Q1 2021 VAALCO Energy Inc Earnings Call
Good morning, everyone and welcome to the VAALCO Energy's first quarter 2021 earnings conference call.
All participants will be in a listen only mode.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one to withdraw your questions. You May Press Star and two. Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Al Petrie Investor Relations coordinator Sir. Please go ahead.
Thank you Jamie good morning, everyone and welcome to VAALCO Energy's first quarter 2021 conference call. After I cover the forward looking statements George Maxwell who was named CEO in April will review key highlights along with operational results, Jason Dornoch, Our Chief Accounting Officer and controller well then.
A more in depth financial review George will then return for some closing comments before we take your questions <unk>.
During our Q&A session. We ask you to 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 a Q1 2021 supplemental investor deck on our website. This morning that has additional financial analysis comparisons and guidance that should be helpful.
With that let me proceed with our forward looking statement comments during.
During the course of this conference call. 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 may differ materially from those projected in the forward looking statements VAALCO disclaims any intention or obligation to us.
Date 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 on our website and in the reports we file with the SEC.
Including the form 10-Q that was filed yesterday. Please note. The conference call is being recorded and let me now turn the call over to George.
Oh, Thank you very much food production.
Good morning, everyone and welcome to our first quarter 2021 earnings conference call.
It's a pleasure for me to speak with you. This morning is my first call as <unk>, New Chief Executive.
Before we discuss our results.
I'd like to take a few moments just fine jewelry bangs for his dedication and valued years of executive leadership for VAALCO.
He was an integral part of our success on the wishing well in his future endeavors.
At this point, let me give you some.
Number of significant accomplishments he helped to VAALCO achieved this past year.
These testing in an enviable position to achieve meaningful on a.
The long term gross.
In early 2020 on the heels of a highly successful drilling campaign that included three development wells on.
On exceeded expectations on.
Two successful appraisal well bores the world economy on the energy industry was severely impacted by COVID-19.
We saw oil price and full sharply due to the global pandemic as well as supply and demand imbalances.
Despite these difficulties VAALCO continued to generate positive free cash flow through 2020.
In large part to our strong production increase.
2020 production was 40% higher year over year.
Results in mobility <unk> success.
We also had hedges in place last June.
Yes, good protection when oil prices fell dramatically.
We were able to overcome the challenges in 2020, while maintaining a strong balance sheet.
Financial flexibility.
This gave us the ability to capture value accretive acquisition opportunity that arose late in 2020.
We closed the acquisition of SaaS sales 27, 8% working interest you Tony in February 2021, utilizing cash on hand.
We believe the deal was bad and it features to VAALCO.
It is improving our margins.
Significantly increasing our production.
On the price we paid per net barrel of oil.
What's the range of $4 90, a sub $5 for two P. CPR.
<unk> zone.
This is excellent pricing.
Since we already operate the asset.
The minimal increase in G&A expense on there is no integration needed on Nemo.
I'm sorry on we will immediately benefit from the acquisition.
With the additional production that transaction brings us along with the strong recovery in oil pricing, we're projected continued meaningful free cash flow generation going forward.
I'll now talk a little bit on the Q1 2021 results.
On the operational results, we had a very strong first quarter on.
So just on that.
We took price I was in 180 net barrels of oil per day.
This was an increase of 11% over the fourth quarter of 2020.
Driven by the inclusion of one month of the increased NOI production due to the SaaS oil acquisition.
Yeah.
Our second quarter 2021 production.
We include an entire quarter with the additional sample volume.
The midpoint of second quarter production guidance is that 52% increase over our first quarter 2021 average production.
With that said, we will continue to comply with Gabonese OPEC production curtailment kudos.
We are now forecasting to continue into the second quarter.
In the second quarter of 2021 on production is expected to average between 7600 <unk> on eighth.
8200 net barrels of oil per day.
This is a bit lower than the estimated earlier this year from Q2 before we knew the extent of the OPEC curtailments.
The reduction is purely due to the production curtailments on any unexpected.
Yes.
Production guidance for the remainder of 2021 includes the full production impact of the SaaS total acquisition.
During the second half of 2021.
We are planning on annual seven day maintenance turnaround and we are not currently forecasting any material production uplift from the upcoming drilling campaign.
Taking into account natural decline as well, we expect the second half of 2021 to average between 7200 on 8000 barrels of oil net.
Good day.
Which is a bit higher than our prior second half guidance of 7000 137800 barrels of oil per day.
From an earnings perspective.
We were very pleased with our net income of $9 9 million, which on a diluted share basis is just 117 per share.
For the first quarter of 2021, which compare very favorably with a net loss of $3 6 million in the fourth quarter of 2020 on.
Net loss of $52 8 million on the first quarter of 2020.
Okay.
The first quarter of 2021 reflected stronger revenue due to higher realized pricing and strong sales.
I want to also point.
First quarter 2021 earnings included a non cash bargain purchase gain.
This is further evidence of how attractive this acquisition was for VAALCO.
It's pretty rare to be called a gain on an asset purchase the average was due to the lower oil price outlook used from the sale and purchase agreement was signed last November.
Right.
On page two higher oil price outlook on the closing date at February 2025.
February 25 2021.
With a fair value of the reserves associated with the acquisition were determined.
We also reported adjusted EBITDA of $18 million on the first quarter, which was more than five times on it.
Adjusted EBITDA in the fourth quarter of 2020.
Adjusted EBITDAX for the first quarter of 2021 was likewise significantly higher than the fourth quarter due to increased sales volume and improved realized prices.
We are happy with the ongoing strength of the oil price environment and with a significant increase.
Option he wanted to lock in a meaningful portion of our free cash flow and adjusted EBITDAX.
With that in mind over the past week, we have added additional swaps on.
Brent weighted average price of $66 51 per barrel.
672533 barrels of oil.
For me 2021 through October 2021.
And total bulk on the 70% of its production hedged through October 2021.
They did Brent weighted average price of $62 27 per Boe.
This will allow us to generate on build enough cash to fully fund all of our capital commitments, including our 2021 and 2022 drilling campaign on any potential capital associated with the <unk> conversion.
In addition, please.
We will still retain potential upside from higher oil prices. This year since not all of our production day sales and the new contracts one for just the next six months.
Looking at our 2021 2022 drilling campaign.
Turning your attention to the future our strategic vision is built on a tissue a TTM growth through organic drilling opportunities.
Through acquisitions.
As you know the success of our 2019 2020 drilling campaign has built a solid foundation for future drilling campaigns at Tommy.
With the central acquisition closed.
The acquisition of new <unk> seismic over the Etame block complete on.
On the improved oil pricing, allowing us to lock in strong cash flow.
We believe with time, Inc. Right to execute another successful drilling campaign to continue adding reserves on production over the next several years at the time.
We're planning to drill up to four wells starting in the fourth quarter of 2021 on finishing in 2022.
We are currently expecting to build two development wells and two appraisal wells.
There are continued there are opportunities for sidetrack me interest that will reduce drilling costs and assess loon risk reserves and production.
We don't have a physical locations that we believe could offer meaningful upside, but it is not currently reflected within our reserve report.
Yeah.
The final well locations will be determined in conjunction with our processing of the new three D seismic data we acquired.
Given the formal program is six.
The estimated increase in raw steel production is 17 barrels of oil per day.
Net 3500 to full size on 100 barrels of oil to be too vocal on the drilling campaign is completed in 2022.
Hmm with the production increase will be margin expansion on per barrel cost reductions.
About 90% of our production costs are fixed and does production increases our per barrel costs will decrease dramatically.
Every new bottle, we bring on line, it's more on economic because of the low variable costs. So as we grow production, but also going on margin per barrel on reducing our cost per barrel.
From a capital standpoint.
We estimate the cost of the program is between 115 on the 125 million gross or <unk> 73 to 79 million net to VAALCO.
Yeah coming drilling campaign has the potential to generate significant additional free cash flow, especially when you combine the sustained high oil higher oil prices with our low cost operating structure.
Our strategy is to utilize the additional free cash flow to fund organic on potentially inorganic transformation transformative growth opportunities in the future.
I'll now move on to talk about the recent announcement on the missile.
In line with our strategy to be a low cost operator, we are constantly looking at ways to minimize cost and improve our margins.
A number of weeks ago, we announced that we signed a nonbinding letter of intent with only off short term mills can provide on pulp right.
So unit bulk was at Tommy Marine field.
Super Bowl.
We're up to 11 years on the exploration of the current S. DSO contract with Dws sure, which expires in September 2022.
Yeah.
Accordingly.
Total costs.
That equates to around 40% of our total production expense.
On the air sole proposal would reduce focus total operating costs by 15% to 25% income.
To the current Fts's contract during the term of the proposed agreement.
The fall in the drilling campaign and completion in 2022 on when we bring on the new assay. So we will see a significant increase in production on the total cost to decrease substantially.
This will dramatically improve our margin per barrel and we will be able to deliver more free cash flow to fund to fund future growth opportunities.
As a reminder, whether we decide decided to maintain the current on Fps oil beyond its existing contract or transitioned to a different option either development approach would require a substantial capital investment Corp.
As part of the episodic approach with on me.
We'll need to meet on the estimated capital investment of between $25 million to $32 million net to VAALCO, which includes the required field reconfiguration.
We're expecting approximately 20% will be invested in the second half of 2021 on the balance in 2022.
But given the high amount of cost savings, we expect a payback of less than three years on this investment.
And then you've seen configuration day episodes.
Store on on off road the production on.
Gross production on processing will be completed on our existing platforms.
We are engaging in further discussions with the intent to finalize a definitive agreement soon.
Yeah.
Yeah.
I would now like to give you a quick update on activity in Equatorial Guinea.
We have a substantial working interest in block P and we are at.
Volume thing several development step out exploration opportunities in block P.
Well several attractive undeveloped discoveries on the block from private operators on.
Given the current.
Oil price outlook, we believe we can economically developed these discoveries.
Well, you mean excited about Equatorial Guinea, and we're working to profitably exploit the resource potential on plan.
On to update you on the second quarter with more information.
So in closing and this first statement and summary.
Alright standing employees continue to operate and execute on VAALCO strategy of accretive growth on free cash flow generation should.
Cost effectively maintaining core production.
We have a strong balance sheet on without increased production base on new hedges, we have locked in sufficient cash flow to fund their entire upcoming capital obligations, whilst maintaining upsides.
Looking at the updated Q1 supplemental presentation on our website you will see that at $65 realized oil price, which is about <unk>.
We believe we are taking into account our hedges on current strip pricing.
VAALCO will generate around $65 million and see cash flow this year, excluding before capex.
When you look on our current stock price. We are currently trading at two five times on multiple of free cash flow for 2021 and 2022.
Assuming continued strong pricing with additional production coming on line from the drilling campaign on the potential for significant cost reductions fall into SSO J&J, we should generate to generate even more free cash flow.
So with those debt no I would like to turn the call over to Jason to share more detail on our financial results. Thank you Jay.
Awesome.
Thank you George and good morning, everyone.
We reported strong net income of $9 9 million or 17 cents per diluted share in the first quarter of 2021, which included a $7 7 million noncash bargain purchase gain which was offset by $6 million loss on derivative instruments.
For $2 million of the loss on derivative instruments was an unrealized loss.
As George mentioned, the first quarter reflected significant increase in sales and realized pricing.
For comparison purposes in the fourth quarter of 2020, we reported a net loss of $3 6 million or six cents per diluted share, which included the impact of $3 6 million in exploration expense related to the <unk> seismic program during the quarter and $2 2 million of expense related to stock based compensation.
For the first quarter of 2020, we reported a net loss of $52 8 million or <unk> 91 per diluted share, which included $30 6 million noncash impairment charge due to due to lower crude oil prices and noncash deferred income tax charge of $35 6 million.
Our adjusted net income for the first quarter of 2021 totaled $8 7 million or <unk> 15 per diluted share as compared to an adjusted net loss of $5 6 million or 10 cents per day.
Diluted share for the fourth quarter of 2020.
The increase in earnings was mainly due to higher revenues as a result of higher oil prices higher sales.
In the first quarter of 2020 non.
VAALCO reported at $6 9 million and adjusted net income or <unk> 12 per diluted share.
Adjusted EBITDAX totaled $18 million in the first quarter of 'twenty, one compared with $3 5 million in the prior quarter and $6 million in the same period of 2020.
Adjusted EBITDAX for the first quarter of 2021 was higher than both prior periods, primarily due to increased sales volumes and higher realized prices.
Production for the first quarter of 5180 net barrels oil per day increased 11% from 4662 net barrels of oil per day in the fourth quarter of 2020, driven by the SaaS. All acquisition volume is being included in the company's results. After the closing date of February 25.
2021.
First quarter 2021 production was up 5% from the first quarter of 2020.
Sales volumes in the first quarter of 2021 was up 113% from the fourth quarter and up 111% compared to the same period in 2020.
The increase in volumes in the first quarter of 2021 and that was primarily due to additional interest acquired and thus higher sales. Following the closing on the Sasol acquisition as well as three listings in Q1 2021 versus two listings in both the first and fourth quarter of 2020.
Our crude oil price realizations increased 46% to $61 on 31 per barrel in the first quarter on 2021 versus $42 seven per barrel in the fourth quarter of 2020 was up 3% compared to $59 54 per barrel in the first quarter of 2020.
In January we entered into a new crude oil commodity swap agreements for a total of 700 non 262 barrels at a dated Brent weighted average price of $53 10 per barrel for the period from and including February 2021 through January 2022 East.
Swaps settle on a monthly basis.
Additionally in May we added more crude oil swaps of 672533 barrels at a dated Brent weighted average price of $66 51 per barrel for the period from and including May 2021 through October 2021.
As George mentioned, we hedge a significant portion of our production volumes to lock in strong cash flows, which will enable VAALCO to fund our 2021 2022 drilling program.
On capital program.
Any potential future stock buyback program and still allow for some additional upside.
We took similar actions in 2019 before we began on 2019 2020 program and we'll continue to assess our needs to mitigate price risk and protect cash flow in the future as we consider any additional future derivative contracts.
Turning to expenses production expense, excluding workovers for the first quarter of 2021 was $16 million, which is higher than the $6 6 million in the fourth quarter of 2020, and $6 9 million in the first quarter of 2020, primarily due to higher sales on an increased working interest associated with SaaS on the acquisition.
The per unit production expense, excluding workovers at $26.06 per barrel in the first quarter of 2021 increased as compared to $22 26 per barrel in the fourth quarter of 2020 and $23.
<unk> 39 in Q1 2020.
On the per unit production expense, excluding Workovers increase was primarily due to higher crude oil inventory costs. As a result of the SaaS on acquisition and S. TSA charter costs.
Included in total production expense on COVID-19 related costs incurred to protect the health and safety of.
The company's employees, which totaled approximately <unk> <unk>.
$6 million in the first quarter of 2020 compared to <unk> 4 million in the fourth quarter of 2020.
Production expense for the second quarter of 2021 is projected to be between $15 million and $17 million or $24 50 to $27 per barrel of oil sales.
Keep in mind that all of the guidance. We're providing today includes the positive impact from the additional volumes we acquired from the SaaS all effective on the day, we closed February 25 2021.
So the second quarter of 2021 will include all three months of financial results with Sasol is interest included on.
Our production expense guidance excludes any potential future impacts from the COVID-19 pandemic not currently being experienced.
DD&A for the first quarter was $4 1 million or $6 70.
Net barrel of oil sales compared with $1 3 million or $4 37 per barrel in the fourth quarter of 2020, and $3 1 million or $10 55 per barrel in the first quarter of 2020.
DD&A was higher comparable to the fourth quarter of 2020 due to higher depletable costs associated with the Sasol acquisition and increased sales.
The Q1 2020, the DD&A rate was lower in the first quarter of 2020 due to the added costs associated with the 2019 2020 drilling campaign being included in the Depletable base in 2020.
General.
Administrative expense for the first quarter of 2021, excluding stock based compensation expense was $3 million compared with $2 5 million in the fourth quarter of 2020, and $3 4 million in the first quarter of 2020. The increase in Q1 2021 compared to Q4 'twenty results on increased employer taxes and increased 401 contribution.
Contributions due to larger employee contributions and their 401, K increased salaries increased legal fees and higher accounting and audit related fees.
The per unit G&A rate, excluding stock based compensation expense in the first quarter of 2021.
$4 83 per barrel of oil sales with significantly lower than both the fourth quarter and the first quarter of 2020 due to increased sales volumes.
For the second quarter.
Forecasting G&A, excluding stock based compensation to be between three and a half million dollars in four and a half million on.
Sure.
$5 60 to $7 20 per barrel.
Noncash stock based compensation expense was impacted by the change in as far as liability as a result of changes in the company's stock price during the quarter.
For the first quarter of 2021 stock based compensation expense related to Sars was an expense of $1 2 million compared to a benefit of $2 7 million for the first quarter of 2020 for the fourth quarter of 2020, there was an expense of $1 9 million related to Sars.
Turning now to taxes income tax expense for the three months ended March 31, 2021 was $3 $1 million. This is comprised of $1 3 million of deferred tax benefit and a current tax provision of $3 4 million.
The deferred income tax.
Expense for the three months ended March 31, 2021 included a $2 2 million income tax benefit associated with the SaaS on acquisition.
Income tax expense for the fourth quarter of 2020, including a $2 8 million deferred tax benefit on a current tax provision of $2 million Inc.
Income tax expense for the first quarter of 2020 included a $35 7 million of deferred tax expense and a current tax benefit of $2 2 million.
Since March 2020, Davos overall effective tax rate was impacted by non deductible items associated with the operations and deducting foreign taxes, rather than credit in that for U S tax purposes.
At March 31, 2021, we had an unrestricted cash balance of $19 3 million, which included $1 7 million in net Julien owner advances.
Working capital at March 31, 2020 was a negative $15 8 million compared with a positive $11 4 million at December 31, 2020, while adjusted working capital at March 31, 2021 totaled a negative $2 7 million compared with a positive $24 3 million at December 31, two.
20.
For the first quarter of 2020 net capital expenditures, excluding acquisitions totaled $1 2 million on a cash basis and $2 5 million on an accrual basis. These expenditures were primarily related to equipment enhancements as well as early costs associated with the next drilling program.
As has been the case since the second quarter of 2018, we are carrying no debt.
With this I will now turn the call back over to George.
Okay.
Thank you, Jason and thank you for that.
I'll just do some closing comments.
I was gonna look on 2021 on beyond this is a very exciting time for VAALCO.
I believe it is part of the business as a sustainable in order to provide benefits to all stakeholders with a focus on growth and Investor returns. This is one of my guiding principles are successfully applied in my previous executive roles and I am energized to build the named executive a successful foundation and lead the existing teams to grow.
VAALCO to the next level.
Our board has empowered the management team to create a working environment.
The assurance I would success as a trusted operator, a generous partner to the communities, where we operate on a good stewards to the environment.
We are enhancing our presence in the UK and international markets. A move that we believe will support VAALCO is accretive growth strategy and maximize shareholder returns.
We have a strong asset base of determining that is generating meaningful free cash flow on the current pricing environment, which was evident in our Q1 2021 results.
Sustained operational excellence and robust financial performance at Tommy serves as a foundation for growing VAALCO through the organic drilling on future accretive acquisition opportunities in line with our strategy.
As an example of our commitment to sustained operational excellence, we have signed an LOI for a new physical unit, but will reduce operating costs by 15% to 25% and provide us additional operational flexibility moving forward.
In April of this year, we also purchased a hydraulic workover unit.
We have used in the past for less than $2 million for total consideration.
This unit is in Gabon on ready to be deployed a moment's notice.
It will allow us to respond to any well downtime issue quickly, which will save us significant time production and cash festival shoot on ESP unit Good day.
Additionally.
It allows us to be proactive in changing Inc, ESP and performing Workovers, which will further improve our operational uptime on determining.
But we are not simply looking to maintain production in Gabon in EG, there are meaningful development opportunities on our blocks in both countries that can enhance our business and provides a strong platform for organic growth and increased cash flow.
As we continue to increase cash flow. We will also evaluate ways to return some of that free cash flow to sue.
Well cliffs developed shareholder share repurchase programs in the past on we will consider similar programs in the future as well as potential dividends to complement our growth strategy.
But as you can see we are executing our strategy strategic vision on profitability.
Drilling vocal wait.
This year, we will begin another drilling campaign to Tony on with our recent additional hedges we have locked in sufficient cash flow generation from operations to fully fund this program, regardless of the oil price environment.
We believe the bulk of has a bright future and we remain committed to sustainably growing vocal through accretive acquisitions and successful drilling campaigns at Etame.
With that I would like to thank you on pass this back to the operator for was ready to take questions.
Ladies and gentlemen at this point, we'll begin the question and answer session.
I ask a question you May press Star and then one using a touch tone telephone.
To withdraw your question you May press Star and two.
If you are using a speaker phone we do ask you. Please pickup your handset before pressing the keys to ensure the best sound quality.
Once again that is still on and that wanted to ask a question.
We'll pause momentarily to assemble the roster.
And our first question today comes from John White from Roth Capital. Please go ahead with your question.
George.
Let me offer my congratulations on your appointment as CEO of VAALCO.
Thank you John.
My first question is regarding the switch.
<unk> switch from the F E L F and so you.
You've talked in detail about reduction in operating costs.
I believe you touched on capacity, but could you talk a little bit more about capacity and.
The ability of the new assay, so to handle higher production in future years.
Yes of course, I can do that.
<unk>.
We closed yesterday, so that we're at.
We signed a letter of intent on is a suezmax capacity with the storage of in excess of 1 million bottles.
So how's the capability for us too.
On.
Discharge larger parcel sizes for on crude oil sales.
Hey, avoids the risk of us.
Coming to <unk>, Tox, which is one of the issues that occasionally and per.
<unk> operations on operations.
With smaller storage capabilities, such as the current Sps so that we have at the moment.
It's also.
Younger vessel than the one that's currently in the field by at least 20 years and we have obesity the benefits on the technology of a younger vessel.
On that come with that so when we look at the economics.
It clearly is the vast reduction in the the lease cost.
Chaco on O&M position, that's giving us the initial drive.
That we are we announced in the.
Rns, a few weeks ago, but there is the added potential due to start looking at larger cargo sizes, which will give us a deficiency of oil price when we look at the sales bounds.
Hopefully that answered your question.
Yes, thank you for that detail.
With production about 70% hedged for most of the year.
Is there any consideration to start a new drilling program sooner.
Or do you still need some time to work on the new seismic that was shot a latter part of 2020 early 'twenty or 'twenty one.
Yeah, No. That's that's a good question, but do you ever even embarking on these types of campaigns. There on three key elements that you have to consider before you you.
You make a commitment on timing.
The first and most obvious key consideration as financial so how do you put yourself in a position where you can commit to the campaign without putting the company on any sort of financial stress.
We've done that.
The second point that you touched on is are we comfortable with the surface on sub surface location targets for both the step out wells on the appraisals.
Relation to.
The processing that's currently underway on for the timing of the wells were very comfortable with that position right now.
The probability of success on these wells will not change and any substantive form based on the reprocessing they need when they moved the subsurface total get by Amit <unk>, but nothing nothing more than that.
But the third and most important thing to consider when you're looking to execute.
We executed a program such as that versus making sure that you have all the assets in place at the right time.
And does that those assets and they'll be able to you and ready and able to execute the program when you're ready to commit to it.
And currently we're looking at assets that fit into that time horizon that we would consider it.
It would really be.
A little bit of a stretch to move that forward.
So that's really the pacing item for us with regard to the timing of the program right now it was asset availability.
And when you talk about assay.
Youre talking about drilling rig that meet your requirements.
Absolutely are looking at I mean of course globally. There are lots of drilling rigs available, but we try to optimize that both with the drilling rig capability on geographical location that can reduce the northern demob costs. So that's really the pacing item for us.
Okay. Thanks.
You for that and I'll pass it all along and I may jump back in the queue.
Okay. Thanks, Our next question comes on.
Our next question comes from Steven <unk> from <unk> Advisors. Please go ahead with your question.
Hi, guys. Its a stiff on Foucault. Thanks for taking my question I've got two the first one east around.
Around the U S. S. R. L Y what would you expect to fill in the debt at Hawaii on something.
Committed.
Committed and why is it just in N y rather than.
What is it a non binding rather than binding you said that you expect something potentially more attractive and my second question is a quick one around the accounting am I was I think I read the press would easily yeah that would be I think the payment for defined dependents on the acquisition was $29 $6 million, but the accounts on the cash flow on.
These shows an $18 million. So it wasn't like whether you could comment on that within the payment coming on whether you just misunderstood something thank you.
Okay.
Thank you Stefan I'll deal with the first question and I'll pass the other one too Jason with regard to the accounting on the acquisition.
With relation to your first question.
On the why the LOI why non binding and do we expect any change as well.
It looked at Inc. Is very similar to two.
Jon's question on on on drilling rigs when we looked at the opportunity to move from an <unk>. So we did a very detailed.
Scanning of the market to what fits our requirement, where we could see.
Particularly in field enhancements, but both in capacity for storage and operational positions and capabilities that day.
In U S oil could provide us when we started to narrow down on that particular skill set that asset.
Asset availability and very quickly came to a position where the where many assets available that met the criteria we were looking for.
So the reason we jumped in with a non binding LOI was initially to secure our position on this asset there's very little point doing the level of detailed engineering that we have that what we have done to date on continuing to finalize that contractual position, but we can't be sure. This is the asset that will actually be in a place in the field. So that was the main driver.
For the non binding LOI.
With.
In regard to the cost structure with firming that up right now, but there's nothing that we've seen to date that would give us any indication that the indicative cost positions that we've declared are not going to be achieved.
Jason if you want to step in with the question on the acquisition.
Thank you George.
And good morning Stefan.
On the cash flow statement for the Sasol acquisition I believe you see there is total.
Cash out the door of roughly $17 9 million and indeed, you are correct that this year, we paid $29 6 million to SaaS all.
But as part of the business combination Stefan we also got 11.8.
8 million in restricted cash and so if you take the $29 $6 million debt, we paid sasol and you subtract from that the $11 8 million of.
Funds that we received on this when you get to the $17 9 million, which is what's included in the cash flow statement.
That's great and very clear thank you.
Yes.
Yeah.
Our next question comes from Bill <unk> from <unk> Capital. Please go ahead with your question.
Thank you that's Titan capital I have a group of questions and I'd like to start also with the F. S O.
And very specifically what is the what is the capacity relative.
Relative to the current F S. How on a daily production basis.
As opposed to the total storage basis, which I believe you gave on earlier.
Okay. It sounds to your first question processing capacity is completely different from storage capacity as you've alluded to a per.
Assessing capacity on the current <unk> is 25000 barrels per day of liquids.
That processing capacity and will not change day, the processing being moved to the.
The platform. So we will maintain a 25000 barrel per day of liquids processing capacity within this inc.
Great. Thank you and if we.
Look at the storage capacity.
Just the processes I think are increased by about 400000 barrels with the episode.
The amendment itself.
Great. Thank you.
Second question is relative to your production guidance you raised the second half production guidance is as you noted in your opening remarks.
What led to that increase.
The main the main cause on the main.
Position behind that increase our bill is moving forward the walk cobalt from <unk>.
A man.
Q4 into Q3.
Great. Thank you and then lastly.
Lastly.
How would you please repeat the production impact from the drilling program.
I think you were mentioning that in your opening remarks, and and I just missed it.
Yeah.
Impact on the drilling would be between seven and eight items in barrel per day gross and I think the NRI from VAALCO will be 3800 to 4100 barrels per day.
And just for perspective that that's on top of the guidance that you've given for the second half of 7200 to 8000 barrels per day literally adding another 4000 barrels a day on top of that or rough.
Roughly a 50% increase.
Yeah that would be correct less oh listen the decline per point forward from December through to when we had all those four wells on stream.
Great. Thank you for that clarification.
Our next question comes from Jamie Wilen from Wilen Management. Please go ahead with your question.
Hi, George three different areas first on the FSS.
Given the.
The favorable economics.
The new storage vessel will have.
Are there any clauses in them.
Existing contract that we.
Could not terminated sooner to take advantage of this tumor sooner is there some termination fee that we would have to pay for you.
Decided to move quicker.
To ask a question.
There will be termination fees within the ipso, if we'd look to shutdown that contract earlier.
However that is not really even flow, sometimes a termination fee.
Attractive option given the levels of Opex that you would expect to save on the same period. However, that's not really available to us we've got.
When you look at the project timeline.
With only from the point, though.
Contractual commitment.
We take this vessel and she goes into dry dock for a period of months to basically get not just into class, but get class certification for the next five years from on station, which is automatically rolled for further.
Five years, so we're making sure. This vessel is fit for function and on station in the field from 'twenty to 'twenty two through to at least 2032.
So there's not really a signal.
Significant opportunity time window to accelerate that refurbishment process and dry dock and get that vessel into field and take advantage of that so that's the first issue. The second issue is also we have some infield modifications to perform on the platforms on with some of the flow lines that will also be.
Done during this time, but the episodes and dry dock. So we don't really have from an engineering standpoint that window, you were looking at where we could accelerate the opex savings.
Okay and when this transition occurs is there a shutdown time that we will have to endure in 2022 two.
Accommodate the new vessels.
Yes, well, we will have a shutdown period it may be as long as as are.
A week or two but what we'd look to do is coordinate that with around your maintenance program. So we're not looking at on additional shutdown period during hookup.
Okay.
And George on the drilling program.
Obviously oil prices have been all over the map in the last 12 months, what is the current rig rates or what what kind of daily rig rate would you expect to pay.
And indicative laid the rig.
We didnt discussions just now so I'm, probably not going to mention what rate I would happily pay crazy prejudice some of the discussions we're having but what we're seeing indicative play right now.
It's not our highest of the market from where the campaign was performed in 2019 2020.
Okay excellent and lastly in the commentary.
Larry you mentioned that you would.
Free cash flow this year.
$65 million yet you also mentioned that the free cash flow over the next 12 months would be sufficient to cover the FX. So the drilling campaign and any future buyback program.
Calculate that number to be before the buyback program $98 million to $110 million over the next 12 months versus what.
What you were projecting at $65 million.
Free cash flow during <unk>.
2021 can you reconcile those different some numbers.
Yes, I mean, the main differences, we're not quoting on free cash flow position for this year on existing production.
Taking the wells that are on stream right now in order to get to a position where we're confident.
Confident that we cover all of our Capex expenditures.
Success based scenario, we're taking wells on stream next year from.
The 20, the upcoming drilling campaign on increases in production and not sure what balance is that particular delta. So if you look at where we are with a $65 million position.
Right now and if you roll that forward into the.
And the potentially the end of the drilling campaign in April 22022, 24 May 2022, you can extrapolate that.
Two I bet on it.
$5 million position, but that's going to be enhanced by the additional production coming on stream from these wells.
Excellent Thanks George.
Wish you continued success. Thank you.
Yeah.
Once again, if you would like to give him a question. Please.
Please press Star and then one to withdraw your question you May press Star and two.
Our next question comes from John White from Roth Capital. Please go ahead with your question.
Yes.
Just there is not a lifting.
For the month of April on your website is.
Is that to be posted shortly or is there a.
Is there a reason for that.
No. There's no reason for that I mean, the the issue.
And all of these things don't want us but.
Whenever we're doing listings the they're a mixture of lifting size and what we're producing.
So.
We have lifting is ongoing.
Almost almost every month there are periodic times, where a P.
The size maybe.
Requested.
<unk> larger than than wood could accommodate a monthly position.
On the oldest they've looked to accommodate the buyers to satisfy that so that sometimes gives us positioned so but not quite in monthly <unk>.
Okay, so you'll be posting on on April lifting.
We'll be posting on lifting and may that's definite yes.
Okay. Thank you.
Okay.
And our next question comes from Caroline Sharp from Canaccord. Please go ahead with your question.
Thank you very much for taking my question it's on.
Number one about the FSA refinery.
And I just wonder you you've outlined in some detail the advantages in terms of cost savings down the line of using <unk>. So is there some chance that that may be.
Operating costs transferred.
On to the current producing facilities themselves.
Once you introduce CFO.
Currently part holds the Sps so.
And then secondly on.
I just wondered if there are any particular engineering risks given the diverse configuration of producing assets that you have.
Including subsea tieback wells, but might cause some concern in the transfer to the FSA.
Thank you Charlie on.
On your first question no there is no material transferring of production costs.
Moving the production on to the existing.
Platform capabilities, what we are doing.
Obviously, we're enhancing on the Capex side, the production capability with a couple of additional wind debt.
On the boom of platform.
But it's not significant opex position.
To include in that redirection of processing.
With regard to the <unk>.
Cost savings are the engineering and the Inc.
Activities, Yes, right now you're correct that the two subsea wells tied back to the F. P. S O.
We do have a redirection of those wells into the platform.
Most of the infrastructure work as I've mentioned relate to.
A couple of wind index on a boomer.
Some flow redirection on existing lines and a new.
Line moving towards the plot.
Platform for the sub sea lines, so there's not a.
No significant.
Engineering technology or.
Engineering activity, both the talk side or subsidy that is not well within our capabilities our standard they're on.
As you asked Oh potential operating savings from the mooring configuration that we're planning for the SSO, which will basically be current mood on the weather vein and that gives us potential savings on all fluid position, because we will have the vessel.
What's the current.
As opposed to having to try and get time cause alongside the existing vessel, which is sometimes against the car.
There is no major engineering issues and I think there are some environmental.
Auctions for us that make the operation.
Certainly.
In a less risk environment.
That's great. Thank you.
And ladies and gentlemen, with that we'll be concluding today's question and answer session I would like to turn the floor back over to management for any closing remarks.
Okay.
Yes, I'd like to Oh.
That's my first call as the Chief Executive I'd like to thank everyone for the questions.
We are on.
As a company very excited by the opportunities we have in front of us.
We have an excellent producing asset and we have some key upside assets E. G. The have the development potential and I think given the turbulence that we.
We saw in 2020, and the 2021 and on beyond into 2022 looks.
On an exciting growth period for VAALCO certainly.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending.
You may now disconnect your lines.