VAALCO Energy, Inc.

Thank you, Operator. Welcome to Valco Energy's second quarter 2024 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the second quarter. 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 reenter 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. 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 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. With that, let me turn the call over to George.

Thank you, Al. Good morning, everyone, and welcome to our second quarter 2024 Earnings Conference Call. We began 2024 with positive operational and financial results, including strong earnings and adjusted EBITDAX generations. Operational excellence and delivering consistent production is key to allowing us to grow adjusted EBITDAX. For the past two years, we have met or exceeded our quarterly production guidance. We are executing at a high level and continue to deliver results in line or above our guidance. This is due to strong drilling and workover results in Canada and Egypt, coupled with strong uptime in Gabon. Also, in the second quarter, we closed the Svenska acquisition at the end of April, which helped us to increase our earnings to over $28 million, or 27 cents per share, and grow adjusted EBITDAX to $72.5 million. We continued to return cash to our shareholders in Q2 2024 through our quarterly dividend, and we announced a third quarter dividend as well. I would now like to go through and give a quick update on our diverse portfolio of high quality assets, beginning with our newest asset in Cote d'Ivoire. We quickly and efficiently closed the Spencer acquisition in an all cash deal for $40.2 million on April 30th, 2024. Our team traveled to Côte d'Ivoire to meet directly with the Ministry of Hydrocarbons to officially introduce Valco as the new partner in Block CI40. This acquisition is highly accretive on key shareholder metrics, provides another strong asset to support future growth, and has significant upside potential. We added a solid asset with reserves that exceeded our initial estimates, and we did so at a very attractive price. Based on results of our third party reserve engineers, we have SEC net proved reserves as at year end 2023 of 16.9 million barrels of oil equivalent with 93% oil. Our previous 1P working interest CPR reserves were 13 million barrels of oil equivalent. This 30% increase in reserves further justifies the acquisition and improves the metrics associated with the purchase. We are working with the operator of Côte d'Ivoire and will provide additional information in the second half of 2024 on the Baobab FPSO project planned in 2025 and future Baobab drilling plans. Turning to Canada, we successfully drilled four wells in the first quarter of 2024, completed those wells in March and April and bought the wells online. As a reminder, We drill longer laterals to improve the economics of the program and all four wells are 2.75 mile laterals. Three of the four wells have very strong initial rates with IP30 rates exceeding our type curve and one of the wells below our type curve. To show the impact of these new wells, in Q1, our Canadian production was about 60% liquid and in Q2, our Canadian production was approximately 75% liquid. The strong oil production has rebalanced production in Canada more in favour of liquids, which contributes to the strong production performance and our overall profitability. As the wells continue to produce, they're coming in line with our type curve and we are optimistic about the future drilling potential in Canada. As I mentioned last call, we're also targeting an exploration appraisal well in the third quarter of 2024 in our southern acreage. In our southern acreage, we have minimal horizontal subsurface information, and this exploration well, if successful, could prove up additional long lateral wells in the future with the potential to add proved undeveloped locations. In Egypt, as we disclosed last quarter, the first half of 2024 is focused on high rate of return capital work over projects to help mitigate decline. As you saw in the earnings release, we had four re-completions in the second quarter with some very strong results, adding about 800 barrels of oil per day when you combine the four IP30 rates. In addition to the successful workovers, I am very proud of a major milestone that we accomplished in the first half of 2024 in Egypt. We have gone over 2 million man hours without a lost time incident, completing in the third quarter of this year. This is a testament to our commitment to safety, training and dedication of all of our people in the field. As I mentioned on the last call, we have 10 to 15 well drilling programs that we are currently evaluating in Egypt. This project remains contingent on completion of the program evaluation and confirmation of a drilling rig. We have not included this program in our 2024 CAPEX guidance and won't add it until confirmed. If we proceed with the program, we anticipate additional topics of approximately $9.5 million, which will also generate additional production. We will see some additional production in 2024. However, the bulk of the additional production will impact early 2025 production. We have seen some positive announcements from the government in 2024, in particular payment of aid receivables, which is very encouraging. Ron will go into more details regarding the Egyptian receivables. Turning to Gabon, in the second quarter, production was impacted by an Abuma platform issue. Operationally, we had a planned maintenance turnaround in Abuma in the third quarter, but due to the platform issue, we moved that forward into Q2. This issue was addressed and the platform was brought back online safely, and we will not have a turnaround now in the third quarter. You will notice that our Q3 production midpoint for Gabon is actually above the Q2 production of just under 7,500 barrels per day due to the movement of the turnaround at Aguma. Given that we haven't drilled a well in Gabon in over a year, we are pleased with the positive overall production results and strong production uptime and improved decline curves on the wells. The SSO and field reconfiguration projects in 2022 have allowed us to minimise downtime, capture efficiency and reduce overall OPEX. Looking ahead to 2025, we have prepared a firm seven-well programme that we plan to initiate first half 2025, subject to securing a drilling rig. The proposed programme includes an infill well and exploration well in the TAMI, a Gamba infowell and a gas well for fuel supply at SEMT, which will reduce our dependency on diesel and reduce OPEX, and two workover wells and a redrill of 3H on Iburi. We have completed the analysis on Iburi that we have highlighted in previous quarters. We will conduct two workovers on existing wells and drill one new well to increase production from Iburi that will be treated with this chemical process. The study has indicated that downhole chemical injection can adequately cover the sweetening of the crude and therefore we anticipate that the more costly capex option for a full CSP will not be required. This is a positive outcome that should allow the company to access contingent resources and place these back into reserves upon completion. Object to contracting, we plan to initiate the program in late Q1, early Q2 2025 and expect the campaign to continue throughout 2025. We will provide more detail on capex and volumes when we present our 2025 budget and guidance. Our expected capex spend for 2024 on long-lead items remains, as previously noted, between $30 and $40 million. Further discussions on blocks G and H have taken place, and we have included the signature bonuses in our 2024 capex forecast. On 25th of March, 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development. The finalization of these agreements included a carry arrangement of the partners Atlas and G-Patrol. This arrangement is on commercial terms at so far plus 7%, which at today's rates is about 12.5%. This improves our 1P economics on those previously announced, and we have included an illustration of that in our accompanying slide deck. We will now proceed with our front-end engineering design, or feed study. We anticipate the completion of the feed will lead to an economic final investment decision, or FID, which will enable the development of Venus. We are excited to proceed with our plans to develop, operate, and begin production from the discovery in Block P offshore Equatorial Guinea over the next few years. We look forward to discussing this new area of operations in more detail once the feed study is complete. In the first half of 2024, we have delivered or exceeded our guidance operationally and with solid financial results that have outpaced analyst expectations. We remain focused on growing production, reserves, and value for our shareholders. I would like to thank our hardworking team who continue to operate and execute our plans. Over the past two years, we have greatly diversified our portfolio, which has expanded our ability to generate operational cash flow all while growing our cash position and remaining bank debt free. We are well positioned to execute the projects in our enhanced portfolio and our proven track record of success these past few years should instil confidence in our future. With that, I would like to turn the call over to Roland to share our financial results.

Thank you, George, and good morning, everyone. I will provide some insight into the drivers for our financial results with a focus on the key points. Let me begin by echoing George's comments about our continued success into 2024, driven by our strong operational performance. The second quarter also saw some positive impact from the Svenska acquisition, including our first lifting in Côte d'Ivoire in May. We generated $28.2 million in net income, or 27 cents per share, and around $72.5 million in adjusted EBIT DAX, both significant increases over the first quarter. Let's turn to production and sales, which along with realized pricing, drives our revenue. As George mentioned, we've met or exceeded production guidance for the past two years, with production and sales up for the second quarter driven by incorporating the Côte d'Ivoire volumes following the closing of the acquisition. We completed the lifting in Côte d'Ivoire in May and received payment in June. Total NRI sales for the quarter increased to 19,386 barrels of oil equivalent per day, above the midpoint of our guidance with production of 20,588 barrels. at the higher end of guidance. I'd like to reiterate that with a diversified portfolio of assets, we will have changes from quarter to quarter in the mix of sales from each of our producing areas. This change in mix impacts our realized pricing and ultimately our revenue and earnings. But if you look at the bigger picture and over the full year, you'll see the impressive growth across our expanding portfolio of producing assets. Pricing remains solid in Q2, and our hedging program has always looked to help mitigate risk and protect our commitment to shareholder return. Our current hedge positions were disclosed in the earnings release. Turning to costs, our production costs for the second quarter of 2024 were impacted by a $15 million non-cash purchase price adjustment in Cote d'Ivoire. According to GAAP rules, inventory purchased in the acquisition was marked to market at the time of the purchase, and when the lifting occurred in May, prices had dropped, but the corresponding expense is recorded to production expense. Without this acquisition-related non-cash adjustment, Valco would have been below the midpoint of our Q2 production expense guidance. We believe that Côte d'Ivoire production expense on an ongoing basis will be around $3 million net per month. Our focus remains on capturing synergies and keeping our costs low to enable us to maximise margins and increase our cash flow. GMA costs were also in line with guidance. While they rose on an absolute basis, driven by our growth, on a per barrel basis, they were virtually flat with Q1 2024. We commenced a back office process improvement project with the implementation of a single cloud-based ERP across the whole company that will go live in Q3 2024 and should allow us to streamline processes and efficiently work across multiple offices located across the world. Non-cash DD&A costs increased quarter over quarter, primarily due to increased depletion costs associated with the addition of Cote d'Ivoire. Compared to the same quarter in the prior year, we saw a decrease in the absolute and per barrel DD&A costs due to lower depletable costs in Gabon, Egypt, and Canada, and partially offset by the addition of Cote d'Ivoire. Moving to taxes. And as I've previously stated, in Gabon, our foreign income taxes are settled by the government through in-kind oil listings. Last call, we discussed that we would have a government listing in May. In Q2, we settled $30.2 million in foreign income taxes for Gabon through the government taking their oil barrels as payment in kind. We've discussed our mark to market of the in-kind oil in the past. With the lifting in Q2, the amount of in-kind oil has been reset. So in the near term, price fluctuations will not have as significant of an impact to our tax liability until the quantity of barrels of in-kind oil begins to build back up. Tax costs in the second quarter of about $9.3 million resulted in an effective tax rate of about 25% in the quarter. This was lower than prior quarters and driven by non-deductible items, such as the Svenska transaction costs, the Gabonese state listing settling, and the bargain gain associated with the Svenska transaction. Excluding the bargain gain, the effective tax rate is 53% for the quarter. Our new projected effective tax rate Over the long term, excluding discrete items, the range is 55 to 60%. Turning now to the balance sheet and the cash flow statement. Unrestricted cash at the end of the second quarter was $62.9 million, which was down compared to the first quarter due to several factors. In Q2, we paid $40.2 million for the Svenska acquisition. We spent $32.5 million in cash capex and returned $6.5 million through dividends to our shareholders. I'd also like to point out that we settled $30.2 million in taxes in Gilboan through an in-kind oil lifting, which means the government received the cash associated with this lifting rather than Valco settling it and receiving the cash proceeds as we normally would. I'd like to point out that there's some noise in the cash flow statement regarding the Svenska acquisition. We have a slide in the supplemental deck showing a waterfall to help to explain the movements. In the investing activities, you will see 40.6 million cash received in business combination. This was cash that Svenska had on the books to piece seller accrued liabilities that flowed through the operating activities section that Falco assumed with the purchase. Last call, we discussed likely working capital movements, primarily related to Egypt. In the second quarter of 2024, we sold all Egyptian production domestically, which drove our June accounts receivable higher. Following the end of the quarter, we did receive in early July and 8 million cash payment for Egyptian accounts receivable. Additionally, eGPC has now provided written confirmation and recognized our invoice in our June payables related to the contractual backdated receivable from the merger of the PSCs of approximately $40 million. This is a major step forward and with EGPC demonstrating through March and July back payments to IOCs, and with the new Oil Minister prioritising resolving the aged payables situation, we are pleased to continue to work with the Egyptian Government, which has made a concentrated effort to reduce its backdated bill payables in 2024. As has been the case since the third quarter of 2018, we're carrying no bank debt and have credit facilities available to continue to build value. In Q2 2024, Falco paid a quarterly cash dividend of 6.25 cents per common share or $6.5 million absolute. In 2024, we have now returned almost $20 million in shareholder returns. We also announced the third dividend payment of the year, which will be paid in September. Let me now turn to guidance, where I'll give you some key highlights and updates. I want to remind you that guidance now includes the recently closed Svenska acquisition, which only affected two months for the second quarter, and the full impact will be seen in the third quarter. Also, our full guidance breakout is in the earnings release, and in our supplemental slide deck on our website with production breakout of both working interest and net revenue interest by asset area. For the total company, we're forecasting Q3 2024 production to be between 24,900 and 27,600 working interest barrel of oil equivalent per day, and between 20,300 and 22,800 NRI barrels of oil equivalent per day. This is up compared to the second quarter due to the full impact of the Svenska acquisition and due to the Gabon turnaround timing that George discussed. For the full year 2024, we are now forecasting our total company production to remain unchanged between 23,600 and 26,500 working interest barrels of oil equivalent per day, and between 18,900 and 21,400 NRI barrels of oil equivalent per day. Looking at production by asset for the full year, we are expecting an actual decline in Gabon and Egypt, although the capital work programme in the first half of the year in Egypt has helped mitigate some decline. In Canada, we're seeing year-over-year growth from our drilling campaign, and in Cote d'Ivoire, we're reflecting operations from May through to December in our full-year numbers. For the third quarter and the full year 2024, we're assuming our sales will be more or less in line with our production. Our absolute operating costs are expected to go down compared to Q2 due to the non-cash purchase price adjustment and operating costs that drove costs higher in Q2. Normalizing for the adjustment, then adding expected quarterly running costs, this will go up for the full year due to the normal operational expenses in Cote d'Ivoire. Taking all this into consideration, we are projecting our per barrel of oil equivalent range to decrease due to the additional Cote d'Ivoire volume. We're also expecting flat to slightly lower absolute G&A, as we noted previously. Finally, looking at CAPEX, our 2024 capital spend is between $115 and $140 million, as we prepare for the 2025 FPSO changeout, the anticipated next drilling campaign in Gabon, and the largely completed Canadian 2024 drilling programme. For the third quarter, we are expecting a range of between $32 million and $54 million for our CapEx. In closing, we are executing on our strategy and adding meaningful value. With this French acquisition, we are forecasting a meaningful increase in production and sales. We should also increase our ability to generate additional adjusted EBIT DAX and operational cash flow in the second half of 2024. We are very well positioned to execute and fund a robust capital programme across multiple producing assets over the next several years. With that, I'll now turn the call back over to George.