Good day and welcome to the VAALCO Energy, Inc. Fourth Quarter and Year End 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to your host today Al Petrie, Investor Relations Coordinator. Please go ahead, sir.

Thank you, Keith. Good morning everyone, and welcome to VAALCO Energy's fourth quarter and full year 2019 Conference Call. After I cover the forward-looking statements, Cary Bounds, our Chief Executive Officer, will review key highlights 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 re-enter 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 we posted on our website this morning and in the reports we file with the SEC, including the 10-K that was filed yesterday. Please note that this conference call is being recorded. And let me turn it over to Cary.

Thank you, Al. Good morning everyone, and welcome to our fourth quarter and year end 2019 earnings conference call. Before I discuss our results, I would like to reflect on a number of significant accomplishments we achieved over the past several years. In 2018, we were able to pay off all of our outstanding debt and start building our cash position to fund a drilling program. Also in 2018, we were able to negotiate a PSC extension of up to 20 years that provided VAALCO the runway to maximize value grow reserves and increase production from our world-class Etame asset offshore Gabon. In the first half of 2019, we were able to remove financial risk and uncertainty by completing a settlement agreement with Sonangol to exit Angola with no outstanding liabilities and obligations for VAALCO. On September 26, 2019, we began trading on the London Stock Exchange, which complements our listing on the New York Stock Exchange by providing us the opportunity to diversify our shareholder base, attract additional research coverage and provide VAALCO with access to additional sources of capital to help fund our growth objectives. Also in September of last year, we kicked off our 2019, 2020 drilling campaign by drilling the Etame 9P appraisal wellbore. This was the first step in the drilling program, which has thus far resulted in two successful appraisal wells to develop the wells that are exceeding production expectations and another development well that should be adding production when it is completed and brought online later this month. As a result of our operational excellence, we have increased production meaningfully since the third quarter of 2019 and we expect 2020 production to be approximately 35% higher than our actual 2019 average production rate. I would like to thank all of our employees and…

Thank you and good morning everyone. As Cary mentioned, we have accomplished many things over the past 18 months with strong operational results from our 2019/2020 Drilling Campaign that should support our 2020 financial results. In the fourth quarter of 2019, we reported net income of $1 million or $0.02 per diluted share. This included the impact from a non-cash charge of $3.1 million or $0.05 per diluted share for mark-to-market loss related to our crude oil swaps, a non-cash expense for stock-based compensation of 0.7 million or $0.01 per diluted share and a 1.7 million or $0.03 per diluted share tax benefit related to the decrease in the valuation allowance on deferred tax assets. Adjusted net income for the fourth quarter of 2019 totaled 5.5 million or $0.09 per diluted share after adding back the 3.1 million in non-cash mark-to-market losses related to the swaps and non-cash deferred income tax expense of 1.8 million, and excluding a small gain of 0.4 million. For the full year of 2019, net income was 2.6 million or $0.04 per diluted share. This was primarily impacted by non-cash expense of 14.5 million or $0.24 per diluted share related to deferred income tax expense, a $4.4 million or $0.07 per diluted share charge related to the resolution of a legacy issue related to [Etame joint venture] owners audit findings for the periods from 2007 through 2016, and a non-cash expense of 2.9 million or $0.05 per diluted share related to unrealized losses on crude oil swabs. These were partially offset by a $5.4 million gain or $0.09 per diluted share net of tax related to discontinued operations, excluding the net impact of these items, as well as a small gain which to total 16.0 million, adjusted net income for the full year 2019 was…

Thanks Liz. Over the past several years, we have worked diligently to strengthen our financial position and create opportunities for growth. In 2019, we made considerable progress towards our strategic objectives and have built a solid foundation for the future. VAALCO has a strong producing asset with significant upside in Gabon. We expect to generate solid operational cash flow in 2020 with the additional production from our successful Drilling Program. We will continue to make efforts to repeat similar drilling programs and continue adding reserves and production over the next several years. Our 2020 production guidance is 35% higher than our 2019 full year production average. This should help drive the increased sales and with our low variable cost should lead to increasing margins. With the clean balance sheet that is debt free and over $45 million in cash on hand at year end, we have flexibility for the future. We will continue to carefully manage the aspects of our business that impact our ability to generate cash flow. Thank you, and with that operator, we are ready to take questions.

Thank you. [Operator Instructions] And the first question comes from John Wright with Roth Capital.

Good morning.

Good morning, John.

Maybe I missed at detail, but is there a common thread on – sounds like there has been a number of ESP issues there, is there an element in common among those?

No, there is not. We replaced an ESP that had failed in the Etame 10H workover that was back in December. That ESP had run for 4.5, a little over 4.5 years and that is the design line for the ESP sold that was not unexpected and then yes you picked up that we had an ESP fail over the weekend recently at Southeast Etame 2H again that ESP had run for over 4.5 years and that’s the design life. So, that was not unexpected, in fact we were planning already to replace the ESP and just failed a few days before the rig got there. So, none of this is alarming to us, it’s all part of our plans.

Impressive and your recent drilling activities, congratulations on those efforts.

Thank you, John.

Thank you.

Thank you. And the next question comes from Bill Dezellem with Tieton Capital.

Thank you. At the end of Liz's remarks [indiscernible] evaluating ways that you can reduce cost would you talk about kind of what you see that you can do to cut cost in 2020, and can do [indiscernible] what will be the implications to production this year and next year?

Right, Bill I want to be sure I understand your question and so I think your first question is in regards to looking at ways to manage our cost in 2020 and certainly in-light of the recent drop in oil prices that is a focus? And then the second question was, and what impact will that have on production? Did I understand your questions correctly?

Yes. And there actually was a certain question in there really differentiating between what you can do to reduce cost and what you likely would do, there may be some more draconian measures that you'll choose not to take this early in the year depending on your conviction of OPEC, OPEC score I mentioned and price just staying low for an extended period of time. So, you’re trying to address that difference between could do and likely will do?

Right. Well, there, I will stay there – you know when we look at our cost, we look at projects that are operational focused. In another words projects that we want to implement offshore income born in Gabon AND so there are some non-discretionary projects that we will undertake this year and it goes to one of your questions that these projects are nondiscretionary because they help us sustain production and so that’s things like improving the control systems on our platforms offshore for example and so we have $2 million to $3 million of costs related to projects that help us sustain production. Now, we’ve looked at other projects where the events where we’re planning or preparing for the next drilling program, those projects are discretionary and so as we think about the timing of the next drilling program, we may defer those costs, and among those projects, I should say, and save those costs. So anyway, we will not sacrifice production for the sake of lowering cost and our cost structure is very low already [indiscernible] really go to supporting the next Drilling Campaign, we may push goes out depending on what we decide on the timing of the next campaign. Bill, does that answer your question?

It does. And so if you are – I’ll do a follow-up now, if you were to delay those discretionary costs in anticipation or preparation for the next Drilling Program, does that imply that the drilling program would be delayed just because there is a natural timeline to these things or would it potentially compress the timeline if you chose at a later time to do this in the next drilling program as scheduled?

[Indiscernible] preparation work and so we still have a lot of flexibility on when we start the next campaign.

Great. And I’ll do one final question and step back in queue. How late or how long can you delay those discretionary costs in preparation for the next Drilling Campaign and still be able to do the next campaign on the original timeline?

Oh, I would say 4 months to 6 months, something like that.

Great. Thank you.

Thank you. And the next question comes from Charlie Sharp of Canaccord Genuity.

A couple of questions, if I may. One is related to costs again. And the other one is really related to reservoir performance and how you see that shaping up. The cost question is actually related to the oil price and the FPSO charter. And I think you have the FPSO charter until late 2022. I just wondered on where the oil price has gone to? Is now an opportune time to start negotiations on an extension for the FPSO – Sorry, I wonder if that was a good time to start negotiations on an extension to the FPSO lease given where the oil price is, that might be on advantageous? And then the second very quick point is or question is given that the 9H and 11H wells on Etame came in about twice what you were initially expecting in terms of production rate. Has that changed your overall view of the future potential of well recovery and the number of wells that might be needed on a license to recover all the potential resources?

Right. Thank you, Charlie. So, let me answer your first question on costs and in particular the FPSO and you were correct, we have the FPSO under contract through September 2022 and we are in discussions with the owner operator of the FPSO which is BW offshore on either extending that or potentially extending that contract, but even renegotiating the contract now because and it’s driven, you’re correct, it’s driven by this is an opportune time we agree, but if we keep, if we decide to keep the Nautipa FPSO, the FPSO we have today on station in another 10 or 20 years we need to start investing in life extension work, and so that work needs to be done ahead of the contract exploration. So that means we’re actually renegotiating, I'm sorry negotiating a new contract to extend the FPSO on station like I said for another 10 years to 20 years. Those conversations are going on now and so our options are extend the contract for the existing FPSO or replace the FPSO. So, we are also talking to other FPSO providers as well. And then to your second question on reservoir performance, yes the Etame 9H and Etame 11H wells are exceeding expectations. Those wells were positioned at the top of the reservoir in the Etame field and I congratulate our subsurface team, they picked fantastic locations for those wells, but right now we see that particular reservoir as fully developed and so the way I think about it is, you know our team has demonstrated their ability to choose very prolific locations to drill wells and so that’s what we’re working on right now as looking at other areas on the license where they can repeat that process, but in that particular reservoir we think that reservoir is fully developed, and so the team is focused, the subsurface team is focused on other areas on the license like the Southeast Etame step-out area and looking, you know as soon as we have results from our new well though, plug those into their models and interpretations and hopefully find some fantastic locations to drill.

That was great. Thank you very much.

Thank you, Charlie.

Thank you. [Operator Instructions] And the next question comes from Jamie Wilen with Wilen Management.

Cary following up on the FPSO, with the increased volume that we have, are we coming up on any capacity constraints within that?

We have, in terms of processing capacity, we have processing capacity up to 25,000 barrels a day. I hope we hit that constraint. We have not hit that constrain yet, but so we have plenty of processing capacity right now and on the storage we have plenty of storage as well and we’re timing our lifting so that we don't run out of storage. So, right now everything is operating effectively and we do have plenty of capacity.

Okay. On the Southeastern Etame 2H workover that’s off-line now and you’re – the rig is there, when would you expect that to be back online?

Towards the end of the month Jamie .We expect the Southeast Etame 2H to be back online.

Okay. And with Equatorial Guinea you talk about, you’ve got a memorandum of understanding, but not a full agreement, you basically have you negotiated the terms with Levene and then just awaiting the government's approval and that’s one question, but secondly, what’s holding up the government's approval from allowing everyone to move forward since it’s in their best interest to gain an additional drilling and potential tax base?

So, let me answer the first question on the agreements with Levene, yes we have agreed to the terms, but we’re finalizing the detailed agreements with Levene and that work is in progress, but in parallel you’re right, we’re finalizing amendment to our PSC that would allow Levene to come into the Block P license and allow us to transfer some of our ownership to Levene. Now, in terms of the government proving the documents, I really can't speak to what’s delaying the process, I do know that we’re in constant communication with the government and in fact the hydrocarbons minister had planned to come to Houston, but unfortunately cancelled his trip in light of the coronavirus, but so that was unfortunate, but anyway we are in communication with them. They are talking to us, we’re setting up meetings and so I expect something to happen fairly soon.

Okay. And then once again congratulations on developing a well-defined strategic plan, both operationally and financially, and really executing it in a very fine manner. We appreciate that to shareholders. Thank you.

Alright. Thank you, Jamie.

Thank you. And the next question is a follow-up with Bill Dezellem with Tieton Capital.

Thank you. The last questioner covered it.

Okay. Thank you, Bill.

And this does conclude our question-and-answer session. At this time, I would like to turn the conference to Cary Bounds, CEO for any closing comments.

Yes. I would just like to thank everyone for joining us today and enjoy the rest of your day. Goodbye for now.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.