Q3 2023 VAALCO Energy Inc Earnings Call
Good day and welcome to the VAALCO Energy third quarter 2023 earnings Conference call.
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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 2020 for a conference call.
After I cover the forward looking statements George Maxwell our CEO will review key highlights along with operational results Ron <unk>. Our CFO will then provide a summary financial review George will then return for some closing comments before we take your questions.
Tara <unk>, our Chief operating officer is also with us today and will be available for Q&A.
During our question and answer session. We ask you to limit your questions to one and a follow up you can always re enter the queue with additional questions.
I'd like to point out that we posted a third quarter 2023 supplemental investor deck on our website. This morning that has additional financial analysis comparisons and guidance that should be helpful. With that let me proceed with our forward looking statement comments during the course of this conference call the company will.
I'll be making forward looking statements.
Investors are cautioned that forward looking statements are not guarantees of future performance.
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.
Thirdly, 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. 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 2023 earnings Conference call.
I'm very pleased with our ability to deliver exceptional operational and financial results and 2023 exceeding our guidance and expectations. Following the transport combination that occurred a year ago.
Our focus has been on optimizing production managing of course, capturing operational and cost synergies.
Well executing capital drilling campaigns to enhance profitability and growth.
Through the execution of this strategy, we have significantly grown our cash position, even while fully funding our capital program shareholder dividends and buybacks all while remaining bank debt free.
We're generating the growth in adjusted EBITDA and cash that will allow us to fund exciting feature project across our diverse portfolio of high returning asset.
We paid our third quarter dividend and announced a fourth quarter dividend fulfilling the commitment we made to nearly double the dividend that we paid in 2022.
Additionally to date, we have returned over $20 million through a share buyback program. Since November 2022, and this program is ongoing.
I would now like to point to some key highlights and accomplishments for the third quarter.
We were at the high level of our production guidance was 18844 handle rye barrels of oil equivalent per day or 24430 on a working interest basis.
This was driven by record production levels in Egypt from our successful drilling program as well as high operational uptime and Gabon.
As a reminder, we have not drilled any new wells in Gabon is 2022.
Our commitment to operational excellence and a new official have helped to minimize decline and maintain production uptime high levels in 2023.
You can clearly see how we are growing when you compare third quarter production. This year with third quarter production last year, we are up 106%.
Sales were at the high end of guidance as we benefited from a large export cargo in Egypt during the third quarter.
We have since kind of lifting up 600000 gross barrels of oil in Gabon that occurred in the first week of October 2023 that will benefit our fourth quarter.
The diversity of our asset base has allowed us to grow and generate significant growth in production cash flow and adjusted EBITDA.
Our third quarter adjusted EBITDAX of 71 $4 million was up 9% compared to Q2, 2023 and up 68% compared to Q3 2022.
And the first nine months of 2023, we have generated almost $90 million of free cash flow and distributed 41% hooked up the cash flow back to shareholders through dividends and buybacks.
Even after fully funding our capital programs and paying dividends and buybacks, we have still grown unrestricted cash to over $100 million at the end of Q3 2023.
124% since June 30.
We have a positive momentum as we enter 2024, both operationally and financially.
And we are building size and scale to substantially grew vocal.
I would now like to discuss some key updates across a diverse portfolio of assets.
Let's begin with Egypt, where we have invested the largest amount of capital in 2023.
Our drilling campaign in Egypt has seen some very positive results.
We have completed our 2020 tea campaign faster and at lower cost than we had originally planned.
We finalized the last well in the program in October and in 2023, we drove 18 vertical, including one injector well and two exploration wells as well as the horizontal well.
In Q3, we had a $1 $2 million exploration expense associated with the east or to a 54 vertical well.
Well, the well was not commercially viable the logs and cores that we took on this exploration well should oil bearing formations that we believe will allow us to drill additional economic wells in the future.
Overall, we had a very economic drilling program with strong production performance and we are very pleased with our drilling performance in 2023.
On the vertical wells, we're seeing significantly faster drilling performance moving from a 2022 average of about three wells job every four months to now drilling two wells per month, which is a 60% reduction in cycle time.
By drilling the wells faster, we're cutting cost meaningfully and improving the economics of our wells in Egypt.
In addition to the drilling efficiencies. We have also spent time and effort in Egypt, reviewing the facilities and overall production operations.
Detailed before these efforts have resulted in increased production lower cost and better safety and environmental performance in Egypt.
We continue to set production records in 2023 since we acquired the properties, which is one of the key to us driving our ability to exceed guidance with our total company production.
We believe the Egypt is a lot of value and organic drilling opportunities and it will compete for 2024 capital budget, which we are currently working on.
In Canada, we drilled two wells in the first quarter of 2023, a one five mile lateral under three mile lateral.
Both wells were drilled and completed safely and cost effectively without incident.
The wells are tied in and equipped in April and early may with overall cycle times that were significantly less than historical cycle times.
<unk> began flowing EMEA with good production rates on in early July the pumps and roads were installed on both wells.
Both wells production rates exceeded expectations, and we are monitoring our long term performance.
We also believe that to better optimize our Canadian prospects going forward, we will move to 2.5 and three mile laterals almost exclusively which we believe will further improve the economics of our development program.
Ananda also set production record in 2023. Another reason, we are performing full wells accompany them exceeding our production targets.
With our 2023 drilling and completion programs completed in Canada, we are evaluating facility on pad optimization future development wells are further refining our completion techniques in anticipation of potential future drilling campaigns in Canada.
Turning to Gabon as you know we completed our 2021 2022 drilling campaign in the fourth quarter of 2022 and invested only minimal new capex dollars in Gabon in 2023, primarily related to maintenance capex on long lead drilling equipment.
Despite no 2023 drilling program, we have seen strong overall production results in 2023 by focusing on operational excellence.
Last year's SSO unfilled reconfiguration projects have allowed.
US to operate more efficiently and economically in 2023, while enhancing production uptime and minimizing decline until the next drilling campaign.
The impact of the cost savings from the new episodes are helping to offset some other higher costs from inflation on the industry supply pressures.
We're pleased to have completed the minor pipe framework from the Senate gasoline last month at a cost of approximately $4 million. So it will help lower capex in Q4 and beyond as a result of lower diesel cost by more than half a million per month.
We are currently evaluating relocations for the next drilling campaign at Tommy which we are currently projected to be a three to four well program with additional well options.
We continue to review rig options for our 2024 drilling program the market for drilling units remains a very tight and we plan to provide a further update on the planned campaign also review progresses.
We have delivered outstanding results in 2023, and I'm excited as we move into 2024 unbelief that we will continue to grow production reserves and value for our shareholders I would like to thank our hard working team who continue to operate and execute our plans.
We have bank debt free and remain 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 me begin by echoing George's comments about our continued strong operational performance as we execute our strategic plan.
With our growing cash position.
Over $100 million and a clean balance sheet, we are much better positioned today with a growing and diversified asset base than ever before invoke whose history.
I will provide some insight into the drivers for our financial results and rather than repeating what you can reading the earnings release, our 10-Q I will focus on the key points.
So, let's begin with production and seals, which along with realized pricing drives our revenue.
For the third quarter was indeed strong.
High end of our guidance with our sales for the quarter also at the higher end of our guidance.
The production performance of our assets remains solid both with new wells drilled in 2023, and Egypt, and Canada, and arresting declining to borne through operating efficiencies.
With a diversified portfolio of assets, we will have changes from quarter to quarter and the mix of seals from each of our producing areas.
And the second quarter, we had agreed to or we think Gabon, but in the third quarter, we had more sales in Egypt.
This change in mix impact, so our realized pricing and ultimately our revenue and earnings.
We had nearly identical to two sales volumes quarter over quarter, and overall realized pricing increased from the second quarter.
So our revenues were only up $7 million over the second quarter, because the additional sales occurred in Egypt, where our price realizations are lower primarily because of the sulfur content of the oil.
As we noted we had a lifting occurred in the first week of October in Gabon, and this did not fall into the third quarter, but will benefit the fourth quarter sales revenue and earnings.
Brian to increased 10% quarter over quarter was not true gas pricing improved by 32% and NGL pricing up 5%.
You will note in our earnings release yesterday, we provided a detailed breakout of sales volumes, along with commodity pricing by country.
Regarding hedging.
And in our earnings release, we continued to implement a hedging program that helps mitigate risk and protect our commitment to shareholder returns.
We have costless collars in place for Q4 2023.
And we entered into Costless oil collars indexed to dated Brent for Q1, and Q2 of 2024.
All of our callers have a floor price of $65 for around 15% of our production with upside in the colors to between $90 and $100.
It's worth, noting we have 85% of our production unhedged in a period of high commodity pricing, while protecting our commitment to our dividend.
Turning to costs our.
Production costs were below the low end of guidance on an absolute basis and at the bottom end of guidance on a per barrel basis. We.
We remain focused on capturing synergies and keeping our cost Lou to enable us to maximize margins and increase our cash flow well absolute costs were up 71% year over year, primarily due to higher sales volumes, our production cost per barrel affected 1% lower year on year.
This demonstrates that we are delivering on capturing synergies and cost savings initiatives like the FSU project last year.
I'd also like to point tight that's in the first week of October we successfully restored the feed gas pipeline to the FSU and will benefit from lower diesel consumption from Q4.
G&A costs were also in line with guidance when compared to the combined G&A costs seen in 2022 by both VAALCO and Trans Globe, we've seen meaningful reductions in costs well ahead of our targeted synergies.
The final integration and reorganization of the business is behind US and we've commenced our back office process improvement project with the implementation of a single cloud based ERP across the whole company.
Sequentially, we grew our adjusted EBITDAX by 9% to $71 4 million in Q3 2023.
Our solid seals, coupled with good commodity price environment as well as our ongoing commitment to controlling costs led to an adjusted EBIT docs growth.
Noncash DD&A costs decreased slightly quarter over quarter, primarily due to the higher mix of injection and Canadian seals.
Compared to the prior year in 2023, well, we've seen an increase in D. D D. Due to the step up of the charms group asset valuation and because of the additional new wells being brought online for both Egypt and Canada.
We started orders Arab evaluation process in all our locations and will align our year end 2023 reserves with a competent person's report and our year end results.
We're encouraged by the new wells drilled in 2023, and the higher operating efficiencies and our expectation is this will be more than sufficient to cover any decline in FCC pricing over 2022 levels.
Target did reserve additions for the wells completed together with the FCC 2023 pricing will be reflected in our C. P. R. As of the end of the year and will most likely lead to a change in our DD&A rate per bottle.
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Tax cost in the quarter of about $25.8 million resulted in effective tax rate of about 81% in the quarter.
This was unusually high and driven by the revaluation of tax oil barrels held for Gabon outside of this discrete event, our effective tax rate was 64% in the quarter and aligns with our effective tax rate for the year.
In Gabon, our foreign income taxes are settled by the government through an in kind oil payments.
At the end of each quarter, we have to mark to market. The in kind oil sue when prices rise isolated from Q2 to Q3. It has a negative impact on our accrued taxes.
The impact was $5 $3 million in Q3.
This impacts earnings and earnings per share.
If prices continue to fall as the house since the end of the third quarter, when we mark to market. The oil in kind, we will see a benefit thus, reducing our tax liability and all things equal increasing earnings and earnings per share we cannot control the movement, the underlying commodity price to which these in kind oil as mark too.
We continue to guide that 60% to 65% effective tax rate is the correct effective tax rate over the long term, excluding discrete items, but as commodity prices rise. We may see increases in that tax rate and also the fall we will see decreases in that tax rate.
We reported adjusted net income of seven and a half million dollars or seven cents per diluted share a.
If you back out the mark to market $5 3 million tax impact on our appraisal exploration expense you would've seen earnings in line with consensus estimates.
Turning now to the balance sheet and to cash flow statement for Q3.
Unrestricted cash more than doubled to $103.4 million as of September the 30th we're collecting our receivables and have seen already chip shouldn't accounts receivable decreased by $17 7 billion to just $18.8 million. We continue to work closely and have a strong.
Relationship with E. G P C.
With completion of drilling in Canada, and Egypt completed we expect to also see a reduction in the outstanding accounts payable and accruals. We saw a decrease of about $8 million from Q2 to Q3.
As has been the case since the third quarter of 2018 were cutting no bank debt and half credit facilities available to utilize for additional accretive acquisition opportunities to continue to build value.
In Q3, 2000 twenty-three vocal paid a quarterly cash dividend of six and a quarter cents per common share or $6 $7 million and our share buyback was about $6 million.
I stated previously growing our dividend on the share buybacks are a direct result of our expanded asset base and cash flow generation ability of the <unk>.
As out of the Trans Global acquisition.
We have generated almost $90 million in free cash flow year to date in 2023, and we've returned 41% of that directly to our shareholders through dividends and share buybacks.
Aside from fully funding our shareholder returns. We also fully funded or Q3 net capital expenditures of 22 $5 million on a cash basis.
These expenditures were primarily related to a drilling program in Egypt, and some maintenance capex and long lead items for Gabon.
Let me now turn to guidance, where I will give you some key highlights and updates.
I want to remind you that our full guidance breakout is in the earnings release and in our supplemental slide deck on our website.
Also we report all of our production with both working interest our net revenue interest well the difference representing the royalties paid are taken in bottles.
As we've discussed our successful capo programs in Egypt, and Canada, coupled with our operational focus on uptime to mitigate declining Gabon is leading to meaningful increases in production.
Last quarter, we raised our full year 2023 production guidance for all of our operational areas, leading to a total company production increase of about 7% well.
While they are solid production in the third quarter. We are now further raising our full year production range to be between 18000 218900 barrels of oil equivalent per day. This is an additional 2.5% increase at the midpoint.
For the fourth quarter of 2023, we're expecting a production to decline slightly in all areas compared to the third quarter as we've completed all of our capital drilling for the year.
Looking at our sales volumes, we would expect to see a solid increase in our fourth quarter sales with our guidance range of 19000, 822000, NRI barrels of oil equivalent per day.
At the midpoint. This is an increase of 6% compared to the third quarter.
Our absolute operating costs are expected to increase in line with the additional sales, but we are projecting our per barrel of oil equivalent costs remain in line with the third quarter.
Finally, looking at Capex, our 2023 capital spend was first half weighted and we've seen a decline every quarter in 2023.
For the fourth quarter, we're expecting a range of between 9 million and $12 million for our Capex as a result of higher sales and lower Capex spend we believe that VAALCO is very well positioned to grow cash flow in the fourth quarter of 2023.
In closing we continue to trade at a very low multiple of EBIT docks, despite having a strong dividend yield and being bank debt free.
We believe right now is an excellent opportunity to buy our common shares that are trading at a discount to their intrinsic value, which is also a reason why we decided to accelerate our share buyback program over the past few months.
Our sales continue to increase we're generating and building a significant amount of cash and we are poised to execute and fund an expanded 2024 drilling campaign.
With that I'll now turn the call back over to George.
Thanks, Ron.
You have heard this morning, we continue to have success in 2020 to be driven by strong production performance. We believe that we're very well positioned to continue building cash as we head into 2024.
We have generated $180 million and adjusted EBITDA year to date up 34% over the first nine months of 2022, while funding all of our Capex quarterly dividends and share buybacks with cash flow and cash on hand.
We ended the third quarter with over $100 million.
And cash on hand, and with minimal projected capex cost in the fourth quarter, we expect to continue to grow our cash position in the fourth quarter.
While our realized commodity pricing in 2023 has been lower than in 2022, we have seen strengthening pricing in the second half of this year.
In addition to our ability to capture synergies enhanced production and increased margins have positively impacted our 2023 results to date and position vocal very well for the future.
We have delivered in our commitment to the market until shareholders and we are in an enviable financial position with no bank debt and a growing cash balance.
Our strategy remains unchanged operate efficiently invest prudently maximize our asset base and look for accretive opportunities.
In addition to funding our capital program and our growing cash position. We have remained focused on returning value to our shareholders in.
In 2023, we nearly doubled our quarterly dividend and have paid or announced all four quarterly dividends for 2023 at an increased rate.
We are delivering the 25 cents per share annual dividend for the 2023 that we promised last year, which at our current share price is a yield of nearly 6%.
We have continued to repurchase common shares through the buyback program approved in 2022.
Since the inception of the program a year ago, we have returned over $20 million to shareholders and repurchased $3 5 million common shares through the buyback.
With a highly successful 2020 capital programs in Egypt, and Canada completed we are now focused on our 2024 capital campaign.
We have plenty of 'twenty 'twenty four drilling campaign at the Tommy or 2024 drilling program in Egypt, and in Canada, and we will discuss those in detail during our next call in March.
We have taken the successes in Egypt, and Canada in both drilling efficiency gains and facility optimization and applying it into our next planned drilling campaigns.
With a diverse portfolio and high performing assets, but generally robust rates of return, we're evaluating a 2020 for budget and high grading opportunities.
They have multiple producing areas on future prospects that are competing for capital.
We will remain disciplined in our approach to maximize value for our shareholders and delivering growth in production reserves and cash flow.
The substantial cash we are building in 2023 should allow us to fund future drilling campaigns on development as well as fund our cash returns to shareholders.
We're very excited for the future of Alkylamine confident that we will continue to deliver superior long term value to our shareholders.
Thank you and with that operator, we're ready to take questions.
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Yeah.
Okay.
Oh boy.
Okay.
Please go ahead.
Yeah, Hi, guys. Thanks for taking my question.
And I was wondering whether you could provide any update with one to two to give about Equatorial Guinea, and where you are with regard to our business and so forth. Thank you.
Good day, good afternoon, Stephane, Yes of course, we've been continuing the progress on the discussions on block P.
And Nevada during Q3, the company has had a number of meetings, both with the MMA and the minister and with our partners. So as I've mentioned in previous quarters, I think from our position we've got a trajectory to move this project forward, particularly.
Into feed for 2024 to review, both the capital spend and the execution profile that we have in the plan of development, we're working closely with our partners to align their desires with what we're trying to do in block P and but as I stated previously we're still.
Outstanding at least one signature on the G. L. A and it's not prudent for us to move forward and commit funds who spend money. When we don't have alignment that just will potentially lead us towards a dispute in the future I will say that the court. The discussions we had with our partners as well as early as Ed just to.
Two weeks ago have been fruitful and we look forward to a successful outcome of those discussions and be able to confirm the the move forward on this project at the next call.
Thank you great and it's not exactly a follow up for my second question.
For Ron Weasley, golf's too the cash Capex for Q4, I noticed that the full year cash capex runs quite a bit the head.
Sorry, the accounting Capex is above the cash capex I'm not sure maybe it'll be the mismatch.
Can we expect of the nine $5 million to $12 million Capex in the guidance to be quoted a cash capex for Q4 or would you expect as well a mismatch.
It's a good question Stefan.
The guidance that we put out is accrued capex right. So that's effectively what we can we.
We can basically.
We know what we've committed to and we know we know that we that we will work out for that with regards to cash obviously, it's a timing of those invoices coming in and then Pete I E.
The nine and a half to $12 million from a crude point of view it will come through at that level I think the cash capex is going to be slightly higher than the guidance at the midpoint in the guidance on the cash Capex, which I believe is about 73 million for the year I would I would expect the cash capex number to be somewhere.
Right.
About $80 million.
Your next question comes from Charlie Sharp with Canaccord. Please go ahead.
Yes. Thank you very much for taking my question and at the risk of that.
Congratulations on a very.
Hey, good operational and financial quarter.
And I know that you you talked about capital allocation and that hasn't yet been settled and you talked about the potential in Gabon, and I think Egypt in particular after good drilling results this year.
I was just wondering if you could without sort of identifying exactly.
That sounds a little bit how you see.
The allocation approximately in terms of.
Geography.
And in Gabon in particular.
Have you done all the work that you need to do to.
Sure as best as possible that program next year.
Delivers all of the results that you're anticipating.
Again, Tony Thanks for the question a good question.
When we look at the the subsurface work I'm sure everyone would have expected us to have more or less fully completed the subsurface work at this time for the.
The targeted opportunities both in Gabon, and then Egypt and in Canada for next year. So that is that is correct. We have done that.
As everyone is aware the market at the moment for service providers is exceedingly tight.
And that's where the key evaluation is is looking at the opportunity to match the subsurface opportunities we have.
With the the available activities that we require in Gabon, and then and in Egypt.
And also in Canada, so without going into to the numbers, which we haven't landed on yet I think where we're a bit firmer quite a bit firmer on the AR on the Egyptian program, because we have a rig contracted we will have a workover schedule running.
Concurrently through Q4 right through the first half of 2024, and we know that rig is coming back to us at the end of June to commence the drilling program in the second half of 2024, so what else. We can yet be specifics I can give you information on targets and volumes, we can more or less confirm.
We will have a second half drilling program in Egypt in 2024.
With Gabon.
With the assets required to execute that program the timing of that remains uncertain and we remain in negotiations and we know we have a number of firms targets to drill and we know we also have a number of contingent targets to drill we have some.
Let's talk side technical work ongoing at the moment, which we expect to have a Ah study complete by Q1 with me and rearrange the sequencing of wells.
But it's going to be probably a late.
Late this year early next year before we can give you more details on the exact sequencing and timing of the Gabonese program.
Well that's great. Thank you and just as a sort of a mini follow up if you like I guess then it looks like first half is gonna be a very light program.
Perhaps Canada, where you settled in the second half will be.
It's actually does he in Gabon and D chips, so that right there that that's more or less right in the first half again subject to.
Securing securing drilling rigs, Canada will be weighted.
Weighted and with potentially up to four wells drilled in the first half and Gabon, and and Egypt, where are looking more towards the second half at the moment.
The next question comes from.
Jeff Robertson with water research. Please go ahead.
Thanks, George can you just talk about how you think about.
The share repurchase authorization since you've got I think roughly $9 million left on the original $30 million authorization.
And how that factors into your thought process around 2024 capital outlays.
Yeah, I mean, obviously we've got.
And in response to the last question you know, we're seeing a very tight market is the service side of the business catches up with the higher commodity prices and that's looking at a significant increase in the costs for executing the drilling programs on each of the wells.
We are committed to the program that we.
Authorized the board authorized at the end of last year, we will follow that program through to its completion.
We are as you as we've demonstrated and we commented already we do have excess cash balances at the moment, but we are building for.
Quite a bit quite an extensive program in the second half of next year. Once we've landed on what that program looks like and what our program will cost us in order to arrest decline and increased production back up again towards the end of 'twenty. Four that will then allow us to what excess cash is available that we're producing over and above.
Commitment to the dividend to be able to allocate back into some form of potential buyback program all of that will be dependent on where the stock is and I will say as Ron mentioned in his his narrative that adult remains at a very low multiple and therefore very competitive for us to repurchase to get the prices up there.
But again that will be a determination that we will discuss with the board early Q1.
How do you weigh the merits between share repurchase.
Potentially increasing the dividend.
At the moment I don't think there'll be any plans to increase the dividend and I think our dividend preferred.
From a from an income position.
Provides a reasonable return to the stock, particularly at the.
The depressed levels of in stock at the moment. So the focus I think would be fully on that on stock repurchase with the excess cash that wouldn't be available.
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The next question comes from.
No.
Titan capital. Please go ahead.
Thank you I'd actually like to ask two questions right out of the gates. If I may number one what did you learn from the drilling campaign in Egypt with the.
The horizontal wells that you drill.
And and what will those learning to do in terms of the next drilling campaign and your ratio are split between vertical and horizontal wells.
And then the second question is acquisition.
Steel door pipeline update please.
Okay.
Ill start this conversation before may finish up when it comes to the to the wells I mean, we've really only completed one significant horizontal well in Egypt, which was the ultra 77.
As you are aware in the previous Kohl's, we didn't we didn't get the the results from that well that we anticipated the well continues to produce I mean I think.
Remembering numbers now I think we started around 200 barrels a day in the last call. It was down to about 120 and right now it's around 80 barrels a day. So it continues to produce.
It is one of our workover candidates, but.
I'll, let Don jump in a good plan to do more horizontal wells and everything.
So.
The well as George mentioned the World is still on production and it seems to be flat flattening out the curve.
We did have some some issues with the drilling of the well.
Well as the completion of the well with the pump placement and attention section in a well.
So.
Are you know we we.
We had two wells planned we delayed the second well and now we're looking at potentially doing some more or additional I.
I guess technical work on drilling potentially another well or a horizontal well late in 2024.
With the learnings that we've got out of that well.
And I'm sorry, the second part of your question on acquisition updates, where obviously, we've said in relation to the strategy and I know, we got a shareholder question.
What does vulcan's future look like.
In the last three years we've.
Each year doubled the size of the company doubled production.
We're starting to reap the benefits of having that.
De risking of a single asset company.
I think it was clearly demonstrated to our benefit in Q3, having multiple years of production when certain areas are going through some areas of difficulty so.
So.
When we look at the the field of.
M&A opportunities.
That field is extremely narrow it was very wide 12 months ago with the IOC is mainly deciding that they are no longer divesting and with at the top of the price curve, the divested opportunities or the opportunities that we see in Africa.
Prices, where we would not want to compete.
There are still there are still feels where accretive opportunities.
Are available and we and we do continually review these.
Not always in our primary jurisdiction. So we are actually having to deviate and look at opportunities for value rather than just geography.
But the market the market is exceedingly tight we are no different from some of our peers. Other than we are debt free and that are all all of our peer companies are performing well under the higher commodity prices and theyre all seeking the same opportunities. So we tend to try and drive towards bilateral positions were.
First of all because process positions contend to become uncompetitive very quickly.
But the market is still there we are still reviewing opportunities is not is not completely are dead to us.
Great. Thank you both.
Thanks Bill.
The next question comes from Jamie Wilen Wilen management. Please go ahead.
Oh, Hi, Charles given the large amount of cash we were able to put on the balance sheet between the second and third quarters. As you look forward with limited capital expenditures are you looking to similarly, a bulk up the balance sheet by $50 million each quarter.
Over the next few.
Matt.
That's a reasonable good question I think it's it's a.
We can't hide the fact, we've got limited Capex in Q4.
We are forecasting at least a two to three lifting of Gabon.
So yes, our projected position for Q4 would be another.
Another strong cash performance.
We have yet to land on the allocation of capital for 2024, but as I said, we do expect to commence the drilling in Canada very early January February.
And they are coming in roughly at a $4 million to $6 million per well.
Yeah.
And so so.
We'll still be in terms of where we've been before Jamie with the drilling in Gabon.
To have a pretty light capex in Q1 and Q2.
Gotcha.
Given the progress you've made in Canada.
What are your thoughts on monetizing that asset.
And devoting.
A good bit of that too.
For the next drilling campaigns as well as to a share buyback.
And what do you think Canada would really be worth.
Well, we have we have a valuation of Canada, because we carry on the books. So the valuation on the books I think rest between 80 and $100 million Ronald tell me, if I've got that number wrong.
You probably near the upper end.
Well, what I will say I'll repeat what I said.
Last quarter, I mean, the turnaround and the Canadian operation has been exceedingly impressive the team up there has done a tremendous job they've delivered to us a five year plan.
There is cash positive and returns cash every single year.
The focus on the change of our drilling techniques to the the longer reach laterals the focus on adding the land in order to achieve that has been extremely successful.
And thirdly, just reminded me.
How we how we drill and complete the cycle times have also been.
Reduced considerably I think 68 days something ridiculous roughly half. So so we now have a valuable very efficient operation but.
Fine tune it to be big in Canada, we need scale and so there's always a consideration to whether that scaling this whether the best use of our.
Capital is to continue to grow and invest or.
Other opportunities. So we do consider that all the time and when we look at the 2024 position that will be part of that consideration.
The next question.
Jeff Robertson with water tower.
Go ahead.
Thanks, George just a follow up has there been any change in the anybody who deal with what the hydrocarbon administrating in Gabon in light of the crew back in August.
Good question, obviously, yes, there have been some changes because I think the previous minister was removed.
But as I stated I guess the day after that event, we have seen we were out of the office for one day, we have seen no interruptions to our operations whatsoever. We continue to work diligently with the government both our investment profile and on her back dated positions there.
We're looking to make some recoveries on receivables.
Ron mentioned the tax event and that are the existing causes us movements and are on our tax position because of the mark to market. Now. We're also working with the government to see how we can.
Improve the position between their unlisted bottles, and our outstanding receivables and not something and then in Gabon later this month and that said one of the topics of discussion, but again from a relationship standpoint, some of the players have changed but at the same time.
Our business has been completely uninterrupted.
Just to that.
If anything I would suggest that it's become a more positive.
Climate and a more active climate with more engagement with the ministries.
Thank you.
The next question.
Bill.
Heightened capital. Please go ahead.
So I'd like to follow up on on your last comment.
And does that.
Improvement are positive if that relationship include a a desire a recognition of interest I don't know what the right term would be to stay more current.
On on their payables to you.
Okay.
Yeah, I mean, I think there's a.
The government is.
Has changed and I think theres a significant drive to.
I guess streamline and to get their books in order.
And that means that they're looking to clean up your payables are looking to clean up your accounts receivable and good processes in place so that that doesn't happen in the future.
Great. Thank you.
And congratulations on a great operational results.
Thank you.
Okay.
I will now.
Hmm.
Okay.
The first question that I've got here is.
Hi.
Bear with me one second.
Can you confirm the amount of $33 3 million and foreign income taxes payable on the balance sheet correspond to the value of the pending and payment card.
<unk>.
Okay I'll take that one.
Yes is the short answer the foreign tax payable is accrued in the balance sheet and the effective tax rate together with a foreign income tax adjustment and that's a discrete item, where we mark to market the brand pricing at the end of the period.
They.
Just a question I they are in relation to the amount of barrels and is calculated at the end of each quarter or is it pending the listing I mean, what we do is the calculation is made each period and.
And it's calculated in bottles per the PSC.
The PD barrels are then added to the brought forward position and if the state Theres no lifting in the period the last lifting.
The state was back in Q4 2022, so it's been about a year since the state took elastic.
Okay and the next one I have.
The lifting that was done in early October was that just for VAALCO.
Are the Gabonese government our boats.
Oh that list and elect to ever wish for the Tommy JV partners and not for the state traditionally they state Alex they left on their own.
Okay, and I think that's all that I had.
This concludes our question and answer session I would like to turn the conference back over to George Maxwell.
The closing remarks.
Okay.
Thank you very much I think it's always good as it was in Q2 to come to the end of Q3 with a strong set of results a strong set of performance.
And the production operational signed driven in part by higher an increase in commodity prices.
As we as we are more than halfway through Q4 and were confidence levels for that performance continue into Q4 are very high.
And as I answered one of the person previously we look to continue to increase cash balances through through this quarter.
And we're starting to see some of the benefits of this of.
The diversification of our asset base and the ability to.
Overcome slight bumps in the roads in one jurisdiction supported supported by the others as Ron mentioned with Sip.
Significantly our load.
And included the synergies of the amalgamation that took place in Q4 of last year.
And the combined operation now is one of much greater efficiency than the two independent organizations where previously.
But that also prevents presents some challenges as Ron mentioned, we will now have completed the integration and now we have to move forward as a larger organization that means investment in and some people. It means investments in systems and processes in order to ensure we overcome some of the difficulties that we had in our reporting structure in Q1 in that.
One is in place and we will move forward with a much more integrated system.
Facilitates one would hope a faster reporting position into by mid year third quarter 2024.
I still like to thank all of our staff. This doesn't happen just because Ron myself and thorough sitting here talking happens because we've got a couple of hundred people. The work 24 seven.
To give us the opportunity to present these results and I'd like to thank them and I look forward to talking to you again at the 10-K.
Thank you very much.
The conference has now concluded.
Thank you for attending today's presentation you may now disconnect.
[music].