VAALCO Energy, Inc.

Good morning and welcome to the Valco Energy second quarter 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 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. 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 Valco Energy's second quarter 2021 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights along with operational results. Ron Bain, who is named CFO in June, 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 would like to point out that we posted a Q2 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 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 on our website, and in the reports we filed with the SEC, including the Form 10-Q that was filed yesterday. Please note that this conference call is recorded. Let me now turn the call over to George.

Thank you, Al. Good morning everyone and welcome to our second quarter 2021 earnings conference call. Thus far 2021 has been an exciting year for Valco, where we have completed a very accretive acquisition opportunity that arose in late 2020. We closed the acquisition of Sasil's 27.8 working interest in Itami in February 2021 with cash on hand. The accretive nature of the deal are very apparent in our first half 2021 results, with significant increase to our production, adjusted EBITDAX and cash flow. In the second quarter, we produced an average of 8,018 net bars of oil per day, which was an increase of 55% over the first quarter, driven by the inclusion of all three months of the increased NRI production due to the sational acquisition. The second quarter also reflected stronger revenue due to higher realized pricing and strong sales. This helped to boost our adjusted EBITDAX to $21.9 million in Q2 2021. And we have now generated $40 million in adjusted EBITDAX for the first half of 2021, which is more than in either of the previous two full calendar years and over six times what we generated in the fourth quarter of 2020. We are happy with the ongoing strength of the oil price environment and with the significant increase in production, we wanted to lock in a meaningful portion of our free cash flow and adjusted EBITDAX to assure that we have the funds for our upcoming capital programme later this year and into 2022. Turning our attention to the future, our strategic vision is built on accretive growth through organic drilling opportunities and through acquisitions. As you saw in our Q2 results, we are generating significant cash flow in preparation for our 2021-2022 drilling campaign. Also during the second quarter, we accelerated the processing of our 3D seismic in order to maximise the impact to the upcoming drilling campaign. We continue to expect all the data will be fully processed and analyzed by the fourth quarter, and we are using the seismic to optimize our drilling locations for the drilling campaign. Additionally, we are de-risking future drilling locations and potentially identifying new drilling locations with the 3D processing. In June, we secured a contract with Bore Drilling Limited to drill two development wells and two appraisal well bores with options to drill additional wells. Depending on commitments related to the rig, we believe that we can begin drilling as early as December of this year. 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 3,500 to 4,100 net barrels of oil production per day to Valco when the drilling campaign is completed in 2022. Hand in hand with the production increase will be the margin expansion and per barrel cost reductions. About 90% of our production costs are fixed and as 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 are also growing our margin per barrel and reducing our costs per barrel. From a capital standpoint, the estimated 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 accretive growth opportunities in the future. In line with our strategy to be a low-cost operator, we are constantly looking at ways to minimize costs and improve margins. From an operating cost standpoint, our current FPSO costs are about 40% of our total production expense. The non-binding LOI, which Valco announced in April of this year, expired without any mutually agreeable contract being reached. We are in advanced talks to finalise a binding agreement with other parties that will reduce our costs and meet our schedule in line with what we previously announced. We expect to update the market at the earliest opportunity and we still expect that the project will be fully operational before our FPSO contract ends. 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. Looking at the second half of 2021, we have several operational events coming up. We're now planning on completing two workovers during the third quarter, when we initially had planned to do just one in the second half of 2021. We believe there is significant cost savings associated with performing the two workovers sequentially. One of the workovers is expected to provide potential production uplift, while the second is to install an updated ESP design on a well where the existing ESP is showing signs of potential failure. As a result, our guidance for workover costs is slightly higher than before. But given the cost savings benefit of doing two workovers sequentially, our expected costs are not going to double when compared to the cost of completing just one. We're also planning our annual seven-day field maintenance turnaround, which is expected to take place in September and be completed by the end of the quarter. As always, our annual production guidance included that planned turnaround. Unfortunately, the FPSO will not be able to perform its full annual maintenance turnaround at the same time due to safety protocols. As a result, we have to schedule an additional six-day turnaround in the fourth quarter to accommodate the additional FPSO maintenance. Taking into account the planned and unplanned turnarounds, potential uplift from the workovers and natural decline, we expect production in the second half of 2021 to average between 7,000 and 7,800 net barrels of oil per day. This is just a bit lower than we had estimated earlier this year for the second half of the year before we knew of the additional quarter four FPSO maintenance event. Our annual guidance hasn't changed and we still expect to be within the range of 6,800 to 7,400 barrels of oil per day. Without the unplanned second maintenance event, we believe we would have been well above the midpoint of our 2021 full year guidance. As a reminder, since our 2021-2022 drilling campaign doesn't begin until late this year, we are not currently forecasting any material production uplift from that drilling campaign in 2021, but we should see significant uplift in 2022. For sales volumes, we haven't changed our annual guidance of 7,100 to 8,000 barrels of oil per day. We expect third quarter sales to be in the range of 7,800 to 8,500 bars of oil per day. As we have discussed before, sales volumes do not always equal production volumes due to the timing and size of liftings. Going forward, we plan to continue to provide sales volumes guidance on an annual and quarterly basis. If we expect a material change in our actual sales volume compared to guidance, we will inform the market. As a result, going forward, we will no longer post monthly liftings on our website. We arrange the timing and size of liftings to optimize revenue, which means that we will not always have three liftings per quarter, and the size can change somewhat from lifting to lifting. Posting liftings is not a common occurrence in the industry, and we believe our investors will be better served with us giving quarterly sales guidance with material updates provided by us as needed. I would now like to give you a quick update on some exciting new developments in Equatorial Guinea. We have a substantial working interest in Block P and we are evaluating several development, step out and exploration opportunities in our acreage. We are excited about the opportunities on the block and believe it makes sense to move this project forward with a more definable timeline and potential development. We have recently completed our drilling feasibility study for the standalone development of the Venus Discovery in Block P and we are moving forward now with a field development concept. As we work through the development, we will provide more details about potential timing, capital costs and reserves and production estimates. We are committed to profitably exploiting the resource potential of our assets and Equatorial Guinea could become a significant operational asset moving forward. 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 upcoming capital obligations whilst maintaining upside. As you can see, we are firmly focused on maximising shareholder return opportunities and operating with the highest regards towards ESG, while we progress our strategic objectives focused on accretive growth. I would now like to introduce Ron Bain, our new Chief Financial Officer. I have known and worked with Ron for many years and his guidance has been an integral part of our success in the past. His leadership of large geographically diverse financial teams listed in both the US and UK and strong ties to the London investment and banking communities make him an important addition to Valco. With that, I would like to turn the call over to Ron to share our financial results.