Good morning, and welcome to the VAALCO Energy Second Quarter 2019 Earnings Call. [Operator Instructions]. At this time, I would now like to turn the show over to Al Petrie, Investor Relations Coordinator. Please go ahead, sir.

Thank you, Nicole. Good morning, everyone, and welcome to VAALCO Energy's Second Quarter 2019 Conference Call. After I cover the forward-looking statements, Cary Bounds, our Chief Executive Officer, will review key highlights of the second quarter along with operational results. Liz Prochnow, 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. 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. I'd like to point out that we posted an updated investor deck on our website this morning that has additional financial analysis, comparisons and guidance that should be helpful. With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will 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. 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, the presentation posted on our website and in the reports we file with the SEC, including the Form 10-Q that was filed yesterday. Please note that this conference call is being recorded. Let me now turn the call over to Cary.

Thank you, Al. Good morning, everyone, and welcome to our second quarter 2019 earnings conference call. As discussed in our earnings release yesterday, we grew adjusted EBITDAX to $12.9 million, maintained strong production at 3,664 barrels of oil per day and increased our cash position to $48.6 million in the second quarter. In addition, we have also progressed forward with removing meaningful financial uncertainty from our balance sheet. We recently finalized the Angola exit settlement in July by making a $4.5 million cash payment, which was substantially less than the $15 million obligation previously carried on our balance sheet. We have now removed all of VAALCO's rights, liabilities and outstanding obligations for Block 5 in Angola, and we can focus on our producing assets in Gabon. We also reached an agreement in principle to resolve legacy Etame joint venture owners audit claims dating back to 2007 through 2016 for $4.4 million. The $4.4 million settlement amount is a tiny fraction of the approximately $2.3 billion of joint venture expenditures over the same period. It is unusual for these types of claims to linger and accumulate for 10 years. Under normal circumstances, these issues would have been resolved on a biannual basis with far less impact on our financial statements. Moving forward, we have procedures in place that will mitigate the chances of significant audit claims in the future, and we will work diligently with our partners to settle disputes in a timely manner. Turning to operational results for the second quarter, we had a 20% increase in sales volumes and our realized oil pricing increased by 7% to $68.62 per barrel compared to the first quarter. This allowed us to grow adjusted EBITDAX to $12.9 million and expand our cash on hand to $48.6 million at the end of the…

Thank you, Cary, and good morning, everyone. The second quarter was a busy one for us at VAALCO as we finalized our exit from Angola, settled some long-outstanding legacy joint venture audits and move forward with our London exchange listing. Our net loss of $1 million or $0.01 loss per diluted share was impacted by several special items. These include noncash deferred income tax expense of $5.9 million, a charge related to the joint venture audits of $4.4 million, unrealized derivative gains of $1.5 million and a small charge of $0.2 million related to discontinued operations. These items totaled $9 million net or $0.15 per share. As a result, adjusted net income for the second quarter of 2019 totaled $8 million or $0.13 per diluted share. This compares favorably with the adjusted net income of $0.09 per share in the first quarter of 2019. Adjusted EBITDAX totaled $12.9 million in the second quarter of 2019, up 47% compared with $8.8 million in the same period of 2018 and up 32% compared to $9.7 million in first quarter of 2019. Second quarter oil sales improved, totaling 357,000 net barrels compared to 319,000 net barrels in the same period a year ago and 297,000 net barrels in the first quarter of 2019. Our realized oil price for the second quarter of 2019 averaged $68.62 per barrel, an increase of 7% from $64.17 in the first quarter of 2019 and down 8% from $74.36 in the second quarter of 2018. In June 2018, VAALCO executed crude oil swap at a Dated Brent weighted average price of $74 per barrel for the period from and including June 2018 through June 2019 for a quantity of approximately 400,000 barrels. The final settlement for these swaps was in June 2019. Looking forward, VAALCO has crude oil…

Thanks, Liz. Our foundation is solid with our high-performing team, capacity for growth and a strong track record of operating responsibly. Over the past year, we have taken several actions to help strengthen the balance sheet and better position VAALCO for the future. We signed the PSC Extension in late 2018 at Etame, we finalized the exit from Angola that removed all of our obligations there and we reached an agreement in principle to resolve 10 years' worth of Etame joint venture owners audit claims. We have removed all debt from the balance sheet and grown cash on hand to $48.6 million. We have significant near-term and long-term upside opportunities at Etame, which we have highlighted in our investment presentation on slides 9 and 14. With all of this potential, we believe that our stock price is currently undervalued. As such, the Board approved a share buyback program in June, and we have already repurchased almost 900,000 shares of VAALCO stock. Our strong cash position and continued cash generation will enable us to execute a share buyback program, while simultaneously funding our 2019-2020 capital program from internally generated cash and cash on hand. Our focus is on profitable and accretive growth from a solid foundation. I believe that moving forward, we will create substantial value for our shareholders by growing reserves and production at Etame and building our asset portfolio through mergers and acquisitions. The outlook for VAALCO is very promising, and we are excited about the opportunities that lie ahead. Thank you, and with that, operator, we are ready to take questions.

[Operator Instructions]. The first question comes from the line of Bill Dezellem.

I have a group of questions. First of all, I would like to circle back to Slide 9 and just make sure that I'm reading this correctly, is that if we take the midpoint of your 2020 production guidance, which would be 4,600 net to VAALCO and compare that to the 3,600 net, you are looking for this drilling program to have a roughly 28% increase in your production. Is there anything that we're missing in that calculation?

And I think you got that exactly right, Bill. Thank you.

Okay. I hope that comes out according to plan or at the high end. So let me shift to your legacy issues, you cleaned up a more of those this quarter, what legacy issues still remain?

There are -- it's hard to say, Bill, because the legacy issues kind of come out from the woodwork unexpectedly, sometimes, but I am not aware of any significant legacy issues that are of the magnitude of the settling this joint venture audit with our Etame partners. And like I said, it's meaningful because it's 10 years' worth of audit claims all settled at one time. And if we had settled these routinely or an annual or biannual basis, they wouldn't have been meaningful. So anyway, I don't see anything out there that I'm aware of that's a legacy issue that could impact that would have this much impact on us.

Great. And then where are you at relative to finding a promoted interest partner for Block P and Equatorial Guinea?

Well, we are in the process of seeking a partner, of course. But what we want to do is we -- any partner that would come and join VAALCO wants to know who are the other partners in the Block. And so we're really prevented from finalizing a format agreement or obtaining a partner until the ministry has approved the transfer of interest of the states participating interest to a new joint venture owner. So once that happens, we have a group of people, there are a group of companies that we think are interested in the Block, and we will pursue them further.

And so the government is aware of who that new partner is. It's not simply a matter of them approving it? Is that what I hear...

That is -- yes, that is what I'm inferring. And to be clear, yes, the new partner has been submitted to the state for approval, the Minister of Mines and Hydrocarbons, the Minister of Mines knows who the company is that is proposing to state take over the stage participating interest, and we're just waiting on the minister to approve.

And now, is this something more than a rubber stamp process because it seems that the state oil company is the one who is providing the new partner for the state department -- Department of Energy essentially to approve. So it seems like that's left hand dealing with the right hand and that should be simple.

We would tend to agree with you, but there are other issues internally in Equatorial Guinea that I can't speak to. And so the process is taking longer than expected. But you're right, it is one branch of government making a recommendation to another branch of government, and it should be a formality, but it's just taking us longer than we expect.

Okay. And are you aware of the who the recommended new partner is? And if so, are you able to share that with the companies that you would potentially do a promoted partner interest with and secondarily, share that with us?

Well, yes, we are aware of who the company is that is proposed to take over the states participating interest. And the answer to your other questions are no, unfortunately, we are not allowed to disclose that information until the new partners approved.

And that would include disclosing it to a prospective promoter partner also?

Yes.

Okay. And then lastly, the acquisition arena, would you bring us up to speed as to what you are doing seen and what's happening with that pipeline out there, please?

Right, right. Well, like I've mentioned in other calls, we've got a group that's entirely focused, it's our new ventures group, entirely focused on M&A. They are seeing opportunities. We're not at a point where we can discuss any one of the opportunities in detail, but there are -- there is a pipeline of opportunities. We're focused in Africa. And like I've said in the past, we're going to probably look at dozens of opportunities line up a few that are of particular interest to us to hopefully get to one where we can close on a transaction. And so I want to set the right expectations that we are. We have a team dedicated to this. They are looking at numerous offers, but it's just going to take us time because we're going to go -- have to go through many, many opportunities to find the one that's accretive for VAALCO.

[Operator Instructions]. Our next question is from the line of Charlie Sharp.

I also have a little selection of questions, if I may. And firstly, it's just really going back to the legacy issue, the agreement in principle that you've struck regarding the joint venture audit. And I know that you've taken a charge in the quarter related to that. I just wonder if that's charge, is that a settled amount? Or is there perhaps room for adjustment to that in the future? And what are the final, final steps that were -- you have to accomplish on the time line for those before you are completely clear of that legacy issue?

Right, right. Charlie, I view this -- I view the $4.4 million settlement amount as the final amount. I think there is a very low probability that any of the partners will try to renegotiate that amount. And so the next steps are to -- for our partners to take the settlement agreement to their management teams, their Board of Directors and have the agreement approved. And so I believe that the next steps are just a formality. The individuals from the joint venture partners or the representatives, I should say, from our joint venture partners that negotiated the agreement, I think, negotiated in good faith to a number that their senior management will approve.

Okay. That's very good. And the time line for that. Do you envisage that over the next months or perhaps longer than that?

No, no, not longer than months. I would say, maybe I'm being optimistic, but I would say, weeks.

Okay. Excellent. And then operationally, obviously, you felt the field shut in period in Q3 and production impacted by that. And of course, also the 2 wells that are off. Firstly, on those two wells at temporation North Tchibala 2-H. Do you think those are just mechanical infrastructure issues? Or is there some subsurface risk that you've identified at the moment? And then in Q4...

Let me -- please go ahead.

Sorry, and in Q4, do you envisage those wells coming back and additional production from the new drilling contributing to the -- whatever the number is around 4,000 plus barrels per day.

Right. So let me start with your last question. In Q4, we certainly expect for our very first well to come online towards the end of the year and contribute to 2019 production. As far as the 2 wells that are shut in right now, it's -- we're still uncertain as to when those wells will come back and start producing again. And our plan is to give a production update here in the near future when we have more information regarding, for example, when the drilling rig arise, when we have certainty on that date. And so over the next few weeks or months, we will come out with more guidance on production to answer those questions. But right now, my expectation is that we will certainly have some production from a new well in 2019, and it's uncertain as to whether we will have production from the two wells that are shut in. So let me talk about very briefly the -- address your questions on the issues with the two wells that are shut in. The Etame 4-H well is a subsea well that produces via gas lift. The mechanical lease issue we have is with the subsea wellhead. And it's not a significant issue. And we can repair the wellhead. The challenge is finding the equipment and its remote operating vehicles that we can use to go and repair the wellhead. So we're sorting through that and looking for the right equipment to repair that wellbore. So it's not the Etame 4-H is certainly not a downhole issue. The North Tchibala 2-H is a Dentale well. It's one of the 2 Dentale wells we drilled back in 2015. It's a flowing well. It's flowed for nearly 4 years now. And like I mentioned, back in July, we attempted an asset stimulation on that well. The stimulation was designed to remove damage that we felt like may have occurred when we drilled the well. Once we pump the asset stimulation, the well would not kick off again, the asset stimulation fluids are heavier than the natural reservoir fluids. And so what we need to do is bringing -- again, bringing some equipment into country to go and energize the reservoir and kick the well off, so it will start flowing again. So it's -- again, it's not a downhole issue as much as we were trying to improve production from the well, and we just can't get the well to kick off again. No, there is -- like I mentioned earlier, we're monitoring the well. There is a chance that the well will kick off on its own, and we're watching that. And that would be the very best outcome. But otherwise, we need to bring in some equipment where we can energize the well and get the well flowing again. So Charlie, did that answer your questions?

Yes, that's terrific.

[Operator Instructions]. The next question comes from the line of Jamie Wilen.

First of all, just a commentary, but the clarity of the presentation and the detail on your charts on your website is truly outstanding and makes it really easy to understand where you are and where you're headed and I certainly applaud whoever is putting that together.

Thank you.

One further thing on the nonproducing wells. When you were trying to stimulate the well, you were trying to get more production out of it? And is it -- what was your goal? You're trying to fix something, but were you trying to increase the flow or just maintain it?

Trying to increase the flow. Great question, Jamie. The well was producing roughly 400,000 barrels of oil per day. We felt like that if we pump the asset, the asset would dissolve some material that had damaged the wellbore, and it was an attempt to increase production. So the well was producing -- flowing just fine at 400,000 barrels a day. But again, the attempt was, well, let's see if we can clean things up and then produce at a higher rate.

Okay. So once you have found the equipment and it's flowing again, you're still not sure whether that was successful or not, you won't know until you -- wells starts to flow.

That's correct.

Okay. A couple other little things. On the balance sheet, the payment that you have to your partners. Is that recorded on there, the potential payment?

Yes. So that is recorded in accrued liabilities on the balance sheet.

Okay. So it's lumping with everything else.

Yes.

Okay. And then with the drilling program that you have, approximately how long does it take to drill these wells, your degree of certainty as you are drilling them. And then, I guess, from the time that those -- the drilling is finished, it's a very short time to hook up to your pipeline?

It is. And that's one of the more fortunate aspects of our operations is that all of our platforms and pipeline infrastructure is in place. And so we're drilling wells from platforms. And as -- just to remind everyone, we're first in a couple of instances, we will drill an appraisal sidetrack -- or I'm sorry, an appraisal wellbore first to test some ideas and hopefully prove up additional reserves. That takes a couple of weeks and then it's probably 30 days to drill the development well to drill and complete the development well. So in general, from spud to first production is 6 to 8 weeks.

Okay. And when do you expect to have the rig in your possession, I would say?

We're hoping in September, but it could be delayed. But ..

Someone has an option on the rig that they might drill another.

Correct. We're in line behind other operators who have -- who have contracts, who sign their contracts before we signed our contract. And of course, there's a certain number of drill slots that are associated with each contract. And depending on whether other operators that are ahead of us in line, depending on whether they decide to go ahead and utilize all of their drill slots, it may delay us. And also, if they have any issues and downhole problems that extend their drilling that might delay us. But again, our best estimate is mid-September. And as soon as we have a firm date, Jamie, we will follow-up with -- and issue a press release.

Okay. And once again, just applaud, the stock buyback program, it's a great prudent use of assets. I love the way you have hedged at your program so that your cash flow is well more than sufficient to fund all these things and I love how well positioned you are for the future, nice job.

Great, great. Thank you, Jamie. I appreciate that.

And with that, we are showing no further audio questions.

All right. Well, thank you, everyone, for joining our conference call, and we look forward to speaking with you next quarter.

This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.