mines and hydrocarbons approved valko's appointment as operator for Block P. We are currently waiting on an amendment to our production-sharing contract to finalize our yep.

There's operator and begin activities in Block P. We have also entered into commercial discussions with Levine hydrocarbon limited to potentially cover all or substantially all of our cost to drill an exploratory. Well in exchange for an assignment of a portion of alco's working interest in Block P to Levine Valco would also serve as a non-operator wage. I'm sorry as a known owner operator under a service agreement with Levine unblocks three four and nineteen and equatorial ghenet. We have executed a non-binding memorandum of understanding with Levine regarding the commercial discussions. However, we do not have binding agreements in place and government approval of the agreements between Valco and Lovin must be obtained prior to completing the transaction in summary. We remain committed to operational excellence while generating strong financial results. I believe that vaalco is well-positioned to to suck.

Seed for many years to come we have a strong debt-free balance sheet significant cash balance at year-end 2019 and a stable production base all of which provide flexibility with the future was that I would like to turn the call over to list to share our financial results. Thank you and good morning. Everyone is Kerry bench and we have accomplished many things over the past eighteen months with strong operational results from our 2019-2020 drilling campaign that should support our 2020 Financial results in the fourth quarter a 2019. We reported net income of a million dollars or $0.02 per diluted share this included the impact from a non-cash charge of 3.1 million or five cents per diluted share for mark-to-market loss related to our crude oil swaps.

a non-cash

Since for stock-based compensation of 7 million or $0.01 per diluted share and at one point seven million or $0.03 per diluted share tax benefit related to the wage increase in the valuation allowance on deferred tax assets adjusted. Net income for the fourth quarter of 2019 total 5.5 million or 9 cents per diluted share month after adding back the three point 1 million and non-cash mark-to-market losses related to the swaps and non-cash deferred income tax expense of 1.8 month and excluding a small gain of four million for the full year of 2019. Net income was 2.6 million or 4 cents per diluted share. This was primarily impacted by non-cash expense of 14.5 million or $0.24 per diluted share related to deferred income tax expense a four point four million dollar or $0.07 off.

Per diluted share charge related to the resolution of a legacy issue related to joint venture owners audit findings for the periods from 2007 through 2016 and a non-cash expense of 2.9 Million or five cents per diluted share related to unrealized losses on crude oil swaps. These were partially offset by a 5.4 million dollar gain or nine cents per diluted share net of tax related to discontinued operations.

Excluding the that impact these items as well as the small gain which to Total 16.0 million adjusted net income for the full year 2019 with 18.6 million or 31 cents per diluted share.

Adjusted ebitda grew to ten point four million in the fourth quarter 2019, which was improved over the third quarter do to increase sales volumes and slightly higher pricing for the full year of 2019. We generated 37.5 million of adjusted ebitda, which has helped us fund our Capital program and remain free cash flow positive for the year.

Fourth quarter 2019 oil sales total 318000 barrels compared with four hundred one thousand that barrels in the same period a year ago and 279000 barrels in the third quarter of 2019. Third quarter two 2019 sales volumes were impacted primarily by lower production volumes during the quarter which was the result of the plan change and full field maintenance shutdown that occurred in August 2019.

The year-over-year difference was primarily due to crude oil inventory timing revenues for the fourth quarter of 2018 benefited from higher sales volumes due to a fire beginning crude oil inventory that was drawn down to normal levels during that quarter for the first quarter of 2020. We expect sales to increase to between $350,000 and four hundred thousand barrels as a result of higher estimated production from the new development. Well the atomic nine age and the atomic eleven age, which came online and phone number and January respectively.

I realize

Oil price for the fourth quarter of 2019 average $65.80 per barrel up $0.07 from $61.26 in the third quarter of 2019 and slightly Higher by 2% compared to $64.52 in the fourth quarter of 2018.

For the full year 2019 realized crude oil sales price was $65.20 per barrel or seven cents lower 7% lower than the $70.36 per barrel that was realized for the full year 2018.

In the fourth quarter, we recorded non-cash mark-to-market unrealized loss related to our crude oil swaps a three point 1 million while we realize a cash gain a point four million on the swaps, which settled during the quarter.

These swap Agreements are at dated Brent weighted average price at $66.70 per barrel.

As of December 31st 2019 there was swaps outstanding for 275,000 barrels for the period from and including January through June 2020 and protect approximately one-third of our production for that.

We will continue to evaluate ways to mitigate risk and sure cash flows for future drilling programs and allow for upside to rise in commodity prices through our hedging program turning to expenses total production expense excluding more covers for the fourth quarter of 2019 was 9.8 million or $30.70 per barrel of oil sales rep the low end of the previous guidance of $30 to $36 per barrel.

What quarter cost per net Barrel decrease compared with $34.01 per barrel and the third quarter of 2019 but was higher than the $23.84 off Barrel in the fourth quarter of 2018 primarily due to the higher sales volumes and in the fourth quarter of 2018.

For the first quarter of 2020 we expect production expense excluding work hours to be between 9 million and 11 million or 21 cents and $20,000.50 per barrel to $24.50.

Production expense for barrel for the quarter is expected decline significantly due to higher sales volumes from our successful 2019-2020 drilling campaign.

As a reminder given that approximately 90% of our production costs are fixed every incremental barrel of production and sales significantly improves our per barrel metrics.

For the full year 2019 total production expense decline to 37.7 million compared to forty million forty point four million in 2018 with the decrease primarily due to lower work over and personnel-related costs partially offset by higher transportation and Customs costs.

On a per net Barrel basis 2019 was $30.13 compared to $28.03 in 2018 due to lower sales volumes.

For the full year twenty-twenty we expect our total production expense excluding were covers to be approximately 37 million to $42 million and the pernett birth range of $21 to $25. We also expect our work over expenses to be between 6 million and 8 million for the year.

We performed one work over in the first quarter and we'll perform to work overs upon completion of the southeast of time for development while that is currently being completed therefore we expect most of our work of our expense in 2020 will be incurred in the first and second quarters.

You know for the fourth quarter 2019 was 2.1 million or $6.64 per barrel of oil this compares to 2.3 million or $5.75 per net Barrel in the 2018 fourth quarter and 1.5 million or $5.41 per net Barrel in the third quarter of 2019.

the increase in the fourth quarter of 2019 reflects the additional costs associated with the new Tom nine P appraisal World War and a Time 912

For 2020 we expect additional cost associated with the 2019 and 2020 drilling campaign to drive the DNA right higher and we expect the range to be between $8 and $10 per net barrel of sales.

General administrative expense for the fourth quarter of 2019 excluding non-cash stock compensation was 2.2 million or $6.96 per net barrel of oil Escalade the 2.3 million or $5.78 per net barrel of oil and the fourth quarter of 2018 and 3.6 million or $12.87 per net barrel of oil and the third quarter of 2019.

The expense for the third quarter was higher due to the increased professional fees associated with our listing on the London Stock Exchange as well as our growth initiatives.

We expect our first quarter 2020 g n a excluding non-cash compensation to be between 2.5 and 4 million dollars.

For the full year 2019 Gina excluding non-cash compensation was 11.3 million and increase of 26% compared with full year 2018 GNA excluding non-cash compensation of 9 million. The increase year-over-year is primarily due to accounting and audit these legal and other professional service costs associated with bank one in stock exchange listing as well as our growth initiatives.

so

Pull your 2023 forecasts are cash G&A to be between 10 million and 12 million.

Non-cash stock-based compensation was seven million during the three months ended December 31st, 2019 is compared to a credit of one point three million in the comparable 2018. And 1.6. One point two million expense and the dark quarter of 2019.

Non-cash stock-based compensation expense for the years ended December 31st, 2019 and December 31st, 2018 with 3.5 million and 2.4 million respectively for 2020. We expect our full-year non-cash stock-based compensation expense to be between 2 million and 4.5 million.

Income tax expense for the fourth quarter of 2019 was 4.2 million comprised of one point eight million of deferred tax expense and a current tax provision of 2.4 million dead.

In the same period in 2018 income tax expense was 11.3 Million which included 9.3 million of deferred tax expense and 2.5 million current tax the large decrease in the Deferred tax expense between the fourth quarter of 2019. And the fourth quarter of 2018 is primarily attributable to Chabad income taxes, which were impacted by the decrease in revenues as well as a 1.7 million dollar benefit related to a change in valuation allowance on deferred tax assets.

In the third quarter of 2019 tax expense total 7.7 million and was comprised of 5.1 million a deferred tax expense and a current tax provision a two point six million dead detailed on slide twenty-five of the investor presentation posted this morning on our website. We currently estimate the value is operational Breakeven price is approximately $31 per net barrel of oil sales and our free cash flow break-even price and 20/20 is approximately $38.50 per barrel of oil deals with both amounts excluding work over expense, but including work over expense, but excluding capex.

As we have added new production on existing platforms with minimal additional costs. We are projecting a strong increase in a large and that's driving down our Breakeven price.

In general terms, we estimate that each $5 increase in realized oil price increases our annual adjusted ebitda by approximately six million dollars.

This clearly shows are strong leverage to higher oil prices.

At the end of 2019 we had an unrestricted cash balance of 45.9 million dollars. This does not include an additional point nine million in restricted cash primarily related to deposit upon classified as current assets or the additional point nine million of restricted cash classified as long term.

in addition

Alka has eleven point four million of a restricted cash for the future abandonment cost of the atomic field classified as non current asset.

Working capital from continuing operations December 31st, 2019 total 18.3 million.

Since Inception of the stock repurchase program authorized by the board of directors in June 2019 thru December 31st, 2019. We have purchased nearly two point 1 million shares of common stock at an average price of a dollar eighty 1% representing a total investment of approximately 3.7 million dollars this represents 3.5% of 59.8 million shares of common stock outstanding as of June 30th 2019.

Despite the weakness in oil prices that I could have cash position remains very strong. We have fully funded our 2019-2020 drilling program at a time for cash on hand and cash flow from operations.

I'm twenty-nine to be invested about ten point three million on a cash basis and 22.2 million on an accrual basis with the capital expenditures primarily off the drilling program.

For the first quarter of 2020. Expects net capital expenditures to be in the range of 10 million to twelve million nearly. All of which is related to the 2019-2020 drilling campaign.

Is Kerry mentioned the total cost of the 2019-2020 drilling campaign has been able has been able to offset some higher costs at the beginning of the program and is now estimated approximately $29 million with the original within the original estimate of $25 to $30.

The pool 2019-2020 drilling program includes three development Wells and two appraisal well bores. We anticipate that the drilling and completion portion of the program will be completed in mid-march.

Given the current and certainly in the macro pricing environment. We are evaluating our Capital expenditures for the balance of 2020. We will continue to manage all uses of cash in light of the ongoing economic conditions with this. I will now turn the call back over to carry.

Thanks Liz over the past several years. We have worked diligently to strengthen our financial position and create opportunities for growth in 2019. We made considerable progress towards our strategic objectives and that built a solid foundation for the future Valco has a strong producing asset with significant upside and Kaboom. We expect to generate solid operational cash flow in twenty-twenty with the additional production from our successful drilling drilling program. We will continue to make efforts to repeat similar drilling programs and continue adding a reserves and production over the next several years. Our 2020 production guidance is 35% higher than our 2019 full year production average. This should help Drive increase sales and with our low variable costs should lead to increasing margins with a clean balance sheet that is debt free and over $45 in cash on hand at year-end. We have flexibility.

for the future we

Will continue to carefully manage the aspects of our business that impact our ability to generate cash flow. Thank you. And with that operator we are ready to take questions. Yes. Thank you, Chuck in the question-and-answer session to ask a question. You may press the star then one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys if any question has been addressed and you would like to order a ride, please press star then to this time. We will pause momentarily to assemble the roster.

And the first question comes from John right with Roth capital.

Good morning.

Good morning, John. Maybe I missed a detail. But is there a common thread on sounds like there's been a number of EST issues? Is there a is there an element in common among those? No. No, there there is not. You know, we we replaced an ESP that had failed in the atomic bomb that was back in December that ESP had run for four and half a little over 4 and 1/2 years. That is the design life for the ESP. So that was not unexpected. And then um, yes ma'am picked up that we had an ESP fail over the weekend recently at southeast of Tom to age again that ESP had run for over four and half years and that's the design life. So that was not unexpected fact. We were planning already to replace the ESP and just failed to a few days before the rig got there. So none of this is alarming to us. It's all all all part of our plan.

And okay. Well, I'm glad you could reiterate that and sounds like it's under control the 2020 production guidance looks impressive and change your recent drilling activities. Congratulations on those efforts. Thank you, John. Thank you.

Thank you. And the next question comes from Builders Elam with Titan Capital end of month that you value that you can reduce costs. Would you talk about kind of what you see that you can do to to cut cost in 2020 and can do I guess I can you set from plan on doing and so talk more about what you think you likely wage Duke and then final pieces of this will be the implications to production this year and next year.

Right and Bill I want to be sure I understand your question. And so I think your first question is in regards to looking at ways to manage our costs in 2020 and I and you know certainly in light of the the recent drop in oil prices that is a focus and then the second question was and what impact will that have on production? Do I have your name? I understand your questions correctly it in there actually was a there was a certain question in there really differentiating between what you can do to reduce costs and impacts you like we would do is there may be some more Draconian measures that you'll choose not fake this early in the year depending on depending on your conviction of birth, uh whole pack the Opex formation and price is staying low for an extended period of time if you're trying to grasp that difference between could do and like you will too.

Right, right. Well

You know their I'll say there are you know, when we look at our cost we look at projects that you know, the that are operational focused in other words projects that are that way to implement offshore in Gabon. And so, you know, there are some some non-discretionary projects that we will undertake this year and it goes to one of your questions these projects are non-discretionary because they help us sustain production. And so that's things like improving the control systems on our platforms offshore for example, and so we have you know, two to three million dollars of of costs related to you know, projects that help us sustain production. Now, we've looked at other projects where you know, they're they're events. We're we're planning or preparing for the next month billing program those those projects are discretionary and so as we think about the timing of the next drilling program, we may defer those costs and or those projects I should say and save those dead.

So so anyway, you know, we will not sacrifice production for the sake of of lowering costs and our cost structure is very low already and I'm like I said, we have a few projects that we're going to do to ensure that we we can sustain production. But otherwise, we've got some discretionary projects that really go to supporting the office drilling campaign. We may push those out depending on what we decide on the timing of the next campaign. I'm Bill does that answer your question it does and so if you were to do a follow-up now if you were to delay in those discretionary cost in anticipation or preparation for the next drilling program, it's that

Does that imply that the drilling program would be delayed just because there's a an actual timeline to these things or would it potentially come back the timeline if you chose at at a later time to do the the next drilling program a schedule? Right? Right. I think I understand your question. And right now he's so there's enough time between now and the the next campaign where we would just compress the preparation work. And so we we still have a a lot of flexibility on when we start the next campaign.

Great. Now the one final question and stepped back in Q how late or how long can you delay those discretionary cost in preparation for the next billing campaign and and still be able to do the the next campaign on on on the original timeline. Oh, I would say for the six months something like that.

Thank you.

Good morning to you both a couple of questions. If I met one is related to costs again, and the other one is really related to reserve or four months and how you see that shaping up. The cost question is actually related to the oil price and the fpso charter and I think you have the wrong one shelter until late 22. I just wonder given the wear the old price has gone to is now an opportune time to start negotiations on an extension for the you know, hello and Charlie. Go ahead. Sorry. Yeah, I I wonder if that was a good time to start negotiations on an extension same Solis give them where the oil price is that might be under advantageous. And then the second very quick point is or question is given that the 9th.

Each and 11:00 as well. As on the time came in about twice what you were initially expecting in terms of production rate has that changed your overall view of the future potential of well recovery and the number of Wells that might be needed on the license to recover all the potential resources.

Right, right. Thank you Charlie. So let me answer your first question on cost and in particular the fpso and you are correct. We have the fpso under a contract through September 2022 and we are in discussions with the owner operator of the fpso, which is BW offshore on either extending that or you know, potentially extending that contract but, you know, even renegotiating the contract now because and and it's driven you're you're correct. It's driven by this is an opportune time we agree. But if we keep if we decide to keep the NADA fpso the fpso we have today on station, you know another ten or twenty years. We need to start investing in life extension work. And so that work needs to be done ahead of the contract expiration. So that means we're we're actually renegotiating or I'm sorry negotiating a new contract to extend the fpso on stage.

And like I said for another 10 to 20 years those those conversations are going on now and so our options are extend the contract for the existing fpso or replace the fpso Thursday. We are also talking to other fpso providers as well.

And then to your second question on Reservoir performance. Yes, the the atomic nine h and a Tom 11h Wells are exceeding expectations. Those Wells wage positioned at the top of the reservoir in the atomic field and I congratulate our subsurface team. They picked fantastic locations for those Wells, but right now we see that particular Reservoir is fully developed and I you know, and and so the way I think about it is, you know, our team has um has demonstrated their their ability to choose very prolific locations to drill Wells. And so, you know, that's what we're working on right now is looking at other areas on the license where they can repeat that process, but in that particular reservoirs, we think that that is that Reservoir is fully developed. And so the team is focused. The subsurface team is focused on on other areas on the license like the the southeast of Tom step out area

and you know looking, you know as soon as we

Results from our new well, though plug those into their models and interpretations and hopefully find some fantastic locations to drill.

That's great. Thank you very much. Thank you Charlie. Thank you. And once again, please press star and then one if you would like to ask you a question.

And the next question comes from Jimmy William with well and management carry probably open the SPs with the increase volume that we have. We coming up on any capacity constraints within that month we have in terms of processing capacity. We have processing capacity up to 25,000 barrels a day. I hope we hit that constraint. We have not hit that constraint yet, but wage so we have plenty of processing capacity right now and on the storage, um, we have plenty of storage as well and we're timing are lifting so that we don't run out of storage. So right now everything's wage operating effectively, and we do have plenty of capacity. Okay on the southeast of time to work over that's offline now and and you're the the ring when would you expect that to be back online?

We the end of the month Jamie we expect the southeast of Tom 2 H to be back online. Okay, and and talk about you've got off a memorandum of understanding but not not a full agreement. Have you basically have you negotiated the terms with Levine and then just affecting the government's approval and that's one question. But secondly what's holding up the government's approval from allowing everyone to move forward since it's in their best interest to to gain additional Drilling and potential tax base. Right? Right. So let me let me answer the first question on the agreements with yes, we have agreed to the terms but we're finalizing the detailed agreements with Levine and and that work is in progress, but in parallel, you're right. We're we're finalizing. Yep.

Payments to rpsc that would allow Levine to come into the block be license and allow us to transfer some of our ownership to Levine now in terms of the government am moving the documents. I really can't speak to what's delaying the process. I do know that we are in constant communication with the government and in fact the hydrocarbons Mission had planned to come to Houston, but unfortunately cancel this trip in in light of the coronavirus, but so that that was unfortunate. But anyway, we are in in in communication with them. They are talking to us. We're setting up meetings. And so I I expect something to happen fairly soon.

Okay, and then once again congratulations on on developing very well, defined strategic plan both operationally and financially and and really executing it in a in a in a fine manner. I appreciate that to shareholders. Thank you. All right. Thank you Jamie. Thank you, Jamie. Thank you. And the next question is a follow-up with the xylem with Titan Capital Thursday. Last question are covered.

Okay. Thank you Bill.

And just asking a question and answer session this time. I would like to turn the conference to carry balance for any closing comments. Yes, I would just like to thank everyone for joining us today and I enjoy the rest of your day going by for now.

Thank you. The conference is concluded. Thank you for attending today's presentation lines.