Q4 2022 VAALCO Energy Inc Earnings Call

Speaker 2: Out of Energy: Fourth Quarter and Full Year 2022 Earnings Conference Call.

Speaker 2: All participants will be in a listen-only mode.

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Speaker 2: Please also note that this event is being recorded today.

Speaker 2: I would now like to turn the conference over to Al Petrie, investor relations coordinator. Please go ahead, sir.

Speaker 3: Thank you, operator. Welcome to Vacco Energy's fourth quarter and full year 2022 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the fourth quarter and full year 2022. Ron Dane, our CFO, will then provide a more in-depth financial analysis.

Speaker 3: to today's supplemental investor deck on our website 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. Please caution that forward-looking statement.

Speaker 3: or night guarantees of future performance in those actual results or developments may differ materially from those projected in the far-looking statements. Valco disclaims any intention or obligation to update or revise any far-looking statements whether as a result of new information, future events or otherwise.

Speaker 3: Accordingly, you should not place undue reliance on forward-looking statements.

Speaker 3: These and other risks are described in our earnings release, the presentation posts on our website, and in the reports we follow at the SEC, including our form 10K. Please note that this conference call is being recorded. Let me turn the call over to George.

Speaker 4: Thank you all. Welcome to our fourth quarter and full year 2022 earnings conference call.

Speaker 4: 2022 was truly a transformational year for Valco that saw us generate record financial results, successfully complete multiple high-impact operational projects, close an acquisition that nearly doubled production, diversify our asset base and increase SEC proved reserves by 150%.

Speaker 4: Additionally, we implemented our first ever dividend program in 2022, paying out $9.3 million in dividends to shareholders.

Speaker 4: In 2023, we increased our dividend by 92% and approved a stop-by-back program in late 2022 to further demonstrate and enhance our commitment to returning meaningful value to our shareholders.

Speaker 4: Our balance sheet remains debt-free even after we fully funded the largest capital program in our company history that included drilling multiple wells and completely reconfiguring our Itami Field infrastructure while adding a long-lasting FSO solution that lowered costs to goose anCamp's home HEAD digital theatre

Speaker 4: and extended the economic field life at Itami. We have a strong production base to help us generate significant cash flow moving forward to fund our dividend, buybacks, capital programs and potentially additional acquisitions where we build additional cash for the future.

Speaker 4: Before I go into more detail on these many accomplishments, let me first summarize some high-level financial and operational results that led to a record-breaking year. We grew production by over 40% year-over-year, which helped us deliver record-breaking adjusted EBITDAX.

Speaker 4: of $186.6 million in 2022.

Speaker 4: To put this in perspective, we generated $85.8 million in all of 2021 and $26.6 million in 2020.

Speaker 4: We fully funded a $160 million capital program with cash on hand and cash from operations.

Speaker 4: We maintained a strong debt-free balance sheet with significant cash on hand and positioned ourselves to generate meaningful free cash flow in 2023.

Speaker 4: We have positive momentum in 2023 both operationally and financially, and we are building size and scale to substantially grow vocal.

Speaker 4: On the transglobe acquisition, on October 13, we completed the transformational combination with transglobe. We will now proceed to the next slide.

Speaker 4: which has built a business of scale with a stronger balance sheet and a more diversified production base that de-risks our overall portfolio and will underpin Valco's future opportunities for success.

Speaker 4: Valco now has a diversified portfolio of assets across four countries including, Gabon, Egypt, Equatorial Guinea and Canada.

Speaker 4: This larger diversified production base positions us to generate meaningful cash flow in 2023 and beyond to fund the increased stockholder dividends, share buybacks and potential supplemental stockholder returns at a rate that would not have been achievable by either Valco or Transglobe on a standalone basis.

Speaker 4: We are also capturing meaningful synergies as a result of the combination and the first trans that we initially outlined have already been captured.

Speaker 4: We canceled the additional public listings, streamlined the total number of board and executive positions, implemented a more efficient corporate structure, consolidated our advisors, and reduced external reporting requirements.

Speaker 4: This will save us up to $5 million per year annually, but this is only the beginning.

Speaker 4: We are increasing optimization, digitalization and back-office efficiencies as well as initiating service, supply chain and operational savings that could potentially double the amount of annualized savings as we continue to implement them over the next 18 to 24 months. A key part of the value proposition around the combination was the opportunity to provide it.

Speaker 4: Two 25 cents per share or 25 cents per share annually, from the 13 cents per share in 2020 two

Speaker 4: Based on where our stock is currently trading, this gives a dividend yield of over 5%, which is compelling in today's market.

Speaker 4: This dividend, when coupled with the share buyback, provides a meaningful return of cash to our shareholders in 2020. -three and.

Speaker 4: When this is combined with the capital appreciation we aim to deliver through our operational efficiency, the result is a strong investment proposition.

Speaker 4: We believe the market has not yet recognized the value that was created from the combination of our two companies into a single entity.

Speaker 4: making right now a particularly opportune time for the Bioback program.

Speaker 4: Bottom line is this acquisition propelled VCO to a much stronger position, both operationally and financially.

Speaker 4: Providing diversification to maximize cash flow in various pricing environments, reducing the overall risk for our shareholders, and allowing us to return additional value to our shareholders.

Speaker 4: This is done through cash distributions but also by prudently investing in the future in a very promising asset base across our four countries to continue to grow cash flow.

Speaker 4: We also continue to evaluate additional, accretive acquisition opportunities to invest in that will further build value.

Speaker 4: The Transglobe acquisition was a major accomplishment for Valco in 2022, but it was only one of many.

Speaker 4: At the boom, we completed the drilling campaign, reconfigured the atomic field for efficiency, and entered into a long-term contract for an upgraded FSO.

Speaker 4: Now to review Geborn.

Speaker 4: With the FSO, we successfully completed the highly complex FSO installation, field reconfiguration and full field turnaround in October of 2022.

Speaker 4: As we have noted, this project positions us to realize substantial and sustainable operating cost savings in 2023 and continuing through the remainder of the decade.

Speaker 4: The new FSO provides us with additional flexibility and has an effective capacity for storage that is approximately 50% larger than the previous FPSO. The lower overall cost will also lead to an extension of the economic field life, resulting in a corresponding increase.

Speaker 4: in recovery and reserves at Tommy.

Speaker 4: This project was an incredible feat from an engineering, logistical, and operational standpoint.

Speaker 4: I would like to put this in perspective for you.

Speaker 4: We had about five times the number of personnel in the field during the project with additional boats, equipment and operational responsibilities.

Speaker 4: all working to ensure that we coordinate and complete the substantial project with minimal downtime to our production.

Speaker 4: We also had specialized equipment being manufactured, delivered and installed from all over the world during a particularly difficult worldwide supply chain environment.

Speaker 4: Availability of equipment, consumables and global logistics have been strained over the past two years, which led to upward cost pressure and some delays.

Speaker 4: Remaining committed to safety and operational excellence, we took every opportunity to reduce project risk exposure.

Speaker 4: This effort increased our project costs by eliminated costly delays, ensured employee safety, mitigated the overall project risk and ensured minimum production interruptions during installation.

Speaker 4: A project of this magnitude with regards to Itami occurs once every 20 years, and I'm extremely proud of how our team managed and minimized the risk associated with such a large and complex project.

Speaker 4: Hart Energy wrote an interesting story about this project which we have posted on the homepage of our website and I think you would enjoy reading.

Speaker 4: Rom will review the cost of the project and our financials in more detail, but we are seeing the cost savings materialize: erreatommy operations in 2, twentiethousand and 23 and moving forward with about 13 to $16 million of annual savings net to valco and operational costs through 20 and 13. Turning to the 20 21, twentiethousand and 20: two drilling.

Speaker 4: and exceeded our pre-dural estimates.

Speaker 4: The program has materially increased production and extended the economic life of the atomy field, thereby fulfilling the primary objectives of the campaign.

Speaker 4: We forecast the total glowing programme at Itami will achieve payback in 2023 and have strong overall economics at the current strip pricing.

Speaker 4: Demonstrating the strong cash flow profile generated from this quality asset.

Speaker 4: Our two highly successful wells, the Itami 8HST and the Evuma 3HST wells were brought online with rates above our initial internal estimates.

Speaker 4: The third and fourth wells, the South to Ila-1 HST and the North Jabila to HST wells, both encountered the entire producing zones. However, the production rates and reservoir permeabilities for these wells were below our expectations.

Speaker 4: In addition to drilling the four wells on the real regular site, it made performing two workovers easier and more economical.

Speaker 4: The first workover was needed due to a safety evolve in the well-acquired replacement.

Speaker 4: The second workover on the ETSEM 4H restored production of about 1,350 gross barrels of oil per day.

Speaker 4: This well went offline as a result of an upper ESP failure and was restored in late Q4.

Speaker 4: We are evaluating the learnings from this most recent drilling campaign and further evaluating prospects for our next drilling campaign at Itami.

Speaker 4: We have reviewed our internal processes for target evaluation and proposal planning and have augmented these into a more integrated approach.

Speaker 4: This process is being applied to the next drilling campaign, which will likely begin mid to late 2024, subject to rig availability.

Speaker 4: With this, we will incorporate all of our learnings from our last two drilling campaigns in Gabon into our planning process, and we are making the necessary changes to do that effectively.

Speaker 4: Our implementation of the next drilling campaign will depend on rig availability, commodity pricing, supply chain issues, and procurement of long-lead items. So the exact timing is yet to be determined.

Speaker 4: We are focused on drilling additional Gamba targets in the next drilling program, where we continue to better map and understand deeper dental potential across the tummy.

Speaker 4: Our primary objectives with any future drilling are successfully adding production and extending the economic life of our Itami asset.

Speaker 4: We will share with the market additional details on our next drilling campaign once we have our planning complete.

Speaker 4: Let me reiterate that we accomplished that with our 2021-2022 drilling campaign, and the overall economics of the entire drilling campaign are expected to have over a 100% internal rate of return, given realized pricing and current strip pricing.

Speaker 4: This is a very attractive rate of return especially for a company with no debt, strong cash flow and a low cost of capital.

Speaker 4: Ti vit a return, especially for a company with no debt, strong cash flow, and a low cost of capital. When Equatorial Guinea.

Speaker 4: Now let me turn to a discussion on Equatorial Guinea, another area that holds significant future potential for vocal.

Speaker 4: Walco Szonz are working interest in Block P offshore Equatorial Guinea where they have previously discovered but undeveloped resources as well as an additional exploration potential.

Speaker 4: In March 2023, we held productive meetings with the Ministry of Mines and Hydrocarbons and our partners in Houston.

Speaker 4: During these meetings, we finalized multiple substantive documents for BlockP, which includes the biggest development relating to the production sharing contract.

Speaker 4: We are working on concluding remaining documents and expect to update the market in the second quarter of 2023.

Speaker 4: We are excited about the future of Equatorial Guinea and we anticipate strong, efficient, and economic development from this discovery, with first oil projected for 2026.

Speaker 4: Additionally, there are clear strategic benefits in further diversifying the revenue generation and country focus of our portfolio.

Speaker 4: We have a proven track record for a development of this kind, and we look forward to demonstrating these capabilities as we progress the Venus Discovery into production.

Speaker 4: In Egypt, we are focused on drilling opportunities in Egypt which include drilling the first ever nuke horizontal well on a wreckage.

Speaker 4: This well was spotted in December of 2022, and the lateral was successfully drilled, encountering good oil and gas shores.

Speaker 4: Our drilling and completion program in Egypt will be a large part of our 2023 capital program, and we continue to develop one of our anchor assets.

Speaker 4: In Canada, in the fourth quarter, we drilled several wells in Canada but completions were delayed into 2023. We will drill a couple more wells as part of our Canadian program and complete them all in 2023.

Speaker 4: Tonic to reserves.

Speaker 4: We're very pleased with the substantial growth of our reserve base, which was driven by several of the accomplishments that we have already discussed this morning.

Speaker 4: We have added 18.6 million barrels of oil equivalent from the transglobe acquisition and 2 million barrels of oil equivalent from positive divisions which significantly boosted our SEC proved reserve. The proved reserve increase was partially offset.

Speaker 4: by production of 3.9 million barrels of oil equivalent.

Speaker 4: SEC proved reserves at year-end increased by 149% to 27.9 million barrels of oil equivalent. This significant increase in our SEC proved reserves does not include any positive impact from Equatorial Guinea.

Speaker 4: We believe that once the final documents are executed for Equatorial Guinea, we will begin adding improved reserves as we proceed with the development plan.

Speaker 4: The proven volume of approved reserves utilizing SEC pricing of approximately $100 per barrel dated Brent increased by 529% from $99.3 million to $624 million.

Speaker 4: This was largely driven by the Transglobe transaction and from the SEC pricing increase. Our 2P CPR estimate, which includes proven and probable reserves using Valco's management assumptions for future Brent escalated crude oil pricing and costs.

Speaker 4: reported on a working interest basis prior to deductions for government royalties saw a year over year increase of 292% to 76.4 million barrels of oil equivalent.

Speaker 4: The 2P CPR MPV10 value increased more than four times from 183.7 million at year-end 2021 to 815 million at year-end 2022.

Speaker 4: I would like to point out that pricing played only a small role in these 2p CPR increases as pricing was kept broadly similar year on year.

Speaker 4: The overall MV 10 for our SEC-proof reserves under management, with two PP CPR, is significantly higher than our current market cap of around $5 million.

Speaker 4: We have no debt and are in a net positive cash and working capital position, but remain significantly undervalued.

Speaker 4: I will now review reserves and valuation by Acetteria AG BOM. We saw positive technical developments at Atommy and from Southeast Atommy and the Buoy fields, as well as strong performance from an Atommy field, primarily driven by the newly drilled Etath well.

Speaker 4: At Gebaun, we saw positive technical revisions at Itami and from southeast Itami and Iburi fields, as well as strong performance from the Itami field primarily driven by the newly drilled ET8H well. However,

Speaker 4: These positive technical movements were outweighed by disappointing drill result from north to wheeler Gamba well and soap to wheeler Dentar well and Avuma field revisions.

Speaker 4: Taking into account the upward pricing, divisions, and production, for 2022, our net SEC proved reserves at ATMY were down 9% year-over-year to 10.2 million barrels of oil.

Speaker 4: We deploy 67% of twenty thousand and 22 production with new SEC approved reserves at atomy.

Speaker 4: Our approved SEC MPV 10 for a time did increase by 246% to 244 million at year-end, twenty thousand and twenty-two.

Speaker 4: As I stated earlier, we continue to work on high-grading and better identifying future drilling locations at Atami, which we believe will help to increase our reserves in the future.

Speaker 4: We remain confident in the value of our future potential at Atommy. We are planning to return to drilling and Atommy in 2024, pending availability and commodity pricing, with a drilling campaign heavily weighted on gamma opportunities.

Speaker 4: I would now like to discuss the two asset bases that we acquired last year through a transferable transaction and remind you that, since we are adding those to Vocal's reserve base, I will not be giving year-over-year comparisons for these areas.

Speaker 4: Turning night to Egypt.

Speaker 4: Our net 2022 SEC proved reserves were 8.6 million barrels of oil. Under proved SEC mpv TAM for Egypt, the amount was $227 million a year in 2022.

Speaker 4: For 2022, SEC approved reserves. We had a 20% reserve replacement and despite positive impacts due to pricing overall, quite a bit of the upside was offset by reduced cost pools due to higher pricing. We see strong upside potential in Egypt and will be focusing our 2023 capital programme on development opportunities in Egypt.

Speaker 4: Looking at Canada, our net 2022 SEC proved reserves were 9.2 million barrels of oil equivalent and our proved SEC NPV10 for Canada was $153 million at year-end 2022. For 2022 SEC reserves we had a 267...

Speaker 4: I would like to thank our hardworking team who continue to operate and execute on our strategic vision.

Speaker 4: We have captured meaningful synergies of the transglobar position already and continue to make progress towards capturing more all while continuing to build size and scale.

Speaker 4: We have completed the highly complex FSO and full field reconfiguration at Itami while completing another drilling campaign.

Speaker 4: We are working on concluding the remaining documents at Block P and Equatorial Guinea, and anticipate a strong, efficient, and economical development of the Venus discovery, with the first oil projected for 2026.

Speaker 4: We are debt-free and remain firmly focused on our strategic vision of accretive growth while maximizing shareholder return opportunities and operating with the highest regard towards ESG.

Speaker 4: With that, I would like to turn the call over to Ron to share our financial results.

Speaker 4: Thank you, George. Let me begin by echoing George's comments about our execution on several complex operational and corporate projects, simultaneously, including the closing of the acquisition of Transglobe in the fourth quarter of 2020 - two.

Speaker 4: I am pleased with our record annual operating performance in 2022 and as we look to 2023 and beyond, we are better positioned today to execute on our strategy while adding and returning value to our shareholders.

Speaker 4: Record annual operating performance in 2022, and as we look towards 2023 and beyond, we are better positioned today to execute our strategy while adding and returning value to our shareholders. Turning to our financials.

Speaker 4: We generated an adjusted EBITDAX of $49.8 million in the fourth quarter of 2022 and a record $186.6 million in 2022.

Speaker 3: This was more than double the £85.8 million in 2021.

Speaker 4: The record adjusted EBITDACX was primarily due to sales volumes increasing by 36% year-over-year and the average sales price of crude oil increasing by 34%.

Speaker 4: We have clearly benefited from higher realised oil pricing, the impact of increased production at Itami and the Transglobe acquisition which only contributed to financials after the closing on acquisition on 13 October 2022.

Speaker 4: These factors have allowed us to fund our strategic initiatives with cash flow and cash on hand, including our drilling and completions CapEx, FSO conversion, and fuel reconfiguration costs, as well as our quarterly dividends and share buyback.

Speaker 4: We also reported a net income of $17.8 million, or 19 cents per diluted share, in the fourth quarter of 2022, which included a $10.8 million gain on one acquisition, a $5.3 million deferred tax expense, and $7 million in transaction costs associated with the Transglobe combination.

Speaker 4: For the full year, twenty-twenty and 22, Vauo reported a net income of $51.9 million, or 74 cents per diluted share, which included a $44.8 million deferred tax expense, and $14.6 million in transaction costs associated with the Transglobe combination.

Speaker 4: a 10.8 million gain on acquisition, 8.9 million in FPSO demobilization costs.

Speaker 4: and a 5.1 million in unrealized derivative gains.

Speaker 4: After normalising for the deferred tax charge, transaction costs, gain on acquisition, FBSO charges on the unrealised derivative gain, or adjusted net income for the full year 2022 totalled $104.3 million.

Speaker 4: or $1.49 per deluted share, as compared to an adjusted net income of $39.6 million or $67 per deluted share for 2021.

Speaker 4: The same factors that drove record-adjusted EBIT DAX helped to meaningfully increase adjusted net income as well.

Speaker 4: Production for the fourth quarter of 14,390 net barrels of oil equivalent per day was up by 57% compared to 9,157 net barrels of oil per day in the third quarter of 2022. Production for the full year 2022.

Speaker 4: Was up 43% from the same period in 2021, due to a drilling program and the production benefit from the transg transaction. After October fourteenth, thousand and 22 sales volumes in Q4. Two thousand and 22 were one point three seven million oe.

Speaker 4: Which was 88% higher than the third quarter, was 731 thousand, and a full year 20-22 seals increased 35% to three point six eight million be oe.

Speaker 3: In the fourth quarter, we sealed deals across Gabon, Egypt, and Canada for the first time.

Speaker 4: Offsetting the benefit of these high sales volumes was a thirty-two percent decrease in realized commodity pricing in the quarter, compared to Q3 twenty thousand and 22. Despite the decline, we are pleased with our continued strong commodity price realization, which was $70.43 per barrel of oil equivalent.

Speaker 4: and the fourth quarter of 2022. With Canada containing natural gas and natural gas liquids, Egyptian pricing driven by the Ras Garib blend or pricing will be blended versus the past when it was tied to only Brent Oil.

Speaker 4: We continue to implement a hedging program to help us provide certainty to fund our capital program, mitigate risk, and also to protect our commitment to shareholder returns.

Speaker 4: We have protected, via costless collar, a flow price of $65 for the percentage of our production through the first half of the year, with upside to at least $100.

Speaker 3: As we look at 2023 and beyond, we will continue to implement our strategy and examine our capital spending outlaying the near-term and the longer-term.

Speaker 4: Our full derivative position can be found in the year-end earnings release as well as in our Supplemental Information presentation on our website.

Speaker 4: Can be found in the year-end earnings release, as well as in our supplemental information presentation on our website. Turning to expenses.

Speaker 4: Production expense, excluding offshore workovers and stock-based compensation for the fourth quarter of 2022 was $40.8 million and for the full year 2022 was $107.9 million.

Speaker 4: These were sequential increases compared to prior periods driven by higher sales volumes, inflationary pressures and higher levels of operational work in 2022.

Speaker 4: The inflationary pressure was seen in fuel, boats, personnel, chemicals and miscellaneous costs.

Speaker 4: We are monitoring our costs and looking for ways to safely reduce expense, but believe that the elevated cost levels driven by the inflationary pressures may continue into 2023.

Speaker 4: There continues to be increased competition for services.

Speaker 4: Over the past two years we saw a decrease in the number of overall service providers across the supply chain.

Speaker 4: From a macro level, both the higher demand and the lower supply of services is driving costs higher across the industry. We believe inflationary pressures could continue as we benefit from higher commodity pricing.

Speaker 4: We had no offshore workovers in the first three quarters of 2022, but in the fourth quarter of 2022 we performed two offshore workovers for $4.7 million.

Speaker 4: Both workovers were in Gabon with one due to a safety valve in the well that required replacement. The second was to restore production on the south-easty Tami 4H well, which went offline as a result of an upper ESP failure and Volco was unable to restart the upper ESP or the lower ESP to restore production. We were able to restore production in Q4 and we were able to restore production in Q3.

Speaker 4: To that end, supporting base production after Tomy in the third quarter of 2022, with a one-time charge related to the FPSO demobilization cost of $8.9 million.

Speaker 4: This allowed us to continue producing into the NA-DEPA beyond the term of the original contract and allowed us to produce more barrels than we had previously guided for Q3. These one-time costs were incurred to retire the FPSO as we transitioned to the FSO.

Speaker 4: There were no similar expenses incurred in the fourth quarter of 2022, after the year-end. These costs were cash-funded from the abandonment fund.

Speaker 4: Depreciation, depletion and amortisation expense for the three months ended 31 December 2022 increased to $26.3 million which was higher than Q3 2022 of $9 million and higher than the $4.1 million in Q4 2021.

Egypt and Canada following the TransGlobe acquisition.

General and administrative expenses for the fourth quarter of 2022, excluding stock-based compensation expense, decreased to a negative $3 thousand, compared with $2 million in the third quarter of 2022 and $2.2 million in the fourth quarter of 2021.

The decrease compared to prior periods was primarily driven by a large increase in operational projects involving a majority of corporate resources which realised a high percentage of costs charged to projects.

For the full year 2022, GE cost excluding stock-based compensation was $8 million, a decrease of 35% compared with the full year 2021. GNA non-cash stock-based compensation expense for the fourth quarter of 2022 was a negative, not one thousand.

Current tax expense of $1.6 million.

From a cash tax standpoint, the only tax paid is on our profit barrels in both Gabon and in Egypt.

No cash taxes are payable in Canada due to the availability of net operating losses.

The government's government takes their taxes in kind through an annual listing thought listing a charge in December 2020 - two.

We accrue quarterly during the year for the estimated value of the barrels that were left, using quarter-end oil pricing. We then adjust for the actual cost based on the pricing at the time the listing occurs. The current tax liability was settled in December by the state taking the barrels. To recap.

We build up the liability due. The year, which impacts working capital, is akin to extending payables; when we settle, it is an outflow of working capital. This is why it impacts our overall cash from operations on the cash flow statement for the year ended December 31st, 2022.

Income tax was an expense of $71.4 million, comprised of a current tax expense of $26.6 million and a Dfaire tax expense of $44.8 million.

The effective tax rate for the year was 57.8% compared to our PSC tax rate in Gabon of 52.5%.

We generated 186.6 million in adjusted EBITDAX in 2022, which is more than double what we generated in 2021.

With a recent stock price around $450, we continue to trade at a very low multiple of EBITDA.

Despite paying a strong dividend yield and being debt-free. Additionally, with the Transsp combination, we should see a step-up in adjusted EBITDAs in 2023, depending on commodity prices.

Our increased market cap implies that we should be trading at a much higher multiple that similar size companies enjoy. We believe that we are truly undervalued and that it's another reason that we're excited about our share by that program. We believe right now is an excellent opportunity to buy our common shares, and to discount to their intrinsic value and our

Transglob had 17 million in completion-related costs to acquisition, and Vocal had seven million in completion costs.

This, together with the annual state lifting which settled our tax liability for the year, were singular events that occurred only in the fourth quarter.

Adjusted working capital at 31 December 2022 grew to $44.2 million compared with a negative $19 million at 30 September 2022.

Receivables grew with the inclusion of Transglobe with 52 million of outstanding accounts receivable.

We had $46 million outstanding with eGPC at 31st December for September through December sales invoices.

There were only direct sales in Egypt in Q4 and we were successfully provided a cargo in February 2023, listed 450,000 barrels and were paid offshore.

Monetization is generally through export cargoes. In addition, due to the drilling campaign commencing in Q4, we received a cash payment of $1 million in Q4.

Historically, TGA has approximately $3 to $4 million per month of expenditure with EGPC and has successfully managed this via offsets.

Again, historically, as part of the Merge Concession, we had an annual commitment for five years to pay $10 million per annum as a modernisation payment and this, in February 2023, was achieved not through a cash payment but via our offset.

Canadian accounts receivable was four and a half million dollars for December amount, since collected in January.

Gabon for accounts receivable was $1.7 million and again since collected in January . Other balance sheet items worth highlighting are other assets where we hold the backdated entitlement receivable with eGPC of approximately $51 million.

and continue to work with eGPC on collection. Right of use assets have changed with the completion of the contract for the NEPA FBSO coming out of operating lease assets and the replacement of the TELE FSO within the finance lease assets.

In conjunction with the Transcoal merger, Voco assumed an existing revolving loan facility with better treasury branches. By the time of closing the merger, there were expanding funds which we repaid, and on January 5th, 2020 and 2023, we decided to exit the facility completely.

We will continue to work with our banking group to potentially incorporate and expand our current facility to include the Transu assets.

As has been the case since the third quarter of 2018, we currently have no debt on our facilities available to utilize for additional accretive acquisition opportunities to continue to build our value.

For the full year 2022, net capital expenditures, excluding acquisitions, totalled £159.9 million on a cash basis and £178.5 million on an accrual basis.

These expenditures were primarily related to costs associated with a 2021-2022 drilling program, the AFO conversion on the Atomy field reconfiguration, as well as drilling activity in Egypt and Canada.

In 2022, Valco paid quarterly cash dividends of 3.25 cents per common share beginning in Q1 2022 for a total of 13 cents per share annually.

That equates to about $9.3 million in cash returned to shareholders through dividends in 2022. In addition, for 2023 the board approved nearly doubling the dividend to $0.6 quarter cents per share quarterly or 25 cents per share annually. The Q1 2023 dividend was founded in 2022 for a one position When the stock market account Irving stopped.

was paid on 31 March 2023 to stockholders of record at the close of business on 24 March 2023. As stated previously, growing the dividend is the direct result of our increased asset base and cash flow generation ability as a result of the transglobe acquisition. Additionally,

In November 2022, the board approved the share buyback program that provides for an aggregate purchase of currently outstanding common stock of up to $30 million. Through March 31, 2023, Velco has repurchased a total of $7.5 million worth of shares or about 1.55 million shares. With the completion of the transglobe acquisition on October 13, 2020, Velco's share buyback

Interest and net revenue. Interest represents royalty. Payments are taken in barrels.

For the total company we are forecasting Q1 2023 production to be between 22,500 and 23,800 on a working interest barrels of oil equivalent per day and between 17,300 and 18,600 NRI BOE per day

Looking at production by asset, we're expecting Gabon to be between 8,700 and 9,100 NRIBOE per day. Egypt to be between 6,400 and 7,100 NRIBOE per day.

and Canada to be between 2,200 and 2,400 NRIBOE per day. For the full year 2023, we are forecasting our total company production to be between 20,400 and 24,400 WIBOE per day and between 15,300 and 18,600 NRIBOE per day.

NRI B of E per day.

Looking at production by asset, we're expecting GABON to be between 7,400 and 9,000 NRI BoE per day, Egypt to be between 6,000 and 7,300 NRI BoE per day, and Canada to be between 1,900 and 2,300 NRI BoE per day.

For the full year 2023, we are assuming our sales will be in line with our production. However, for the first quarter, this was not the case. You will notice that Q1 sales were lower than production because a lifting in Gabon shifted from March into April. We have just completed this lifting of about 63 thousand barrels of oil in early April.

Turning to costs for the first quarter 2023, we expect production expense excluding workover and stock compensation to be between $28 and $34 million on an absolute basis or between $17.50 and $21 on a working interest per barrel of oil equivalent basis.

We also expect offshore workovers to be between $0 and $1 million.

Our cash GNA for the combined company is expected to be between three and a half and five and a half million dollars.

For the full year 2023, we expect production expense, excluding offshore workover and stock compensation to be between $135 and $157 million on an absolute basis, or between $16 and $20 per BOE.

We also expect offshore workovers to be between four and $1 million. Our cash generation for the combined companies is expected to be between 15 and $22 million. Finally, looking at CapEx, for the first quarter of 2022 and 2023, we are forecasting between 25 and $35 million of CapEx spend.

For the full year 2023, we are forecasting between $70 and $9 million.

In 2023 our drilling and completion programme is focused in Egypt and Canada. In addition we have some long lead items for the future drilling campaign in Gabon and some maintenance capital. Approximately 50% of our 2023 capital is earmarked for Egypt with the remaining 50% split between Canada and Egypt.

long lead items and maintenance capital. We have 10 to 15 wells planned in Egypt and in Canada we have planned to drill between 4 and 8 wells. Also, our capital spending is weighted for the first half of 2023, which can be seen in our Q1 Guidance and Q1

amount compared to the full year 2023 forecast. This does not include any capital associated with Equatorial Guinea but we are assessing the timeline and capital needs for the development plan at the Venus Discovery and Block B and we will have more information associated with EG as we move through 2023 with a target of fresh production from EG in 2026.

You can see the full year and first quarter 2023 guidance in the supplemental slide deck on our website. Additionally, we've added a netback slide to the presentation, which shows netback for each of the areas broken out by liquids and natural gas. There is also a total company-blended netback at different realized pricing.

Where we break out the major cash costs to approximate a free cash flow before CapEx and working capital changes.

One of the costs shown is a differential. Traditionally, Valco sold in Gabon based on dated Brent with a differential that was sometimes a premium and sometimes a discount, but overall it was negligible. Now we have Canadian oil, natural gas and NGLs, all of which trade at a discount.

Based on the market, they are sold in Egypt, where a mark off of grass GTA blend, which is generally a discount to Bren with a further discount for quality of the crude.

We hope that this additional information on transparency will provide better clarity on the profitability of our producing areas within the company and under various pricing scenarios.

With that, I will now turn the call back over to George. Thanks, Ron. As you heard, 2022 was a very successful and transformative year for VCO. We completed an all-equity combination of two undervalued companies, VCO and Transport. This provides us with additional size.

Scaled cash flow, geographical diversity, and created a more deft portfolio.

We expect our enhanced size and scale to yield meaningful cost synergies, the first trends of which we have already captured.

And we should benefit from a higher trading multiple that, as accorded, comes with our increased market capitalization. We now have a vast resource base of organic opportunities in four countries: Carbon Egypt, Equatorial Guinea, and Canada.

Our two PCPR reserves increased by two hundred and ninety-two percent to seventy-six point four million barrels of oil equivalent in approved reserves, which increased by 149% to 27.9 million barrels of oil equivalent.

The two P CPR MPV TAM value at year-end 2020-two is $815 million, compared to our current market cap of around five million dollars. We invested in drilling campaigns in Gabon, Egypt, and Canada and successfully completed one of the most comprehensive.

In complex operational projects in nearly 20 years at Attomy, with the FO conversion on full field reconfiguration.

We developed and received approval for a POD from the Equatorial Guinea Government for the Venus Discovery at Block P and are negotiating final documents for the approval by the partners.

We implemented the first-ever dividend program for Balco. It began in Q1 2022, and we nearly doubled the dividend in 2023, which was paid out on March 31st. We are also implementing a $3 million share buyback program, and through the first six months of the program, we have returned $7.5 million to shareholders through buybacks.

Our buybacks are governed by a 10.5b plan that allows us to buy shares even during blackout windows as it sets out our plan for the buybacks. We've been in a blackout period since December 2022.

I would also like to point out that we have made the share buyback commitment in August of 2022 when oil prices were much higher and we stress tested the buyback to $80 oil and communicated that commitment.

We have continued to buy back stock below the 80-dollar oil level, given that we believe the stock is undervalued and a good use of our cash flow. We are delivering on what we committed to the market and to our shareholders, and we are in an enviable position as we enter 2023.

Our strategy is simple: operate efficiently, invest prudently, increase long-term value to our shareholders, maximize our asset base, and look for accretive opportunities.

In 2023, our guidance calls for a significantly lower capital spending profile, which should allow us to build meaningful cash throughout the year.

In 2023 the forecasted capex range is $70-90 million and we are forecasting about $45 million will be returned to shareholders through dividends and share buybacks. The plan for cash flow generated in 2023 over and above our existing obligations.

are to build up a reserve for future drilling campaigns and developments. In addition, we will look to enhance or accelerate the return to shareholders as well as evaluating potential accretive opportunities. However, our current projections show that the majority of the cash generation for 2023 above our obligations.

Will be weighted in the back half of 2023 because our capital programs in Egypt and Canada are weighted towards the first half of the year.

We are very excited for the future of Valco and remain confident that we will continue to deliver superior long-term value to our shareholders. Thank you and with that operator we are ready to take questions.

We will now begin the question and answer session.

To ask a question, you may press star and one on your telephone keypad.

If you are using a speaker phone, please pick up your handset before pressing the key to withdraw your question. Please start into.

We ask that you please limit yourself to one question and one follow-up for today's call. At this time, we will pause momentarily to assemble our roster.

And our first question here will come from Stéphane Foucault with Oktus Advisors. Please go ahead. Questioner asks about 0 chaos, the

Yes, hi James. Thanks for taking my question and thanks for the visibility on the moving part of the working capital. I have some follow-up on that and I'm trying to reconcile the balance sheet with some of the comments that you made, Ron. So looking at that, the balance sheet has a big following income tax receivable.

The CapEx, but if you could confirm that, that would be great. And lastly, in the noncurrent liabilities, there are some big jumps in the leases, whether it's finance or operating media. And if you could confirm why it has jumped so much, that would be great. Thank you. It's not - Thank you for that. I can - is one of those.

Yes, the other net I think you're referring to - I think it's just the way the line is on the balance sheet - is nothing to do with income tax. So that's a line above the other net. The $68 million does include the back-dated entitlement, and in the composition of that balance, as stated on the call, it's roughly about $51 million. That is within that particular balance.

Looking through the accrued liabilities, there's a number of different things in there. You've got your accrued payables that is quite high at the end of the year, one because we've taken in TransGlobe and you're virtually doubling the size of the company, so our accrued payables go up along with it.

There are a couple of expenditures, which we've got. We've got accruals at the end of the year, going to the beginning of 2023. I think that went up about 15 million from where we were the previous year. You've got it always at the end of the year. You've got higher accrued wages and compensation costs.

That's basically a mechanical part in relation to the buildup of any bonuses or PTO during the year. And of course within there we've also got the current liability for the modernization payment for Egypt. It doesn't meet this... Hand-sect class!

which is approximately about $10 million. So, as you take those things, those are the big increases that take you up to the $91 million that we have in there in the liability section. The leases, yes. I mean, we had, obviously had the NITIPA and there is an operating lease before, you know, it'd be there for...

For 20-plus years, the TV was included. We went live with that in October, and at that point in time, it was the finance lease that was taken into consideration. We've got the lease term of years plus two one-year options.

When you look at that from a usage gap perspective, and we work through the standard, that becomes the right-of-use finance asset, and we have obviously a lot - both the asset and liability - to put onto the balance sheet. So those are really the main drivers and leases. You've got the operating lease for the deeper going off.

And that was basically reducing over the last few years as it went through its contract life. And then you've got the new finance lease coming in the tele, which will be there for at least an eight-year period.

Thank you for that. So as for my follow-up question, I'm coming back to the current liability, the $91 million. How do you split between what account payable, which is about 60, and

And what would be a part of this, or the accruals, I mean, but goes into accounts payable, doesn't it? I'm trying to let me extend. I'm coming from, I'm trying to understand what's really, to avoid double-counting when I look at the working capital, between what?

Is part of the announced CapEx guidance and OpEx guidance, and what is not? You know, what might be carryover from last year or some payment that comes on top of the OpEx and CapEx guidance? It is $910.

Yes, okay. So obviously, the accounts people ES is not a separate section of six million, but to the extent that the invoices are in and we have accruals, that's sitting with roughly between 25 and 30 million dollars between all of the different areas. And then you've got capital expenditure, which is again about another 25 million dollars that's accrued for CapEx.

Diagonal and no particular line in the accrued liabilities and all AR. So you've got five million. That, we see, is that degree of timing. Traditionally, for us, that's been probably running about the two million mark in total. But again, because we've doubled, virtually doubled in size with transto coming in, you would think that two million should be somewhere between three and four million. So, I do think there's an.

The crude wages you talked about were a five or six million bump in the increase. There will be an element of timing in Q1 and unwinding, and then, of course, the modernization payment. As we stated earlier, it was paid by offset in Q1 by EGPC. So basically, we've settled that one million liability that we had.

Against receivables that we had with EPC, so that will definitely move out in the period. Thank you. Does that help you?" "Yes, thank you.

Thank you. Our next question will come from Jeff Robertson with Water Tower Research. Please go ahead with your question.

Thank you. Good morning. George, you talked about incremental acquisitions and with the Trans Club acquisition in 2022, which added two more countries to

Valko's portfolio with a little bit different cycle times in terms of the project lives. Can you talk maybe generally about what kind of characteristics of an acquisition Thanks

Valko's portfolio with a little bit different cycle times in terms of the project lives. Can you talk maybe generally about what characteristics of an acquisition fit Valko in its current portfolio?

as opposed to what you might have been looking for a year ago? Yes, that's a good question, Jeff. I mean, first and foremost, the acquisition portfolio, for us to go in action anything, it has to be exceedingly compelling, particularly where our stock price is at the moment. And as I mentioned earlier, with a 2P reserve valuation, a PV10 of over $800 million, you know, we've got a desperate process to make a Kad Paris

So we have a longer life platform for the company. So when we look at the opportunities that are in the market at the moment, first and foremost- unless it's in our backyard and we're going into a new country- we're looking for producing assets. We're looking for assets that will immediately start to contribute to revenue and cash flow.

And in addition to the assets that fit our skill set, our skill set has increased considerably since the acquisition of the transport to include a lot of onshore expertise, as well as shallow water offshore. With that, similar to the driver for transport, we aim to ensure we have a 10-15-year lifespan around these reserves. This way, we have the longevity to.

to report forward. Thank you. And a question, and it sounds like the answer in terms of the free cash flow profile that you mentioned, Ron. With the capital program in 23 weighted to the first half of the year in Egypt, is that...

imply the production benefit from that capital starts to impact second half of 23 and therefore you have growing production and less capex therefore more free cash flow. Yeah I would say you're definitely going to have an impact on Q1 on free cash flow with the drilling underway.

And we're already seeing some tangible production from that. So what I would say to that is you're very much correct, Jeff, in modeling it, that you've got a weighted part on your capex to the first half of the year.

As we stated, free cash flow will be impacted by that in the first half of the year, and generating a lot of free cash will come in the second half of the year.

Thank you very much, and our next question will come from Charlie Sharp, with Accord. Please go ahead with your question. Yes, thank you, and good morning, gentlemen. I appreciate the presentation.

Just a question, if I may, on the production expense. I guess two questions really on it. Firstly, I think we've got the range of 1.6 to 1.57 million. Can you give us an approximate breakdown geographically of that production expense? And then secondly on it...

Just looking at the production range that you've indicated, if I assume that the production expense range is related to the production range, that turns out to be an $18 a barrel production expense. And so, I just wonder where that's—16 to 20, which you.

Highlights in the presentation, where that comes from: is it related to production, or partially related to production, or are there other factors? Thank you. Okay, I think I can address those. When we look at the overall guidance for the year, we assume production in sales is going to be the driving force for the whole year, and so most of the production expense.

per barrel of oil is actually done on a sales basis. So that's why those particular statistics look the way they are when you're calculating them. It'll be based on, effectively, the sales barrels. When I look at the overall composition of that full year guidance on a per barrel basis, 21 to 27,

I guess I would probably point you to a certain extent to the net backslide just for confirmation of those costs. I know that the blend is in there, but when we look at the overall composition of the operating cost by area, by far the majority is obviously going to still be in Gabon. For more information, please visit www.agilent.com

I would say that that's probably somewhere between 50 and 55 percent, Charlie. The remaining 45 percent, I would basically put that to Egypt and Canada, obviously. I would weight that 40 percent in Egypt and the remaining part in Canada. That's very helpful. Thank you.

Sort of flesh out the details of the plan as you see it at the moment, to commercialize Venus, at least.

Okay, well I can say a few things, Charlie. One is that a few weeks ago we had...

some excellent meetings here in Houston with our partners and with the government, the MMH. In those meetings, what we've been working on for some time is, whilst we were looking at the plan of development and where we were in Q4 with that plan of development and we got the plan of development approved, we were able to get the plan of development approved

We still had a number of issues outstanding in relation to the amendments to the production sharing contract, with regards to equate percentages that were historically not signed off properly, and one or two other issues.

So, we basically had two PSC amendments outstanding with the government. Both of these amendments were executed in March and allowed us to move forward to finalize amendments within the joint operating agreement between the partners. At the moment, they remain outstanding, so I cannot go into the details of those yet.

But we do expect those to be executed in the very near future. When we look at the development itself, in Q4 of 2022, we went through a peer review of that development, essentially re-examining each of the gating criteria, from the long lead drilling program through to the plans for our extended DST and the topside facilities. So, we're.

With the development plan optimized, that may include looking up.

Drilling all the wells at the same time as opposed to drilling them staggered, just because the economics of moving the rig in there and leaving it there to drill with two producers in the water injection makes more sense. But then looking at the top site and for looking at what real activity will happen in 2020 - three.

I expect we will complete our seabed survey to ensure that we can locate the mopo, the rig, and the planned location. We'll finalize construction and engineering fees and be able to then put a more detailed timeline on the development.

And towards the end of this year, it certainly is planned that, when we can look at the drilling program for 2024, to utilize that same unit to drill the wells for us in 2025, early 2:25 for the Venus development.

That's terrific. Thank you very much.

We have time for more questions, and we will take questions from Bill Diesel with Capital. Please go ahead. Great, thank you. I have two questions. First of all, would you please discuss further your comment in the press release that you are looking into and expect to deliver more synergies with TransGlobe than originally anticipated?

And I, I guess the spirit of the question is - I know you noted earlier in the call - five million in savings has been achieved and you're looking for an additional five million with other administrative-type expenses. Was that really the essence of the comment, or was there more beyond that that we should be thinking about?

I'll take the first part of the question, Bill, and I'll take the second part on the synergies. When we look at the expectation of further synergies, we're already examining the operating part of the business, both in Egypt and Canada. We're looking at how we can improve the efficiencies of these operations. So, when we look at what we've been doing at the moment through...

During the latter part of Q4 and the majority of Q1 in the drilling campaign in Egypt, we have been reducing the time between drilling complete cycles. In the last two wells, we have achieved record reductions in that cycle time. So, we are starting to see much greater efficiencies when it comes to this.

the drilling operations inside Egypt. We're applying that same methodology and we're doing the same challenges to Canada to reduce the cycle time between drill and completion and hookup. That allows us to have these greater synergies, have the oil on production at a much earlier time and obviously becomes much more efficient for our capital spend.

Yeah, just taking the, you know, mainly the G&A component part of that synergies as well, Bill, I think we put on our investment debt back at the time when we were looking for the shareholder vote, that we were looking somewhere between three and five million on the short term. We've got more than five million on the G&A side right away. That's really achieved on a couple of fronts. First of all, you know, we had the situation where, you know, we had Brigida the low right that that was— she has additional money to do that as well. So just, yeah, I think we need to make it more clear what we're looking for. And then, you know, proof of that we need to look at kind of what you said, there's the reason why the— it's what it is we're looking for.

All of the transqual is. They left the business on essentially mid-January, so we got the savings that we were targeting very, very quickly. We had a number of others there that we've identified and worked through, including insurance costs, including the interest costs that we had on their ETB facility.

There's a variety of different professional services that, when we look at it, are not duplicative for both businesses, and we've managed to take those on. So more than five have already been achieved. I think what we're really focusing on from a synergy point of view now is.

We're looking at back office functions. We're looking at, I would think we're looking at an ERP tool in the near future so that we can get everyone on the same system rather than having three or four different systems which we've got today. That in itself will bring efficiencies and I would say improvements in our control process too.

So that's what we target and build for 2023. That's helpful. Thank you both. And then relative to the ARDA 77 HC well in Egypt that you said had encountered some good sands, what's the timeline to bring that on? And with the wells you were drilling in Egypt...

What do you think about in terms of what is a more normal production level? Okay, the wells are on cleanup right now, so we can't really comment on the production rate until the completion of cleanup is done. But it is flowing when we look at the changes we're making in both cycle time and production efficiency.

how much more we can get efficiency out into the production system in Egypt.

Some of the activities that they perform annually include turning empty into the storage facility, and we're looking at moving these quarterly to reduce the cycles that we traditionally see in Q3. I think we're starting to see benefits from that when we look at the relationship between the company and touring.

The cash situation and how we've been managing that in Egypt. We are - we've seen other operators make statements around Egypt and the cash position, as regards the difficulties and liquidity that the country is going through. We keep a very close focus on that and a very close dialogue. We will. We will, as long as the operation.

and the interaction with our partners remains as it is at the moment, we'll continue to make the improvements and make the investments. That's helpful. Thank you. And then my final question is that you spent a fair amount of time in multiple components of your opening remarks.

or your prepared remarks referencing Valco being undervalued. With that being said, what do you think investors are missing, whether it be relative to the TransGlobe acquisition or in total today that's leading to that lack of favorable valuation?

That's a good question. I mean, as we've discussed in the past, traditionally in either the London market or the New York market, a West African producer always trades at the discount. But the level of discount is what we need to discuss.

What's the market missing? Well, I think we've made a big step towards giving the market the confidence with the valuations today because what the market may have been missing and a number of questions have come from the analysts both in London and here in the United States is longevity. Where are the reserves? Where is the position that goes two, three, four years out?

that we can invest in that gives you surety around the cash flow. The trans-globe acquisition in addition to the position we have in Gabon provides that surety. The development that we went forward with in Equatorial Guinea gives us that forward looking position. It puts a lot more value into our balance sheet.

In 2022, through Equatorial, we get through the acquisition that has been there before. I think the market is missing that at the moment. We continue from the numbers we've guided to for 2022. For 2023, we're guiding to a significant number.

2022 through equatorial get through. The acquisition has ever been there before and I think the market is missing at the moment. We continue from the numbers. We've guided two for 2020 -three. We guiding to a significant number and in revenue and production.

which will lead itself to a significant number in EBITDAX that we don't guide to, but people can work that out. So I think once the analysts sit down and run that equation and you say that you're basically running it sometimes less than two times EBITDAX, then we're looking for that step change in value as we continue to emphasize these values that are in our balance sheet.

Great, thank you both and have a good weekend. Thank you both. And this concludes our question and answer session. I'd like to turn the conference back over to George Maxwell for any closing remarks.

Thank you. I'd like to thank everyone for listening in to our delayed 2022 earnings call. It's hopefully from the listeners that we've managed to put a lot more color around our Q4 and 2022 activities and also put some color around where we see 2023 and some of the questions we've been asked.

value, our ability in utilizing that cash and delivering significant value back to shareholders, not just in the potential for capital appreciation for the stock but also in dividends and buybacks.

You heard me state in the closing remarks that we will also look at the opportunity to continue, and perhaps accelerate, that buyback position as soon as the company comes out of its blackout period, which will be sometime in May. As for your Q1 results, again, the commitment is there to continue doing that with the stock price.