VAALCO Energy, Inc.

Good day, and welcome to the Valco Energy Second Quarter 2022 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. Please note, this event is being recorded. I'd 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 2022 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'd like to point out that we posted a second quarter 2022 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 our Form 10-K. Please note that this conference call is being recorded. And now let me turn the call over to George.

Thank you, Al. Good morning, everyone, and welcome to our second quarter 2022 earnings conference call. We had a very strong second quarter which included record sales volumes of almost 1 million barrels. We also benefited from substantial high Brent pricing over $113 per barrel. This combination allowed us to generate significant cash flow, execute our accretive growth strategy and fully fund our capital commitments. We continue to pay out dividends to our shareholders, and with a debt-free balance sheet, we are clearly in a very strong financial position. We delivered record-adjusted EBITDAX, which grew 81% over the prior quarter to $60.8 million. To put this in perspective, we generated $79 million in all of 2021 and $22 million in 2020. We have now generated over $94 million in adjusted EBITDAX in the first six months of 2022, nearly as much as in the full year 2021 and 2020 combined. We have used this to pay two quarterly dividends thus far in 2022, and the Board approved a third dividend for the third quarter of this year. Our strong balance sheet remains debt free, and our unrestricted cash balance grew to $53.1 million which does not include $70.3 million in proceeds from May and June liftings that were received in July and August. We are also progressing the field reconfiguration and conversion to an FSO at Itami. The new FSO is arriving in offshore Gabon this week, and we are planning the full field turnaround and hookup in the third quarter. As we have said before, we expect to realize substantial and sustainable operating cost savings from this project that will begin in the fourth quarter and carry on through the remainder of the decade. We also announced that we are exercising our options on the rig in Itami to add two additional wells to the 2021-2022 drilling programme. We believe maintaining the rig at its current favourable pricing was the right decision to allow us to continue to maximise the value potential of our Itami resource. In July, we submitted a plan of development in Equatorial Guinea for Block P, We look forward to receiving approval from the Minister of Mines and Hydrocarbons, and once the development plan is approved, we expect to add new 2P reserves for the discovery on Block P. As you can see, we are delivering on our strategic objectives and delivering strong financial results, which has firmly placed Valco in a financially enviable position. Before I get into more detail about our second quarter results, I would like to briefly discuss the transaction with Transglobe. which I will discuss in more detail following Ron's review of our excellent financial results. On Monday, we put out an additional announcement about strategic and accretive combination with Transcode. LALCO's board has approved a share buyback program of up to $30 million, which is equivalent of up to $0.27 per diluted share that will come into effect subject to the combination transaction being completed. The proposed share buyback is an addition to the $28 million or 25 cents per diluted share annually that we have targeted as shareholder dividends payable on a quarterly basis following the transaction closing. We believe this further enhances the value of the transaction to both sets of shareholders and demonstrates the strength of the cash flows that we expect the combined company to generate. We also posted an updated presentation and podcast on our website that provided updated and supplemental information further demonstrating the value to both sets of shareholders. Q2 2022 operational and financial highlights. Turning to our record-setting second quarter 2022 operational and financial results, we produced an average of 9,211 net barrels of oil per day, which was an increase of 14% over the first quarter of 2022. We had four listings in the quarter, which resulted in record oil sales of 958,000 net barrels sold. In the second quarter, we also saw sustained higher oil prices, which resulted in significantly higher revenue. Our adjusted EBITDAX was $60.8 million in Q2 2022, a record high for Valco, driven by record sales and higher realized oil pricing. These factors enable us to fully fund our 2021-2022 drilling campaign, FSO conversion and related field reconfiguration costs, and continue to pay dividends from cash on hand and operational cash flow. We remain focused on maximizing our ability to generate cash flow and execute on our strategic objectives. On the FSO, we are well on target with the timing of our FSO solution project and field reconfiguration at ATAMI. The FSO is arriving at Itami this week and we are planning for the changeover later in the third quarter. As we have noted, we expect to realise substantial and sustainable operating cost savings from this project that will begin in the fourth quarter and carry through the remainder of the decade. The new FSO provides us with additional flexibility and has an effective capacity for storage that is 50% larger than our current FPSO. The lower overall cost will also lead to an extension of the economic fuel life, resulting in a corresponding increase in recovery and reserves at Itami. From a cost standpoint, like all other EMP companies, we have seen higher costs driven by inflationary pressures that are impacting the project. There's a lot of pressure on fuel prices, services and equipment prices, availability of equipment and consumable and global logistic costs and delays. We have also had to employ additional engineering as well as increased supply chain and inspection costs. I would like to put this into perspective for you. We have about five times the number of personnel in the field right now with additional boats, equipment and operational responsibilities, all working to ensure that we coordinate and complete the substantial project on time with minimal downtime to our production. A project of this magnitude with regards to ATAMI occurs once every 20 years, and we are doing all that we can to manage and minimize the risk associated with such a large and complex project. Nonetheless, until we fully complete the decommissioning of the FPSO, bringing the FSO online, and completing the full field reconfiguration, we will continue to have uncertainty and risk that is being actively managed. To reduce project risk exposure, we elected to use a larger offshore installation vessel that we mobilized from Europe. This vessel brought the flexible pipe reels with it instead of us shipping the reels from Europe. This increased project costs but eliminated the use of a dedicated heavy list transportation vessel or double handling of the pipe in a West African port. We calculated that this decision reduced the number of interface points by as much as 30%, helping to mitigate overall project risk. These factors have increased our estimated capital costs associated with the FSO conversion and field reconfiguration by about $10 million net to Valco. We expect the related capital spend in 2022 to be between $30 to $40 million net to Valco, which is in addition to our 2021-2022 drilling campaign costs. This capital investment is projected to save approximately $13 to $16 million net to Valco in operating costs through 2030. Equatorial Guinea. 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 development. Last month, we submitted a plan of development in Equatorial Guinea for Block P to the Minister of Mines and Hydrocarbons. Once the development plan is approved, we will hold an 80% working interest as a result of a joint venture owner opting not to participate. We look forward to receiving the approval soon so that we can continue to move forward with our discovery at Block P, which is expected to add meaningful 2P reserves upon approval of the POD and provide another strong operational asset to the portfolio. As we work through the approval process, we will provide more details about potential timing, capital cost, reserves and production estimates. We are committed to profitably exploiting the resource potential of all our assets and are pleased with our progress at Equatorial Guinea. 2021-2022 Drilling Campaign Turning our attention to the drilling campaign at Itami, we have exercised options on the current rig to extend the programme by two additional wells. We have had tremendous success at Itami drilling and developing the vast resource over the past 20 years. In February, we reported that we had completed and placed the 8HST well online at rates above our initial estimates. In late April, the Avuma 3HST development well was completed and brought online again with rates above our initial internal estimates. The third well, South Tubela 1HBST, encountered two potential dental producing zones, the D1 and the D9. While we had initially planned to produce the Gamba interval in this well, it was thin and not economic in this wellbore. We build a deeper exploration phase of this well targeting the D1 sand for production and targeting the D9 sand. The D1 was a new Itami interval in which we had not previously produced and it presented us with some challenges with permeability and porosity. We completed the zone using a small frack pack. We knew we had the option to come back in the future and complete a very attractive dental D9 zone which we are currently producing at North Tubuela. The D1 completion came in at the low end of our expectations with an average production rate of 150 to 200 net barrels per day. These production rates are below the minimum recommending operating range for the ESP. And as a result, we have had to cycle the well, which means we shut in, allow pressure to build, and then flow the well, shut it in again, and repeat the process to prevent ESP damage. We will continue to cycle the well to project future reserve recovery expectations and better understand this D1 interval. We're planning to return to the well in our next drilling campaign to complete the D9 Dental interval that had 15 meters of net hydrocarbon shows and has an estimated original oil in place range of 4 to 15 million vals of oil. Following the South Chubwela 1HBST well, the rig was mobilized to the Southeast Itame North Chubwela Scent platform to drill the ETB-SM 2HST well, targeting the dental formation, which is productive in other areas of the ATAMI license. We had some delays in the rig move as a result of waiting on weather to calm down while moving the rig from the Avuma platform to the SENT platform. This caused a two-week delay, and we began operations on the well in late July. As a reminder, this is a sidetracked well, so we are reentering an existing well bore, which requires time to remove production equipment and drill out the plugs. This is, however, substantially cheaper than drilling a new well, and we have utilized this method in the past to minimize capital expense. After setting up the equipment and completing operations to re-enter the well, we began drilling the ETBSM2HST well on August 8, 2022. We expect to reach TD and beginner completions in September. This is targeting a dental sand that is already productive in other areas of the TAMI license and is a separate geology from the D1 sand in South Tubela. Following the ETBSM 2HST well, we are planning to perform some workovers and drill two additional wells. Both of the new wells will be targeting the Gamba Formation with the Buri 4H development well and the North East of Ooma near-field exploration well. If successful, only the Buri 4H well will provide production uplift in the near term. The northeast of Ooma well is a near-field exploration play that could unlock significant reserve additions of between 4 and 22 million barrels. If successful, we will have to come back to this well in a future drilling campaign to complete it and bring it online because it will require a subsea tieback. For the third quarter of 2022, due to the full field turnaround FSO conversion and field reconfiguration causing temporary downtime, we're guiding production to be in the 8,000 to 8,700 net barrels of oil per day. Earlier this month, we modestly lowered our full year production guidance due to the South Tobela well results. Our updated guidance for the full year is between 9,000 and 9,500 net barrels of oil per day. With the additional new wells coming online in the fourth quarter, if successful, and the expected uplist of plus production following the FSO conversion from wells being shut in, we expect a meaningful increase in fourth quarter production. Depending on the timing and success of the new drill wells, we expect our December exit rate this year to be between 10,500 and 11,500 net barrels of oil per day, which would be a new quarterly record for Volco. This would set us up for a very strong opening 2023 and with continued strong oil pricing, additional cash flow and adjusted EBITDAX generation potential. In addition, we are forecasting sales to be in line with production, which would potentially be another record high in quarterly sales for Velco. We also expect the production costs in the fourth quarter to be significantly lower on a per barrel basis due to the lower cost of the FSO and the higher expected sales. From a capital standpoint, we're now including costs associated with the two new wells we added to the drilling program, as well as some inflationary and engineering increases related to the field reconfiguration of the TAMI and the FSO conversion. For the full year, we are increasing our capital guidance to between $130 and $150 million. We continue to forecast that all of our capital commitments in 2022 are being fully funded from cash on hand and cash from operations. All of our guidance for the third quarter and full year of 2022 can be found in the supplemental presentation deck we posted to our website this morning. In closing and in summary, there is a lot to be excited about as we enter the second half of 2022. We are accretively growing production at Hitami through our successful drilling campaign while continuing to progress the exciting plan of development at Equatorial Guinea. I would like to thank our hardworking team here at Valco who have continued to operate and execute on our strategic vision. We are firmly focused on maximizing shareholder value return opportunities and operating with the highest regards towards ESG. With that, I would like to turn the call over to Ron to share our financial results.

Thank you, George, and good morning, everyone. Let me begin by saying I'm very pleased with our operational and financial performance. and we remain very well positioned to execute on our strategy of accretive growth while adding and returning value to our shareholders. Turning to our record-breaking quarterly financials, adjusted EBITDA X rose 81% to $60.8 million in the second quarter of 2022, compared with $33.5 million in the prior quarter, and nearly triple the 21.9 million in the same period of 2021. We've clearly benefited from our highest quarterly net sales volumes and sustained higher realized pricing. This has allowed us to fund our strategic initiatives with cash flow and cash on hand, including our 2021-2022 drilling campaign CAPEX, FSO conversion, and field reconfiguration costs. We also reported strong net income of $15.1 million or $0.25 per diluted share in the second quarter of 2022, which included a $25.9 million deferred tax expense and an $11.5 million non-cash unrealized derivative gain. After normalizing for the deferred tax charge and the unrealized derivative gain, our adjusted net income for the second quarter of 2022 totaled $30.7 million or 52 cents per diluted share, as compared to an adjusted net income of 21.1 million, or 36 cents per diluted share, for the first quarter of 2022. In the second quarter of 2021, Valco reported 8.4 million in adjusted net income, or 14 cents per diluted share. Production for the quarter of 9,211 net barrels of oil per day was higher compared to 8,051 net barrels of oil per day in the first quarter of 2022, which was expected due to the new wells coming online from the drilling programme. Production was up 14% from the same period in 2021. Sales volumes in Q2 2022 were a record high and up 56% from the first quarter and up 49% compared to the same period in 2021. The increase in volumes is primarily due to having four listings in the second quarter of 2022 compared to only two in the first quarter. In conjunction with the higher sales, we also had sustained higher crude oil price realisation which increased 3% to $113.38 per barrel in the second quarter of 2022 versus $109.65 per barrel in the first quarter of 2022 and was up 63% compared to the $69.61 per barrel in the second quarter of 2022. At the end of 2021 and the beginning of 2022, we hedged a portion of our expected production in 2022 to lock in strong cash flow generation to assist in funding our capital programme and dividend. The average price net of the realised commodity derivatives was 91.39 per barrel for the second quarter of 2022 and is up 2% compared to the 89.36 per barrel for the first quarter of 2022. Our hedging programme has provided us with surety over the largest capital programme that Valco has undertaken in over a decade. On July 25, 2022, Valco entered into a costless commodity caller arrangement for a quantity of 326,000 barrels with a weighted average put price of $70 per barrel and a weighted average call price of $122 per barrel. We have 701,000 barrels hedged for the remainder of the year with our swaps in the third quarter and our costless collars in the fourth quarter. Our full derivative position can be found in yesterday's earnings release as well as our Q2 supplemental information presentation on our website. Turning to expenses. Production expense excluding workovers for the second quarter of 2022 was 25.5 million. This increase compared to prior quarters was primarily driven by higher costs associated with boats, personnel, chemicals and costs related with increased sales volumes. We expect to see the supply chain issues, higher marine costs, chemicals, fuel and personnel costs, as well as continued inflationary pressures to continue throughout 2022. There is increased competition for the services right now. From a macro level, both the higher demand and the lower supply of services is driving costs higher across the industry. During 2020 into 21, due to the lower commodity prices and the COVID pandemic, we saw a decrease in the number of overall service providers across the supply chain. With less service providers but greater demand for these services, with the higher sustained oil prices, we believe inflationary pressures will continue in line with the record revenue generation. Given the expected decrease in sales for the third quarter related to the FSO change out, full field reconfiguration and turnaround and associated lifting costs, our guidance range for production expense excluding work overs for third quarter 2022 is expected to be 18 to 24.5 million or between 30 to 33 bucks per barrel of oil sales. We are forecasting that the previously discussed inflationary and supply chain issues will continue throughout the year. Additionally, we are currently working with the FPSO charterer regarding timing for commencing shutdown of production, schedule for decommissioning and associated costs to assure a smooth transition to the new FSO, which is also driving costs higher. As a result, we are increasing our full year 2022 production expense slightly on an absolute basis to between $82 and $90 million. As a reminder, we have some production upside potential remaining with success in the drilling program during the second half of the year. This will likely improve our exit rate heading into 2023, more so than impact the 2022 average. But as George noted, we are optimistic about the remaining program from a production underserved ad standpoint. The higher cost coupled with a decrease in expected sales impact, the cost per barrel range for production expense excluding workovers, and our updated full year guidance is $24 to $28. We had no workovers in the first half of 2022, but based on timing, we are forecasting two workovers in the second half of 2022. DD&A for the second quarter of 2022 was $8.2 million, or $8.55 per net barrel of oil sales, compared with $4.7 million or $7.59 per barrel in the first quarter of 2022 and $5.8 million or $9.05 per barrel in the second quarter of 2021. DD&A expense in the second quarter of 2022 on a per barrel basis was higher compared to the prior periods presented due to higher depletable costs associated with the 2021-2022 drilling campaign. We anticipate DDNA to be in the range of $11.50 to $13.50 per barrel for the third quarter of 2022 as a result of our ongoing drilling campaign. General and administrative expense for the second quarter of 2022, excluding stock-based compensation expense, was $2.7 million at the low end of guidance, compared with $3.6 million in the first quarter of 2022 and $4.2 million in the second quarter of 2021. The decrease compared to prior periods was primarily because of lower wages and a reduction in severance costs of key personnel, which occurred in the second quarter of 2021. The per unit G&E rate, excluding stock-based compensation, in the second quarter of 2022 was $2.81 per barrel of oil sales, which was significantly lower than the first quarter of 2022 and the second quarter of 2021 due to higher sales and lower expense. For the third quarter of 2022, we expect cash G&A to be in the range of $2 to $3 million. We did slightly lower full-year 2022 cash G&A guidance to $9.5 to $11.5 million. Deal costs for the Transglobe transaction are included in other expense. Non-cash stock-based compensation expense for the second quarter of 2022 was $0.8 million and was comprised of non-SARS related expense of $0.6 million and SARS related expense of $0.2 million. For the first quarter of 2022, stock-based compensation was $1.4 million and for the second quarter of 2021, stock-based compensation expense was $0.5 million. Turning now to taxes. Foreign income taxes are attributable to Gabon and are settled by the government taking their oil in kind. As a reminder, our tax rate in Gabon is about 52.5% and can be offset by both production and capital costs. Also impacting the overall corporate effective tax rate are non-deductible items like derivative losses, corporate costs and to a lesser extent some costs associated with operations like our Equatorial Guinea losses. Income tax expense for the three months ended June 30, 2022 was $46.3 million. This is comprised of a $25.9 million of deferred tax expense and a current tax expense of $20.4 million. This was quite a bit higher than the income tax expense for the first quarter of 2022 and the second quarter of 2021. We benefited in Q1 2022, as we had done in the three previous quarters, with valuation allowance release a discrete tax benefit of approximately $12.7 million. Our valuation allowances are now substantially released and our net operating losses from previous periods are being utilised. From a cash tax standpoint, the only tax paid is our profit or barrels. The tax rate in Gabon is more than the US rate and we are now in a position where we are crediting foreign taxes rather than deducting them As you can see, our increased sales and higher realized prices have contributed to higher revenue, but also a higher tax charge. I'd like to refer you to supplemental information deck that we posted to our website this morning. You'll find scenarios around the calculation of our cost and profit oil. In 2022, we have benefited from our brought forward cost pool. High commodity pricing and strong production has seen full utilization of that carry forward cost pool in 2022. The FSO and the drilling campaign will allow us to continue to take advantage of our favorable PSE terms to allocate as much as 80% of cost all through much of the second half of 2022. Also within the supplemental deck, we have updated our net backslide that shows the strong cash flow we are generating at current prices. We've incorporated the midpoint of our updated 2022 guidance using a $90 realized oil price. We remain on track to deliver our lower cost FSO solution on time, which will result in substantial savings on an absolute and per barrel basis despite inflationary pressures. With the FSO and fuel reconfiguration occurring in Q3, we expect lower sales in the third quarter but a recovery of production and sales in the fourth quarter, with production exit rates for the fourth quarter expected to be between 10,500 and 11,500 net barrels of oil per day. You can see the indicative fourth quarter margins on the slide as well, with lower costs, higher sales and increased margins. We've generated $94 million in adjusted EBITDAX thus far in 2022, and the potential to sell as much or more oil in the second half of 2022, we could be in for a record year in adjusted EBITDAX. With our recent stock price around $5, we're trading a pretty low multiple of EBITDAV two times, despite paying a dividend and being debt-free. At June 30, 2021, we had an unrestricted cash balance of $53.1 million, This does not include the proceeds from our May listings of $70.3 million, which were received in July and on the 1st of August, 2022. Working capital at June the 30th, 2022 was negative $8 million compared with negative $21.3 million at March the 31st, 2022. The change in working capital is related to the increase in tax payable aligned with the planned government lift in October 2022, increased accounts payable, which was partially offset by an increase in accounts receivable. For the second quarter of 2022, net capital expenditures, excluding acquisitions, totaled $37.1 million on a cash basis and $38.1 million on an accrual basis. These expenditures were primarily related to costs associated with the 2021 2022 drilling programme, the FSO conversion and the Atami field reconfiguration. As George mentioned, for the third quarter of 2022, we estimate our net capex to be approximately $40 to $50 million. With the increase in the number of wells for the drilling campaign from four to six wells, coupled with some inflationary and supply chain cost increases to the FSO and the full field turnaround, Our full year CapEx guidance is now in the range of $130 to $150 million. As has been the case since the second quarter of 2018, we are carrying no debt. Last week, the Board of Directors approved a cash dividend of 3.25 cents per common share that is payable on September 23, 2022 to all stockholders of record at the close of business on August 24, 2022. This equates to a full year 2022 annualised dividend of 13 cents per share. With that, I will now turn the call back over to George.

Thanks, Ron. As you heard this morning, the second quarter was a record-breaking for Valco. With a successful FSO conversion and full field reconfiguration, additional successful drilling and sustained higher oil pricing, the fourth quarter could meet or exceed our second quarter's strong results. We are accretively growing production and cash flow while remaining focused on providing sustainable returns to our shareholders. We are excited by the organic opportunities in Itami with our remaining 2021-2022 drilling programme wells and the positive impact of our field reconfiguration and FSO conversion. Block P in Equatorial Guinea provides an exciting opportunity once the plan of development is approved as it will establish another asset with a strong platform for organic growth. We are generating significant cash and have now paid two quarterly dividends thus far in 2022 and announced our third that will be paid in September of this quarter. We believe that prudently returning cash to shareholders is a great way to complement our accretive growth strategy. We have done an excellent job growing Volco, and I believe the next step is the accretive and transformational transaction that we are progressing forward with Transglobe. We believe that by combining these two companies, we should be able to expand and diversify our African-focused assets, build size, scale, and market cap that should allow us to generate meaningful cash flow to fund expanded shareholder dividends, share buybacks, and potential supplemental shareholder returns at a rate that would not be achievable on a standalone basis. As noted earlier, we have announced a target of 52 cents per share returned in dividends and buybacks beginning post-closing. Both companies have experienced teams that we believe will be complementary and help us to continue achieving our strategic vision. Most importantly, we will remain firmly focused on maximizing shareholder return opportunities and operating with the highest regards towards ESG. We are very excited for the future of the combined company and believe that it provides the opportunity to materially expand our ability to return value to our shareholders while also growing value in the underlying business at a rate that neither Valco or Transglobe can provide on a standalone basis. Work on the transaction is proceeding as expected and over the past couple of weeks, we've been in discussion with our various shareholders and we appreciate the support that we've heard. We are confident that the combined company is stronger than either company on a standalone basis and will deliver superior long-term value to our shareholders. We expect to file a preliminary proxy statement asking stockholders to approve the arrangement later in August. Once the proxy statement is finalized, we will mail it to our stockholders and call a special meeting to vote on the transaction. We currently expect to close the transaction in the third or fourth quarters of 2022. Thank you for that, and operator, we're ready to take questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster.

Jason, while we're waiting for questions, I wanted to point out to anyone who may have joined us from the webcast, there was a technical problem where the service provider had the link going to a different conference call. That was corrected about midway through the webcast, and so anyone that wants to listen to the whole thing again, they will be able to do so a little bit later when the full recording is back on the website.

Alright, our first question comes from Bill DeZellum from Teton Capital. Please go ahead.

Teton Capital. I have two questions today to start with. First of all, your D2 well that you said you will look at completing in the next drilling campaign, why wait? Why not just go ahead while you were in the wellbore? I don't think I understand technically the the realities around that.

Okay, primarily, Bill, that's driven by the availability of completion equipment. We'd already moved off the well site and had also already selected the additional options that we have for the rig at this current program. So when we were looking at, and I think there's a slide in the supplemental pack that gives some good information, I think it's slide seven, on the differentiation between the phases we were going through on the South Tubela well for the D1 and the D9 opportunity, and then we were planning to take the rig post that. So the rig was already off the well site and away from the platform by the time we were continuing to evaluate the D1 productivity. By the time we came to the conclusion of that analysis, the rig is actually then on the CENT platform and performing production drilling operations in the next well. So basically we have utilized all of our options. We will continue to obviously evaluate the D9 and put the planning in place for going back into that well board to look at the D9 in the 2023 campaign.

That's helpful, George. Thank you. And then how does extending the drilling program this current drilling program alter your original plan for the next drilling plan program, or is that less relevant than how the Transglobe acquisition will ultimately alter that program?

Well, I mean, obviously we've been looking at the programs in isolation of the Transglobe opportunity. It hasn't really impacted at all other than we see the opportunity to take forward the two wells that we have highlighted, the Iburi 4-H workover and the northeast of Uma exploration well. These were the most mature targets that we had from our seismic analysis that we did from the analysis of the reprocessed and re-evaluated seismic that we did in 2020 and 2021. From our side, as we continue to evaluate that seismic, it continues to give us additional targets that we will mature in time for the 2023 program. So when we look at the amount of targets that we have in that program, it is not diminished by what we've pulled forward because the opportunities continue to increase as we continue to evaluate the seismic.

And finally, how many wells are you planning on drilling in the next drilling campaign?

At the moment, we have a range of wells between four and six. This will obviously be subject to a ranking exercise that we will do over our whole CAPEX program subject to the combination being approved by our shareholders because one of the key elements that we have And this opportunity with the increased acreage and increased capital investment opportunity is to evaluate where the fastest and most efficient economic returns are coming from the dollars that we invest in the ground.

Great. Thank you, and congratulations on a great quarter.

Thank you.

We will have no more questions. And with that, I will turn the call back over to George Maxwell, Valco CEO, for closing comments.

Thank you very much, operator. I think it's testament to the strategy and the work and the effort of all the staff at Valco, both in the administrative side and the operational side and the geological side, that is starting to pay dividends through the second quarter, and that's very evident. We have considerable work going on in the third quarter, undertaking some of the biggest changes that Valco have done in a number of years, in the field reconfiguration, please have a look at the additional deck that we've added on to this conference call and you'll see some of the exciting work that is ongoing in the field. As I mentioned, five times the number of personnel currently active in the field at this time gives you a sense of scale as to the kind of reconfiguration operations that we're undertaking. We have a number of exciting opportunities coming forward in Q4 and completion of that. We continue to focus on the transaction and again, I would direct you to the additional materials that we've included in our podcast and slide deck that was issued on Monday in relation to the combination opportunity. With that, I think I'd like to thank our shareholders for the support we've received since I came on board the last 15 months. We've seen the market is responding to our strategy. It is responding to how we are executing our business, and it's responding to the levels of transparency that we continue to communicate to the market. So with that, I thank you very much for listening to our call today, and I look forward to providing you an update in Q3.

Thank you for attending today's presentation. You may now disconnect.