VAALCO Energy, Inc.

Good morning, everyone, and welcome to the Valco Energy first quarter 2021 earnings conference call. All participants will be in a 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 and then one. 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 first quarter 2021 conference call. After I cover the forward-looking statements, George Maxwell, who was named CEO in April, will review key highlights along with operational results. Jason Dornick, our Chief Accounting Officer and Controller, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions. During our Q&A session, we asked 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 Q1 2021 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 of 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 on our website, and in the reports we filed with the SEC, including the Form 10-Q that was filed yesterday. Please note the conference call is being recorded, and let me now turn the call over to George.

Thank you very much for the introduction. Good morning, everyone, and welcome to our first quarter 2021 earnings conference call. It's a pleasure for me to speak with you this morning as my first call as your new chief executive. Before I discuss our results, I'd like to take a few moments to thank Kerry Bangs for his dedication and valued years of executive leadership at Valco. He was an integral part of our success, and we wish him well in his future endeavours. At this point, let me review a number of significant accomplishments he helped Valco achieve this past year that have placed us in an enviable position to achieve meaningful and accretive long-term growth. In early 2020, on the heels of a highly successful drilling campaign that included three development wells that exceeded expectations and two successful appraisal wellbores, the world economy and the energy industry were severely impacted by COVID-19. We saw oil prices fall sharply due to the global pandemic, as well as supply and demand imbalances. Despite these difficulties, Valco continued to generate positive free cash flow throughout 2020, due in large part to our strong production increase. 2020 production was 40% higher year over year as a result of our drilling campaign success. We also had hedges in place through last June that provided us good protection when oil prices fell dramatically. We were able to overcome the challenges in 2020 while maintaining a strong balance sheet and financial flexibility. This gave us the ability to capture through a very accretive acquisition opportunity that arose late in 2020. We closed the acquisition of SASL's 27.8% working interest in Itani in February 2021, utilizing cash on hand. We believe the deal is very appreciative to Valco as it is improving our margins, significantly increasing our production, and the price we paid per net barrel of oil was around $4.90 or sub $5 for 2p CPR reserves. which is excellent pricing. Since we already operate the asset, we expect minimal increase in G&A expense and there is no integration needed and we will immediately benefit from the acquisition. With the additional production that transaction brings us, along with the strong recovery in oil pricing, we are projected continual, meaningful, free cash flow generation going forward. I'll now talk a little bit about the Q1 2021 results. According to our operational results, we had a very strong first quarter. We produced an average of 5,180 net barrels of oil per day, which was an increase of 11% over the fourth quarter of 2020, driven by the inclusion of one month of the increased NRI production due to the satchel acquisition. Our second quarter 2021 production will include an entire quarter with the additional SASL volumes. Of such, the midpoint of second quarter production guidance is a 52% increase over a first quarter 2021 average production. With that said, we are continuing to comply with Gabonese OPEC production curtailment quotas, which we are now forecasting to continue into the second quarter. In the second quarter of 2021, our production is expected to average between 7,600 and 8,200 net bars of oil per day. This is a bit lower than we estimated earlier this year for Q2 before we knew the extent of the OPEC curtailments. The reduction is purely due to the production curtailments and not any unexpected field declines. Production guidance for the remainder of 2021 includes the full production impact of the SASOL acquisition. During the second half of 2021, we are planning our annual seven-day maintenance turnaround, and we are not currently 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 7,200 and 8,000 barrels of oil net per day, which is a bit higher than our prior second half guidance of 7,100 to 7,800 barrels of oil per day. From an earnings perspective, we were very pleased with our net income of 9.9 million, which on a diluted share basis is just on 17 cents per share. For the first quarter of 2021, which compared very favourably with a net loss of 3.6 million in the fourth quarter of 2020 and a net loss of 52.8 million in the first quarter of 2020. The first quarter of 2021 reflected stronger revenue due to higher realised pricing and strong sales. I want to also point out that our first quarter 2021 earnings included a non-cash bargain purchase gain. This is further evidence of how attractive this acquisition was for Valco. It's pretty rare to record a gain on an asset purchase, but ours was due to the lower oil price outlook used when the sale and purchase agreement was signed last November and compared to higher oil price outlook on the closing date at February 2025. sorry, February 25th, 2021, where the fair value of the reserves associated with the acquisition were determined. We also reported adjusted EBITDAX of $80 million in the first quarter, which was more than five times our adjusted EBITDAX in the fourth quarter of 2020. Adjusted EBITDAX for the first quarter of 2021 was likewise significantly higher than the fourth quarter due to increased sales volume and improved realized prices. We are happy with the ongoing strength of the oil price environment, and with a significant increase in production, we wanted to lock in a meaningful portion of a free cash flow and adjusted EBITDAX. With that in mind, over the past week, we have added swaps at a weighted average price of $66.51 per barrel. for 672,533 barrels of oil from May 2021 through October 2021. In total, Valco now has 70% of its production hedge through October 2021 at a dated weighted average price of $62.27 per barrel. This will allow us to generate and build enough cash to fully fund all of our current capital commitments, including our 2021 and 2022 drilling campaign and any potential capital associated with the FSO conversion. In addition, we will still retain potential upside from higher oil prices this year since not all of our production is hedged and the new contracts run for just the next six months. Looking at our 2021-2022 drilling campaign. Turning your attention to the future, our strategic vision is built on accretive growth through organic drilling opportunities and through acquisitions. As you know, the success of our 2019-2020 drilling campaign has built a solid foundation for future drilling campaigns at Itami. With the special acquisition closed, the acquisition of new 3D seismic over the Itami block complete, and improved oil pricing allowing us to lock in strong cash flow, we believe the time is right to execute another successful drilling campaign to continue adding reserves and production over the next several years at Itami. 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 assess low-risk reserves and production. We also have appraisal locations that we believe could offer meaningful upside that is not currently reflected within our reserve reports. The final well locations will be determined in conjunction with our processing of the new 3D seismic data we acquired If the four-well programme is successful, the estimated increase in gross fuel production is 7,000 to 8,000 barrels of oil per day, or net 3,500 to 4,100 barrels of oil per day to Valco when the drilling campaign is completed in 2022. Hand in hand with the production increase will be margin expansion and per barrel cost reductions. About 90% of our production costs are fixed, and those production increases our per barrel costs will decrease dramatically. Every new barrel we bring online is more economic because of the low variable costs. So as we grow production, we're also growing our margin per barrel and reducing our costs per barrel. From a capital standpoint, we estimate the cost of the programme is between 115 and 125 million gross, or 73 to 79 million net to Valco. The upcoming drilling campaign has the potential to generate significant additional free cash flow, especially when you combine the sustained higher oil prices with our low-cost operating structure. Our strategy is to utilise the additional free cash flow to fund organic and potentially inorganic transformative growth opportunities in the future. I'll now move on to talk about the recent announcement on the FSO. In line with our strategy to be a low-cost operator, we are constantly looking at ways to minimise costs and improve our margins. A number of weeks ago, we announced that we signed a non-binding letter of intent with Omni Offshore Terminals to provide and operate an FSO unit at Valco's Itami Marine Field offshore Dubon. for up to 11 years upon the expiration of the current FPSO contract with BWF Shore, which expires in September 2022. Currently our FSO costs equate to around 40% of our total production expense. The OmniFSO proposal would reduce Falco's total operating costs by 15 to 25% when compared to the current FPSO contract during the term of the proposed agreement. Following the drilling campaign completion in 2022 and when we bring on the new FSO, we will see a significant increase in production and our total costs should decrease substantially. This will dramatically improve our margin per barrel and we will be able to deliver more free cash flow to fund our future growth opportunities. As a reminder, whether we decide decided to maintain the current FPSO beyond its existing contract or transition to a different option, either development approach would require substantial capital investment costs. As part of the FSO development approach with OMNI, we will need to make an estimated capital investment of between $25 to $32 million net to Valco, which includes the required field reconfiguration. We're expecting that approximately 20% will be invested in the second half of 2021 and the balance in 2022. But given the high amount of cost savings, we expect a payback of less than three years on this investment. In the new field configuration, the SSO would store and offload. The production and processing would be completed on our existing platforms. We are engaging in further discussions with the intent to finalise a definitive agreement soon. I would now like to give you a quick update on activity in Equatorial Guinea. We have a substantial working interest in Block P and we are evaluating several development step-out and exploration opportunities in Block P. We have several attractive undeveloped discoveries on the block from prior operators And given the current oil price outlook, we believe we can economically develop these discoveries. We remain excited about Equatorial Guinea and we are working to profitably exploit the resource potential and plan to update you in the second quarter with more information. So in closing in this first statement, in summary, Our outstanding employees continue to operate and execute on Valco's strategy of accretive growth and free cash flow generation through cost-effectively maintaining core production. We have a strong balance sheet, and with our increased production base and new hedges, we have locked in sufficient cash flow to fund our entire upcoming capital obligations whilst maintaining upside. Looking at the updated Q1 supplemental presentation on our website, you will see that at $65 realized oil price, which is about where we believe we are, taking into account our hedges and current script pricing, Valco will generate around $65 million in free cash flow this year, excluding before CapEx. When you look at our current stock price, we're currently trading at 2.5 times our multiple of free cash flow for 2021 and in 2022. Assuming continued strong pricing with additional production coming online from the drilling campaign and the potential for significant cost reductions following the FSO change-out, we should generate even more free cash flow. So with those notes, I would like to turn the call over to Jason to share more detail on our financial results. Thank you. Jason?