Vaalco Energy Inc /De/ Q1 FY2024 Earnings Call

Good day, and welcome to the VAALCO Energy First Quarter 2024 Earnings Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please proceed.

Thank you, operator. Welcome to VAALCO Energy's first quarter 2024 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the first quarter. Ron Bain, our CFO, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions. During our question-and-answer session, we ask you to limit your questions to one and a follow-up. You can always reenter the queue with additional questions. I'd like to point out that we posted a supplemental investor deck on our website that has additional financial analysis, comparisons and guidance that should be helpful. With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will be making forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward-looking statements. 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, the presentation posted on our website and in the reports we filed with the SEC, including our Form 10-K. Please note that this conference call is being recorded. And now, let me turn the call over to George.

Thank you, Al. Good morning, everyone, and welcome to our first quarter 2024 earnings conference call. We began 2024 with positive operational and financial results, including strong earnings and adjusted EBITDAX generation. In addition, we closed the Svenska acquisition at the end of April, ahead of schedule, and we're excited about incorporating those operational and financial results into our numbers for the rest of 2024 beginning in Q2. We returned over $12 million to shareholders in Q1 2024 through dividends and buyback. Let's begin our overview of VAALCO's assets with the new acquisition. We announced that we closed the Svenska acquisition in an all-cash deal for $40.2 million on April 30, 2024. This was done very quickly and efficiently and ahead of our internal expectations. Our team traveled to Cote d'Ivoire to meet directly with the Ministry of Hydrocarbons to officially introduce VAALCO as a new partner on Block CI-40. We are adding an asset with strong current production and reserves at a very attractive price. This acquisition is highly accretive on key shareholder metrics and provides another strong asset to support our future growth. It provides us with additional diversification and strategically expands our West African focus area. The Cote d'Ivoire Baobab field in Block CI-40 has strong production and reserves. We are excited to be partnering with Petroci and CNR International and believe the Baobab field, the next phase of drilling and the discovered yet undeveloped Kossipo field in Cote d'Ivoire is an outstanding asset with significant upside potential. In yesterday's earnings release, we updated our full year and second quarter 2024 guidance, both of which reflect the positive impact to production and production expense per barrel, which should lead to improved margins and greater adjusted EBITDAX. Later this year, we expect to provide additional information on the Baobab FPSO project planned in 2025 and future Baobab drilling plans after we have had time to further our relationship with CNR International and get you a more detailed understanding of the operators' development plans. Turning to Egypt. As we disclosed last quarter, the first half of 2024 is focused on high rate of return capital workover projects to help mitigate decline. In the first quarter, we had 6 workovers, including 5 recompletions and fracs. This work added about 800 barrels of oil per day, helping to offset natural decline. In addition to the successful workovers, I am very proud of a major milestone that we accomplished in the first quarter of 2024 in Egypt. We have gone over 1 million man hours without a lost time incident. This is a testament to our commitment to safety, training and dedication of all of our people in the field. As I mentioned on our last call, we have a 10 to 15 well drilling program that we are currently evaluating for the second half of this year. This program remains contingent on completion of the program evaluation and confirmation of a drilling rig for the period. We have not included this program in our 2024 CapEx guidance and won't add it until confirmed. However, if we proceed with the program, we anticipate additional 2024 CapEx of approximately $18 million, which will also generate additional production. We have seen some positive announcements from the government in 2024, in particular, payment of aged receivables, which is very encouraging. In Canada, we successfully drilled 4 wells in the first quarter of 2024, all 2.75 mile lateral wells. In late March, we released a drilling rig, and we began completing all 4 wells. We have now successfully completed all 4 wells and 2 of the wells have been unloading fluid and are coming on production with encouraging results. The other 2 wells are expected to be placed online within the next 14 days, and all 4 wells contribute in production by the end of the month. You can see the impact in our production and sales guidance that we put out yesterday in our press release and that Ron will review in more detail later. In addition, we are also targeting an exploration appraisal well in the third quarter of 2024 in our southern acreage. In our southern acreage, we have minimal subsurface information and this exploration well, if successful, could prove up additional long lateral wells in the future with the potential to add proved undeveloped locations. Our existing well portfolio has an increasing gas/oil ratio and the new wells will rebalance us more in favor of liquids, contributing to the strong production performance and to our overall profitability. Turning to Gabon. We completed our previous drilling campaign in the fourth quarter of 2022 and invested only minimal CapEx dollars in Gabon in 2023, primarily related to maintenance and long lead drilling equipment. We have seen positive overall production results since then with strong production uptime and improved decline curves on the wells. The FSO and field reconfiguration projects in 2022 have allowed us to minimize downtime, capture efficiency and reduce overall OpEx. Looking ahead to 2025, we are actively working on the final technical and commercial aspects of our next drilling campaign at Etame. Activities are planned at the Etame, Ebouri, Southeast Etame and North Tchibala fields. We have a planned drilling campaign of between 5 and 7 wells that includes a mix of development and exploration wells along with a gas well for infield power requirements that will substantially reduce fuel costs in the field going forward. As discussed previously, in 2014 at the Ebouri field, we encountered increasing low levels of H2S in the 3 oil wells after they had been on production or tested. We were able to keep the well with the lowest levels of H2S, the Ebouri 2H well on production using a chemical treatment solution, but the 3H and 4H wells would shorten due to the high H2S levels that were trending to be too high for chemical treatment to be effective. As a result, we were left with between 8 million to 12 million barrels of oil of contingent resource due to H2S contamination. We are currently remeasuring the H2S concentrations in the 2H and 4H wells to validate the field's current levels and expect to complete our H2S testing in the second quarter of 2024. The testing is being done to support our modeling efforts to assess and forecast future potential H2S levels in the 2H well and also other proposed wells. We continue to look for the most cost-effective path forward to increase production at Ebouri. We are reviewing 2 methodologies to address and sweeten the oil at Ebouri, mechanical and chemical treatment going forward. Once we determine the optimal solution going forward, we plan to conduct workovers of the 2H and 4H wells and replace a 3H well with a more optimally located well, in addition, we will test an undrilled fault block in the field with a new well. Coupled with our plans to derisk the crude sweetening process will result in an opportunity not only to commercialize the currently stranded H2S oil at Ebouri but also to potentially add resources with an exploration well. Our ability to use our engineering knowledge and new technologies to drive lower costs and access more oil has been paramount to extending the life of Etame field. In Etame field, we have just completed a revised evaluation of the field's potential. Based on the results of this new evaluation, we identified a number of opportunities. We are planning 2 additional production wells at Etame and to test a nearby exploration prospect. The exploration prospect sits within reach of the Etame platform; therefore, the well will be drilled from the platform, and if the well is successful, it will be immediately brought online as a production well. We have 3 slots open at the Etame platform, so we have the option, if both of the early pilot wells are attractive and the exploration well is successful, to drill a second production well from the Etame main fault block, resulting in a potential third well for the Etame platform. We continue to spend a lot of time examining our assets, how to make them more efficient and profitable. We are expecting to spend between $30 million and $40 million in long lead items in 2024, preparing for and in anticipation of the drilling campaign. Progress on Blocks G and H is ongoing. PSC negotiations are continuing between the partnership and the Gabonese government, and we have made some encouraging progress this quarter. On March 25, 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development. The finalization of these agreements included a carry arrangement of the partners, Atlas and GEPetrol. This arrangement is on commercial terms at SOFR plus 7%, a total of currently 12.5%. This improves our 1P economics on those previously announced, and we have included an illustration of this in our accompanying slide deck. We will now proceed with our Front-End Engineering Design or FEED study. We anticipate the completion of the FEED study will lead to an economic final investment decision, or FID, which will enable the development of Venus. We are very excited to proceed with our plans to develop, operate and begin producing from the discovery in Block P offshore Equatorial Guinea in the next few years. And we look forward to discussing this new year of operations in more detail once the FEED study is complete. We have started 2024 by delivering on or exceeding our guidance operationally and with solid financial results that have outpaced analyst expectations. We remain focused on growing production, reserves and value for our shareholders. I would like to thank our hardworking team who continue to operate and execute our plans. Over the past 2 years, we have greatly diversified our portfolio, which has expanded our ability to generate operational cash flow while growing our cash position and remaining bank debt free. We are well positioned to execute the projects within our enhanced portfolio and our proven track record of success in these past few years should instill confidence for the future.

Thank you, George, and good morning, everyone. I will provide some insight into the drivers for our financial results with a focus on the key points. Let me begin by echoing George's comments about our continued success into 2024, driven by strong operational performance, quickly closing on our highly accretive acquisition, and solid financial results. In the first quarter, we generated $7.7 million in net income or $0.07 per share and $61.7 million in adjusted EBITDAX, both were ahead of consensus estimates. Let's turn to production and sales, which along with realized pricing drives our revenue. Production for the first quarter remains solid, and sales were almost 16,400 barrels of oil equivalent per day at the high end of our guidance, with our sales for the quarter also at the higher end of the guidance. We completed a lifting in Gabon in March, as you can see by the strong sales results. I'd like to reiterate that with a diversified portfolio of assets, we will have changes from quarter-to-quarter in the mix of sales from each of our producing areas. This change in mix impacts our realized pricing and ultimately, our revenue and earnings. But if you look at the bigger picture and over a full year, you will see impressive growth across our expanding portfolio of producing assets. We closed the Svenska acquisition on April 30, and this means that all production, sales, and financial results for the assets will be incorporated into our results from May 1 forward. So the second quarter will have 2 months of Svenska impact and the full year numbers, 8 months of impact. Pricing remains strong and our hedging program has always looked to help mitigate risk and protect our commitment to shareholder return. We have costless collars in place for 2024, and our current hedge positions were disclosed in the earnings release. Realized hedge costs in the quarter were $24,000. Turning to costs. Our production costs for the first quarter of 2024 were below the low end of guidance on an absolute basis and at the bottom end of guidance on a per barrel basis. While we remain focused on capturing synergies and keeping our costs low to enable us to maximize margins and increase our cash flow, some of the lower costs were driven by timing of projects across our assets. G&A costs were also in line with guidance. When compared to the combined G&A costs seen in 2022 by both VAALCO and TransGlobe, we've seen meaningful reductions in costs well ahead of our target synergies. The final integration and reorganization of the business is behind us, and we have commenced a back-office process improvement project with the implementation of a single cloud-based ERP across the whole company. Non-cash DD&A costs increased quarter-over-quarter, primarily due to year-end depletion adjustments mostly in Egypt that were made in the fourth quarter once we completed our reserves evaluation and 2023 CPR. Compared to the prior year, in 2023, we've seen an increase in absolute DD&A costs because of the additional investment in new wells brought online for both Egypt and in Canada in 2023. Year-on-year DD&A costs on a per barrel basis are down 13%. In November 2023, we agreed on a protocol with the Gabonese state for a long-standing debt on TVA together with an outstanding debt from the government-owned Sogara refinery. This was by way of transfer of state profit oil barrels to the Etame contractors in settlement of its debt. This reduced the quantity of barrels we are holding as foreign taxes payable, and this will be settled with a state lifting of the remaining barrels in May 2024. We had no Gabonese state lifting in 2023, primarily due to the protocol agreement but had a state lifting in 2022 of approximately 600,000 barrels. Tax costs in the first quarter of about $22.2 million resulted in an effective tax rate of about 74% in the quarter. This was higher than prior quarters and driven by both revaluation of tax oil barrels held for Gabon as well as some discrete permanent differences related to deal costs for Svenska and an increase in our overall credit loss reserve. As I stated before, in Gabon, our foreign income taxes are settled by the government through in-kind oil payments. At the end of each quarter, we have to mark to market the in-kind oil. So in general, when prices rise, it has a negative impact on our accrued taxes, and if prices fall, we see a benefit, thus reducing our tax liability. We cannot control the movement of the underlying commodity price to which this in-kind oil is marked to. We continue to guide that a 60% to 65% effective tax rate is the correct effective tax rate over the long term, excluding discrete items. Turning now to the balance sheet and cash flow statement. Unrestricted cash was down slightly to $113 million as of March 31, 2024. Also, in April, we used about $40 million of this cash to fund the Svenska acquisition. In the last call, we discussed likely working capital movements, some of which occurred in the fourth quarter of 2023 related to the reduction in accounts payable associated with the 2023 capital program. In the first quarter of 2024, we experienced a small decrease in Egyptian accounts receivable. We sold all production as domestic sales in the first quarter, but we also had multiple offsets, including our annual modernization payment. The $10 million annual modernization payment was negotiated as an offset against EGPC accounts receivable. We also had cash collections and other available EGPC sister company offsets more than recovering a full quarter of domestic sales. Additionally, in Q1, we had certain annual cash payments that tend to be paid early in the new year, including our domestic market obligation in Gabon and our annual energy package insurance renewal and annual staff costs. Finally, as part of being a responsible operator and a community partner in Gabon, we are executing on community engagement projects sanctioned by the PSC that were previously accrued. These items also reduced cash in the first quarter of 2024. With that said, we're pleased that the Egyptian government has made a concerted effort to reduce its backdated billed payables. In the first quarter, it reduced its backdated billed payables with VAALCO by about 25% of its agreed outstanding receivables as of the 31st of December 2023. As has been the case since the third quarter of 2018, we are carrying no bank debt, and our credit facilities available to utilize for additional accretive acquisition opportunities continue to build value. In Q1 2024, VAALCO paid a quarterly cash dividend of $0.0625 per common share or $6.5 million, and our share buyback was about $5.5 million, over $12 million in shareholder returns in the quarter. We also announced the second dividend payment of the year, which will be paid in June. Let me now turn to guidance, where I will give you some key highlights and updates. I want to remind you that guidance now includes a recently closed Svenska acquisition for the second quarter and for the full year 2024. Also, our full guidance breakout is in the earnings release and in our supplemental slide deck on our website with a production breakout of both working interest and net revenue interest. For the total company, we are forecasting Q2 2024 production to be between 23,800 and 27,000 working interest barrels of oil equivalent per day and between 19,000 and 21,800 net revenue interest barrels of oil equivalent per day. This is up significantly from the first quarter due to the Svenska acquisition, expected new wells in Canada, and slightly offset by natural decline. For the full year 2024, we're now forecasting our total company production to be between 23,600 and 26,500 working interest barrels of oil equivalent per day and between 18,900 and 21,400 net revenue interest barrels of oil equivalent per day. Looking at production by asset, we're expecting natural decline in Gabon and Egypt, although we do have a capital workover program in Egypt in the first half of 2024, that should help mitigate decline. In Canada, as I mentioned, we expect year-over-year growth from our drilling campaign, and in Cote d'Ivoire, we're reflecting operations from May through to December in our full year numbers. For the second quarter and for full year 2024, we are assuming our sales will be more or less in line with our production. In Gabon, we are expecting 2 liftings in the quarter, with one of them being a government lifting. The government lifting flows through our sales and is offset by settling the accrued tax liability that we're holding on the balance sheet. It's net cash neutral for VAALCO in the quarter. Our absolute operating costs are expected to go up with the Svenska addition, but we are projecting our per barrel of oil equivalent range to decrease due to the Svenska volume. We're also expecting small increases in absolute G&A as we noted previously. Finally, looking at our CapEx, our 2024 capital spend has increased to be between $115 million and $140 million as we prepare for the 2025 Svenska FPSO change-out, the anticipated next drilling campaigns in both Gabon, Ivory Coast, and the Canadian 2024 drilling program. For the second quarter, we're expecting a range of between $30 million and $50 million for our CapEx. In closing, despite our recent strong stock price performance, we believe that we continue to trade at a low multiple of EBITDAX despite having a dividend yield and being bank debt free. With the Svenska acquisition, we are forecasting a meaningful increase in production and sales, which should also increase our ability to generate adjusted EBITDAX and operational cash flow in 2024. We are very well positioned to execute and fund our CapEx program across multiple producing assets over the next several years.

Thanks, Ron. We will continue to execute our strategy, focused on operating efficiently, investing prudently and maximizing our asset base and looking for accretive opportunities. As you have heard this morning, we are off to a very strong start in 2024, both operationally and financially. With the closing of the Svenska acquisition at the end of April, we will see a positive impact to production, sales, OpEx per BOE, operational cash flow and adjusted EBITDAX. Additionally, we have the Canadian development wells coming online in the second quarter. We are planning a drilling campaign at Etame, and we are progressing the FEED study in Equatorial Guinea and optimizing production while executing workovers in Egypt. Our entire organization is actively working to deliver sustainable growth and strong results. I believe we have gained credibility over the past 2 years, having delivered on our commitments to the market and to our shareholders, and we will continue to deliver with the exciting slate of projects we have over the next few years. We are in an enviable financial position with no bank debt and an even stronger portfolio of producing assets with future potential upside. In addition to funding our capital program, we have remained focused on returning value to our shareholders. In Q1 2024, we returned $12 million to our shareholders through dividends and buybacks. We are on pace to deliver another $0.25 per share annual dividend for 2024, matching what we paid out in 2023, which our current share price has a dividend yield of about 4.5%. As Ron discussed, our 2024 guidance now has the Svenska acquisition incorporated, but I want to reiterate that the second quarter only has 2 months of Svenska incorporated, and the full year only 8 months due to the April 30 closing date. Regardless, this highly accretive acquisition will materially increase our operational and financial results. Before I open up the call to questions, I would like to point out that as part of our commitment to environmental stewardship, social awareness and good corporate governance, we have made a concerted effort in addressing and improving our ESG transparency and reporting, which can be seen in the sustainability report that we published in April 2024. During 2023, we greatly enhanced our leadership team, appointing new group-level heads of functions to centralize accountability and set global standards, processes, and plans for the business that align with industry best practices. Furthermore, the appointment of a Director of Sustainability and Regulatory Reporting has enabled a holistic approach to ESG management performance and disclosure. This sustainability report represents our most detailed report in accordance with the Task Force on Climate-related Financial Disclosures, TCFD to date, including assessment of the business resilience and impact of physical climate risk. As we continue to drive our decarbonization program, we are pleased to report a 19% reduction in Scope 1 emissions from the previous year. The 2023 sustainability report is available on our website under the Sustainability tab. We are truly excited about the future, and VAALCO now has multiple producing areas and future prospects that have completely diversified our risk profile and our sources of income. Even though we have been highly successful over the past 2 years developing and growing our assets, we remain disciplined in our approach to maximizing value for our shareholders by delivering growth in production, reserves, and cash flow. Thank you. And with that, operator, we're ready to take questions.

The first question is from Chris Wheaton with Stifel.

I understand Al mentioned only one question. I'll ask one question in two parts, if that's alright. First, could you elaborate on the $40 million related to Capital Expenditures for the year? How is that amount divided between additional spending in Canada and in Cote d'Ivoire? Also, could you specify what the additional expenditures for Cote d'Ivoire entail? That would be very helpful, especially since it seems like a significant amount to allocate before the FPSO shutdown next year. Additionally, I have a question regarding the Egyptian oil price realizations, which appeared to be quite low this quarter. I'm curious if this was connected to the receivables payment mentioned earlier, which seemed to be about $10 lower than the previous quarter. I'm wondering what the reasoning behind that might be. Those are my questions.

Chris, it's George. On the CapEx side, obviously, we've given a little bit of detail as to what has caused the increase in the CapEx guidance position initially. Obviously, we're now doing a 5th well in Canada in the southern part of the Harmattan area to prove out the opportunity to increase reserves and resources there. So that's part of it. We've also added in the FEED study for Equatorial Guinea to get to the FID position for the first quarter of 2025. And obviously, with regard to the investment inside Baobab, we're looking at a number of forecasts coming out right now relating to long lead items that aren't purely for long lead items on the FPSO refurbishment but also relate to the potential drilling campaign in Phase 5 at Baobab. So primarily, it's a mixture of the FPSO requirements and also for the potential drilling program that are increasing the main part of the $40 million on long lead items.

Chris, it's Ron. I'll take the question on Egyptian oil price realization between Q1 and Q4. The first part, I would say it's got nothing to do with the related payments. The related payments you may have heard from a number of companies that EGPC started to pay down some of its outstanding receivables as of the 31st of December 2023. And we were also party to that. We got about 25% of our aged receivables as of the 31st of December on their books paid. So that was the first thing. The second thing in relation to the average realized price, it did come down about $11. In Q4, effectively, we sold domestically, but domestically in Egypt, there were cargoes that EGPC had. So that was obviously within the price that everyone was provided. In Q1, we basically are in a situation where they're utilizing the blend now for the refineries locally, so they've been trialing that out. And that was the market at price domestically to those refineries. So that's really the difference in pricing. It's down about $11 quarter-on-quarter.

Just kind of one follow-up if possible. Does that mean if a new blend is being trialed with the domestic refineries, does that mean this $10 delta is more likely to be where the realization is going to be in the forthcoming quarters? Or is it still going to be dependent on that mix of domestic versus international sales?

I think it will be very much dependent, Chris. At the end of the day, it was a trial that they went through in Q1. So we cannot say that, that's locked in. And we're continuing to talk locally with EGPC's key marketing department in relation to obtaining our own cargoes too. So no, I wouldn't take that as being a locked in price.

The next question is from Stephane Foucaud with Auctus Advisors.

To clarify regarding Cote d'Ivoire, I understand it's still in the early stages, but I would like to know the expected production levels when operations resume in 2026. Are we anticipating a 50% increase, or will it be similar to current levels, perhaps even double? Additionally, can you share information on the expected capital expenditures? My second question is also about Cote d'Ivoire. Now that the deal has been finalized, could you provide more details on the fiscal terms? Specifically, it appears that the royalty is 9%, but I am curious if there is a corporate tax and whether the government takes care of that in some cases in Cote d'Ivoire. Lastly, are there any cost pools that you could leverage?

Regarding the FPSO schedule going offline, we are currently evaluating the situation based on the information provided by the operator. It's impossible to determine the condition of production after the FPSO refurbishment at this time. We anticipate that there will be a return of some flush production, but there is significant work required on the subsurface side to fully understand the process and timing. While we expect this to occur, we still need to meet with the operator to clarify both timelines and projections. Additionally, there is a possibility of a concurrent drilling program, which would potentially increase volumes. We have a model in place, but it is still subject to further discussions and validation with the operator.

Stephane, it's Ron. I'll take the second part of your question. And if I heard you correctly on the fiscal terms in Cote d'Ivoire. In our supplemental deck, you'll see in Slide 9, we've given elements of the PSC's fiscal terms there. I'm happy to go through that with you outside of the call to make sure that your model is up to date.

The next question is from Bill Dezellem with Tieton Capital.

That's Tieton Capital. May I start with Svenska also. And given that, that is non-operated, I guess the question is, when are you ready for the next transaction, the next acquisition? And with that in mind, what does the pipeline look like?

That's a tough question to answer. Clearly, we've been concentrating on growth opportunities. Over the past three years, our performance has shown the market that we are committed to exploring growth for the company and our direction. There are numerous transactions that could potentially enhance our portfolios. We need to thoughtfully assess how the cash flow profiles align with growth opportunities following the Cote d'Ivoire acquisition because it is crucial to maximize the potential of our current portfolio before considering other options. However, in this industry, there is a consistently strong pipeline of opportunities that we are always reviewing.

And then the BW consortium was not referenced in the press release or your opening remarks. Could you please update us relative to what's happening there?

Yes, I will provide an update. The reason we haven't updated is that there has not been any significant progress. We have had ongoing discussions with our partners and the DGH, and there are still a few points to resolve. As I mentioned in our last call, after being in this situation for about 18 months, the activity levels have certainly increased in the last 6 to 8 weeks. There have been several meetings between the partners and the DGH, including follow-up meetings recently. I remain confident that we will reach a resolution soon regarding the outstanding issues related to some legal and contractual terms. The lack of an update is simply due to the absence of significant movement, aside from these additional meetings.

And the 10-K gave the impression that the government seems far more interested in interacting than they have in the past?

I would say that's probably true. There has been, as everyone is aware, a change in the administration, and our interaction with the new administration at the highest level has increased compared to the past. We, as a company, have directly met with the head of state, and we have engaged in dialogue at that level. So yes, there has been significantly more activity with governmental institutions in the last six months than we have seen previously.

Great. And then one additional question. You referenced Equatorial Guinea and having made some good progress there. I don't think that I appreciate now the amount of time it takes to go from where you're at today through the next stages. Would you walk us through the timeline, if you would, please?

Yes, I can do that. We've been preparing to start this journey for about 18 months while resolving issues within the partner group, which was partly facilitated by the MMH in Equatorial Guinea. That resolution has been completed, including a change in commercial terms that involved granting additional equity to VAALCO. We always planned to transition from the development phase to a detailed engineering study, which serves two purposes. Firstly, development plans are based on our subsurface and cost price analyses conducted at a preliminary level. The FEED study will test these concepts in the market regarding timeline and costs, aiming to optimize or reduce our CapEx by exploring more affordable equipment sourcing options. We estimate that the FEED study will take about 8 to 10 months to complete, leading us to a final FID position where we will finalize the steps forward for development, lock in contracts, and secure the economics of the project. As the equipment and industrial environment evolve, conducting FEED studies has become crucial before committing to major projects like Venus. Our main goal is to lower CapEx costs, possibly substituting CapEx with Opex on a lease basis, thus enhancing the project's attractiveness in terms of return. Additionally, we want to ensure that the necessary equipment for executing the project is available.

Next, we have a follow-up question from Stephane Foucaud with Auctus Advisors.

It's a bit of a follow-on on the question from Bill about acquisition and cash available. So Cote d'Ivoire would be CapEx intensive for me in the coming years. But I guess EG as well. So how are you thinking about cash deployments or cash resources in the context of part 2, very large projects having to be developed at the same time?

Yes, if I understood your question correctly, it's a bit unclear. Our operating cash flow this year, before the FPSO goes off-station, should be strong between now and the end of the year. We have capital expenditures in place, but we're more than covering these expenses. At the same time, we are in discussions with various financial institutions regarding our facilities. We currently have a facility, but we are looking ahead about three years and considering new ones. I see a combination of operational and financing cash flows being utilized for these development projects. There will be periods in 2025 or 2026 where we will experience some significant capital expenditures. That's what we are focusing on, but I cannot provide more details at the moment, as we are still working with those institutions.

Operator, I have a question that I received by email that I pose to George and Thor. And that is, when do we expect to get the results on the new wells that we drilled in Canada that we said we're coming online soon?

Yes, I can answer that. The drilling program has been completed, and the completions program has brought the first three wells online. Two of these wells are cleaned up and producing, while the third well is still in the cleanup flow phase. We anticipate the fourth well will be online in about a week. The two stabilized wells are performing above the type curves, the third well is still undergoing cleanup, and we will have more information on the fourth well in about a week.

This concludes our question-and-answer session. I would like to turn the conference back over to George Maxwell, CEO, for any closing remarks.

Thank you, operator. I am very pleased to be part of another successful set of results for Q1, where the company has performed well. Our assets are performing well, and we continue to streamline and become more efficient in each of our areas of operation. As mentioned by a couple of questions, we are looking at opportunities in the marketplace where our skill sets in operational excellence can add value to our shareholders. With that in mind, as we review the guidance for 2024, we see that guidance levels are being maintained. We expect production in our areas of operation in Gabon and Egypt to improve, and as Thor just mentioned, we see advancements in Canada. We will provide more updates on Cote d'Ivoire in the coming quarters regarding its performance and longer-term plans after discussions with the operator. Therefore, we are building a much more diversified portfolio company that is increasingly sustainable in its delivery. Thank you very much.

We do have one more question from Charlie Sharp with Canaccord.

Just one very quick follow-up question and a sort of slightly longer element to it, if I may. In Egypt, the results of the workovers in Q1, 1 or 2 of them have been quite good, others less good. I guess, the first question really is, what is it that you look for that might make you commit to the second half workover program? And then the bigger question is really given the range of projects that you now have, particularly in West Africa and in Canada in terms of capital allocation, is Egypt looking particularly with the issues there and uncertainties? Is Egypt looking less compelling to you than perhaps it did 12 months ago?

Let me break this down, Charlie. Regarding the drilling campaign in Egypt, we have the potential for a drilling program consisting of 12 to 15 wells, requiring an additional capital expenditure of about $18 million. The main challenge we currently face is securing access to the drilling rig and obtaining the necessary equipment, rather than finding locations to drill. For this year, focusing mainly on 2024, if we can resolve these issues, we will proceed with drilling in Egypt, which would boost production and enhance our production sharing contract positions there. Of course, if our capital allocation becomes more restricted, then the economic returns would need to be much more attractive, influencing our decisions about capital allocation. Now, I will turn it over to Ron.

Charlie, I just want to add that George is absolutely right. We have several developments happening. In Egypt, we are dealing with a liquidity issue, but that situation is gradually improving. You may have noticed the World Bank's involvement, as well as the land sales to the UAE and the recent currency devaluation aimed at controlling inflation and interest rates. These factors are creating a more positive outlook compared to where we were expecting to be in the third and fourth quarters of 2023. However, progress will be slow, not as fast as many would prefer. We are actively collaborating with state and EGPCs, just like our peers. Additionally, concerning the production decline in Egypt, we are about to bring in a second workover unit, which we have secured and will be operational in the second quarter. With two workover units in operation over the next three months, they will definitely help mitigate the production decline, regardless of the discussions around the drilling campaign.

If I can just add to that, when we're drilling in Egypt, the drilling rig actually only does the drilling and the workover rig does the workovers. So in order to minimize downtime on wells that need workovers, we're bringing in the second rig, the workover rig for that exact purpose to support the drilling rig when the drilling program starts up.

That is the last question. So the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.