Q4 2020 VAALCO Energy Inc Earnings Call
[music].
Good day, and welcome to the VAALCO energy fourth quarter and full year 2020 earnings conference call.
All participants will be in listen only mode.
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Please note today's event is being recorded.
I would now like to turn the conference over to Al Petrie Investor Relations coordinator. Please go ahead Sir.
Thank you Rocco good morning, everyone and welcome to VAALCO energy fourth quarter and full year 2020 conference call.
And after I cover the forward looking statements Cary bounds, our Chief Executive Officer will review key highlights along with operational result, Liz Prochnow, Our Chief Financial Officer will then provide a more in depth financial review Cary will then return for more of closing comments before we take your questions. During a question and answer.
Of the session. We ask that you limit your questions to one and a follow up you can always reenter the queue with additional questions I'd like to point out that we posted an investor deck. This morning on our website that has additional financial analysis comparisons and guidance that should be helpful. With that let me proceed with our forward looking <unk>.
Statement comment during the course of this conference call. The company will be making forward looking statements investors of caution that forward looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward looking statements VAALCO.
VAALCO disclaims any intention or obligation to update or revise any forward looking statements, whether as 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 the presentation posted this morning on our website and in the reports we filed with the F. P C, including the 10-K that we filed yesterday. Please note. This call is being recorded let me turn the call over to Kerry.
Thank you al Good morning, everyone and welcome to our fourth quarter and year end 2020 earnings conference call before I discuss our results I would like to reflect on a number of significant accomplishments. We have achieved all of which are building blocks towards long term growth.
And in 2018, we negotiated a license extension of up to 20 years, and Gabon that provided VAALCO of the runway to maximize value by growing reserves, increasing production from our world class of Tom assets.
Also in 2018, we paid off all of our outstanding debt and begin to rebuild our cash position in 2019, we initiated 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 attract additional research coverage.
Bridge and provide VAALCO with access to additional sources of capital to help fund our growth objectives, just as critical in September of 2019, we kicked off our 2019 2020 drilling campaign that campaign had three successful development wells and two of the successful appraisal well bores.
Comparing the full year 2020 production of 4853 net barrels of oil per day with our 2019 average of 3000 and 476 net barrels of oil per day, we increased production of 40% year over year as the result of our drilling success.
And 2020, we saw oil prices adversely impacted by the global COVID-19, pandemic as well as supply and demand imbalances, we had hedges in place that provided us good protection when oil prices fell and we were able to continue to generate meaningful cash free cash flow from the higher production.
In 2020 maintain.
And maintaining our strong balance sheet and financial flexibility gave us the ability to capture value through a very accretive acquisition opportunity that arose in 2020, we were able to overcome the challenges in 2020 and closed the acquisition of SaaS falls of total interest in February of 2021.
And with cash on hand, with the additional production that transaction brings us along with the strong recovery in oil pricing. We are projecting continued meaningful free cash flow generation going forward. This has provided us with the confidence to announce our next drilling campaign, which is expected to start and les.
2021.
We are planning to drill up to for wells that could add an additional 7000 to 8000 gross barrels of oil per day. When the drilling program was completed in 2022 with a higher working interest and of Tom This could be an additional 35 hundreds of 4100 net barrels of oil per day to VAALCO and this is truly and exciting.
And the time for VAALCO and we believe that we have a very bright future ahead of us as we are all as we are well on our way to achieving our long term goals before I get into our operational results I would like to review and some of the key highlights of the SaaS all acquisition.
In November of 2020, we agreed to purchase steps of 27, 8% working interest and the Tong for $44 million with the final cash settlement amount can be reduced by net cash flows generated from the effective date of July one through the closing date.
As part of the agreement, we made a $4 3 million dollar cash deposits and November and agreed to and contingent payment of $5 million.
And if Brent oil prices averaged greater than $60 per barrel for 90 consecutive days, we closed the acquisition on February 25th of this year, taking into account the $4 $3 million of $4 3 million deposit and the cash flow and that was generated between July one and 2020 and the data.
Closing, we paid $29 $6 million of closing all with cash on hand, we believe the deal is very accretive to VAALCO as it is improving our margins increasing production and the price we paid per net barrel of oil was about $4 91 for two P. CPR reserves since we.
Already operate the assets, we expect minimal increase in G&A expense. There is no integration needed and we will immediately benefit from the acquisition.
Turning to operational results and the fourth quarter of 2020, we produced an average of 4662 net barrels of oil per day, which was an increase of 27% over the fourth quarter of 2019, driven by our strong well results from the recent drilling campaign for.
For the full year production averaged for 853 net barrels of oil per day and increase of 40% year over year. Looking ahead to 2021, I would like to spend a few minutes discussing the details of our 2021 of the production outlook, which includes additional volumes as a result of the SaaS.
Acquisition.
Our first quarter production will not include any sorts of volumes prior to the transaction closing date of February 2000 and fit.
This means that first quarter production includes two months of VAALCO volumes, and one month with VAALCO and Sasol volume combined which puts our first quarter 2020 one guidance of between 50, 150, 400 net barrels of oil per day.
The midpoint of first quarter production guidance is a 13, 13% increase over fourth quarter 2020 average production.
Production guidance for the remainder of 2021 includes the full production impact of the SaaS oil acquisition.
And the second quarter of 2021, our production is expected to average between 8080 600 net barrels of oil per day. During the second half of 2021, we are planning our annual seven day turnaround and we are not forecasting any material production uplift from the upcoming drilling campaign.
<unk> into account and natural decline as well we expect the second half of 2021 to average between 70 170 800 net barrels of oil per day, taking all of this into consideration, we expect net production to be and the range of <unk> 6800, 7400 net barrels of oil.
Per day for the full year 2021 day.
As of year over year increase of 46% at the midpoint of 2021 guidance the.
The significant increase in 2021 production, coupled with the rising pricing environment should help generate solid EBITDAX and enabled VAALCO to gross cash and cash position and fund our upcoming drilling campaign from cash on hand, and the fourth quarter, we reported adjusted EBITDAX of $3 5 million.
Unfortunately, our fourth quarter results were adversely impacted by a delay and oil sales from late December into early January as a result, our fourth quarter earnings and adjusted EBITDAX were lower but sales volumes deferred to January where price the January Brent pricing, which was higher than <unk>.
December.
For the full year 2020, we generated $26 6 million and adjusted EBITDAX now I would like to discuss the progress of our three D seismic acquisition and our plans for the next drilling campaign and scheduled to start late this year.
And 2020, we completed the acquisition of the new <unk> seismic survey over the entire of Tom Block, we expect the seismic data to enhance the subsurface imaging by merging our legacy data with the newly acquired seismic allowing for the first continuous three D seismic over the entire block the improve.
The three D seismic imaging will help us reduce risk and optimize future future drilling locations.
The success of our 2019 2020 drilling campaign has built a solid foundation for future drilling campaigns and the time.
And our prior quarterly calls I have said and our vision is to repeat similar drilling programs and continue adding reserves and production over the next several years at the time.
And with the Sasol acquisition closed acquisition of the new <unk> seismic over the and over the head of Tom Block complete and improved oil pricing. We believe the time is right to start of next drilling campaign.
We are planning to drill up to four wells starting in the fourth quarter of 2021 and finishing in 2022. We are currently expecting to drill two development wells and two appraisal wells there are opportunities for sidetrack and re entries that will reduce drilling costs and the access low risk reserves and production.
We also have appraisal locations that we believe could offer meaningful upside and is not current currently reflected in our reserve report the.
And final well locations will be determined in conjunction with our processing of the new <unk> seismic data we acquired.
It's the for well program is successful the estimated increase in gross field production is seven to 8000 barrels per barrels of oil per day for 35 hundreds of 4100 net barrels of oil per day to VAALCO. When the drilling campaign is completed in 2022 of the.
And the estimated cost of the program is between 115 and $125 million gross or 73% to $79 million net to VAALCO. The.
The upcoming drilling campaign has the potential to generate significant free cash flow when the current prevailing oil prices are combined with our low cost operating structure.
Our strategy is to utilize the additional free cash flow to the fund inorganic transformative growth opportunities in the future. We will provide more details later as we process the seismic and finalize our well locations.
Our net capital expenditures in 2020 were $20 million on cash basis, and $10 $5 million on non accrual basis. Our 2020 capital expenditures were primarily related to the 2019 2020 drilling program at the time for.
For the full year of 2021, VAALCO estimates its net capital expenditures, excluding the 2021 drilling campaign and seismic to totaled 3 million to $6 million.
The full year capital expenditure estimates also exclude any potential cost related to the F BSO life extension or spss replacement.
While there will be upfront cost associated with either replacing or extending the life of the vascepa Fps. So we believe we will be able to lower long term costs next I would like to spend a few minutes talking about our gear and reserves our year end reserves were significantly impacted by pricing despite adding.
One 6 million barrels is the result of positive performance revisions and the discovery of southeast of Tom for P reserves were slightly down year over year. The downward revisions were driven by $1 8 million barrels and production and a downward pricing and revision of $1 6 million barrels.
VAALCO has proved SEC reserves at December 31, 2020, we're three $3 2 million barrels and net the PV 10 value of these proved SEC reserves at year end of 2020 decreased to $14 7 million from $70 4 million at December 31.
And in 2019 the.
The 2020 SEC pricing of $42 46 was down 33% from 2019, SEC pricing of $63 60 per barrel, which drove the SEC proved PV 10 value down significantly.
Our year end 2022 P. CPR estimate of proven plus probable reserves remained virtually unchanged year over year at $10 4 million barrels to VAALCO and its working interest. The PV 10 value of VAALCO was two P. CPR reserves at year end 2020 was $84 4 million.
Assuming year end of 2020 escalated Brent pricing.
Our year end 2020 of reserves were fully engineered by both of those third party independent reserve consultant Netherland Sewell and associates. They are very familiar with their assets and the provided annual independent estimates of VAALCO as year end reserves for over 15 years regarding the acquisition of SaaS of interest at the time we.
To meet that approximately $2 7 million barrels of proved SEC net reserves and $7 9 million barrels of two P. CPR net reserves were acquired using year end 2020 of assumptions adjusted for production and <unk>.
Given the recent significant increase and Brent pricing and assuming that it continues through 2021, we believe that we could see a material increase and reserves not only due to the SaaS oil acquisition, but the pricing as well.
I would now like to give you a quick update on our activity and Equatorial Guinea pig and the first quarter of 2020 VAALCO acquired additional working interest from Atlas petroleum, thereby increasing our working interest from 31% to 43% and <unk>.
Cost for acquiring the additional block P. Working interest is a future payment of $3 1 million.
We'll only be made if there is commercial production from the block P.
In August and amendment to our production sharing contract, reflecting our updated participating interest and naming us as operator was executed by the equity of Oregon, a ministry of mines and hydrocarbons.
The non binding memorandum of understanding with Levine to cover all or substantially all of the outcomes cost to grow and exploratory well on block P has expired and we are evaluating alternatives to fund and the cost to drill an exploratory well targeting over 160 million gross barrels of resources at our south.
With West Brom. The prospects. We are also evaluating scenarios to develop over 16 million gross barrels of contingent resources and our venous discoveries on block P. And we remain excited about <unk> and we are working to profitably exploit the resource potential.
In summary, we have materially enhanced value at VAALCO over the past 12 months with the highly successful drilling campaign and accretive acquisition, new three D seismic and planning for another drilling campaign. Later this year, we remain committed to operational excellence, while generating strong financial results.
We have a strong balance sheet with our increased and and with our increased production base and a rising price environment, we should generate significant cash flow and 2021.
This will provide flexibility for the future as we look to continue to grow profitably and meet our long term growth goals with that I would like to turn the call over to lift to share our financial results. Thank you Cary and good morning, everyone.
One of the net loss of $3 6 million or six cents per diluted share and the fourth quarter of 2020.
Thank you for the impact of $3 6 million and exploration expense related to the of Tom seismic program during the quarter and $2 2 million.
And of the expenses related to stock based compensation.
Thanks, Cary mentioned the local GAAP.
And from December 2020, the way to gain while total 21 of 24, 5% by approximately yes.
For the 5000 barrel.
And rebel crack.
Ultimately seven eight.
While oil trade inventory cost and the fourth.
Quarter of 2020.
For comparison purposes, and the fourth quarter of 2019 reported net income of $90 a.
Okay.
Okay related care, which included the impact of a noncash charge of 1 million.
And for unrealized mark to market losses related to our crude oil swaps.
Expense for stock based compensation of $7 million and of $1 $8 million tax and it.
Right and can increase for the valuation allowance occupier of that platform.
And.
For the third quarter of 2020, we reported net income of seven 6 million.
The third.
Presently the cure, which included an income tax benefit of the $2 8 million.
And the impact of the decrease valuation allowances on deferred tax assets of $5.
Got it.
Alright, adjusted net loss for the fourth quarter of 2020 total $5 6 million.
Our 10 cents per diluted share compared to adjusted net income of $5 5 million on line.
Credit related share for the fourth quarter of 2019, the decrease and the earnings between years is mainly due to the lower revenues and an adult.
The lower oil prices and lower sales.
Delay and the lengthy and scheduled for 2020.
Couple of $83 $6 million of seismic for rates to be at.
And so forth.
And that sort of play.
And the third quarter of 2020, that's a reported $2 3 million and adjusted net income of <unk>.
Sure.
Adjusted EBITDAX of three 5 million and the fourth quarter of 2020 compared to $10 for production and the same period of 2019.
And the third quarter of 2020, adjusted EBITDAX of 7 million ads.
Net loss and adjusted day.
Adjusted EBIT at the impacted by the lower revenue.
Between the fourth quarter of 2019, and the fourth quarter of 2020. This was primarily a result of lower crude oil price.
Between the third quarter of 2020, and the fourth quarter of 2020. This was primarily a result of the lower sales volumes with Alcoa and the delay.
And the lifting schedule for this past September.
Production for the fourth quarter at 4600, 62 net barrels of oil per day increased to 27% for the first.
For the fourth quarter of 2019, Inc to the new wells of which came online during 2020 from our successful 2019 and plant.
Well the program.
Fourth quarter 2020 production for about 6% for the third.
And 2020.
Inc.
And the planned wholesale maintenance shutdown as well as OPEC per.
And for Calvin.
Sales volume and the fourth quarter of 2020 and were down 9% from the Saint Kate Covid.
COVID-19 is the increase in sales and the new wells coming online and 2020 mitigated the impact of the delay.
However, the impact of the delight local for the third.
Of the percent increase of revenues.
The fourth quarter.
All of the white listing and revenues for the fourth point of 2020.
Cary mentioned pricing and price somewhat between December 2020, and January total per line, thereby increasing the amount of ultimately realized for the electorate.
Our crude oil price realizations fell 36.
6% of $42 seven per barrel and the fourth quarter of 2020 price of $65 80 per barrel and the same period of 2019.
The down just 4% compared to the 43 three per barrel and the third quarter of 2020.
We didn't have any derivative contracts and play for the fourth quarter of 2020. However, this past January and bid areas for me of crude oil crude.
Crude oil commodity swap of greatness by total of 709000, okay.
We think barrel.
And then David Brent weighted average price of $50 per barrel for the period of prime and including the third 2021 through January of 2012 of Kay.
The swaps fell on a monthly basis.
As Cary mentioned, we hedged the portion of our production volume to protect cash flows.
And part of that.
Total lines.
And the drilling program.
Some of our actions of 2019 before we began our 2019 2020.
And hedges for particularly beneficial for asking 2020, and crude oil price fell and I.
And I believe of wrapping up our drilling program.
And we'll continue to assess our needs and mitigate quite spread and protect the cash flow and in the future as new container of any additional revenue contract.
Alright expenses.
Production expense, excluding workovers for the fourth quarter of $2026 6 million of total ticket price.
Gallup oil.
At the lower and the $9 eight volume and the fourth quarter.
And the $9 1 billion exports from 'twenty, primarily due to the lower sales volume for the fourth quarter of 2020, resulting for the delay that day.
The current unit production expenses.
Operating Workovers and <unk> 66 per barrel and the fourth quarter of 2020 decreased significantly as compared to the targeting and 70 cents per barrel and the fourth quarter of 2019 due to the out of the higher overall production rate and is in line with the prior unit production expenses.
And the volume per barrel and the third quarter of 2020.
Included in total production and Covid.
Kind of the 19 related.
And current to protect the health and safety of the capital of employee, which total approximately $4 million and the fourth quarter of 2020, and $1 6 million for the full year 2020.
For the full year 2020, one we are estimating the guidance range for our production expense, excluding workovers to be between $69 million and $77 million or 20 for kit and.
$29 five per barrel of oil on the <unk>.
Net revenue for.
And that's an expense for the first quarter of 2021 is projected to be the $2016 five and $18 5 million or 26.
And $31 per barrel of oil now keep in mind that all of the guidance for provided today includes the <unk>.
Positive impact for the additional volume of required for the staff.
And then on the day of Clay February of 2012.
One.
And for the first quarter of explain the for one oil.
Approximately two months of financial results without staff all of them today.
And one line.
Our production expense guidance excludes any potential future impact of Covid.
And that's.
And are currently.
Alright.
DD&A for the fourth quarter of 2020 was $1 3 million of $4 37 per net barrel of oil sales compared with $2 $1 billion of $6 60 per cent per net barrel.
For the fourth quarter of 2019.
And $2 $2 million of $5 and 37 per.
Per barrel.
The prior quarter at 2020.
You may now will lower the price.
And the prior periods and lower sales volume for the fourth quarter of 2020, resulting from the delays.
The current yet maybe of that.
And the for clients on the plane with flowers and.
And the fourth quarter total of 19 due to the impairment charge.
<unk> taken and the first quarter of 2020 and.
And the lower than the.
And lower than the rate for the third quarter of 2020 date of higher production volume deals per day smaller favorable day.
And all of and administrative expense for the fourth quarter of 2020, excluding stock based compensation expense.
$5 million compared with $2 2 million and the same period for the 19 and $2 4 million and the third quarter of 2020.
G&A expenses higher and at the same period 2019, due to higher professional fees and legal costs and similar to G&A expense.
Quarter.
The current unit DD&A rate and the fourth quarter of 2020 of $8.73 per barrel of oil and higher.
And.
For the fourth quarter of 2019 and started for you.
Each of the wellness sales volume as a result of the delay for ethane.
For the full year 2020 forecast of the DNA of between 2010.
And it's Bob.
Essentially unchanged.
Despite the large increase the production.
All lines of business.
While our total G&A expense isn't materially different at this point of time.
And one on G&A per barrel in 'twenty, and 'twenty, one will be substantially less and about $4 per barrel of the midpoint of guidance starting with Q2.
Compared with $6 seven per barrel and 2020.
Stock based compensation expense of $2 2 million during the three months ended December.
<unk> primary day to the increase and the size of liability as a result of the increase of the stock price over the quarter.
For the fourth quarter of 2020 stock base.
The expense relate our equivalent of expense of one 9 million campaign and and expense.
And the fourth quarter.
Sure.
For the third quarter of 2020 of the benefit of $1 6 million was recognized for stock based compensation related to size and scale of the decrease and the stock price during that quarter.
Turning now to taxes income tax for the benefit for both for the fourth and third quarters of 2020.
For the three months ended December of <unk>.
2020 income tax benefit of $1 8 million and included a deferred tax benefit of $2 8 million.
For the three months ended September 30 of 2020 income tax was a benefit of $2 8 million included a $5 3 million.
As it relates of decrease and valuation allowances on the view at the Gabonese if our tax assets.
The income tax expense for the fourth quarter of 2019, but for $2 million, which includes the funds by $8 million of deferred tax expense rather than the benefit.
And for the income taxes attributable to Gabon and settled by the government by taking the oil crude oil and the time.
Sure.
As detailed on slide 28, and the presentation deck posted this morning on our website and we currently estimate the download of operational breakeven price for 2021 is now approximately $38 five per net barrel of oil and.
And our free cash flow breakeven price of approximately 38 75 per net barrel of oil.
Keep in mind that our realized prices of benchmark to true.
The oil price at these prices and prices increase at the 2020, primarily as a result of <unk>.
Redemption rates reflect the natural decline.
In addition, we had two workovers planned as compared to one and 2020.
These estimates include the impact.
Many of the impact of our hedges.
And again, our plan, we estimate that each $5 increase and realized oil price increases our annual adjusted EBITDA by approximately $14 million. This clearly shows our strong leverage to higher oil price.
At year end 2020, we had and unrestricted cash balance of $47 9 million, which includes $1 4 million of net 2000, pincher I hadn't heard of dancing.
Working capital at December 30 of <unk> was $11 4 million compared with $16 6 million at the center.
Temporary part of yet 2020.
While our depth of the Barclay capital at the Central Bank deposits total funny.
It'll of $24 3 million.
Impairment of $29 3 million at September 30 of 2020.
For the full year 2020, net capital expenditures totaled $28 million on a cash basis, and $10 5 million on an accrual basis.
Our capital expenditures, primarily related to the 2019 2020 of the drilling program at the time.
And has as has been the case since the second quarter of 2018, we are carrying no debt for debt.
I'll turn the call back over to Cary.
Thanks, Liz and over the past several years, we have weathered a difficult macro environment.
During that time, we worked diligently to build a solid foundation for the future by strengthening VAALCO operationally and financially. This included eliminating debt growing our production base and consistently generating positive cash flow as I look at 2021 and beyond I believe that this is of.
Very exciting time for VAALCO.
And our profitably growing VAALCO through accretive acquisitions and successful drilling campaigns at of Tom we are in and improving commodity price environment, which should meaningfully assist and our ability to generate significant free cash flow. The closing of the SaaS oil acquisition underscores our belief and the term is a strong.
Producing asset with significant upside and we're also processing and interpretation of our newly acquired <unk> seismic and will incorporate it with our 20 year are 20 plus years of knowledge as operator at a time, the new seismic will help us to optimize and derisk future drilling locations and potentially.
And potentially identify new words.
And I know that I've told the story before but I think it is worth reminding everyone of the VAALCO track record of success at a time when we first began producing the Tom and 2002, our third party reserve of <unk> estimated there was 30 million barrels of of gross recoverable oil.
Over the years, we have drilled and expanded the Tom such that we have produced over 120 million gross barrels of oil thus far looking to the future. We believe that the field still has over $100 million gross barrels of resource potential.
And we're planning to drill up to four wells and the upcoming drilling campaign that we expect to initiate and the fourth quarter of this year. We of the strong asset base set of terms that is generating meaningful free cash flow and the current pricing environment. Additionally, we continue to evaluate opportunities that are consistent with our inorganic growth strategy.
And we believe that we are well positioned to deliver long term growth in line with our strategic objectives.
Before I close out the call I would like to discuss our commitment to ESG.
And at VAALCO, and we are committed to developing and producing oil resources in West Africa, and the safe and environmentally responsible manner.
Last year, we issued our inaugural sustainability report, which focused on our community involvement governance practices and the environmental commitment in 2020, we created and employee committee charged with the responsibility of monitoring adherence to our ESG standards and formally communicating for.
Findings on an ongoing basis to our board also in 2020, our board's nominating and corporate governance Committee amended its charter to include the oversight of the company's policies and programs on issues of social responsibility and environmental sustainability.
Our board has empowered our management team to create and working environment that assures our success as the trusted operator, a generous partner to the communities, where we operate and as good stewards to the environment.
Our 2020 ESG report will be released next month and posted to our website. It will include three years of key ESG sustainability metrics developed specifically for our industry.
We believe that VAALCO has a bright future and we remain committed to sustainably developing our robust asset base.
And with that operator, we are ready to take questions.
Thank you we will now begin the question and answer session.
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Today's first question comes from the same so Todd with office advisories. Please go ahead.
Hi, guys.
Two questions for me.
The first one is.
Around the to see contingent resources, and particularly I saw that the extension based on the economics sort of moved from 30 million barrel too.
18 million barrel, the vindaloo, south quite some low risk resources, just about extending the contract I was wondering whether you could provide some color on why does have jumped up.
So much and the cyclicality of it.
Simple one is just I saw that.
There is the increase in the payable, which I think some seemed the to call. It the accounts with JV partners, because there's $5 million.
And I was wondering how does the.
The cash Capex of <unk>.
The wood, moving Q1, and whether it would be willing to incorporate the small dominion payments and.
On top of the $2 million to $3 million I think that you are forecasting and Capex for Q1. Thank you.
Okay, Stefan and great to hear from you I will.
And I will answer your first question and then your second question I'll revert over deliver but for your first question and contingent resources related to.
And the license extension beyond.
2028 and.
And the change from 30 million barrels to 18 million barrels of contingent resources. What happened is those that 30 million barrels was actually split into a combination of contingent and prospective resources and so youll see that.
And that there is another.
Sorry, I am sorry, if that's not correct I am sorry the.
We have a management estimate of contingent of prospective resources that we haven't included on the table, but those contingent resources that you see for the extension.
Based on economics, those are Netherlands fuel numbers as we as we get our arms around the seismic and the interpretation of the seismic and we come up with.
The new interpretations of the subsurface we will revise our internal estimates and worked with the Netherlands, who will next year to bring those those volumes back into contingent but again those are those are barrels that would have been produced from 2028% to 2038 and and our view their perspective, and we will we will.
Revisit those reserves as we continue to evaluate our seismic.
And.
Now on your second question.
Yes.
And on the second question the.
The joint venture.
Payables and receivables are really a function of the when they are paying their cash calls.
And so then.
We actually had the receivable as well that was fairly large and at year end and so the net of those came with a $1 $4 million payable.
And and so yes that is.
The new even out over time.
And if we were parfaits.
Getting our cash calls and if the joint owners and pay early that never really be while it never ends and here we have our perfect day forecast of net debt over time and debt.
And Tim towards zero.
And so I would say at year end.
And the $1 4 million, that's not that's a pretty small.
And now the impact on cash flows and the future.
Hi, good morning, Thanks for taking my question.
A couple of questions.
One on cash.
Costs.
And I'd like to focus on the page 28 of your deck.
The cylinders and <unk>.
Compare I'm not sure if you have this available with.
Page eight of your of December deck.
Where the Orange P.
So of the puzzle.
Was $21 <unk> back in December.
And now it's down to 26.
So just curious I know you went over a bunch of numbers down on the <unk>.
Cost side and I Couldnt really.
Kind of the site for them, but.
And we'd love to know what.
The reason for the $5 increase.
Some of your December numbers for the deck.
You've put out today, which include this one I believe the cliff.
And.
The first of all.
And.
The acquisition.
Yes, that's true.
Correct.
So really what's driving most of that increase is the lot of our production volume.
So.
About 90% of our Opex and fixed and so when the production volumes go down the per barrel and now it's going to go and vice versa and so we saw.
Really nice decline in 2020 due to the drilling program.
We have and natural decline aside and the field.
And so this year because.
And we're not doing another program and we won't be bringing on the production.
And so very late in the year, maybe and the following year.
And against that.
That per barrel amount and skin and color now on an absolute basis or our production expense is expected to be comparable between the king airs and.
And at the midpoint of our guidance sequentially.
So for that what we try and the other.
And in part of the challenging because you've got the mixture of.
A portion of the year of being with and without Sasol and so what we did and the press releases we gave the go.
Nice numbers between the kingdom of errors.
And we'll discuss day.
And you'll see that the the midpoint of the guidance.
Close to what the gross number was last year.
Okay.
And should acquire at 16%.
It would.
The 21 of 26 of a lot more of the 15% increase out of.
And for barrel basis is there something else going on and there is a cost of inflation.
And there.
About $4 of the decrease and the increase.
The production rate.
And there is a little bit of the increase overall and production expense, but not.
Not a significant amount the.
The thing that you need to take into consideration and say that.
The prices that we're using here. So you can there is a bit of change.
And at the slightly higher oil prices, you can end up with slightly higher production expense as well.
Because there is.
And there is 10% of it that is.
That is variable.
Okay and the other pieces of the puzzle have also gone up the.
Taxes have gone up.
And 55 Bucks.
For December to.
As of today's deck.
Okay.
Total play a little bit and then the.
G&A of gone up as well.
And Workovers has gone up.
And really fees have gone up is there a reason for for that.
Well I'll ask Paul.
Hey.
The if you're talking about on a car barrel basis the.
Infinity of function of our revenues and.
General and this event of 100% that in general the.
The cash tax that we pay and get out.
Glenn about 10% of our revenue number and.
And the reason for that is that we're getting 80%.
That's the lowest cost per cap rate for that vacated 20% and we pay about 50% of that.
Paid a cash.
Right.
So when youre looking at of $65 oil price and and we're going to end GAAP with a higher cash net of our per barrel.
Because you've got a higher oil price.
In terms of the G&A and tax.
<unk> down on a per barrel basis for last year. So last year, I think we had $6 and 57.
<unk> per barrel of G&A costs and.
And here, we're forecasting of that $4 per barrel and.
The G&A cost and then.
The December the December deck showed $3 40 for after the.
Looking ahead of pre and post the for acquisition after acquisition and sort of $3 40 for after the acquisition and and today. It's for box so that was the.
It's a pretty significant percentage of decrease in the.
And that slice of the pie.
Yes, and thats going to be more a function of.
At the lower volumes and 2020 line.
Okay.
Yes. My next question, if I can where do you think the stack of looks after year 'twenty 'twenty, one 'twenty two drilling program.
And where does your breakeven free cash flow go.
Yeah.
From the two.
We haven't given any guidance on that but one thing I can tell you is so for example last drilling program we.
There is a slide that shows the uplift and.
And that was about 6900 barrels per day for us okay.
And Eric mentioned in his comments and it's also in the press release from the next program, we are expecting and uplift after the programs completed at somewhere between 7000 and.
And 8000 barrels a day for us. So you can kind of is that of the guy okay.
To help you understand okay, what was <unk> <unk>.
<unk> look like.
As additional barrel I mean, obviously, it's going to have a significant impact comparability.
And what we saw in 2020.
The 2019 for <unk> drilling program.
But we haven't given and then we haven't given any guidance for for 2020 K debt the debt.
That should help the at least directionally and understand where we're the per barrel cost per gallon.
Okay and then my final question will be.
And just calculating free cash flow.
Over the course of the year and.
Putting that up against the HD.
The VAALCO of portion of the.
Of the Capex program, the drilling program 'twenty, one 'twenty two and it starts later this year.
What are you going to do you have enough cash I guess between cash on hand, and cash being generated it looks like youre going to be okay, or do you plan on staffing of bank.
No based on current oil pricing, we expect to fund the.
The next drilling campaign from cash on hand.
Okay, and the hedging and will protect some of that is what youre, saying.
Yes, and that is exactly why we put the hedging in place of correct.
Youre layering more and more.
More hedges as we speak kind of thing or not.
Got it.
I'm, sorry, I interrupted you were not layering any hedges not right now layering on any new hedges not right now, but we are always considering new hedges.
Okay, alright, great, thanks, and I'll yield the floor.
Thank you. Thank you.
Our next question comes from builds the zone with tires and capital. Please go ahead. Thank.
Thank you a couple of questions. The first of all can you discuss the December lifting and why it was delayed to January and then secondarily because oil prices did go up and January versus December how much was the benefit.
<unk>.
Sure Hi, Bill Thanks for the questions Okay.
The delay and the lifting of the delay and the December. So the January was a function of a couple of things first it was a function of the COVID-19 protocols. We have in place there was the concern the right before the lifting started that there was an infected person.
And on the <unk> as it turns out the person was not infected it was the false positive but.
And with all of our precautions that we have and place it was more important to keep our employees safe and healthy and we decided to pause and and delayed the lifting until we were certainly that the COVID-19.
And again that our employees were safe and healthy. So that was that was the initial delay and then secondarily there were some operational issues we had a.
The claim that was not working on the support vessel not of cream for the which I'm, sorry of which that was not properly functioning on the support vessel the cost of just a few days, but the.
The really the delay of from December to January was primarily the COVID-19 protocols and our commitment to keep our employees safe.
And the.
Benefit.
And the benefit was $5 a barrel that's right.
You had.
So the average price if we have done it in December of the average would've been around $50 and that's that's kind of what we indicated that the $7 8 million and and the 155000 barrel.
And January prices ended up being around $55 per se.
Roughly.
700 to 800000 benefit for us.
Excellent and congratulations I guess on not having the positive COVID-19 and the and the next for three quarters of the million dollars in your pocket.
Okay, all right. Thank you Bill.
Hum.
I apologize Mr Zone, please rejoin the queue.
And the main part of our next question today is from Charlie Scharf of Canaccord. Please go ahead.
Okay.
Yes. Good morning, Thank you very much for a comprehensive update this morning really appreciate that.
A couple of questions. If I may one is I think of exploring the little bit more and earlier question.
Regarding.
The development program and you have coming out of the drilling program at the end of this year and then for next year.
And so asking the same question.
The question, but and a slightly different way.
Lots of oil price do you think you need.
And from the outlook for production and the cost structure you have at the moment.
To be able to finance fully.
Program.
And that's one question and then secondly, with the <unk>.
Contracts expiring.
Late next year.
Should we be concerned about potential uplift and.
Cost structure associated with a replacement for an extension of that.
Thank you.
Okay.
And the drilling campaign and Aetna.
And at current oil prices that we see adding we should be able to fund that easily with cash on hand, and cash flows of eight generated between now and and the time of the fire ground.
And so.
While we had a display kind of a breakeven oil price or anything like that and the liard.
We are at and we're happy with the the current oil prices from a funding perspective.
And.
And then on the FCS EMEA DSO, Charlie and good to hear from you and so you are correct RFP ASO contract is expiring next year and September and so we're looking at a couple of alternatives either I would like to mentioned, replacing the DSO or extending.
And the life of the existing of VSO, which has been the tipo <unk> and so I will say that both of those options require some upfront costs of course, if we replace the DSO theres the installation cost and things and then if we keep the and our people are on station there are life extension cost and so we're working through those.
Cost estimates now and.
We have not made the decision, but as soon as we have made a decision on which path. We will take we will disclose those upfront costs. So there are upfront cost, but I will say that we do expect long term cost to be less weather.
And so there again in a nutshell there will be some upfront cost, but long term, we expect cost to be lower.
That's great. Thank you.
Yes.
And our next question for is for build a zone, where tires and capital. Please go ahead Sir.
Circling back to the drilling program.
Uh huh.
And to make sure that we're getting this right that if we look at your forecasted production.
For 2021 and.
And the forecast and at the midpoint and your forecasted production from the drilling program at the mid point of are we doing the math correctly that that's approximately a 60% increase and production.
Yes.
And.
I think mechanically that correct. However, the seven to 8000 is.
<unk> range at the end of the at the end of the program that you are going to happen and and you're going to have to look at 2020 on a full year basis.
Sure.
And obviously youre not cash.
And the production that production for the entirety of Air and you may get it at the end of the program and one of the reasons and and we didn't get we.
We didn't try to get 2020 Q.
The production because of at this point.
We don't have and we.
We are forecasting and we're going to start the program and <unk>.
And of our.
Late in 2012 was the therapy and things of that could shift that for of our hit the back <unk>.
On the right contract and are indicating and.
Other thing so at this point with Lilly and will be very difficult to give any kind of full year production rates for 2020 day.
Okay understood, but mechanically.
If if the drilling program.
We were to just look at it in isolation and relative to the 2021 production. It is that roughly 60% increase and then.
The 22 production relative to 'twenty, one will simply be a function of the timing of when that program comes into play and and the natural decline rate.
Don't forget the natural decline because of that.
I mean is there.
Listing losses will continue the case decline over time and training.
Oh, that's that's very helpful and and just as a reminder, for us and I apologize for not knowing this off the top of my head.
And that the equivalent of mechanical calculation with your last drilling program.
This this seems larger to me and just really a big the.
The production benefit.
There is the on slide 10, and the deck and.
That kind of <unk> I think that and.
For 2019, we had add.
On a gross basis for 8000 barrels a day.
And the uplift was 6900 correctly and we ended up with 1800.
The decline.
8900, it is not quite 15% that it's a little bit less of that and then.
And then we ended up.
And the overall average for the year with.
Just the low 18000 of year.
Hi, Barry.
Thank you I have not seen that slides. So just again I did the math quickly. This is the prior program was slightly less meaning that this new program of slightly more in terms of that mechanical calculation.
Yes.
Excellent and so then the.
The follow on here.
Do you need to expand the capacity of the Fps of whether it be the one on site or a new one to accommodate the this significant increase in production that is forthcoming.
Well we are.
And of course.
Looking into the design of a replacement and vessel and we would maximize the the production capacity theres other alternatives as well, but yes.
It is underpinned the capacity of the production capacity of the DSO is definitely under consideration and not only the production capacity, but the storage capacity, we want plenty of storage of we're producing at high rates and so you are right Bill all of those are under consideration right now and part of the analysis that is ongoing.
Yeah.
Well congratulations and thank you.
Okay. Thank you Bill.
And our next question today comes from Gary True Triple Home capital. Please go ahead.
Hi, guys, congratulations on the quarter and and.
Again on the deal which looks like it was just an outstanding acquisition for you guys.
And thank you Garrett.
The one question I had is the 10-K states the cost recovery account is at $51 million should we expect that to increase.
In conjunction with the closing of the SaaS fall deal.
And we would acquire.
And that's all share of that now this is that the king size.
The adjustments and thanks. So we are capped at the size number of that there should be and increase yet.
And should it be like in the ballpark of and 80% or.
And.
There's a lot there's a lot of factors that go into day candidly.
Limitations on depending on the slate you pay for it and and.
The value at the time and.
Hi.
Ed.
And we'll keep in mind that thats of interest for the cable said that when we when we make our displeasure and the first quarter. We can we can do.
That are adding that the.
Maybe it should go up but I can't comment on whether it's 70.
And 80% increase or not.
Understood, Okay and for the Sps, So and the 10-K it states that it can process approximately 25000 of 30000 barrels of fluid per day.
And so is the right way to think about it the the capacity for this vessel is 25000, the 30000 gross barrels of production per day.
Right right the way to think about it is it's the capacity is 25000 barrels of oil per day, plus we could send through another 5000 barrels of water per day. So it's 25000 barrels of oil per day or 30000 barrels of a combination of oil and water, but keep in mind that we.
Kind of processing capacity on all four of our platforms, we removed the majority of the water on our platforms and so.
The way to think about it and if there's 25000 barrels of oil per day production capacity on the <unk>.
Yes.
Understood, Okay and the gross the.
Tom has been running I mean and in your slide you of it kind of peaking out and.
The early part of 2020 at around 20000 and.
And then going up to.
22000, and later in 2022, so it still seems like there is excess capacity on the vessel.
Which is provides a lot of leverage for you guys to the extent that you can increase production and fill it up.
Hmm.
Or potentially if you feel like that's not realistic getting the smaller vessel one of the lease expires is that kind of how youre thinking about it.
Well the way, we're thinking about it is youre right and we've managed over the past 20 years, two to drill and produce the field at 15% to 20 between 15% and 25000 barrels a day trying to utilize the full capacity now going forward like you mentioned September of next year and we believe they are rich.
Place or.
Extending our deeper and our our ambition is to increase capacity next September.
And so thats, our ambition, but it has to come at the right price and so we have to look at what is the cost of increasing the capacity versus the.
The possibilities that we have to fill that capacity. So all of that is under consideration, but I would say, we would lean towards increasing the capacity as of late.
Okay.
And is this.
I mean, it sounds like you said that you thought the total cost.
The decrease.
Is there any reason to think the leases.
Significantly above or below market or is it sort of reset the market rates with the recent extensions.
Well.
The overall market is not as active as it was 20 years ago. When we installed the of DSO and then again I think it was 2012, when we amended the contract and so what we're what we're looking at again as we will have some upfront costs, but in this current market, we see the opportunity to.
And reduce costs.
Long term.
Understood.
And just looking at your slide.
On the deal and you guys paid $44 million for millions of that was the deposit and then the.
That was the agreed price and then the cash that you are paying is gonna be 30.
So the way I look at that as the this generated.
$10 million and cash and and.
The eight month period at $45 of brand and so that's three times.
The cash or pain.
And obviously, it's a lot higher now so that just seems like an incredible deal.
I think the other thing to keep in mind that during that time periods and the seismic program and so instead of that $10 million with Barclays of by a quarter of seismic so it's actually.
Excluding the bottleneck.
<unk> is at the end.
And we're looking more at <unk>.
Yes, and more carefully and operating costs ongoing operating profit the number would have been higher.
Wow, Okay, alright, well I mean, thats, just a great deal and it's a wonderful deal for shareholders. So we commend you guys. Thank you.
Thank you and we appreciate the feedback.
And our next question for you as a follow up from just the science and Todd with office advisories. Please go ahead.
And just how again guys.
The two further questions for me can you say anything more on the plan for block P.
So the memorandum of understanding for the full amount.
As the expired.
And that's still remain.
We see very interesting assets on price he is much higher which probably means that you.
Even smaller of resources up will be more commercial that the look just six months ago. So sort of how you are you seeing the.
The sequence of events for the block and with all your foot process and 17 of the simple one I once again looking at the aging program. The 53, the at all of about six.
Fixed price or that's the floor. If you can please remind me thank you.
Okay, Stefan and thanks for the quick.
And on block P. And you are correct. The memorandum of understanding we have with Levine and has expired and that was and.
And the agreement for the deemed to come in and carry us on the cost of an exploration well and so those of those discussions are still underway with levine, but since the Mou has expired we broadened the discussions with other companies and so there is there's a couple of different outcomes and so we are just one outcome that we're still pursuing as define.
The partner.
The two carry us on an exploration well and were certainly.
Certainly still pursuing that option and then Youre correct at these higher oil prices.
Another option that we have under evaluation.
And executing a standalone development of the.
The the Venus discovery on block P and so right now we're evaluating both of those options and we haven't committed to either one yet, but they're both very robust.
The robust options and like I've said in my earlier comments the.
The Venus discovery on block P of 16 million barrels of gross resources and we're looking at and we're looking for and evaluating cost effective development of our alternatives are opportunities I should say in the event, we don't drilling exploration wells and the event, we can't find the partner to fund the so so that is the <unk>.
Date of play for block P and Equatorial Guinea, and if you don't mind Stefan could you repeat your second question for us.
That was around the aging program and it.
And so detailed question of whether the could you remind me whether the 50 each day don't pay a barrel ease of fixed price or whether it's just the fuel so that we can benefit from the upside and the current oil price for the volume.
The the head.
Of the swaps I think of fixed price of 53 cash okay.
Okay.
Okay. Thank you.
And the Bakken block P.
Okay.
Hitting that low.
And.
It's true.
She has come to a policy and the city is not.
Do you get any sort of.
The expression of interest for making the parties always there and the risk of Mike.
And again from scratch or the exploration somehow.
On the on the exploration side I can't really comment on the interest and other parties. Those we're still we're still negotiating and talking to other parties. So I really at this stage I cant comment on the level of interest.
Save that.
Levine I can't speak for what's happening internally with the with Levine and their management and the strategy, but I can say that they chose not to.
Extend of the memorandum of understanding or memorandum.
Mou that we have with them to get to an agreement.
And I hope this reached a farmout agreement so.
And clearly their level of interest has changed and they have not extended the Mou, but we are still in discussions with Levine.
Thank you.
And ladies and gentlemen. This concludes the question and answer session I would like to turn the conference back over to the management team for any final remarks.
Sure. Thank you operator.
And just wanted to say thank you for everyone's interest and we look forward to your participation and our next earnings call Goodbye for now.
Thank you service concludes today's conference call you may all disconnect your lines and have a wonderful day.