Good morning and welcome to the VAALCO Energy Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] Please also note that this event is being recorded today. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please go ahead, sir.

Thank you, operator. Welcome to VAALCO Energy's fourth quarter and full year 2022 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the fourth quarter and full year 2022. 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. 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 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. 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 our earnings release the presentation posted on our website and in the reports we file with the SEC, including our Form 10-K. Please note that this conference call is being recorded. Let me turn the call over to George.

Thank you, Al. Welcome to our fourth quarter and full year 2022 earnings conference call. 2022 was truly a transformational year for VAALCO that saw us generate record financial results, successfully complete multiple high-impact operational projects, close an acquisition that nearly doubled production, diversify our asset base and increase SEC proved reserves by 150%. Additionally, we implemented our first ever dividend program in 2022, paying out $9.3 million in dividends to shareholders. In 2023, we increased our dividend by 92% and approved a stock buyback program in late 2022 to further demonstrate and enhance our commitment to returning meaningful value to our shareholders. Our balance sheet remains debt-free even after we fully funded the largest capital program in our company history, that included drilling multiple wells and completely reconfiguring our Etame field infrastructure, while adding a long-lasting FSO solution that lower cost and extended the economic field life at Etame. We have a strong production base to help us generate significant cash flow moving forward to fund our dividend, buybacks, capital programs and potentially additional acquisitions where we build additional cash for the future. Before I go into more detail on these many accomplishments, let me first summarize some high-level financial and operational results that led to a record-breaking year. We grew production by over 40% year-over-year which helped us deliver record-breaking adjusted EBITDAX of $186.6 million in 2022. To put this in perspective, we generated $85.8 million in all of 2021 and $26.6 million in 2020. We fully funded a $160 million capital program with cash on hand and cash from operations. We maintained a strong debt-free balance sheet with significant cash on hand and positioned ourselves to generate meaningful free cash flow in 2023. We have positive momentum in 2023 both operationally and financially, and we are building…

Thank you, George. Let me begin by echoing George's comments about our execution on several complex operational and corporate projects simultaneously, including the closing the acquisition of TransGlobe in the fourth quarter of 2022. I am pleased with our record annual operating performance in 2022. And as we look to 2023 and beyond, we are better positioned today to execute on our strategy while adding and returning value to our shareholders. Turning to our financials. We generated an adjusted EBITDAX of $49.8 million in the fourth quarter of 2022 and a record $186.6 million in 2022. This was more than double the $85.8 million in 2021. The record adjusted EBITDAX was primarily due to sales volumes increasing by 36% year-over-year and average sales price for crude oil increasing by 34%. We've clearly benefited from higher realized oil pricing, the impact of increased production at Etame and the TransGlobe acquisition, which only contributed to financials after the closing on acquisition on October 13, 2022. These factors have allowed us to fund our strategic initiatives with cash flow and cash on hand, including our drilling and completions CapEx, FSO conversion and field reconfiguration costs as well as our quarterly dividends and our share buyback. We also reported net income of $17.8 million or $0.19 per diluted share in the fourth quarter of 2022 which included a $10.8 million gain on acquisition, a $5.3 million deferred tax expense and a $7 million in transaction costs associated with the TransGlobe combination. For the full year 2022, VAALCO reported net income of $51.9 million or $0.74 per diluted share, which included a $44.8 million deferred tax expense, $14.6 million in transaction costs associated with the TransGlobe combination, a $10.8 million gain on acquisition, $8.9 million in FPSO demobilization costs and a $5.1 million in unrealized…

Thanks, Ron. As you heard, 2022 was a very successful and transformative year for VAALCO. We completed an all-equity combination of two undervalued companies, VAALCO and TransGlobe that provides us additional size, scale, cash flow, geographical diversity and creating a more derisked portfolio. We expect our enhanced size and scale to yield meaningful cost synergies, the first tranche of which we have already captured, and we should benefit from a higher trading multiple that has accorded E&Ps with that increased market capitalization. We now have a vast resource base of organic opportunities in four countries: Gabon, Egypt, Equatorial Guinea and Canada. Our 2P CPR reserves increased 292% to 76.4 million barrels of oil equivalent and our proved reserves increased 149% to 27.9 million barrels of oil equivalent. The 2P CPR NPV 10 value at year-end 2022 is $815 million compared to our current market cap of around $500 million. We invested in drilling campaigns in Gabon, Egypt and Canada and successfully completed one of the most comprehensive and complex operational projects in nearly 20 years at Etame with the FSO conversion and full field reconfiguration. We developed and received approval for a POD from the Equatorial Guinea government for the Venus discovery at Block P and are negotiating final documents for the approval by the partners. We implemented the first ever dividend program for VAALCO that began in Q1 2022, and we nearly doubled the dividend in 2023, which paid out March 31. And while also implementing a $30 million share buyback program. And through the first six months of the program, we have returned $7.5 million to shareholders through buybacks. Our buybacks are governed by a 10-5b plan that allows us to buy shares even during blackout windows as it sets out our plan for the buybacks. We have…

We will now begin the question-and-answer session. [Operator Instructions] And our first question here will come from Stephane Foucaud with Auctus Advisors.

Thanks for the visibility on the moving part working capital. I have some follow-up on that. I'm trying to reconcile the balance sheet with some of the comments that you made, Ron. So looking at that, the balance sheet has a big foreign income tax receivable of $68 million. Is that mostly Egypt, the 50 million you talked about ranks could confirm that would be great. Then there is in the -- liability is currently $91 million, which I think is referring to accrued liabilities. I think it's mostly CapEx, but if you could confirm that, that would be great. And lastly, in the noncurrent liabilities, there are some jump in the lease, whether it's finance or operating reason? And if you could confirm why it has jumped so much? That would be great.

Hi, Stephane. Thank you for that. I can -- I'll take each one of those. Yes, the other net -- I think you're referring to -- I think it's just the way the line is on the balance sheet. It's nothing to do with foreign income taxes. That's a line above. The other net $68 million does include the backdated entitlement in the composition of that balance. As I stated on the call, that's roughly about $51 million that is within that particular balance. Looking through the accrued liabilities, there's a number of different things in there. You've got your accrued payables that is quite high at the end of the year. One, because we've taken in TransGlobe and virtually doubling the size of the company. So our accrued payables go up along with it. There's capital expenditure, which we got accruals at the end of the year that's gone out in the beginning of 2023. I think that went up about [$15 million] from where we were the previous year. You've got -- always at the end of the year, you've got a higher accrued wages and compensation costs. That's basically mechanical part in relation to the buildup of any bonuses or PTO during the year. And of course, within there, we've also got the current or the current liability for the modernization payment for Egypt, which is approximately about $10 million. So as you take those things, those are the big increases that take you up to the $91 million that we have in there in the liability section. The leases, yes. I mean we had -- we obviously had Nautipa and there is an operating lease before. It's been there for 20-plus years. The Teli was taken in. We went live with that in October. And at that point in time, it is a finance lease. That's taken into consideration that we've got a lease term of 8 years plus 2, 1-year options. When you look at that from a U.S. GAAP perspective, and we work through the standard, that becomes the right-of-use finance asset. And we have obviously both the asset and the liability to put onto the balance sheet. So that's really the main drivers and leases, you've got the operating lease for the Nautipa going off, and that was basically reducing over the last few years as it got through its contract life. And then you've got the new finance lease coming in, in the tally, which will be there for at least the 8-year period.

So as -- for my follow-up question, for the -- I'm coming back to the -- in the current liability, the $91 million. How do you split between what's account payable, which is about 60? And what would be as part of this other accrued?

Yes.

I mean that goes into account payable, doesn't it? I'm trying to understand -- let me explain where I'm coming from, trying to understand what really -- to avoid double counting when I look at the working capital between what is part of the announced CapEx guidance and OpEx guidance, and what is not, what might be carry over for last year or some payment that comes on top of the OpEx and CapEx guidance within this $91 million?

Yes. Okay. So obviously, the accounts payables in that separate section of 60 million. But to the extent that the invoices are in and we've got accruals, that's sitting with roughly between $25 million and $30 million between all of the different areas. And then you've got capital expenditure, which is again about another $25 million that's accrued CapEx down in that particular line in the Accrued Liabilities and Others. So you've got 50 million that I would say is a degree of timing. Traditionally, for us, that's been probably running about the 20 million mark in total. But again, because we've doubled -- virtually doubled in size with TransGlobe coming in, you would think that 20 million should be somewhere between 30 million and 40 million, Stephane. So I do think there's an increase overall at the end of the year. That will unwind. But I don't think it's -- it's certainly nothing to the extent that full balance is going to reverse. I would traditionally see somewhere between 30 million and 40 million Stephane in that count period-on-period. The crude wages, you're talking about $5 million or $6 million of an increase there. There will be an element of timing in Q1. Is that unwind? And then, of course, the modernization payment, as we stated earlier, it was paid by offset in Q1 by EGPC. So basically, we've settled that $10 million liability that we had against receivables that we had with EGPC. So that will definitely move out in the period. Does that help you?

Yes.

Our next question will come from Jeff Robertson with Water Tower Research.

George, you talked about incremental acquisitions. And with the TransGlobe acquisition in 2022, which added two more countries to VAALCO's portfolio with a little bit different cycle times in terms of the project lives. Can you talk maybe generally about what kind of what characteristics of an acquisition fit VAALCO in its current profile as opposed to what you might have been looking for a year ago?

Yes. That's a good question, Jeff. I mean first and foremost, the acquisition portfolio to -- for us to go and action anything, it has to be exceedingly compelling, particularly where our stock price is at the moment. And as I mentioned earlier, with a 2P reserve valuation of PV-10 of over $800 million, we've got a little bit to consider more investment in our stock buyback before we really go into a large acquisition. But part of the drive behind that and the drive behind the TransGlobe acquisition was twofold. One was diversification and derisking the revenue stream. And the second thing was the reserve base, so we have a longer life platform for the company. So the -- when we look at the opportunities that are in the market at the moment, first and foremost, unless it's in our backyard and we are going into a new country, we're looking for producing assets. We're looking for assets that will immediately start to contribute to revenue and cash flow. And in addition to that, assets that fit our skill set. Now our skill set has increased considerably since the acquisition of TransGlobe to include a lot of onshore expertise as well as shallow water offshore. And with that, similar to the driver for TransGlobe is to ensure we have a 10, 15-year life span around these reserves, so we have the longevity to report forward.

And a question, and it sounds like the answer in terms of the free cash flow profile that you mentioned, Ron, with the capital program in '23 weighted to the first half of the year in Egypt, is that imply the production benefit from that capital starts to impact second half of '23 and therefore, you have growing production and less CapEx, therefore, more free cash flow?

Yes. I would say you're definitely going to have an impact on Q1 on free cash flow with the drilling underway, and we're already seeing some tangible production from that. So what I would say to that is you're very much correct, Jeff, in modeling it that you've got a weighted part on your CapEx to the first half of the year, as we stated. So free cash flow will be impacted by that in the first half of the year and generating a lot of free cash flow from the second half of the year.

And our next question will come from Charlie Sharp with Canaccord.

Yes. Thank you, and good morning, gentlemen. Appreciate the presentation. Just a question, if I may, on the production expense. I guess two questions really on it. Firstly, I think applying the lens of 136 million to 157 million, can you give us an approximate breakdown geographically of that production expense? And then secondly on it, just looking at the production range that you've indicated, if I assume that the production expense range is related to the production range, that turns out a $18 a barrel production expense. And so I just wonder where that 16 to 20, which you highlight in the presentation, where that comes from? Is that related to production or partially related to production? Or are there other factors?

Okay, Charlie, I think I can take those. When we look at the overall guidance for the year, we assume production and sales are going to be the same for the whole year. And so most of the year, production expense a barrel of oil is actually done on a sales basis. So that's why those particular statistics look the way they are when you calculate them, it will be based on effectively the sales models. When I look at the overall composition of that full year guidance on a per barrel basis, 21 to 27, I guess I would probably point you to, to a certain extent, to the netback slide, just for confirmation of those costs. I know that they're blended in there. But when we look at the overall composition of the cost by area, the operating cost by area, by far, the majority is obviously going to still be in Gabon. I would say that that's probably somewhere between 50% and 55%, Charlie. The remaining 45%, I would basically put that to Egypt and Canada, obviously, I would wait that 40% in Egypt and the remaining part in Canada.

That's very helpful. And one small follow-up, if I may. You indicated that you've made some progress in terms of I think you described them as documentation on Equatorial Guinea and that there should be another update in Q2. Can you just say a little bit more about what that means, documentation? And in Q2, are you going to be able to give us some sort of flesh around the details of the plan as you see it at the moment to commercialize Venus at least?

Okay. Well, I can say a few things, Charlie. One is that a few weeks ago, we had some excellent meetings here in Houston with our partners and with the government, emanate. In those meetings, what we've been working on for some time is whilst we were looking at the plan of development and where we were in Q4 with that plan of development and we got the plan of development approved. We still had a number of issues outstanding in relation to the amendment to the production sharing contract with regards to equity percentages that were historically not signed off properly and one or two other issues. So we basically had two PSC amendments outstanding with the government. Both of these amendments were executed in March and allow us to move forward to then finalize amendments within the joint operating agreement between the partners, but at the moment remain outstanding, so I can't go into the details of those. But we do expect those to be executed in the very near future. When we look at the development itself, we have in Q4 of 2022 we went through a peer review of that development, essentially looking at each of the gating criteria from the long lease drilling program through to the plans of doing an extended DSP and the topside facilities. So we're currently optimizing that with the input of the peer review to improve both the efficiency of the development and the -- reduce the complexity of the development. So when we look at where we are in 2023, the majority of the work that we'll do in relation to Block P for '23 will be finalizing the studies work in coming up with the development plan as optimized. That may include looking at drilling all the wells at the same time as opposed to drilling them staggered just because the economics of moving the rig in there and leaving it there to drill the two producers in the water injector makes more sense. But -- and then looking at the top side. So we're looking at what real activity will happen in 2023, I expect we will do -- complete our seabed survey to ensure that we can locate the mop and the rig and the location that we plan. We'll finalize the construction and engineering phase and be able to then put a more detailed timeline on the development in -- towards the end of this year. It certainly is planned that when we look at the drilling program for 2024, to utilize that same unit to drill the wells for us in 2025, early '25 for the Venus development.

That's terrific.

We have time for one more guest with questions, and we will take questions from Bill Dezellem with Tieton Capital.

I have two questions. First of all, would you please discuss further your comment in the press release that you are looking and expect to deliver more synergies with TransGlobe than originally anticipated? And I guess the spirit of the question is I know you noted in -- early in the call, 5 million of savings has been achieved and you're looking for an additional 5 million with other administrative type expenses. Was that really the essence of the comment? Or was there more beyond that, that we should be thinking about?

I'll take the first part of the question, Bill, and I'll let Ron take the second part on the synergies. When we look at the expectation of further synergies, we're already -- when we look at the operating part of the business, both in Egypt and Canada, we're looking at how we improve the efficiencies of these operations. So when we look at what we've been doing at the moment through the latter part of Q4 and the majority of Q1 and the drilling campaign in Egypt, we've been reducing the time between drilling complete cycles. We, in the last -- in the last two wells, we've hit record reductions in that cycle time. So we're starting to see much more greater efficiencies when it comes to the drilling operations inside Egypt. We're applying that same methodology and with no same challenges to Canada to reduce the cycle time between drill and completion and hookup. So that allows us to have these great synergies, have the oil on production at a much earlier time and obviously becomes much more efficient for our capital spend.

Yes. Just taking the -- mainly the G&A component part of that synergies as well, Bill, I think we put on our investment deck back at the time when we were looking for the shareholder vote, that we were looking somewhere between 3 million and 5 million on the short term, we've got more than 5 million on the G&A side right away. That's really achieved on a couple of fronts. First of all, we had the situation where TransGlobe was not only listed in Toronto but listed in London, too. So we managed to combine and with the local listing we've managed to get out of those particular filings. So that saved a considerable cost. The UK office, we effectively were the TransGlobe executives were based. All those TransGlobe executives, they left the business on basically mid-January. So we got the savings that we were targeting very, very quickly. We've had a number of others in there that we've identified and worked through, including insurance costs, including the interest cost that they had on their ATB facility. There's a variety of different professional services that -- when we look at it, we're not -- we're duplicative for both businesses, and we've managed to take those out. So more than 5 already achieved. I think where we're really focusing on from a G&A point of view now is we're looking at back-office functions. We're looking at I would think we will be looking at an ERP tool in the near future so that we can get everyone on the same system rather than having three or four different systems, which we've got today. That in itself will bring efficiencies and I would say, improvements in our control process, too. So that's what we target and build for 2023.

That's helpful. And then relative to the Arta 77HC well in Egypt that you said had encountered some good sands. What's the time line to bring that on? And with the wells you are drilling in Egypt, what do you think about in terms of the -- what is a more normal production level?

Okay. The well is on clean up right now. So I can't really on the production rate until the completion of cleanup is done, but it is flowing. When we look at the changes we're making in both cycle time and production efficiencies inside Egypt. I mean I think we had Egypt going down around 10,000 barrels a day working interest towards the turn of the year. We're already seeing at least a 10% improvement in that as we come into the end of Q1 on a working interest -- sorry, on a gross basis on a gross basis. So we do start to see improvement. We are looking at how much more we can get efficiency out into the production system in Egypt. We've looked at some of the activities that they perform annually in turn emptying to the storage facility, and we're looking at moving these quarterly to reduce these cycles that we see traditionally in Q3. So -- and I think we're starting to see benefits from that. When we look at the relationship between the company and its joint venture partner in EGPC, we're seeing considerable improvements there in cooperation. And again, in how we execute the program. So I think we're still very hopeful that we can continue to improve the efficiencies in Egypt. It is one of our key focuses. You heard Ron talked earlier about the cash situation and how we've been managing that in Egypt. We are -- we've seen other operators make statements around Egypt and the cash position as regard to the difficulties in liquidity that, that country is going through. We keep a very close focus on that and a very close dialogue. We will -- as long as the operation and the interaction with our partners remains as it is at the moment, we will continue to make the improvements and make the investments.

That's helpful. And then my final question is that you spent -- got a fair amount of time in multiple components of your opening remarks or your prepared remarks referencing VAALCO being undervalued. With that being said, what do you think investors are missing, whether it be relative to the TransGlobe acquisition or in total today that's leading to that lack of favorable valuation?

That's a good question. I mean, as we've discussed in the past, traditionally, in either the London market or the New York market, West African or an African-focused producer always trades at a discount. But the level of discount is what we need to discuss. What's the market missing? Well, I think we've made a big step towards giving the market the confidence with the value issues today because what the market may have been missing and it's a number of questions have come from the analysts both in London and here in the United States, its longevity. Where are the reserves? Where is the position that goes two, three, four years out? That we can invest in that gives you suture to cash flow. The TransGlobe acquisition, in addition to the position we have in Gabon, provides that surety. The development that we've went forward with in Equatorial Guinea that gives us that forward-looking position. It puts -- it puts a lot more value into our balance sheet in 2022 through Equatorial Guinea through the acquisition than has ever been there before. And I think the market is missing that at the moment. We continue -- from the numbers we've guided to for 2023, we're guiding to a significant number in revenue and production which will lead itself to a significant number in EBITDAX that we don't guide to, but people can work that out. So I think once the analysts sit down and run that equation, and you say that you're basically running at sometimes less than 2x EBITDAX, then we're looking for that step change in value as we continue to emphasize these values are on our balance sheet.

Great. Thank you both. And have a good weekend.

And this concludes our question-and-answer session. I'd like to turn the conference back over to George Maxwell for any closing remarks.

Thank you. I'd like to thank everyone for listening into our delayed 2022 earnings call. It's hopefully, from the listeners that we've managed to put a lot more color around our Q4 and 2022 activities and also put some color around where we see 2023 and some of the questions we've been asked have assisted in us given the ability to emphasize that point. I think the company has clearly transformed. I think when you look at the numbers that we talked about today, particularly with regard to our ability for cash flow generation, our ability the reserve base and the company for future value, our ability in utilizing that cash and delivering significant value back to shareholders, not just in the potential for capital appreciation for the stock, but also in dividends and buybacks. You heard me state in the closing remarks that we will also look at the opportunity to continue and perhaps accelerate that buyback position as soon as the company comes out of its blackout period, which will be sometime in May with regard to our Q1 results. Again, the commitment is there to continue to do that. Well, the stock price clearly is in a depressed state versus the value that we've been talking about that contained in our balance sheet. So I thank everyone for listening today. As I say at the end of every call, for every shareholder, if they want to get in touch with Al or Chris and want to have a follow-up conversation with management. We're always willing and able to do that. Thank you very much.

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