Q3 2022 VAALCO Energy Inc Earnings Call
Good morning, and welcome to the VAALCO Energy third quarter 2022 conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two during the question and answer session. We ask you to limit your questions to one and a follow up please.
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 third quarter 2022 conference call.
After I cover the forward looking statements, Georgia Maxwell our CEO will review key highlights along with operational results Ron <unk>. Our CFO will then provide a more in depth financial review John .
George will then return for some closing comments before we take your questions.
Please keep in mind that George and Ron will only be speaking to VAALCO Energy's third quarter results and not trend foods as a business combination did not close until Q4.
During our question and answer 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.
I'd like to point out that we posted a third quarter 2022 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, we're 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 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 on our website and in the reports we file with the SEC, including our Form 10-K and forms 10-Q. Please.
Please note that this conference call is being recorded and let me now turn the call over to George.
Thank you al Good morning, everyone and welcome to our third quarter of 2022 earnings Conference call.
We continued our solid financial and operational results in the third quarter.
We benefited from sustained high Brent pricing over $103 per barrel and solid sales of 731000 barrels.
This combination allowed us to continue to generate significant cash flow execute on our accretive growth strategy and fully fund our capital commitments.
We remain committed to paying a dividend to our shareholders and with a debt free balance sheet. We are clearly in a very strong financial position.
We delivered adjusted EBITDAX of $42 4 million and have now generated $136 8 million of adjusted EBIT.
And the first nine months of 2022.
To put this in perspective, we generated $85 8 million for all of 2021 and $26 6 million in 2020.
We have used this to paid three quarterly dividends, thus far in 2022 and the board approved the fourth dividend payable in the fourth quarter of this year.
Our strong balance sheet remains debt free and our unrestricted cash balance grew to $69 3 million, which does not include $16 8 million in proceeds from our September lifting that were received in October .
As you can see we have grown our cash position, even while we execute on our capital drilling program as well as the field reconfiguration and conversion to and SSO I think Tommy.
In addition to our operational and financial results, we had several other major projects occurring these past few months.
Operationally in Gabon, we are very pleased to have successfully delivered the highly complex full field reconfiguration maintenance turnaround and upgraded episode installation in October .
This project was completed despite a difficult global supply chain environment and is a testament to the dedication of our workforce on partners, who help complete this project underlying vault cool status as a quality operator.
As we have said before we expect to realize substantial and sustainable operating cost savings from this project that will begin in the fourth quarter I'm, calling on throughout the remainder of the decade.
Our successes, we're not just in Gabon in September we received approval of the plan of development for the Venus Discovery bulk block P. Equatorial Guinea.
And we are diligently negotiating final document amongst all the parties for approval by the Ministry of mines and hydrocarbons.
We anticipate a strong efficient and highly economic development of this exciting discovery and look forward to proceeding with our plans to begin producing in Equatorial Guinea over the next two years.
Adding significantly to our reserves once final documents are agreed and approved.
On October 13, we completed the transformational combination with Transco, which has built a business of scale with a stronger balance sheet and a more diversified base cleanup production that will underpin vulcan's future opportunities for success.
<unk> now has a diversified portfolio of assets across four countries the bone, Egypt, Equatorial Guinea in Canada.
This large and diversified production base should allow us to generate meaningful cash flow to fund increased stockholder dividends.
Share buybacks and potential supplemental stockholder returns at a rate that would not have been achievable, but either bulk or transform on a standalone basis.
As part of the value proposition around the combination of these two great companies with a significant increase to shareholder returns.
On August eight we announced the bulk was board approved the share buyback program of up to $30 million to be commence promptly subject to completion of the proposed combination of volcker and tranquil taking place and confirmation by the new and large bore.
The proposed share buyback was in addition to the previously announced post closing targeted dividend of <unk> 25 per share annually.
The dividend is to be paid quarterly with the first payment plans to be made in the first quarter of course completion.
On November 1st couple of weeks post the closing of the combination.
Our names the newly expanded board has formally ratified and approved a share buyback program for an aggregate purchase are currently outstanding common stock up to $30 million.
Following this earnings call and after lifting our quarterly blackout period.
We'll now be able to commence the program to repurchase our equity.
Yes.
We believe the market has not yet incorporated the bogie that will be created from the combination of our two companies into a single entity and right now is a particularly opportune time to initiate the buyback program given our recent stock price.
The second component to returning shareholder value was to double the dividend the corporate following the completion of the transaction.
On October 31st we reiterated our plan to increase our dividend to <unk> 25 per share annually commencing in Q1 2023.
When you combine the increased dividend with a buyback program, we will be returning about 50 cents per diluted share back to our shareholders in 2023.
Our stock has been trading between $5 and $5 50. So this represents a 9% to 10% dividend and buyback yield which is quite healthy when compared to other energy companies.
Bottom line is we're delivering exactly what we said we would and we are looking for maximizing shareholder value.
This is done through returning some of that volume, but also prudently investing in the future and are very promising asset bases across four countries to continue to grow cash flow.
We continue to evaluate additional accretive acquisition opportunities to invest our cash into that world and that will continue to build value.
We're delivering on our strategic objectives, and delivering strong financial results, which are firmly place VAALCO and our phenomenally enviable position.
We successfully completed the highly complex episodes installation field reconfiguration and fulfilled turnaround in October .
How do we have noted we expect to realize substantial and sustainable operating cost savings from this project that will begin in the fourth quarter anti on through the remainder of the decade.
The new <unk> provides us with additional flexibility and has an effective capacity for stood at approximately 50% larger than the previous F. P. S O.
The lower overall cost will also lead to an extension of the economic field life, resulting in a corresponding increase in recovery and reserves at Etame.
From a cash cost standpoint, like all other E&P companies, we have seen some higher costs driven by inflationary pressures that are impacting the project.
There's a lot of pressure on fuel prices services equipment prices availability of equipment and consumables and global logistic costs unbelief.
We have also had to employ additional engineering as well as incurring increased supply chain and inspection costs.
I would like to put this into perspective for you we had about five times the number of personnel in the field during the project with additional boots equipment and operational responsibilities all working to ensure that we coordinate uncomplete the substantial project with minimal downtime to our production.
So reduce project risk exposure, we elected to use a larger offshore installation vessel, but we mobilized from Europe .
This vessel brought the flexible pipe deals with it instead of a shipping the real from Europe .
This increased project costs, but eliminated the use of a dedicated heavy lift transportation vessel or double handling the pipe in a west African pork.
We calculate this decision reduced the number of interface points by as much as 30% helping to mitigate the overall project risk.
A project of this magnitude with regards to Tommy occurs once every 20 years and I am proud of how our team managed the minimized the risks associated with such a large project and complex project.
These factors have increased our estimated capital cost associated with the episode conversion unfilled reconfiguration by about $10 million net to VAALCO.
We expect the related capital spend in 2022 to be between 30 and $40 million net to VAALCO, which is in addition to our 2021 2022 drilling campaign calls.
This capital investment is projected to save approximately $13 million to $16 million annually net to VAALCO and operating costs through 2013.
Another area of the whole significant future value for VAALCO is Equatorial Guinea.
On September 26, we announced the approval of our Venus Discovery development plan at block P. By the government of Equatorial Guinea.
Upon execution of final documents amongst all parties, which.
Which we are negotiating and approval by the government, we anticipate having a majority working interest in the project as operator.
The block P. PSC provides for the development and production period of 'twenty five years from the digital approval of the <unk> subject to the completion of final PSC Amendment documentation, which we are diligently working towards.
We're excited and look forward to adding significantly to our reserves. Once final documents are agreed and approved.
So there is also additional future upside with the Europa Europa development and exploration upside with the tunnel and southwest Grande prospects.
As part of the development of the Venus Discovery, we're planning to spud the first development well in early 2024.
Over the next three years, we will work to acquire convert and install production production facilities to support the discovery.
We also expect to spud, an additional development on water injection well.
And before potentially bringing the field online in 2026.
We are committed to profitably exploiting the resource potential in AG and I'm excited to be adding a fourth producing asset into the portfolio.
Turning our attention to the drilling campaign at Etame.
Have a tremendous success at the time of drilling and developing the vast resources over the past 20 years.
In February we reported that we completed and placed the 888 S T well online at rates above our initial estimates.
In late April the boom of three H S. T development, well was completed and brought online again with rates above our initial internal estimates.
The third well two boiler one H B S T and came to two potential dental producing zones. The D. One on the benign.
But the production rates from the D. One zone.
Below the minimum recommended operating range for the ESP.
We may return to the well in the future to complete the D. Nine dentelle interval, but had 15 meters of net hydrocarbon shows an estimated the original oil in place range of between 415 million barrels.
We recently finished drilling and completion of the north tubular two H S. T. While also targeting <unk> formation.
This well was ready to fluid in late October but has remained shut in due to other operational factors, including the recent workover activity and continued optimizing.
Tell me if you fall in the SSO unfilled reconfiguration.
The well is currently cleaning up I'm, a recovering flat frac fluid water and oil.
We had a large fracked in this well and thus far only about 20% of the Frac fluid has been recovered.
We will continue to flow the well and we'll update the market accordingly.
Following the two H S T well, we performed our first of two workovers.
The workover on the north to be about one H well was needed due to assist evolve in the world that required replacement.
With the rig already on site it was easier or more economic to utilize the rate to complete the work over following the completion of the two H S T well.
The final well operation plan for the rig is another workover.
The <unk> 48, which is expected to spook restore production of between 1000 and 1500 gross barrels of oil per day upon completion.
This well when offline in early September as a result of an upper ESP failure, and we were unable to restart the upper or the lower ESP to restore production.
Again, utilizing the rig for work Google's instead of new wells that were previously planned is reducing the overall total cost of the 2021 2022 drilling campaign at Tommy.
We will defer the additional wells with originally targeted for a future drilling campaign at Tommy.
With the anticipated success of the two HFC well on the Workover on the ETE SCM four as well we expect for December exit rate. This year at Etame to be between 10000, and 10500 net barrels of oil per day.
This coupled with the addition of the Transco production should allow us to enter 2023 around 19500 to 20 times and net barrels of oil equivalent per day, setting us up for a strong opening into 2023.
In summary, there is a lot to be excited about as we enter 2023.
We have completed the highly complex SSO unfulfilled reconfiguration, that's atomic while completing another drilling campaign.
We have an approved development plan for the Venus discovery at Equatorial Guinea.
We are incorporating the triangle team and asset building size and scale.
I would like to thank our hard working team, who continue to operate and execute on our strategic vision we.
We are firmly focused on our strategic vision of accretive growth, while maximizing shareholder return opportunities and operating with the highest regards towards ESG.
With that I would like to turn the call over to Ron to share our financial results.
Thank you George and good morning, everyone let.
Let me begin by echoing George's comments about our ability to successfully execute on several complex operational and corporate projects simultaneously.
I'm pleased with our performance thus far in 2022, and we are better positioned today to execute on our strategy of accretive growth, while auditing and returning value to our shareholders than we were at the start of the year.
Turning to our quarterly financials.
We generated adjusted EBITDAX of $42 4 million in the third quarter of 2022, compared with a record $60 8 million in the prior quarter, but nearly double the $23 3 million in the same period of 2021.
The decrease in adjusted EBITDAX compared to the second quarter of 2022 was primarily due to lower sales volumes from three listings in Q3 compared to four listings in Q2.
Year to date in 2022, we've clearly benefited from higher realized oil pricing and strong net sales volumes.
This has allowed us to fund our strategic initiatives with cash flow and cash on hand, including our 2021 2022 drilling campaign, capex or FSU conversion, our field reconfiguration costs and of course quarterly dividends.
We also reported net income of $6 $9 million or 11 cents per diluted share in the third quarter of 2022, which included a $24 million deferred tax expense and a $6 4 million in transaction costs associated with the Trans globe combination an eight.
$9 million of one time, Fps's demobilization, and decommissioning costs, which were partially offset by $12 9 million noncash unrealized derivative gain.
After normalizing for the deferred tax charge transaction costs F. BSO charges on the unrealized derivative gain our adjusted net income for the third quarter of 2022 totaled $33 3 million or <unk> 56 cents per diluted share as compared to an adjusted net income.
$37 million or <unk> 52 per diluted share for the second quarter of 2022.
In the third quarter of 2021, VAALCO reported $10 million and adjusted net income or <unk> 17 cents per diluted share.
Production for the quarter of 9157 net barrels of oil per day with nearly flat compared to 9211 net barrels of oil per day in the second quarter of 2022.
Production was up 19% from the same period in 2021 due to our drilling program.
Sales volumes in Q3, 2022, or 731000 barrels, which was 24% lower than the quarterly record high of 958000 barrels in Q2 2022.
Essentially flat with the same period in 2021.
And the third quarter, we had three listings compared to four listings in the second quarter of 2022.
We also saw a 9% decrease in realized crude oil pricing in the quarter compared to Q2 2022.
Despite the decline we are pleased with our continued strong crude oil price realization, which was $103 61 per barrel in the third quarter of 2022 versus $113 three eight per barrel in the second quarter of 2022.
Was up 42% compared to $73 two per barrel in the third quarter of 2021.
At the end of 2021 and at the beginning of 2022, we hedged a portion of our expected production in 2020 to lock in cash flow generation to assist in funding our capital program and our dividend.
The average price net of realized commodity derivatives was $91 13 per barrel for the third quarter of 2022 compared to $91 39 per barrel for the second quarter of 2022.
Our hedging program has provided us with the surety to fund the largest capital program that VAALCO has undertaken in over a decade.
On July 25, 2020 to VAALCO entered into Costless commodity, Colorado arrangement for a quantity of 326000 barrels of oil sales with a weighted average price of $70 per barrel and a weighted average coal price of 122 bucks per barrel.
On October 26 vocal entered into additional derivative contracts for the first quarter of 2023.
These derivative contracts our callers for approximately 303000 barrels of oil sales with a weighted average price of $65 per barrel.
Weighted average coal price of $120 per barrel.
Our full derivative position can be found in yesterday's earnings release as well as in our Q3 supplemental information presentation on our website.
Our hedging strategies to risk mitigate and protect our commitments to drilling and shareholder return.
This together with the closing of the RBS facility in 2022 affords significant risk mitigation in the event of any unforeseen events.
Turning to expenses production expense, excluding workovers and stock based compensation for the third quarter of 2022 was $23 $2 million.
This was lower than the second quarter due to less sales volumes, but higher than the same quarter in 2021.
This was primarily driven by the annual maintenance costs, the additional operational activities associated with the FSU and field reconfiguration and higher costs associated with boats personnel chemicals and costs.
We expect to see the supply chain issues and higher marine cost chemicals fuel and personnel costs as well as continued inflationary pressures likely to continue into 2023.
There is increased competition for services right now and over the past two years, we saw a decrease in the number of overall service providers across the supply chain.
From a macro level, both the higher demand on the lower supplier services is driving costs higher across the industry.
We believe inflationary pressures will continue while we benefited from sustained higher commodity pricing.
We had no workovers in the first three quarters of 2022, but we plan to Workovers in the fourth quarter of 2022.
We recently utilized the rig to perform a workover on the <unk> due to a safety valve in the world that required replacement.
When the rig already in the field it was easier and more economic to utilize the rig to complete the workover. Following the completion of nausea whaler, two each SD well rather than to use our mobile Workover unit.
The final well operation plan for the rig is another workover a southeast Etame 48 12.
Which is expected to restore production between 1000 and 1500 gross barrels of oil per day upon completion.
The well went offline in early September as a result of an upper ESP failure in Volcker was unable to restart the offer ESP or the Lord ESP to restore production.
Utilizing the rig for the Workovers instead of new wells that were previously planned has reduced the total capex cost of the 2021 2022 drilling campaign at Etame.
In the quarter and highlighted in our 8-K filing with a one time charge related to the Fps's demma demobilization costs of $8 $9 million.
This has allowed us to continue producing incident <unk> beyond the term of the original contract and allowed us to produce more barrels than we'd previously guided for for Q3.
These onetime costs were incurred to retire the S. PSU as we transition the block to the FSU.
There were no similar expenses incurred in the third quarter of 2021.
Depreciation depletion and amortization expense for the three months ended September 32022 increased to $9 million, which was higher than the second quarter of 2022 of $8 2 million and higher than the $7 million in the third quarter of 2021 the.
Greece, and depreciation depletion and amortization expense compared to both periods is due to higher depletable costs associated with the 2021 2022 drilling campaign.
General and administrative expense for the third quarter of 2022, excluding stock based compensation expense decreased $2 million compared.
Compared with $2 $7 million in the second quarter of 2022, and $2 9 million in the third quarter of 2021.
The decrease compared to prior periods was primarily driven by higher corporate overhead allocation for the three months ended September 32022 and reflects the.
The increased project work invoice to the PSC from corporate in Q3 2022.
The per unit G&A rate, excluding stock based compensation in the third quarter of 2022 was $2 74 per barrel of oil sales, which was significantly lower than the second quarter of 2022, and the third quarter of 2021.
G&A noncash stock based compensation expense for the third quarter of 2022 was less than 100000 and for the second quarter of 2022, it was not $8 million.
And less than 100000 and for the third quarter of 2021.
Turning now to taxes foreign income taxes are attributable to Gabon unaffected by the government taking their oil in kind.
As a reminder, our PSC tax rate in Gabon is about 52, 5% and can be reduced via cost recovery by both production and capital costs.
The overall corporate effective tax rate is influenced by nondeductible items like derivatives corporate costs that cannot be recovered into the PSC and to a lesser extent some costs associated with the operations look our equatorial Guinea losses.
Income tax expense for the three months ended September 32022 was $22 8 million.
It's comprised of a $24 million of deferred tax expense on a current tax benefit of $1 2 million.
This was higher than the income tax expense for the third quarter of 2021, where we benefited with the reversal of a valuation allowance leading to a tax benefit of approximately $22 7 million.
Our valuation allowances announced substantially leased and our net operating losses from previous periods are being utilized.
From a cash tax standpoint, the only tax speed as our profit oil bottles.
As a reminder, the gabonese government takes their taxes in kind through an annual listing.
We expect that lifting to occur in November .
We accrue quarterly during the year for the estimated value of the bottles legal lifted using quarter end oil pricing.
We then adjust for the actual cost based on the pricing at the time the lifting occurs.
The foreign tax rates in Gabon via the PSC is more than the U S tax rate and we're now in a position where we are crediting foreign taxes, rather than deducted in them.
I would like to refer you to our supplemental information deck that we posted to our website. This morning.
You will find scenarios around the calculation of our cost profile all.
In 2022, we have benefited from a brought forward cost pool hi.
Hi, commodity pricing and strong production assumed full utilization of that carryforward cost pool in 2022.
The FSU in the drilling campaign will allow us to continue to take advantage of a favorable PSC terms to allocate as much as 80% of Costco through much of the remainder of 2022.
With inclusion of Trans Globe in Q4, we should see an overall reduction in the effective tax rate.
If commodity pricing remains high for 2023, we will see an increase in overall profit barrels for the state and we do expect to have more than one lifting in etame and the calendar year to the <unk>.
We have generated $136 8 million and adjusted EBIT docks year to date in 2022, which is more than double what we generated in the same period in 2021.
With our recent stock price around $5, we continue to trade at a low multiple of EBITDAX, despite paying a dividend and despite being debt free.
Additionally, with the Trans globe combination and sustained commodity pricing, we should see a step up in adjusted EBITDAX in 2023.
Our increased market cap implies that we should be trading at a much higher multiple that similar sized companies enjoyed.
We believe that we are truly undervalued and that is another reason that we're excited about our share buyback program.
We believe right now is an excellent opportunity to buy our common shares at a discount to their intrinsic value and a very attractive investment of our strong cash balance.
At September 32022, we had an unrestricted cash balance of $69 3 million.
This does not include the proceeds from our September listing of $16 8 million, which we received in October .
Working capital at September 32022 was negative $19 7 million compared with negative $8 million at June 32022.
The increase in working capital is related to the increase in tax people aligned with the plan government list in November 2022, and increased accounts payable, which was partially offset by the increase in accounts receivable.
Since the transaction closed on October 13th both Trans global vocal pay transaction fees subsequent to quarter end. In addition, transco pay the $3 million outstanding debt balance with a Buster, Alberta Treasury bank or ETB.
For the third quarter of 2022, net capital expenditures, excluding acquisitions totaled $43 $6 million on a cash basis and $51 $7 million on an accrual basis.
These expenditures were primarily related to costs associated with the 2021 22022 drilling program.
The <unk> conversion on the Etame field reconfiguration.
As has been the case since the third quarter of 2018, we're cutting no debt and have facilities available to utilize for additional accretive acquisition opportunities to continue to build value.
Last week, the board of directors approved a cash dividend of three and a quarter cents per common share payable on December 22022 to stockholders of record at the close of business on November 22022.
This equates to a full year 2020 to annualized dividend of <unk> 13 per share.
We also plan to nearly double our dividend to <unk> 25 per share annually beginning in 2023 in line with a nice increase associated with the Trans Globe combination.
As stated previously growing the dividend will be from the quarter. Following the acquisition. This will be considered by the board in Q1 2023, following the year end results.
With the completion of the <unk> acquisition on October 32022, we've incorporated all assets and costs into our combined Q4 guidance and is available within our supplemental deck.
A key differentiation between <unk> reporting and VAALCO is about we report oil production as net realizable interest barrels the difference between production working interest our net realizable interest represents the government teak and royalties paid Archie can in bottles in Egypt and in Canada.
For the total company, we are forecasting Q4 production to be between 18000 and 20600 on a working interest barrel of oil equivalent per day in.
And between 13000, 916300, net realizable interest barrel of oil equivalent per day.
As a reminder for the fourth quarter, we are only including half of October and all of November and December for the Trans Globe assets.
Looking at production by asset, we would expecting Gabon to be between 6000, 407600, NRI barrels of oil equivalent per day, Egypt to be between 5000, 306000, NRI barrels of oil equivalent per day in Canada to be between 2002.
202700, NRI barrels of oil equivalent per day.
Gabon was impacted in the fourth quarter by the FSU and full field reconfiguration being shifted from September into October and by additional downtime with feel being brought back online. We are around 9200 on a net realizable interest barrels of oil per day at Gabon.
Today.
When you add in the restoration of production from the Workover on the UL cleaning up we expect Gabon to exit 2022 at around 10000 to 10500 NRI barrels of oil equivalent per day.
When you add in our expectation of Egypt, and Canada to be between 95010 thousand NRI barrels of all equivalent per day, you'll get to combine the exit rate of between 19000 520000 NRI barrels of all of equivalent per day.
Our sales guidance is in line with production, but slightly higher at between 18620 1100 on a work introduced barrels of oil equivalent per day or between 14000, 516700, NRI barrels of oil equivalent per day.
There's a slide in the supplemental deck that provides additional details on the impact on Q4 as production ramps up post the change from the <unk> on the food full field maintenance shutdown.
Turning to costs for the fourth quarter, we expect production expense, excluding workover and stock compensation to be between 33, and a half and $39 million on an absolute basis are between $23 50, and $27 50 on an NRI per barrel of oil equivalent basis.
Yes.
We also expect workovers to be between 5 million and $7 million.
Our cash G&A for the combined company is expected to be between three and a half and $5 million.
We're currently in our 2023 budget process and were beginning to identify additional synergistic cost saving opportunities that we will incorporate into our 2023 guidance.
Finally, looking at Capex for the fourth quarter, we are forecasting between 34 and $50 million of Capex spend. This includes the drilling program in Canada, and Egypt as well as the completion of the drilling campaign at Etame.
With that I will now turn the call back over to George.
Thanks, Ron.
As you heard this morning 2022, it's been a very successful and transformative year for VAALCO.
I've been CEO of VAALCO for the past 18 months and in Q1 2021, who are producing about 5000 barrels per day with a two P. CPR reserve estimate of $10 4 million bottles from a single producing asset.
We had no debt with about $20 million in cash and the stock was trading around $2 50 per share.
My main objectives were to Accretively grow production volumes through organic drilling acquisitions and unlocking the inherent value in our asset base.
We are long term stewards of VAALCO and are building a sustainable business that will maximize volume.
We are in a risk based business with a lot of variability, but with significant upside.
We believe we have manage these risks very well well delivering record results.
We continued drilling at Tommy and also entered into a consortium to explore a prospective area offshore Gabon sort of with Tommy has significant potential for the future.
We successfully completed one of the most comprehensive and complex operational projects in nearly 20 years at Etame with the <unk> conversion and full field reconfiguration.
It's quite remarkable that a project of that scope and scale with successfully managed and executed by a company the size of Vogtle.
We developed and received approval for <unk> from the EG government for the Venus discovery of block P.
And we are negotiating final documents for approval by the Ministry of mines and hydrocarbons.
That concession was acquired in 2012 and had no significant activity for nearly nine years.
Tailored until our team developed a unique development plan is highly economic at prices much below today's prices.
We have implemented the first ever dividend program for VAALCO began in Q1 2022 and have built a business capable of supporting our sustainable quarterly dividend.
We have completed an all equity combination of two undervalued companies bulk corn Trans globe that provides us additional size scale cash flow geographical diversity and created a more de risked portfolio.
We expected our enhanced size and scale to yield meaningful cost synergies in the future and we should benefit from a higher trading multiple that is accorded e&ps with our increased market capitalization.
We now have a vast resource base of organic opportunities in four countries, Gabon, Egypt, Equatorial Guinea in Canada.
R to P CPR reserves with trans global estimated to be over 50 million barrels.
And that should improve after we do a reserve update at year end.
We are forecasting Q4 net production to be more than three five times will be where in Q1 2021.
We are implementing a $30 million share buyback tripled the size over the last one varco announced in 2019 and our ninth plans to nearly double our annualized dividend in 2023 to <unk> 25 per share from the current <unk> 13 per share.
We have done all this while doubling the share price staying debt free and increasing the cash balance cash on the balance sheet to $70 million.
At the end of third quarter of 2022.
We've done an excellent job growing varco prudently returning cash to shareholders and enhancing the value of the company.
We are delivering on what we committed to the market and to our shareholders and we're better positioned today to move out 18 months ago.
We're generating significant cash and have grown production organically through the drillbit.
We have improved the average market liquidity almost sevenfold from early 2021.
We have also have the cash on hand, and unused borrowing base to quickly execute on accretive acquisitions.
We're very excited for the future of vocal and we will continue to be measured and methodical as we grow the company in the future.
Our combined teams are working closely to high grade our capital program on budget as well as finalize our guidance for 2023.
We plan to update the market on this information in the first quarter of next year.
We are confident that we will continue to deliver superior long term volume to our shareholders.
Thank you and with that operator, we are 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. If you are using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
During our question and answer session.
We ask you limit your questions to one and a follow up you can always reenter the queue with additional questions. At this time, we will pause momentarily to assemble our roster.
And our first question will come from John White with Roth Capital. Please go ahead.
Good morning afternoon, depending on where you guys are.
Congratulations on all of your accomplishments this year and many.
And very positive in my opinion.
On the Venus development block P. George I appreciated all your detail on the timeline.
There.
I was going to ask that.
But you provided it anyway and.
Ron spoke.
'twenty three guidance.
Just to confirm.
I believe with your final comment.
You mentioned that will be released in the first quarter 2023 is that correct.
Yeah, the full year guidance, I think you're referring to John we will do full year guidance and we'll get that out to you guys in the first quarter of 2023.
Okay I don't have any further questions. So I'll pass it back to the operator.
Thank you John .
Our next question will come from Stephanie <unk> with <unk> Advisors. Please go ahead.
Hi, gents, thanks for taking my questions I've got two so it sounds like the first one actually building up on the.
Previous question about.
2023 production.
You didn't give any guidance, but how should we look at it. So you gave the end of the year do you exit production.
For the Q4 production that Brexit geek pollution for the assets.
As we look at 2023.
Is that a reasonable number shall we start from there and putting some decline do you more or less explained expect that you will be able to grow on that what's the general thinking without being specialty capacity. There is no precise guidance given yet.
Thank you Stefan and I know, we can't we can't be specific but I can give you in general terms. So.
As I previously mentioned, we're coming to the end of the drilling campaign in Gabon.
And we are utilizing the rig for from these last two workovers and as I mentioned, one was a safety Workover went to was had to be completed.
And the other one was the the restoring of between the up to 500 barrels that went down due to an electrical failure, we called out an ESP failure. So it wasn't a failure of the pumps and electrical clearly on the on the cabling.
And just to make your product clear the reasonably utilize the rig is because we couldnt utilize our current unit because we didn't have either space on the platform to deploy the <unk> unit or the available personnel to operate so the rig was.
The definite definite choice to restore that production in the near term.
So we come to the end of.
The etame drilling, but we will just rigging up right now to commence drilling in Egypt. This week, so that the drilling program starts with two exploration wells.
In Egypt, and we also commenced a drilling program at the beginning of January in Canada. So.
I can't be specific but we will be continuing to add production from the drill from our other assets.
So so basically gobbled and declining a bit and maybe some production increases in Egypt and Canada.
Exactly yes.
Okay wonderful. Thanks. So that's my first question My second question is.
Portfolio is about.
And it's about modeling and looking for other things and starting given you provided some predictions number in Capex number for Q4, so we're starting to become financial and of course. The Big question is the starting point with regard to the cash coming from <unk>. So looking at our I think in June transport or bad something like a <unk>.
<unk> $60 million in cash at about $18 million. If you include all the working capital.
Is that the debt generated each quarter I think that you should look at the first half of the year that generated a lot so as a starting point on closing.
He is $80 million a good number to start with for working capital is it higher or is it below what geofence.
Well I think first of all Stefan I would.
Due to the fact that Trans Globe released their Q3 results. There was a 6K filing you can refer to that is a cash balance plaza effective September yes, we didn't take over that business until October the 13th so in that time period that will be transactional costs in relation to the deal.
If you take into consideration their cash balance at the end of September and there is going to be transactional costs that will come out to there again, our gauges to the proxy the information memorandum and Canada, both of which you identified costs that will occur on the combination.
And I think that will be the guide I would give you for your opening position.
Thank you.
Our next question will come from Charles Sharp with Canaccord. Please go ahead.
Thank you very much gentlemen, and thank you for a very comprehensive appetite.
Just one question.
Slide five in your presentation, you gave an indication of the rebuild a few like in production.
From that time through the <unk>.
Through October and into November .
We're now sort of halfway through that that would suggest that you're back up to that 15 16 17000 level.
Is that correct or has there been any.
Small delays that might impinge on Q4 numbers no.
If we look at the reason we included that particular chart was to clearly identify that the Q4 issues.
Relate to.
The lower production levels for Tommy are behind Us.
So we are up at the levels, you've indicated without me, giving you exact numbers.
The flow that you see.
And that charge is basically in relation to the.
S T and totally.
Sent well clean up.
And.
If I can I'll, just put a little bit of color to that well right now just for our listeners.
No the well was available to turn over to production on the 23rd of October .
Within the timeline that we'd previously indicated to market we were unable to.
Florida, well and turn it to production for two reasons, one we had to move the rig.
On <unk> and making.
Making the rig moved due to the safety Workover.
<unk> has remained short 10 for safety purposes.
And secondly, it was delayed due to the field reconfiguration as we start up the Etame field first confirm the integrity of the of the lines and the integrity of the vessel.
Receiving crude as we started to feed as we did a feedstock toppings and <unk> came on after at Tommy and those processing capabilities were confirmed.
If we then look at in detail with the.
With the well please keep in mind. This is the deepest well the bulk of ever drilled 16000 feet.
And.
We fracked.
Fact into two zones. So we have considerable completion fluid in there.
Quite a distance.
Of the fluids to extract but.
So we have a leg quite alone cleanup period.
Do have good bottom hole pressure being indicated.
103000, Psi, so our confidence levels remain very high and that's why we've got the indicative in the production chart, but it will take some time to clean up.
Okay. Thank you.
One short follow up if I may the excellent team that you've assembled and they've shown how excellently all true.
Carryout.
Conversion all the time are you going to be able to retain all of the key elements of that team.
And transfer them to Equatorial Guinea, or do you see that impact having.
Sure changed perform.
Well, obviously, we have given a plan of development, which is clearly capex intensive when it looks at.
What we're planning to do in block P. Obviously with the when we've got a team of such experience and having completed such a.
A monumental task within that timeframe, we are certainly looking to redeploy that team almost immediately into.
Optimizing the block P development, and when I say optimizing its a combination of optimizing the.
Yeah.
The efficiency of construction and design and also the efficiency of the economics. So can we.
Deploy.
That particular.
Engineering skill set to become a.
<unk> be even more efficient and reduce that initial capex.
And that's certainly the target Charlie.
Okay. That's great. Thank you.
Our next question will come from Bill <unk> with Titan capital. Please go ahead.
Thank you.
First of all.
Being in Gabon, and changing the assets and what you accomplished over there.
Truly remarkable so congratulations and wish that.
Really solid execution I guess that leads to the question is.
What do you think you can do shaped over the course of the next 12 months.
<unk> will shape, a short period of time, but in Egypt with the Transco batch and just taking your execution, implying applying that over there.
Oh, that's a tough one.
We have.
I'm sure most of the listeners are aware, we have a specific methodology of operating and we go to the lowest common denominator book to understand the operations and to meet them efficient.
As efficient as they can be now I'm, not saying that that hasn't already been done on transco, but we need to accomplish both in the field and with our partners in Egypt. So that we can maximize both the production and maximize the efficiency and making that.
The position in Egypt as prolific as it can possibly be.
Certainly we will be setting some challenging targets that we will be looking at with.
With regards to production and cost efficiency will be setting targets with regard to our export barrels and how we plan to maximize the volume moves.
How do we have a better understanding of the.
The pricing of that particular crude with a discount to Brent so.
We are very hands on when it comes to executive management on the assets.
And so that's where we'll be in Egypt in fact, there'll be in Egypt. The week after next.
And we will do exactly the same with the operation in Canada.
Quickly can we accelerate the planned production increases and bring them as far forward into 2023 as possible hopefully doing it safely and efficiently. So.
<unk>.
In Gabon goes into a study fees in 2023 from the subsurface what's effectively it is with the exploration.
<unk> assets and the development and the Tommy.
We will have more than enough time to focus on our operational positions into.
Canada and Egypt.
Thank you and then second question is relative to the new <unk>. So given the significantly larger capacity, how do you anticipate the cadence.
Oh.
<unk> will take place relative to the cadence that you've had with <unk>.
Yes.
And are hopeful.
For those who are not aware of with the lower parcel sizes from from the new Tipo, we always we're in a cool load position. So in looking at the opportunities for vessels in West Africa nine times out of 10, we will be co loading with a vessel that's either pre loaded ongoing about to take a second alluded to into Nigeria. So what this.
It does allow us to have a specific 100% loading coming from.
From the Taylor going into <unk>.
A single tanker now not alone.
We can't quantify as yet, but its certainly the larger of the loading.
The reduced.
<unk> cost for vessels in tongues injector that we have for that and the larger the loading the better opportunity to market that as a single a single powerful.
One of the refineries. So we are we are planning to see benefit from that cost savings.
And price enhancements, but we haven't factored in at this time.
Great. Thank you.
Congratulations again on the Fabulous execution in Gabon.
Thanks, Bob.
Our next question will come from Jamie Wilen with Wilen management. Please go ahead.
Hi, Pels, you always seem to get a bit of a premium to Brent could you.
Kind of quantify what pricing, we were able to achieve and how we're able to do that.
Okay.
<unk>.
What we've recently done Jamie is we switched away from <unk>.
Term contract with.
Exxon.
This is for Gabon crude lumi quantify so we switched away from a term contract with Exxon to a market based marketing contract with them.
With Glencore, so and the term based contract we were dated Brent minus so it was a fixed position on Brent minus whatever the position was in the contract and it went from 50 to $1 Brent minus one dollar and most of them are lifting.
Moving to marketing contract, we paid <unk> 25 per barrel on the marketing fee.
And on the creator effectively goes and sources the best price possible in the marketplace for each in each parcel that we scheduled to deliver on the last parcel we were trading at $5 premium to Brent on that particular parcel.
And.
What we tried to do is maximize the volume that we've got a couple of.
Smaller lift coming up in Q4, and one of them I think.
Markets at a slight discount to Brent so it's all about being able to capture the market at the right time with the right volume, but we are into marketing contract now.
It gives us a much larger control of spectrum of the crude.
For the other jurisdictions in Egypt.
As a mixture of a marketing contract with Nokia for offtake from the historically do one or two off takes a year plus an option to.
Price and sale to EG PC for domestic use which is linked to a dollar based.
Dollar sale linked to a better an $8 discount to Brent for that crude quality again, something we're just getting into it to see how we can improve that crude quality.
<unk> processing in the field in Canada, it's a little bit differently.
<unk> of oil Ngls and gas. So there is a combination price that's basically everything is sold at the wellhead.
Okay.
On the North <unk>, well that has been paused can you give us a little bit more clarity on the timing of how long it will take to clean up the well.
Kind of looking at the to be used for.
So what the Workover wells will be versus what this will come online it looks like we're looking at.
1500, NRI is what you're forecasting there.
Yes.
We'll keep it at.
At 500.
We have no reason given from the from the subsurface side.
The geological side for us to at this point change my estimate.
Like I said, we've got to keep in mind that it's a 16000 foot well.
<unk> 4950 meters in depth.
It's quite.
It's going to take quite some time to get up and if you look at that chart. We've allowed about 10 days.
10 to 12 days to clean up to get stabilized flow and that's where we expect and as soon as we have and it's cleaned up will strip that market with the with the stabilized rate.
As you look at the results of the drilling program, but where are we what we've accomplished and the government of dental deserves.
Does that affect how you look down the road, what we're going to do the gamba seems to have been so productive, but the trial has been a little bit more elusive.
How do you look at the drilling program.
For 2023 and beyond.
Those two areas.
Yes.
That's a great question and the reason I think it's a great question Jamie is because it allows me to provide the opportunity of exactly what we're trying to do right now.
What we're trying to do right now.
It was over 18 months ago that we identified this program in fact it was the end of 2020, the beginning of 2021 and we identified this program with <unk>.
Pre designated wells and and we did that ahead over full seismic interpretation and.
You are aware through through this program, we've had to substitute wells as our seismic interpretation and knowledge grew and then substitute in these wells we tend to in any drilling campaign you do your the Afirma wells first in your in your riskier wells at the end.
Percentage chance of success basis and.
Well.
That's exactly right with this program.
Graham has panned out for 2023, we have a year, where we're going to do a really deep dive into that seismic interpretation, a really deep dive into the <unk>.
And productive drilling opportunities within both the gamba and the dental and then have that portfolio risk and so we can again identify a clear targets within four to six high grade drilling targets that will come to a ninth towards Q3 of 2023.
And with that we'll also be looking at what is the longevity of the Tommy how far we've got an opportunity to take this to 2038, how do we do that from a subsurface perspective, how do we do that from a full utilization of the facilities perspective, and well I'm planning to try and do is get that analysis and a cap.
Aftermarket towards middle of Q2.
And that's what we're trying to achieve.
Now don't hold me to that Q2 data will be it will be ready when we completed the interpretation, but we will come out to market and give them a full overview of not just initially the etame asset because that's the one we're focused on right now and then an opportunity to expand that with with both our Canadian and Egyptian assets later in the year.
We have time for one last question. Our last question will come from Stephanie folk hard with artist Advisors. Please go ahead.
If again gents.
Two a boring question for Ron.
The first one on the balance sheet on the non incrementally diabetes I think I saw for the first time.
Non current tax of about $41 million and I was wondering.
What.
That corresponding to west coast, putting two and the other one related.
All of that Amy residual capex from the ASP. So in 2023, because I think only part of the overall bridge. It was spring 2022. So I guess, that's the balance we're into Q1 'twenty three if you could confirm that would be great. Thank you.
Okay. So on the first part yes, we have got a both the deferred tax asset and a deferred tax liability.
<unk> met these off.
For accounting purposes.
And so the liability is really the deferred tax liability.
Foreign taxes for Gabon.
Essentially that.
Is our projections there that will.
Obviously, we are utilizing the cost pool by 80%, so again, the deductions upfront but.
But we have the liability for the profit all bottles as we look into the future at the same point in time, because our tax rate in Gabon is higher than our U S tax rate you've effectively got the asset appearing in the U S site deferred tax asset so.
One virtually offsets the other at this point in time with US that's why.
Develop that too I mean previously we would have had deferred tax assets in Gabon, but valuation allowances against them when when when Covid hit and when prices were low those valuation allowances were basically reverse as we go through 2021 and the final reversal happened in the beginning of 2022.
So there is quite a bit of noises as those deferred taxes roll themselves out.
Over the year.
But we finished we were looking at the year to date position now where an effective tax rate of around 65%. So it's kind of coming back in line with what we expected did not 60% 65% level.
Second point I'll go to is on the <unk> No I think we'll largely see all of those costs rolling through in Q4. So.
There shouldn't be any carry forward into Q1 nothing material anyway.
Great. Thank you. Thank you.
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 operator, I think this has been.
Excellent coal as you can tell from the length.
Of the call on the detail of the questions that we've been we've been performing and considerable activities through through this year and we've put an awful lot of information to the market and that is reflected legacy with the quality of the questions that we've run.
<unk>.
I see.
We look forward to.
Q4, and starting to.
Harvest some of the benefits both of the combination and of the drilling campaign in the infield upgrades and <unk> installation that.
<unk> completed.
And we'd like to say to my staff is 19, you take a well earned calls, but I think after Thanksgiving I'll be asking them to give back on that hobby horse and lets keep driving again.
Thank you very much for the colon.
We as an executive team are available to us.
To take calls from investors on a one to one as and when required. Thank.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.