Good day. And welcome to the VAALCO Energy Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [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 third quarter 2023 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 summary financial review. George will then return for some closing comments before we take your questions. Thor Pruckl, our Chief Operating Officer is also with us today and will be available for Q&A. 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 a third quarter 2023 supplemental 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 filed with the SEC, including our Form 10-K. Please note that this conference call is being recorded. And let me now turn the call over to George.

Thank you, Al. Good morning, everyone. And welcome to our third quarter 2023 earnings conference call. I am very pleased with our ability to deliver exceptional operational and financial results in 2023, exceeding our guidance and expectations following the TransGlobe combination that occurred a year ago. Our focus has been on optimizing production, managing our costs, capturing operational and cost synergies, all while executing capital drilling campaigns to enhance profitability and growth. Through the execution of this strategy, we have significantly grown our cash position even while fully funding our capital program, shareholder dividends and buybacks, all while remaining bank debt free. We are generating the growth in adjusted EBITDAX and cash that will allow us to fund exciting future projects across our diverse portfolio of high returning assets. We paid our third quarter dividend and announced a fourth quarter dividend, fulfilling the commitment we made to nearly double the dividend that we paid in 2022. Additionally, to-date, we have returned over $20 million through a share buyback program since November 2022 and this program is ongoing. I would now like to point out some key highlights and accomplishments for the third quarter. We are at the high level of our production guidance with 18,844 NRI barrels of oil equivalent per day or 24,430 on a working interest basis. This was driven by record production levels in Egypt from our successful drilling program, as well as high operational uptime in Gabon. As a reminder, we have not drilled any new wells in Gabon since 2022, but our commitment to operational excellence and the new FSO have helped to minimize decline and maintain production uptime at high levels in 2023. You can clearly see how we have grown when you compare third quarter production this year with third quarter production last…

Thank you, George, and good morning, everyone. Let me begin by echoing George’s comments about our continued strong operational performance as we execute our strategic plan. With our growing cash position of over $100 million and a clean balance sheet, we are much better positioned today with a growing and diversified asset base than ever before in VAALCO’s history. I will provide some insight into the drivers for our financial results and rather than repeating what you can read in the earnings release or 10-Q, I will focus on the key points. Let’s begin with production and sales, which, along with realized pricing, drives our revenue. Production for the third quarter was indeed strong, at the high end of our guidance with our sales for the quarter also at the higher end of our guidance. The production performance of our assets remains solid, both with the new wells drilled in 2023 in Egypt and Canada, and a resting decline in Gabon through operating efficiencies. With a diversified portfolio of assets, we will have changes from quarter-to-quarter in the mix of sales from each of our producing areas. In the second quarter, we had a greater weighting to Gabon, but in the third quarter we had more sales in Egypt. This change in mix impacts our realized pricing and ultimately our revenue and earnings. We had nearly identical total sales volumes quarter-over-quarter and overall realized pricing increased from the second quarter, but our revenues were only up $7 million over the second quarter, because the additional sales occurred in Egypt, where our price realizations are lower primarily because of the sulfur content of the oil. As we noted, we had a lifting occur in the first week of October in Gabon and this did not fall into the third quarter, but…

Thanks, Ron. As you have heard this morning, we continue to have success in 2023 driven by strong production performance, we believe that we are very well positioned to continue building cash as we head into 2024. We have generated $183 million in adjusted EBITDAX year-to-date, up 34% over the first nine months of 2022, while funding all of our CapEx, quarterly dividends and share buybacks with cash flow and cash on hand. We ended the third quarter with over $100 million in cash on hand and with minimal projected CapEx costs in the fourth quarter, we expect to continue to grow our cash position in the fourth quarter. While our realized commodity pricing in 2023 has been lower than in 2022, we have seen strengthening pricing in the second half of this year. In addition, our ability to capture synergies, enhance production and increase margins have positively impacted our 2023 results to-date and position VAALCO very well for the future. We have delivered on our commitment to the market and to our shareholders, and we are in an enviable financial position with no bank debt and a growing cash balance. Our strategy remains unchanged, operate efficiently, invest prudently, maximize our asset base and look for accretive opportunities. In addition to funding our capital program and our growing cash position, we have remained focused on returning value to our shareholders. In 2023, we nearly doubled our quarterly dividend and have paid or announced all four quarterly dividends for 2023 at an increased rate. We are delivering the $0.25 per share annual dividend for the 2023 that we promised last year, which at our current share price is a yield of nearly 6%. We have continued to repurchase common shares through the buyback program approved in 2022. Since the inception of…

[Operator Instructions] The first question today comes from Stephane Foucaud with Auctus Advisors. Please go ahead.

Yes. Hi, guys. Thanks for taking my question. I was wondering whether you could provide -- is there any update worthwhile to give about Equatorial Guinea and where you are with regard to Venus and so forth? Thank you.

Good afternoon, Stephane. Yes. Of course, we have been continuing the progress on the discussions on Block P. In the last -- during Q3, the companies had a number of meetings, both with the MMH and the Minister and with their partners. So, as I mentioned in previous quarters, I think, from our position, we have got a trajectory to move this project forward, particularly into feed for 2024 to review both the capital spend and the execution profile that we have in the plan of development. We are working closely with our partners to align their desires with what we are trying to do in Block P. But as I stated previously, we are still outstanding at least one signature on the GOE and it’s not prudent for us to move forward and commit funds and spend money when we don’t have alignment. That just will potentially lead us towards a dispute in the future. I will say that the discussions we had with our partners as early as just two weeks ago have been fruitful and we look forward to a successful outcome of those discussions and be able to confirm the move forward on this project at the next call.

Thank you. Great. And it’s not exactly a follow-up for my second question. It’s for Ron. With regards to the cash CapEx for Q4, I noticed that the full year cash CapEx runs quite a bit ahead, sorry, the accounting CapEx is above the cash CapEx. If I am not wrong, there is a bit of mismatch. Can we expect the $9.5 million to $12 million CapEx in the guidance [Technical Difficulty]?

…CapEx, right? So that’s effectively what we can basically, we know what we have committed to and we know that we will account for that. With regards to cash, obviously, it’s a timing of those invoices coming in and then paid out. The $9.5 million to $12 million from an accrued point of view, it will come through at that level. I think the cash CapEx is going to be slightly higher than the guidance, the midpoint and the guidance on the cash CapEx, which I believe is about $73 million for the year. I would expect the cash CapEx number to be somewhere around about $80 million.

The next question comes from Charlie Sharp with Canaccord. Please go ahead.

Yes. Thank you very much for taking my question and at the risk of sounding sycophantic, congratulations on a very good operational and financial quarter. And I know that you talked about capital allocation and that hasn’t yet been settled and you talked about the potential in Gabon, and I think, Egypt in particular, after good drilling results this year. I just wondered if you could, without sort of identifying exactly, flesh out a little bit how you see the allocation approximately in terms of geography. And in Gabon, in particular, have you done all of the work that you need to do to ensure as best as possible that your program next year delivers all of the results that you anticipate?

Again, Charlie, thanks for the question. A good question. I guess, when we look at the subsurface work, I am sure everyone would have expected us to have more or less fully completed the subsurface work at this time for the targeted opportunities both in Gabon and in Egypt and in Canada for next year. So that is correct. We have done that. And as everyone’s aware, the market at the moment for service providers is exceedingly tight and that’s where the key evaluation is, is looking at the opportunity to match the op -- subsurface opportunities we have with the available activities that we require in Gabon and in Egypt and also in Canada. So without going into the numbers which we haven’t landed on yet. I think we are a bit firmer -- quite a bit firmer on the Egyptian program, because we have a rig contracted, we will have a workover schedule running concurrently through Q4, right through the first half of 2024 and we know that rig is coming back to us at the end of June to commence the drilling program at the second half of 2024. So whilst we can’t yet be specific and give you information on targets and volumes, we can more or less confirm, we will have a second half drilling program in Egypt in 2024. With Gabon, with the assets required to execute that program, the timing of that remains uncertain and we remain in negotiations. We know we have a number of firm targets to drill and we know we also have a number of contingent targets to drill. We have some top side technical work ongoing at the moment, which we expect to have a study complete by Q1, which may rearrange the sequencing of wells. But it’s going to be probably late this year, early next year before we can give you more details on the exact sequencing and timing of that Gabonese program.

Well, that’s great. Thank you. And just as a sort of mini follow-up, if you like. I guess then it looks like first half is going to be a very light program, perhaps, Canada weighted and then the second half will be particularly busy in Gabon and Egypt. Is that right?

That’s more or less right. The first half, again, subject to securing drilling rigs, Canada will be weighted with potentially up to four wells drilled in the first half, and Gabon and Egypt are looking more towards the second half at the moment.

The next question comes from Jeff Robertson with Water Tower Research. Please go ahead.

Thanks. George, can you just talk about how you think about the share repurchase authorization, since you have got, I think, roughly $9 million left on the original $30 million authorization and how that factors into your thought process around 2024 capital outlays?

Yeah. I mean, obviously, we have got, as I mentioned in the response to the last question, we are seeing a very tight market as the service side of the business catches up with the higher commodity prices and that’s looking at significant increase in the cost for executing the drilling programs on each of the wells. We are committed to the program that we authorized -- the Board authorized at the end of last year. We will follow that program through to its completion. We -- as you -- as we have demonstrated and we commented already, we do have excess cash balances at the moment, but we are building for quite an extensive program in the second half of next year. Once we have landed on what that program looks like and what that program will cost us in order to arrest decline and increase production back up again towards the end of 2024, that will then allow us to what excess cash is available that we are producing over and above our commitment to the dividend to be able to allocate back into some form of potential buyback program. All that will be dependent on where the stock is, and obviously, as Ron mentioned in his narrative, the stock remains at a very low multiple, and therefore, very competitive for us to repurchase to get the prices up there. But, again, that will be a determination that we will discuss with the board early Q1.

How do you weigh the merits between the share repurchase and potentially increasing the dividend?

At the moment, I don’t think there would be any plans to increase the dividend. I think our dividend from an income position, provides a reasonable return to the stock, particularly at the depressed levels for the stock at the moment. So the focus, I think, would be fully on stock repurchase with the excess cash that would be available.

[Operator Instructions] The next question comes from Bill Dezellem with Tieton Capital. Please go ahead.

Thank you. I’d actually like to ask two questions right out of the gates, if I may. Number one, what did you learn from the drilling campaign in Egypt with the horizontal wells that you drilled and what will those learnings do in terms of the next drilling campaign and your ratio or split between vertical and horizontal wells? And then the second question is, acquisition field or pipeline update, please?

Okay. I will start this conversation, but Thor may finish it when it comes to the wells. I mean, we have really only completed one significant horizontal well in Egypt, which was the Arta-77. As you are aware, in the previous calls we didn’t get the results in that well that we anticipated. The well continues to produce. I mean it -- I think, I am remembering numbers now, I think, we started around 200 barrels a day, the last call it was down to about 120 and right now it’s around 80 barrels a day. So it continues to produce. It is one of our workover candidates. But I will let Thor jump in if we are planning to do more horizontal wells there, I think.

Yeah. So, the well -- as George mentioned, the well is still on production and it seems to be flattening out the curve. We did have some issues with the drilling of the well, as well as the completion of the well with the pump placement and a tangent section in a well. So, we originally had two wells planned, we delayed that second well and now we are looking at potentially doing some more or additional, I guess, technical work on drilling, potentially another well, a horizontal well late in 2024 with the learnings that we have got out of that well.

Sorry, Bill. The second part of your question on acquisition updates. Well, obviously, we have said and in relation to the strategy, I know we got a shareholder question, what does VAALCO’s future look like? In the last three years, we have each year doubled the size of the company, doubled production and we are starting to reap the benefits of having that derisking of a single asset company, and that I think, was clearly demonstrated to our benefit in Q3, having multiple areas of production when certain areas are going through some areas of difficulty. So when we look at the field of M&A opportunities, that field is extremely narrow. It was very wide 12 months ago with the IOCs mainly deciding that they are no longer divesting and with -- at the top of the price curve, the divested opportunities are the opportunities that we see in Africa at prices where we would not want to compete. There are still fields where accretive opportunities are available and we do continually review these. It’s not always in our primary jurisdiction. So we are actually having to deviate and look at opportunities for value rather than just geography, but the market is exceedingly tight. We are no different from some of our peers other than we are debt free and that, all of our peer companies are performing well under the higher commodity prices and they are all seeking the same opportunities. So we tend to try and drive towards bilateral positions where possible, because process positions can tend to become uncompetitive very quickly. But the market is still there, we are still reviewing opportunities. It’s not completely dead to us.

Great. Thank you, both.

Thanks, Bill.

The next question comes from Jamie Wilen with Wilen Management. Please go ahead.

Hi, fellas. Given the large amount of cash you were able to put on the balance sheet between the second and third quarters, as you look forward with limited capital expenditures, are you looking to similarly bulk up the balance sheet by $50 million each quarter over the next few?

That’s a reasonable good question. I think it’s -- we can’t hide the fact. We have got limited CapEx in Q4. We are forecasting at least two to three liftings out of Gabon. So, yes, our projected position for Q4 would be another strong cash performance. We have yet to land on the allocation of capital for 2024. But as I said, we do expect to commence the drilling in Canada very early January, February and they are coming in roughly at $4 million to $6 million per well, yeah, is that?

Yeah.

And so, we will still be -- in terms of where we have been before, Jamie, with the drilling in Gabon, we are going to have a pretty light CapEx in Q1 and Q2.

Got you. Given the progress you have made in Canada, what are your thoughts on monetizing that asset and devoting a good bit of that to -- for the next drilling campaigns, as well as a share buyback and what do you think Canada would really be worth?

Well, we have a valuation of Canada because we carry on the books. So the valuation on the books, I think, rest between $80 million and $100 million. Ronald, tell me if I have got that number wrong.

You are probably near the upper range.

All right. What I will say, I will repeat what I said last quarter. I mean, the turnaround in the Canadian operation has been exceedingly impressive. The team up there have done a tremendous job. They have delivered to us a five-year plan that is cash positive and returns cash every single year. The focus on the change of drilling techniques to the longer reach laterals, the focus on adding the land in order to achieve that has been extremely successful. Thor’s just reminding me, the -- how we drill and complete the cycle times have also been reduced considerably, I think, 68 days, something ridiculous.

Roughly half.

Half. So we now have a valuable, very efficient operation, but to be frank, to be big in Canada, we need scale. So there’s always a consideration of whether that scale exists and whether the best use of capital is to continue to grow and invest or look at other opportunities. So we do consider that all the time and when we look at the 2024 position, that will be part of that consideration.

The next question comes from Jeff Robertson with Water Tower Research. Please go ahead.

Thanks, George. Just to follow up, has there been any change in anybody you deal with the Hydrocarbon Ministry in Gabon in light of the [inaudible] back in August?

Good question. Obviously, yes, there have been some change, because I think, the previous Minister was removed. But as I stated, I guess, the day after that event, we have seen -- we were out of the office for one day. We have seen no interruptions to our operations whatsoever. We continued to work diligently with the government, both on our investment profile and on our backdated positions where we are looking to make some recoveries on receivables. Ron mentioned about the tax event that exists and causes us movements in our tax position because of the mark-to-market. We are also working with the government to see how we can improve the position between their unlifted barrels and our outstanding receivables. And that’s something, I am down in Gabon later this month and that’s one of the topics of discussion. But, again, from a relationship standpoint, some of the players have changed, but at the same time, our business has been completely uninterrupted.

Yeah. If I could just add to that. If anything, I would suggest that it’s become a more positive climate and a more active climate with more engagement with ministries.

Thank you.

The next question comes from Bill Dezellem with Tieton Capital. Please go ahead.

Thor, I’d like to follow up on your last comment and does that improvement or positive relationship include a desire, a recognition, an interest, I don’t know what the right term would be to stay more current on their payables to you?

Yeah. I mean, I think, there’s a -- the government is -- has changed and I think there’s a significant drive to, I guess, streamline and to get their books in order and that means that, they are looking to clean up their payables, they are looking to clean up their accounts receivable and get processes in place so that that doesn’t happen in the future.

Great. Thank you and congratulations on great operational results.

Thank you.

We will now take some questions from email.

Okay. The first question that I have got here is, bear with me one second. Can you confirm the amount of $33.3 million in foreign income taxes payable in the balance sheet corresponds to the value of the pending in payment kind -- in-kind payment?

Okay. I will take that one, Al. Yes, is the short answer. The foreign tax payable is accrued in the balance sheet at the effective tax rate together with a foreign income tax adjustment and that’s a discrete item where we mark-to-market the Brent pricing at the end of the period. I think, there’s a question out there in relation to the amount of barrels and is it calculated at the end of each quarter or is it pending the lifting? I mean, what we do is the calculation is made each period and it’s calculated in barrels per the PSC. The period barrels are then added to the brought forward position and if the state is no lifting in the period, the last lifting that the state took was back in Q4 2022. So it’s been about a year since the state took a lifting.

Okay. And the next one I have, the lifting that was done in early October, was that just for VAALCO or the Gabonese Government or both?

That lifting in October was for the Etame JV partners and not for the state. Traditionally, the state elects to lift on their own.

Okay. And I think that’s all that I had.

This concludes our question-and-answer session. I would like to turn the conference back over to George Maxwell, CEO, for any closing remarks.

Thank you very much. I think it’s always good as it was in Q2 to come to the end of Q3 with a strong set of results, a strong set of performance, both in the production, operational side, driven in part by higher and increasing commodity prices. As we are more than halfway through Q4, our confidence levels for that performance continuing through Q4 are very high, and as I answered one of the questions previously, we look to continue to increase cash balances through this quarter. We are starting to see some of the benefits of the diversification of our asset base, the ability to overcome slight bumps in the roads in one jurisdiction supported by the others. As Ron mentioned, we have significantly allowed and included the synergies of the amalgamation that took place in Q4 of last year and the combined operation now is one of much greater efficiency than the two independent organizations were previously, but that also presents some challenges. As Ron mentioned, we now have completed the integration and now we have to move forward as a larger organization, that means investment in some people, it means investment in systems and processes in order to ensure we overcome some of the difficulties that we had in our reporting structure in Q1. And that plan is in place and we will move forward with a much more integrated system that facilitates, one would hope, a faster reporting position into -- by midyear, third quarter 2024. I still like to thank all of our staff. This doesn’t happen just because Ron, myself and Thor are sitting here talking. It happens because we have got a couple of hundred people to work 24x7 to give us the opportunity to present these results and I’d like to thank them and I look forward to talking to you again at the 10-K. Thank you very much.

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