Q3 2024 VAALCO Energy Inc Earnings Call
Al Petri, George Walter, Al Petrie, Al Petrie, Al Petrie, Al Petrie, Al Petrie, Al Petrie, Al Petrie, George Walter, Al Petrie, Al Petrie, Al Petrie, Al Petrie, Al Petrie, Al Petrie,
Speaker Change: Pardon me, ladies and gentlemen, the Valco Energy third quarter 2024 conference call will begin shortly. Please stand by.
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Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Valco Energy third quarter 2024 conference call.
Speaker Change: During today's call, all parties will be in a listen-only mode.
Speaker Change: And following the company's prepared comments, the call will be open for questions and answers. During the question and answer session, we ask that you please limit yourself to one question and one follow-up. You may rejoin the queue if you have additional questions.
Speaker Change: This conference is being recorded and a replay will be made available on the company's website following the call.
Speaker Change: I would now like to turn the conference over to Chris DeLange, Investor Relations Coordinator. Please go ahead. Thank you, Operator, and welcome to Valco Energy's third quarter 2024 conference call.
Speaker Change: After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the third 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.
Speaker Change: During our question and answer section, we ask you limit your questions to one and a follow-up.
You can always re-enter the queue with additional questions.
Speaker Change: I would 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. Investors are cautioned that forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward-looking statements.
Speaker Change: Valco 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, a presentation posted on our website, and in the reports we file with the SEC, including our Form 10-K.
Speaker Change: Please note that this conference call is being recorded. Let me turn the call over to George. Thank you, Chris. Good morning, everyone, and welcome to our third quarter 2024 EARNINGS CONFERENCE CALL.
George: For the past two years, we have met or exceeded our quarterly production guidance, leading to consistently strong operational and financial results, including net income, adjusted EBIT DAX, and cash flow generation.
George: Maintaining operational excellence and consistent production across our portfolio is essential to expanding adjusted EBITDAX, which will enable us to fund organic growth initiatives and position us as a larger player in the industry.
George: We are executing at a high level and continue to deliver results in line with or above our guidance.
George: In the third quarter, we experienced quarterly results that fully incorporated the Svenska acquisition which occurred at the end of April.
George: For Q3, we increased our adjusted EBITDAX to $92.8 million and through the first nine months of 2024 have delivered $227 million of adjusted EBITDAX.
George: We've sustained our commitment to returning cash to shareholders in Q3 2024 through our regular quarterly dividend and have also announced the dividend for Q4.
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 swiftly and efficiently completed the Svenska acquisition in April 2024, securing a valuable asset with reserves surpassing our initial expectations, all at a highly attractive price.
Speaker Change: Based on the results of our third-party reserves engineers, we have SEC net proved reserves as of year-end 2023 of 16.9 million barrels of oil equivalent with 93% being oil.
Speaker Change: Our previous 1P working interest CPR reserves were 13 million bottles of oil equivalent.
Speaker Change: This 30% increase in reserves further justifies the acquisition and improves the metrics associated with the purchase.
Speaker Change: In Q3, we had three shared liftings in Côte d'Ivoire driving our total Valco sales 20% higher overall versus Q2.
Speaker Change: The timing of the FPSO shutdown with SailAway remains scheduled for Q1, with these plans now becoming more firm as we move closer to the shutdown-targeted date.
Speaker Change: We are collaborating with our operator at Côte d'Ivoire and will provide additional information on the Baobab FPSO project and future drilling plans when we issue our 2025 guidance in Q1.
According to Canada,
Speaker Change: We successfully drilled four wells in the first quarter of 2024, completed these wells in March and April, and brought 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: We are very pleased with the production results from our drilling program and as you can see that in the production mix in Canada.
Speaker Change: In Q1, our Canadian production was about 60% liquids and in Q2 and Q3, our Canadian production was approximately 75% liquids, with new wealth coming online with a lower TOR.
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 in line with our type curve and we are optimistic about the future drilling potential in Canada.
Speaker Change: As I mentioned in the last call, we are also currently drilling an exploration appraisal well in the southern acreage, for which we hope to have results prior to year end.
Speaker Change: In our southern acreage, we have minimal horizontal subsurface information, and this exploration well, if successful, could prove up additional long lateral wells in the future with the potential to add pruned, undeveloped locations.
Speaker Change: In Egypt, as we disclosed last quarter, our focus in 2024 has been on high rate of return capital work over projects to help mitigate decline.
Speaker Change: As you have seen in the earnings release, we had three recompletions in the third quarter.
Speaker Change: In addition to the successful workovers, I am proud of a major milestone that we accomplished in Egypt.
Speaker Change: You have gone over 2.9 million man-hours without a lost time incident this year.
Speaker Change: This is a testament to our commitment to safety, training, and dedication of all of our people in the operation.
Speaker Change: As I mentioned in the last call, we have a 10 to 15 well program, and in the fourth quarter, we have contracted the rig and will commence at least two of these wells this year.
Speaker Change: We expect to drill and complete at least a single well prior to year-end and complete the drilling of the second well.
Speaker Change: However, the Second World is not expected to provide production until January 2025.
Speaker Change: We continue to engage with the Ministry and EGPC on the backdated receivables issue.
Speaker Change: We are balancing our working capital position between a limited but necessary drilling program with indications from EGPC of a program to address the backdated position.
Speaker Change: We also plan to fracture one of our wells in South Gaza on the Western Desert late in the fourth quarter.
Speaker Change: Results will be available in Q1 2025 and if encouraging, will have a positive impact on our development opportunities in this area for the future.
Speaker Change: Moving to Gabon, given that we haven't drilled a well in Gabon for over a year, we are pleased with the positive overall production results with strong production uptime and improved defined curves on the wells.
Speaker Change: The FSO and field reconfiguration projects in 2022 have allowed us to minimize downtime, capture efficiency, and reduce overall opex.
Speaker Change: Currently, despite not initiating the planned drilling in 2024, our production guidance remains firm for the year, which is a testament to the quality of the Atami field and how the reservoir has positively responded to the reconfiguration.
Speaker Change: Looking ahead to 2025, as I stated last quarter, we initiated a bidding process for the 2025 growing program.
We're almost complete on the bid evaluation and contractor selection.
Speaker Change: It is intended that we will announce the results of this evaluation in the very near future. However, I can confirm that the timing of this project remains on schedule for mid-2025.
Speaker Change: Since our last communication, we have continued to review the well sequencing of the program and the testing of the Aburi shut-in wells.
Speaker Change: When finalized, this will provide greater analysis for the equipment selection required for the abode wells and the timing of the wells within the program sequence.
Speaker Change: The other planned wells, two infill wells with an Italian gas well and an exploration well remain in the plan.
Speaker Change: This is in addition to the potential of a small workover program at the TAMI.
Speaker Change: We will provide more detail on CAPEX and volumes when we present our 2025 budget and guidance.
Speaker Change: Regarding Blocks G and H recently, the Government of Gabon signed these PSEs for exploration blocks, which they requested be renamed Niosi Marine and Geduma Ravine.
Speaker Change: This follows the Technical Provisional Award announced in October 2021 granting Belco a 37.5% non-operating working interest with BW Energy as operator, also holding a 37.5% working interest, and Panoro Energy as a non-operating joint owner with a 25% working interest.
Speaker Change: Given the proximity of these blocks to the prolific producing fields of economy and discipline, we are excited to begin working with our partners to begin examining the possibilities for these blocks.
Speaker Change: In Equatorial Guinea in March 2024 we announced the finalization of the documents related to the Venus Block P plan of development.
Speaker Change: This summer, we began a front-end engineering design or feed study.
Speaker Change: We anticipate the completion of this feed study will lead to an Economic Final Investment Decision, or FID, which will enable the development of VENUS.
Speaker Change: We are very excited to proceed with our plans to develop, operate and begin producing from the Discovery in 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 speed study is complete.
Speaker Change: Throughout 2024, we have delivered on or exceeded our guidance operationally and our solid financial results continue to outpace analysts' expectations.
Speaker Change: We remain focused on growing production, reserves and value for our shareholders.
Speaker Change: I would like to thank our hardworking team who continues to operate and execute our plans.
Speaker Change: Over the past two years, we have significantly diversified our portfolio, enhancing our capacity to generate operational cash flow and adjusted EBITDAX, return capital to shareholders, and draw our cash reserves while maintaining a bank debt-free position.
Speaker Change: We are well positioned to execute the project in our enhanced portfolio and our proven track record of success these past two years should instill confidence for our future.
Speaker Change: With that, I would like to turn the call over to Ron to share our financial results.
Thank you, George. And once again, good morning.
Ron Bain: I will provide some insight into the drivers for our financial results with a focus on the key points.
Ron Bain: Let me begin by echoing George's comments about our continued success through the first three quarters of 2024.
driven by a strong operational performance.
Ron Bain: In the third quarter, we saw the positive impact from the Svenska acquisition, including three shade listings in Cote d'Ivoire.
Ron Bain: We generated $11 million in net income of $0.10 per share.
and $92.8 million in adjusted fee that gaps.
Ron Bain: In the third quarter of 2024, we have now generated $227 million in Adjusted Ebit Dax.
Ron Bain: which is over 40 million more than we generated in the first nine months of 2023.
Ron Bain: That's current production and sales, which along with realized trading, drives our revenue.
Speaker Change: As George mentioned, we have met or exceeded production guidance for the past two years, with production and sales up in the third quarter, driven by a full cluster of results from Cote d'Ivoire.
Speaker Change: We completed three listings and quotes of war in Q3 driving our sales to growth.
Speaker Change: Total MRI sales for the quarter increased to $23,198 per day.
Speaker Change: at the high end of our guidance with NRI production of 21,416 piles of oil equivalent per day, the midpoint 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 realised pricing and ultimately our revenue and earnings.
Speaker Change: But if you look at the bigger picture, and over a full year, you'll see impressive growth across our expanding portfolio of producing assets.
Speaker Change: Pricing remains stable in Q3 and our hedging program has always looked to help mitigate risk and protect our commitment to shareholder return.
Our current pledged positions were disclosed in the earnings release.
Turning to costs.
Speaker Change: Our production costs for the third quarter of 2024 were at the low end of guidance, both on an absolute basis and on a per barrel basis.
Speaker Change: Absolute expense was $42.3 million and on a per barrel basis was $19.80.
Speaker Change: I want to remind you that the 33% decrease compared to Q2 was driven by the fact that Q2 included a $15 million non-cash purchase price adjustment in Cote d'Ivoire for the infantry that was purchased.
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: G&E costs were also in line with guidance and they fell quarter over quarter.
Speaker Change: We completed our back-office process improvement project with the implementation of a single cloud-based ERP across the whole company and went live in Q3 2024.
Speaker Change: It should allow us to streamline processes and efficiently work across our multiple geographies created around the world.
Speaker Change: The project was completed on time and on budget and is a testament to the effort and dedication of the entire team.
Speaker Change: Non-cash cDNA costs increased quarter over quarter primarily due to increased depletion costs associated with the addition of codes of war.
Speaker Change: Valuation of Cote d'Ivoire is comprised primarily on the proven, developed and producing reserves, which assumed an estimated disconnection schedule occurring in Q1 2025 in the CPR.
Speaker Change: Thereby, depletion expense is accelerated due to the higher listings than forecast in the reserve report.
Speaker Change: Moving to taxes. As I've previously stated, in Gibran, our foreign income taxes are settled by the government through any kind or listings.
Speaker Change: In Q2, we accrued $30.2 million in foreign income taxes for Gorgon through the government taking their oil barrels as payment in kind.
Speaker Change: We forecast that GOC will lift their entitled barrels early in Q1 2025.
Speaker Change: and there will be no further give on state lists this calendar year.
Speaker Change: Third quarter tax is impacted by non-deductible items such as the spreadshare transaction costs and the change in market value of tax dollars due to Gibbon's state mark-to-market at quarter end.
Speaker Change: Tax costs in the second quarter of about $32.6 million resulted in an effective tax rate of about 75% in the quarter, impacted by non-recurring discrete items.
Speaker Change: This is higher than prior quarters, but offset by the 25% effective rate in 2002.
Speaker Change: As you can see, over the long term, excluding discrete items or a guided effective tax range of 55-60% is a good forecast.
Turning now to the Balance Sheet and Cash Flow Statement.
Speaker Change: Unrestricted cash at the end of the third quarter grew to 89.1 million dollars driven by strong sales.
Speaker Change: In Q3, we spent $12.4 million in cash capex and returned $6.5 million through dividends to our shareholders.
Speaker Change: I'd like to point out that there is some noise in the CASLO statement regarding the Cement Gap position.
Speaker Change: We have a slide in the supplemental deck showing a waterfall to help to explain the movements.
Speaker Change: and the investment activities you will see $40.6 million in cash received in business combination.
Speaker Change: This was cash that Seska had on the books to pre-sell or recruit liabilities that flowed through the operating activities section that Valco assumed worth the purchase.
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Speaker Change: Last call we discussed likely working capital movements primarily related to Egypt
which drove our September accounts receivable higher.
Speaker Change: In early July, an $8 million U.S. dollar cash payment of Egyptian receivables was received.
Speaker Change: Further to that, they also received $5 million worth in equivalent Egyptian pounds in August and in September.
Speaker Change: versus $10.6 million in the whole of the preceding several months.
Speaker Change: We continue to utilize offsets and collectively the payments plus the offsets amounted to approximately $29 million for the quarter.
Speaker Change: Additionally, EGPC has now provided written confirmation and recognized our invoice in the June tables related to the contractual backdated receivable from the merger of the PSCs of approximately 40 million dollars.
This is a major step forward.
Speaker Change: and with the new oil minister prioritizing resolving the age table situation, we are pleased to continue to work with the Egyptian government, which has made a concerted effort to reduce its backdated bill to payables in 2024.
Speaker Change: As has been the case since the third quarter of 2018, we are carrying no bank debt.
Now credit facilities available to continue to build value.
Speaker Change: In Q3 2024, Valco paid a quarterly cash dividend of 6.25 cents per common share, or $6.5 million.
Speaker Change: and 2024 we've now returned over 25 million dollars in shareholder return.
Speaker Change: We also announced the fourth dividend payment of the year, which will be paid in December.
Speaker Change: Let me now turn to guidance where I will give you some key highlights and updates.
Speaker Change: Our full guidance breakout is in the earnings release and in our supplemental slide deck on our website with the production breakout of both working interest and revenue interest by asset area.
Speaker Change: and between 19,400 and 22,000 NRI barrels of oil equivalent per day.
Speaker Change: This is down only slightly compared to the third quarter due to natural decline.
Speaker Change: For the full year 2024, we are tightening the range and now forecasting our total company production to be between 24,100 and 25,400 working interests, barrels of oil equivalent per day.
Speaker Change: and between 19,300 and 20,600 MRI files 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 workover program in Egypt has helped mitigate some decline.
Speaker Change: In Canada, we are seeing year-over-year growth from our drilling campaign, and in Cote d'Ivoire, we are reflecting operations from May through December in our full-year numbers.
Speaker Change: For the fourth quarter, we are forecasting our sales will be more or less in line with our production, but down compared to Q3 due to less offshore listings.
Speaker Change: But because we're expecting fewer listings, we are projecting our per barrel oil equivalent range to increase slightly, with a range between $17.50 and $22.50 per barrel's oil equivalent.
We are also expecting to slightly lower absolute DNA.
by Amy.
looking at topics.
Our 2024 capital spend is between $110 and $130 million.
Speaker Change: as we prepare for the 2025 FDSO change-out in Cote d'Ivoire.
Speaker Change: The anticipated next drilling campaign in Gabon and some drilling in Egypt and Canada that could impact 2025 Q1 production.
Speaker Change: For the fourth quarter, we are expecting a range of between $40 million and $60 million for our CAPEX, which includes a fifth well drilled in the southern acreage of our Canadian asset, an FTSO marine disconnection, and long weed-iting contracts.
Speaker Change: In closing, we are executing our strategy and adding meaningful value.
Speaker Change: With this rent acquisition, we've delivered a meaningful increase in production and sales, which has also increased our ability to generate additional adjusted EBIT tax and operational cash flow.
Speaker Change: We are well positioned to execute and fund a robust organic capital program across our diversified assets over the next several years.
Speaker Change: With that, I'll now turn the call back over to George.
Thanks, Ron.
George: We will continue to execute a strategy focused on operating efficiently.
George: Investing prudently, maximizing our asset base and looking for creative opportunities.
Speaker Change: As you have heard this morning, the first nine months of 2024 have been very profitable. We have generated $46.8 million, or 45 cents per share, in net income and almost $227 million in adjusted EBIT tax.
Speaker Change: With the closing of the Svenska acquisition at the end of April, we have seen a positive impact to production, sales, optics per BOE, operational cash flow, and adjusted EBITDAx.
Speaker Change: Looking across our asset base, we are pleased with the Canadian drilling results. We are planning the drilling campaign at Hitami, working with the operator in Côte d'Ivoire on the FPSO refurbishment and development drilling program in 2025 and 2026.
Speaker Change: We are progressing the seed study in Equatorial Guinea and optimizing production while executing a capital and expense drilling project 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 our commitments to the market and to our shareholders, and we will continue to deliver with the exciting slate of projects we have over the next few years.
Speaker Change: We're in an enviable financial position with no bank debt and an even stronger portfolio of producing assets with future upside potential.
Speaker Change: In addition to funding our capital programs, we have remained focused on returning value to our shareholders.
Speaker Change: We are on pace to deliver another $0.25 per share annual dividend for 2024, which will be paid out in 2023, with our current share price as a yield of around 4%.
Speaker Change: We will continue to finalize our projects and timing for 2025 on report guidance and expectations in the first quarter of 2025.
Speaker Change: We're truly excited about the future and Valco 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, reserve and cash flow has led to outstanding results thus far and we believe that we will carry that momentum into 2025 and beyond.
Speaker Change: Thank you and with that operator we are ready to take questions.
We will now begin the question and answer session.
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. And to withdraw yourself from the queue, please press star, then 2.
Speaker Change: At this time, we will pause just momentarily to assemble our roster.
Speaker Change: And our first question here will come from Jeff Robertson with Water Tower Research. Please go ahead.
Jeff Robertson: Thank you, good morning. George, in Gabon, where do you see the natural production decline going in 2025 since it's been, I guess, a couple, a year and a half since your last well completion?
Speaker Change: Thank you for that Jeff. I mean I think as we pointed out in the call earlier today, we've actually seen some terrific improvements in reservoir performance and a big reduction in decline for a couple of reasons.
One reason is obviously with the reconfiguration with
to the
So, when we look into 2025...
Speaker Change: As I mentioned, we're due to start the campaign around about May or June 25, and that's mainly due to rig availability. That's the earliest that the rig would be available for us.
Speaker Change: I still see the decline probably hitting between 7% and 9%. We do have some planned maintenance in Q1, which we'll do ahead of the drilling campaign, but I still think what we're seeing from the performance of the reservoir is particularly encouraging.
Speaker Change: Will reducing the back pressure and the performance gained from that have an impact on how you book reserves there?
Speaker Change: That's something we're looking at, actually, I'm having a meeting on that next week. That's something we are considering to look at.
Speaker Change: with the performance of the reservoir, particularly through 2023 and 2024, are we underestimating the size of the tank or are we over underestimating the recovery factor? So that's a piece of work that we will have completed in time for the CPR report will be issued in January.
Speaker Change: And then if I can squeeze one more in, lastly, on the drilling campaign, if you start sometime late in the second quarter,
Speaker Change: I guess based on how you sequence the wells, would you anticipate having some production and contribution from that program in the back half of 2025, or would it more be weighted to 2026?
Speaker Change: No, no, we'll definitely start with production wells. The key debate we're having right now is whether we can start on the Aburi side of the campaign or whether we start on the Tami side of the campaign, and that's really down to the continued
Speaker Change: and also the step info wells in the TAMI. Now, when it comes to the TAMI info wells,
Speaker Change: I think we're good to go on those all day long, the kit will be ready on time. So it's really just a question between how many rig moves do we want to take into the program between the infill wells at Itami and the opportunity to rehabilitate and restart the brewery. But it definitely will be production wells at the front of the sequence.
Speaker Change: And our next question will come from Chris Wheaton with Stiefel. Please go ahead.
Speaker Change: Thank you, George, Ron. Good afternoon. Good morning. Question, George, to you first on Cote d'Ivoire. When do you think we can expect a little bit more clarity on what the timing and...
Speaker Change: like he spend is going to be around both the FPSO
Speaker Change: restart whenever that happens, which I see from a recent presentation on your website looks like it's going to be sometime before Q next year.
Speaker Change: and then obviously an ongoing drilling campaign, which is going to be spending money, hopefully generating good returns doing that, so I wonder when you could talk about when we're likely to get that timing because that seems to be the sort of, you know, probably the bigger swing factors in terms of your likely reported performance in calendar 25.
Speaker Change: Yes and no. I mean I think we've confirmed already that we don't see any change in the sail away time for the FPSO, so we've confirmed...
Speaker Change: in discussions with the operator that the Q1 disconnection and sail away is still what will happen with the FPSO. The contracting basis for that to go to dry dock and the disconnection and the contracts around that are all being placed as we speak.
Speaker Change: When we look at some of the capital spend you've seen come through this year,
Speaker Change: It relates not only to the MV-10 reconfiguration, but it also relates to the 25, 26, or probably 26 is my fairer date, drilling campaign. So we're already spending CAPEX on that right now.
Speaker Change: When we get to look at the total overall project and the project timelines, I would expect to be in a position late this year or early next year to be able to give a detailed project breakdown with timelines and costings.
Speaker Change: We have internal costings right now, and one thing I'll say with a great degree of confidence to everyone right now is we are more than adequately funded to carry out the campaigns that we've already indicated to the market, which includes Egypt.
and Gaborne and Cote d'Ivoire, so there's no...
Speaker Change: There's no issue around being able to fund these campaigns, it's all about the timing.
Speaker Change: We haven't had confirmed timing and project schedules as yet from the operator, but as soon as we have those, and we do not expect those to deviate significantly from the estimates we're currently carrying, we will certainly make an announcement around that. But it certainly will be no later than early Q1 next year.
Okay, that's great. Thank you.
Two questions for Ron, if I may. Firstly,
Speaker Change: Working capital, interestingly, every quarter this year has been seen a working capital outflow, which is quite unusual. Even if you back out the 15 million of Cote d'Ivoire receivables billed, you still had working capital outflow this quarter.
Speaker Change: It's less time that's reversing in 4Q, because obviously that's been quite a drag on your free cash flow generation so far this year. Another question on...
Speaker Change: depreciation and forgive me I didn't quite understand the answer or the commentary you gave on the higher DD&A because
Speaker Change: I would have thought Côte d'Ivoire is lower unit dDNA than your average and therefore if you've got more Côte d'Ivoire barrels you should have lower unit dDNA but unit dDNA was up sequentially so I was trying to sort of that didn't seem logical to me could you perhaps explain why I'm going wrong there thank you
No problem, Chris, let me handle that.
Speaker Change: First of all, in the working capital, I think what you've got, you're right in removing that CDI receivable which was paid in early October.
Speaker Change: During the year, there's been a number of things. As you know, we've been out of the drilling campaign. Really, you know, Canada, we had a four-well campaign in the first quarter.
Speaker Change: Since then, obviously, our AP and our CAPEX accruals have reduced considerably, and they will ramp up again in 2025 when we go into the next campaigns.
Speaker Change: Outside of that, we've got our Egyptian receivables, you know, that has trended up this year. I think year-to-date we're up about 19 million since December. It's trending about six...
Speaker Change: stroke 7 million per quarter, the differentiation between what we're selling at present pricing and what we're collecting and or using is offsets.
Speaker Change: Obviously with the Ivory Coast coming in too, we've got a little bit more oil in the tank with two FPSOs as well, so our inventory is a little bit higher.
Speaker Change: and then in Q2 you know you had some on-off events so we talked about you know we were DMO annual payment in Gabon which is cost recoverable.
Speaker Change: We'll have our DMO discount against the pricing in CDI in Q4.
that we got cash with this Frenske business.
Speaker Change: and we had to settle a number of liabilities that were seller-led liabilities that we settled post year end too. So all of those factors are driving the working capital outflows in each of those quarters.
Speaker Change: Moving on to dDNA, it's quite, you know, it's quite simple, Chris, on this one. Although the operating cost per barrel is lower than ivory cost in some areas,
Speaker Change: When we valued the acquisition, when we put together the purchase price around that $40 million that we paid for it, obviously a large proportion, the predominant proportion of that valuation goes into the proven developed producing reserves.
Speaker Change: and those proven developed producing reserves are actually only going through until it comes off station, otherwise when the disconnect happens.
which was obviously targeted for Q1 2025.
Speaker Change: So you've got that situation where you've got a large portion of the valuation being effectively amortized and depreciated through until January 2025.
Speaker Change: Now, I do think as we go through Q4, you know, there will be a truth up on the PDP as we go into 2025.
Speaker Change: because essentially we'll have most of our PDP amortizing gone before the end of the year.
Speaker Change: But that's why the dDNA component is so high and exacerbated by the fact that we have three listings in Q3 versus one listing in Q2 for CDI.
Ron Bain: Right, that last answer is very helpful, Ron, because I was using the 2P reserves, not the PDP reserves, as the denominator in that unit dDNA equation, so that explains why those numbers don't match up. Okay, that's brilliant. Thanks very much indeed for your help. No problem, Chris. Thank you.
Speaker Change: And our next question will come from Charlie Sharp with Canaccord. Please go ahead.
Thank you.
Charlie Sharp: Good morning, gentlemen. Thank you very much for taking my call. I just really wanted to return, if I may, to Gabon and the drilling program. I think you indicated
Charlie Sharp: that that may start sort of mid-Q2. It has slid a little bit. I think you also indicated that that was rig related. I just wanted to chase up whether that is because
Charlie Sharp: The rigs just aren't available locally or is that pressure on rig rates and can you give a sort of ballpark figure of what each of the wells would cost to drill?
Charlie Sharp: And then the final bit of that is of the seven well drilling program, I think you've indicated that some of those are work over wells, how many actual new wells will there be in that seven well program?
Thank you.
Speaker Change: LOIs and tenders out there, we had somewhere around seven bidders, and obviously we were looking at a mixture of the bare boat rate versus mobilization versus the geographic location of the unit that was being bid.
Speaker Change: Taking all that into account, we are currently in negotiations over a certain unit that is
Speaker Change: has the lowest mobilization opportunity. And with that, it's already executing a program in West Africa. It completes with one company in February, then it's got two other wells to do in another part of West Africa, then it will come to us. So,
Speaker Change: is purely one of economics as opposed to any kind of pressure on rates etc. Economics and expediency and it's a rig that is
Speaker Change: It's not stacked, it's hot working and one we've used in the past. So that is really the timing is down to the schedule that the rig already has committed to as opposed to any other external factor.
when they looked at
The program itself
Thank you.
Speaker Change: I haven't went into a lot of detail on the program, and we will be doing that nearer to it, but when we're looking at the infill opportunities, we're looking at drilling pilots on either side of our target. So the number of wells could be, you know, the pilots are both successful with two wells.
Speaker Change: We've got a re-drill in Ibori, a work over in Ibori 2-8, a re-drill of 4-8 and a re-direction on Ibori, one of the other Ibori locations.
Speaker Change: So, out of the seven firms, and I'll exclude the exploration well and the gas well, we've got at least five of those wells are new wells.
Speaker Change: The optional position would take over a number of workover opportunities if we choose to elect them if we feel they're necessary given the performance of the ESPs on some of the wells. So that's really what we've kept in contingent.
Okay, and the wells...
Speaker Change: Can you give us a sort of ballpark figure for the program or per well? Really, I can. I'm probably going to be about 40 million per DNC on a new well. I'm probably going to be about 5 million less on that on a re-drill. And for the exploration well, we're going to be down as low as about 17 to 20.
Thank you.
Speaker Change: That's very helpful, thank you. And then very finally, an easy one I'm sure, in Gabon, on the new licenses, you say you've completed the documentation.
That doesn't quite sound like...
Those licenses have been awarded to you.
Speaker Change: These licences have been awarded to us. All parties have signed them. We had an administrative issue that I was discussing with the Minister.
Speaker Change: in Cape Town last week discussing it with the Minister, we still have to put pen to paper but he formally announced the licences have been awarded to all of us in Cape Town last week so it's just basically we have to put a signature on a piece of paper but that's why.
Speaker Change: We've worded it the way we've worded it, there's no question over the license whatsoever, just an administrative issue.
Thank you.
Speaker Change: And our next question will come from Stephanie Foucault with Optus Advisors. Please go ahead.
much about what 25 might look like.
That's my first question.
Speaker Change: Okay, the first question is quite easy. We haven't given guidance for 2025 yet. We tend to drill a number of wells in Canada to ensure that we keep the GOR ratio in a position that makes sense for us between liquids and gas. We will, I think, currently, right now we will be drilling in Canada next year. The key issue here is whether we're enhancing
Speaker Change: the prospectivity of the south based on the results of this well that will come in or whether we continue to drill in the in the areas that we've got further north. Now we've got we've got areas worked up and I think I've said before we've got an excellent five-year plan from the team in Canada so we know exactly
Speaker Change: where we would like to drill to make sure that we keep the liquid ratio as high as possible.
Speaker Change: But, in saying that, if the well that would go into the south, the exploration well, comes in successfully and as expected, that may cause a slight change in sequencing as to where we will target the wells for next year.
Thank you.
Okay.
Speaker Change: Okay, so we should expect maybe a capital program similar in Canada than for this year? Would that be something reasonable?
to keep those liquid gaseous up.
Okay, thank you.
Speaker Change: So the production of Q3 was very good. And I was trying to reconcile to see where the production has been so good across the aspects.
Speaker Change: But when I add up the individual production of each asset, I sort of got a slightly lower number, which I think is the production you've got in slide 4, 26, 350.
50. What's the difference between the three 26?
Speaker Change: on page 4, and 26710 headline for the production, The Owey Pairdate.
Speaker Change: You're cutting in and out a little bit, Steph, and I'm finding it a little bit difficult to hear you, but if you could point me to which pages, sorry, you were highlighting.
Yes, sorry, can you hear me now?
Speaker Change: Yes I can. Okay. So it's slide three, the headline number for the political...
is 26,709,000 a day.
Speaker Change: And when I was looking at each asset individually, I got a slightly different figure, which is
Speaker Change: 6348 on slide 4 and I was wondering what was the difference.
Speaker Change: I think it's in Canada, which would suggest it has been a very good prediction. If you could confirm, that would be great.
Speaker Change: Yeah, most probably as the individual slide averages, you know, coming back through there. I would have to look at my team who presented that for me.
I guess it was 92 days in Q3.
OK.
Okay, thank you.
Speaker Change: Our next question will come from Bill Desilum with Titan Capital. Please go ahead.
Speaker Change: on a daily basis by 35%, and I was hoping that you could help.
Speaker Change: help us understand that, because I assume that calculation adjusts for a greater number of days in Q3 than Q2, since it's on a daily basis.
Speaker Change: Well, certainly against our forecast, the field has been performing very well. Recently we've seen one of the wells come down in Cote d'Ivoire and Baobab, the P16 well. So we will see a position closer to forecast.
I think in Q4.
and I think our guidance reflects that position.
Speaker Change: but basically we've seen a very strong performance. So we've got the increase because we've had it at a higher run rate, you know, two-thirds of a Q2 versus a full Q3. But we've also seen the wealth performing higher than our original forecast that we got from the operator. That's primarily what's been happening.
There's not...
Speaker Change: It was only until recently, towards the end of Q3, we started to see some issues around the P16 world. Yeah, I mean, I'll just jump in there, Bill. I mean, the forecast for Q4 is 4,000 to 4,400, and through October we were right on the midpoint.
Speaker Change: Okay, but I don't feel like that totally addresses the significant increase in the daily production in Q3 versus Q2. I can probably shed some light on that.
Yes, sorry, we don't have that.
Speaker Change: Q2 only has two months in it because of the closing date versus Q3 has three months.
Speaker Change: What I was looking at though was the daily production as opposed to the total production.
Does the daily production take that change into account?
Thank you.
Let me think about that now.
It's the total production divided by the number of days.
Speaker Change: It's your total number divided by the number of days in the quarter, so it'd be 30%. At the end of the day, what would have happened in Q2, Bill, is you've got more days than we had combined for CDI, because it came in on the 1st of May, even though we count from the 1st of April. And then obviously in Q3, you've got 92 days, so you've got 92 days worth of production at the same time.
Speaker Change: OK, I'll take that one offline, but it certainly looks like a nice activity there.
Speaker Change: Let me shift to the BW energy fields. What is the timeline for that relationship for those two blocks before you begin drilling and have production?
Speaker Change: Oh wow. These are two exploration blocks. Now the reason we went into a partnership with Panora and BWE is because...
Speaker Change: Between the three of us, we are the main partners in that whole area.
and Dysarthut.
Speaker Change: and the fairway play on blocks G and H run basically flow down from where we produce an atami down into where they've been drilling and in production and in discipline.
Speaker Change: So once we, once the, well, in Q4 we will sign the signature, pay the signature bonus. In 2025, we haven't seen the program yet, but we anticipate the program will be seismic acquisition.
Speaker Change: particularly around Block G, which is the one nearest to us, and then we anticipate sometime in 2026.
would be a well-being committed.
Speaker Change: into that block. Now production from any successful well is dependent on two things. It's dependent on its proximity to the infrastructure, so how close is it to a TAMI versus how close is it to just a few.
Speaker Change: and obviously then tying it back. So if we were drilling in 2026 per se, assuming rig availability, we wouldn't be seeing any production from that until late 27, by the time you put equipment in place and tie it back to the infrastructure.
Speaker Change: That's helpful. Thank you very much, George. And I'm going to try to squeak one more in, if you'll allow it.
Speaker Change: The payments, which I think are roughly $40 million that you are still owed from Egypt.
Speaker Change: When do you expect that to happen, and does that come as one transfer into your account of $40 million, or does it happen piecemeal over time? What's your expectation of how that unfolds going forward?
Speaker Change: Well, we've been pushing this for some time, we've finally got it to a point where it's recognized and acknowledged by the government. We're keeping it separate from our trade receivables when it comes to the discussions, so we're highlighting it as we're not looking for offsets for this, we're not looking for...
Speaker Change: to do a monthly basis with our trade AR so we are looking for a separate deal on this.
Speaker Change: Now, how we get to that, and we've been having discussions, a new content manager's been in there having discussions to try and treat this as an extraordinary item. Our anticipation is certainly that we will be looking for a single payment in U.S. dollars to settle this back to position.
Speaker Change: On the basis that we've made significant progress through the agreements with the government, including full recognition of our investment and the Volco trade name into Egypt. We stood the rig up again last month and we commenced.
Speaker Change: That's certainly where we'll be starting the discussions, but we have been having the discussions around.
Speaker Change: and we'll keep pursuing that at the same time, making sure that our trade AR doesn't suffer or be compromised in any way because of this backdated settlement.
Great. Thank you all for the perspective.
Thank you all, thanks a lot.
Speaker Change: We have time for one more question here and we will take a follow-up from Jeff Robertson with Water Tower Research. Please go ahead with your follow-up.
Jeff Robertson: Thank you, George. In Cote d'Ivoire, with the development plan or development drilling campaign planned for next year and into 2026, are you all actively seeking a rig for that yet or are you still in the early stages of putting it together?
Speaker Change: That's with the operator. I believe they are actively seeking a rig and I believe they are ready to talk to us about that in early Q1.
Okay, thank you for fitting me in.
Thank you.
Speaker Change: And this concludes our question and answer session. I'd like to turn the conference back over to George Maxwell for any closing remarks.
George Maxwell: Thank you very much, Operator. I think, you know, we're now, you know, something like 17 quarters meeting guidance for production, etc. I think the diversification of the portfolio continues to add strength to our performance and de-risk.
the commitments that we make to market.
George Maxwell: We're entering a phase now of the company where it's got such a stable production base and such a key investable opportunity across a number of platforms as we push the company forward.
both with drilling and production opportunities.
George Maxwell: and when we look at the plans we have in Gabon.