VAALCO Energy, Inc.

Good morning, everyone, and welcome to the Valco second quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please say no to 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 and then one on your touch-tone telephones. To draw your questions, you may press star and two. Please also note today's event is being recorded. And at this time, I'd like to turn the floor over to Al Petrie, Investor Relations Coordinator. Sir, you may begin.

Thank you, Operator. Good morning, everyone, and welcome to Valco Energy's second quarter 2023 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 summary financial review. George will then return for some closing comments before we take your questions. Thora Prekel, our Chief Operating Officer, is also with us today and will be available for Q&A. 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 2023 Supplemental Information 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. Falco disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release, the presentation posted on our website, and in the reports we filed with the SEC, including the Form 10-K. Please note that this conference call is being recorded. Let me now turn the call over to George.

Thank you, Al. Good morning everyone and welcome to our second quarter 2023 earnings conference call. We have continued to deliver exceptional results in 2023, bolstered by our expanded asset base following the trans-globe combination. Our focus has been on optimising production, managing our costs, optimising our operations and allocating capital to drilling and development future growth plans. Through the execution of this strategy, we continue to generate the growth in EBITDA that has allowed us to increase the dividend and buy back shares, thus increasing total shareholder returns. We paid our second quarter dividend and announced the third quarter dividend, and we are on track to pay out nearly double the dividend that we paid in 2022. Additionally, to date, we have returned $15 million through a share buyback programme since November 2022 and this programme continues through 2023 at current pricing levels. We have also fully funded our capital programme, remain bank debt free and expect to build meaningful cash in the second half of 2023 to fund exciting future projects across our diverse portfolio. I would now like to point out some key highlights and accomplishments for the second quarter. We were above the high end of our production guidance and saw a quarterly increase of 7% to 19,676 NRI barrels of oil equivalent per day, or 24,863 barrels on a working interest basis. This was driven by record production levels in Egypt and Canada from our successful drilling programs in both areas. Additionally, we saw less decline in Gabon than anticipated due to better operational uptime at Atami and operational enhancements due to the new FSO. You can clearly see how we have grown when you compare second quarter production this year with second quarter last year, we are up 114%. Sales were up 47% compared to Q1 2023, due to the timing of a lifting in Gabon that was pushed from Q1 into Q2, and we also experienced higher production and sales volumes in Gabon, Egypt, and Canada. Our increased sales allow us to grow adjusted EBITDAX by 37% to $65.3 million, which was $17.5 million higher than Q1, despite lower realized pricing. We also generated $77.6 million in cash from operation, which allowed us to fund $27.1 million in CAPEX and maintain our strong cash balance at quarter end of $46.2 million with no bank debt. We have positive momentum as we enter the second half of 2023, both operationally and financially, and we are building size and scale to sustainably grow Valco. With a diverse portfolio of assets across four countries, including Gabon, Egypt, Equatorial Guinea and Canada, I will now spend a little time detailing our positive operational activity in each area. Let's begin with Egypt, where we have invested the largest amount of capital in 2023. Our drilling campaign in Egypt thus far has included the drilling of 12 vertical, including one injector well and one exploration well, as well as a horizontal well. We are very pleased with the drilling performance in 2023. On the vertical wells, we're seeing significantly faster drilling performance, moving from a 2022 average of roughly 38 days per well to eight to 15 days per well in 2023, which is a 60% reduction in cycle times. By drilling the wells faster, we're cutting costs meaningfully and improving the economics of our wells in Egypt. We believe this step change in drilling allows us to consistently drill future vertical wells in under 15 days. In addition to the drilling efficiencies, we have also spent time and effort in Egypt reviewing the facilities and overall production operations. This effort has resulted in two meaningful changes that were enacted recently. The first is that we took steps to relieve pressure bottlenecks and back pressure, which resulted in a 500-barrel-per-day improvement in oil production. The second was to improve our ability to prevent and capture potential spills by improving well sites with secondary containment measures and increased use of composite, spoolable pipe for replacement of old lines and on the installation of new lines. We believe that this will make a significant move towards eliminating uncontained spills. These actions not only improve well performance, but also enhance our commitment to being good environmental stewards as part of our ongoing ESG initiatives. We continue to set production records in 2023, which is one of the key areas driving our ability to maintain and grow total company production. Our drilling and completions program in Egypt is a significant part of our 2023 capital program as we continue to develop one of our core assets. We still have several wells that need to be fracked in the third quarter, but the vast majority of our capital spend in Egypt for 2023 has been completed. In Canada, as you recall, we drilled several wells in Q4, but completions were delayed and these wells came online in late December 2022 and January 2023. We also drilled two additional wells in the first quarter, a 1.5 mile lateral and a three mile lateral, which were also required for land retention purposes. Both wells were drilled and completed safely and cost effectively without incident. The wells were tied in and equipped in April and early May with overall cycle times that were significantly less than historical cycle times. The wells began flowing in May and produced very well, and in early July, the pump and rods were run on both wells. Both wells' production rates have continued to exceed pre-deal expectations, which is a very positive sign. We also believe that to better optimize our Canadian prospects going forward, we will move to 2.5 and 3-mile laterals almost exclusively, which we believe will further improve the economics of our development program. Canada also set a production record in 2023, another reason we are performing so well as a company and exceeding our production targets. With our 2023 drilling and completions program completely finished in Canada, we are taking the rest of 2023 to evaluate facility and pad optimization, future development wells, and further refine our completion techniques. After we completed our combination with Transglobe last year, we said we would look closely at Canada in the short term to see how we could improve efficiencies and increase the valuation and optionality of that acreage position. And we are very pleased with the results thus far. Turning to Gabon, as you know, we completed our 2021-2022 drilling campaign in the fourth quarter of 2022. and have only minimal new CAPEX dollars in Gabon in 2023, primarily related to maintenance CAPEX and long-lead drilling equipment. Despite no 2023 drilling program, we have seen strong overall production numbers in 2023 with both the first and second quarters at the high end or exceeding the high end of our production guidance. In the fourth quarter of last year, we completed the FSO and field reconfiguration project which is allowing us to operate more efficiently and economically while focusing operational excellence, including production uptime and enhancement in 2023 to minimise decline until the next drilling campaign. We are seeing multiple benefits from the FSO already. The impact of the cost savings from the new FSO are helping to offset some other higher costs from inflationary and industry supply pressures. In addition, the FSO has greater storage and handling capacity, which is one of the reasons why our second quarter sales were so strong. As things stand today, the minor pipeline work on the Scent grass line we had in Q2 is now scheduled to be completed in September, which should help lower OPEX due to less diesel costs once completed. Our subsurface team have been working on the evaluation of our drilling prospects for our next drilling campaign at Itame. We are ready to progress the planning of our 2024-2025 drilling programme which we are currently projecting to be a three to four well programme with additional well options. All of this is dependent on rig availability and last week we issued an expression of interest to the market in search for a rig that meets our requirements to begin the programme in mid 2024. We believe that we will be further along with the planning and have a better understanding of rig availability and program timing and plan to discuss it in more detail at our next earnings call. Additionally, in Gabon, we are engaged in the final PSC negotiations with the government and their partners regarding blocks G and H. We remain excited about the upside potential of these blocks as they expand our acreage in Gabon and we will update the market when we have more details. Let me now 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 were previously discovered but undeveloped resources, as well as additional exploration potential. In March 2023, we held a productive meeting with the MMH and our partners. During these meetings, we finalized multiple substantive documents for Block P, which includes the Venus development relating to the production sharing contract. The GOA still has outstanding signatures in place and we will be able to accelerate the project forward following approval by all stakeholders. We have an approved POD and we will continue working with all stakeholders to move it forward towards FID. We have a proven operating track record for a development of this kind and we look forward to demonstrating these capabilities as we progress the Venus discovery into production. There are a lot of exciting projects and developments in 2023 and moving into 2024 that will continue to help Valco grow production, reserves and value for our shareholders. I would like to thank our hard-working team who continue to operate and execute our plans. We have captured meaningful synergies and cost reductions of the TransGlobe acquisition already and continue to make progress towards capturing more efficiencies while continuing to build size and scale. We are bank debt-free and remain firmly focused on a strategic vision of accretive growth while maximising shareholder return opportunities and operating with the highest regards towards ASG. With that, I would like to turn the call over to Ron to share our financial results.