VAALCO Energy - Earnings Call - Q1 2019
May 9, 2019
Transcript
Speaker 0
Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the VAALCO Energy First Quarter twenty nineteen Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. I would now like to turn the call over to Mr. Al Petrie, Investor Relations Coordinator.
Speaker 1
Thank you, Amy. Good morning, everyone and welcome to VAALCO Energy's first quarter twenty nineteen conference call. After I cover the forward looking statements, Cary Downs, our Chief Executive Officer, will review key highlights of the first quarter along with operational results. Liz Prochnow, our Chief Financial Officer, will then provide a more in-depth financial review. Carey will then return for some closing comments before we take your questions.
During our Q and A 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 an updated investor deck on our website this morning that has additional financial analysis, comparisons, 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 yesterday's press release, the presentation posted on our website and in the reports we file with the SEC, including the Form 10 Q that was filed yesterday. Please note that this conference call is being recorded.
Let me now turn the call over
Speaker 2
to Cary. Thank you, Al. Good morning, everyone, and welcome to our first quarter twenty nineteen earnings conference call. I'm very pleased with our first quarter results and I would like to start by reviewing the agreement we have reached to finalize our exit from Angola. In the first quarter of this year, VAALCO and Sonangal EP signed a settlement agreement, which allows for the termination of VAALCO's rights, liabilities and all outstanding obligations for Block V in Angola.
The settlement agreement includes a payment of $4,500,000 to Sonangol EP and elimination of the receivable from Sonangol P and P. The receivable is related to joint interest billings and was reflected as current assets from discontinued operations at year end 2018. The cash payment from VAALCO will become due within fifteen days after the execution of an executive decree by the Ministry of Mineral Resources and Petroleum. VAALCO had previously accrued a fifteen million dollars liability associated with the potential payment for relinquishing Block V. As a result of the agreement, VAALCO adjusted this liability and recognized a net of tax non cash benefit from discontinued operations of $5,700,000 in the 2019.
Combining the PSC Extension at Etame with our exit from Angola strengthens VAALCO's ability to grow from a solid foundation, which includes robust reserves and resources, a clean balance sheet with $46,000,000 in cash on hand and an extended time horizon for continued production and reserve growth in Gabon. Turning to operational results, production for the first quarter averaged 3,496 barrels of oil per day net, which was at the low end of our guidance range due to a work stoppage by non VAALCO employees on the FPSO that reduced production in the quarter by approximately 200 barrels of oil per day. Without this unexpected third party interruption, we would have been above the midpoint of our guidance range. For the second quarter, we expect production to be in the range of 3,600 to 3,800 barrels of oil per day net. As a reminder, the production impact from our 2019 development drilling program will not boost production until late in the year and thus will have a significantly greater impact on 2020 production.
Our realized oil pricing declined slightly to $64.17 per barrel in the first quarter, but we continued to generate meaningful adjusted EBITDAX of $9,700,000 in the quarter and expand our cash on hand to over $46,000,000 at the end of the first quarter. Now, I would like to update you on our 2019 development drilling program. As part of the PSC Extension in Gabon, we committed to drilling two development wells and two appraisal wellbores by September 2020. As previously announced, we plan to begin drilling up to three development wells and two appraisal wellbores in 2019 funded from cash on hand and cash generated from operations. We have secured a rig that will be available to begin drilling these wells in the 2019 and we plan to continue drilling through the 2020.
Our current plans are to bring the first well online in the 2019 with the remaining wells online in the 2020. In our most recent presentation posted to the VAALCO website, we have included a detailed description of the 2019 drilling campaign, which will satisfy our work commitment under the PSC Extension. These development drilling locations are easily drilled off of our existing platforms with the jackup rig and the wells can be placed on production quickly with minimal increase in operating and overhead costs. The appraisal wellbores we are drilling are to assess the Dentale potential in Etame and evaluate a Gamba step out area in the Southeast Etame. If the appraisal wellbores prove up resources in these areas, there is the potential to add approximately 5,000,000 net barrels of 2P oil reserves and access up to six additional well locations in future drilling campaigns.
Our vision is to repeat similar drilling programs multiple times over the next several years and continue adding reserves and production to help us achieve our Vision 2025 goals. Again, and I can't emphasize this enough, we expect our estimated 2019 net capital investment budget of twenty million to $25,000,000 will be funded by cash on hand and cash flow from operations. The investment community in the last twelve months has become increasingly focused on the ability of all E and P companies to generate free cash flow in an extended period of volatile oil prices like we have been experiencing. Our management team has long understood the importance of generating free cash flow to sustain our company and ultimately allow us to grow. We have a strong stable production base with a team focused on minimizing costs and generating free cash flow and that has helped us build our cash balance.
Let me now provide a brief update on Equatorial Guinea. As we discussed on our fourth quarter twenty eighteen call, our 31% interest in Block P has been in suspension for several years. However, in September 2018, the Equatorial Guinea Ministry Of Mines And Hydrocarbons lifted the suspension. As a reminder to everyone, G. Patrol is the state owned oil company and one of our partners in Block P.
G. Patrol was required to introduce a new investor or joint venture owner to the Equatorial Guinea Ministry of Mines by March 2839 and GEPetrol has fulfilled this requirement. Upon the Ministry of Mines approving the new joint owner, the contractor group has one year to begin drilling operations. VAALCO intends to seek a new joint venture owner on a promoted basis that will cover all or substantially all of the cost to drill an exploratory well. Failure to drill would result in the loss of our interest in the license and we would have to write down I'm sorry, we would have to write off $10,000,000 on our books for the value of our undeveloped leasehold costs associated with the Block P license.
We are working with our joint venture owners to evaluate the timing and budgeting for development and exploration activities under a development and production area in the block, including the approval of a development and production plan. Finally, I would like to discuss our process to dual list on the London Stock Exchange. We recently initiated a process to pursue dual listing in Europe to better position VAALCO alongside our international peer group. We think that this is the right time for VAALCO to seek a standard listing on the London Stock Exchange, which we believe will provide us access to a broader group of international institutional investors and a broader range of equity research analysts. The process will progress over the next four to six months.
Before I conclude my opening remarks, I would like to welcome Liz Prochnow as our Chief Financial Officer. Liz has been an integral leader for VAALCO over the past four years as our Chief Accounting Officer. She is knowledgeable about our operations and has a strong financial background to help guide VAALCO into the future. With that, I would like to turn the call over to Liz to discuss our financial results.
Speaker 3
Thank you for those kind words and introduction, Carrie. Good morning, everyone. Our financial results for the first quarter were once again strong. We reported net income of $6,500,000 or $0.10 per diluted share. Several items impacted net income including after tax non cash income of $5,700,000 or $09 per diluted share due to the settlement of the outstanding obligations in Angola.
A non cash mark to market charge of $3,000,000 or $05 per diluted share related to our crude oil swaps and a non cash deferred income tax expense of $1,800,000 or $03 per diluted share as well as a non cash charge for employee stock appreciation rights or SARs of approximately $1,700,000 or $03 per diluted share. Adjusted net income for the 2019 totaled $5,600,000 or $09 per diluted share. Adjusted EBITDAX totaled $9,700,000 in the 2019 compared with $14,500,000 in the same period of 2018 and $16,900,000 in the 2018. First quarter oil sales totaled 297,000 net barrels compared with 393,000 net barrels in the same period a year ago and 401,000 net barrels in the 2018. Both of the 2018 had increased oil sales due to additional liftings.
In the 2018, there was a split lifting that carried over from 2017 and in the 2018 included multiple liftings in the month of December. Our realized oil price for the 2019 averaged $64.17 per barrel, down nominally from $64.52 in the 2018 and down 7% from $68.69 in the 2018. In June 2018, VAALCO executed a crude oil swap at a Dated weighted average price of $74 per barrel for the period from and including June 2018 through June 2019 for a quantity of approximately 400,000 barrels. As of March 3139, there were 68,000 barrels of commodity price swaps remaining for 2019. In May 2019, VAALCO executed a crude oil swap at a dated Brent weighted average price of $66.7 per barrel for the period from and including July 2019 through June 2020 for a quantity of 500,000 barrels.
These are the only derivative contracts that the company currently has in place. We will continue to evaluate ways to mitigate risk, ensure future cash flows for our drilling programs and allow for upside to rising commodity prices through our hedging program. In the first quarter, we recorded a non cash mark to market charge related to our crude oil swaps of $3,000,000 However, we realized 1,100,000.0 cash gain on the swaps was settled during the first quarter. As of March 3139, the estimated mark to market value of the remaining commodity price swaps of 68,000 barrels in 2019 was an asset of 5,000,000 which is recorded in prepayments and other line on the condensed consolidated balance sheet. Turning to expenses.
Total production expense, excluding workovers, for the 2019 was $8,100,000 or $27.3 per barrel of oil sales compared with $10,700,000 or $27.17 per barrel in the same quarter of 2018 and $9,600,000 or $23.84 per barrel in the 2018. For the 2019, our per barrel costs were below the midpoint of guidance as we continue to manage our controllable expenses. For the 2019, we expect production expense excluding workovers to be between $9,000,000 and $10,500,000 or $27 to $31 per barrel, and annual guidance remains the same at $26 to $30 per barrel. DD and A for the 2019 was $1,600,000 or $5.23 per barrel of oil. This compares to 1,100,000 or $2.86 per barrel in the twenty eighteen first quarter and $2.3 or $5.75 per barrel in the 2018.
The year over year increase in DD and A per barrel of oil reflects an increase in depletable costs associated with the PSC Extension, partly offset by favorable impact of the upward revisions to reserves at December 3138. We expect our full year DD and A range to remain unchanged at $5.5.0.5 dollars per barrel of sales. General and administrative expense for the 2019, excluding noncash compensation, was $2,700,000 or $9.15 per barrel of oil as compared to $2,300,000 or $5.82 per barrel of oil in the 2018 and $2.5 or $6.14 per barrel of oil in the 2018. We expect our full year G and A excluding non cash compensation to remain unchanged between $9,000,000 and 10,000,000 Non cash stock based compensation expense related to stock appreciation rights, or SARs, was an expense of $1,700,000 during the three months ended March 3139, as compared to an expense of 200,000.0 in the comparable 2018 period and a credit of $1,500,000 in the 2018. SARs are revalued quarterly based on the closing stock price at the end of the quarter, which was $2.24 at the end of the 2019 versus $1.47 per share on December 3138.
Stock price variability greatly impacts the fair value of the SARs, and there will be an expense or credit booked every quarter associated with the mark to market value of the SARs. Income tax expense attributable to continuing operations for the 2019 was $2,800,000 compared to $4,000,000 in the same period in 2018, and an expense of $11,300,000 in the 2018. Income tax expense for the 2019 included $1,800,000 non cash deferred tax expense, whereas the 2018 included $9,300,000 of non cash deferred tax expense. There was no deferred tax expense in the 2018. Beginning in the 2018, the government of Gabon elected to lift its share of profit oil, which we report as income taxes.
As a result, Gabon income taxes are being settled when the government of Gabon lifts its share of production. These settlements are expected to occur once or twice per year depending on production levels. The government of Gabon took its first lifting of oil since its election in September 2018. At March 3139, Galco had $4,500,000 in foreign taxes payable, which was settled in April 2019 when Gabon took an oil lifting. We do not anticipate any further liftings by Gabon in 2019.
As detailed on Slide 20 in the presentation deck posted this morning on our website, we currently estimate that VAPA's operational breakeven in 2019 is approximately $37 per barrel of oil sales, and our free cash flow breakeven price in 2019 is approximately $47 per barrel of oil sales, with both amounts including workover expense. In general terms, we estimate that each $5 increase in realized oil price increases our annual adjusted EBITDAX by $6,000,000 This clearly shows our strong leverage prices. Slides twenty one and twenty two illustrate the further strengthening of our financial position and the continued build of cash to fund our development drilling program. At the end of the first quarter, we had an unrestricted cash balance of $46,200,000 which included $4,400,000 of cash attributable to non operating joint venture owner advances. This does not include an additional $800,000 in restricted cash primarily related to deposits in Gabon, which is classified as current assets or the additional $900,000 of restricted cash, which is classified as long term assets.
At the end of the first quarter, VAALCO had working capital from continuing operations, excluding lease liabilities of $33,800,000 With the first quarter twenty nineteen financial results, we have adopted the new lease accounting rules. Under these rules, we recognize long term right of use assets of $36,600,000 along with short term lease liabilities of $10,300,000 and long term lease liabilities of 26,300,000.0 A significant portion of the amount attributable to our right of use assets is related to our FPSO. These amounts are higher than one would expect as they include both our share and our joint owner share of the lease costs. Recording of the gross cost is required under the leasing standard because VAALCO is the operator and the party to the underlying lease contracts. The impact of recording the short term portion of the lease liabilities resulted in a decrease in working capital of $10,300,000 The new leasing standard had no impact on our income statement.
VAALCO's cash position remains very strong and we continue to expect that our 2019 capital expenditures will be funded by cash on hand and cash flow from operations. The current estimated net capital expenditure range for 2019, which is primarily associated with the drilling program, is $20,000,000 to $25,000,000 The drilling program will include up to three development wells and two appraisal wellbores, and we anticipate that it will be completed in the 2020. In the 2019, VAALCO invested approximately $800,000 in capital expenditures. And for the 2019, DACA expects to spend minimal capital expenditures on some long term lead items and maintenance capital, with the majority of our capital expenditures to occur in the 2019. We have carried our strong operational execution into 2019 and remain focused on continuing to build cash to fund our 2019 development opportunities.
With $46,000,000 in cash on hand, the Angola settlement agreement and no debt on our balance sheet, we are in one of the best financial positions in the company's recent history. With this, I will now turn the call back over to Carey.
Speaker 2
Thanks, Liz. We have positioned VAALCO financially and operationally to succeed in the near term and long term. With the Angola agreement, we have a clean balance sheet with no debt and ample working capital. With the PSC Extension in place, we have the runway to build a robust future from a world class producing asset. Our foundation is solid with a high performing team, capacity for growth and a strong track record of operating responsibly.
I am optimistic that we will create substantial value for our shareholders by executing on our drilling program at Etame where we see significant upside, which we have highlighted in our investment presentation on Slides 11 through 13. We are striving to become a premier African operator with a more diversified portfolio and with our Vision 2025, we are targeting five times growth in production and reserves to create value for our shareholders. We have a team with a clearly differentiated African expertise, a strong producing asset with significant upside and we are pursuing M and A opportunities where we can utilize our operational expertise to maximize value creation. Our focus is on profitable and accretive growth that will add value for our shareholders. The outlook for VAALCO is promising and we are very excited about the opportunities that lie ahead.
Thank you. And with that, operator, we are ready to take questions.
Speaker 0
Your first question is from Stephanie Foucault of GMP Securities.
Speaker 4
Good morning, guys. Could you flesh out the various milestones that would lead to the later listing, In other words, what do we need to see an announcement in terms of what needs to be done effectively to start drilling in The UK? Thank you.
Speaker 2
What effectively needs to be done to start drilling I'm sorry, to start trading in The UK, Stephane, and thank you for the question. We are going through the steps now and it's really filling out the applications and forms required by the London Stock Exchange and the regulator. We've started that process and we're working through that now. We expect, like I mentioned, to finish that process and have approval to start trading within four to six months.
Speaker 4
Right. Thank you.
Speaker 0
Your next question is from Jamie Wilen of Wilen Management.
Speaker 5
On Equatorial Guinea, you say you've got twelve months to find a partner. Could you tell us what you are where you are in the process and
Speaker 2
Where we are in the process is yes, good morning, Jamie. Absolutely, in Equatorial Guinea, where we are in the process is we are working with G Patrol to have their working or participating interest transferred over to a new partner. Once that occurs and we expect that to occur imminently, we are looking for a partner to take part of our interest and we will promote them and they will carry, like I said, a substantial portion of our cost to drill an exploratory well. We have already started the marketing process to find a partner. Now, we will not finalize that process until we know who are who GPatrol will ultimately assign their interest to.
So, the first step is for ministry approval for GPatrol to assign their interest and then we'll continue and finalize our process and bring in a partner that will take part of our interest.
Speaker 5
So you have twelve months from a date that has not yet been determined, Is
Speaker 2
that correct? Is And deadline, just to be clear, the deadline in twelve months is to begin drilling.
Speaker 4
Okay.
Speaker 5
And as far as the drilling in Gabon, when do you expect that to begin? I know you said in the back half of the year, but could you be a little bit more specific?
Speaker 2
Late third quarter. Late third quarter, early fourth quarter, but I think late third quarter.
Speaker 4
Okay. And
Speaker 5
you'll be drilling three wells this year or was it carrying over into next year? It's
Speaker 2
carrying over into next year.
Speaker 4
Okay.
Speaker 5
So two this year and one early next year at this point?
Speaker 4
The time between go ahead.
Speaker 2
Well, yes, let me clarify, Jamie. We expect to bring one well online this year and two wells online by the middle of next year, the first half of next year.
Speaker 5
Okay. Then balance sheet wise of that $46,000,000 some of that goes to we have already paid the in Angola and
Speaker 2
some of
Speaker 5
that is our joint venture partners money as well?
Speaker 2
We have not made the cash payment to Angola yet. The process in Angola is for a ministry decree to be filed. Once the ministry decree is filed, we have fifteen days to make the payment. So we have not made the $4,500,000 cash payment in Angola yet. And yes, we are holding a portion of our cash is our partner's cash that we will use to pay our invoices.
Speaker 3
Yes, it's just the normal monthly bill. So depending on the timing of when they fund their cash calls and we ended up with $4,400,000 at the end of the quarter.
Speaker 5
Okay. And as far as your hedging program, as you look out each year, would we assume you're going to be hedging a third or 40% of your oil well ahead in advance just to limit the risk and secure the cash flow for the year?
Speaker 2
Is exactly right, Jamie. Yes.
Speaker 4
Okay.
Speaker 5
I'm good. Thank you very much.
Speaker 2
Okay. Thank you.
Speaker 0
Your next question is from Bill Dezellem of Tieton Capital.
Speaker 6
Thank you. Would you please repeat what you said towards the very end of your remarks, Kerry, relative to something about at five times, I thought it was a five times increase?
Speaker 2
Right, right. What we're targeting, Bill, is by 2025 and this is a commitment of management team. Our management team got together and we discussed what is our vision for VAALCO by 2025 and we said we'd like to be five times larger and to define five times larger that could mean five times production or five times reserves or five times market cap. But regardless, we will be five times larger, but we're not going to do it at the sake of shareholder value. And so we have constrained ourselves and we have said we will grow by five times in one or all of those areas.
But along the way, we will be top quartile in total shareholder return. And so the growth target is a combination of total shareholder return or growing value for our shareholders combined with a meaningful growth in size of the company.
Speaker 6
Great. Thank you. And you said the three areas that you were looking at that could qualify would be reserves, production and or market value?
Speaker 2
Correct. Correct.
Speaker 6
Well, I hope successful and beat your target on all three accounts.
Speaker 2
All right. Thank you, Bill.
Speaker 6
If I may continue with additional questions. Equatorial Guinea, once GE the Petrol has found their partner and are assigned their interest, it sounds like since you already have your are we reading you correctly, you already have your partner lined up assuming that GE Petrol does not surprise you in some way, you have someone who is ready to take part of your position?
Speaker 2
No, we do not have someone lined up at the moment. We are marketing our interest. We've begun that process. And so there are several candidates and we have not decided which partner we would we will engage with yet. But that's engaging a partner to take on VAALCO's interest is still is not finalized.
I'm sorry, Bill, I didn't mean to mislead you, but we are marketing and we're marketing in parallel with G Patrol marketing their interest. Once we know who takes over G Patrol's interest, that will give us the final information we need to go out and finish our marketing process.
Speaker 6
And so I guess what I'm really trying to get my arms around is how tight is that one year time line once the clock starts ticking? Is that very doable or is that really pushing a bit?
Speaker 2
In my opinion, it's doable.
Speaker 6
Great. That's helpful. And I know I'm going past my two questions. May I continue or would you prefer with that? Sure.
No, no, that's fine.
Speaker 2
That's fine.
Speaker 6
Alright, thank you. And then the fewer liftings that you had in the first quarter or maybe the other way said is the increased number of liftings in the Q4 that led to less in Q1. What are the implications for the second quarter, particularly given that Right. The government did their lifting in
Speaker 2
The implications for the second quarter are there was inventory that carried over from the first quarter to the second quarter. And so if we can schedule our liftings on time and or not on time, I shouldn't say that, but at the right times and lift the right volumes, we could have higher liftings in the second quarter. Now, I can't promise that yet. Again, it depends on availability of tankers, availability of support equipment that comes along when we do a lifting. But yes, the opportunity is there to increase liftings in the second quarter because there was inventory carried over from the first to the second quarter.
And I hope it goes without saying, it's always our goal to maximize our liftings and leave as little inventory as possible at the end of the quarter. And that's always what we try to do. We weren't quite able to do that at the end of the first quarter, but we'll again, we'll try to do that by the end of the second quarter.
Speaker 6
And then from the April lifting that the government did for their taxes, so that would have a negative implication for your cash flow in the second quarter. But do we understand correctly, it has zero impact on earnings because you're actually accruing for that as you go along?
Speaker 3
Yes, that is correct.
Speaker 6
Okay. Thank you. And then I would like to shift, if I could, to acquisitions, which really ties back to the fivefold increase that you are looking for of the business over time. Can you talk about the acquisition pipeline and just a general update of what you are your evaluation process and what you are seeing out there? And maybe well, I'll hold the next question.
Go ahead and answer that one.
Speaker 2
Right. Well, as I've said in the past, in terms of acquisitions, we've restrained or confined ourselves to a geographic area that's Africa because Africa is what we know ideally an acquisition would be in Africa offshore oil. Now I say in Africa, are places where there is higher political risk and so we're looking at Africa where we can manage the political risk and then also where we have technical expertise and operational expertise. And so within those areas, yes, we are seeing a pipeline of opportunities and the opportunities tend to come from companies that are listed in London in fact. And so we spend a lot of time in London talking to other companies about their assets.
I don't there is nothing to announce today, but it is a very active process and we have a team dedicated to identifying and ultimately executing on an acquisition.
Speaker 6
Kerry, you have been evaluating acquisitions there for some time. And so this next question is not intended to poke you in the eye, but really more to understand what you've been up against or working through. So given that you have been evaluating acquisitions for some time, what has been the inhibitor so that you have not announced an acquisition
Speaker 2
It's really there's been, I guess, not a single inhibitor. It has been our we've had a focus up until late last year internally on first extending Gabon and then now finalizing Angola. And so we've accomplished those challenges or those goals and objectives. And so now we have time to step back and apply more resources to acquisitions. So I'll say part of it was, while we were working in parallel on our internal portfolio of opportunities and looking outside.
And so and again, opportunity we have is the drilling program coming up. It's been a balance of where we put resources to make sure that we're building a strong foundation and that we are executing on our future. That's been part of it. Another part of it is, we're very, very picky, to be honest. When we don't want to go and execute a transaction for the sake of executing a transaction.
And in my background, what that means is, we've got to look at 100 opportunities to find one that might work and then that will take a fair amount of time to even do due diligence and finalize something. So, these to do the right acquisition takes a long time. If we had if we do something quickly, I want to be careful that we don't do it quickly and do the wrong deal. So anyway, I
Speaker 1
hope that answers your question,
Speaker 6
the time and the extra questions.
Speaker 4
Sure.
Speaker 0
You have a follow-up question from Stefan Foucault of GMP Securities.
Speaker 4
Yes. Thanks for taking my question. My follow-up question. First, you talked on the call about six follow-up wells in case of drilling success in Gabon in the current defined program. You talked about the upside, the 2P reserve upside associated to the sanction drilling program.
But what would be the 2P upside for the six new wells? That would be my first question. And my second question is around EG. And as with regards to the portion that you are looking to farm out, what sort of data we would you be looking for? Is that ground floor transaction?
Is that would you be looking for some sort of multiple of historical investments? What are we carry? What are we talking about? Thank you.
Speaker 2
Right, Stephane. No, great questions. And first, I'll start with the 2P upside from the appraisal wells. There's two appraisal wells like I mentioned earlier. One will test the Dentale, which is a deeper sand beneath the Etame field And the other appraisal well will test a Gamba structure that's adjacent to a producing Gamba structure at Southeast Etame.
And so what we're giving out in terms of 2P upside is a range. It's 2,800,000 barrels to 5,800,000 barrels that may be converted from either contingent or prospective resources. There is different pools right now. But anyway, the combined contingent plus prospective resources that could be converted to 2P reserves are 2,800,000 to 5,800,000 barrels. Then your second question on the deal structure that we are pursuing for Equatorial Guinea, it's a carry.
It's a simple carry. We do not plan to cash out or sell our interest. We want to maintain exposure to the upside in Equatorial Guinea. So, ideally, it would be a carry.
Speaker 4
Would there be some you took about, I think, 10,000,000 invested. So, the sort of carry we look at that multiple of that investments or that sometimes we've seen two forty one, $3.41, do you have a sense of what would be acceptable?
Speaker 2
Well, since we're trying to negotiate the final terms right now, I'm hesitant to answer that question. But we are taking into consideration some costs and prior costs. And you're right, we have $10,000,000 of prior costs. So that is a consideration when we're talking to the companies. And so there is a multiple that you are right, it's the two for one, three to one some multiple that makes sense.
We believe there is significant upside in particular with the Southwest Grande exploration prospects. Obviously, we're at the higher end of the multiple that we're seeking. But I really can't comment right now since we're in negotiations on what I think the final multiple might be.
Speaker 4
Okay. Thanks a lot. And back on my first question, so you talked about the range of 2PF would be targeted by the current program. But my question was more around, you talked about six additional follow on location if that's really successful. So what would be the upside associated to the full on locations rather than the upside associated with the current sanctioned program?
Speaker 2
Okay, right. I'm sorry, let me try to explain that again. When we talk about the six wells that may be proved up based on the two appraisal wellbores we're drilling, so there's no 2P reserves associated with the appraisal wellbores. Once we complete those, they may define six locations and across the six locations, we're looking at anywhere from 2,800,000 to 5,800,000 barrels of 2P reserves.
Speaker 4
Okay. I've got you. Okay. Thank you. Sure.
Speaker 0
Your next question comes from Charlie Sharp of Canaccord.
Speaker 4
Hello, Charlie. Good
Speaker 7
morning, everyone. Hi, how is it going? Hope you are having a good morning. I'd just like to explore a little bit further Stefan's question and try and tie that in, if possible, to your 5x growth target over, let's say, the next six years. I think you said that on Etame, you expected that you would be able to repeat the 2019 program perhaps several times, the sort of cycle of investment resource to reserve production.
And I'm just wondering your wider vision for Etame beyond the twenty nineteen-twenty twenty program, how much organically do you think that, that asset can contribute to your five times growth target? And therefore, that gives us some idea of what you need to achieve perhaps inorganically to deliver those targets?
Speaker 2
Right, right. Well, what we see, Ed Etame, in terms of remaining resources is 126,000,000 well, let's call it 125,000,000 barrels gross. So that is what remains and what we're targeting. We've booked 10,000,000 barrels net right now of those resources. So let's say there is of the 125,000,000, that's 35,000,000 barrels net to VAALCO.
We've already booked 10 of it. There's another 25. So that's 3x growth and so we need to for the other to make it up to five, we've got to make up the difference with an acquisition. Is that what you were driving at, Charlie?
Speaker 7
That is exactly what I was driving at. So, really, a term can provide a big chunk of your growth. So, you don't need to be investing in, let's say, lots of other assets, it's perhaps one or two other assets in West Africa that would enable you to deliver that growth.
Speaker 2
That is exactly right. And that is exactly right. And if I could, I'd like to add on to that, that those one or two assets are can come in and we can take over and operate those with minimal increase in G and A cost. And so that is exactly our strategy to achieve 5x growth mainly from Etame, accomplish the rest with one or two acquisitions without increasing G and A significantly.
Speaker 7
And could I just as a short follow-up ask whether you would be inclined more towards appraisal into production development and production or some development some production with some bolt on potential?
Speaker 2
I think, ideally, it would be appraisal that would lead to more production, but we are open to production with bolt on exploration type potential. But I think it's a foregone conclusion that we need some production to support a new acquisition.
Speaker 7
Yes. That's very helpful. Thank you.
Speaker 4
There
Speaker 0
are no further questions at this time.