Vaalco Energy Inc /De/ Q4 FY2022 Earnings Call

Good morning and welcome to the VAALCO Energy Fourth Quarter and Full Year 2022 Earnings Conference Call. 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 VAALCO 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. 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 our earnings release and 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 VAALCO 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 proved 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 program 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 program in our company history, which included drilling multiple wells and completely reconfiguring our Etame field infrastructure while adding a long-lasting FSO solution that lowers cost and extends the economic field life at Etame. We have a strong production base to help us generate significant cash flow moving forward to fund our dividend, buybacks, capital programs and potentially additional acquisitions where 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 VAALCO. 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 derisks our overall portfolio and will underpin VAALCO's future opportunities for success. VAALCO 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 dividend, share buybacks, and potential supplemental stockholder returns at a rate that would not have been achievable by either VAALCO or TransGlobe on a standalone basis. We are also capturing meaningful synergies as a result of the combination and the first trends that we initially outlined have already been captured. We canceled 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 optimization, digitalization, and back-office efficiencies as well as initiating service, supply chain, and operational savings that could potentially double the amount of annualized 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 $0.0625 per share or $0.25 per share annually from the $0.13 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 recognized 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 program. The bottom line is this acquisition propels VAALCO 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 and a 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 VAALCO in 2022. And but it was only one of many. At Gabon, we completed a drilling campaign, reconfigured the Etame 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 realize 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 cost will also lead to an extension of the economic field life, resulting in a corresponding increase in recovery on reserves at Etame. 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. The 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 cost by eliminating costly delays and ensured employee safety, mitigated the overall project risk, and ensured minimum production interruptions during installation. A project of this magnitude with regards to Etame occurs once every 20 years. And I'm extremely proud of our team for managing and minimizing the risk associated with such a large and complex project. Hart Energy wrote an interesting article about this project, which we have posted on our website and I think you would enjoy reading. Ron will provide a more detailed review of the project's cost and our financials, but we are seeing the cost savings materialize in our Etame operations in 2023. We anticipate about $13 million to $16 million in annual savings in operational costs for VAALCO through 2030. Turning to the 2021-2022 drilling campaign, we have had tremendous success at Etame, drilling and developing this vast resource over the past 20 years. Our overall drilling campaign during this period was successful, with the first two wells exceeding our pre-drill estimates. The program has significantly increased production and extended the economic life of the Etame field, fulfilling the main objectives of the campaign. We expect that the total drilling program at Etame will achieve payback in 2023 and yield strong overall economics at current pricing, demonstrating a robust cash flow profile from this quality asset. Our two successful wells, the Etame 8H-ST and the Avouma 3H-ST, were brought online with rates above our initial estimates. The third and fourth wells, the South Tchibala 1HB-ST and the North Tchibala 2H-ST, both encountered producing zones, but their production rates and reservoir permeabilities fell short of our expectations. In addition to drilling these four wells, having the rig on site allowed us to perform two workovers more easily and cost-effectively. The first workover was necessary due to a safety valve replacement, while the second on the ETSEM-4H well restored production of approximately 1,350 gross barrels of oil per day; this well had gone offline due to an upper ESP failure and was restored in late Q4. We are analyzing the insights gained from this drilling campaign and considering prospects for our next campaign at Etame. We have re-evaluated our internal processes for target evaluation and proposal planning, integrating these into a more cohesive approach. This will apply to the next drilling campaign, likely starting in mid to late 2024, depending on rig availability. We will incorporate lessons learned from the last two drilling campaigns in Gabon into our planning process and are making the necessary adjustments. The initiation of the next campaign will rely on rig availability, commodity pricing, supply chain considerations, and procurement of long lead items, so the exact timing remains to be confirmed. We are focused on drilling additional Gamba targets in the upcoming program while enhancing our understanding of deeper Dentale potential across Etame. Our main objectives with future drilling are to successfully increase production and extend the economic life of our Etame asset. We will provide the market with additional details on the upcoming drilling campaign once our planning is finalized. I want to emphasize that we achieved our objectives with the 2021-2022 drilling campaign, and the overall economics of the entire campaign are expected to yield an internal rate of return of over 100% based on realized pricing and current strip pricing. This is an attractive return, especially for a company with no debt, strong cash flow, and a low cost of capital. Now, regarding Equatorial Guinea, I will discuss this area, which holds significant future potential for VAALCO. VAALCO has a working interest in Block P offshore Equatorial Guinea, where we have previously identified undeveloped resources and additional exploration potential. In March 2023, we had productive meetings with the Ministry of Mines and Hydrocarbons and our partners in Houston. During these meetings, we finalized multiple key documents for Block P, including the Venus development related to the Production Sharing Contract. We are working to complete the 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 Venus discovery into production. In Egypt, we are focused on drilling opportunities in Egypt, which include drilling the first-ever Nukhul horizontal well on our acreage. This well was spudded 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 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 proved 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 proved reserves as we proceed with the development plan. The PV-10 value of our proved 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 VAALCO's management assumptions for future Brent escalated crude oil pricing and cost 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 NPV-10 volume increased more than four times from $183.7 million at year-end 2021 and 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 NPV-10 for our SEC proved reserves under 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 Etame and from Southeast Etame and Iburi fields as well as strong performance from the Etame field primarily driven by the newly drilled ET 8H well. However, these positive technical movements were outweighed by disappointing drill results from the North Tchibala Gamba well and South Tchibala Dentale well and the Avouma field revisions. Taking into account the upward pricing revisions and production for 2022, our net SEC proved reserves at Etame were down 9% year-over-year to 10.2 million barrels of oil. We replaced 67% of 2022 production with new SEC proved reserves at Etame. Our proved SEC NPV 10 for Etame did increase by 246% and 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 Etame, which we believe will help to increase our reserves in the future. We remain confident in the value of our future potential at Etame. We are planning to return to drilling at Etame 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. I remind you that since we are adding those to VAALCO's reserve base, I will not be giving year-over-year comparisons for these areas. Turning now to Egypt. Our net 2022 SEC proved reserves were 8.6 million barrels of oil, and our proved SEC NPV 10 for Egypt was $227 million at year-end 2022. For 2022, SEC proved 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 we'll be focusing our 2023 capital program on development opportunities in Egypt. Looking at Canada, our net 2022 SEC proved reserves were 9.2 million barrels of oil equivalent. And our proved SEC NPV 10 for Canada was $153 million at year-end 2022. For 2022 SEC reserves, we had a 267% reserve replacement driven by the 2022 capital program that has strong reserves due to most of these wells not being captured in the previous SEC proved 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 configuration at Etame 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 maximizing 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 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've clearly benefited from higher realized oil pricing, the impact of increased production at Etame and the TransGlobe acquisition, which only contributed to financials after the closing of acquisition on October 13, 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 $0.19 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 $7 million in transaction costs associated with the TransGlobe combination. For the full year 2022, VAALCO reported net income of $51.9 million or $0.74 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 demobilization costs and a $5.1 million in unrealized derivative gains. After normalizing for the deferred tax charge, transaction costs, gain on acquisition, FPSO charges, and the unrealized derivative gain, our adjusted net income for the full year 2022 totaled $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 program and the production benefit from the TransGlobe transaction after October 14, 2022. Sales volumes in Q4 2022 were 1.37 million BOE, which was 88% higher than the third quarter of 731,000 and our 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 realized commodity pricing in the quarter compared to Q3 2022. Despite the decline, we are pleased with our continued strong commodity price realization, 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 Ras Gara blend, our pricing will be blended versus the past when it was tied to only Brent oil. We continue to implement a hedging program to help us provide surety to fund our capital program, 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 are driving costs higher across the industry. We believe that 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 Southeast Etame 4H well, which went offline as a result of an upper ESP failure and VAALCO was enabled 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 Etame. In the third quarter 2022, we had a one-time charge related to the FPSO demobilization costs of $8.9 million. This allowed us to continue producing into the Nautipa 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 transition 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 amortization expense compared to both periods is due to higher depletable costs associated with the FSO field reconfiguration as well as step-up to the fair value of DD&A associated with Egypt and Canada following the TransGlobe acquisition. General and administrative expense for the fourth quarter 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 involving a majority of corporate resources, which realized a high percentage of costs charged to projects. For the full year 2022, G&A costs, excluding stock-based compensation, were $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 going through an annual lifting. That lifting occurred in December 2022. We accrued quarterly during the year for the estimated value of the barrels they will lift using quarter-end oil 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 December 31, 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 a 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 than similar-sized companies enjoy. We believe that we are truly undervalued and that is another reason that we're excited about our share buyback program. 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 an unrestricted cash balance of $37 million. A breakdown of the source and use of cash from the 30th of September is provided in the supplementary deck. TransGlobe had $17 million in completion-related costs to acquisition date and VAALCO 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 the 31st of 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. Monetization 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 million to $4 million per month of expenditure with EGPC sister companies and have 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 modernization payment and this in February 2023 was achieved not through a cash payment but via our offset. Canadian accounts receivable was $4.5 million for December, and that's 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 with Nautipa FPSO coming out of operating lease assets and the replacement of the Teli FSO within the finance lease assets. In conjunction with the TransGlobe merger, VAALCO assumed an existing revolving loan facility with Alberta Treasury Branches. At the time of closing the merger, there were extending funds, which we repaid. And on January 5, 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 TransGlobe assets. As has been the case since the third quarter of 2018, we are carrying no debt and our facilities available to utilize for additional accretive acquisition opportunities to continue to build our value. For the full year 2022, net capital expenditures, excluding acquisitions, totaled $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 program, the FSO conversion on the Etame field reconfiguration as well as drilling activity in Egypt and Canada. In 2022, VAALCO paid quarterly cash dividends of $0.0325 per common share beginning in Q1 2022 for a total of $0.13 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 $0.0625 per share quarterly or $0.25 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 program that provides for an aggregate purchase of currently outstanding common stock of up to $30 million. Through March 31, 2023, VAALCO 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 on 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 realized 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 our 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 are forecasting our total company production to be between 20,400 and 24,400 WI BOE per day between 15,300 and 18,600 NRI BOE per day. Looking at production by asset, we are 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 our 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 cost for the first quarter 2023, we expect production expense, excluding workover and stock compensation to be between $28 million 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 zero and $1 million. Our cash G&A for the combined company is expected to be between $3.5 million and $5.5 million. For the full year 2023, we expect production expense, excluding offshore workover and stock compensation to be between $135 million and $157 million on an absolute basis, or between $16 and $20 per BOE. We also expect offshore workovers to be between $4 million and $10 million. Our cash G&A for the combined company is expected to be between $15 million and $20 million. Finally, looking at CapEx for the first quarter of 2023, and we are forecasting between $25 million and $35 million of CapEx spend. For the full year 2023, we are forecasting between $70 million and $90 million. In 2023, our drilling and completion program is focused in Egypt and Canada. In addition, we have some long lead items for the 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 four and eight 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 P, and we will have more information associated with EG as we move through 2023 with a 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've 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 of different realized 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, VAALCO 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're 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 VAALCO. We completed an all-equity combination of two undervalued companies, VAALCO and TransGlobe that provides us additional size, scale, cash flow, geographical diversity, and creates a more derisked portfolio. We expect our enhanced size and scale to yield meaningful cost synergies, the first tranche of which we have already captured, and we should benefit from a higher trading multiple that has accorded E&Ps with that increased market capitalization. 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 barrels of oil equivalent and our proved reserves increased 149% to 27.9 million barrels of oil equivalent. The 2P CPR NPV 10 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 Etame 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 program for VAALCO that began in Q1 2022, and we nearly doubled the dividend in 2023, which paid out March 31. And while also implementing a $30 million share buyback program. And through the first six months of the program, we have returned $7.5 million to shareholders through buybacks. Our buybacks are governed by a 10-5b 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 million 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 development. 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 programs in Egypt and Canada are weighted towards the first half of the year. We are very excited for the future of VAALCO 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. And our first question here will come from Stephane Foucaud with Auctus Advisors.

Thank you for the information on the working capital. I have a follow-up question regarding the balance sheet in relation to your comments, Ron. I noticed there's a significant foreign income tax receivable of $68 million. Is this primarily from Egypt, specifically the $50 million you mentioned? If you could clarify that, it would be helpful. Additionally, the liability currently stands at $91 million, which I believe pertains to accrued liabilities. I assume this is mainly for CapEx, but your confirmation would be appreciated. Finally, I've noticed an increase in noncurrent liabilities related to leases, whether they are finance or operating. Could you explain the reason for this significant jump? Thank you.

Hi, Stephane. Thank you for that. I'll address each of your points. Regarding the other net figure, I believe it's related to the way it's presented on the balance sheet and has nothing to do with foreign income taxes, since that's listed separately. The other net $68 million includes the backdated entitlement as part of that balance, which is approximately $51 million. When looking at accrued liabilities, there are several factors at play. Our accrued payables have increased significantly at the end of the year, primarily because we’ve acquired TransGlobe, effectively doubling the size of our company. Additionally, our capital expenditure accruals have risen by about $15 million compared to last year, reflecting spending that has gone out at the beginning of 2023. We also see higher accrued wages and compensation costs at year-end, which is typically due to the accumulation of bonuses or PTO. Furthermore, there's the current liability for the modernization payment for Egypt, estimated at around $10 million. These elements collectively contribute to the total of $91 million in the liabilities section. Regarding leases, we had Nautipa, which has been an operating lease for over 20 years. We've also integrated Teli, which transitioned to a finance lease in October, with a lease term of 8 years plus two 1-year options. From a U.S. GAAP perspective, this translates into a right-of-use finance asset, meaning we recognize both the asset and the liability on the balance sheet. Thus, the main lease changes involve the operating lease for Nautipa winding down and the introduction of the new finance lease for Teli, which will be in effect for at least the next 8 years.

For my follow-up question, I'm returning to the current liability of $91 million. How do you differentiate between accounts payable, which is about 60, and the other accrued items?

Yes. The accounts payable in that separate section amounts to 60 million. However, considering the invoices that are in and the accruals, we estimate that figure to be roughly between 25 million and 30 million across various areas. Additionally, capital expenditure stands at about another 25 million, which is reflected in Accrued Liabilities and Others. Therefore, I would say there’s 50 million that can be attributed to timing. Historically for us, this has been around the 20 million mark in total. But since we have nearly doubled in size with the addition of TransGlobe, that 20 million should range between 30 million and 40 million. I do expect an overall increase by the end of the year, which will eventually stabilize. However, I don’t believe the entire balance will reverse. Typically, I would anticipate seeing between 30 million and 40 million in that account from one period to the next. In terms of crude wages, we're looking at an increase of 5 million or 6 million. There will be some timing elements to consider in Q1. As for the modernization payment, as mentioned earlier, it was settled in Q1 by EGPC, which took care of the 10 million liability we had against receivables from EGPC. This will definitely clear out in the upcoming period. Does that clarify things for you?

Our next question will come from Jeff Robertson with Water Tower Research.

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

Yes, that's a good question, Jeff. First and foremost, for us to pursue any acquisition, it needs to be very compelling, especially considering our current stock price. As I mentioned earlier, with a 2P reserve valuation of PV-10 exceeding $800 million, we have some room to invest in stock buybacks before we consider a major acquisition. The motivation behind the TransGlobe acquisition was twofold: first, to diversify and reduce risk in our revenue stream, and second, to build a reserve base that allows for a longer operational life for the company. When evaluating current market opportunities, we prioritize acquiring producing assets, especially if they are near our existing operations or in new countries. We are looking for assets that will quickly contribute to revenue and cash flow, and that align with our expertise. Our skill set has significantly expanded since the TransGlobe acquisition, now including a wealth of onshore and shallow water offshore experience. Similar to the reasons we pursued TransGlobe, we aim for reserves that provide a 10 to 15-year lifespan, ensuring we have the longevity to report on our progress.

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, does 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?

Yes. 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 generating a lot of free cash flow from the second half of the year.

And our next question will come from Charlie Sharp with Canaccord.

Yes. Thank you, and good morning, gentlemen. Appreciate the presentation. Just a question, if I may, on the production expense. I guess two questions really on it. Firstly, I think applying the lens of 136 million to 157 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 partially related to production? Or are there other factors?

Okay, Charlie, I think I can take those. When we look at the overall guidance for the year, we assume production and sales are going to be the same for the whole year. So most of the year, production expense a barrel of oil is actually done on a sales basis. So that's why those particular statistics look the way they are when you calculate them, it will be based on effectively the sales models. When I look at the overall composition of that full year guidance on a per barrel basis, 21 to 27, I guess I would probably point you to, a certain extent, to the netback slide, 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 wait that 40% in Egypt and the remaining part in Canada.

That's very helpful. 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 Q2, 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?

I can share a few updates, Charlie. Recently, we held productive meetings in Houston with our partners and government officials. During these discussions, we focused on our development plan and the approval received in Q4. However, we still had several outstanding issues concerning the amendment to the production sharing contract, specifically regarding equity percentages that were not properly finalized and a few other matters. We had two PSC amendments pending with the government, which were executed in March, allowing us to proceed with finalizing the amendments within the joint operating agreement among the partners, although those details are still pending. We anticipate completing these soon. In terms of the development, we underwent a peer review in Q4 of 2022, evaluating the key criteria from the drilling program to the plans for extended DSP and topside facilities. We are currently optimizing these with feedback from the review to enhance efficiency and simplify the development process. For 2023, our primary focus on Block P will involve finalizing study work and developing an optimized plan. This may entail drilling all wells simultaneously rather than staggered drilling, as this approach may be more cost-effective. Additionally, we plan to conduct a seabed survey to ensure optimal rig placement, follow up on the construction and engineering phase, and provide a more detailed timeline for the development by the end of the year. Our drilling program for 2024 is designed to leverage the same unit for drilling in 2025 for the Venus development.

That's terrific.

We have time for one more guest with questions, and we will take questions from Bill Dezellem with Tieton Capital.

I have two questions. First, could you elaborate on your statement in the press release regarding your expectation to achieve more synergies with TransGlobe than initially expected? The main point of my inquiry is related to the 5 million in savings you've mentioned earlier in the call and your aim for an additional 5 million from other administrative expenses. Was that the core of your statement, or is there more we should consider?

I'll address the first part of your question, and then Ron can handle the second part regarding synergies. As we consider the potential for further synergies, we're focusing on enhancing the operational efficiencies in both Egypt and Canada. In particular, during the latter part of Q4 and most of Q1, with our drilling campaign in Egypt, we've managed to shorten the time between drilling cycles. In the last two wells, we've achieved significant reductions in that cycle time, leading to much greater efficiencies in our drilling operations in Egypt. We're applying the same strategies and tackling similar challenges in Canada to decrease the cycle time between drilling, completion, and hookup. This enables us to realize those synergies, allowing us to bring oil to production much sooner and creating a more efficient use of our capital expenditures.

Yes. Taking into account the G&A component of the synergies, we previously mentioned in our investment deck during the shareholder vote that we anticipated savings between 3 million and 5 million in the short term, and we have already exceeded 5 million in G&A savings. This was achieved through several avenues. For instance, TransGlobe was listed both in Toronto and London, and we streamlined our operations by eliminating specific filings associated with the London listing, resulting in significant cost reductions. Additionally, the TransGlobe executives based in the UK left the company in mid-January, which quickly contributed to our targeted savings. We also identified savings in areas like insurance costs and interest from their ATB facility, as well as reductions in overlapping professional services. We have already surpassed 5 million in savings. Currently, we are concentrating on back-office functions and plan to implement an ERP tool soon to unify our systems, which will enhance efficiency and improve our control processes. That is our focus as we build for 2023.

That's helpful. Regarding the Arta 77HC well in Egypt that you mentioned encountering some good sands, what is the timeline for bringing that well into production? Also, concerning the wells you're drilling in Egypt, what do you consider to be a more normal production level?

The well is currently in the cleanup phase, so I can't provide details on the production rate until this process is complete, but it is flowing. We're implementing changes to cycle time and production efficiencies in Egypt. We had Egypt producing around 10,000 barrels a day at the end of last year and we're already observing at least a 10% improvement as we approach the end of Q1. We see these improvements on a gross basis. We are exploring ways to enhance efficiency in the production system in Egypt, including moving annual activities related to storage facility emptying to a quarterly schedule to reduce traditionally observed cycles in Q3. We are starting to see benefits from these adjustments. Our collaboration with our joint venture partner, EGPC, is also noticeably improving, which positively impacts how we implement our program. We remain optimistic about continuing to enhance efficiencies in Egypt, which is a key priority for us. You heard Ron discuss the cash situation and our management efforts in Egypt. We've noted other operators' comments on the cash challenges due to liquidity issues in the country, and we maintain a careful watch and ongoing dialogue regarding this. As long as our operations and partnerships continue as they are now, we will keep improving and investing in the region.

That's helpful. My final question is regarding the time spent in your opening remarks addressing VAALCO's undervaluation. What do you believe investors are overlooking, whether it's in relation to the TransGlobe acquisition or overall, that is causing this unfavorable valuation?

That's a good question. As we have discussed previously, traditionally, West African or African-focused producers in the London or New York market tend to trade at a discount, and what we need to address is the extent of that discount. What is the market overlooking? I believe we've made significant progress in instilling confidence regarding our value, particularly in relation to the questions we've received from analysts in London and the United States about longevity. They are inquiring about our reserves and our long-term position, which is crucial for future cash flow. The TransGlobe acquisition, along with our holdings in Gabon, secures that certainty. The advancements we have made in Equatorial Guinea also enhance our future outlook. These developments add substantial value to our balance sheet in 2022 and present greater value than ever before. I think the market has not fully recognized that yet. From the guidance we have provided for 2023, we're anticipating significant revenue and production numbers, which will contribute to a considerable EBITDAX, even though we don't provide specific guidance for that. However, it's something analysts can calculate. So, I believe that once they analyze the figures and see that we are operating at times at less than 2x EBITDAX, we will witness a shift in value as we continue to highlight the worth reflected in our balance sheet.

Great. Thank you both. And have a good weekend.

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 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 us given 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 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. Well, the stock price clearly is in a depressed state versus the value that we've been talking about that contained in our balance sheet. 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.