VAALCO Energy(US:EGY)2020-08-07 19:01Financial Data and Key Metrics Changes - The second quarter 2020 net income was $0.6 million, or $0.01 per share, impacted by lower realized crude oil prices, offset by higher sales volumes [21] - Adjusted net income was $5.3 million, or $0.9 per share, including realized gains of $6.5 million from derivative contracts [22] - Adjusted EBITDAX for the second quarter was $10.1 million, an increase of $4.1 million compared to the first quarter due to higher sales volumes and realized gains [13][24] Business Line Data and Key Metrics Changes - Average production in Q2 was 5,410 net barrels of oil per day, exceeding guidance of 5,000 to 5,400 barrels [10] - Production volumes increased by 48% from Q2 2019 and 9% from Q1 2020, driven by new wells from the 2019-2020 drilling campaign [24] - Unit operating costs decreased by 17% compared to Q1 2020, with breakeven margins estimated at $33.50 per barrel for 2023 [12] Market Data and Key Metrics Changes - Realized crude oil prices fell sharply, being 59% lower than Q2 2019 and 52% lower than Q1 2020 [25] - The company expects average production for Q3 2020 to be between 4,200 and 4,600 barrels per day due to production curtailments [15] Company Strategy and Development Direction - The company has deferred all material discretionary capital expenditures to focus on cash flow generation and prepare for future drilling campaigns [7][37] - VAALCO aims to maintain operational excellence and is optimistic about the long-term viability of its drilling opportunities in Gabon [8][38] - The company is evaluating acquisition opportunities, particularly in West Africa, as other companies divest non-core assets [46] Management's Comments on Operating Environment and Future Outlook - Management noted that operations have not been materially disrupted by the COVID-19 pandemic, and they are focused on employee safety [5] - The current pricing environment remains volatile but has improved from April lows, allowing for positive cash flow generation at current production levels [36] - The company is committed to maintaining business continuity and believes it is well-positioned with a strong balance sheet and cash reserves [20][39] Other Important Information - The company has a debt-free balance sheet with $45 million in cash as of June 30, 2020, and strong working capital [34] - The company has ceased or deferred discretionary capital spending for the remainder of 2020 [35] Q&A Session Summary Question: How is the next drilling campaign being considered relative to current oil prices? - Management indicated that drilling wells would be economic if oil prices stabilize in the low-forties, with a potential start for the campaign being 12 to 18 months out [42][43] Question: When was VAALCO last impacted by OPEC production cuts? - Management stated that this is the first time VAALCO has curtailed production to meet Gabon's OPEC quota, as they were not impacted during previous OPEC cuts [44] Question: What is the status of the acquisition pipeline? - Management noted that the acquisition pipeline is more active than in the past, with opportunities arising from companies rationalizing their portfolios [45][46] Question: What are the funding mechanisms for potential acquisitions? - Management mentioned that they would primarily use cash on hand for organic growth, with debt and equity as secondary options for acquisitions [61][64]