VAALCO Energy, Inc.

Good morning, and welcome to the Valco Energy Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need any assistance today, 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 telephone keypad. If you would like to withdraw your question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please go ahead, sir.

Thank you, Operator. Welcome to Valco Energy's fourth quarter and full year 2022 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the fourth quarter and full year 2022. 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 supplemental investor deck 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 our earnings release, the presentation posted on our website, and in the reports we file with the SEC, including our Form 10-K. Please note that this conference call is being recorded. Let me turn the call over to George.

Thank you, Al. Welcome to our fourth quarter and full year 2022 earnings conference call. 2022 was truly a transformational year for Valco that saw us generate record financial results, successfully complete multiple high-impact operational projects, close an acquisition that nearly doubled production, diversify our asset base, and increase SEC-approved reserves by 150%. Additionally, we implemented our first-ever dividend program in 2022, paying out $9.3 million in dividends to shareholders. In 2023, we increased our dividend by 92% and approved a stock buyback programme in late 2022 to further demonstrate and enhance our commitment to returning meaningful value to our shareholders. Our balance sheet remains debt-free even after we fully funded the largest capital programme in our company history. that included drilling multiple wells and completely reconfiguring our Itami field infrastructure while adding a long-lasting FSO solution that lowered costs and extended the economic field life at Itami. We have a strong production base to help us generate significant cash flow moving forward to fund our dividend, buybacks, capital programmes and potentially additional acquisitions while we build additional cash for the future. Before I go into more detail on these many accomplishments, let me first summarize some high-level financial and operational results that led to a record-breaking year. We grew production by over 40% year over year, which helped us deliver record-breaking adjusted EBITDAX of $186.6 million in 2022. To put this in perspective, we generated $85.8 million in all of 2021 and $26.6 million in 2020. We fully funded a $160 million capital program with cash on hand and cash from operations. We maintained a strong debt-free balance sheet with significant cash on hand and positioned ourselves to generate meaningful free cash flow in 2023. We have positive momentum in 2023, both operationally and financially, and we are building size and scale to substantially grow Valco. On the Transglobe acquisition. On October 13, we completed the transformational combination with Transglobe, which has built a business of scale with a stronger balance sheet and a more diversified production base that de-risks our overall portfolio and will underpin Valco's future opportunities for success. Valco now has a diversified portfolio of assets across four countries including Gabon, Egypt, Equatorial Guinea and Canada. This larger diversified production base positions us to generate meaningful cash flow in 2023 and beyond to fund the increased stockholder dividends, share buybacks and potential supplemental stockholder returns at a rate that would not have been achievable by either Valco or Transglobe on a standalone basis. We are also capturing meaningful synergies as a result of the combination, and the first trans that we initially outlined have already been captured. We cancelled the additional public listings, streamlined the total number of board and executive positions, actioned a more efficient corporate structure, consolidated our advisors, and reduced external reporting requirements. This will save us up to $5 million per year annually, but this is only the beginning. We are increasing optimisation, digitalisation and back-office efficiencies, as well as initiating service, supply chain and operational savings that could potentially double the amount of annualised savings as we continue to implement them over the next 18 to 24 months. A key part of the value proposition around the combination was the opportunity to significantly increase shareholder returns. In 2022, through dividends and share buybacks, we returned over $12 million in cash to our shareholders. In February of 2023, we nearly doubled our quarterly dividend to 0.625 cents per share or 25 cents per share annually from the 13 cents per share in 2022. Based on where our stock is currently trading, this would give a dividend yield of over 5%, which is compelling in today's market. This dividend, when coupled with the share buyback, provides a meaningful return of cash to our shareholders in 2023. When this is combined with the capital appreciation we aim to deliver through our operational efficiency, the result is a strong investment proposition. We believe the market has not yet recognised the value that was created from the combination of our two companies into a single entity, making right now a particularly opportune time for a buyback programme. Bottom line is this acquisition propels Valco to a much stronger position both operationally and financially, providing diversification to maximize cash flow in different pricing environments, reducing the overall risk to our shareholders, and allowing us to return additional value to our shareholders. This is done through cash distributions, but also by prudently investing in the future in our very promising asset base across our four countries to continue to grow cash flow. We also continue to evaluate additional accretive acquisition opportunities to invest in that will further build value. The transglobe acquisition was a major accomplishment for Valco in 2022, but it was only one of many. At Gabon, we completed a drilling campaign, reconfigured the Atami field for efficiency, and entered into a long-term contract for an upgraded FSO. Now to review Gabon. With the FSO, we successfully completed the highly complex FSO installation, field reconfiguration and full field turnaround in October of 2022. As we have noted, this project positions us to realise substantial and sustainable operating cost savings in 2023 and continuing through the remainder of the decade. The new FSO provides us with additional flexibility and has an effective capacity for storage that is approximately 50% larger than the previous FPSO. The lower overall costs will also lead to an extension of the economic field life, resulting in a corresponding increase in recovery and reserves at TAMI. This project was an incredible feat from an engineering, logistical and operational standpoint. I would like to put this in perspective for you. We had about five times the number of personnel in the field during the project with additional boats, equipment, and operational responsibilities, all working to ensure that we coordinate and complete the substantial project with minimal downtime to our production. We also had specialized equipment being manufactured, delivered, and installed from all over the world during a particularly difficult worldwide supply chain environment. Availability of equipment, consumables and global logistics have been strained over the past two years, which led to upward cost pressure and some delays. Remaining committed to safety and operational excellence, we took every opportunity to reduce project risk exposure. This effort increased our project costs by eliminated costly delays, ensured employee safety, mitigated the overall project risk, and ensured minimum production interruptions during installation. A project of this magnitude with regards to Itami occurs once every 20 years, and I am extremely proud of our team managed and minimised the risk associated with such a large and complex project. Hart Energy wrote an interesting story about this project, which we have posted on the homepage of our website, and I think you would enjoy reading. Ron will review the costs of the project and our financials in more detail, but we are seeing the cost savings materialise in our Atami operations in 2023, and moving forward with about $13-16 million of annual savings net to Valco in operational costs through 2030. Turning to the 2021-2022 drilling campaign. Our attention to the drilling campaign at Itami, we have had tremendous success at Itami drilling and developing the vast resource over the past 20 years. Our overall 2021-2022 drilling campaign was a success as the two initial wells were highly successful and exceeded our pre-drill estimates. The programme has materially increased production and extended the economic life of the Itami field. thereby fulfilling the primary objectives of the campaign. We forecast the total drilling programme at Itami will achieve payback in 2023 and have strong overall economics at the current strip pricing, demonstrating the strong cash flow profile generated from this quality asset. Our two highly successful wells, the Itame 8HST and the Evuma 3HST wells were brought online with rates above our initial internal estimates. The third and fourth wells, the South Chibwela 1HBST and the North Chibwela 2HST wells both encountered dentally producing zones, but the production rates and reservoir permeabilities for these wells were below our expectations. In addition to drilling the four wells and with the rig already on site, it made performing two workovers easier and more economic. The first workover was needed due to a safety valve in the well that required replacement. The second workover on the ETSEM4H restored production of about 1,350 gross barrels of oil per day. This well went offline as a result of an upper ESP failure and was restored in late Q4. We are evaluating the learnings from this most recent drilling campaign and further evaluating prospects for our next drilling campaign at Itami. We have reviewed our internal processes for target evaluation and proposal planning and have augmented these into a more integrated approach. This process is being applied to the next drilling campaign, which will likely begin mid to late 2024, subject to rig availability. With this we will incorporate all of our learnings from our last two drilling campaigns in Gabon into our planning process and we are making the necessary changes to do that effectively. Our implementation of the next drilling campaign will depend on rig availability, commodity pricing, supply chain issues and procurement of long lead items, so the exact timing is yet to be determined. We are focused on drilling additional Gamba targets in the next drilling programme while we continue to better map and understand deeper dental potential across Itami. Our primary objectives with any future drilling are successfully adding production and extending the economic life of our Itami asset. We will share with the market additional details on our next drilling campaign once we have our planning complete. Let me reiterate that we accomplished that with our 2021-2022 drilling campaign and the overall economics of the entire drilling campaign are expected to be over 100% internal rate of return given realised pricing and current strip pricing. This is a very attractive rate of return, especially for a company with no debt, strong cash flow and a low cost of capital. On Equatorial Guinea, Now let me turn to a discussion on Equatorial Guinea, another area that holds significant future potential for Valco. Valco owns a working interest in Block P offshore Equatorial Guinea where there have previously discovered but undeveloped resources as well as an additional exploration potential. In March 2023, we held productive meetings with the Ministry of Mines and Hydrocarbons and our partners in Houston. During these meetings, we finalised multiple substantive documents for Block P, which includes the various development relating to the production sharing contract. We are working on concluding remaining documents and expect to update the market in the second quarter of 2023. We are excited about the future of Equatorial Guinea and we anticipate a strong, efficient and economic development of this discovery with First Oil projected for 2026. Additionally, there are clear strategic benefits in further diversifying the revenue generation and country focus of our portfolio. We have a proven track record for a development of this kind, and we look forward to demonstrating these capabilities as we progress the venous discovery into production. In Egypt, we are focused on drilling opportunities in Egypt, which include drilling the first ever nuchal horizontal well on our acreage. This well was flooded in December of 2022, and the lateral was successfully drilled, encountering good oil and gas shows. Our drilling and completion program in Egypt will be a large part of our 2023 capital program, and we continue to develop one of our anchor assets. In Canada, in the fourth quarter, we drilled several wells in Canada, but completions were delayed into 2023. We will drill a couple more wells as part of our Canadian program and complete them all in 2023. Turning to reserves, we're very pleased with the substantial growth of our reserve base, which was driven by several of the accomplishments that I have already discussed this morning. We have added 18.6 million barrels of oil equivalent from the transglobe acquisition and 2 million barrels of oil equivalent from positive revisions which significantly boosted our SEC proved reserves. The proved reserve increase was partially offset by production of 3.9 million barrels of oil equivalent. SEC proved reserves at year end increased by 149% to 27.9 million barrels of oil equivalent. This compelling increase in our SEC-approved reserves does not include any positive impact from Equatorial Guinea. We believe that once the final documents are executed for Equatorial Guinea, we will begin adding improved reserves as we proceed with the development plan. The PV10 value of approved reserves utilizing SEC pricing of approximately $100 per barrel dated Brent increased by 529%, from $99.3 million to $624 million. This was largely driven by the transglobe transaction and from the SEC pricing increase. Our 2P CPR estimate which includes proven and probable reserves, using Valco's management assumptions for future Brent escalated crude oil pricing and costs, reported on a working interest basis prior to deductions for government royalties, saw a year-over-year increase of 292% to 76.4 million barrels of oil equivalent. The 2P CPR MPV10 value increased more than four times from 183.7 million at year end 2021 to 815 million at year end 2022. I would like to point out that pricing played only a small role in these 2p CPR increases as pricing was kept broadly similar year on year. The overall NPV10 for our SEC-approved reserves and our management 2P CPR is significantly higher than our current market cap of around $500 million. We have no debt and a net positive cash and working capital position, but remain significantly undervalued. I will now review reserves and valuation by asset area. At Gabon, we saw positive technical revisions at Itami and from southeast Itami and Iburi fields, as well as strong performance from the Itami field primarily driven by the newly drilled ET8H well. However, these positive technical movements were outweighed by disappointing drill result from north Chibwela Gamba well and south Chibwela Dental well and Avuma field revisions. Taking into account the upward pricing revisions and production for 2022, our net SEC-approved reserves at Itami were down 9% year-over-year to 10.2 million bars of oil. We replaced 67% of 2022 production with new SEC-approved reserves at Itami. Our approved SEC NPV10 for Itami did increase by 246% to £244 million at year-end 2022. As I stated earlier, we continue to work on high grading and better identifying future drilling locations at Itami, which we believe will help to increase our reserves in the future. We remain confident in the value of our future potential at Itami. We are planning to return to drilling in Itami in 2024, pending rig availability and commodity pricing, with a drilling campaign heavily weighted on Gamba opportunities. I would now like to discuss the two asset bases that we acquired last year with the Transglobe transaction, and remind you that since we are adding those to Valco's reserve base, I will not be giving year-over-year comparisons for these areas. Turning now to Egypt. Our net 2022 SEC-approved reserves were 8.6 million barrels of oil, and our approved SEC NPV10 for Egypt was 227 million at year-end 2022. For 2022 SEC-approved reserves, we had a 20% reserve replacement, and despite positive impacts due to pricing overall, quite a bit of the upside was offset by reduced cost pools due to higher pricing. We see strong upside potential in Egypt and will be focusing our 2023 capital programme on development opportunities in Egypt. Looking at Canada, our net 2022 SEC approved reserves were 9.2 million barrels of oil equivalent, and our approved SEC MPV10 for Canada was $153 million at year-end 2022. For 2022 SEC reserves, we had a 267% reserve replacement driven by the 2022 capital programme that had strong reserves due to most of these wells not being captured in the previous SEC-approved reserve base. In summary, there is a lot to be excited about as we enter 2023. I would like to thank our hard-working team who continue to operate and execute on our strategic vision. We have captured meaningful synergies of the transglobe acquisition already, and continue to make progress towards capturing more, all while continuing to build size and scale. We have completed the highly complex FSO and full field reconfiguration at Atami, while completing another drilling campaign. We are working on concluding remaining documents at Block P in Equatorial Guinea and anticipate a strong, efficient and economic development of the Venus Discovery with First Oil projected for 2026. We are debt-free and remain firmly focused on our strategic vision of accretive growth while maximising shareholder return opportunities and operating with the highest regard towards ESG. With that, I would like to turn the call over to Ron to share our financial results.