Good morning, and welcome to VAALCO Energy's Second Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Chris Delange, Investor Relations Coordinator. Please go ahead.

Thank you, operator. Welcome to VAALCO Energy's Second Quarter 2025 Conference Call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the second quarter. Ron Bain, our CFO, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions. During our question-and-answer session, we ask you to limit your question to one and a follow-up. You can re-enter the queue with additional questions. I would 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 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, Chris. Good morning, everyone, and welcome to our second quarter 2025 earnings conference call. For the past 2 years, we have met or exceeded our quarterly production guidance, consistently leading to strong operational and financial results, including net income, adjusted EBITDAX, and cash flow generation. In Q2 2025, we delivered net income of $8.4 million or $0.08 per share and adjusted EBITDAX of $49.9 million. This was driven by NRI production of 16,956 BOE per day, which was above the high end of guidance. Working interest production of 21,654 BOE per day was at the high end of our guidance, and NRI sales of 19,393 BOE per day, which was also above the high end of guidance. Maintaining operational excellence and consistent production across our portfolio is essential to continued strong adjusted EBITDAX generation, which will enable us to fund organic growth initiatives and position us as a larger player in the industry. We also entered into a new reserve-based revolving credit facility in the first quarter of 2025, which complements our internally generated cash flow and cash on hand from time to time as needed to fund our organic growth initiatives. The facility has an initial commitment of $119 million with the ability to grow to $300 million as we look to fund projects across our diverse portfolio. It is important to remember that 2025 is a transitional year, and everything remains on track with our forecast. Production came offline in Q1 at Côte d'Ivoire due to the FPSO project, and we do not expect to start the drilling program in Gabon until late Q3 as we await the drilling rig's completion of its current commitments. This means that the meaningful production uplift we are projecting for these major projects won't begin until 2026 and into 2027. I would like to point out that in addition to all of our organic growth and capital projects, we remain committed to returning cash to shareholders through a regularly quarterly dividend and have returned over $100 million to our shareholders through dividends and share buybacks since 2022. I would now like to go through and provide a quick update on our diverse portfolio of high-quality assets, beginning with Côte d'Ivoire. In line with the project timeline, the FPSO ceased hydrocarbon operations as scheduled on January 31, 2025, with the final lifting of crude oil from the vessel occurring in early February. The vessel departed from the field in late March and arrived in the shipyard in Dubai ahead of schedule in mid-May 2025. The FPSO refurbishment is now underway in the shipyard. We are making a very sizable investment in this project. But given the license extension and 125% cost oil recovery on the capital spent, this investment will provide a solid foundation for continuing economic growth into the future. Significant development drilling is expected to begin in 2026 after the FPSO returns to service with potential meaningful additions to production from the main Baobab field. The Council of Ministers recently approved a 10-year extension to the license on CI-40, extending it to 2038. In March 2025, we announced a farm-in agreement for the CI-705 block offshore Côte d'Ivoire, where we will operate with a 70% working interest and a 100% paying interest under a commercial carry arrangement through the seismic reprocessing and interpretation stages and potentially drilling up to 2 exploration wells. We invested $3 million to acquire our interest in the new Block. And in Q2, we received the seismic data for the Block. We are conducting a detailed integrated geological analysis to assess and mature our understanding of the Block's overall prospectivity as well as the basin's overall potential. We believe the Block is favorably located in a proven hydrocarbon system and is approximately 70 kilometers to the west of our CI-40 Block. We have demonstrated our ability to acquire, develop and enhance value through accretive acquisitions, and we're excited about the prospects in Côte d'Ivoire. Moving to Gabon. Given that we haven't drilled a well in Gabon in over 2 years, we are very pleased with the positive overall production results, including strong production uptime and improved decline curves on the wells. We secured a drilling rig in December 2024 for our 2025-2026 drilling program, which is planned to begin in late Q3 2025, but the timing of when we start the drilling program is dependent on when the rig becomes available from its current commitments. The contract that we signed for the rig is a firm commitment of 5 wells with an option for 5 additional wells. As we discussed in the Capital Markets Day, we have some very strong drilling opportunities, and the additional data gathered during the upcoming drilling program will help us high-grade and derisk additional well locations that we already have identified. We plan to begin the drilling program on the Etame field platform, and we are currently planning on moving to the Eboui wells later in the program because of the current robust production profile of these wells. In particular, we remain very pleased with the extended flow test on Ebouri 4H, which is continuing to surpass our initial expectations. We originally wanted to gather information on the H2S concentrations at this location to aid in equipment design and to evaluate our chemical crude sweetening process. The 4H well has now flowed for all of 2025 at a gross average of about 1,000 barrels of oil per day, with the H2S concentration within our modeling expectations, demonstrating our ability to chemically treat the oil. The well's production has helped Gabon exceed its production guidance in 2025, while adding some additional production costs for chemicals. Regarding our exploration blocks in Gabon, the Niosi Marine and the Guduma Marine, we are working in conjunction with our partners and the operator, BW Energy, on plans for the 2 blocks moving forward. A seismic survey to fulfill a work commitment on Niosi is being planned for acquisition in late 2025 or early 2026. Given the proximity of these blocks to prolific producing fields of Etame and Dussafu, we are excited about the future possibility for these blocks. Turning to Egypt. In the fourth quarter of 2024, we contracted a rig and drilled 2 wells starting a drilling campaign that has carried into the first half of 2025. We have drilled and completed multiple wells in the first half of 2025 and are continuing to drill in Q3, including a South Ghazalat commitment well. We are very pleased with the operational performance and efficiency of the drilling program, which is helping to minimize costs through increased proficiency. We also continue to work over and recomplete wells in Egypt. Both the drilling program and the workover program in Egypt had solid production and are economic even in lower commodity price environments. I'm also very proud of our continued performance from a safety standpoint in Egypt. We did not have a lost-time incident in 2024, and thus far in 2025, we have not had a lost-time incident, which means that we have gone over 5 million man-hours without an incident, which is a testament to our ongoing commitment to safety. In March 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development. This summer, we began our front-end engineering or FEED study. The FEED is complete, and we are awaiting the publication of the final report. We have further engineering studies to complete in 2025, leading 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 over the next few years. Turning to Canada. We successfully drilled and completed 4 wells in 2024. We also completed a well in the southern acreage in late 2024 that could help us better understand the acreage and upside in that area. While we remain optimistic about the drillable inventory in Canada, we decided to postpone our Canadian drilling program in 2025 due to the current commodity price environment. We will continue to monitor the performance of our wells and plan for future drilling opportunities. We continue to develop on or exceed our guidance operationally, and our solid financial results continue to outpace analyst expectations. We remain focused on growing production, reserves and value for our shareholders. I'd like to thank our hard-working team who continue to operate and execute our plans. We are well positioned to execute the projects in our enhanced portfolio, and given our track record of success these past few years, this should instill confidence for our future. With that, I would like to turn the call over to Ron to share our financial results.

Thank you, George. And once again, good morning. 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 through the first half of 2025 driven by our strong operational performance. We have met or exceeded production guidance for the past 2-plus years with production and sales up in the second quarter driven by strong production in Gabon and Egypt despite Côte d'Ivoire being offline since late January. In the second quarter, we generated $8.4 million in net income or $0.08 per share and $49.9 million in adjusted EBITDAX. Our NRI sales for the quarter were above the high end of guidance and 19,393 barrels of oil equivalent per day, a small increase from the first quarter. This was driven by an extra lifting in late June in Gabon. While sales were up 3%, pricing was lower by about 15% quarter-over-quarter. We have seen higher volatility in the commodity price environment thus far in 2025. Our hedging program has always looked to help mitigate risk and protect our commitment to capital projects and shareholder returns. In the past, we have been opportunistic or tactical with our hedging approach. But with the reserve base lending now in place, we are moving towards a more programmatic hedging program that will be more consistent over a rolling time horizon. With this in mind, you can see that we added multiple hedges in 2025 and 2026, and our full hedge positions are disclosed in the earnings release. Turning to costs. Our production costs for the second quarter of 2025 were at the low end of guidance on an absolute basis and below the low end of guidance on a per barrel basis. Absolute expense was $40.4 million, a 10% reduction quarter-over-quarter and on a per barrel basis was $22.87. G&A costs were in line with the guidance and fell by 9% quarter-over-quarter. Our focus remains on keeping our costs low to enable us to maximize margins and increase our cash flow. Moving to taxes. And as I've previously stated in Gabon, our foreign income taxes are settled by the government through an in-kind oil liftings. In Q2, we saw a $3.1 million favorable oil price adjustment as a result of the change in the value of the government of Gabon's allocation of profit oil between the time it was produced and the time it was taken in kind. Turning now to the balance sheet and to the cash flow statement. Unrestricted cash at the end of the second quarter was $67.9 million. This did not include around $24 million of receipts that were collected in July. About $19 million of that was related to the lifting in Gabon that occurred at the end of June, and $5 million was received from EGPC aligned with our commitment to ensure that they stayed current on their 2025 payables, whilst improving their overall aging position. We believe we will see a more meaningful reduction in their overall aging profile as the year progresses. Throughout the first half of 2025, EGPC continued to demonstrate that their variable commitments have turned into physical actions. As we discussed last quarter, we added a reserve-based credit facility with an initial commitment of $190 million and the ability to grow that to $300 million. With the capital spending in CDI and in Gabon in 2025, we had forecasted that we would have to use the facility, and in Q2, we drew on that facility for the first time, but overall, we closed with cash on hand that was greater than the bank debt by $7.9 million at quarter end before receipt of the additional receivables in July. In Q2, we spent $45.9 million in cash CapEx and returned $6.5 million through dividends to our shareholders. We believe that our current dividend yield of around 7% is very attractive, especially considering the meaningful upside potential in production and reserve growth that we outlined in the Capital Markets Day over the next few years. Let me now turn to guidance, where I will give you some key highlights and updates. Our full guidance breakout is in the earnings release and in our supplemental slide deck on our website with production breakout of both working interest and net revenue interest by asset area. Full year guidance remains unchanged. I'd like to remind you that last quarter, we did reduce CapEx forecast by 10% without impacting production or sales for the full year 2025. For Q3 2025, we are forecasting production to be between 18,900 and 20,800 working interest barrels of oil equivalent per day and between 14,400 and 15,600 net revenue interest barrels of oil equivalent per day. This is down compared to the second quarter due to a planned maintenance turnaround that occurred in Gabon in July and a natural decline across all of our assets. For the third quarter, we are forecasting our sales will be down compared to Q2 due to fewer offshore liftings in Gabon. We also expect our absolute operating cost to be lower compared to Q2, also because of fewer expected liftings. Finally, looking at CapEx, our Q3 CapEx spend is expected to be between $70 million and $90 million. Although this may come in a bit lower depending on the timing of the arrival of the drilling rig in Gabon. We anticipate continued spending in CDI and Egypt in Q3, more or less in line with Q2. In closing, we are continuing to achieve strong results. We are well positioned to execute and fund our robust organic capital program that should help to increase production and reserves for 2026 and for years beyond.

Thanks, Ron. We will continue to execute our strategy focused on operating efficiency, investing prudently, maximizing our asset base, and looking for accretive opportunities. As you have heard this morning, we continue to meet or exceed both our quarterly guidance and analyst estimates in the first half of 2025 as we have done for the past several years. By delivering on our commitments to the market, I believe we have earned credibility with our shareholders, and we will continue to deliver on the exciting slate of projects that we have over the next few years. Our entire organization is actively working to deliver sustainable growth and strong results. We have multiple major projects underway that are anticipated to meaningfully grow production and reserves. Through the first half of 2025, we have generated $107 million in adjusted EBITDAX, and this is with Côte d'Ivoire offline for the FPSO projects and no new wells drilled in Gabon. In addition to funding our capital program, we have remained focused on returning value to shareholders. In the first half of 2025, we returned over $13 million to our shareholders through dividends. We are on pace to deliver another $0.25 per share annual dividend for 2025, which at our current share price is a dividend yield of about 7%. We are confident in our ability to execute on the many projects ahead, largely because we have been highly successful over the past several years developing and growing our assets. Our disciplined approach to maximizing value for our shareholders by delivering growth in production, reserves, and cash flow has led to outstanding results and has positioned us to continue to profitably grow into the future. Thank you. Thank you. And with that, operator, we're ready to take questions.

And the first question comes from Stephane Foucaud with Auctus Advisors.

My first question is about Côte d'Ivoire. George, you mentioned that the project was ahead of schedule in May. I was wondering if that is still the case now that we are in mid-August or if the timeline has changed. Where do we currently stand compared to our expectations? My follow-up question, probably for Ron, is regarding cash flow. In the second and third quarters, there are many variables to consider. I understand there is a $19 million payment from a lifting expected in the third quarter, but there will also be fewer liftings. How do you see operating cash flow comparing to Q2? Do you expect it to be higher, lower, or similar? I'm trying to calibrate my model.

Thank you, Stephane. Well, yes, I mentioned in May that the FPSO project was ahead of schedule. And as of today, it remains ahead of schedule. We are still projecting in accordance with the operator, the sale-away time to be exactly where we are predicting it to be in January of 2026 and then working on the reconnection in late March of 2026. So at the moment, we are ahead. That may see some accelerant spending into 2025 from 2026 if the project keeps ahead of track, which, although it increases some of our spend, it's good news earlier we can get that vessel back in place.

In relation to working capital, obviously, in Q1, we had an outflow in relation to Gabon's lifting, the state lifting for taxes. We don't see another lifting for Gabon for the state this year. At this point in time, we're projecting it will fall into 2026. So we won't have that situation. In Q2, as you said, with 3 liftings, the last of which was on the 28th of June in Gabon, which resulted in effectively an AR balance at the end of the quarter. We generally collect our money on our listings within the period in Gabon, but in that particular case, it moved to July, and that was about $19 million in the end of June. So those are the 2 outflow movements in Q1 and Q2, even though there's other things within that. What I'd say for Q3 is that we're expecting accounts receivable to come down somewhat in Q3. So at this point in time, I would suggest that your working capital is going to be a positive inflow in Q3 and then it will revert to a normal status in Q4.

So possibly balancing out the expectation of lower sales in Q3 compared to Q2?

Yes. I think you've got 2 things. One, you've collected that receivable in July that was really outstanding at the end of June in Gabon, and we will lift in Q3 and get paid in Q3. And at the same point in time, we are expecting to see some other improvements in receivables. I'll say specifically from Egypt at this point in time, we expect to see some reduction there through Q3 and Q4.

Your next question comes from Chris Wheaton with Stifel.

I have two questions. First, regarding Côte d'Ivoire, we mentioned in the last results that the turret bearing was a critical component for keeping the FPSO project on schedule and within budget. With the issues caused by tariffs, is the manufacturing and installation of that complex piece of steel still on track? Second, I'd like to follow up on your answer about working capital. I was surprised to see negative working capital again in the second quarter, but I noticed you have $23 million in receivables just after the quarter ended. This suggests that Egypt must have paid around $9 million in working capital receivables during the quarter, is that correct? It's good to see that Egypt is maintaining its payables as discussed. Those are my two questions.

Yes. To update you on the current bearing swivel assembly, the bearing is in Dubai at a climate-controlled warehouse waiting for installation, and the swivel is expected to arrive there on August 12 according to our current information. It's on the water. Installation should begin shortly after that, likely at the beginning of September. Everything is under control.

Chris, going back to your Egyptian receivable point. I mean, we started the year with about $113 million in receivables in Egypt and that's reduced probably about 95% of that balance through the end of June. Obviously, we got $5 million, as you can see in July against that. At the same time, we've had revenues of $67 million. So we have had a reduction overall in the 6 months and have kept pace with our revenue performance in the first 6 months of this year. So they're doing exactly what they're verbally committed to, and we've got some commitments for them for the second half of the year, and there's nothing to suggest that we will not keep to those commitments.

And your next question comes from Charles Sharp with Canaccord.

Just a quick question actually on Equatorial Guinea. I think you said in the announcement that you are targeting a final investment decision by the end of this year, correct me if I'm wrong. I just wondered if actually a sort of safe restart of production in Côte d'Ivoire and a little bit of evidence of positive results from Gabon drilling might feed into that decision?

Not really. When we established the FEED study, we aimed to optimize the topsides' location by shifting some capital expenditures into operational expenditures due to the projected short field life of about five years for the Venus development. We want to align our spending with the tax efficiency opportunities available in Equatorial Guinea for these types of investments. As we approach a final investment decision and consider making more concrete commitments, we are evaluating several options to drill and assess more efficiently than what is currently outlined in the development plan, and to reduce the risks associated with shelf drilling. However, once we reach the final investment decision, the actual commitments will be made well into the second half of 2026. By that time, we expect to have Côte d'Ivoire back in production and likely one of the Baobab Phase 5 wells drilled. We are trying to ensure that we don’t overextend our balance sheet in developing our organic assets, which is why CDI is planned for late 2026 and early 2027.

Your next question comes from Jeff Robertson with Water Tower Research.

George, can you talk a little bit about the impact that the Gabon drilling program will have on production? In other words, whether there be many disruptions from things moving around or from the rig moving around in the field and drilling and completion operations?

I'll pass it on to Thor, but yes, I don't envisage any, but I'll let Thor give you the details.

Yes, there are times when we have to limit production on the platforms when the rig is either moving in or out. We usually try to align these periods with planned downtime that is already accounted for in the budget, so there’s no impact. Just remember that as the rig moves in, there are considerations to keep in mind.

Okay. So no material disruptions?

No.

This may be too early, as I believe you mentioned you just acquired seismic data in CI-705. However, George, could you discuss how much of that block you would ultimately like to retain and whether those decisions depend on how you develop prospects in the block?

It definitely does because we just received the seismic data in late June. The team is starting to organize that data for review. If you recall what we discussed at Capital Markets Day, when we first looked at this block marketed by ICE, they were focused on a shallower gas structure closer to the beach. We believe there is a potentially very attractive oil-bearing structure deeper down. It comes down to the evaluation and determining which structure is the most appealing to drill, as we need to drill it to find something commercially viable. Then, it's about collaborating with the DGH regarding which segment of the block we'll keep for commercial production and which we want to relinquish. The block itself is quite large, and we intend to take the time to conduct a thorough study of the seismic data for the entire block to ensure we don't overlook anything. It's evident, especially in that basin in CDI, that many have explored it over the last 20 to 30 years, but only now, with enhanced seismic analysis, are we beginning to see opportunities that others hadn't noticed before. The discovery and production highlight that many have examined that area, and it's only recently that significant opportunities are becoming apparent. We're not going to rush this; we have enough time. With our CapEx program over the next two years, we're aiming to push the company toward 50,000 barrels a day, and this will come after that development cycle.

And your next question is a follow-up from Stephane Foucaud with Auctus Advisors.

I have a question on Egypt. So you talk about continuous drilling activity in the second part of the year. I recall that when the initial budget was set, there was some uncertainty about the second part of 2025. So I was wondering now how many wells do you plan to drill in 2H compared to 10 wells drilled in the first half of 2025 in Egypt?

Right now, we've got plans to drill an additional 8 wells in the second half.

Okay. So that could have quite a nice impact on production, I guess, it was probably not expected before?

Yes, it should provide a significant increase in our exit rates for the year.

Yes. And bear in mind, Stephane, one of those wells is in the Western Desert, South Ghazalat. So it won't have production associated with it, but it is there to see what opportunity we have in the development.

So, with this enhanced CapEx program or drilling program, why has the CapEx guidance not changed? Or what adjustments have you made to maintain this CapEx guidance?

I think there are two main reasons for this, Stephane. First, we decided to take our planned Canadian CapEx for 2026 and move it to 2025. This adjustment helped offset the increased drilling costs in Egypt. Additionally, the capital costs in Egypt have been lower than we initially anticipated. These two factors are allowing us to maintain the position we had at the end of Q1, where we indicated that we expect a 10% reduction in our overall CapEx guidance for the year.

One thing that's worth mentioning, and we have highlighted it before about the drilling efficiencies in Egypt. And I think we've talked about having some of the drilling complete down as low as 15 days, and some of the wells in Q2, we were down to 8 days. So that adds to the lower cost.

Yes, when we initially took over the drilling operations, the previous operator was drilling about one well every 30 days. Within the first 18 months, we reduced that to 16 to 20 days, and currently, we're drilling at a rate of approximately 2.5 wells per month. This efficiency impacts rig and service costs since we are paying for fewer days.

Your next question is a follow-up from Jeff Robertson with Water Tower Research.

George, just a follow-up on CI. When the FPSO comes back to the field, how long will it take to restore production to where it was before? And would some of the refurbishment work on the FPSO allow for any increased production from what it was capable of before from the existing wells?

Right now, the FPSO is planned to be back at the end of May. We expect it will take probably 2 to 3 weeks to start first oil production at the end of May. After that, I would expect the field to ramp up slowly for 2 or 3 weeks. So we would expect to see stable production towards the end of June, around the middle of June. The scope of the FPSO refurbishment was not to change the overall capability of the FPSO. The vessel can handle well over what the field is capable of producing, so there are no issues there, and there were no changes in plan for that. It was simply refurbishing what was there.

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

Thank you very much, and thank you to all the participants that listened to our call today. Once again, we've had a strong quarter. We are projecting a strong year given the investing activities that we had forecast for 2025. And that puts the company in a great place and a great platform for growth into 2026. So the ability that we have right now to demonstrate to the market and to our shareholders our continued success and investment in our organic portfolio whilst keeping a lot of options open in exploration opportunities, particularly around 705 and the 2 new exploration blocks in Gabon. So we will continue to look at opportunities that allow us to increase our footprint and further extend our production profiles well into the late 2030s to give us a sufficiently long running room to generate both the oil production and the subsequent cash flows that allow us to make the returns to the investors that we have done over the past 3 years. And with that, I look forward to talking to you all again in the quarter 3 earnings call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.