VAALCO Energy, Inc.

Good morning, everyone, and welcome to the Valco Energy Incorporated second quarter 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please see a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Al Petrie, Investor Relations Coordinator. Sir, please go ahead.

Thank you, Jamie. Good morning, everyone, and welcome to Valco Energy's second quarter 2020 conference call. After I cover the forward-looking statements, Kerry Bounds, our Chief Executive Officer, will review key highlights along with operational results. Liz Prochnow, our Chief Financial Officer, Thank you. 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. NALCO 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 and the reports we filed with the SEC, including the Form 10-Q that was filed yesterday. Please note that this conference call is being recorded. Let me now turn it over to Kerry.

Thank you, Al. Good morning, everyone, and welcome to our second quarter 2020 earnings conference call. Before I discuss our results, I would like to reflect on the extraordinary challenges that we are facing as an industry and how Valco is responding to these challenges. Thus far, Valco's operations have not been materially disrupted by the global COVID-19 pandemic. We have managed through the logistical challenges that we have faced since the outbreak and continue to put the safety of our employees and contractors and local stakeholders first. We are minimizing high-risk activities while actively screening and monitoring employees and contractors, including testing and quarantines with on-site medical supervision before going offshore. We have contingency plans in place in the event we are directly impacted by the pandemic. While the current pricing environment remains volatile, it has recovered from the lows we saw in April. In response to the lower pricing environment, we have deferred all material discretionary capex. This will allow us to focus on cash flow generation while preparing for the right market conditions to begin planning the next drilling campaign at a time. We released the vintage drilling rig in early April after completing the 2019-2020 drilling program as planned, on time, within budget, and with no safety or environmental incidents. In addition, We have deferred our next drilling campaign until the global oil pricing environment stabilizes at higher levels. Despite this lower pricing environment, we remain confident in the long-term viability of our inventory of drilling opportunities at its home. Another action that we have taken is managing operating costs to preserve our balance sheet and maximize cash flow. We have worked with our vendors and suppliers to implement cost-cutting measures as well as partnered with other operators to reduce costs by sharing services and equipment such as support vessels and helicopters. We temporarily reduced compensation for our directors, executives, and certain non-executive employees. However, a portion of the cost reductions have been offset by higher costs brought on by the COVID-19 pandemic. Despite this uncertain environment, we remain focused on operational excellence, which was demonstrated in our second quarter results. In the second quarter, we produced an average of 5,410 net barrels of oil per day, which was above the high end of our guidance range of 5,000 to 5,400 net barrels of oil per day. The strong second quarter production in the 2019-2020 drilling campaign. The second quarter benefited from having three full months of production from all three of the new development wells drilled, which were the Atom 9H, Atom 11H, and Southeast Atom 4H. We also benefited from a full quarter of production from the three workovers where we restored production at the Atom 10H, Atom 4H, and Southeast Atom 2H wells. volumes from the new wells demonstrate the considerable impact that the drilling program has had on our overall production. Our 2019-2020 drilling program brought online three new horizontal development wells, drilled two successful appraisal well bores, and completed three workovers. This increase in volume and proactive measures to manage costs and has helped drive down our unit operating costs by 17% compared to the first quarter and improve our break-even margins, which we are now estimating to be $33.50 for 2020 free cash flow per barrel. As we've said before, approximately 90% of our costs are fixed, and we can add production and improve margins with minimal increase in costs. In the second quarter, despite lower realized crude oil prices, we reported an adjusted EBITDAX of $10.1 million, an increase of $4.1 million compared to the first quarter due to higher sales volumes and higher realized gains in derivatives. While these results were strong, we do see some temporary headwinds to our production in the third quarter. As previously announced, in mid-April of this year, the South Chabala 2H well was shut in due to a downhole mechanical failure not related to the electric submersible pump. Prior to going offline, the well was producing approximately 830 gross barrels of oil per day or 225 net barrels of oil per day. Given the nature of the mechanical failure, we may not be able to repair the well until the next drilling campaign when a rig is on location. In September, we will be performing our planned six-day full-field maintenance turnaround on the NAWDPA FPSO and all four production platforms on the ATOM license. Finally, to assist Gabon in meeting its OPEC production quota, the Minister of Hydrocarbons has requested that Valco temporarily curtail production at ATOM through September 2020. Taking into account all of these factors, we expect our average production for the third quarter to be between 4,200 and 4,600 barrels of oil per day net to Valco. In spite of these near-term production constraints and because of the strong performance of our development wells in the first half of the year, for the full year 2020, we are raising the lower end of the guidance range we gave earlier this year from 4,400 to 4,700 barrels of oil per day net. The new full year 2020 production guidance is 4,700 to 5,000 barrels of oil per day net. Now, I would like to give you a quick update on our activity in Equatorial Guinea. In November 2019, the Equatorial Guinea Ministry of Mines and Hydrocarbons approved Valco's appointment as operator for Block P. In the first quarter of 2020, Valco acquired additional working interest from Atlas Petroleum, thereby increasing our working interest from 31% to 43%. The cost for acquiring the additional Block P working interest is a future payment of $3.1 million that will only be made if there's commercial production from Block P. We are currently waiting on an amendment to our production sharing contract Thank you. Given the current pricing environment, we are evaluating the timing and budgeting for the development and exploration activities under a development and production area in Block P, including the approval of a development and production plan. The production sharing contract for Block P provides for a development and production period of 25 years from the date of approval of a development and production plan. We are optimistic that we will finalize the agreements with Levine and prepare for a drilling campaign that will commence in the next couple of years with minimal financial exposure to Balco. In summary, we are committed to maintaining business continuity. This is a challenging time in the energy industry, but we believe that we are well positioned with a strong debt-free balance sheet, $45 million in cash, and a stable production base that is free cash flow positive at current prices. We believe these are advantages for Valco and help provide stability in the near term and flexibility for the future. With that, I will turn the call over to Liz.