Good day, and welcome to the VAALCO Energy Year End 2021 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to VAALCO Energy's Fourth Quarter and Full Year 2021 Conference Call. After I cover the forward-looking statements, George Maxwell, our CEO will review key highlights along with operational results. Ron Bain, our CFO will then provide a more in-depth financial review. George will then return for more closing comments before we take your questions. [Operator Instructions] I'd like to point out that we posted a Q4 2021supplemmental investor 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 filed with the Securities Exchange Commission, including our Form 10-K. Please note, this call is being recorded. Let me turn the call over to George.

Thank you, Al. Good morning, everyone. And welcome to our fourth quarter and full year 2021 earnings conference call. Our ability to execute on our strategic vision is evident in our 2021 operational and financial results. This past year was one of the best in VAALCO’s history and 2022 could be an even better one. Production in 2021 was up by almost 50% over 2020 driven by the acquisition of Sasol’s working interest at Etame in February 2021. In June, we secured a charter break for the 2021, 2022 drilling campaign, which began in December. Our first well was a development well, the Etame 8H-ST, which was highly successful came online in February and exceeded our internal forecasts. We then move the rig from the Etame platform to the Avouma platform and are currently drilling the Avouma 3H-ST development well. In August, we finalized an agreement with World Carrier for a new FSO solution that costs almost 50% less than the current FPSO and will reduce our overall cost by approximately 17% to 20%. Thus allowing us to extend the economic life at Etame while increasing our margins and profitability. We successfully performed two work overs in September and October, which resulted in an increase to production of approximately 1,050 barrels of oil per day gross or 540 barrels of oil per day net to VAALCO. In October, we were provisionally awarded two offshore blocks as part of a consortium with BW Energy and Panoro Energy adjacent to establish development fields at Etame and Dussafu. We also moving forward with a standalone field development concept of the Venus Discovery at Block P in Equatorial Guinea. In November, we announced our board established a quarterly cash dividend policy to return cash to our shareholders and we are paying our first quarterly…

Thank you, George. And good morning, everyone. As you can see from our accomplishments that George reviewed 2021 was a pivotal year for VAALCO and we're in a very good position both operationally and financially for 2022 and the future. Our earnings release included detailed financial information for both the fourth quarter and the full year 2021. So I will focus on just some highlights in addition to providing forward guidance. We reported net income of $34.4 million or $0.58 per diluted share for the fourth quarter of 2021, which compared favorably with a net income of $31.7 million or $0.53 per diluted share in the third quarter of 2021 and a loss of $3.6 million or $0.06 per diluted share in the fourth quarter of 2020. The fourth quarter of 2021 reflected stronger revenue due to the increased sales in the quarter, higher realized pricing and the non-cash deferred tax benefit compared with the fourth quarter of 2020. The fourth quarter of 2021 included $16.1 million non-cash deferred tax benefit, partially offset by a $1.8 million loss on derivative instruments. For the full year of 2021, we reported net income of $81.8 million or $1.57 per diluted share, compared with a loss of $48.2 million or $0.83 per diluted share in the year 2020. The year-over-year increase is primarily the result of increased sales, higher oil pricing and a change in deferred taxes of $66.6 million. Deferred taxes in 2020 was an expense of $24.2 million and is a benefit of $42.4 million in 2021. Also in 2020, there was a $30.6 million impairment charge to crude oil properties as a result of lower oil prices at that time. Our adjusted EBITDA totaled $22.6 million in the fourth quarter of 2021, a slight decrease compared with $23.3 million in…

Thanks Ron. The future remains very bright for VAALCO and this is a very dynamic time in our energy industry. We are accretively growing production and cash flow through organic drilling and continue to evaluate additional opportunities with a focus on providing sustainable returns to shareholders. We have a strong asset base at Etame that is generating meaningful free cash flow and adjusted EBITDAX even more so in the current pricing environment which enhances our financial flexibility and allows us to return cash to shareholders through a quarterly dividends. We forecast our 2021-2022 drilling program under FSO conversion at Etame will be fully funded by cash on hand and internally generated cash flow. We have already seen the first results of a drilling campaign with the Etame 8H-ST well exceeding your our expectations. And the FSO conversion is on schedule, both of which will enhance our ability to generate additional cash flows in 2022 and beyond. We have completed a drilling feasibility study for the standalone development of the Venus Discovery of Block P in Equatorial Guinea. And we're moving forward now with the field development concept. We're negotiating the PSC term with the Gabon’s government on the new blocks in Gabon that we were awarded in Q4 2021. As part of the consortium with BW Energy and Panoro Energy. The blocks are adjacent to our existing Etame field and we believe they hold tremendous potential to help us establish sustainable long-term production in Gabon. Etame, Block P and potentially now the new blocks in Gabon can enhance our business and provide a strong platform for organic growth, allowing VAALCO to build size and scale in West Africa. We believe that with a strong cash position and our increasing size and scale, we can evaluate and more easily incorporate accretive acquisitions that meet our stringent investment criteria and strategic vision. Finally, as part of our value creation strategy moving forward, we will be paying our first quarterly dividend later this month. We believe that prudently returning cash to shareholders is a great way to complement our accretive growth strategy. As you can see, we are firmly focused on ways to increase total shareholder return and operating with the highest regards towards ESG, where we execute on our strategic objectives in 2022 focused on sustainable and accretive growth. Thank you. And with that, operator, we're ready to take questions.

[Operator Instructions] Our first question comes from John White from ROTH Capital.

Good morning, gentlemen. Or good afternoon, whatever the case may be, I don't know if you're in Houston or London. Your production expense guidance for 2022 is quite a bit lower than I had been projecting. And as you detailed on the call, I guess a good portion of that is due to your new FSO.

John, that's perfectly correct. I mean, in Q4 of 2022, we get the benefit of the FSO coming in. And we've guided to the reduction when we were taking about 50% of our costs. So with regards to the FSO versus the FPSO. And I think the range is 17% to 20% in overall production expense. So yes, it's great news.

Yes, very encouraging. On Gabon, the new blocks, G and H, have you started shooting seismic there?

No, we haven't, John. And right now we're still in along with our partners within commercial discussions with the DGH on the term surrounding the PSC. Obviously, the way this works as you're aware, we make a bid. And we bid to own this signature bonus when we bid the commercial terms the government then review that bid and conditionally award, as we announced last quarter. And that conditional award is subject to successful negotiations through both the signature bonus and the terms and we've been working through that in Q1. So seismic, just to remind everyone that commitments on well that we bid is basically one exploration well per block, one on G and one on H and on some of the part of the block there, we have some seismic coverage from previous times in this area. But we hope to conclude these negotiations in the coming weeks.

Yes, good luck on those. On the Equatorial Guinea, what a little more color on what stage you're in there. Is that still geologic evaluation?

No, we're well beyond geological evaluation. We are well beyond well design. And we're well beyond the proof of development. We have a position where draft documentation and [Indiscernible] to the MMH with EG which I guess anticipate and hopefully within Q1 but certainly early Q2.

Of 2022?

Absolutely.

The next question comes from Charlie Sharp from Canaccord.

Thank you very much and good afternoon, gentlemen, and thanks for taking my question. Two, if I may. Firstly, in the past, you've provided indications of contingent resources. I just wonder, can you outline for me again, what the contingent resource potential is and how you would see converting that to reserves? And in due course, to cash flow? That's one question. And then second is a bit more general, really, given where the oil price has moved to what sort of pricing to sellers of the sort of assets that you might be interested in? What are they looking for? Have they shifted the goalposts with the current oil price change?

I don't like the second question. But the first question, let me address the first question. So yes, of course, no, we're looking for movement of contingent resource into reserves. And clearly, as you see what we're trying to do in Equatorial Guinea, I get to the slide that we put on Equatorial Guinea, to gross position of 23 million to 24 million barrels of contingent resource now, that particular position to reserves we need to get the POD approval from the MMH. And whilst we won't be able to secure all of those as reserves, we'll certainly be able to secure a large proportion of that 2C position into 1P crude. But not for SEC purposes. When we look at and that's a key message I think for Equatorial Guinea, because this can be achieved without the drill bit because a wells are already been drilled. Now, when we look at Etame and then the key area there is twofold. One is looking at where opportunities for contingent resources exist in our existing drilling program. And the majority of a drilling program at the moment is converting 2P into 1P. We have some opportunities to do some pilot positions and perhaps something a little slightly different within the subsequent two to three wells that we still have to drill that may give rise to proving off some of that contingent resource. But the majority of the contingent resource that resides around the time it will fall into our Phase3 drilling program in 2023. On the second question, of course, we continue to look for accretive opportunities that makes and fit to our strategic vision of how we can be more meaningful within West Africa, our focused area of operation, anyone who is disposing of assets in West Africa, and in the press has been quite speculative about the assets that are available and who's looking at them and who's going to be successful in getting them, we have to be realistic, and the price point that we're willing to look at assets, and the price point of which the existing owners are looking to exit. And I think in reality, holders of assets who are looking to divest, take a reasonably pragmatic view, they're not looking at the top of the curve, because the top of the curve for selling an asset is never achievable. Similarly, as a buyer or a potential buyer, no one buys at the top of the curve. So there's always a meeting point where we run our economics and we run a reasonableness check as to where we would find value. And we, again, we kind of guide a little bit to where our thinking is. And when we look at the indicative numbers, we put in a slide deck around bout the $75.50 to $75 level you can see where we run our numbers and where we sell check the positions.

The next question comes from Stephane Foucaud from Auctus.

Yes, good afternoon, guys. Thanks as well for taking my question. I've got a few, the first now in quite detail, the first one is around OpEx. So once the FSO is completely on, if we look at 2023, could you give a split on what fixed income of millions of dollars per year? And what drivable income of dollar per barrel? That's my first question. So millions of dollars fixed and [Indiscernible] drivable on top of CapEx. Then, if we look at as well as in 2023, assess during programming starting, so how should we think about production in 2023 directionally and in CapEx? And lastly, it seems that EG things are accelerating, when will you expect CapEx spending to start? Thank you.

Stephane, it’s Ron, I'll take the first part of the question there in relation to looking at 2023. I think a good slide to go through in our supplemental deck is slide 13, which looks at the netbacks. And specifically why we put that one on there, in relation to Q4 is, is Q4 is the first quarter where we got the FSO fully up and running in 2022. And we've done that it is $75 per barrel oil and you can see the netback at $75 per barrel oil we got $47 coming through and basically free cash flow before CapEx, and you'll see that the production expense is running at just under $16 per barrel. And as you know, generally our fixed costs basis, sorry, our cost basis is about 90% fixed. So you can get some guidance from that fourth quarter to extrapolate out into 2023. What I would say, [Indiscernible] pointed out that slide and in relation to 2022, it's $75 oil, we will double our EBITDA, adjusted EBITDA that we had in 2021.

That's clear, thank you.

Hi, Stephane, it’s George. So around 2023 drilling program, part of the drilling program in 2023, is interdependent on the results of 2021-2022. And so and we look at the potential program in 2023, one of the objectives we've been looking, since we revise the strategy is to try and get to a multiple year drilling program to maintain a plateau of production rather than having a cyclical position, especially when we've got higher oil prices with the mantra we need to get the oil lay to the ground as early as possible. So when we look at how we should guide CapEx, I mean, we will be looking at perhaps a two to three well program potentially, and in starting Q3, 2023. The first question someone will ask me is well, why Q3, well, there's a number of issues, we need to know the results from the 2021-2022 program, we need to continue with the evaluation of the reprocessed and updated seismic analysis. So we make sure we're hitting the highs that we see. And thirdly, we then have well design and long lead items that we have to then place which will take anything from 9 to 12 months for delivery. So that program is there. So if we guide for Q3 2023, you can allow a CapEx of perhaps two wells in that program before we move into 2024. With regard to EG capex, at the moment, we do have some contingent CapEx for EG subject to the POD being approved by the MMH in Equatorial Guinea, it's very, very small. It's a gross number of about $7 million this year that we've got contingent, the real spend will start in 2023. We will start to procure long lead items for a planned 2024 well, and in 2023, even the long lead items which are going to be gross between $10 million and $15 million

Great. Thank you. And so therefore, back on Gabon, is that be fair to take therefore, rationally flattish production from what you say? With declined being offset by the three well campaign of 2023.

That's exactly the strategy. We will be looking to continue, have a continuous program that creates that plateau and arrest decline. I mean, the assets we have through both the -- through Gamba and Dentale, we think there's opportunities to get ourselves to a plateau and hold it there. Particularly maximize the utilization of the olage that we have in field.

Thank you, and as a follow on EG, so there won't be any development until that first well in 2024 is being drilled, that's what you're saying.

Yes, that's the plan right now. Of course, there are always opportunities to accelerate that. But right now the plan is and the submission for the plan that we're discussing with the partners is the plan to 2024 development well an additional pilot well that will come off of that.

The next question comes from Kenneth Pounds from Castleberry Advisory.

Hello, good morning. Kind of like little more clarification. And you said there could be results on the second well in the coming weeks. Is there a timeline for when that could potentially go on production? And then what's the timeline for the third well on the program?

Yes, the second well, no, we're currently drilling ahead on the second well, so we expect probably to get to TT in the next three weeks. And then once the evaluation completion so within the next four to five weeks, we should have that well on production and immediately after that wells up and running, the rig will remain on the Avouma platform and moved towards the third well. And because there's no rig move involved, it will simultaneously just move over to the next slot and begin drilling.

Okay, so what would be the timeline potentially if that well went well to two or three months or four months after the second one comes on production?

The second well, it would be at least two months after the second well.

Okay. And you talked about the FPSO coming on, will that basically fulfill all your needs for the new production that will be coming on in the summer and the fall?

Yes, I mean, the FSO is really the key position here inside the field is processing olage, the FSOs going to purely be storage, but it does provide us is the opportunity to enhance the storage capacity, which allows us to do larger liftings. And therefore, higher economic returns with the larger liftings. So the olage around the plot and in the field is between 26,000 to 28,000 barrels per day. But like I say the FSOs is greatly reducing operating costs and enhancing our ability to have greater storage. So avoiding a position of what we call tank tops in the field where we have to shut down because the capacity of storage has been reached. So that will avoid that risk.

We had bottlenecks before for sure. So this basically could eliminate any bottlenecks for the next several years.

Definitely, this will definitely eliminate those bottlenecks, we will be able to cushion any environmental impact that sometimes occurs with trying to load a tanker without having to impact production.

Our next question comes from Richard Dearnley from Longport Partners.

Good morning. Is my calculation that you're going to exit, the exit rate for this quarter is around 8,300 barrels a day?

I mean, it couldn't go back to the guidance and reboot for Q1 on the sheet, just pulling off that guidance. Basically, our production guidance from a net revenue interest is basically 8,000 to 8,300. So if you look at the midpoint of that, it's 8,150.

Okay, thank you.

The exit will be slightly higher. Exit will be slightly higher but that's the average for the period.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to George Maxwell for any closing remarks.

Thank you very much. I think it's, we've spent a lot of time and listening to Ron and I talk about 2021 and the prospects for 2022. You can see that activity inside the company has increased tremendously both from our drilling activity, our production activity, our infield activities to make our opportunities more efficient and therefore take advantage of higher oil prices and greater netbacks. The future in 2022 and beyond as we outlined what we are planning in Etame for a potential Phase 3 drilling program and the opportunities inside Equatorial Guinea as we expand the opportunities in West Africa make it a very, very exciting time. So I would like to thank everyone for participating in the call. I think the 2022 with the position of commodity prices, and we have the double whammy opportunity of higher commodity prices, slightly lower our cost base makes a very exciting time for us. Thank you very much.

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