Good morning. My name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the VAALCO Energy First Quarter 2018 Earnings Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Liz Prochnow, Chief Accounting Officer. Please go ahead.

Thanks, Thea. And on behalf of the management team, I welcome all of you to today's conference call to review VAALCO's first quarter 2018 operating and financial performance. After I cover the forward-looking statements, Cary Bounds, our Chief Executive Officer, will review key highlights of the first quarter along with operational results. Phil Patman, our Chief Financial Officer, will then provide a more in-depth financial review. Cary will then return for some closing comments before we take your questions. [Operator Instructions]. I would like to point out that we posted an updated investor deck on our website this morning that has additional financial analysis, comparisons and updated guidance that should be helpful. With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will be making forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. Forward-looking statements are those concerning VAALCO's plans, expectations, future drilling and completion activities, expected capital expenditures, sources of future capital funding and liquidity, future strategic alternatives, proposed evaluations, negotiations with governments and third parties, reserve growth and other operations. Statements made during this conference call that address activities, events and/or developments that VAALCO expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on assumptions made by VAALCO based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond VAALCO's control. Investors are cautioned that forward-looking statements are not guarantees of future performance, and thus, actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and in the reports we file with the Securities and Exchange Commission, including the Form 10-Q that was filed yesterday. Please note that this conference call is being recorded. Let me turn the call over to Cary.

Thank you, Liz. Good morning, everyone, and welcome to our first quarter 2018 earnings conference call. I am very pleased with our successful first quarter and the strong financial results we were able to deliver. With Brent pricing of nearly $70 per barrel in the first quarter, we reported income from continuing operations of $8.7 million or $0.15 per share, which is the highest quarterly earnings since the second quarter of 2014. Just as importantly, we generated adjusted EBITDAX of $14.5 million for the first quarter, an increase of $10.5 million compared to the fourth quarter of 2017. Production for the fourth quarter averaged 3,611 barrels of oil per day net, which was slightly above our guidance range of 3,400 to 3,600 barrels of oil per day net. We accomplished this despite two wells that were shut in during the full quarter as a result of prior year electric submersible pump or ESP failures on the Avouma platform. Phil will go into more details regarding our financial results, but we paid down $2.1 million in debt and grew cash by $12.5 million to over $32 million as of March 31, 2018. Now I will spend the next few minutes reviewing our first quarter operational results and expand on recent and near-term operational events. After Phil reviews the financials, I will discuss how we plan to enhance our operations and add shareholder value throughout 2018 and beyond. In late 2016, VAALCO completed a successful workover campaign and replaced the ESPs in the South Tchibala 2-H and Avouma 2-H wells on the Avouma platform. Following the failure of the South Tchibala 2-H ESP in July 2017, VAALCO began workover operations in October 2017 to replace failed ESPs in the South Tchibala 1-HB and South Tchibala 2-H wells. While production from the South…

Thank you, Cary. Good morning, everyone. Our financial results for the first quarter were very strong. We reported our highest quarterly earnings since the second quarter of 2014. VAALCO's income from continuing operations of $8.7 million or $0.15 per share was driven by materially higher sales volumes due to the split lifting that took place during the period from December 31, 2017 to January 1, 2018, and higher realized oil pricing. Adjusted EBITDAX for the first quarter grew to $14.5 million, more than triple the $3.9 million in adjusted EBITDAX in the fourth quarter of 2017. And our first quarter 2018 operating income was $13.0 million compared with $2.5 million last quarter. Income from continuing operations, operating income and adjusted EBITDAX were all positively impacted this quarter by higher realized Brent pricing, no commodity hedges in place and the previously mentioned split lifting. For the first quarter of 2018, our income from continuing operations benefited by $2.8 million or $0.05 per share due to the split lifting. And our fourth quarter 2017 was adversely impacted by $2.4 million or $0.04 per share due to the split lifting. For the first quarter of 2018, our adjusted EBITDAX benefited by $4.0 million due to the split lifting, and our fourth quarter 2017 was adversely impacted by $3.5 million. Our Q1 2018 sales were up materially due to the split lifting that occurred year-end. The normal monthly sales lifting from the floating production facility that stores oil produced in the Etame block was not able to be completed by December 31 due to adverse sea and weather conditions. As a result, the December lifting took place during the period of December 31, 2017 to January 1, 2018, with 53,300 net barrels of oil sold in December and the remaining balance of 95,500 net…

Thanks, Phil. With Brent trading at multiyear highs, no hedges in place, we anticipate further meaningful growth in our cash position. Already in 2018, we have grown our unrestricted cash significantly above our year-end 2017 balance of $19.7 million to $27.4 million net of partner advances. We also paid down our debt by $2.1 million. As we continue to deliver on our guidance and strengthen our balance sheet, we remain confident in our premier Etame asset. As I mentioned earlier, we have several development drilling opportunities at Etame that we are considering drilling early next year, depending on approvals from the Gabon government and our partners. I am proud of the management, technical and financial team we have here at VAALCO and their commitment and dedication to our company. We will continue to execute on our strategy, and I am optimistic that we will create substantial value for shareholders in 2018 by enhancing our operations and improving our balance sheet. Thank you. And with that, operator, we are ready to take questions.

[Operator Instructions]. Okay, we do have a question from Bill Dezellem with Tieton Capital.

I have a group of questions. First of all, we talk about the wells that you have the H2S trouble with. What price makes those economical to go back and do the capital equipment upgrades so that you can produce those wells?

Right, Bill. Thanks for the question. Those wells are really in the Ebouri field. We have one well producing in the Ebouri field that - where we can manage the H2S content. Then there are two other wells that are shut in due to high H2S content. It will take significant capital to install the facilities required to strip H2S. And - but we're continuously looking at optimizing that capital investment, and I would say that the investment really doesn't achieve the return we want at current pricing. And as we do our analysis, I can get back to you with exactly what pricing makes the H2S stripping work and the installation, the capital investment for H2S stripping facilities. But where we are today, we have better opportunities drilling development wells is what I would say. We would - if we have a portfolio of opportunities, the better investments in our portfolio are really development wells versus H2S stripping facilities.

That's helpful. And maybe in that vein, what does the current oil price allow for drilling activity that you really have not been considering since the downturn began?

The wells at Etame are highly profitable even at much lower oil prices. And so really, what's made drilling - the possibility that we have today is the build-up in cash and the ability to fund the drilling. So the timing is right. We've held off, and we - if things work out as planned, these wells will come on at peak oil prices and rather than a couple of years ago with lower oil prices. And so that's a good thing. But these wells are very, very prolific, and they do achieve a return even at lower oil prices. Again, what's driving our appetite is not only the wells that are available but the cash we've generated and the ability to fund the wells.

Great. And then I am curious, relative to your production, it did beat guidance this quarter. What specifically unfolded that allowed you to beat your production guidance here in Q1?

Well, we've had a lot of conversations internally about what happened and what went on, and I have to commend our operations team. It was no downtime basically. We kept the field operating and running, up and running much - at a much higher rate than we anticipated. So we always - when we do a forecast, we always build in some downtime. We face challenges every day. The operations team faces challenges every day, and there's various unexpected interruptions in production. And we just didn't see as much of those interruptions in the first quarter as we expected. So I'd commend our operations team. There was no - to get to your - maybe to more clearly answer your question, Bill, there was no significant - one significant event that led to the - beating guidance. It was, again, a whole lot of work on all the wells by our operations team.

The next question will come from Donald Cussen with RBC.

Don Cussen here. I heard what you were saying earlier, and I think it's consistent with some prior press releases and conference calls you had, that the two wells that are down, you anticipate being on by the end of second quarter. I don't know if I got this, and if you did mention it, I apologize for asking, but is the workover rig actually on site, working now?

What we're doing is we're mobilizing the workover rig right now. Obviously, there's a lot of equipment that needs to be transported from our shore base out to the platform. So we're in the process right now of mobilizing that equipment. We expect to initiate the workovers or start the workovers late this week, early next week. So over the weekend is our best estimate, but we'll - we will issue a press release when we initiate the activity.

Okay. And then also, if you could just reiterate for me, the free cash flow number or the free cash flow breakeven number on production, I think you said it was $44. Is that correct?

Absolutely, we can talk about that. I'll let Phil give some context around that. Yes.

Yes, Don. The free cash flow breakeven is $44 per barrel. What has changed from prior forecasts is we have included our projected workover costs in the calculation. Previously, we presented figures that excluded workover costs.

[Operator Instructions]. There was a follow-up from Bill Dezellem with Tieton Capital.

We jump if we could to Angola and how those discussions are unfolding and what you are currently thinking about, the $15 million that you have semi set aside for that.

Sure, Bill. There's really nothing that we can report right now in terms of results of the conversations we're having with the Angolan officials. But we are having routine conversations with Angola, and like we've said in the past, we think we can significantly reduce the penalty for not drilling three obligation wells in Angola. Those three wells were supposed to be drilled by November 2017. That did not happen, but we do feel like we have a strong case to reduce that penalty significantly. We are in the midst of discussions with Angola, and there's nothing to report today.

And how about Equatorial Guinea? What would you like to share with us there relative to your thoughts about future activity?

Right. Again, Equatorial Guinea is - we have the license there with the discovery and exploration opportunities on the block. And so we're constantly reviewing the cost to develop the discovery and looking at that opportunity in our portfolio. And as soon as we decide that the investment is - ranks at the top of our portfolio, we will move ahead. Right now, there are no plans to move ahead with the development in EG, but it is still an opportunity for us, and we are evaluating it routinely.

And are there things that the governmental authorities there could do to make your return on investment better such that you would accelerate your drilling there? Or is the opportunity simply so good offshore Gabon that unless someone were to drop a whole lot of money in your lap, it's going to be on hold for a while?

Right, right. There are things that could improve in Equatorial Guinea, could improve our economics. And so we are in constant communication with our partner. Well, we have multiple partners. Our primary partner is the state oil company, GEPetrol. And so we are in discussions with them on how we can move forward and improve the economics of the partnership. And so yes, there are some things we can do. Nothing to report right now, but we are considering what we can - how the government can enhance the economics in Equatorial Guinea. But I - right now, we think that - or we see - or in - based on our evaluation, the opportunities in Gabon present a better return.

That's helpful. And then I would like to switch to, I guess, I'll call it your ongoing quiet commentary about additional properties that you would be evaluating in West Africa and/or accretive acquisitions. Bring us up to speed as to your thought process and then what you may or may not be doing on the discussion front with other parties here, please.

Well, we're constantly looking at opportunities for acquisitions. And our focus, I guess, ideally - and I've said this in the past, ideally, an acquisition would be a property where we can use our existing resources. And when I say resources, I mean our technical team and our operational team. So we're constantly looking for an acquisition where we can put the team we have in place to work and not increase overhead significantly but create value. There's nothing to report other than it's still an active ongoing process.

I'm going to push on that just a little bit more if I may, Cary.

Okay.

Would you quantify just how active that you are there and the degree to which your better cash flow and the higher oil prices are changing your level of activity?

Well, actually, the higher oil prices really haven't changed our level of activity as much as it has opened up, I guess, more opportunities that we probably wouldn't have considered in the past, we would consider now. But we - the - we constantly have people coming to us with opportunities. And I can't really quantify how many per week or per month or anything like that, but we do have more flexibility with an improved balance sheet and more cash. And we are seeing opportunities, and people are bringing opportunities to us.

At this time, there are no further questions. Are there any closing comments?

With that, I appreciate everybody participating in the conference call. We look forward to another good quarter, and have a good day. Thank you, operator.

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.