VAALCO Energy(EGY) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a quarterly production increase of 7% to 19,676 NRI barrels of oil equivalent per day, or 24,863 barrels on a working interest basis, exceeding production guidance [11][12] - Adjusted EBITDAX grew by 37% to $65.3 million, which was $17.5 million higher than Q1 2023, despite lower realized pricing [13][45] - Cash from operations was $77.6 million, funding $27.1 million in capital expenditures, with a strong cash balance of $46.2 million at quarter-end and no bank debt [13][50] Business Line Data and Key Metrics Changes - In Egypt, the drilling campaign included 12 vertical wells, achieving a significant reduction in drilling time from an average of 38 days per well in 2022 to 8-15 days in 2023, representing a 60% reduction [16][18] - Canada set a production record in 2023, with the completion of the drilling and completions program, and plans to optimize future prospects with longer lateral wells [20][29] - Gabon saw strong production numbers despite minimal new capital expenditures in 2023, benefiting from the new FSO's cost savings and increased storage capacity [22][23] Market Data and Key Metrics Changes - The company experienced a 47% increase in sales compared to Q1 2023, driven by higher production and sales volumes in Gabon, Egypt, and Canada [12][39] - Brent crude prices dropped about 4% quarterly, impacting realized pricing, particularly in Egypt where all Q2 sales were sold domestically [39][40] - Natural gas liquid and natural gas pricing in Canada saw significant declines, with benchmark natural gas pricing down 39% [40] Company Strategy and Development Direction - The company aims to optimize production, manage costs, and allocate capital for future growth, focusing on operational efficiencies and environmental stewardship [8][18] - Plans for 2024 include a three to four well drilling program, contingent on rig availability and market conditions [31][68] - The company is engaged in final PSC negotiations regarding blocks G and H in Gabon, indicating potential for future growth [32][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong performance in the second half of 2023, with expectations to build cash reserves for future projects [63][68] - The company noted increased competition in their operational areas, particularly from European oil and gas companies, which may complicate future opportunities [106] - Management highlighted the importance of maintaining operational efficiency and maximizing shareholder returns amidst changing market dynamics [64][115] Other Important Information - The company has returned $15 million through a share buyback program since November 2022 and plans to continue this program [9][66] - The company is bank debt-free and has a strategic vision focused on growth and maximizing shareholder returns [34][61] - An updated supplemental earnings deck was provided for better transparency regarding sales pricing and production at the country level [59] Q&A Session Summary Question: Is it too early to talk about potential CapEx for the 2024-2025 Gabon drilling program? - Management indicated that preliminary numbers are being worked on, and they are gathering market information for well locations and types of wells to be drilled [73][78] Question: What is causing the dramatic decrease in drilling times in Egypt? - Management attributed the decrease to better coordination on equipment delivery and changes in personnel, leading to improved drilling and completion efficiency [80][81] Question: Can you quantify the positive impact of the SEENT gasline fix on costs? - The fix is expected to reduce diesel costs by approximately $500,000 to $600,000 per month once completed, with repair costs estimated between $2 million and $3 million [87][89] Question: What is the update on the contiguous property in Gabon with BW? - Progress has been made, but finalization may not occur before the upcoming elections in Gabon [117] Question: Where are you in understanding the geology of the Dentale? - The company is studying the Dentale's geology, focusing on permeability issues and planning for future drilling campaigns [121][124]