Q2 2024 VAALCO Energy Inc Earnings Call
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Speaker Change: and John F. Kennedy. This is a production of the Center for Contemporary Art. © The Center for Contemporary Art.
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Speaker Change: Thank you, Operator. Welcome to VAALCO Energy's second quarter 2024 conference call. After I cover the far-looking statements, George Maxwell, our CEO , will review key highlights of the second quarter. Ron Bain, our CFO , will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions.
Unknown Executive: During our question and answer session, we ask you to limit your questions to one and a follow-up. You can always reenter the queue with additional questions. During the course of this conference call, the company will be making forward-looking statements.
Speaker Change: During our question and answer session, we ask you to limit your questions to one and a follow-up. You can always reenter the queue with additional questions.
Speaker Change: I'd like to point out that we posted a 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.
Speaker Change: During the course of this conference call, the company will be making forward-looking statements.
Speaker Change: Investors are cautioned that far-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the far-looking statements.
Speaker Change: VAALCO disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements.
Speaker Change: These and other risks are described in our earnings release, the presentation posted on our website, and in reports we file with the SEC, including our Form 10-K .
Speaker Change: Please note that this conference call is being recorded. With that, let me turn the call over to George.
George: Thank you, Al. Good morning, everyone, and welcome to our second quarter of the 2024 Aeronauts Conference Call.
Unknown Executive: We began 2024 with positive operational and financial results, including strong earnings and adjusted EBIT tax generation, which helped us to increase our earnings to over $28 million or $0.27 per share and grow adjusted EBITDAX to $72.5 million. We continue to return cash to our shareholders in Q2 2024 through our quarterly dividend, and we announced a third quarter dividend as well. We quickly and efficiently closed this financial acquisition in an all cash deal for $40.2 million on April 30th, 2024.
George: We began 2024 with positive operational and financial results, including strong earnings and adjusted EBIT tax generation.
George: Operational excellence and delivering consistent production is key to allowing us to grow adjusted EBITDAX.
George: For the past two years, we have met or exceeded our quarterly production guidance.
George: We are executing at a high level and continue to deliver results in line or above our guidance.
George: This is due to strong drilling and work over results in Canada and Egypt coupled with strong uptime in Gabon.
George: Also, in the second quarter, we'll close the Svenska acquisition at the end of April .
George: which helped us to increase our earnings to over $28 million or $0.27 per share and grow adjusted EBITDAX to $72.5 million.
George: We continue to return cash to our shareholders in Q2 2024 through a quarterly dividend and we announced a third quarter dividend as well.
Speaker Change: I would now like to go through and give a quick update on our diverse portfolio of high quality assets, beginning with our newest asset in Cote d'Ivoire.
Speaker Change: We quickly and efficiently closed this financial acquisition in an all-pass deal for $40.2 million on April 30, 2024.
Speaker Change: Our team traveled to Côte d'Ivoire to meet directly with the Ministry of Hydrocarbons to officially introduce VAALCO as the new partner in Block CI40.
Speaker Change: This acquisition is highly accretive on key shareholder metrics, provides another strong asset to support future growth and has significant upside potential.
Speaker Change: We added a solid asset with reserves that exceeded our initial estimates, and we did so at a very attractive price.
Unknown Executive: Based on the results of our third-party reserve engineers, we have SEC net proved reserves as of the year 2023 of 16.9 million barrels of oil equivalent with 93% oil. Many of the four wells had very strong initial rates, with IP30 rates exceeding our type curve, and one of the wells, the lower type curve. In the southern acreage, we have minimal horizontal subsurface information, and this exploration well is successful.
Speaker Change: Based on the results of our third-party reserve engineers, we have SEC Net Proved Reserves as at year-end 2023 of 16.9 million barrels of oil equivalent, with 93% oil.
Speaker Change: Our previous 1P working interest CPR reserves were 13 million barrels of oil equivalent.
Speaker Change: This 30% increase in reserves further justifies the acquisition and improves the metrics associated with the purchase.
Speaker Change: We are working with the operator of Cote d'Ivoire and will provide additional information in the second half of 2024 on the BAOBAB FPSO project planned in 2025 and future BAOBAB drilling plans.
Speaker Change: Returning to Canada, we successfully drilled four wells in the first quarter of 2024, completed those wells in March and April , and broke the wells online.
Speaker Change: As a reminder, we drove longer laterals to improve the economics of the program and all four wells are 2.75 mile laterals.
Speaker Change: Many of the four wells have very strong initial rates with IP30 rates exceeding our type curve and one of the wells below our type curve.
Speaker Change: To show the impact of these new wells, in Q1 our Canadian production was about 60% liquids and in Q2 our Canadian production was approximately 75% liquids.
Speaker Change: This strong oil production has rebalanced production in Canada more in favour of liquids which contributes to the strong production performance and our overall profitability.
Speaker Change: As the wells continue to produce, they are coming in line with our type curve and we are optimistic about the future drilling potential in Canada.
Speaker Change: As I mentioned last call, we are also targeting an exploration appraisal well in the third quarter of 2024 in our southern acreage.
Speaker Change: In our southern acreage we have minimal horizontal subsurface information and this exploration well is successful to prove up additional long lateral wells in the future with the potential to add proved undeveloped locations.
Speaker Change: to
Speaker Change: In Egypt, as we disclosed last quarter, the first half of 2024 is focused on high-rate-of-return capital workover projects to help mitigate decline.
Speaker Change: As you saw in the earnings release, we had four re-completions in the second quarter with some very strong results, adding about 800 barrels of oil per day when you combine the four IP30 rates.
Speaker Change: In addition to the successful workovers, I am very proud of a major milestone that we accomplished in the first half of 2024 in Egypt.
Speaker Change: We have gone over 2 million man-hours without a lifetime incident, completing in the third quarter of this year.
Speaker Change: This is a testament to our commitment to safety, training, and dedication of all of our people in the field.
Speaker Change: As I mentioned on the last call, we have 10 to 15 well drilling programs that we are currently evaluating in Egypt.
Speaker Change: This project remains contingent on completion of the program evaluation and confirmation of a drilling rig.
Unknown Executive: We have not included this program in our 2024 CAPEX guidance and won't add it until it is confirmed. However, second quarter production was impacted by a Bluemath platform issue and two workover welds and a re-drill of 3.8mm on a boring. We will conduct two workovers on existing wells and drill one new well to increase production from the woody material that will be treated with this chemical process. The finalization of these agreements included a carrier arrangement between the partners Atlas and GPS.
Speaker Change: We have not included this program in our 2024 CapEx guidance and won't add it until confirmed. However, if we proceed with the program, we anticipate additional CapEx of approximately $9.5 million, which will also generate additional production.
Speaker Change: We will see some additional production in 2024, however the bulk of the additional production will impact early 2025 production.
Speaker Change: We have seen some positive announcements from the government in 2024, in particular payment of AIDS receivables, which is very encouraging.
Speaker Change: Lorne will go into more details regarding the Egyptian receivables.
Speaker Change: Turning to Gabon, and the second quarter production was impacted by a BlueMath platform issue.
Speaker Change: Operationally, we had a planned maintenance turnaround in Azuma in the third quarter.
Speaker Change: But due to the platform issue, we moved that forward into Q2.
Speaker Change: This issue was addressed when the platform was brought back online safely and we will not have a turnaround now in the third quarter.
Speaker Change: You will notice that our Q3 production midpoint for Dubon is actually above the Q2 production of just under 7,500 barrels per day due to the movement of the turnaround at Avuma.
Speaker Change: Given that we haven't drilled a well in Gibbon in over a year, we are pleased with the positive overall production results and strong production uptime and improved decline curves on the wells.
Speaker Change: The SSO and field reconfiguration projects in 2022 have allowed us to minimize downtime, capture efficiency, and reduce overall opex.
Speaker Change: looking ahead to two thousand and twenty-five we have prepared ly firm certain well program that we plan to initiate first half two thousand and twenty-five subject to secuting a drilling rig
Speaker Change: The proposed program includes an infill well and exploration well in the TAMI, a GAMBA infill well and a gas well for fuel supply at CENT, which will reduce our dependency on diesel and reduce OPEX.
Speaker Change: and two work over welds and a re-drill of 3.8mm on a bury.
Speaker Change: We have completed the analysis on the bully that we have highlighted in previous quarters.
Speaker Change: We will conduct two workovers on existing wells and drill one new well to increase production from the woody that will be treated with this chemical process.
Speaker Change: the study has indicated that denho chemical injection can adequately prover the sweetening not between and therefore we anticipate that the more costly capex option for a full cp will not be require
Speaker Change: This is a positive outcome that should allow the company to access contingent resources and place these back into reserves upon completion.
Speaker Change: subject to contract and we plan to initiate a program in leadate q one early q two two thousand and twenty-five and expect a campaign to continue throughout two thousand and twenty-five
Speaker Change: We will provide more detail on CAPEX and volumes when we present our 2025 budget and guidance.
Speaker Change: Our expected CapEx spend for 2024 on long-lead items remains as previously noted between $30 and $40 million.
Speaker Change: Further discussions on Blocks G and H have taken place and we have included the signature bonuses in our 2024 CapEx forecast.
Speaker Change: On 25 March 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development.
Speaker Change: The finalization of these agreements included a carrier arrangement of the partners Atlas and G-Patrol.
Speaker Change: This arrangement is on commercial terms at SOFR plus 7%, which at today's rates is about 12.5%.
Unknown Executive: This improves our 1P economics on those previously announced, and we have included an illustration of that in our accompanying slide. The second quarter also saw some positive impact from the Svenska acquisition, including our first lifting in Cote d'Ivoire in May. We generated $28.2 million in net income, or $0.27 per share. As George mentioned, we've met or exceeded production guidance for the past two years, with production and sales up for the second quarter, driven by incorporating the Cote d'Ivoire volumes following the closing of the acquisition. Turning to cost,
Speaker Change: This improves our 1P economics on those previously announced, and we have included an illustration of that in our accompanying slide deck.
Speaker Change: We will now proceed with our front-end engineering design or fleet study.
Speaker Change: We anticipate the completion of the feed will lead to an Economic Final Investment Decision, or FID, which will enable the development of Venus.
Speaker Change: We are excited to proceed with our plans to develop, operate and begin production from the Discovery and Block P offshore Equatorial Guinea over the next few years.
Speaker Change: We look forward to discussing this new area of operations in more detail once the phase study is complete.
Speaker Change: In the first half of 2024, we have delivered or exceeded our guidance operationally and with solid financial results that have outpaced analyst expectations.
Speaker Change: We remain focused on growing production, reserves, and value for our shareholders.
Speaker Change: I would like to thank our hard working team who continue to operate and execute our plans.
Speaker Change: Over the past two years, we have greatly diversified our portfolio, which has expanded our ability to generate operational cash flow, all while growing our cash position and remaining bank debt free.
Speaker Change: We are well positioned to execute the projects in our enhanced portfolio under proven track record of success these past few years to instill confidence in our future.
Speaker Change: With that, I would like to turn the call over to Roland to share our financial results.
Roland: Thank you, George, and good morning, everyone.
Roland: I will provide some insight into the drivers for our financial results with a focus on the key points.
Roland: Let me begin by echoing George's comments about our continued success into 2024, driven by our strong operational performance.
Speaker Change: The second quarter also saw some positive impact from the Svenska acquisition, including our first lifting in Cote d'Ivoire in May.
Speaker Change: We generated $28.2 million in net income or $0.27 per share and around $72.5 million in adjusted EBITDAX.
Speaker Change: All significant increases over the first quarter.
Speaker Change: Let's turn to production and sales, which along with realized pricing, drives our revenue.
Speaker Change: As George mentioned, we've met or exceeded production guidance for the past two years with production and sales up for the second quarter driven by incorporating the Cote d'Ivoire volumes following the closing of the acquisition.
Speaker Change: We completed the lifting in Côte d'Ivoire in May and received payment in June .
Speaker Change: Total NRI sales for the quarter increased to 19,386 barrels of oil equivalent per day.
Speaker Change: above the midpoint of our guidance with production of 20,588 at a higher end of guidance.
Speaker Change: I'd like to reiterate that with a diversified portfolio of assets we will have changes from quarter to quarter in the mix of sales from each of our producing areas.
Speaker Change: This change in mix impacts our realized pricing, and ultimately, our revenue and earnings.
Speaker Change: But if you look at the bigger picture, and over the full year, you'll see the impressive growth across our expanding portfolio of producing assets.
Speaker Change: Pricing remains solid in Q2 and our hedging program has always looked to help mitigate risk and protect our commitment to shareholder return.
Speaker Change: Our current hedge positions were disclosed in the earnings release.
Speaker Change: Turning to costs.
Speaker Change: Our production costs for the second quarter of 2024 were impacted by a $15 million non-cash purchase price adjustment in Cote d'Ivoire.
Speaker Change: According to GAAP rules, inventory purchased in the acquisition was marked to market at the time of the purchase, and when the lifting occurred in May, prices had dropped, but the corresponding expense was recorded to production expense.
Unknown Executive: VAALCO would have been below the midpoint of our Q2 production expense guidance. We believe that Côte d'Ivoire production expenses, on an ongoing basis, will be around $3 million net per month. This was lower than prior quarters and driven by non-deductible items.
Speaker Change: Without this acquisition, related non-cash adjustment, VAALCO would have been below the midpoint of our Q2 production expense guidance.
Speaker Change: We believe that Côte d'Ivoire production expense on an ongoing basis will be around three million dollars net per month.
Speaker Change: Our focus remains on capturing synergies and keeping our costs low to enable us to maximize margins and increase our cash flow.
Speaker Change: GMA Cross were also in line with guidance.
Speaker Change: And while they rose on an absolute basis, driven by our growth, on a per barrel basis, they were virtually flat with Q1 2024.
Speaker Change: We commenced a back-office process improvement project with the implementation of a single cloud-based ERP across the whole company that will go live in Q3 2024.
Speaker Change: It should allow us to streamline processes and efficiently work across multiple offices located across the world.
Speaker Change: Non-cashed dDNA costs increased quarter over quarter primarily due to increased depletion costs associated with the addition of co-octavir.
Speaker Change: Compared to the same quarter in the prior year, we saw a decrease in the absolute and per barrel dDNA costs due to lower depletable costs in Gabon, Egypt and Canada, and partially offset by the addition of code of law.
Speaker Change: Moving to taxes. And as I've previously stated, in Gabon, our foreign income taxes are settled by the government through in-kind oil listings.
Speaker Change: Last call we discussed that we would have a government lifting in May.
Speaker Change: In Q2, we settled $30.2 million in foreign income taxes for Gabon through the government taking their oil barrels as payment in kind.
Speaker Change: We've discussed our mark-to-market of the in-kind oil in the past.
Speaker Change: With a lifting in Q2, the amount of in-kind oil has been reset.
Speaker Change: So in the near term, price fluctuations will not have as significant of an impact to our tax liability until the quantity of barrels of any kind of oil begins to build back up.
Speaker Change: Tax costs in the second quarter of about $9.3 million resulted in an effective tax rate of about 25% in the quarter.
Speaker Change: This was lower than prior quarters and driven by non-deductible items.
Speaker Change: such as the Svenska Transaction Costs, the Gabonese State Listing Settlement, and the Bargain Gain associated with the Svenska Transaction.
Speaker Change: Excluding the bargain gain, the effective tax rate is 53% for the quarter.
Speaker Change: Our new projected effective tax rate over the long term, excluding discrete items, the range is 55 to 60 percent.
Speaker Change: Turning now to the Balance Sheet and the Cash Flow Statement.
Speaker Change: Unrestricted cash at the end of the second quarter was $62.9 million which was down compared to the first quarter due to several factors.
Speaker Change: In Q2, we paid $40.2 million for this Fenske acquisition.
Unknown Executive: We spent $32.5 million in cash capex. This is a major step forward, and with EGPC demonstrating through March and July back payments to IOCs, and with the new oil minister prioritizing resolving the age payable situation, we are pleased to continue to work with the Egyptian government, which has made a concentrated effort to reduce its backdated bill payables in 2024. In Q2 2024, VAALCO paid a quarterly cash dividend of six and a quarter cents per common share, or six and a half million dollars in total.
Speaker Change: We spent $32.5 million in cash capex.
Speaker Change: and returns $6.5 million through dividends to our shareholders.
Speaker Change: I'd also like to point out that we settled $30.2 million in taxes in Gabon through an in-kind oil lifting, which means the government received the cash associated with this lifting rather than VAALCO settling it and receiving the cash proceeds as we normally would.
Speaker Change: I'd like to point out that there's some noise in the cash flow statement regarding the Fenske acquisition.
Speaker Change: We have a slide in the supplemental deck showing a waterfall to help to explain the movements.
Speaker Change: And the investing activities, you will see $40.6 million cash received in business combination.
Speaker Change: This was cash that Svenska had on the books to peace seller accrued liabilities that flowed through the operating activities section that VAALCO assumed with the purchase.
Speaker Change: Last call we discussed likely working capital movements, primarily related to Egypt.
Speaker Change: In the second quarter of 2024, we sold all Egyptian production domestically, which drove our June accounts receivable higher.
Speaker Change: Following the end of the quarter, we did receive, in early July , an $8 million cash payment for Egyptian accounts receivable.
Speaker Change: Additionally, EGPC has now provided written confirmation and recognized our invoice in their June payables related to the contractual backdated receivable from the merger of the PSCs of approximately 40 million dollars.
Speaker Change: This is a major step forward, and with EGPC demonstrating through March and July back payments to IOCs.
Speaker Change: And with the new oil minister prioritizing resolving the age payable situation, we are pleased to continue to work with the Egyptian government, which has made a concentrated effort to reduce its backdated bill payables in 2024.
Speaker Change: As has been the case since the third quarter of 2018, we're carrying no bank debt and have credit facilities available to continue to build value.
Speaker Change: In Q2 2024, VAALCO paid a quarterly cash dividend of $0.0625 per common share or $6.5m absolute.
Unknown Executive: In 2024, we have now returned almost $20 million in shareholder returns. In Canada, we're seeing year-over-year growth from our drilling campaign. And in Cote d'Ivoire, we're reflecting operations from May through to December in our full-year numbers. Then, adding the expected quarterly running costs, taking all this into consideration, we are projecting our per barrel of oil equivalent range to decrease due to the additional layer of water volume.
Speaker Change: In 2024, we have now returned almost $20 million in shareholder returns.
Speaker Change: We also announced the third dividend payment of the year, which will be paid in September .
Speaker Change: Let me now turn to guidance, where I will give you some key highlights and updates.
Speaker Change: I want to remind you that guidance now includes the recently closed Spenska acquisition, which only affected two months for the second quarter, and the full impact will be seen in the third quarter.
Speaker Change: Also, our full guidance breakout is in the earnings release and in our supplemental slide deck on our website with production breakout of both working interest and net revenue interest by asset area.
Speaker Change: For the total company, we're forecasting Q3 2024 production to be between 24,900 and 27,600 working interest, barrel of oil equivalent per day.
Speaker Change: and between 20,300 and 22,800 NRI barrels of oil equivalent per day.
Speaker Change: This is up compared to the second quarter due to the full impact of the Svenska acquisition and due to the Gabon turnaround timing that George discussed.
Speaker Change: For the full year 2024, we are now forecasting our total company production to remain unchanged between
Speaker Change: 23,600 and 26,500 work and interest balance of all equivalent per day and between 18,900 and 21,400 NRI balance of all equivalent per day.
Speaker Change: Looking at production by asset for the full year, we are expecting natural decline in Gabon and Egypt, although the capital work program in the first half of the year in Egypt has helped mitigate some decline.
Speaker Change: In Canada, we're seeing year-over-year growth from our drilling campaign, and in Cote d'Ivoire, we're reflecting operations from May through to December in our full-year numbers.
Speaker Change: For the third quarter and the full year 2024, we're assuming our sales will be more or less in line with our production.
Speaker Change: Our absolute operating costs are expected to go down compared to Q2 due to the non-cash purchase price adjustment and operating costs that drove costs higher in Q2.
Speaker Change: Normalizing for the adjustment.
Speaker Change: Then adding expected quarterly running costs, this will go up for the full year due to the normal operational expenses in quote there were.
Speaker Change: Taking all this into consideration, we are projecting our per barrel of oil equivalent range to decrease due to the additional Cote d'Ivoire volume.
Speaker Change: We're also expecting flat to slightly lower absolute GNA as we noted previously.
Speaker Change: Finally, looking at CAPEX, our 2024 capital spend is between $115 and $140 million, as we prepare for the 2025 FPSO changeout.
Speaker Change: The Anticipated Next Drilling Campaign in Gabon and the Largely Completed Canadian 2024 Drilling Program.
Speaker Change: For the third quarter, we are expecting a range of between $32 million and $54 million for our CapEx.
Unknown Executive: Inclusive. We will continue to execute our strategy focused on operating efficiently, investing prudently, maximizing our asset base, and looking for a pre-temp opportunity. As Ron discussed, our 2024 guidance has the Svenska acquisition integrated with strong production and sales expected to continue. We are confident in our ability to execute on the many projects ahead, largely because we have been highly successful over the past two years, developing and growing our assets.
Speaker Change: and Cruzi.
Speaker Change: We are executing on our strategy and adding meaningful value.
Speaker Change: With this French acquisition, we are forecasting a meaningful increase in production and sales, which should also increase our ability to generate additional adjusted EBIT tax and operational cash flow in the second half of 2024.
Speaker Change: We are very well positioned to execute and fund a robust capital program across multiple producing assets over the next several years.
Speaker Change: With that, I'll now turn the call back over to George.
George: Thanks Ron. We will continue to execute our strategy focused on operating efficiently, investing prudently, maximizing our asset base and looking for accretive opportunities.
Speaker Change: As you have heard this morning, the first half of 2024 has been very profitable.
Speaker Change: We have generated $35.8 million or $0.34 per share in net income and almost $135 million in adjusted EBIT DAX.
Speaker Change: With the closing of the Swenska acquisition at the end of April , we will see a positive impact to production, sales, OPEX per barrel of oil equivalent, operational cash flow and adjusted EBITDAX for the second half of the year.
Speaker Change: Looking across our asset base, we are pleased with the Canadian drilling results, we are planning the drilling campaign at Atami, and we are progressing the feed study in Equatorial Guinea and optimizing production while executing workovers in Egypt.
Speaker Change: Our entire organization is actively working to deliver sustainable growth and strong results.
Speaker Change: I believe we have gained credibility over the past two years having delivered on our commitments to the market and to our shareholders, and we will continue to deliver with the exciting slate of projects that we have over the next few years.
Speaker Change: We are in an enviable financial position, with no bank debt and even a stronger portfolio of producing assets with future upside potential.
Speaker Change: In addition to funding our capital program, we have remained focused on returning value to our shareholders.
Speaker Change: In Q2 2024, we returned over $6 million to our shareholders through dividends.
Speaker Change: We are on pace to deliver a further $0.25 per share annual dividend for 2024, matching what we paid out in 2023, which at our current share price is a dividend yield of about 4%.
Speaker Change: As long discussed, our 2024 guidance has the Svenska acquisition incorporated with strong production and sales expected to continue.
Speaker Change: We are truly excited about the future and VAALCO now has multiple producing areas and future prospects that have diversified our risk profile and our sources of income.
Speaker Change: We are confident in our ability to execute on the many projects ahead largely because we have been highly successful over the past two years developing and growing our assets.
Speaker Change: Our disciplined approach to maximizing value for our shareholders by delivering growth in production, reserves, and cash flow has led to outstanding results thus far, and we believe that we will carry that momentum into the remainder of 2024 and beyond.
Speaker Change: Thank you and with that operator we are ready to take questions.
Speaker Change: Yes, thank you. We will now begin the question and answer session.
Unknown Executive: If you are using a speakerphone, please pick up your handset before pressing the... If at any time your question has been answered and you would like to withdraw it, please press Star then 2. During the question-and-answer session, we ask that you limit yourself to one question and a follow-up. You can always re-enter the queue for additional questions.
Speaker Change: To ask a question, you may press star, then 1 on your telephone keypad.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If any time your question has been addressed and you would like to withdraw it, please press star then 2. During the question and answer session, we ask that you limit yourself to questions to one and a follow-up. You can always re-enter the queue for additional questions. At this time, we will pause momentarily to assemble the roster.
Speaker Change: And the first question comes from Stephane Foucaud with Actus Advisors.
Stéphane Fichaud: Hi guys, thanks for taking my question. I've got two.
Stéphane Fichaud: The first one is about the receivables in Egypt.
Stéphane Fichaud: and particularly with the agreement that has been signed. Does this $40 and $50 million that has been agreed, is it already on the balance sheet at the end of June or would that be something that could be added?
Stéphane Fichaud: by when the end of September comes in. That was my first question. And my second question is around the exploration program in Canada in H2.
Speaker Change: What sort of volume, million barrel, could be the risk, potentially, by this program? Just to have sort of an idea of the order of magnitude. Thank you.
Unknown Executive: Thanks Stephane, I'll leave Ron to answer the first question, and once he's done that, I'll come back on the second one.
Speaker Change: Thanks Stephane, I'll leave Ron to answer the first question and once he's done that I'll come back on the second one.
Ron: In relation to the Egyptian receivable, that's the backdated contractual receivable that was basically there for when we took over Transglobe. So it was booked prior to us purchasing Transglobe and we've been looking for resolution for that really since day one in October 2022.
Ron: It's been a long path to take, but we've managed to get to the position now where we've got the documentation, we've got an agreement through all of the departments in EGPC, and effectively we're in the signing process in relation to each of those areas now. But the invoice has actually been cut, the values have been agreed, and they have recognized and given us written confirmation that the net receivable is now sitting there at the end of June 2024 on their payables too.
Speaker Change: It's like anything else, it has to be on their payables register before there's any chance of you getting any payment at all, and I'm glad to see we've succeeded on that part.
Unknown Executive: Sorry, I meant, is that already in the balance sheet of VAALCO as receivable or not? That's what they meant, rather than energy.
Speaker Change: Sorry, I meant, is that already in the balance sheet of VAALCO as receivable or not?
Speaker Change: That's what they meant, rather than a GPC.
Speaker Change: want you hara
Speaker Change: Okay, we may have lost Ron, but I'll answer the second question, Stephane. So, with the exploration well in the Southern Acreage in Canada, what we're trying to do is...
Speaker Change: About a year or so ago, some of the well performance came below the tight curve and we lost some reserves there, although we did gain in the north.
Speaker Change: And what we're looking to do is re-establish those reserves with this exploration well.
Speaker Change: Roughly, I think it's between 8 to 12 million barrels we're looking to try and re-establish and that would open a play for further drilling in the southern acreage. So we're quite encouraged by looking at this well that we hope to spud in September .
Speaker Change: and that will further enhance the programs going into 2025.
Speaker Change: Great. That's a wonderful thing, George.
Speaker Change: know
Speaker Change: Thank you. And the next question comes from Chris Wheaton with Stifel.
Chris Wheaton: Thank you. George, good afternoon. In Ron's absence, I think probably I'll ask you a slightly different question, which was...
Speaker Change: and Equatorial Guinea. It's good to see progress there for the second half.
Chris Wheaton: progress towards FID. Can you update on the timing after that, though? At what point do you see moving towards actual first construction and therefore first oil? And also, if they need to update the...
Chris Wheaton: cost of the development or likely cost of the development given that we still seem to be in an inflationary environment for offshore services at the moment.
Speaker Change: Ok, and I don't, as I think I've mentioned before, what we did initially about 18 months ago was put together the plan of development and that was fully costed, and that was fully costed with 3 wells plus a CAPEX spend for a MOPU and it was somewhere around about a gross spend of $280 million.
Speaker Change: The plan going through the feed study is to kind of reduce that capex and swap capex for offex because it's much more tax efficient given the short tenure of this development.
Speaker Change: So there is a little bit of adjustment that we're trying to achieve through this fee study to reduce the capex down to around about $160 million level gross.
Speaker Change: and i increase the opex position to the wee of the move now of course there are some inflation pressures still on services however part of the
Speaker Change: output from the feed study will be we looking at particularly opportunities where we can have
Speaker Change: and some of the older jacked up rigs converted into a mopoo and go through those lease arrangements.
Speaker Change: There are quite a few of those units available here in the United States.
Speaker Change: Right now, I wouldn't be advising that we need to increase any of the cost profile.
Speaker Change: I'm kind of hoping that we get...
Speaker Change: to a point where
Speaker Change: For Equatorial Guinea, we get to FID and we get into a planned structure that may allow us to piggyback on the Gabon campaign and allow Equatorial Guinea to come in on the back of that, which would be mid to late 26.
Speaker Change: for drilling, which would then allow us to look at first oil sometime in 2027.
Unknown Executive: Brilliant. That's really helpful. Thank you, George. I'll leave it there.
George: Brilliant. That's really helpful. Thank you, George. I'll leave it there.
Speaker Change: Thank you.
Speaker Change: Thank you. And the next question comes from Jeff Robertson with Water Tower Research.
Jeff Robertson: Thank you. George, in Côte d'Ivoire, do you have...
Jeff Robertson: Any additional detail with the operator on the timeline for the FPSO change out from what you've provided in the past? And while the FPSO is off station, will there be any significant operating costs?
Speaker Change: In CI or will all the costs incurred be in the capital cost lines?
Speaker Change: Yeah, that's a good question, Jeff. I mean, obviously, the operator's having those discussions right now. At the moment, we have no change to what we initiated, which was a Q1 shutdown in 2025 for the vessel to leave station.
Speaker Change: We do not anticipate any significant OPEX, in fact we're looking at retaining those operating costs being capitalized during the period of 2025. Those discussions are still ongoing.
Speaker Change: because we'll retain those as part of the project cost, but obviously there are ongoing costs for retaining the presence in CDI, but that won't be significant. The main focus will be on the FPSO refurbishment and the timeline to get it back on station, which will go through into 2026.
Speaker Change: So, as I said in my commentary earlier,
Speaker Change: When we come to...
Speaker Change: Finalize that position with the operator and finalize our position and timing of the 2025 drilling program. At that point, later this year, when we come to give budget and guidance for 2025, we can be a lot more specific and detailed.
Speaker Change: And we will provide a detailed project plan slide to let everyone see when it's planned for the vessel to leave and when it's planned for it to come back, where it's going, and the cost structures around that, and that will be linked to, obviously, the 2025.
Speaker Change: Capital Program for Gibbon as well.
Speaker Change: So it's going to be probably...
Speaker Change: will be able to give more detail there, but from the look at our ability to
Speaker Change: Execute and fund that. Our confidence levels remain extremely high. As Ron mentioned, we are debt-free, but we do have debt lines available and also cash in the balance sheet to more than cover us through that period.
Speaker Change: In Egypt, Ron talked about progress with aged payables with EGPC. Can you provide any color?
Unknown Executive: on discussions around being able to sell oil into the export market as opposed to the domestic market?
Speaker Change: on discussions around being able to sell oil into the
Unknown Executive: Yeah, a little bit. I mean, as you can tell, we're quite a small management team. So we're actually in different parts of the planet right now. That's the reason we do that to make sure we can always have a senior, a senior management team member meeting with various governments and, and, and Thor, our CEO, is currently meeting with the minister in Egypt as we speak in Alexandria. So I'm waiting for the outcome of that discussion.
Speaker Change: The Export Market as opposed to the Domestic Market.
Speaker Change: Yeah, a little bit. I mean, as you can tell, we're quite a small management team, so we're actually in different parts of the planet right now. And the reason we do that is to make sure we can always have a senior management team member meeting with various governments. And Thor, our CEO , is currently meeting with the minister in Egypt as we speak.
Unknown Executive: We have initiated in detail what our investment plans are for Egypt, and I've mentioned that with the potential of a 15 mile drilling program. And we're looking to see how we optimize both the The commitment that the Minister has made to tackle the aged receivables on EGPC. He made that statement publicly. We've seen them looking to pay down 20% of the aged balances, which is encouraging, but as you're aware, it's not sufficient to make sure we can charge ahead with an accelerated investment, and we're looking to see that position improve.
Speaker Change: and Alexandra. So I'm waiting for the outcome of that discussion. We have initiated in detail what our investment plans are.
Speaker Change: are for Egypt, and I've mentioned that with the potential of a 15-mile drilling program. But we're looking to see how we optimize both the...
Speaker Change: The commitment that the Minister has made to tackle the aged receivables on EGPC, he made that statement publicly.
Speaker Change: We've seen them looking to...
Speaker Change: Co-operatively pay down 20% of AIDS balances, which is encouraging, but as you're aware, it's not sufficient to make sure we can charge ahead with an accelerated investment, and we're looking to see that position improve. At the moment...
Unknown Executive: We don't, and we have not forecast, export cargoes, and we don't see that possibility at the moment because of the position with the type of crude we have. Initially, they could not refine that crude, but that's now not the case. They are refining the Ras Gharab crude in the country. So for the rest of this year, we're looking at domestic sales.
Speaker Change: We don't, and we have not, forecast for export cargoes, and we don't see that possibility at the moment because
Speaker Change: of the position with the type of crude we have initially. They could not refine that crude, but that's now not the case. They are refining the Ras Gharab crude in country. So for the rest of this year, we're looking at domestic sales.
Speaker Change: But in saying that, you know, we're still encouraged with the profiles and opportunities that we see in Egypt. We just need to see just a little bit of, as I think I said at one point, to move it from a great deal to a compelling one.
Speaker Change: Thank you.
Speaker Change: George, I was texting with Ron after he got disconnected early and he confirmed that the receivable was on the books for VAALCO before now. So, for Stephane's question, yes, the receivable was already booked.
Speaker Change: and I think Ron's trying to get back in, I'm not sure if he's actually made it back in. Yeah, I'll get back on. The Curse of Modern Travel and Communications, but back online. Okay, great.
Unknown Executive: Yes, good morning, good afternoon, wherever you are, gentlemen. Thanks for the presentation. Very helpful. I just wanted to clarify, if I may, the wells that you're planning to drill in Gabon next year and when you might be able to provide some guidance to us on what sort of production you might expect from those additional wells. Thank you.
Speaker Change: Thank you. And the next question comes from Charlie Sharp with Canaccord.
Charlie Sharp: Yes, good morning, good afternoon, wherever you are, gentlemen. Thanks for the presentation, very helpful. I just wanted to clarify, if I may, the wells that you're planning to drill in Gabon.
Charlie Sharp: Next year.
Charlie Sharp: and when you might be able to provide some guidance to us on what sort of production you might expect from those additional wells.
Speaker Change: Thank you.
Speaker Change: No problem, Charlie. I kind of give a very brief overview of the wells we're planning. At the moment we've got seven wells firm and we've also got a further five wells contingent.
Speaker Change: that we will look or may include in the program.
Speaker Change: With regard to volumes and guidance, that's probably going to come out in our November call as we start to give more guidance into 2025.
Speaker Change: um
Speaker Change: But the effective way of...
Speaker Change: are
Speaker Change: A mixture of step-out wells and one or two, an exploration well and then the redevelopment around a goalie, which is the key pickup.
Speaker Change: On a volumetric basis, what we're targeting is probably somewhere well north of 6 to 8 million barrels of additional reserves coming in through the initial program excluding the position on the gas well.
Speaker Change: um
Speaker Change: We've been, that's a risk position and I'm kind of hopeful that we'll see...
Speaker Change: A little bit of improvement on that through duty, given what the...
Speaker Change: lost on reserves that went to contingent resource, so there may be a little bit of a pick up on that, but we'll continue to study that.
Speaker Change: But that's more likely to be...
Speaker Change: be in November before we can...
Speaker Change: land on the exact well sequencing and exactly what the IP rates were forecasting and the final reserve positions were targeting.
Speaker Change: That's very helpful, thanks. And just finally, and perhaps one for Ron if he's still on, I think the operating costs for full year 24 you've indicated are higher than you had.
Speaker Change: previously. I just wanted to be sure that I understood if that was really related to the Svenska acquisition or was there something else that I was missing there?
Ron: Yeah, so just in my script, I think there, Charlie, I mentioned that Q and Q2UC production costs have gone up.
Speaker Change: and that's really in relation to the Svenska acquisition because they had
Charlie Sharp: they'd inventory crude oil on the ESPSO on the 30th of April when we purchased the company. So that effectively means that that crude oil is marked market, it's basically valued at market price.
Charlie Sharp: And then, of course, we produced and then we sold in May. And so when we do that, and from an accounting point of view, you roll through that mark-to-market cost.
Charlie Sharp: at the market price. So that's really bumped our costs up by about 15 million, 1.5 million in the quarter and it will obviously, it's non-recurring and it's non-cash, you will not see it there in each of the other quarters.
Charlie Sharp: I also mentioned in my opening comments that we would typically see that that net cost, that production cost in Cote d'Ivoire would run about $3 million per month, $9 million net.
Unknown Executive: Very helpful. Thank you.
Unknown Executive: Thank you, and the next question comes from Bill Dezellem with Titan Capital.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you, and the next question comes from Bill Dezellem with Titan Capital.
Bill DeZella: Thank you. George, would you please circle back to your comments about the HUS wells and what it is that you are going to be doing there and the timeline that you anticipate those may be able to be turned back into production?
George: Yeah, no problem, Bill. I mean, we've, as I mentioned, completed the study where we can now sweeten that crude through down-hole chemical injection rather than a more costly mechanical process. So that is very good news.
Speaker Change: and that's based on the existing modeling structure we have. Obviously, as we come into the campaign and we start to add more wells and a brewery into production, we'll be able to revise and update that model with more subsurface data that's coming in through the production profile.
Speaker Change: Right now, these wells, from a sequencing standpoint, are...
Speaker Change: We're planning them at the back end of the campaign, and that's primarily due to being able to get the quality of completion equipment we need for server treatment in downhole.
Speaker Change: The lead times are quite extensive, up to 12 months and beyond. They will be at the back end of the program, of course, given that they are...
Speaker Change: reasonably prolific wells if we can prove forward by the equipment arriving are aware and we will certainly do that and do that work on the ability platform is as early as possible but as i say at the moment there're
Speaker Change: We're at the back end of the program to allow for LLIs to be delivered on time.
Unknown Executive: And would you please remind us what the total shut-in production is on those H2S wells?
Speaker Change: And would you please remind us what the total shut-in production is on those H2S wells?
Unknown Executive: Well, when they were shut in, they were shut in doing... One of them is actually still in production at the moment, the Aguri 2H, and that's the one we've been using as the test piece for the sweetening program for downhole chemicals. But it was shut in, I think, and this goes back to 2014, so I'd have to check my numbers, but I think it was about 3,000 to 4,000 barrels a day that were shut in.
Speaker Change: Well, when they were shut in, they were shut in doing... One of them is actually still in production at the moment, the Ability Q8s, and that's the one we've been using as the test piece for...
Speaker Change: for the sweetening program for downhole chemicals. But it was shut in, I think, and this goes back to 2014, so I'd have to check my numbers, but I think it was about 3,000 to 4,000 barrels a day that got shut in.
Unknown Executive: It's only one well that's in production right now. The other wells are shut in.
Speaker Change: And it is just one well now that shut in due to H2S.
Unknown Executive: What we're planning to do is we will do some work on the existing well to make it more efficient when it comes to the downhole chemical injection, making sure the line is fully functioning. And that will be an enhancement to that particular well's production. We will then also do a sidetrack on what was the 3H well and move that to a more favorable location within the reservoir. And then we've got to rerun the completion on 4H to give it – and this is one of the reasons that we need that specialized equipment. So those are the three.
Speaker Change: It's only one well that's in production right now. The other wells are shut in. And what we're planning to do is we will do some work on the existing well to make it more efficient when it comes to...
Speaker Change: The down hole chemical injection makes sure the line is fully functioning, and that will be an enhancement to that particular well's production.
Speaker Change: We will then also do a sidetrack on the three...
Speaker Change: What was the 3-H well?
Speaker Change: and move that to a more favorable location within the reservoir.
Speaker Change: And then we've got to rerun the completion on 4H, which to give it, and that's one of the, these are one of the reasons that we need that specialized equipment. So those are the three, the three...
Speaker Change: One sidetrack re-drill and two walkovers are planned to get that ability production back up to optimum levels.
Speaker Change: And then you will be drilling additional wells at Avori also to enhance the production there beyond bringing those wells back online through the recompletions. Is that correct? Are we understanding that correctly?
Unknown Executive: There are potential additional broody wells in the contingent program, but we need to get these three wells up and running first. That will determine where we go next.
Speaker Change: There are potential additional brewery wells in the contingent program, but we need to get these three wells up and running first. That will determine where we go next.
Speaker Change: Understood. Thank you, appreciate the time and congratulations on a solid core.
Bill DeZella: Thanks, Bill.
George: George, I was looking at maybe add a little bit of colour to Bill there as well, in relation to it being shut in, you know, Bill being a long-term shareholder, those wells were shut in when VAALCO had a much smaller working interest.
Speaker Change: in those reserves. Now we're bringing them back on, you know, we're bringing them back on at nearly 60% working interest. So kind of fortuitous in that way too that we shot in with that position and hopefully we'll now be able to flow it with a greater working interest coming into VAALCO.
Speaker Change: Actually, Ron, that's a great point, which I had overlooked. So with that in mind...
Ron: What is the, if the wells were to flow at the flow rate that they had at the time they were shut in, but taking into account your now greater working interest, what is the the total total production that you would expect from from those wells?
Unknown Executive: Yeah, I mean, what I was saying before, Bill, in the 4,000 to 6,000 barrel range was what I was giving you in our position, so I had already factored that in, from a working interest perspective. But yeah, I mean, the key here for me is getting this field back in production with multiple drainage points, and then having that history match opportunity to study that against the existing model, see where our model inaccuracies lie because no model is perfect, and what does that give us for additional opportunities for drilling thereafter.
Ron: Yeah, I mean, what I was saying before, Bill, in the 4,000 to 6,000 barrel range was what I was giving you in our position.
Bill DeZella: I already factored that in, so from a working interest perspective.
Speaker Change: The key here for me is getting this field back in production with multiple drainage points and then having that history match opportunity to
Speaker Change: study that against the existing model, see where our model inaccuracies lies, because no model is perfect.
Unknown Executive: And that's where sequencing comes in. We wouldn't have enough time wherever we placed the wells, but the earlier we can do the aborted program, for me, the better, because there may be some additional contingent opportunities there at the end of the program.
Speaker Change: And what does that give us for additional opportunities for drilling thereafter? And that's where sequencing, you know, we wouldn't have enough time wherever we place the wells, but the earlier we can do the ability program, for me, the better, because...
Speaker Change: There may be some additional contingent opportunities there at the end of the program.
Unknown Executive: Great. Thank you both for that. I appreciate it.
Speaker Change: Great. Thank you both for that. I appreciate it.
Speaker Change: Thank you. And the next question is from Stephane Foucaud with Arctis Advisors.
Unknown Executive: Yes, thank you again. I have two quick follow-on clarifications. The first one is about Egypt.
Stefan Falco: Thank you again. Two quick follow-on clarifications. The first one is about Egypt. You talked about
Unknown Executive: You talked about the fact that you're looking for a drill week for the second part of the year. Is that the only condition for going back to drilling? Because I had in mind at some point that you would need to have an export target, which I understand is not required anymore, but maybe there are some other things like payment from Egypt or so forth that would be other conditions to go back to drilling.
Stefan Falco: The fact that you're looking for a drink for the second part of the year, is that the only condition to go back to drink? Because I had in mind at some point that you would need to have an export cargo, which I understand is not required anymore.
Unknown Executive: So confirmation would be great. And second, for Ron, the $160 million of other current liabilities is a big jump compared to last time. Is that purely related to the Code Devo acquisition, or is there something else behind the increase? Thank you.
Stefan Falco: There are some other things like payment from Egypt or so forth that would be other conditions to go back to drilling. So confirmation would be great. And second for Ron, the $160 million of other current liabilities is a big jump compared to I think last time.
Speaker Change: Is that purely related to the Code Devo acquisition or is there something else behind the increase? Thank you.
Speaker Change: Okay, I'll jump on to the Egypt one. You're correct, and I think, as I said previously, we're looking for some kind of pick-up to make sure that the drilling program in Egypt goes from, you know, extremely economic and exciting to compelling.
Speaker Change: Wales and for the economics that we do in Egypt we've got that identified we're having discussions with with that right now so but the ring is not it's not yet secured and so yeah there is a mix of
Speaker Change: We were looking for export cargoes as I explained in the previous answer that the export cargoes are probably not available given that
Speaker Change: The crude can now be refined in Egypt. So we're looking to see how quickly these investment profiles have returned to the existing position we get. And hopefully we'll get some positive feedback from Paul's visit to the Minister today.
Paul: and see how we can not just execute this program but enhance and accelerate our investment positions inside Egypt because the opportunities are there and we'd be very keen to take them up.
Paul: So, to answer your question, yes, we've no longer said we must have an export cargo because we understand the changes in the profile in some places, but we are looking to see how as we invest this money, how it's going to be returned.
Unknown Executive: Yeah, no problem, George and Stephane. The increase in accrued liabilities that are... It is turning over, and about half of it is probably more of a long-term item; it is certainly not going into next year, but it would not look to move in Q2, sorry, Q3.
Paul: I'll leave you on to answer the next one.
Speaker Change: Yeah, no problem, George. Stephane, the increase in accrued liabilities are up to 116, if I've picked your question up correctly. Yes, predominantly that is in relation to obviously the Svenske transaction coming in.
Speaker Change: What I would give some colour to that, I mean obviously the breakdown will be in our 10-2 when it comes out tonight.
Speaker Change: And when you look at that, there's probably about half of it is replaced.
Speaker Change: every period, so it's turning over and about half of it is probably, you know, more of a long-term item. It's certainly not going into next year, but it certainly would not look to move in Q2, sorry Q3.
Unknown Executive: Great. Thank you very much.
George Maxwell: Thank you, and this concludes our question and answer session. I would like to turn the conference back over to George Maxwell for any closing comments.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you, and this concludes our question and answer session. I would like to turn the conference back over to George Maxwell for any closing comments.
George Maxwell: Thank you for everyone that attended today's conference call and listened to our activities and operations for Q2. We've had another solid quarter.
Speaker Change #100: We're all here, as you know, we're all here.
Speaker Change #100: at the moment.
Speaker Change #101: that will excite both the market and excite both our staff and our...
Speaker Change #102: hard working ststartaf to yet yet these things executed for us so we've got a lot of work to do we' gota lot of things upcoming but we've achieved part of of our objective and increating a profile in a portfolio
Speaker Change #102: and others.
George Maxwell: So, I'd like to thank everyone for their attendance and look forward to talking to you again in November for Q3. Thank you.
Operator: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Speaker Change #103: Thank you. The conference has now concluded. Thank you for attending today's presentation in Manala's Connect Your Lines.