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.

Thank you, George. Let me begin by echoing George's comments about our execution on several complex operational and corporate projects simultaneously, including the closing the acquisition of Transglobe in the fourth quarter of 2022. I am pleased with our record annual operating performance in 2022, and as we look to 2023 and beyond, we are better positioned today to execute on our strategy while adding and returning value to our shareholders. Turning to our financials, we generated an adjusted EBITDAX of $49.8 million in the fourth quarter of 2022 and a record $186.6 million in 2022. This was more than double the 85.8 million in 2021. The record-adjusted EBITDAX was primarily due to sales volumes increasing by 36% year-over-year and average sales price for crude oil increasing by 34%. We have clearly benefited from higher realised oil pricing, the impact of increased production at Itami and the Transglobe acquisition, which only contributed to financials after the closing on acquisition on 13 October 2022. These factors have allowed us to fund our strategic initiatives with cash flow and cash on hand, including our drilling and completions capex, FSO conversion and field reconfiguration costs, as well as our quarterly dividends and our share buyback. We also reported net income of £17.8 million or 19 cents per diluted share in the fourth quarter of 2022, which included a £10.8 million gain on acquisition, a £5.3 million deferred tax expense and a £7 million in transaction costs associated with the Transglobe combination. For the full year 2022, Valco reported net income of $51.9 million or 74 cents per diluted share, which included a $44.8 million deferred tax expense. £14.6 million in transaction costs associated with the Transglobe combination, a £10.8 million gain on acquisition, £8.9 million in FPSO demobilisation costs and a £5.1 million in unrealised derivative gains. after normalising for the deferred tax charge, transaction costs, gain on acquisition, FPSO charges and the unrealised derivative gain, our adjusted net income for the full year 2022 totalled $104.3 million, or $1.49 per diluted share, as compared to an adjusted net income of $39.6 million, or $0.67 per diluted share, for 2021. The same factors that drove record-adjusted EBITDAX helped to meaningfully increase adjusted net income as well. Production for the fourth quarter of 14,390 net barrels of oil equivalent per day was up by 57% compared to 9,157 net barrels of oil per day in the third quarter of 2022. Production for the full year 2022 was up 43% from the same period in 2021 due to our drilling programme and the production benefit from the Transglobe transaction after 14 October 2022. Sales volumes in Q4 2022 were 1.37 million BOE which was 88% higher than the third quarter of 731,000 and a full year 2022 sales increased 35% to 3.68 million BOE. In the fourth quarter we had sales across Gabon, Egypt and Canada for the first time. Offsetting the benefit of these high sales volumes was a 32% decrease in realised commodity pricing in the quarter compared to Q3 2022. Despite the decline, we are pleased with our continued strong commodity price realisation, which was $70.43 per barrel of oil equivalent in the fourth quarter of 2022. With Canada containing natural gas and natural gas liquids, Egyptian pricing driven by the Rasgara blend or pricing will be blended versus the past when it was tied to only Brent oil. We continue to implement a hedging programme to help us provide surety to fund our capital programme, mitigate risk and also to protect our commitment to shareholder returns. We have protected, via costless collars, a floor price of $65 for a percentage of our production through the first half of the year, with upside to at least $100. As we look at 2023 and beyond, we will continue to implement our strategy and examine our capital spending outlay in the near term and the longer term. Our full derivative position can be found in the year-end earnings release, as well as in our supplemental information presentation on our website. Turning to expenses. Production expense, excluding offshore workovers and stock-based compensation for the fourth quarter of 2022 was $40.8 million and for the full year 2022 was $107.9 million. These were sequential increases compared to prior periods driven by higher sales volumes, inflationary pressures and higher levels of operational work in 2022. The inflationary pressure was seen in fuel, boats, personnel, chemicals and miscellaneous costs. We are monitoring our costs and looking for ways to safely reduce expense, but believe that the elevated cost levels driven by the inflationary pressures may continue into 2023. There continues to be increased competition for services. Over the past two years, we saw a decrease in the number of overall service providers across the supply chain. From a macro level, both the higher demand and the lower supply of services is driving costs higher across the industry. We believe inflationary pressures could continue as we benefit from higher commodity pricing. We had no offshore workovers in the first three quarters of 2022, but in the fourth quarter of 2022 we performed two offshore workovers for $4.7 million. Both workovers were in Gabon, with one due to a safety valve in the well that required replacement. The second was to restore production on the south east Itame 4H well which went offline as a result of an upper ESP failure and Volco was unable to restart the upper ESP or the lower ESP to restore production. We were able to restore production in Q4 to that well supporting the base production at Itame. In the third quarter 2022, we had a one-time charge related to the FPSO demobilisation costs of $8.9 million. This allowed us to continue producing into the NDIPA beyond the term of the original contract and allowed us to produce more barrels than we had previously guided for Q3. These one-time costs were incurred to retire the FPSO as we transitioned to the FSO. There were no similar expenses incurred in the fourth quarter of 2022. After year end, these costs were cash funded from the abandonment fund. Depreciation, depletion and amortization expense for the three months ended December 31, 2022, increased to $26.3 million, which was higher than the third quarter of 2022 of $9 million and higher than the $4.1 million in the fourth quarter of 2021. The increase in depreciation, depletion and amortisation expense compared to both periods is due to higher depletable costs associated with the FSO field reconfiguration, as well as a step up to the fair value of DDNA associated with Egypt and Canada following the Transglobe acquisition. General and administrative expense for the fourth quarter of 2022, excluding stock-based compensation expense, decreased to a negative $0.3 million compared with $2 million in the third quarter of 2022 and $2.2 million in the fourth quarter of 2021. The decrease compared to prior periods was primarily driven by a large increase in operational projects, evolving a majority of corporate resources, which realized a high percentage of costs charged to projects. For the full year 2022, G&A cost, excluding stock-based compensation, was $8 million, a decrease of 35% compared with the full year 2021. G&A non-cash stock-based compensation expense for the fourth quarter of 2022 was a negative £0.1 million and for the full year 2022 it was £2.1 million. Income tax expense for the three months ended December 31, 2022 was $6.9 million. This is comprised of a £5.3 million of deferred tax expense and a current tax expense of $1.6 million. From a cash tax standpoint, the only tax paid is on our profit barrels in both Gabon and in Egypt. No cash tax is payable in Canada due to the availability of net operating losses. The Gabonese government takes their taxes in kind through an annual lifting. That lifting occurred in December 2022. We accrue quarterly during the year for the estimated value of the barrels they will lift using quarter end all pricing. We then adjust for the actual cost based on the pricing at the time the lifting occurs. The current tax liability was settled in December by the state taking their barrels. To recap, we build up the liability during the year which impacts working capital akin to extending payables. Then when we settle, it's an outflow of working capital. This is why it impacts our overall cash from operations on the cash flow statement. For the year ended 31 December 2022, income tax was an expense of $71.4 million, comprised of a current tax expense of $26.6 million and a deferred tax expense of $44.8 million. The effective tax rate for the year was 57.8%, compared to our PSC tax rate in Gabon of 52.5%. We generated £186.6 million in adjusted EBITDAX in 2022, which is more than double what we generated in 2021. With our recent stock price around $4.50, we continue to trade at a very low multiple of EBITDAX, despite paying a strong dividend yield and being debt-free. Additionally, with the Transglobe combination, we should see a step up in adjusted EBITDAX in 2023, depending on commodity prices. Our increased market cap implies that we should be trading at a much higher multiple that similar sized companies enjoy. We believe that we are truly undervalued and that is another reason that we are excited about our share buyback programme. We believe right now is an excellent opportunity to buy our common shares at a discount to their intrinsic value and are a very attractive investment of our cash balance. At December 31, 2022, we had unrestricted cash balance of $37 million. A breakdown in the source and use of cash from 30 September is provided in Supplementary Dec. Transglobe had $17 million in completion-related costs to acquisition date, and Valco had $7 million of completion costs. This, together with the annual state lifting, which settled our tax liability for the year, were singular events that occurred only in the fourth quarter. Adjusted working capital at December 31, 2022 grew to $44.2 million, compared with a negative $19 million at September 30, 2022. Receivables grew with the inclusion of Transglobe, with $52 million of outstanding accounts receivable. We had $46 million outstanding with eGPC at 31 December for September through December sales invoices. There were only direct sales in Egypt in Q4 and we successfully were provided a cargo in February 2023, lifted 450,000 barrels and were paid offshore. Monetisation is generally via export cargoes. In addition, due to the drilling campaign commencing in Q4, we were provided a cash payment of $10 million in Q4. Historically, TGA has approximately $3 to $4 million per month of expenditure with EGPC sister companies and has successfully managed this via offsets. Again, historically, as part of the merged concession, we had an annual commitment for five years to pay $10 million per annum as a modernisation payment and this, in February 2023, was achieved not through a cash payment but via an offset. Canadian accounts receivable was $4.5 million for December and that since collected in January. And Gabon for accounts receivable was $1.7 million and again since collected in January. Other balance sheet items worth highlighting are other assets where we hold the backdated entitlement receivable with eGPC of approximately $51 million and continue to work with eGPC on collection. Right of use assets have changed with the completion of the contract for the Natipa FBSO coming out of operating lease assets and the replacement of the Tele FSO within the finance lease assets. In conjunction with the Transglobe merger, Valco assumed an existing revolving loan facility with Alberta Treasury branches. At the time of closing the merger, there were outstanding funds which we repaid and on January 5th, 2023, we decided to exit the facility completely. We will continue to work with our banking group to potentially incorporate and expand our current facility to include the trans-globe assets. As has been the case since the third quarter of 2018, we are carrying no debt and have facilities available to utilise for additional accretive acquisition opportunities to continue to build our value. For the full year 2022, net capital expenditures excluding acquisitions totalled £159.9 million on a cash basis and £178.5 million on an accrual basis. These expenditures were primarily related to costs associated with the 2021-2022 drilling programme, the FSO conversion and the Itami field reconfiguration, as well as drilling activity in Egypt and Canada. In 2022, Valco paid quarterly cash dividends of 3.25 cents per common share, beginning in Q1 2022, for a total of 13 cents per share annually. That equates to about £9.3 million in cash returned to shareholders through dividends in 2022. In addition, for 2023, the Board approved nearly doubling the dividend to 6.25 cents per share quarterly or 25 cents per share annually. The Q1 2023 dividend was paid on March 31, 2023 to stockholders of record at the close of business on March 24, 2023. As stated previously, growing the dividend is a direct result of our increased asset base and cash flow generation ability as a result of the Transglobe acquisition. Additionally, in November 2022, the Board approved a share buyback programme that provides for an aggregate purchase of currently outstanding common stock of up to $30 million. Through March 31, 2023, Valco has repurchased a total of $7.5 million worth of shares, or about 1.55 million shares. With the completion of the Transglobe acquisition on October 13, 2022, we have incorporated all the assets and costs into our guidance moving forward, and both Q1 2023 and full-year 2023 guidance are available on our supplemental deck. As a reminder, we show all of our production with working interest and net realised interest. The difference between production working interest and net revenue interest represents royalties paid or taken in barrels. For the total company, we are forecasting Q1 2023 production to be between £22,500 and £23,800 on a working interest barrels of oil equivalent per day, and between 17,300 and 18,600 NRI BOE per day. Looking at production by asset, we're expecting Gabon to be between 8,700 and 9,100 NRI BOE per day, Egypt to be between 6,400 and 7,100 NRI BOE per day, and Canada to be between 2,200 and 2,400 NRI BOE per day. For the full year 2023, we're forecasting our total company production to be between 20,400 and 24,400 WI BOE per day, and between 15,300 and 18,600 NRI BOE per day. Looking at production by asset, we're expecting Gabon to be between 7,400 and 9,000 NRI BOE per day, Egypt to be between 6,000 and 7,300 NRI BOE per day, and Canada to be between 1,900 and 2,300 NRI BOE per day. For the full year 2023, we are assuming our sales will be in line with our production, but for the first quarter this was not the case. You will notice that Q1 sales were lower than production because a lifting in Gabon shifted from March into April. We have just completed this lifting of about 630,000 barrels of oil in early April. Turning to costs for the first quarter 2023, we expect production expense excluding workover and stock compensation to be between $28 and $34 million on an absolute basis, or between $17.50 and $21 on a working interest per barrel of oil equivalent basis. We also expect offshore workovers to be between $0 and $1 million. Our cash G&A for the combined company is expected to be between $3.5 and $5.5 million. For the full year 2023, we expect production expense, excluding offshore workover and stock compensation, to be between $135 and $157 million on an absolute basis, or between $16 and $20 per BOE. We also expect offshore workovers to be between $4 and $10 million. Our cash G&A for the combined company is expected to be between $15 and $20 million. Finally, looking at CAPEX for the first quarter of 2023, we are forecasting between $25 and $35 million of CAPEX spend. For the full year 2023, we are forecasting between $70 and $90 million. In 2023, our drilling and completion programme is focused on Egypt and Canada. In addition, we have some long lead items for a future drilling campaign in Gabon and some maintenance capital. Approximately 50% of our 2023 capital is earmarked for Egypt, with the remaining 50% split between Canada, long lead items and maintenance capital. We have 10 to 15 wells planned in Egypt, and in Canada we are planning to drill between 4 and 8 wells. Also, our capital spending is weighted for the first half of 2023, which can be seen in our Q1 guidance amount compared to the full year 2023 forecast. This does not include any capital associated with Equatorial Guinea, but we are assessing the timeline and capital needs for the development plan at the Venus Discovery in Block B and we will have more information associated with EG as we move through 2023 with the target of first production from EG in 2026. You can see full year and first quarter 2023 guidance in the supplemental slide deck on our website. Additionally, we have added a netback slide to the presentation that shows netbacks for each of the areas broken out by liquids and natural gas. There is also a total company blended netback at different reliance pricing where we break out the major cash costs to approximately a free cash flow before CapEx and working capital changes. One of the costs shown is a differential. Traditionally, Valco is sold in Gabon based on dated Brent with a differential that was sometimes a premium and sometimes a discount, but overall it was negligible. Now we have Canadian oil, natural gas and NGLs, all of which trade at a discount based on the market that they are sold in. Also, in Egypt, we are marked off of Ras Gara Blend, which is generally a discount to Brent with a further discount for quality of the crude. We're hoping that this additional information and transparency will provide better clarity to the profitability of our producing areas and the company in total at different pricing scenarios. With that, I will now turn the call back over to George.

Thanks, Ron. As you heard, 2022 was a very successful and transformative year for Valco. We completed an all-equity combination of two undervalued companies, Valco and Translope, that provides us additional size, scale, cash flow, geographical diversity, and created a more de-risked portfolio. We expect our enhanced size and scale to yield meaningful cost synergies, the first trance of which we have already captured, and we should benefit from a higher trading multiple that is accorded EMPs with that increased market capitalisation. We now have a vast resource base of organic opportunities in four countries, Gabon, Egypt, Equatorial Guinea and Canada. Our 2P CPR reserves increased 292% to 76.4 million bars of oil equivalent and our approved reserves increased 149% to 27.9 million bars of oil equivalent. The 2P CPR NPV10 value at year end 2022 is $815 million compared to our current market cap of around $500 million. We invested in drilling campaigns in Gabon, Egypt and Canada and successfully completed one of the most comprehensive and complex operational projects in nearly 20 years at Atami with the FSO conversion and full field reconfiguration. We developed and received approval for a POD from the Equatorial Guinea Government for the Venus discovery at Block P and are negotiating final documents for the approval by the partners. We implemented the first ever dividend programme for Valco that began in Q1 2022 and we nearly doubled the dividend in 2023 which paid out March 31st, while also implementing a $30 million share buyback programme and through the first six months of the programme we have returned $7.5 million to shareholders through buybacks. Our buybacks are governed by a 10 plan that allows us to buy shares even during blackout windows as it sets out our plan for the buybacks. We have been in a blackout period since December 2022. I would also like to point out that we have made the share buyback commitment in August of 2022 when oil prices were much higher, and we stress tested the buyback to $80 oil and communicated that commitment. We have continued to buy back stock below the $80 oil level, given that we believe the stock is undervalued and a good use of our cash flow. We're delivering on what we committed to the market and to our shareholders, and we are in an enviable position as we enter 2023. Our strategy is simple. Operate efficiently, invest prudently, increase and return value to our shareholders, maximize our asset base, and look for accretive opportunities. In 2023, our guidance calls for a significantly lower capital spend profile, which should allow us to build meaningful cash throughout the year. In 2023, the forecasted capex range is $70 to $90 million. and we are forecasting about $45 million will be returned to shareholders through dividends and share buybacks. The plan for cash flow generated in 2023 over and above our existing obligations are to build up a reserve for future drilling campaigns and developments. In addition, we will look to enhance or accelerate the return to shareholders as well as evaluating potential accretive opportunities. However, Our current projections show that the majority of the cash generation for 2023, above our obligations, will be weighted in the back half of 2023 because our capital programmes in Egypt and Canada are weighted towards the first half of the year. We are very excited for the future of Valco and remain confident that we will continue to deliver superior long-term value to our shareholders. Thank you, and with that, Operator, we are ready to take questions.

We will now begin the question and answer session. To ask a question, you may press star and one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star and two. We ask that you please limit yourself to one question and one follow-up for today's call. At this time, we will pause momentarily to assemble our roster. And our first question here will come from Stéphane Foucault with Octis Advisors. Please go ahead.

Yes, hi, James. Thanks for taking my question and thanks for the visibility on the moving part, working capital. I have some forum on that and I'm trying to reconcile the balance sheet with some of the comments that you made, Ron. So looking at that, the balance sheet has a big foreign income tax receivable of $68 million. Is that the mostly Egypt, the $50 million you talked about? If you could confirm that, that would be great. Then there is in the abilities, the current $91 million, which I think is referred to accrued liabilities. I think it's mostly capex, but if you could confirm that, that would be great. And lastly, in the non-current liabilities, there are some big jumps in the lease, whether it's finance or operating lease. And if you could confirm why it has jumped so much, that would be great.

Thank you. Hi, Stephen. Thank you for that. I'll take each one of those. Yeah, the other net I think you're referring to, I think it's just the way the line is on the balance sheet. It's nothing to do with foreign income taxes. That's the line above. The other net of $68 million does include the backdated entitlement in the composition of that balance. As I stated on the call, that's roughly about $51 million that is within that particular balance. Looking through the accrued liabilities, there's a number of different things You've got your accrued payables that is quite high at the end of the year. One, because we've taken in Transglobe and you're virtually doubling the size of the company, so our accrued payables go up along with it. There's capital expenditure, which we've got accruals at the end of the year that has gone out in the beginning of 2023. I think that went up about $15 million from where we were the previous year. You've got always at the end of the year, you've got higher accrued wages and compensation costs. That's basically a mechanical part in relation to the buildup of any bonuses or PTO during the year. And of course, within there, we've also got the current liability for the modernization payment for Egypt. which is approximately about $10 million. So as you take those things, those are the big increases that take you up to the $91 million that we have in there in the liability section. The leases, yes. I mean, we obviously had the Natipa in there as an operating lease before. It had been there for 20-plus years. The Tele was taken in. We went live with that in October. And at that point in time, you know, it is the finance lease. That's taking into consideration that we've got a lease term of eight years plus two one-year options. When you look at that from a U.S. GAAP perspective and we work through, you know, the standards, you know, that becomes the right-of-use finance asset. And we have obviously both the asset and the liability to put onto the balance sheet. So that's really the main drivers and leases. You've got the operating lease for the Natipa going off, and that was basically reducing over the last few years as it got through its contract life. And then you've got the new finance lease coming in in the tele, which will be there for at least the eight-year period.

Thank you for that. So for my follow-up question, I'm coming back to the current liability, the $91 million. How do you split between what's account payable, which is about $60 million, and what would be as part of this other accrued? It goes into account payable, doesn't it?

Yes.

I'm trying to understand, let me explain where I'm coming from. I'm trying to understand what's really, to avoid double counting when I look at the working capital between what is part of the announced CAPEX guidance and OPEX guidance and what is not. In other words, what might be carryover for last year or some payment that comes on top of the OPEX and CAPEX guidance within this $91,000.

Yeah, okay, so obviously the accounts payables in that separate section is $60 million, but to the extent that the invoices are in and we've got accruals, that's sitting with roughly between $25 and $30 million between all of the different areas. And then you've got capital expenditure, which is, again, about another $25 million that's accrued CapEx down in that particular line and the accrued liabilities and others. So you've got $50 million that I would say is the degree of timing Traditionally, for us, that's been probably running about the 20 million mark in total. But again, because we've doubled, you know, virtually doubled in size with Transglobe coming in, you would think that 20 million should be somewhere between 30 and 40 million, Stefan. So I do think there's an increase overall at the end of the year that will unwind. But I don't think it's certainly nothing to the extent that that whole balance is going to reverse. I would traditionally see somewhere between 30 and 40 million staying in that account, you know, period on period. The accrued wages, you know, you're talking about five or six million bucks of an increase there. There'll be an element of timing in Q1 as that unwinds. And then, of course, the modernisation payment, as we stated earlier, it was paid by offset in Q1 by EGPC. So basically, you know, we've settled that $10 million liability that we had against receivables that we had with EGPC. So that will definitely move out in the period. Thank you. Does that help you? Yes, thank you. Thank you.

Our next question will come from Jeff Robertson with Water Tower Research. Please go ahead with your question.

Thank you. Good morning. George, you talked about incremental acquisitions. And with the Transglobe acquisition in 2022, which added two more countries to Valco's portfolio with a little bit different cycle times in terms of the project lives, can you talk maybe generally about what characteristics of an acquisition fit Valco in its current profile as opposed to what you might have been looking for a year ago?

Yeah, that's a good question, Jeff. I mean, first and foremost, the acquisition portfolio, for us to go and action anything, it has to be exceedingly compelling, particularly where our stock price is at the moment. And as I mentioned earlier, with a 2P reserve valuation of PV10 of over $800 million, we've got a little bit to – to consider more investment in our stock buyback before we really go into a large acquisition. But part of the drive behind that and the drive behind the Transglobe acquisition was twofold. One was diversification and de-risking the revenue stream, and the second thing was the reserve base so we have a longer life platform for the company. So when we look at the opportunities that are – that are in the market at the moment. First and foremost, you know, unless it's in our backyard and we are going into a new country, we're looking for producing assets. We're looking for assets that will immediately start to contribute to revenue and cash flow. And in addition to that, assets that fit our skill set. Now, our skill set has increased considerably since the acquisition of Transglobe to include, you know, a lot of onshore expertise as well as shallow water offshore. And with that, you know, similar to the driver for Transglobe is to ensure we have, you know, a 10, 15-year lifespan around these reserves so we have the longevity to report forward.

Thank you. And a question, and it sounds like the answer in terms of the free cash flow profile that you mentioned, Ron. With the capital program in 23 weighted to the first half of the year in Egypt, is that imply the production benefit from that capital starts to impact second half of 23 and therefore you have growing production and less capex, therefore more free cash flow?

Yeah, I would say you're definitely going to have an impact on Q1 on free cash flow with the drilling underway. And we're already seeing some tangible production from that. So What I would say to that is you're very much correct, Jeff, in modeling it, that you've got a weighted part on your capex to the first half of the year, as we stated. So free cash flow will be impacted by that in the first half of the year and generate a lot of free cash flow come the second half of the year.

Thank you very much.

And our next question will come from Charlie Sharp with Canaccord. Please go ahead with your question.

Yes, thank you, and good morning, gentlemen. I appreciate the presentation. Just a question, if I may, on the production expense. I guess two questions really are on it. Firstly, I think you've assigned a range of 1.6 to 1.57 million. Can you give us an approximate breakdown geographically of that production expense. And then secondly on it, just looking at the production range that you've indicated, if I assume that the production expense range is related to the production range, that turns out a $18 a barrel production expense. And so I just wonder where that $16 to $20, which you highlight in the presentation, where that comes from. Is that Related to production or partly related to production or other other factors.

Thank you Okay, Charlie, I think I can take those When we look at the overall guidance for the year, you know, we assume production and sales are going to be the same for the whole year and so most of the production expense a barrel of oil is actually done on a sales basis, so that's why I those particular statistics look the way they are when you're calculating them. It will be based on, effectively, the sales barrels. When I look at the overall composition of that full-year guidance on a per-barrel basis, you know, 21 to 27, I guess I would probably point you to a certain extent to the net backslide just for confirmation of those costs. I know that they're blended. in there, but when we look at the overall composition of the cost by area, the operating cost by area, by far the majority is obviously going to still be in Gabon. I would say that that's probably somewhere between 50% and 55%, Charlie. The remaining 45%, I would basically put that to Egypt and Canada, obviously. I would weight that 40% in Egypt. and the remaining part in Canada.

That's very helpful. Thank you. And one small follow-up, if I may. You indicated that you've made some progress in terms of, I think you described them as documentation on Equatorial Guinea, and that there should be another update in Q2. Can you just say a little bit more about what that means, documentation? And in Q3, are you going to be able to give us some sort of flesh around the details of the plan as you see it at the moment to commercialize Venus at least.

Okay. Well, I can say a few things, Charlie. One is that a few weeks ago, we had some excellent meetings here in Houston with our partners and with the government, the MMH. In those meetings, what we've been working on for some time is whilst we were looking at the plan of development and where we were in Q4 with that plan of development and we got the plan of development approved, we still had a number of issues outstanding in relation to the amendments to the production sharing contract with regards to equity percentages that were historically not signed off properly and one or two other issues. So we basically had two PSC amendments outstanding with the government. Both of these amendments were executed in March and allow us to move forward to then finalize amendments within the joint operating agreement between the partners, which at the moment remain outstanding, so I can't go into the details of those, but we do expect those to be executed in the very near future. When we look at the development itself, we have in Q4 of 2022, we went through a peer review of that development, essentially looking at each of the gating criteria from the long reach drilling program through to the plans of doing an extended DST and the topside facilities. So we're currently optimizing that with the input of the peer review to improve both the efficiency of the development and reduce the complexity of the development. So when we look at where we are in 2023, the majority of the work that we'll do in relation to Block P for 2023 will be finalizing the studies working, coming up with the development plan as optimized. That may include looking at drilling all the wells at the same time as opposed to drilling them staggered just because the economics of moving the rig in there and leaving it there to drill the two producers and the water injector makes more sense. And then looking at the topside. So when we're looking at what real activity will happen in 2023, I expect we will complete our seabed survey to ensure that we can locate the MOPU and the rig in the location that we plan. We'll finalize the construction and engineering phase and be able to then put a more detailed timeline on the development towards the end of this year. It certainly is planned that when we look at the drilling program for 2024, to utilize that same unit to drill the wells for us in 2025, early 2025, for the Venus development.

That's terrific. Thank you very much.

We have time for one more guest with questions, and we will take questions from Bill Deslin with Titan Capital. Please go ahead.

Great. Thank you. I have two questions. First of all, would you please discuss further your comment in the press release that you are looking and expect to deliver more synergies with Transglobe than originally anticipated and I guess the spirit of the question is I know you noted early in the call $5 million of savings has been achieved and you're looking for an additional $5 million with other administrative type expenses. Was that really the essence of the comment or was there more beyond that that we should be thinking about?

I'll take the first part of the question, Bill, and I'll let Ron take the second part on the synergies. When we look at the expectation of further synergies, when we look at the operating part of the business, both in Egypt and Canada, we're looking at how we improve the efficiencies of these operations. So when we look at what we've been doing at the moment through the latter part of Q4 and the majority of Q1, In the drilling campaign in Egypt, we've been reducing the time between drilling complete cycles. In the last two wells, we've hit record reductions in that cycle time. So we're starting to see much more greater efficiencies when it comes to the drilling operations inside Egypt. We're applying that same methodology and those same challenges to Canada to reduce the cycle time between drill and completion and hookup. So that allows us to have these greater synergies, have the oil on production at a much earlier time, and obviously becomes much more efficient for a capital spend.

Yeah, just taking mainly the G&A component part of that synergies as well, Bill, I think we had put on our investment deck back at the time when we were looking for the shareholder vote, that we were looking somewhere between 3 and 5 million on the short term. We've got more than 5 million on the G&A side right away. That's really achieved on a couple of fronts. First of all, we had the situation where Transglobe was not only listed in Toronto but listed in London too, so we managed to combine. With the Volco listing, we've managed to get out of those particular filings, so that saved considerable costs. The UK office, effectively where the Transglobe executives were based, all those Transglobe executives, they left the business on basically mid-January. So we got the savings that we were targeting very, very quickly. We've had a number of others in there that we've identified and worked through, including insurance costs, including the interest costs that they had on their ETB facility. You know, there's a variety of different professional services that when we look at it, we're duplicative for both businesses, and we've managed to take those out. So more than five already achieved. I think where we're really focusing on from a G&A point of view now is we're looking at back office functions. We're looking at, I would think we'll be looking at an ERP tool in the near future so that we can get everyone on. the same system rather than having three or four different systems, which we've got today. That in itself will bring efficiencies and I would say improvements in our control process too. So that's what we're targeting, Bill, for 2023.

That's helpful. Thank you both. And then relative to the ARTA 77 HC well in Egypt that you said had had encountered some good sands. What's the timeline to bring that on? And with the wells you are drilling in Egypt, what do you think about in terms of what is a more normal production level?

The well's on cleanup right now, so can't really comment on the production rate until the completion of cleanup is done, but it is flowing. When we look at the changes we're making in both cycle time and production efficiencies inside Egypt, I mean, I think we had Egypt going down around 10,000 barrels a day working interest towards the turn of the year. We're already seeing at least a 10 percent improvement in that as we come into the end of Q1 on a working interest, sorry, on a gross basis. So we do start to see improvement. We're looking at how much more we can get efficiency out into the production system in Egypt. We've looked at some of the activities that they perform annually in tank emptying to the storage facility. And we're looking at moving these quarterly to reduce these cycles that we see traditionally in Q3. And I think we're starting to see benefits from that. When we look at the relationship between the company and its joint venture partner, EGPC, we're seeing considerable improvements there in cooperation and, again, in how we execute the program. So I think we're still very hopeful that we can continue to improve the efficiencies in Egypt. It is one of our key focuses. You heard Ron talk earlier about the cash situation. and how we've been managing that in Egypt. We've seen other operators make statements around Egypt in the cash position as regard to the difficulties and liquidity that that country is going through. We keep a very close focus on that and a very close dialogue. We will, as long as the operation and the interaction with our partners remains as it is at the moment, we'll continue to make the improvements and make the investments.

That's helpful. Thank you. And then my final question is that you spent, gosh, a fair amount of time in multiple components of your opening remarks or your prepared remarks referencing Valco being undervalued. With that being said, what do you think investors are missing whether it be relative to the transglobe acquisition or in total today that's leading to that lack of favorable valuation?

That's a good question. I mean, as we've discussed in the past, traditionally in either the London market or the New York market, a West African or an African-focused producer always trades at a discount. But the level of discount is what we need to discuss. What's the market missing? Well, I think we've made a big step towards giving the market the confidence with the valuations today because what the market may have been missing, and a number of questions have come from the analysts both in London and here in the United States, is longevity. You know, where are the reserves? Where's the position that goes two, three, four years out that we can invest in that gives you surety around the cash flow? The transglobe acquisition, in addition to the position we have in Gabon, provides that surety. The development that we've went forward with in Equatorial Guinea gives us that forward-looking position. It puts a lot more value into our balance sheet in 2022 through Equatorial Guinea, through the acquisition, than has ever been there before. And I think the market's missing that at the moment. We continually, from the numbers we've guided to for 2023, We're guiding to a significant number in revenue and production, which, you know, will lead itself to a significant number in EBITDAX that we don't guide to, but people can work that out. So I think once the analysts sit down and run that equation, and you say that you're basically running at sometimes less than two times EBITDAX, then we're looking for that step change in value as we continue to emphasize these values that are in our balance sheet.

Great. Thank you both, and have a good weekend.

Thank you, Bill.

Thank you, Bill.

And this concludes our question and answer session. I'd like to turn the conference back over to George Maxwell for any closing remarks.

Thank you. I'd like to thank everyone for listening in to our delayed 2022 earnings call. It's hopefully from the listeners that we've managed to put a lot more color around our Q4 and 2022 activities, and also put some color around where we see 2023. And some of the questions we've been asked have assisted in giving the ability to emphasize that point. I think the company has clearly transformed I think when you look at the numbers that we talked about today, particularly with regard to our ability for cash flow generation, our ability for the reserve base and the company for future value, our ability in utilizing that cash and delivering significant value back to shareholders, not just in the potential for capital appreciation for the stock, but also in dividends and buybacks. You heard me state in the closing remarks that we will also look at the opportunity to continue and perhaps accelerate that buyback position as soon as the company comes out of its blackout period, which will be sometime in May, with regard to our Q1 results. Again, the commitment is there to continue to do that while the stock price clearly is in a depressed state versus the value that we've been talking about that's contained in our balance sheets. So I thank everyone for listening today. As I say at the end of every call, for every shareholder if they want to get in touch with Al or Chris and want to have a follow-up conversation with management, we're always willing and able to do that. Thank you very much.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.