Q4 2021 VAALCO Energy Inc Earnings Call
Good day and welcome to the VAALCO Energy year end 2021 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Al Petrie Investor Relations coordinator. Please go ahead.
Thank you operator, good morning, everyone and welcome to VAALCO Energy's fourth quarter and full year 2021 conference call.
After I cover the forward looking statements George Maxwell our CEO will review key highlights along with operational results Ron <unk>. Our CFO will then provide a more in depth financial review George will then return for some closing comments before we take your questions.
Our Q&A session. We ask you to limit your questions to one and a follow up.
Can always reenter the queue with additional questions I.
I would like to point out that we posted a Q4 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 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.
<unk> disclaims any intention or obligation to update or revise any forward looking statements.
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 filed with the Securities Exchange Commission, including our Form 10-K .
Please note that this conference call is being recorded let me now turn the call over to George.
Thank you all good.
Good morning, everyone and welcome to our fourth quarter and full year 2021 earnings conference call our.
Our ability to execute on our strategic vision is evident in our 2021 operational and financial results.
This past year was one of the best in Vulcan history, and 2022 could be an even better one.
Production in 2021 was up by almost 50% over 2020, given by the acquisition of Sasol is working interest at Tommy and favorably in 2021.
In June we secured a jackup rig for the 2021 2022 drilling campaign, which began in December .
Our first well with a development well made Tommy <unk>.
Sidetrack, which was highly successful came online in February and exceeded our internal forecast.
We then move the rig from the Etame platform to the boom of platform and are currently drilling the zuma three eight sidetrack development well.
In August we finalized an agreement with World Courier for our new <unk> solution, but cost almost 50% less than the current S. P. S O and will reduce our overall cost by approximately 17% to 20%.
Thus, allowing us to extend the economic life at Tommy while increasing our margins and profitability.
We successfully performed two workovers in September and October , which resulted in an increase to production of approximately one times and 50 barrels of oil per day gross or 540 barrels of oil per day net to VAALCO.
In October we were provisionally awarded two offshore blocks as part of a consortium with BW energy in Coronado energy adjacent to establish development fields at Tommy and discipline.
We also moving forward with a standalone field development concept of the Venus discovery of block P and Equatorial Guinea.
In November we announced that our board established a quarterly cash dividend policy to return cash to shareholders and we are paying our first quarterly cash dividend later this month.
We also announced the outstanding results of our year end reserves with proved reserves, increasing by 250% to $11 2 million barrels of oil under two P. CPR reserves, increasing by 88% to $19 5 million barrels of oil.
As you can see we are delivering on our strategic objectives and in many cases exceeding expectations, which is firmly placed vulcan and are financially enviable position.
Turning to our fourth quarter and full year of 2021 operational and financial results.
We produced an average of seven times from 554 net barrels of oil per day, which was above the midpoint of guidance.
And for the full year of 2021, we produced 7119 net barrels of oil per day, an increase of over 46% over 2020.
We continued with strong sales in the fourth quarter reporting 709000 barrels so.
For the full year 2021, we sold two 7 million barrels of oil, which was an increase of 67% over 2020, primarily due to the Sasol acquisition.
We continue to see rising oil prices and so price increases every quarter in 2021, which drove revenue significantly higher as well.
Our adjusted EBIT tax was $22 6 million in Q4, 2021, and $85 8 million for the full year of 2021, which is more than triple what we generated in 2020.
These factors enabled us to build a significant cash position, providing more than sufficient line of sight to fund our 2021 2022 drilling campaign.
So conversion capital and dividend from cash on hand, and operational cash flow in 2022.
We continue to be focused on our production levels through this period of high oil prices.
Turning your attention to the future our strategic vision is built on accretive growth through organic drilling opportunities expanding our margins and accretive acquisitions.
We have used the three D seismic that we acquired over time to maximize the impact of the 2021 and 2022 drilling campaign.
Additionally, we are derisking future drilling locations and potentially identify new drilling locations with further three D interpretation.
In December we kicked off a drilling campaign on the Etame platform with the Tommy <unk> Sidetrack development well.
In February we reported that we completed and placed the Ath <unk> Chartwell online with an initial flow rate of approximately 5000 gross barrels of oil per day or 2560 barrels of oil per day net to VAALCO.
After these strong results, we talked about back for reservoir management purposes to just over 4000 gross barrels of oil per day.
The new well will go through a natural decline and we continue to monitor its performance with currently exceeds our initial estimates.
We're currently drilling the next well in the program many of whom are three eight sidetrack development, well and expect to have results on the well in the coming weeks.
The rig will stay on the alumina platform following the three sidetrack development well to drill the third development well in the program.
As a reminder, we initially said with a successful drilling program. The estimated increase in gross field production could be 7000 to 8000 barrels of oil per day.
<unk> 3500 to 4100 net barrels of oil per day to VAALCO when the four well drilling campaign is complete in 2022.
We are well on our way to meeting these initial expectations.
Hand in hand, with the production increase will be margin expansion and per barrel cost reductions.
As we have previously advised about 90% of our production costs are fixed and as production increases.
Her bottle costs will decrease.
Every new bottle will bring online is more economic because of the low variable costs. So as we grow production. We're also growing our margin per barrel and reducing our cost per barrel.
From a capital standpoint, the estimated cost of 2021 2022 drilling program in 2022 is expected to be between $65 million to $75 million net to VAALCO.
Given the increased oil price environment upcoming drilling campaign has the potential to generate significant additional free cash flow and the returns on these investments should be very strong.
With the drilling program at Tommy progressing forward nicely. We're also monitoring our <unk> solution projects simultaneously at Etame, which will reduce costs and improve margins.
In August we announced that we had signed them received partner approval for a new <unk> solution.
The new <unk> will significantly reduce storage and offloading costs by almost 50% increase effective capacity for stories by over 50% and lead to an extension of the economic field life.
Opting in a corresponding increase in recovery and reserves at Etame.
Last week, we announced that all of the associated engineering long lead equipment and significant contracts for the <unk> proceeding in line with the projected timelines, which has the expected deployment of the peso in the third quarter of 2022.
Field reconfiguration activities are expected to begin later this month as planned.
The diamond a double hold crude tanker built in 2001 that is being re engineered as a new <unk> arrived at the shipyard in Bahrain in late February for the final modifications and certifications.
We're expecting that the vessel will begin sea trials and late June before being mobilized to Gabon.
Current estimated capital cost with the <unk> conversion and field reconfiguration in 2022 are expected to be between $25 million to $30 million net to VAALCO.
In addition to a 2021 and 2022 drilling campaign costs.
This capital investment is projected to save approximately $13 million to $16 million net to VAALCO and operational costs through 2030, given the project a very attractive payback period of only about two years.
Turning to reserves, we are very pleased with the substantial growth of our reserve base.
The proved reserve increase resulted from a combination of positive factors, including improved well performance at Tommy field life extension, resulting from a change over to a more cost effective <unk> this year.
<unk> positive oil pricing revisions and acquisitions.
SEC proved reserves at year end increased 250% to $11 2 million barrels with $7 2 million barrels and proved developed reserves and four.
4 million barrels and proved undeveloped reserves.
Three main factors for the increase in our SEC proved reserves were the acquisition of social interest at Etame, which added $2 6 million barrel positive pricing revisions, which added 3 million barrels and 5 million barrels to post a well performance revisions and SSO related field life extension.
As in prior years, we continue to see positive reserve revisions due to well performance, which demonstrates the strength of our premier Etame asset.
These additions were partially offset by $2 6 million barrels due to full year 2021 production.
The PV 10 value of our proved reserves utilizing SEC pricing of $69 10 per barrel of crude oil increased to 99 3 million more than six five times, a PV 10 of $14 7 million as at December 31, 2020.
That pricing used in the 2021 cultural issue is still significantly below the current strip pricing.
We're also pleased with the increases we saw in our <unk>, CPR estimate, which increased proven and probable reserves using volquez management's assumptions for future Brent escalated crude oil pricing and cost reporting on a working interest basis prior to deductions for government royalties.
Year end 2021, <unk> CPR increased 88% to $19 5 million barrels compared to $10 4 million barrels a day.
December 31 2022.
The PV 10 value of Arcos <unk> CPR reserves at year end 2021 is $183 7 million up 117% from $84 4 million.
December 31 2020.
In October we announced an exciting new opportunity in Gabon.
<unk> has entered into a consortium with BW energy and <unk> energy the.
The consortium has been provisionally awarded two blocks in the 12 offshore licensing round in Gabon with two exploration periods totaling eight years, which may be extended by a further two years.
Two blocks <unk> 12 of $13 eight to 12, and 13 are adjacent to vault because at Tommy PSC as well as BW energy and <unk> disappeared PSC offshore southern Gabon.
The majority of these two blocks in water depths similar to Tommy.
Both at Tommy and <unk> have been highly successful exploration development and production projects undertaken by the consortium members over the past 20 years with approximately 250 million barrels discovered to date.
The consortium is working through detailed production sharing contract discussions with the Gabonese government.
Another area that holds significant future potential for VAALCO is equatorial Guinea.
We have a substantial working interest in block P. And we are evaluating several development step out and exploration opportunities on our records.
We are excited about our opportunities on the block and believe it makes sense to move this project forward with a more definable timeline for potential development.
Last summer, we completed a feasibility study for the Standalone development of the Venus discovery in block P. And we are moving forward now with a field development concept.
As we worked through a development concept, we will provide more details about potential timing capital costs and reserves and production estimate.
We are committed to profitably exploiting the resource potential of our assets on EG could become a significant operational asset moving forward.
Turning to our ESG efforts, we recently hired a full time ESG manager, who will be based in Houston.
We will begin drafting our annual ESG report shortly which will continue to show the progress, we're making towards improving our environmental social and governance metrics.
Let me now review our production sales volume guidance before I turn the call over to Ron.
In the first quarter, we had terminated sidetrack well come on line in February which boosted production ahead of our planned production levels for this well.
Unfortunately, we had some operational issues in February that temporarily impacted our production.
Normally strong current caused a short delay in the planned lifting from the Fps or the crude oil tanker could not get moved safely. This caused us to reduce production for a few days since the <unk> was at near capacity.
Additionally to accommodate the drilling of the Zuma three H sidetrack development well, we had to shut in production from the platform to Orlando rig to move into position and begin drilling.
This occurs whenever a jackup rig has mobilized to drill a well and happen home. We began the etame eight H sidetrack well on the Etame platform.
As a result of a certain none of whom are all flow from the pipeline that transports oil from their bloomer and <unk> platforms to the Fps operated at a lower volume unusual.
This in combination with a chemical imbalance in the fluids and the pipeline caused a pause in buildup, resulting in a temporary blockage in the pipeline.
We had to shut in production at <unk> and <unk> fields for more than a week.
We were able to restore production after running some chemicals can move the path and buildup.
These are the major factors as to why our first quarter 2022 production guidance is between 8000 and 8300 NRI barrels of oil per day or 9200 to 9550 working interest barrels of oil per day.
I would like to point out that the Q1 midpoint is still an increase of 8% over Q4 2021 production number despite the issues faced in the quarter.
Because of a temporary lifting delay and a second lifting schedule for the end of March our sales for the first quarter will be lower than production.
For the first quarter, our sales are expected to be between 6000, 606900, NRI barrels of oil per day or 7600 to 7950 of working interest barrels of oil per day.
If oil prices continue to rise this could be beneficial as we may receive higher prices on the lifting in Q2 than we would've received in Q1.
For the full year, we are guiding production to be between 9000, 510500, NRI barrels of oil per day or 10900 to 12050 working interest barrels of oil per day.
Also for the full year, we're guiding sales to be in the same ranges as production. So we're expecting that the lower sales in Q1 will be made up in Qs, two and three and 2022.
As you can see we are projecting strong growth in production in 2022, an increase of about 40% year over year at the midpoint of our 2022 guidance range.
In summary, there is a lot to be excited about as we enter 2022 I would like to thank our hardworking team here at VAALCO, who continue to operate and execute on our strategic vision of accretive growth and free cash flow generation. As you can see we are firmly focused on maximizing shareholder return opportunities and operating with the highest regards towards ESG what.
We progressed, our strategic objectives focused on accretive growth with.
I'd like to turn the call over to Ron to share our financial results.
Thank you George and good morning, everyone.
As you can see from our accomplishments that Georgia viewed 2021 was a pivotal year for VAALCO and we are in a very good position, both operationally and financially for 2022 and the future.
Our earnings release included detailed financial information for both the fourth quarter and full year 2021, So I'll focus on just some highlights in addition to providing forward guidance.
We reported net income of $34 4 million or <unk> 58 per diluted share for the fourth quarter of 2021, which compared favorably with a net income of $31 7 million or <unk> 53 per diluted share in the third quarter of 2021 and.
And a loss of $3 6 billion or <unk> <unk> per diluted share in the fourth quarter 2020.
The fourth quarter 2021 reflected stronger revenue due to the increased sales in the quarter higher realized pricing and a noncash deferred tax benefit compared with the fourth quarter of 2020.
The fourth quarter of 2021 included a $16 1 million noncash deferred tax benefit partially offset by a $1 8 million loss on derivative instruments.
For the full year 2021, we reported net income of $81 8 million or $1 37 per diluted share compared with a loss of $48 2 million or <unk> 83 cents per diluted share in the year 2020.
The year over year increase was primarily the result of increased sales higher oil pricing and a change in deferred taxes of $66 6 million.
Deferred taxes in 2020 was an expense of $24 2 million and as a benefit of $42 4 million in 2021.
Also in 2020, there was effective 6 million impairment charge to crude oil properties as a result of lower oil prices at that time.
Our adjusted EBITDAX totaled $22 6 million in the fourth quarter of 2021, a slight decrease compared with $23 3 million in the third quarter.
However, our fourth quarter 2021, EBITDAX was more than six times, the $3 5 million generated in the same period in 2020, primarily due to improved realized prices and increased sales, partially offset by higher production costs and higher realized losses on derivatives.
Our full year 2021, adjusted EBITDAX totaled $85 8 million or more than triple the $26 6 million, we reported in 2020.
The increase was primarily the result of stronger revenues as a result increased crude oil prices and higher sales volumes, partially offset change in realized losses between the periods.
This strong cash flow generation has allowed us to continue to fund our strategic initiatives with internally generated funds.
After normalizing for the deferred tax benefit on the unrealized derivative loss or adjusted net income for the fourth quarter of 2021 grew to $12 5 million or <unk> 21 per diluted share as compared to $10 million or <unk> 17 per diluted share for the third quarter of 2021.
In the fourth quarter 2020, our adjusted net income was a loss of $5 6 million or <unk> 10 per diluted share.
For the full year 2021, adjusted net income totaled $59 6 million or <unk> 67 per diluted share compared to adjusted net income for the full year 2020 of $9 million or <unk> 16 per diluted share.
Daily production for the fourth quarter totaled 7554 net barrels of oil per day down slightly from the 7694 net barrels of oil per day in the third quarter of 2021.
Fourth quarter 2021 production was up 62% from the fourth quarter of 2020, primarily due to the additional social interest.
Sales volumes in Q4, 2021 were down 4% from the third quarter, but up 144% compared to the same period in 2020 the increase in volumes year over year is also primarily due to the additional social interest.
Our crude oil price realization increased 6% to $77 31 per barrel in the fourth quarter of 2021 versus 73 two per barrel in the third quarter of 2021 and was up 84% compared to the $42 seven per barrel in the fourth quarter of <unk>.
And in 'twenty.
We entered into several hedging contracts in 2021 with a goal of ensuring cash flow generation to fund our 2021 2022 drilling campaign, but our FSU conversion.
We have continued to opportunistically hedge a portion of our expected production in 2022 to lock in strong cash flow generation to assist in funding our capital program and dividend.
The end of January 2022 legacy hedges of approximately 61000 barrels of oil per month priced at $53 10 per barrel of dated Brent expired.
We added hedges in January for 125000 barrels of oil per month for July August and September 2022 at a dated Brent price of $76 53 per barrel and 70000 barrels per month for April May and June 2022 at a dated Brent price of <unk> 85.
One per bottle.
In total we currently have about one third of our full year 2022 guided production hedged.
Our full hedge position can be found in yesterday's earnings release as well as in our Q4 supplemental information presentation on our website.
Turning to expenses production expense, excluding workovers for the fourth quarter 2021 declined $19 million compared with $21 4 million in the third quarter due to the costs associated with the annual turnaround recorded in the third quarter of 2021.
Production cost increased compared to the same periods in 2020, primarily due to the increase in working interest associated with the social acquisition.
We expect to benefit from production cost savings associated with the <unk> conversion in late 2022.
Workover expense incurred in the fourth quarter of 2021 was $4 $5 million, while in the third quarter. It was $3 8 million.
VAALCO had two planned workovers completed in 2021, one in the fourth quarter and one in the third quarter, both of which were successfully completed.
The per unit production expense, excluding workovers of $26 82 per barrel in the fourth quarter of 2021 and declined 7% as compared to the $28 85 per barrel in the third quarter 2021, due to lower costs, partially offset by slightly lower sales volumes.
Q4, 2021 was up 18% compared to $22 66 in Q4, 2020, due to higher oil prices, which drives our domestic marketing obligation and production volume natural decline since we did not drill new wells and a majority of our costs are fixed.
Production expense for the first quarter of 2022, excluding workovers is projected to be between $17 5 million and $19 million or $28 to $31 per barrel of oil sales.
While absolute costs are lower compared to the prior quarter, our cost per barrel are up due to the lower projected sales volumes in the quarter that George discussed.
For the full year 2022, we're expecting total production costs, excluding workovers of $73 million to $83 million.
Compared with $73 million in the full year of 2021.
Absolute costs will rise primarily due to the higher production volumes and some inflationary cost pressure, we're seeing on fuel chemicals and surface costs.
Our estimated production cost per barrel, excluding workovers of all sales for the full year 2022 declined significantly to $19 five zero to $22 five zero compared with $26 77 per barrel and 2021, primarily due to the higher projected sales volumes.
And the initial cost saving benefit of the FSU conversion late in 2022.
We are currently projecting only one workover in 2022 with an estimated cost of between 2 million to 4 million net to VAALCO.
Workover is not planned for the first quarter and we will let you know if and when the 2022 workover will occur.
DD&A for the fourth quarter of 2021 was $4 1 million or $5 83 per net barrel of oil sales compared with $7 million or $9 41 per barrel in the third quarter of 2021.
And $1 3 million or $4 37 per barrel on the fourth quarter 2020.
DDA was lower compared to the prior quarter due to increased reserve bookings at year end 2021.
<unk> fourth quarter 2021 was higher than the same period in 2020 due to higher duplicable costs associated with this vessel acquisition.
G&A expense, excluding stock based compensation in the fourth quarter of 2021 totaled $2 2 million, which is lower than both the third quarter of 2021 on the fourth quarter of 2020, primarily as a result of lower wages and salaries and lower legal costs.
On a per unit basis cash G&A declined to $3 a week per barrel in the fourth quarter of 2021 versus $3 93 per barrel in the third quarter 2021.
And $8 73 per barrel in the fourth quarter 2020, reflecting lower costs and the benefit of higher sales volumes that did not result in increased G&A costs.
Cash G&A is expected to be between two and a half million to 3 million $3 5 million for the first quarter of 2022 and nine.
$9 5 million to $12 5 million for the full year 2022.
Noncash stock based compensation expense for the fourth quarter 2021 was <unk> 4 million, which included non star stock based expense of <unk> 3 million and Sars related expense of $1 million.
For the third quarter of 2021 stock based compensation expense was not material.
For the fourth quarter 2020 stock based compensation expense was $2 2 million almost comprised of non <unk> related expense of <unk> 3 million and Sars related expense of $1 9 million.
Turning now to taxes.
There was a tax benefit for the three months ended December 31, 2021 of $10 9 million.
This was comprised of a $16 1 million of deferred tax benefit and a current tax expense of $5 2 million.
Income tax expense benefit for the three months ended September 32021 was a benefit of $17 2 million base.
This was comprised of a $22 7 million of deferred tax benefit and a current tax expense of $5 $5 million.
In both the fourth and third quarters of 2021, we determined a partial release of the valuation allowance on our deferred tax assets was warranted due to improving oil prices as well as other factors that indicate that VAALCO will utilize a portion of its deferred tax assets.
Income tax benefit for the three months ended December 32020 was a benefit of <unk> 8 million and included $2 8 million of deferred tax benefit and a current tax expense of $2 million for.
For all three periods. The overall effective tax rate was impacted by nondeductible items associated with operations and deducting foreign taxes, rather than credit and then for United States tax purposes.
I would like to refer you to our supplemental information deck that we posted to our website. This morning.
On slide 11, we have updated our netback slide that shows the strong cash flow, we're generating at current prices.
We've incorporated the midpoint of our 2022 guidance using a 75 dollar realized oil price we've seen exceptional early results in our drilling campaign and remain on track to deliver our lower cost <unk> solution on time, which will result in substantial savings on an absolute and per barrel basis. Despite these inflationary pressures.
<unk>.
On the same slide we have shown an indicative Q4 2022 net back assuming continued success in the drilling campaign and full conversion of the <unk> solution.
As you can see we're meaningfully improving our margins with successful execution of these strategic initiatives.
At year end 2021, we had an unrestricted cash balance of $48 $7 million, which did not include the proceeds from the December 2021 lifting of $22 $5 million, which were received in early January 2022.
Working capital at December 31, 2021 was $4 million compared with $9 8 million at September 32021, and $11 4 million of the year end of 2020.
Adjusted working capital at December 31st 2021 totaled $13 7 million compared to $13 5 million at September 32021, and $24 $3 million at December 31, 2020.
For the fourth quarter of 2021 net capital expenditures totaled $8 1 million on a cash basis and $25 5 million on an accrual basis. These expenditures related to drilling the etame <unk> sidetrack well additional long lead items for the 2021 2022 drilling program.
Are the FSU conversion related costs.
For the full year 2021, VAALCO invested $16 $6 million on a cash basis.
$36 5 million on an accrual basis, excluding the social acquisition.
As George mentioned for the full year 2022, we estimate our net capital expenditure to be approximately $90 million to $110 million and $36 million to $44 million for the first quarter of 2022.
As has been the case since the second quarter of 2018 were cutting new debt.
In the fourth quarter of 2021, the board of directors approved a cash dividend policy of three and a quarter cents per common share per quarter or full year 2022 annualized <unk> 13 per share.
The first dividend is payable on March the 18th 2022 to stockholders of record at the close of business on February the 18th 2022 with our next payment expected in the second quarter of 2022.
And with that I will now turn the call back over to George.
Thanks, Ron.
The future remains very bright for VAALCO and this is a very dynamic time in our energy industry.
We are a critically growing production and cash flow through organic drilling and continue to evaluate additional opportunities with a focus on providing sustainable returns to our shareholders.
We have a strong asset base at Tommy that is generating meaningful free cash flow and adjusted EBITDAX, even more so in the current pricing environment, which enhances our financial flexibility and allows us to return cash to our shareholders through our quarterly dividend.
We forecast our 2021 2022 drilling program and our <unk> conversion at Tommy will be fully funded by cash on hand, and internally generated cash flow.
We have already seen the first results of a drilling campaign with the Etame <unk> sidetrack, well exceeding our expectations and the <unk> conversion is on schedule, both of which will enhance our ability to generate additional cash flows in 2022 and beyond.
We have completed a drilling feasibility study for the Standalone development of the Venus discovery of block P and Equatorial Guinea, and we're moving forward now with the field development concept.
We're negotiating the PSC, telling you with the Gabonese government on the new blocks in Gabon that we were awarded in Q4 2021 as part of the consortium with BW energy and <unk> energy.
The blocks and adjusting to our existing Etame field, and we believe they hold tremendous potential to help us establish sustainable long term production in Gabon.
At Tommy block P and potentially not only new blocks in Gabon, and enhance our business and provide a strong platform for organic growth, allowing VAALCO to build size and scale in West Africa.
We believe that with our strong cash position and our increasing size and scale, we can evaluate and more easily incorporate accretive acquisitions that meet our stringent investment criteria and strategic vision.
Finally, as part of our value creation strategy moving forward, we will be paying our first quarterly dividend later this month.
We believe that prudently returning cash to shareholders is a great way to complement our accretive growth strategy.
As you can see we are firmly focused on ways to increase total shareholder return and operating with the highest regards towards ESG, while we execute on our strategic objectives in 2020 to focus on sustainable and accretive growth.
Thank you and with that operator, we're ready to take questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from John White from Roth Capital. Please go ahead.
Good morning, gentlemen, or good afternoon, whatever the case may be I don't know, if you're in Houston or in London.
Thanks.
Your production expense guidance for 2022 is quite a bit lower than I had been projecting.
As you.
Detailed on the call I guess.
A good portion of that is due to your new asset so.
John .
Correct.
Q4 of 2022, we get the benefit of the <unk> coming in.
And we've guided to the reduction when we were taking about 50% of our cost say with regards to the <unk> versus the <unk> and I think the range is 17% to 20% and overall production expense.
Yes.
It's great news.
Yes, it's very encouraging.
In.
Gabon, the newer blocks.
And age have you started shooting seismic there.
No we havent done right now we're still on along with our partners within the <unk>.
Commercial discussions with.
With the DTA on the the term surrounding the PSC.
Obviously the way. This works as you are aware, we make a bid and we built the only the signature bonus will be bid the contractual terms. The government then review that bid.
And Conditionally award that we announced last quarter.
And that conditional award is subject to successful negotiations through both the signature bonus and the terms and.
And we've been working through that in Q1, so seismic just to remind everyone. The commitments on the dwell that we bid.
It's basically one exploration well per block.
One on <unk> and one on <unk> and I'll move.
On some of the part of the block we already have some seismic coverage from a previous times in this area.
But we hope to conclude these negotiations in the coming weeks.
Yes, good luck on those.
The Equatorial Guinea.
A little more color on what stage you're in there that's still geologic evaluation.
No no we're well beyond geological evaluation, where we are.
Well beyond well design and we are well beyond.
Proof of development, we have a position where they.
Ralph.
Got it.
Okay.
And the objective.
Okay.
Yes.
Two the MMA with within Egypt with again anticipating.
Hopefully within Q1, but certainly early Q2.
Yeah.
2022.
Absolutely.
Fantastic.
Okay that does it for me and I'll pass it on.
Sure.
The next question comes from Charlie Sharp from Canaccord. Please go ahead.
Thank you very much and good afternoon, gentlemen, and thanks for taking my call. My question two if I may.
Firstly.
In the past you.
Provided indications of contingent resources I just wonder can.
Can you outline for me again.
Contingent resource potential is.
How you would see converting that to reserves.
Close to cash flow. That's one question and then second a little bit more general.
It really given where the oil prices move too.
What sort of.
Pricing to Cellos ultra sort of assets that you might be interested in.
What are they looking for.
Have they shifted the goalposts.
The current oil price change.
I don't like the second question, but the first question. Let me let me address the first question. So yes of course now we're looking for movement of contingent resource.
Two into reserves and clearly as you said.
As you see what we're trying to do in in Equatorial Guinea, and thank you to the slide that we put on Equatorial Guinea.
<unk>.
Gross position of.
23% to 24 million barrels of contingent resource.
That particular position to reserves, we need to get the approval from the MMA and well we won't be able to secure all of those reserves will certainly be able to secure a large proportion of that to see position into <unk>.
But not for SEC purposes.
When we look at.
And that's a key a key message I think for Brexit all organic because this can be achieved without the drill bit because the wells have already been drilled.
Now when we look at Etame.
Then the key area. There is twofold one is looking at.
Opportunities for <unk>.
In terms of resource exist in our existing drilling program.
The majority of our drilling program at the moment is converting <unk> into <unk>, we have some opportunities to do some some pilot positions and perhaps something that's slightly different within the subsequent two to three wells.
We still have to drill that may give rise to.
No.
Proving up some of that contingent resource.
But the majority of the contingent resource of resides around the time, they will fall into our phase III drilling program in 2023.
On the second question.
Of course, we continue to look for accretive opportunities that mix and fit to our strategic vision of how we can be more meaningful and more.
Within West Africa, our focus the live operation at <unk>.
Anyone who is.
Disposing of assets in West Africa and the.
The press has been quite speculative about the assets that are available and who is looking looking at them.
That would be successful in getting them, we have to be realistic in the.
The price point that we're willing to.
Look at assets and the price point of with the existing owners are looking to exit and I think.
In reality holders of assets, who are looking to divest uptick up reasonably pragmatic view theyre not theyre not looking.
Looking at the top of the curve because the top of the curve for selling an asset level achievable. Similarly, as a buyer or a potential buyer no one buys at the top of the curve. So there's always a meeting point, where we run our economics and we run a reasonableness check as to where we would find value and again, we kind of guide a little bit to where our thinking is in.
When we look at the indicative numbers they put in a slide deck right around about the 70 550 to $75 level, you can see where we will run our numbers and will be self check the position.
That's great. Thank you.
The next question comes from.
<unk> <unk> from <unk>. Please go ahead.
Yes afternoon, guys. Thanks, Paul.
For taking my question.
Got it.
And now we're quite detect the first one is around our opex.
Opex so once TSA for the athletes always it completely on if we look at 2023.
Could you give.
A split on what's fixed in terms of millions of dollars per year and what valuable in terms of dollar per barrel.
That's my first question, so millions of dollars fix them.
That's all the valuable on top of the fixed.
Then if we look at it as what that starting in 2008.
Third during program is starting so how should we think about project K in 2023, Directionally and and Capex.
And lastly, it seemed that.
<unk> seen accelerating when would you expect.
Capex spending to start thank you.
I'll take the first part of the question. They are in relation to looking at 2023 I think.
Slide to go through in our supplemental deck of slides.
<unk>.
Which looks at the net backs and <unk>.
Specifically why we put that one on there in relation to Q4 as is Q4 is the first quarter, where we've got the <unk> fully up and running in 2022, and we've done that at 75 bulk oil and you can see it in that box.
Sure.
75, backhaul, we bought $47 coming through in basically free cash flow before capex.
You will see that the production expense is running at just under 16 $16 per barrel.
And as you know generally our fixed cost basis, that's already our cost basis is about 90% fixed. So you can you can get some guidance from that from that fourth quarter to extrapolate out into 2023.
What I would say and it's in the Barnett pointed out that slide and in relation to 2022.
At 75 bulk oil we will we will double our EBITDA adjusted EBITDA that we had in 2021.
That's great. Thank you.
Hi, Stefan it's Stuart so around 2023 drilling program part of the drilling program in 'twenty two 'twenty three as interdependent on the results of 2021 2022.
So and when we look at the potential program in 2023, and one of the objectives. We've been looking since we revised our strategy is to try and get too.
A multiple year drilling program too.
Maintain a plateau of production rather than having a cyclical position, especially when we've got higher oil prices with the monitor we need to to get the oil late to the game that the earliest possible.
So when you look at how you guide Capex I mean, we will be looking at.
Perhaps two to three well program potentially in starting Q3 2023. The first question someone will ask me is why Q3, while theres a number of issues we need to know the results from the 2021 2022 program, we need to continue with the evaluation of the.
Reprocessed and updated seismic analysis that we make sure we're hitting the highest that we see and thirdly. We then have well design and long lead items that we have put in place, which will take anything from nine to 12 months for delivery. So that program is there. So if we guide for Q3 2023, you can allow our capex or perhaps too well.
Yes.
That program before we move into 2024.
With regard to <unk>.
Capex at the moment, we do have some contingent capex.
For EG is subject to the <unk> being approved by the MMA and Equatorial Guinea.
It's very very small as a gross number of about $7 million. This year that we've got contingent the real spend.
We will start in 2023, we will start to procure long lead items for a planned 2024 well.
And then 2023.
Even the long lead items would be a growth between $10 million to $15 million.
Great. Thank you and so therefore back on gambling.
Is that would be fair to take therefore, roughly flattish production from what you say.
Client being offset by.
The three well campaign of 2023.
That's exactly the strategy, we will be looking to continue to have a continuous program that creates that plateau and arrest decline.
The assets, we have through both the.
Through gamba.
In dental we think theres opportunities too.
Get ourselves to a plateau and hold it there, particularly maximize the utilization of the OLED that we havent field.
Thank you and as a follow on EG, so there won't be any development.
That first wave in 2024 is being drilled thats, what youre, saying.
That's the plan right now of course, there are always opportunities to accelerate that but right now the plan is on the submission for the plan that will discussing with partners is a planned 2024 development well with an additional pilot well that will come off of that.
Thank you.
The next question comes from Kenneth pounds from Casselberry Advisory. Please go ahead.
Hello, Good morning.
Get a little more clarification on that.
You said there could be resolved in the second well in the coming weeks.
Or a timeline for when that could potentially go on production and then what's the timeline for the third well in the program.
Yes, the second well and are currently drilling ahead on the second well.
We expect probably to get to TD in the next three weeks.
And then one the evaluation completion so within the next four to five weeks, we should have that well on production.
Immediately after that.
Wells up and running the rig will remain on the boomer platform and move towards the third well and because there's no rig move involved that will simultaneously just move over to the next slot and begin drilling.
Okay, So what would be the timeline potentially affect well it went well too.
Two or three months or four months after the second one comes on production.
The second well it would be at least two months after the second well.
Okay.
I know you talked about the spss coming on or that basically sell all your needs for the new production that will be coming on in the summer and the fall.
Yes, I mean, the episode is really the key the key.
Position here inside the field is processing knowledge the episodes going to purely be storage, but it does provide us the opportunity to enhance the storage capacity, which allows us to do larger lifting and therefore higher economic returns with the larger lifting so so the OLED and the plot in the field.
Between 26% to 20000 barrels per day.
But like I said, the peso is greatly reducing our operating costs and enhancing our ability to grow.
Greater storage, so avoiding a position of what we call tank tops in the field, where we have to shut down because of the capacity of students has been reached to that will avoid that.
Bottlenecks before for sure. So that's basically it could eliminate any bottlenecks or the next several years.
Definitely this little bit will definitely eliminate those bottlenecks, we will be able to.
Be able to cushion any environmental impact that sometimes occurs the trying to allude a tanker without having to impact production.
Great. Thank you so much.
Again, if you have a question. Please press Star then one.
Our next question comes from Richard Dearnley from <unk> Partners. Please go ahead.
Good morning.
Is my calculation.
You're going to exit the exit rate for this quarter is around 8300 barrels a day.
I mean I can go back to the guidance that we put for Q1.
On the heat distillate up that guidance right.
Basically our production guidance from a net revenue interest.
It is basically 8000 to $8300. So if you look at the midpoint eight one cycle.
Yes.
Okay.
Thank you.
Yes.
Next it will be slightly higher will be slightly higher than that.
But that's the average for the period.
Right. Okay. Thank you.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to George Maxwell for any closing remarks.
Thank you very much.
I think it's we.
We spent a lot of time listening to Ron and I talk about 2021 and the prospect for 2022, you can see the activity inside the company has has increased tremendously both from a drilling activity. Our production activity are in field activity to make our opportunities more efficient and therefore take advantage.
A higher oil prices.
Greater net backs.
The future in 2022 and beyond as we outlined what we're planning and the timing for a potential phase III drilling program and the opportunities inside Equatorial Guinea as we as we expand the opportunities in West Africa make a very very exciting time, so I would like to thank everyone for participating Nicole.
The 2022 with the position of commodity prices and we have the double whammy opportunity of higher commodity prices, but we lower our cost base makes a very exciting time for us.
You very much.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
Yes.
Okay.
Sure.
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Sure.