Vaalco Energy Inc /De/ Q2 FY2021 Earnings Call

Good morning and welcome to the VAALCO Energy Second Quarter Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please go ahead.

Thank you, Operator. Good morning, everyone. And welcome to VAALCO Energy’s second quarter 2021 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights along with operational results. Ron Bain, who was named CFO in June, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions. During our Q&A 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 Q2 2021 supplemental investor deck on our website this morning that has additional financial analysis, comparisons, and guidance that should be helpful. With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will be making forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO 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-Q that was filed yesterday. Please note that this conference call is recorded. Let me now turn the call over to George.

Thank you, Al. Good morning, everyone. And welcome to our second quarter 2021 earnings conference call. Thus far, 2021 has been an exciting year for VAALCO, where we have completed a very accretive acquisition opportunity that arose in late 2020. We closed the acquisition of Sasol, a 27.8% working interest in the Etame in February 2021 with cash on hand. The accretive nature of the deal is very apparent in our first half 2021 results, with a significant increase to our production, adjusted EBITDAX, and cash flow. In the second quarter, we produced an average of 8,018 net barrels of oil per day, which was an increase of 55% over the first quarter, driven by the inclusion of all three months of the increased NRI production due to the Sasol acquisition. The second quarter also reflected stronger revenue due to higher realized pricing and strong sales. This helped to boost our adjusted EBITDAX to $21.9 million in Q2 2021, and we have now generated $40 million in adjusted EBITDAX for the first half of 2021, which is more than in either of the previous two full calendar years and over six times what we generated in the fourth quarter of 2020. We are happy with the ongoing strength of the oil price environment, and with the significant increase in production, we wanted to lock in a meaningful portion of our free cash flow and adjusted EBITDAX to assure that we have the funds for our upcoming capital program later this year and into 2022. Turning our attention to the future, our strategic vision is built on future growth through organic drilling opportunities and through acquisitions. As you saw in our Q2 results, we’re generating significant cash flow in preparation for our 2021 and 2022 drilling campaign. Also during the second quarter, we accelerated the processing of our 3D seismic data to maximize the impact on the upcoming drilling campaign. We continue to expect all the data will be fully processed and analyzed by the fourth quarter, and we are using the seismic to optimize our drilling locations for the drilling campaign. Additionally, we are derisking future drilling locations and potentially identifying new drilling locations with the 3D processing. In June, we secured a contract with Borr Drilling Limited to drill two development wells and two appraisal wellbores with options to drill additional wells. Depending on commitments related to the rig, we believe that we can begin drilling as early as December of this year. If this program is successful, the estimated increase in gross production is from 7,000 barrels of oil per day to 8,000 barrels of oil per day or from 3,500 net barrels of oil production per day to 4,100 net barrels of oil production per day to VAALCO when the drilling campaign is completed in 2022. Hand-in-hand with the production increase will be margin expansion and per barrel cost reductions. About 90% of our production costs are fixed, and those production increases per barrel costs will decrease dramatically. Every new barrel we bring online is more economic because of the low variable costs. So as we grow production, we’re also growing our margin per barrel and reducing our cost per barrel. From a capital standpoint, the estimated cost of the program is between $115 million and $125 million gross or $73 million to $79 million net to VAALCO. The upcoming drilling campaign has the potential to generate significant additional free cash flow, especially when you combine the sustained higher oil prices with our low-cost operating structure. Our strategy is to utilize the additional free cash flow to fund organic and potentially inorganic accretive growth opportunities in the future. In line with our strategy to be a low-cost operator, we’re constantly looking at ways to minimize costs and improve margins. From an operating cost standpoint, our current FPSO costs are about 40% of our total production expense. The non-binding LOI which VAALCO announced in April of this year expired without any mutually agreeable contract being raised. We are in advanced talks to finalize a binding agreement with other parties that will reduce our costs and meet our schedule in line with what we previously announced. We expect to update the market at the earliest opportunity and we still expect that the project will be fully operational before our FPSO contract ends. This will dramatically improve our margin per barrel, and we will be able to deliver more free cash flow to fund our future growth opportunities. Looking at the second half of 2021, we have several operational events coming up. We’re now planning on completing two workovers during the third quarter, when we initially had planned to do just one in the second half of 2021. We believe there are significant cost savings associated with performing the two workovers sequentially. One of the workovers is expected to provide potential production uplift, while the second is to install an updated ESP design on a well where the existing ESP is showing signs of potential failure. As a result, our guidance for workover costs is slightly higher than before. But given the cost savings benefit of doing two workovers sequentially, our expected costs are not going to double compared to the cost of completing just one. We’re also planning our annual seven-day field maintenance turnaround, which is expected to take place in September and be completed by the end of the quarter. As always, our annual production guidance includes that planned turnaround. Unfortunately, the FPSO will not be able to perform its full annual maintenance turnaround at the same time due to safety protocols. As a result, we have to schedule an additional six-day turnaround in the fourth quarter to accommodate the additional FPSO maintenance. Taking into account the planned and unplanned turnaround, potential uplift from the workovers, and natural decline, we expect production in the second half of 2021 to average between 7,000 net barrels of oil per day and 7,800 net barrels of oil per day. This is just a bit lower than estimated earlier this year for the second half of the year before we knew about the additional fourth quarter FPSO maintenance event. Our annual guidance hasn’t changed and we still expect to be within the range of 6,800 barrels of oil per day to 7,400 barrels of oil per day. Without the unplanned second maintenance event, we believe we would have been well above the midpoint of our 2021 full year guidance. As a reminder, since our 2021, 2022 drilling campaign doesn’t begin until late this year, we are not currently forecasting any material production uplift from that drilling campaign in 2021, but we should see significant uplift in 2022. For sales volumes, we haven’t changed our annual guidance of 7,100 barrels of oil per day to 8,000 barrels of oil per day. We expect third quarter sales to be in the range of 7,800 barrels of oil per day to 8,500 barrels of oil per day. As we have discussed before, sales volumes do not always equal production volumes due to the timing and size of liftings. Going forward, we plan to continue to provide sales volumes guidance on an annual and quarterly basis. If we expect a material change in our actual sales volume compared to guidance, we will inform the market. As a result, going forward, we will no longer post monthly liftings on our website. We arrange the timing and size of liftings to optimize revenue, which means that we will not always have fixed liftings per quarter, and the size can change somewhat from lifting to lifting. Posting liftings is not a common occurrence in the industry, and we believe our investors will be better served by us giving quarterly sales guidance with material updates provided by us as needed. I would now like to give you a quick update on some exciting new developments in Equatorial Guinea. We have a substantial working interest in Block P, and we are evaluating several developments, step-out, and exploration opportunities in our acreage. We are excited about the opportunities on the Block and believe it makes sense to move this project forward with a more definable timeline and potential development. We have recently completed our drilling feasibility study for the standalone development of the Venus discovery in Block P, and we are moving forward now with a field development concept. As we work through development, we will provide more details about potential timing, capital cost, reserves, and production estimates. We are committed to profitably exploiting the resource potential of our assets, and Equatorial Guinea could become a significant operational asset moving forward. In summary, our outstanding employees continue to operate and execute on VAALCO’s strategy of accretive growth and free cash flow generation through cost-effectively maintaining core production. We have a strong balance sheet, and with our increased production base and new hedges, we have locked in sufficient cash flow to fund our upcoming capital obligations while maintaining upside. As you can see, we are firmly focused on maximizing shareholder return opportunities and operating with the highest regard towards ESG while we progress on our strategic objectives focused on future growth. I would now like to introduce Ron Bain, our new Chief Financial Officer. I have known and worked with Ron for many years, and his guidance has been an integral part of our success in the past. His leadership of large, geographically diverse financial teams listed in both the U.S. and U.K. and strong ties to the London investment and banking communities make him an important addition to VAALCO. With that, I’d like to turn the call over to Ron to share our financial results.

Thank you, George, and good morning, everyone. Let me begin by saying I’m very pleased to have recently joined the VAALCO management team. Like George, I knew VAALCO well from my days working with him at Eland and see the significant potential we have at VAALCO in both Gabon and Equatorial Guinea. I look forward to getting to know our shareholders over the coming months. Turning to our financials, adjusted EBITDAX totaled $21.9 million in the second quarter of 2021, compared with $18 million in the prior quarter, and more than double the $10.1 million in the same period of 2020. Adjusted EBITDAX for the second quarter of 2021 was higher than both prior periods, primarily due to the increased sales volumes and higher realized prices. Our adjusted net income for the second quarter of 2021 totaled $8.4 million or $0.14 per diluted share, as compared to an adjusted net income of $8.7 million or $0.15 per diluted share for the first quarter of 2021. Higher sales and realized pricing were offset by higher DD&A due to the bargain purchase price accounting associated with the Sasol acquisition and one-time severance costs. In the second quarter of 2020, VAALCO reported $5.3 million in adjusted net income or $0.09 per diluted share. Additionally, we reported strong net income of $5.9 million or $0.10 per diluted share in the second quarter of 2021, which included a $10 million loss in derivative instruments, of which $5.7 million was an unrealized loss. As George mentioned, the second quarter reflects the significant increases in sales and continued strong realized pricing. Turning to production, production for the second quarter of 8,018 net barrels of oil per day increased 55% from 5,180 net barrels of oil per day in the first quarter of 2021, driven by the Sasol acquisition volumes being included in the company’s results for all three months of Q2, compared to only about one month in Q1. Second quarter 2021 production was up 48% from the second quarter of 2020. Sales volumes in Q2 2021 were up 4% from the first quarter and up 2% compared to the same period in 2020. The increase in volumes is primarily due to the additional Sasol interest. Our crude oil price realization increased 14% to $69.61 per barrel in the second quarter of 2021 versus $61.31 per barrel in the first quarter of 2021 and was up 146% compared to the $28.31 per barrel in the second quarter of 2020. Our hedging strategy for 2021 has been to lock in a majority of our 2021 production volumes to predict cash flows and support our capital program in 2021 and 2022, but still allow for some additional upside. In January 2021, we entered into crude oil commodity swap arrangements for a total of 709,262 barrels at a Dated Brent weighted average price of $53.10 per barrel for the period from February 2021 through January 2022. These swaps settle on a monthly basis. In May, we added more crude oil swaps of 672,533 barrels at Dated Brent weighted average price of $66.51 per barrel for the period from May 2021 through October 2021. Lastly, we entered into additional commodity swaps at a Dated Brent weighted average of $67.70 per barrel for the period from November 2021 through February 2022 for a quantity of 314,420 barrels. After entering into this latest hedge, VAALCO now has 70% of its production hedged through October 2021 and 50% of its production hedged from November 2021 through February 2022. We took similar actions in 2019 before we began our 2019, 2020 program, and we will continue to assess and mitigate price risks and predict cash flows in the future as we consider additional future derivative contracts. Turning to the expenses, production expense excluding workovers for the second quarter of 2021 was $16.1 million, which was flat with the first quarter of 2021, despite the higher sales, and $3.9 million higher than in the second quarter of 2020, due to higher sales and the increase in working interests associated with the Sasol acquisition. The per unit production expense excluding workovers of $25.02 per barrel in the second quarter of 2021 decreased as compared to $26.02 per barrel in the first quarter of 2021 and $19.31 in Q2 2020. The per unit production expense excluding workovers decreased 4% compared to the first quarter of 2021 due to the increased sales but flat actual costs. The per unit rate in the second quarter of 2021 increased 30% from the rate in the year-ago quarter, primarily due to the increase in working interest costs associated with the Sasol acquisition, where sales were nearly flat year-over-year. The second quarter of 2020 included four liftings that increased sales. Included in total production expense are COVID-19 related costs incurred to protect the health and safety of the company’s employees, which totaled approximately $800,000 in the second quarter of 2021. Production expense for the third quarter of 2021, excluding workovers, is projected to be between $20 million and $22 million or $27 per barrel of oil sales to $30 per barrel of oil sales. Keep in mind that Q3 2021 has an increase in absolute and per barrel costs compared to the second quarter of 2021 due to the seven-day planned maintenance turnaround. As George mentioned, we are now planning on completing two workovers during the third quarter when we initially planned to do just one in the second half of 2021. We’ve adjusted our guidance for workover costs to $8 million to $10 million net to VAALCO from $5 million to $6 million previously. We do get the benefit of doing the two workovers in succession, so I would expect the costs will not be double the cost of just completing one. DD&A for the second quarter of 2021 was $5.8 million or $9.5 per net barrel of oil sales, compared to $4.1 million or $6.70 per barrel in the first quarter of 2021 and $2.8 million or $4.44 per barrel in the second quarter of 2020. DD&A was higher compared to the prior periods due to the higher depletable costs associated with the Sasol acquisition. Our asset base for the Sasol acquisition was valued at fair market value in a stronger pricing environment than the deal was negotiated. General and administrative expenses for the second quarter of 2021, excluding stock-based compensation expense, were $4.2 million, compared with $3 million in the first quarter of 2021 and $2.3 million in the second quarter of 2020. The increase in Q2 2021 compared to Q1 2021 was the result of additional severance costs associated with changes in key personnel. The per unit G&A rate excluding stock-based compensation in the second quarter of 2021 of $6.57 per barrel of oil sales was higher than both the first quarter of 2021 and the second quarter of 2020, due to higher severance costs with relatively small changes in sales. For the third quarter, we are forecasting G&A excluding stock-based compensation to be between $2 million and $3 million, which is more consistent with our expected run rate without these one-time costs. Non-cash stock-based compensation expenses were impacted by the change in the SARS liability as a result of changes in the company’s stock price during the quarter. For the second quarter of 2021, the stock-based compensation expense related to SARS was an expense of $400,000, compared to an expense of $1.2 million for the first quarter of 2021. For the second quarter of 2020, there was an expense of $700,000 related to SARS. Turning now to taxes. Income tax expense for the three months ended June 30, 2021, was $2.8 million. This is comprised of a $3.3 million additional tax benefit and a current tax expense of $6.1 million. The income tax benefit for the three months ended June 30, 2020, included a $3.4 million deferred tax benefit and a current tax expense of $1.2 million. For both Q2 2021 and 2020, VAALCO’s overall effective tax rate was impacted by non-deductible items associated with operations and deducting foreign taxes rather than crediting them for United States tax purposes. At June 30, 2021, we had an unrestricted cash balance of $22.9 million, which included $2 million in net joint venture owner advances. Working capital at June 30, 2021, was negative $9 million, compared with a negative $15.8 million at March 31, 2021. While adjusted working capital at June 30, 2021, turned positive to $4.3 million compared to negative $2.7 million at March 31, 2021. For the second quarter of 2021, net capital expenditures excluding acquisitions totaled $3.1 million on a cash basis and $1.8 million on an accrual basis. These expenditures were primarily related to the purchase of a mobile workover unit, equipment and enhancements, as well as early costs associated with the 2021/2022 drilling program. As has been the case since the second quarter of 2018, we are carrying no debt. And with that, I’ll now turn the call back over to George.

Thanks, Ron. As we look at 2021 and beyond, this is a very exciting time for VAALCO. I believe it is paramount that businesses are sustainable in order to provide benefits to all stakeholders with a focus on growth and investor returns. With that in mind, I am pleased to announce that we have completed our second ESG report that was primarily developed in close alignment with the recommendations of SASB as we significantly enhanced our disclosures and related discussions. The core values outlined in our report are a part of our culture and provide a solid foundation that ensures our success as a trusted operator, a generous partner to the communities where we operate, and as good stewards to the environment. We have a strong asset base in Etame that is generating meaningful free cash flow and adjusted EBITDAX in the current pricing environment. This is evident in our first half 2021 results. The $14 million that we have generated in adjusted EBITDAX in the first half of 2021 is more than VAALCO generated in either of the full years of 2019 or 2020. Sustained operational excellence and robust financial performance at Etame serves as the foundation for growing VAALCO through organic drilling and future accretive acquisition opportunities in line with our strategy. In April, we also purchased the hydraulic workover unit that we have used in the past for less than $2 million in total consideration. This unit is in Gabon and is being deployed in the third quarter to perform two workovers that should increase production. Having a workover unit in the country will allow us to respond to any well downtime issue quickly and will save significant time, production, and cash flow when addressing workover requirements of an ESP unit going down. But we are not simply looking to maintain production in Gabon; there are meaningful development opportunities across our assets. We have completed a feasibility study for the standalone development of the Venus discovery on Block P in Equatorial Guinea and we are moving forward now with a field development concept. Etame and potentially now Block P can enhance our business and provide a strong platform for organic growth and increased future cash flow. As we continue to generate significant cash flows to fund our capital expenditures, we continue to evaluate ways to return some of that free cash flow to our shareholders. VAALCO has adopted share repurchase programs in the past and we will consider similar programs in the future to complement our growth strategy. In the fourth quarter, we’ll begin another drilling campaign at Etame, and with the recent additional hedges, we have locked in sufficient cash flow generation from operations to fund this program and desensitize the risk of oil price movement. As you can see, we are firmly focused on maximizing shareholder return opportunities and operating with the highest regard towards ESG as we progress towards our strategic objectives focused on future growth. Thank you, Operator, we are now ready to take questions.

First question will be from John White of ROTH Capital.

Good morning, George.

Good morning, John.

Mr. Bain, congratulations again on your recent appointment.

Thank you.

Well, congratulations on the quarter. Looks like everything went a little better than planned. So very, very nice to see that and thanks for the detailed operations update. I’m excited about Equatorial Guinea, the announcement there and Block P. That was a Devon discovery, I believe, is that correct?

That’s correct. They are currently positioned within our CPR report, with a 2C basis of around 16 million barrels on the discovery.

Thanks for that. And would you want to say who your partners are in Block P?

In Block P we have GEPetrol and Atlas as our partners.

All right. And the anticipated depths of the target zone?

That’s a good question. I think we’re sitting at the target zone subsurface. Okay? We’re planning to drill from the surface to vertical depth. I believe it's around 3,000 meters.

Thank you. And sandstone, limestone, could you talk a little bit about the lithology?

We don’t have that detail around at the moment. I think it is a sandstone play. But I can come back to you on that one, John.

Okay. No. Thank you. Is it too early to talk about timing of the potential well getting started?

Yeah. Well, I think the key work that we performed in Q2 was, as we mentioned, the drilling feasibility. So we had to try and determine was it possible to meet the targeted zones from the shelves, as opposed to trying to drill in a deeper water location. And that was really paramount in order to assess whether we could get an economic development providing that level of oil accumulation at 16 million barrels. Having established that, it was possible with well trajectories and angles sufficient to come from a jack-up. We’re now looking at how we can have an efficient field development concept again from the shelf, not fetching into the deeper water locations, but of course, as you know, we ramp up very quickly. I’m hoping to be in a position towards year end to have a much firmer outline on a timetable and a much firmer technical presentation on how we intend to evacuate that oil.

Okay. Very good. It’s exciting, and I’m looking forward to learning more. I will turn it back to the operator now.

Thank you, John.

Thanks, John.

The next question will be from Bill Dezellem of Tieton Capital. Please go ahead.

Thank you. Would you please, first of all, continuing on EG update us with the production sharing contract update and what’s going on with the Ministry? Is that now complete or is there still more steps that you are waiting for?

It’s mostly finished. What happened was one partner defaulted, so we are making those amendments, and we were nearly complete at the beginning of Q2, which was good. However, we need to address one more amendment due to another partner exiting, but this is a very small percentage. Those amendments are currently in process, and we don’t anticipate any issues. It’s just an administrative step, and our discussions with the EG authorities are positive.

And so where now as soon as those contracts are inked, you’ll then have 25 years, is that correct? Is that when the clock begins?

We are currently in an exploration phase. We must focus on our obligation for an exploration well. Our goal is to engage in discussions regarding the Venus development to meet that obligation. Once we reach an agreement on that position, the tenure of the PSE will be extended.

Thank you. Regarding your comment in the release about accelerating the seismic processing, could you elaborate on what you're doing more quickly and what the benefits will be, especially since it seems the rig won't be arriving any sooner than initially planned?

Yeah. What we do there is basically we’re pulling forward the package of seismic interpretation that we have around a given location so we can get better clarity around subsurface well targets. What we want to do is basically make sure we have enhanced imaging from what we had previously, to just confirm bottomhole locations for the targeted drilling. The reason we pull that forward is to add a derisk to the drilling program and remove some uncertainties, so we’re not chasing the tail with the execution.

Great. Thank you.

The next question comes from Charlie Sharp of Canaccord.

Thank you for taking my question. Good morning, gentlemen. I have a couple of questions, starting with the workover and the upcoming drilling, and then a follow-up on the FPSO, if that’s alright. Regarding the workover, can I assume that the additional workover scheduled for Q3 is the Brewery 2H workover that was initially part of the drilling program?

Thank you, Charlie. I’m walking from them because I’ve notes here on this one, but the second workover, I believe, is the 12H, and the reason we had to come into that second workover is due to the failure of the lower ESP. The well is still performing at the moment, but it’s performing on the upper ESP. We don’t want to take a risk of being there with the workover unit doing 2H and then all of a sudden leaving the workover with a workover unit at 12H upper ESP fail. It’s really just to ensure we have redundancy that we have on these wells with two ESPs, and like I said, we’re seeing slight fluctuations in 12H, but we’re not seeing a complete failure on the well yet. As a result of the more ESP failing, we’ve got that scheduled then in Q3.

And secondly, on the drilling, given the extra work that you’re putting into the new 3D seismic, what’s your position at the moment in terms of possibly adding an additional fifth well to the program? And then on the FPSO, I understand that maybe it’s too soon to disclose details, but would you expect to see the same sort of annual reduction in operating costs that you cited before using the only proposed FSO with whatever it is that you plan to use instead? Thank you.

Thank you, Charlie. The second workover, I believe, is 12H, and the reason we had to come into that second workover is due to the failure of the lower ESP. The well is still performing at the moment, but it’s performing on the upper ESP. We don’t want to take a risk of being there with the workover unit doing 2H and then leaving the workover with a workover unit at 12H upper ESP fail. With regard to the drilling program, as you know, we continually will be looking at the options. We’ve got additional five options on the drilling program that will be subject to exciting target locations we have availability of long lead items and obviously making sure we can get it into our existing cash forecast. But we continue to evaluate a fifth well opportunity, and I would say that will be positioned to come up on these evaluations towards the beginning or middle of Q4. With regard to the change of the FPSO to the FSO, we will be looking at this opportunity and we’ve expanded the reach of potential suppliers on an FSO concept. We keep two things in mind when we are looking at this, the first is schedule. It’s absolutely critical that any contract we enter into will have high confidence levels of being able to hit the delivery schedule well ahead of the contract end date of September 2022 for the existing FPSO. Secondly, we are looking at the cost opportunity and seeing if we can maintain the indicative cost savings that we mentioned back in June of this year. The answer to both of those is yes. Schedule is the priority. We cannot miss it, and we will not miss it, but we are also on track for those indicative cost savings.

Next question will be from Richard Dearnley of Longport Partners.

Good morning. The question about the feasibility of reaching the zone from the shelf, I take it that that means you expect that you’ll be able to reach it from the shelf or what are the odds of the feasibility study being positive?

I believe the feasibility study has been completed. The drilling team evaluated various options to access the targeted zones. The main considerations are the risk level of the well and the design angle needed to reach the subsurface location. We examined several factors, including the well design and whether a rotating casing program is necessary, which carries additional risks. We assessed starting the drilling at different water depths, specifically between 120 meters and 140 meters. As we drill deeper, the angle of attack becomes shallower, and conversely, a shallower depth increases the angle of attack. We have determined that for the planned producing wells, we are comfortably within the acceptable angle of attack to complete these wells. We do not anticipate any significant drilling challenges, and we expect the well angles to be around 40 to 50 degrees.

I see. Thank you. Did the acceleration of the 3D program have a meaningful cost impact in the second quarter?

Yeah. It was certainly more than we put in our values, but it’s about $600,000 in total, that was expense. I think I would suggest that Q3 will be similar to Q2.

Okay. George, I was emailed two questions from Stephane Foucaud with Auctus. He said he was trying to join with his phone line. So, the first one, what is the latest on the FPSO contract?

Okay. Well, as I mentioned earlier, one of the questions I answered, we expanded the supplier base that we contracted to really have a much better review of our options. Specifically, with the discussions around that, we failed to reach a commercially acceptable settlement in which we can go forward and contract. We’re still in discussions with a number of providers, and I would anticipate within the next two weeks, we’ll be able to come to market and advise them exactly about contracting position.

Okay, George. Ron, this question is for you. Could you provide some guidance on what we might expect for annual workover expenses in the coming years? I recall there being an intention for an $8 million to $10 million allocation for the third quarter.

Yeah. I believe we generally look at one to two workovers a year. Our guidance would generally be in the region of about $5 million to $10 million. We certainly look at that as the year progresses, bearing in mind that the one planned workover we have for 2020 which we accelerated into 2021. I would think 2022 will be more in the $5 million range. That’s something that we’ll take a look at in our budgeting process, which we’re reviewing now in August.

Okay. Thank you, Ron. Operator, any other questions?

There are no other questions at this time. I’ll turn it back to George Maxwell for any closing remarks.

I would like to thank everyone for attending the Q2 and first half results presentation. The positions we're presenting for the company moving forward in 2021 are quite exciting. We have the potential to open up significant new production opportunities in Equatorial Guinea. We also have an extensive drilling program in place to capitalize on our processing positions in Gabon, all of which will be self-funded. While we do face a second unplanned shutdown for safety reasons in Q4, I believe the outlook for the second half of 2021 remains very promising. This sets us up well for 2022, where the continuation of the drilling program and enhancements to production will contribute positively to our cash flow generation and the company's profitability. Thank you all for listening.

The conference has now concluded. Thank you all for attending today’s presentation. You may now disconnect your lines. Have a great day.