VAALCO Energy, Inc.

Good day and welcome to the Valco Energy fourth quarter and full year 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal 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 then one on a touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone, and welcome to Valco Energy's fourth quarter and full year 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, will then provide a more in-depth financial review. Kerry will then return for more Closing comments before we take your questions. During our question and answer session, we ask that you 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 an investor deck this morning 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. Valco 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 this morning on our website, and in the reports we filed with the SEC, including the 10-K that we filed yesterday. Please note this call is being recorded. Let me turn the call over to Kerry.

Thank you, Al. Good morning, everyone, and welcome to our fourth quarter and year-end 2020 earnings conference call. Before I discuss our results, I would like to reflect on a number of significant accomplishments we have achieved, all of which are building blocks toward long-term growth. In 2018, we negotiated a license extension of up to 20 years in Gabon that provided Valco the runway to maximize value by growing reserves and increasing production from our world-class atom asset. Also in 2018, We paid off all our outstanding debt and began to rebuild our cash position. In 2019, we initiated trading on the London Stock Exchange, which complements our listing on the New York Stock Exchange by providing us the opportunity to diversify our shareholder base, attract additional research coverage, and provide Valco with access to additional sources of capital to help fund our growth objectives. Just as critical, in September of 2019, we kicked off our 2019-2020 drilling campaign. That campaign had three successful development wells and two successful appraisal well boards. Comparing our full year 2020 production of 4,853 net barrels of oil per day with our 2019 average of 3,476 net barrels of oil per day, we increased production 40% year over year as a result of our drilling success. In 2020, we saw oil prices adversely impacted by the global COVID-19 pandemic, as well as supply and demand imbalances. We had hedges in place that provided us good protection when oil prices fell, and we were able to continue to generate meaningful free cash flow from our higher production volumes in 2020. Maintaining our strong balance sheet and financial flexibility gave us the ability to capture value through a very accretive acquisition opportunity that arose in 2020. We were able to overcome the challenges in 2020 and close the acquisition of Sasol's Atom Interest in February 2021 with cash on hand. With the additional production that transaction brings us, along with the strong recovery in oil pricing, we're projecting continued meaningful free cash flow generation going forward. This has provided us with the confidence to announce our next drilling campaign, which is expected to start in late 2021. We are planning to drill up to four wells that could add an additional 7,000 to 8,000 gross barrels of oil per day when the drilling program is completed in 2022. With our higher working interest in ATOM, this could be an additional 3,500 to 4,100 net barrels of oil per day to Valco. This is truly an exciting time for Balco, and we believe that we have a very bright future ahead of us as we are well on our way to achieving our long-term goals. Before I get into our operational results, I would like to review some of the key highlights of the SAFSAW acquisition. In November 2020, we agreed to purchase SAFSAW's 27.8% working interest in Etong for $44 million with the final cash settlement amount to be reduced by net cash flows generated from the effective date of July 1 through the closing date. As part of the agreement, we made a $4.3 million cash deposit in November and agreed to a contingent payment of $5 million if rent oil prices averaged greater than $60 per barrel for 90 consecutive days. We closed the acquisition on February 25th of this year. Taking into account the $4.3 million deposit and the cash flow that was generated between July 1, 2020 and the date of closing, we paid $29.6 million at closing, all with cash on hand. We believe the deal is very accretive to Valco as it is improving our margins, increasing production, and the price we paid per net barrel of oil was about $4.91 for 2P CPR reserves. Since we already operate the asset, we expect minimal increase in G&A expense, there is no integration needed, and we will immediately benefit from the acquisition. Turning to operational results, in the fourth quarter of 2020, we produced an average of 4,662 net barrels of oil per day, which was an increase of 27% over the fourth quarter of 2019, driven by our strong well results from the recent drilling campaign. For the full year, production averaged 4,853 net barrels of oil per day, an increase of 40% year over year. Looking ahead to 2021, I would like to spend a few minutes discussing the details of our 2021 production outlook, which includes additional volumes as a result of the SASOL acquisition. Our first quarter production will not include any SASOL volumes prior to the transaction closing date of February 25th. This means that first quarter production includes two months of ValCO volumes and one month with ValCO and SASOL volumes combined, which puts our first quarter 2021 guidance between 5,100 and 5,400 net barrels of oil per day. The midpoint of first quarter production guidance is a 13% increase over fourth quarter 2020 average production. Production guidance for the remainder of 2021 includes the full production impact of the SASOL acquisition. In the second quarter of 2021, our production is expected to average between 8,000 and 8,600 net barrels of wool per day. During the second half of 2021, we are planning our annual seven-day turnaround, and we are not forecasting any material production uplift from the upcoming drilling campaign. Taking into account natural decline as well, we expect the second half of 2021 to average between 7,100 and 7,800 net barrels of oil per day. Taking all of this into consideration, we expect net production to be in the range of 6,800 to 7,400 net barrels of oil per day for the full year 2021. That is a year over year increase of 46% at the midpoint of 2021 guidance. The significant increase in 2021 production, coupled with the rising pricing environment, should help generate solid EBITDAX and enable Valco to grow its cash position and fund our upcoming drilling campaign from cash on hand. In the fourth quarter, we reported adjusted EBITDAX of $3.5 million. Unfortunately, our fourth quarter results were adversely impacted by a delay in oil sales from late December into early January. As a result, our four-quarter earnings and adjusted EBITDAX were lower, but sales volumes deferred to January were priced at January Brent pricing, which was higher than December. For the full year 2020, we generated $26.6 million in adjusted EBITDAX. Now, I would like to discuss the progress of our 3D seismic acquisition and our plans for the next drilling campaign scheduled to start late this year. In 2020, we completed the acquisition of a new 3D seismic survey over the entire ETSOM block. We expect the seismic data to enhance subsurface imaging by merging our legacy data with the newly acquired seismic, allowing for the first continuous 3D seismic over the entire block. The improved 3D seismic imaging will help us reduce risk and optimize future drilling locations. The success of our 2019-2020 drilling campaign has built a solid foundation for future drilling campaigns at ATOM. In our prior quarterly calls, I have said that our vision is to repeat similar drilling programs and continue adding reserves and production over the next several years at ATOM. With the SASOL acquisition closed, acquisition of a new 3D seismic over the ATOM block complete, and improved oil pricing, We believe the time is right to start our next drilling campaign. We are planning to drill up to four wells starting in the fourth quarter of 2021 and finishing in 2022. We are currently expecting to drill two development wells and two appraisal wells. There are opportunities for sidetrack re-entries that will reduce drilling costs and access low risk reserves and production. We also have appraisal locations that we believe could offer meaningful upside that is not currently reflected in our reserve report. The final well locations will be determined in conjunction with our processing of the new 3B seismic data we acquired. If the four-well program is successful, the estimated increase in gross yield production is 7,000 to 8,000 barrels of oil per day, or 3,500 to 4,100 net barrels of oil per day to Valco when the drilling campaign is completed in 2022. estimated cost of the program is between 115 and 125 million dollars gross or 73 to 79 million dollars net to valco the upcoming drilling campaign has the potential to generate significant free cash flow when the current prevailing oil prices are combined with our low-cost operating structure our strategy is to utilize the additional free cash flow to fund inorganic transformative growth opportunities in the future. We will provide more details later as we process the seismic and finalize our well locations. Our net capital expenditures in 2020 were $20 million on a cash basis and $10.5 million on an accrual basis. Our 2020 capital expenditures were primarily related to the 2019-2020 drilling program at the time. For the full year 2021, Valco estimates its net capital expenditures, excluding the 2021 drilling campaign and seismic, to total $3 million to $6 million. The full year capital expenditure estimates also exclude any potential costs related to FPSO life extension or FPSO replacement. While there will be upfront costs associated with either replacing or extending the life of the Natipa FPSO, we believe we will be able to lower long-term costs. Next, I would like to spend a few minutes talking about our year-end reserves. Our year-end reserves were significantly impacted by pricing. Despite adding 1.6 million barrels as a result of positive performance revisions and the discovery at Southeast Etan 4P, reserves were slightly down year over year. The downward revisions were driven by 1.8 million barrels in production and a downward pricing revision of 1.6 million barrels. Valco's proved SEC reserves at December 31, 2020 were 3.2 million barrels net. The PVChem value of these proved SEC reserves at year end 2020 decreased to $14.7 million from $70.4 million at December 31, 2019. The 2020 SEC pricing of $42.46 was down 33% from 2019 SEC pricing of $63.60 per barrel, which drove the SEC-approved PV10 value down significantly. Our year-end 2020 2P CPR estimate of proven plus probable reserves remained virtually unchanged year over year at 10.4 million barrels to Valco's working interest. The PV10 value of Valco's 2P CPR reserves at year-end 2020 was $84.4 million, assuming year-end 2020 escalated breadth pricing. Our year-end 2020 reserves were fully engineered by Valco's third-party independent reserve consultant, Netherland Sewell & Associates. They are very familiar with our assets and have provided annual independent estimates of Valco's year-end reserves for over 15 years. Regarding the acquisition of Sasol's interest at Atom, we estimate that approximately 2.7 million barrels approved SEC net reserves and 7.9 million barrels of 2P CPR net reserves were acquired using year-end 2020 assumptions adjusted for production. Given the recent significant increase in rent pricing and assuming that it continues through 2021, we believe that we could see a material increase in reserves, not only due to the SASOL acquisition, but to pricing as well. I would now like to give you a quick update on our activity in Equatorial Guinea. In the first quarter of 2020, BALCO 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 is commercial production from Block P. In August, an amendment to our production sharing contract reflecting our updated participating interest and naming us as operator was executed by the Equatorial Guinea Ministry of Mines and Hydrocarbons. The non-binding Memorandum of Understanding with Mabine to cover all or substantially all of Valco's cost to drill an exploratory well on Block P has expired. We are evaluating alternatives to fund the cost to drill an exploratory well, targeting over 160 million gross barrels of resources at our southwest Grande prospect. We are also evaluating scenarios to develop over 16 million gross barrels of contingent resources at our Venus discovery on Block P. We remain excited about EG and we are working to profitably exploit the resource potential. In summary, we have materially enhanced value at Valco over the past 12 months with a highly successful drilling campaign, an accretive acquisition, new 3D seismic, and planning for another drilling campaign later this year. We remain committed to operational excellence while generating strong financial results. We have a strong balance sheet and with our increased production base in a rising price environment, we should generate significant cash flow in 2021. This will provide flexibility for the future as we look to continue to grow profitably and meet our long-term growth goals. With that, I would like to turn the call over to Liz to share our financial results.