VAALCO Energy, Inc.

Hello, and welcome to the Valco Energy Third Quarter Earnings Conference Call. All participants will be in the Sonali 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 your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I now would like to turn the conference over to your host today, Al Petrie. Mr. Petrie, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Valco Energy's third 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, 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 re-enter the queue with additional questions. I would like to point out that we posted a Q3 2021 supplemental information 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 the reports we filed with the SEC, including the Form 10Q that was filed yesterday. 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 third quarter 2021 earnings conference call. I am very pleased with our ability to execute on our strategic vision, and 2021 has been a banner year for Valco thus far. We nearly doubled our production with the acquisition of Sasol's working interest in Itami in February 2021. In June, we secured a jack-up rig for the upcoming 2021-2022 drilling campaign. In August, we finalised an agreement with World Carrier that will allow us to sustain our operational excellence and robust financial performance at Itami through 2030 with a new FSO solution that reduces costs by almost 50% when compared to the current FPSO and will reduce our overall field operating costs by approximately 17% to 20%. In October, we were provisionally awarded two offshore blocks as part of a consortium with BW Energy and Panoro Energy. This expands our presence and relationship in Gabon, a further indication of our investment commitment in Gabon. All three companies in the consortium are uniquely positioned since we have world-class discoveries in Gabon adjacent to these awarded blocks. We also recently announced that we have completed our feasibility study for the standalone development of the Venus Discovery in Block P in Equatorial Guinea, and we are moving forward now with a field development plan. We have also completed our planned annual full field turnaround maintenance on time and within budget in the third quarter. I'm also pleased to say we have already completed the second shutdown that was needed for maintenance on the FPSO that could not be completed at the same time as the full field turnaround. That second shutdown lasted six days and was started and completed in early October. Finally, we have successfully performed two workovers in September and October, which resulted in an increase to production As you can see, we are delivering on our strategic objectives and, in many cases, exceeding expectations, which has firmly placed Valco in a financially enviable position. Turning to the third quarter, we produced an average of 7,694 net barrels of oil per day, which was near the high end of guidance despite the annual seven-day field-wide turnaround. The third quarter reflected stronger sales and realized pricing, which drove revenue higher. This also helped to grow our adjusted EBIT DAX to $23.3 million in Q3 2021. In fact, we have now generated $63.2 million in adjusted EBIT DAX for the first nine months of 2021, which is almost the same amount as the previous two full calendar years combined. This has allowed us to grow our cash position to £52.8 million at the end of the third quarter in preparation to fund our 2021-2022 drilling campaign from cash on hand and from operational cash flow. We continue to be pleased with the ongoing strength of the oil price environment, and with a significant increase in production, we will continue to hedge opportunistically and lock in free cash flow and adjusted EBITDAX to assure we have the funds for our activities in 2022. Turning our attention to the future, our strategic vision is built on accretive growth through organic drilling opportunities and through acquisitions. We have used the 3D seismic that we acquired over at TAMI to maximise the impact of our upcoming drilling campaign. Additionally, we are de-risking future drilling locations and potentially identifying new drilling locations with further 3D processing. In June, we secured a contract with Board Drilling Limited to drill at least three wells, with options to drill additional wells. We are expecting the rig to begin drilling our first well, the Itami 88 sidetrack, in early December as planned. We will provide details on other planned drilling locations in early 2022, but we are very excited by the production upside of this campaign. As a reminder, assuming a successful drilling campaign, 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 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 as production increases, our per-barrel costs will decrease significantly. 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, we estimate the cost of the drilling programme is between $117 and $143 million gross, or $74 to $91 million net to Valco. This is slightly higher than our estimates at the beginning of the year due to inflationary pressures on service and manpower. But given the current sustained higher oil price environment, the upcoming drilling campaign has the potential to generate significant additional free cash flow. In line with our strategy to be a low-cost operator, we are constantly looking at ways to reduce costs and improve margins. In August, we announced that we had signed and received partner approval for a new FSO solution. From an operating cost standpoint, our current FPSO costs are around about 40% of our total production expense. The new FSO will significantly reduce storage and offloading costs by almost 50%, increase effective capacity for storage by over 50%, and is expected to need an extension of the economic field life, resulting in corresponding increase in recovery and reserves at Itami. The new FSO agreement requires a prepayment of $2 million gross 1.3 net in 2021, which we paid in the third quarter, and $5 million gross $3.2 million net in 2022. These advanced payments will be recovered against future rentals. Additionally, current total field-level capital conversion estimates are around $40 to $50 million gross, $26 to $32 million net to Valco, with the majority of the capex being spent in 2022. This capital investment is projected to save approximately $20-25 million gross per year in operational costs through 2030, giving the project a very attractive payback period of only 2-2.5 years. The FSO solution is expected to greatly improve our margin per barrel and allow us to deliver more free cash flow to fund our future activities. In October, we announced an exciting new opportunity in Gabon. Valco has entered into a consortium with BW Energy and Panoro Energy. The consortium had been provisionally awarded two blocks in the 12th offshore licensing round in Gabon, with two exploration periods totalling eight years, which may be extended by a further two years. The consortium will now commence detailed production sharing contract discussions with the Gabonese government. The bid terms were won on a basis that Valco would pay a net $4.6 million signature bonus in total for the blocks when the blocks are officially awarded. BW Energy will be the operator with a 37.5% working interest. Valco will have a 37.5% working interest and Panora Energy a 25% working interest and both will be non-operating joint owners. The two blocks G12 and 13 and H12 and 13 are adjacent to Valco's Itame PSC as well as BW Energy and Panoro's Disafu PSC offshore southern Gabon. The majority of these two blocks are in water depth similar to Itame. Both Itame and Disafu have been highly successful exploration, development and production projects undertaken by the consortium members over the past 20 years with approximately 250 million barrels discovered to date. As you can see, this consortium is uniquely positioned with the knowledge, experience and expertise of progressing world-class discoveries in Gabon adjacent to these awarded blocks. The consortium bid with the intent to shoot 3D seismic on Block G and reprocess existing data on Block H during the first exploration term and has agreed to drill an exploration well on each block. We don't expect to shoot the new seismic until 2023, with any drilling to occur after that. The existing seismic on both blocks indicates several opportunities and our goal will be to efficiently and effectively explore, develop and potentially produce additional resources in Gabon. We believe that this opportunity fits perfectly with our strategy to maximise shareholder returns in the area we know best in West Africa. Another area that holds significant future potential for Valco is Equatorial Guinea. We have a substantial working interest in Block P and we are evaluating several development step out and exploration opportunities on our acreage. We are excited about our opportunities on the block and believe it makes sense to move this project forward with a more definable timeline for potential development. This summer we completed our drilling feasibility study for the standalone development of Venus Discovery in Block P and we are moving forward now with a field development concept. As we work through the development concept, 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 EG could become a significant operational asset moving forward. Before I turn the call over to Ron, I would like to briefly discuss the workovers that we performed in September and October. We began the workovers in late September and utilised Valco's mobile hydraulic workover unit, which was purchased in early 2021, to rapidly mobilise and replace the electrical submersible pump, the ESP units, cheaper and more effectively compared to using a drilling rig. Also, by performing the workover sequentially, we saw significant cost savings. The first workover that we completed was on the Aburi 2H well to replace and upgrade the longest producing ESP unit, Atatame. The successful replacement increased production from 500 barrels per day, 294 net, prior to the workover to approximately 1,400 barrels a day gross, 730 barrels net in mid-October. The second workover was to replace the upper and lower ESP units and reconfigure the ESP design at the TAMI 12 H well. Production was restored in late October at a rate of approximately 1,800 barrels a day gross. In October, we completed an additional six-day turnaround to accommodate the necessary FPSO maintenance we discussed last quarter. Taking into account these quarter events, we have narrowed the range of our annual guidance to be between 7,000 and 7,200 barrels of oil per day. As a reminder, since our 2021-2022 drilling campaign doesn't begin until December, there is no production uplift from that drilling campaign in 2021, but we should see significant uplift in 2022. For sales volume, we have also narrowed our guidance to between 7,350 and 7,550 barrels per day. As we have discussed before, sales volume do not always equal production volumes due to timing and size of listings. Going forward, we plan to provide sales volumes guidance on an annual and quarterly basis. In summary, there's a lot to be excited about as we finish 2021 and enter 2022. I would like to thank our hardworking team here at Valco who continue to operate and execute on our strategic vision of increased growth and free cash flow generation. As you can see, we are firmly focused on maximising shareholder return opportunities, our sustainable quarterly shareholder dividend policy that we announced yesterday, all while maintaining upside and operating with the highest regards towards ESG, while we progress our strategic objectives focused on accretive growth. With that, I would like to turn the call over to Ron to share our financial results.