Good morning, and welcome to the VAALCO Energy Fourth Quarter 2023 Earnings Conference Call. All participants will be in 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. Welcome to VAALCO Energy's fourth quarter and full-year 2023 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the fourth quarter and full-year 2023. 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 reenter 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 filed with the SEC, including our Form 10-K. Please note that this conference call is being recorded. Let me now turn the call over to George.

Thank you, Al. Good morning, everyone, and welcome to our fourth quarter and full-year 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 in late 2022. Our focus has been on optimizing production, managing our costs and 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, while fully funding our capital program, shareholder dividends and buybacks, all while remaining bank debt free. We returned over $50 million to shareholders in 2023 through dividends and buybacks, and in 2024, we have already announced an acquisition that will utilize a portion of that $121 million in cash on the balance sheet to add 4,500 working interest barrels per day and 13 million barrels of 1P working interest CPR reserves. Before I go into more detail on our many accomplishments over the past year and upcoming 2024 key items, let me first summarize some high-level financial and operational results that led to a record breaking year. We grew production by 83% year-over-year, which helped us deliver record-breaking adjusted EBITDAX of $218 million in 2023. This was a 50% increase over 2022, despite a 26% decrease in realized commodity pricing. Our record production levels were driven by our successful drilling campaign programs in Egypt and Canada, as well as high operational uptime in Gabon. By mid-year, we increased our production guidance given the strong performance that we had experienced in the first half of 2023 and we finished the year at the top end of our increased production guidance with 18,710 NRI barrels of oil equivalent per day or 23,946 barrels on…

Thank you, George, and good morning, everyone. 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 our 10-K, I will focus on the key points. Let me begin by echoing George's comments about our continued success in 2023, driven by strong operational performance that yielded record financial results. In the fourth quarter, we generated $44 million in net income or $0.41 per share and $96 million in adjusted EBITDAX. Both were significant increases compared to prior quarters and ahead of consensus estimates. The exceptional fourth quarter numbers helped to push our full-year 2023 net income to $60.4 million or $0.56 per share on adjusted EBITDAX to $280 million. We have a strong cash position, a clean balance sheet and no bank debt. I'm proud to say that we are in a much better positioned today with a growing and diversified asset base than ever before in VAALCO's history. Let's turn to production and sales, which, along with realized pricing drives our revenue. Production for the fourth quarter remained solid at the high end of our guidance, with our sales for the quarter also at the higher end of guidance. The production performance of our assets in 2023 was buoyed by successful drilling in Egypt and Canada and mitigating 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. This change in mix impacts our realized pricing and ultimately, our revenue and earnings. But if you look at the bigger picture and over a full year, you'll see impressive growth across our expanding portfolio of producing assets. We saw growth in total sales volumes quarter-over-quarter and…

Thank, Ron. Our strategy remains unchanged, operate efficiently, invest prudently, maximize our asset base and look for accretive opportunities. As you have heard this morning, we have successfully delivered strong operational and financial results in 2023 by executing on our strategic vision. Our effective drilling campaigns in Egypt and Canada helped both areas grow production in 2023 and our continued focus on operational uptime helped Gabon minimize decline. All three areas have strong production performance that exceeded guidance. We generated record adjusted EBITDAX of $280 million and free cash flow of $120 million, while funding all of our CapEx, quarterly dividends and share buybacks with cash flow and cash on hand. We ended the year with over $121 million in cash on hand, and we're using some of that cash to make a very accretive acquisition. 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 greater portfolio of producing assets with future potential upside. In addition to funding our capital program and growing our cash position, we have remained focused on returning value to our shareholders. In 2023, we returned $50.3 million to our shareholders through dividends and buybacks. That's a 42% of the free cash flow that we generated. We nearly doubled our quarterly dividend and have continued that higher rate into 2024. We are on pace to deliver another $0.25 per share annual dividend for 2024, matching what we paid out in 2023, which at our current share price is a dividend yield of nearly 6%. We have continued to repurchase common shares through the buyback program approved in 2022. Since inception of the program back in November 2022, we have returned over $28 million to shareholders and repurchased in…

We will now begin the question-and-answer session. [Operator Instructions] Our first question today is from Stephane Foucaud with Auctus Advisors. Please go ahead.

I'd like to possibly to go back to the guidance, the CapEx and production guidance. I think George, you talked about the Gabon CapEx, the same CapEx been 30 to 40. Could you come back on the other items, please? And particularly, if there is -- I don't think there is, but confirm if there is anything associated with the FEED study for EG? And related to that, so should I understand that there should not be any uptick in production in Gabon around the end of the year, because the drilling program now is more likely to start in '25 rather than '24?

So yes, we're looking at $30 million to $40 million of CapEx within Gabon, which is primarily related to maintenance CapEx and long-lead items for the drilling program. One thing that I mentioned during the introduction was that we do have or we're currently evaluating a drilling program in Egypt, which is not in guidance, but should that get confirmed, that would add an additional $18 million of CapEx for those 10 to 15 wells. You're correct in that when we were looking at the program and particularly the focus on the revision of the Ebouri field, that is the reason that we're delaying slightly the Gabonese program is to allow that program to have a much wider scope and therefore, a greater number of wells, which will lower the overall cost from the drilling because we'll have more wells to spread mobilization, demobilization over, and that makes it much more efficient. And also, we're targeting effectively what were originally proven reserves for Gabon and the Ebouri field and converting them from contingent. So there's quite a lot of opportunities within the CapEx program.

And so the split between Egypt and Canada for the same CapEx?

Stephane, it's Ron. Let me take that element for you on the breakdown of the CapEx. So as we said in the guidance, we got $70 million to $80 million. I would say, for guidance purposes, you're looking at Gabon being between 40% and 45% of that, Egypt between 10% and 15%, Canada 35% to 40% and then the other will be corporate and possibly FEED studies.

And you're referring for that maybe for EG, the FEED study?

Yes. I mean -- so just to recap that, I mean, as I mentioned earlier in the call, we have made significant progress on Block P with the position with the partners, and whilst we're not in a position right now at this time to confirm move towards a FEED study on the venous development. I do anticipate in the very near future, we will be.

The next question is from Charlie Sharp with Canaccord.

Congratulations on a great set of results. If I could just try and clarify a little bit more Gabon, if I may. I think, George, you said at the beginning of your piece on Gabon that you initially planned a three or four well program. Presumably that did not include the potential additional 2C 8 million to 12 million barrels resources that you highlighted, might it be more than three or four wells. That's what I'm trying to get at, and exactly what might that encompass in terms of targets, reserves versus resources?

Yes. So you're correct on that. The initial program did not include the opportunity of the redevelopment of the Ebouri field. The total, we would say probably an additional two wells and one workover. So that would take the program on an almost firm basis between six and seven wells, and obviously, we will carry options onto that as well. The target for contingent resource to conversion to reserves for the Ebouri development remains between 8 million to 12 million barrels. As I mentioned in the commentary, one of the wells is for field to fuel supply. It's a gas well, so it won't add anything, but it will reduce -- further reduce our OpEx and in the field as we replace natural gas with diesel. And the other targets, obviously, it's difficult to give you a range when we're looking at an appraisal step-out well but we'll be looking between 2 million to 4 million barrels on the other two wells.

That's great. And can I just follow-up with one question on the CI-40 license. And I think you've indicated that the FPSO will be going in for maintenance and upgrades in 2025 for presumably for a year or more. What's the reason for that? And how much is that all going to cost? And presumably, that will be cost recoverable in the following year?

Hard question really because obviously, we're not the operator of Baobab and those plans have yet to be finalized by the operator. Our anticipation is, obviously, these would be fully cost recoverable. There is a time schedule that would take the vessel off station for a period of time. Once we are in a position to have direct discussions with the operator, obviously, we'll be in a position to comment more accurately on both the outage and time delays, where the dry docking will take place and the nature of the upgrades. In our evaluation, clearly, we included estimates both for time and CapEx within that. And we're very confident that our estimates here on the conservative side to allow us to make the statement of how accretive we believe this transaction is, but it would really be upon completion, we'll be able to give a more accurate picture, truly.

The next question is from Jeff Robertson with Water Tower Research.

George, this may be premature based on your answer to the previous question. But from your understanding is the FPSO work that is expected to be done in the Ivory Coast, is it similar at all to what VAALCO did at Etame in terms of trying to upgrade the field to lower costs and create better run times?

I'll let Thor answer that one. He's beside me.

So the upgrade is really based around the class on the vessel itself. So if you recollect in Gabon, we actually changed the vessel out from an FPSO to an FSO. In this case, what's happening is that the vessel is reach class limits, and needs to go into dry dock to get class resumed. So that's the first part of it. While it's there, they'll obviously pick up some metal replacement. They'll do some additional work probably on the process equipment, I would expect cleaning it up, reinvigorating it for the next phase of its life, and then the other part that needs to be done is there needs to be some bearing replacements on the current. On the subsea side, there's really not a lot of work that's happening there. So it's the same, but somewhat different, more of the topside scope than the subsea scope.

From a perspective on the rig program in Gabon and ultimately, if you get the JOA finalized for EG. George, can you talk about the effect, if any, of just cost fluctuations that are having an impact on how you evaluate the work going into the FID and the FEED work?

Yes, I can, Jeff. I mean, obviously, from where VAALCO were two years ago, capital allocation was relatively simple, as a single asset company, capital allocation and a multi-asset company becomes, I wouldn't say more problematic. It becomes challenging as to where we get the best return for the investment. Now, when we look at where we were 18 months ago and preparing the plan of development for Venus in Equatorial Guinea, obviously, pricing both on drilling units on production units has moved considerably. Now, we believe we've maybe seen the top of that cycle now. We're starting to maybe see it plateau often from where it was in its historic highs in 2023. And that's really the purpose of the FEED study. And it's not really to go and reconfirm or challenge the technical position inside the plan of development. However, if we do see a better way of doing it, and we do see a more economic way of doing it, that will come into that FEED study. But the project itself had fairly robust economics despite its CapEx intensity. We've been looking at that CapEx position and seeing how we can challenge that between CapEx and leasehold. We’ve been looking at that also from a tax perspective. But bear in mind that albeit a relatively small project at about 17 million to 20 million barrels recoverable, it has a very short life, which gives it an attractive cash flow. So throughout 2024, we’ll be working on that feed to firm up both the timing of the development, how it fits into our overall corporate CapEx program and ensuring that the FEED study can deliver us towards an FID position.

The next question is from Chris Wheaton with Stifel.

Two questions, if I may. Firstly, I wonder if you'd go back to Equatorial Guinea and just understand what the timing might be of the stages you need to get through to be able to get to FID here? Because obviously, you're in the FEED stage. It sounds like you're in the FEED stage at the moment, you need to get through to FID at some point. I'm presuming now that, that is going to be next year sometime i.e. 2025, because you need to get the operating agreement sorted out as well. My second question is kind of related to Equatorial Guinea, after you folded in the Svenska acquisition of the Baobab stake. I'm presuming you'd quite like to do both Equatorial Guinea and the Cote d'Ivoire redevelopment simultaneously. Financially, I'm interested in whether you see there's a risk of -- you see any risk of you not being able to do that. I would have thought your -- given your cash flows and your balance sheet strength, you're quite able to do both of those projects simultaneously. If you want to, I guess the question is, how good are they returns when you stack them up against each other? That's my second question.

The first question, we are at a position now with Equatorial Guinea where through efforts from everyone in particular efforts from the MMH, the government in Equatorial Guinea, we've got, I would say, 99% alignment on where we want to be within the JOA. And as I've indicated, I can't say for sure today, but I do expect to see if we're sure in the very near future that the JOA issues are extensively behind us. Like I said in my opening remarks, we're looking at confirmatory documentation as opposed to negotiating documentation, which is a big step forward from where we've been previously. That does allow us to move into FEED. I'm kind of guessing that when we move into FEED given the complexity for a Bluewater development that we are estimating nine months on FEED. It could go quicker, it could go slower. But given we have the seabed survey, environmental impact assessments and like it is starting from a Bluewater location, I do anticipate nine months is a reasonable time frame to get to FEED and FEED will deliver, and we do anticipate FEED delivering FID. During that same period, obviously, we'll be able to give much more surety and clarity around what's happening in the Svenska acquisition, which we do expect to close in Q2 and become a full partner with the operator CNRL throughout the rest of this year. As we get into that position, we can give more clarity as to what the costing and timings are for the rehabilitation of the MV10. The challenges, as you pointed out, Chris, about a number of CapEx opportunities coming together at the same time, we'll all be looked at the merits. There are certain things that must happen. And clearly, there's a time frame that we…

The next question is from Bill Dezellem with Tieton Capital.

Congratulations on a great quarter. Would you please talk about the sourcing of the Svenska deal? And talk about if you would be willing to do an additional transaction in '24 or if this is enough for now?

I think obviously, additional transactions are difficult to comment on, Bill, as you'd appreciate. But we do look for opportunities where our natural experience and experience we have inside the company where we can get a deal structure that we see as immediately accretive and immediately adding production. So are we a company that's going to look around for Bluewater exploration acreage. That's not really -- doesn't fit our bill, but we will be looking at opportunities where we see production. Now do we have enough for now? Yes, we've got a lot of opportunities. And with the opportunities we've acquired to date, we've created considerable longevity to the production profile that VAALCO has. When you look at the source, I'm not quite sure what you're referring to when it comes to source. We've got lots of information around opportunities as they exist in West Africa and in other parts of the world. When we looked at this particular opportunity that we've managed to conclude subject to closing precedences, we actually looked at that some time ago when we were running another company called [indiscernible] and a lot of these deals, as some of you will be aware, in Africa can take a long time to percolate. And what really aided and abetted VAALCO’s opportunity to close this particular deal was our knowledge of the asset, which came from a number of years ago. and our speed at which we could do technical and financial due diligence. And that came from the knowledge base we have inside the company. So the real sources is inherent inside VAALCO's DNA right now. And we do apply that to areas where maybe some of our shareholders have never heard of before, but we know there's accretive opportunities in those geographies.

George, that's very helpful. And one country that or area that we have heard of is Canada. And given the success that you have had there, would you be willing to make additional acquisitions in Canada? How are you thinking about that?

That's a good question. And I will respond exactly the same challenge that the Board gave the executive team over 12 months ago. They said, look, this is a nice business, a small business, how do you make it more viable? How do you make it more contributive to the overall corporate plan? How do you make it cash generative while still expanding the opportunities inside Canada? And that's exactly what we've done. We have a 5-year plan that was put together by the Canadian management team. It's an excellent plan, and I have to commend them for putting it together. In that plan, as we mentioned, we're moving to longer lateral wells to enhance the economic returns that we get from our investment activities there. And in order to do that, we have to acquire land parcels that connect the disconnected land parcels that we have to allow the 3-mile laterals instead of a 1-mile lateral or we have to go into joint ventures where we see opportunities in connecting those land parcels where perhaps the existing incumbent does not. And that's exactly -- some of this campaign we're growing right now is based on that strategy, where we have went into agreements with partners and adjoining land parcels with us where they come in as a co-venture initially. And in one instance, they decided they didn't want to and we've taken 100%. So I see opportunities to grow that strategy, but I don't see it growing into 3x or 4x, 5x a footprint we have today. But we do have a very nice contributing business in Canada right now.

Next question is from Jamie Wilen with Wilen Management.

Nice quarter on all fronts. A couple of cash questions. As you talk about the acquisition. You're paying $60 million, but it will be $30 million to $40 million in cash by the time it closes. I assume that means that the operation is generating north of $5 million a quarter for you when it closes?

Yes. I mean, Jim, it's Ron. As we said before, the business itself is operating about 4,500 barrels equivalent to us per day when we close. And we see that is effectively going to be able to reduce the overall cash payment that we take because the effective date is the 1 October, 2023. So we're looking at this deal as being, as I say, it's going to close somewhere between $30 million and $40 million in cash. And with that business still continuing to deliver on those barrels right through until 2025, we see that business effectively paying itself back at present oil prices very, very quickly.

Wonderful. At the end of the third quarter, you talked about kind of building cash in the fourth quarter of about $50 million. And I realize you had the buyback program, the dividend and your payables actually declined by $20 million. So it looks like you hit that $50 million target less all those outflows for shareholder returns and payable decline?

That's correct, Jamie. I mean our cash flow from operations was over $51 million for the quarter. And we did guide that in the transcript, we did state that because the drilling programs were over, and there's a lag between that and the invoices being processed, they would have an account people outflow, and we did see that in Q4.

Got you. I'm very pleased to see the acquisition was done for cash as opposed to shares considering how undervalued our shares are. As you look at the buyback program, we're coming up on the -- nearing the end of the $30 million, would you expect to reauthorize an additional sum for the buyback given the accretiveness of the acquisition and how good the operations have been over the past year and the future outlook?

I mean that's a good question. As I said earlier, the capital allocation is a key consideration that we're going to address the upcoming meetings once we've completed and fully understand the program inside the Svenska acquisition. As I've said, we haven't had direct discussions with the operator. So until we have that opportunity to sit down and fully understand those plans, then it allows us to give the longer-term cash management plan as to how we allocate that and make sure we -- despite our very strong balance sheet to make sure we avoid going into a debt position. Not that debt is a bad thing when you're looking at these kind of growth opportunities we have, but we'll be planning to steer away from that.

Excellent. As you talk about the closing of the acquisition in the second quarter, are you looking at the end of the second quarter? Or that's a 90-day period? Where would you forecast it to be middle, beginning or end of the quarter?

Thor and I are traveling to Cote d'Ivoire in two weeks’ time. And based on the reception we get from the minister, I’ll be able to answer that. But so far, the ministerial comments have been very positive on VAALCO entering the country.

The next question is a follow-up from Jeff Robertson of Water Tower Research.

Just geopolitical question. Can you comment on any impacts that your Egypt operations are having moving export cargoes? Given what's going on in the Red Sea and then you've operated with the new government of Gabon now for five or six months. Just a comment on how things are going with them.

On the first instance, with regard to cargoes on the Red Sea, we're seeing no impact on that, primarily because we're still working with the EGPC to plan our 2024 cargoes, and we're hopeful to get those discussions resolved in the very near future. So I guess from the shipping incidences that are taking place in the Red Sea, there’s absolutely no impact to us whatsoever. But the impact is we still have discussions right now with EGPC regarding our 2024 cargoes. And as we have our Q1 call in May, hopefully, we're in a position to give a resolution to that with some timing for these cargoes. With regard to Gabon, I had a very good meeting with the President back in November and the minister when I traveled down to Libreville, had a really good private dinner with the President and understood his aspirations for the country and how we can work with them to achieve that. We have seen some changes in regulatory framework in Gabon, which we're going to have to work with, in particular, new financer, which has added 5% to the withholding tax, and we need to work out with the government how best and efficiently our investment is not impacted by that when we look at the drilling program. But overall, I think we have seen, as I mentioned last year, during the announcement of the Q, we have seen no impact to our operations, and I can attest to the meeting we had in November with the President, we see no impact to our future investing opportunities in Gabon. We have seen, as I mentioned earlier, that where we've had stalled discussions around blocks G and H with our partners, BWE and Panoro, we've seen an acceleration of those discussions in Q4 and Q1. And hopefully, by the end of Q2, we've got some more exciting news on those opportunities.

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 always a pleasure to have had such a monumental achievements in 2023. When we look at all the reorganization and integration work that had to happen post TransGlobe post the reconfiguration in Gabon, and we're starting to see and reap the benefits of both of these transactions in 2023 to then couple that with an opportunity to add more exciting asset bases to our company and start another journey in another jurisdiction with a long degree of longevity, at least another 14, 15 years of production is also very exciting. So I think we should enjoy the moment. We've got a lot of hard work ahead of us, a lot of opportunities to develop more oil in the near term with capital investment. We have a strong balance sheet. And as I've already pointed out, we've got a very strong team here in Houston and in other places of the world to make sure we can execute in every jurisdiction that we operate. And I'd like to thank everyone. Thank you very much for the call.

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