Q3 2020 VAALCO Energy Inc Earnings Call
Whatever costs in general terms, we estimate that each Bob Dole or increase in realized oil price increases our annual adjusted EBITDAX by approximately $9 million.
This clearly shows our strong leverage to higher oil prices.
At September Thirtyth 2020, we had an unrestricted cash balance of 42 million, which included 6 million of cash attributable to non operating joint venture and everything answers.
Despite the challenges of low prices adjusted working capital at September Thirtyth, 2020 increase to $29.3 million compared with 24.1 million as of June Thirtyth 2020.
In the third quarter of 2020, we had essentially minimal net capital expenditures on an accrual basis, reflecting the efforts to manage expenditures in the current low oil price environment.
As curious discussed we recently agreed to acquire new Threed seismic data in the fourth quarter of 2020, we estimate the gross cost, but the acquisition and processing as a seismic survey to be between 12 million and 15 million or 4 million to 5 million net tobacco.
We plan to invest three.
3 million to three and a half million that to the Alco in the fourth quarter of 2020.
And the balance in 2021, all of which we expect to fund with cash on hand and cash from operations.
As has been the case since the second quarter 2018, we're carrying no debt with this I'll now turn the call back over to Carrie.
Thanks Liz.
The current pricing environment remains volatile.
Continue to react decisively to drive down our cost and improve our margins over the past several years. We have worked diligently to build a solid foundation for the future. We have taken actions to strengthen balco operationally and financially, including eliminating all debt and growing our production base, which.
It will allow us to better navigate cyclical energy markets and leaves us uniquely placed to consider growth opportunities. We remain focused on continuing to generate positive cash flow as we prepare for future drilling campaigns on near term license, but also has a strong producing asset in Gabon with significant.
Outside we hope to repeat the success of the 2019 2020 drilling program and continue adding reserves and production through the life of our term license in the Bowl. We recently initiated a new three D. Seismic acquisition campaign that at home that will include that will conclude in the fourth quarter of 2002.
Turning with processing fully completed by the fourth quarter of 2021. This.
This full field Threed survey will optimize future drilling locations provide better imaging of existing satellite and infield locations as well as identifying additional prospects to add to our drilling portfolio.
We are very excited to acquire process and analyze the data and then incorporate it with our 20 plus years of knowledge as operators of fields within.
With a debt free balance sheet, approximately $42 million in cash on hand at September Thirtyth and the strong asset base at a tone that continues to generate free cash flow, we have positioned balco to weather near term uncertainties.
Additionally, we continue to evaluate opportunities that are consistent with our inorganic growth strategy and we believe that we are well positioned to do to deliver long term growth in line with our strategic objectives. Thank you and with that operator, we are ready to take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.
Our first question today comes from Charlie Sharp of Canaccord. Please go ahead.
Thank you very much.
Thank you Jerry and lives for a comprehensive update much appreciated.
If I may just ask.
A question around the seismic and the Prospectivity that you say you highlighted the success of the 2000 1920 drilling program.
I'm not looking for specific details, but perhaps you could paint a picture of.
The number of well locations future well locations that you might see based upon the current interpretation of the data.
And also then perhaps you could just.
Explain a little bit about the dovetailing, perhaps of interpretation with fast track processing of certain areas of the new three D. Seismic in other words do you have to wait until all of that seismic is fully processed or is there a way of kind of accelerates.
Thing that interpretation process. Thank you.
Right, Okay, well Charlie.
Charlie good to hear from you and I'm happy to share.
What our strategy is with the seismic and in our investor deck on.
On Slide 18, you will see a lot of list of prospects and a list of wells and what I would focus you in on it and to answer your question on where we would accelerate prospect or I'm, sorry processing. It will be in the areas, where we have what we call our satellite prospects and so these are these are prospects that were identified only exists.
Thing is really where the new three d., we'll get that give us better imaging of those prospects and high grade those is what our intention is and so I think you know that the idea would be to accelerate its processing, where we see the satellite prospects where that have.
On average reserves or I'm, sorry resource potential of 5 million barrels but of course, that's the middle of the range it could be much more than that so so that's that's the one of the primary objectives of the seismic acquisition campaign is to better define our satellite prospects and then also to better define our way.
Well locations are infill well locations indices in and around southeast to Tom for example.
But so so thats, our objectives, and we will start processing immediately and like.
Like you mentioned to accelerate processing around our satellite process prospects and have final processing were fully processed data towards the end of next year.
Okay. Thank you.
The next question comes from Bill Dezellem of Titan Capital. Please go ahead Greg.
Great. Thank you I'll follow on that last question.
When you when you began the surveyors you're thinking about the survey what are your speculating that you're going to determine.
Are you thinking that there is a lot more.
A lot more oil out in the satellite prospects or are you really doing this more to identify.
Precise locations for infill wells.
What's.
What's your gut feeling of what you're going to find and and ultimate purpose.
Right right and rig Hi, Bill good to hear from you as well and great question and so you know the primary objective I would say is to define the satellite prospects and to understand have a better understanding of what the oil potential is so that we can prioritize our capital spending in the future. So we.
Drillbit prospect with the most confidence and the most oil and so that's the primary objective I think in the secondary maybe to that is better defining where to where to place wells.
In existing fields, but also what at what I would I would also mention is when we.
When the government granted our license extension back in 2018, we actually picked up additional acreage and so there's there's areas that we really haven't studied before and what I'm, hoping is that we find in these new areas that we find additional prospects and so those are those are the objectives bill.
Okay, that's very helpful and.
Your your gut feeling from what you know is.
Relative to the satellites have prospects what are you what are you thinking or hoping that to the issue will confirm.
I guess, what I'm, what I'm thinking and hoping that.
We can confirm is that the probability of success is 75% or greater we have several prospects that are the probability of success of 75% and so first of all you know I'd like to move that up to maybe 90% I don't know him and then like I said second to I'm hopeful that the prospects are low.
Barger and like I mentioned that the seismic will tell us where we have the most confidence in where we have the most potential resources.
Great. That's a that's appreciated and I just used up my question. Then my follow up would you like me to go back in queue or shall I continue.
Go ahead and continue build Thats fine great. Thank you and cut me off any time.
Yeah, the DNA that you referenced in the a in the press release being 800.
Pardon me 400000 higher as a result of of Covidien proactive things that you're doing is that going to go away anytime soon or or basically should we count that is has an ongoing part of your expense structure as long as as long as Cove it as an issue.
You would counted as part of our ongoing cost structure as long as koby, there's an issue because the you know what we're doing is we're we're mitigating the impact of an outbreak on our on our any of our facilities which would.
B.
Devastating so you know I I look at that cost is minimal because it has kept us and this enabled us to continue producing with with no real impact on operations, but yes, you would we'll continue to see that cost as long as the the epidemic is still running.
And and also want to this is Liz I'd like to just clarify those costs are primarily in our production expense rather than Gina eight.
Yes. Thank you I as I was asking the question I confused it with my next one so that's a great clarification lists.
Okay, which is that DNA did decline 800000 sequentially, what allowed that to happen and great job, but how did you do that.
Okay, and you're talking about overall DNA right, that's right over LG in a down in Q3 versus Q2.
Yeah, most of most of what's going on there has to do with the Sars liability. So at least we have to mark that to market at the end of that period. So whenever the stock prices on the last day of the quarter, that's going to drive the valuation for that liability and so when you when you end up with an issue.
Increase in the stock price then we have to record an additional expenses and when you have a decrease you record a reversal of that expenses for that to a large degree what's going on I would say beyond that it's pretty stable between the quarters.
The only benefit one can think of a lower stock price.
Yeah, I have to say I agree with you I can tell like.
Charging for that.
I understand one other accounting question if I may.
The.
Reduction in your tax valuation allowance with all of the uncertainty or is that a pandemic is is causing what gave you the confidence to it or to reduce that to a valuation allowance.
And I have to say and this is just confusing, but it's part of the mechanics and the U.S. GAAP rules.
On interest interim period tax allocation. So there's there's some odd rules that you have to apply and ends up with the <unk> and in our situation. We've got income in some quarters and they've got losses in other quarters and because we ended up with an.
Overall negative effective tax rate.
You end up allocating.
The taxes.
Oddly versus what you would expect and I know that's not that's probably not the most helpful answer, but it's a it's really the best I can guess or something that you almost have to be a tax experts really.
Make sense of it.
Candidly if it were me I would I would change the way the rules work because I just don't think it's helpful for investors to see the allocation for where they are but.
This is what we're stuck with that.
By the end of the year I think overall I don't get all makes sense, but on a quarterly basis is difficult to understand.
So.
Maybe I should take this offline, but I'm going to take one more stab at it and then I'll move on yes. So is is this an indication.
That you would expect greater profitability than what you were previously expecting.
And and as a result, that's mechanically why this needs to be done and again that will be more obvious in the fourth quarter or is it something and entirely logical fit.
Good.
Something entirely less logical to basically.
This is kind of how to look at it we forecasted what we thought the full year is going to be in terms of taxable income.
And then we had to take a portion of the valuation allowance and allocated in the first quarter, we had losses.
Using a negative right and then and so that ended up putting on a bigger evaluation allowance in the first quarter than what we were projecting for the whole year and so it reverses out over the subsequent quarters. It is a very odd resolve that.
You kind of got a hint of that in the first quarter. When we had a very large deferred tax liability, which doesn't make a lot of sense if you're.
Why don't you handle your deferred tax assets, but that deferred tax liability.
Amortizes off to zero body ended the year.
So rod.
That <unk> will be hyper technical [laughter] innovation, but that is a.
Great No I appreciate it let's thank you and then a last one for me.
Is the production decline in the third quarter versus the second quarter, how much of that was due.
Due to the F.P.S., so maintenance versus how.
How much was what is the OPEC cut.
Components, we recognize the wells themselves are producing producing that could produce a better than than what you did.
Right and the way to think about that bill is the the turnaround for maintenance on the MPS. So in the platforms was a five day turnaround and so you can take the the average production for the quarter and multiply by five and that was the impact of the turnaround and so the the rest of the rig.
Section was related to.
The Opex curtailment showed that a good thing could meet their quotas.
Great. Thank you both.
Okay. Thank you.
Next question comes from Jamie Wilen of Island management. Please go ahead.
Oh good morning.
Been reading about the.
Your partner in the town.
He is looking to sell their minority interest.
There seems to be lots of buyers are circling around three energy BW energy and maybe others.
Could you tell me the status of that we have right of first refusal or are we in their bidding do we wait till the end and what does that say about.
What we think our part.
Of this partnership is worth.
Right, Jamie I can't comment on Sasol divestiture process than who's participating and what the status is that.
That is really for sasol to comment on and what I can say is yes, there is and in our joint operating agreement added Tom There is an opportunity for not only balco, but the other partners to pre empt.
The sales process again, I can't comment on those details because that is vessels process to notify the joint venture partner, So under our jail way, though there would be an opportunity for balco and the other partners to preempt and other than that all I can say is you know we've we've said repeatedly we're very.
Happy with Vietnam asset and for the right price we would.
Increase our stake whether its sasol addicts, or Petro energy, but I cannot comment on the process other than that.
So put that any deadline dates are when they.
I wanted to begin by.
Hi, Jamie.
Jamie the again I can't comment on their process that's.
Uh huh.
I mentioned.
When you were talking about the seismic that with the 2018 extension.
The Boeing that they gave your new areas what did they give you I didnt recall reading about that.
Okay, but yeah. If you refer to again on slide 18, I don't know if you have access to our investor deck, but on slide 18, there's an outline of the license today and if you go back in time prior to the extension we had three separate what they call 'em.
He said they were production areas basically there was one to the to the southeast that was a boomer there was one.
Towards the middle of that was a Tom and southeast to Tom and then there was more further to the north that was that was a burrito and they were not continuous and so the acreage we picked up because the acreage in the center of the field in between say a brewery and the time and the in between there Tom is looking but if that if that makes sense.
Excellent.
When you put out your forecast for fourth quarter and looking forward.
How do you factor in.
What you may have to do for me good brunch requirements for APAC and could you also what percentage did you cut back to the four should the cutback because of.
Yeah restrictions.
Right right well the let me let me take your second question first.
The percentage, we cut back was a negotiation between balco when the government and you know for that reason.
Im not.
I really cannot give you any of the details other than we worked with the government on a on a target production rate for Balco based on Bulkers long commitment to long term commitments have grown the.
The wells, we recently drilled and so we so each operator really.
Independently negotiated.
Allocation and so I can't comment other than that but we did we did make it clear to the Gabonese government that we were we've invested heavily into bone recently, and we have a long term commitment and you know.
We need rates that allow us to recover our investments so.
But your first question on the <unk> on on the fourth quarter, what you'll see in our guidance ranges.
How does the OPEC production curtailment requirement built into it and so that the range that we put out.
And again that range is the low end of that range is up compared to the prior fourth quarter forecast. So so the OPEC curtailment is already if there is one is already built in.
[laughter] and lastly, with the next drilling program.
Going to wait till the three D seismic is complete.
Is it this is a 2022 of them.
Oil prices or where do you look at that well.
Well you know there is a couple of them, let me make a couple of points here.
We don't really of course, we have to wait till the seismic acquisition is complete and then as we talked about earlier with Charlie short, we will accelerate processing in certain areas, where we see today, we see the most prospectivity so.
It's we don't necessarily have to wait until all of the processing is complete to identify and you know well locations. So we'll we'll start processing early next year.
Data have have the survey interpreted again all throughout next year and and in terms of the next drilling program. So let me say the seismic survey will not slow down the the timing of the next drilling program. We've always talked about 18 to 24 months in between drilling program so that.
Yes, that's still that's still our ambition in our schedule. So you kind of think about it.
18 to 24 months from when we concluded the drilling program last April that's when we would target I'm picking up again.
So that you know to it so that would be late next year into early 2022, something like that.
Great. Thanks, I appreciate your top okay.
Okay. Thank you Jamie good to hear from you.
That's a reminder, if you do have a question. Please press Star then one.
Having no further questions. This concludes our question and answer session I would like to turn the conference back over to carry bounds for any closing remarks.
Yes, I wanted to thank everybody for participating and we look forward to speaking with you again next quarter.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.