VAALCO Energy - Earnings Call - Q2 2019

Transcript

Speaker 0

Good morning and welcome to the VAALCO Energy Second Quarter twenty nineteen Earnings 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. At this time, I would now like to turn the show over to Al Peachtree, Investor Relations Coordinator. Please go ahead, sir.

Speaker 1

Thank you, Nicole. Good morning, everyone, and welcome to Valco Energy's second quarter twenty nineteen conference call. After I cover the forward looking statements, Cary Bounds, our Chief Executive Officer, will review key highlights of the second quarter along with operational results. Liz Prochnow, our Chief Financial Officer, will then provide a more in-depth financial review. Cary 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 an updated investor deck on our website this morning 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 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

Speaker 2

call over to Cary. Thank you, Al. Good morning, and welcome to our second quarter twenty nineteen earnings conference call. As discussed in our earnings release yesterday, we grew adjusted EBITDAX to $12,900,000 maintained strong production at 3,664 barrels of oil per day and increased our cash position to $48,600,000 in the second quarter. In addition, we have also progressed forward with removing meaningful financial uncertainty from balance sheet.

We recently finalized the Angola exit settlement in July by making a $4,500,000 cash payment, which was substantially less than the $15,000,000 obligation previously carried on our balance sheet. We have now removed all of VAALCO's rights, liabilities and outstanding obligations for Block V in Angola and we can focus on our producing assets in Gabon. We also reached an agreement in principle to resolve legacy Etame joint venture owners audit claims dating back to 2007 through 2016 for 4,400,000 The $4,400,000 settlement amount is a tiny fraction of the approximately $2,300,000,000 of joint venture expenditures over the same period. It is unusual for these types of claims to linger and accumulate for ten years. Under normal circumstances, these issues would have been resolved on a biannual basis with far less impact on our financial statements.

Moving forward, we have procedures in place that will mitigate the chances of significant audit claims in the future and we will work diligently with our partners to settle disputes in a timely manner. Turning to operational results for the second quarter, we had a 20% increase in sales volumes and our realized oil pricing increased by 7% to $68.62 per barrel compared to the first quarter. This allowed us to grow adjusted EBITDAX to 12,900,000 and expand our cash on hand to $48,600,000 at the end of the second quarter. Production for the second quarter averaged 3,664 barrels of oil per day net, which was near the midpoint of our guidance range and up 5% compared to the first quarter. During the 2019, the Etame 4H well produced an average of approximately three fifty barrels of oil per day gross or 95 barrels of oil per day net.

However, last month, this well was shut in due to a mechanical issue. We are currently evaluating the most cost effective way to reestablish production. Also in July, we performed an acid stimulation on the North Chabala 2H well. After the stimulation, the well would no longer produce by natural flow. We are monitoring the well and reviewing options to restore production.

During the 2019, this well produced an average of approximately four twenty barrels of oil per day gross or 113 barrels of oil per day net to VAALCO. The timing to restore production from this well is dependent on when we can get the needed equipment on the platform, which may take a few months. In total, our volumes have been reduced by about 200 barrels of oil per day net, while we work to restore production from both of these wells. Looking ahead to the third quarter, we are currently underway with our full field maintenance turnaround at Etame, which is expected to last approximately eight days. Taking into account the fulfilled maintenance turnaround and the production deferrals from the two wells I mentioned earlier, we expect production for the third quarter to be in the range of 3,000 to 3,300 barrels of oil per day net.

Please note, we are not changing our 2019 annual guidance of 3,300 to 3,900 barrels of oil per day. When we developed our full year guidance estimates earlier this year, we accounted for the annual field shutdown as well as potential issues from producing wells. As a reminder, the production impact from our twenty nineteen-twenty twenty drilling campaign will positively impact production late this year and will have a significantly greater impact on 2020 production. Now, I'd like to update you on our twenty nineteen-twenty twenty drilling campaign. 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, in 2019, we plan to begin drilling up to three development wells and two appraisal wellbores funded from cash on hand and cash generated from operations. We have secured a rig that will be available to begin drilling these wells late in the 2019 and we plan to continue drilling into the 2020. We currently expect the first well to come online late in the fourth quarter with the remaining wells online in the 2020. In our most recent presentation posted to the VAALCO website on Slides nine and thirteen, we have included a detailed description of the twenty nineteen-twenty twenty drilling campaign. The expected gross production uplift from the drilling campaign is 4,000 to 7,000 barrels of oil per day for the full year 2020 and the annualized net uplift is 1,100 to 1,900 barrels of oil per day for 2020.

These development drilling locations are easily drilled off of our existing platforms with a jackup rig and the wells can be placed on production quickly with minimal increase in operating costs. The appraisal wellbores we are drilling are to assess the Dentale potential in Etame and evaluate a Gamba step out area in Southeast Etame. If the appraisal well bores prove up resources in these areas, there is the potential to add up to 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, which should continue adding reserves and production. In 2019, we expect to spend between $20,000,000 and $25,000,000 expenditures with another 5,000,000 to $10,000,000 of capital expenditures in 2020 to complete the drilling campaign.

Over the past several quarters, we have generated significant free cash flow, which has allowed us to build our cash balance and strengthen our balance sheet to the point where we can fund all of our capital requirements from cash on hand and cash flow from operations. To return value to our shareholders and demonstrate the confidence we have in our assets and our ongoing ability to generate cash flow, we announced on June 20 a share repurchase program. We believe the share repurchase program is an excellent opportunity to buy our common shares at a significant discount to their intrinsic value and the program also reflects the Board's confidence in the current value proposition of our stock. We are confident that we can execute this share repurchase program and fully fund our twenty nineteen-twenty twenty drilling campaign from cash on hand and cash from operations. Later on, Liz will provide additional details regarding the share repurchase plan.

In Equatorial Guinea, we are still waiting on the Minister of Mines and Hydrocarbons to approve transferring the state's participating interest in Block P to a new joint venture owner. Once the transfer of the state's interest is approved, we are seeking a partner on a promoted basis who will fund all or substantially all of the cost to drill an exploration well as required by the state. As a reminder, the contractor group has one year to begin drilling operations upon the Ministry of Mines and Hydrocarbons approving the state's transfer of interest. Failure to drill would result in the loss of our interest in the license and we would have to write off $10,000,000 on our books for the undeveloped leasehold costs associated with the Block P license. We continue to work with our joint venture owners to evaluate the timing and budgeting for development and exploration activities on Block P.

Finally, I would like to update you on our dual listing process. We initiated a process to pursue a dual listing in The UK to better position VAALCO alongside our international peer group. We continue to progress forward with a standard listing on the London Stock Exchange. We believe that a dual listing may generate increased interest in VAALCO through access to specialist international oil and gas investors and a broader range of equity research analysts. We are well into the process and expect to begin trading within one to three months from now.

With that, I would like to turn the call over to Liz to discuss our financial results.

Speaker 3

Thank you, Carrie, and good morning, everyone. The second quarter was a busy one for us at VAALCO as we finalized our exit from Angola, settled some long outstanding legacy joint venture audits and moved forward with our London Exchange listing. Our net loss of $1,000,000 or $01 loss per diluted share was impacted by several special items. These include non cash deferred income tax expense of $5,900,000 a charge related to the joint venture audits of $4,400,000 unrealized derivative gains of $1,500,000 and a small charge of $200,000 related to discontinued operations. These items totaled $9,000,000 net or $0.15 per share.

As a result, adjusted net income for the 2019 totaled $8,000,000 or $0.13 per diluted share. This compares favorably with the adjusted net income of $09 per share in the 2019. Adjusted EBITDAX totaled $12,900,000 in the 2019, up 47% compared with $8,800,000 in the same period of 2018 and up 30 compared to $9,700,000 in the 2019. Second quarter oil sales improved totaling 357,000 net barrels compared to 319,000 net barrels in the same period a year ago and 297,000 net barrels in the 2019. Our realized oil price for the 2019 averaged $0.06 $8.06 $2 per barrel, an increase of 7% from $64.17 in the 2019 and down 8% from $74.36 in the 2018.

In June 2018, VAALCO executed crude oil swap at a Dated Brent 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. The final settlement meant for these swaps was in June 2019. Looking forward, VAALCO has crude oil swaps at a Dated Brent weighted average price of $66.07 $0 per barrel for the period from and including July 2019 through June 2020 for a quantity of 500,000 barrels. These contracts were entered into in May 2019 and are the only derivative contracts that we currently have in place moving forward. We will continue to evaluate ways to mitigate risk, ensure future cash flows for our drilling program and allow for upside to rising commodity prices through our hedging program.

In the second quarter, we recorded non cash mark to market unrealized gains related to our crude oil swaps of $1,500,000 while we realized $400,000 cash in gains on the swaps which settled during the second quarter. Turning to expenses, total production expense excluding workovers for the 2019 was $9,800,000 or $27.45 per barrel of oil sales compared with $8,300,000 or $26.08 per barrel in the same 2018 and $8,100,000 or $27.3 per barrel in the 2019. For the 2019, our per barrel costs were below the midpoint of our guidance as we continue to manage our controllable expenses. For the 2019, we expect production expense excluding workovers to be between $9,500,000 and $10,500,000 or $31 per barrel to $35 per barrel and annual guidance remains the same at $26 per barrel to $30 per barrel. While total production expense for the third quarter is expected to be comparable to the second quarter, the per barrel cost is expected to increase as a result of lower volumes, which will be impacted by the planned field shutdown of approximately eight days as well as deferred production from the two wells that are not producing.

DD and A for the 2019 was $1,900,000 or $5.35 This compares to $1,000,000 or $3.24 per barrel in the twenty eighteen second quarter and $1,600,000 or $5.23 per barrel in the 2019. The year over year increase in DD and A per barrel of oil reflects an increase in depletable costs associated with the PSE extension partially offset by a 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 to $6.5 per barrel of oil sales. General and administrative expense for the second quarter excluding non cash compensation was $2,800,000 or $7.93 per barrel of oil as compared to $2,600,000 or $8.4 per barrel of oil in the 2018 and $2,700,000 or $9.14 per barrel of oil in the 2019.

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 a credit of $700,000 during the three months ended June 3039 as compared to an expense of $2,000,000 in the comparable 2018 period and an expense of $1,700,000 in the 2019. SARs are revalued quarterly based on the closing stock price at the end of the quarter, which was $1.67 at the end of the 2019 versus $2.24 per share on March 3139. 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 for the three months ended June 3039 was $9,200,000 This is comprised of $5,900,000 of deferred tax expense and a current tax provision of $3,300,000 and was impacted by $4,400,000 related to the joint venture owners audits. Income from continuing operations excluding the $4,400,000 was $12,700,000 At an effective tax rate of 79%, income taxes would have been $10,000,000 The $10,000,000 of income tax expense is reduced by the tax benefit of the $4,400,000 expense, which is taxed at The U.

S. Income tax rate of 21% or $900,000 resulting in a total income tax expense of $9,200,000 For the three months ended June 3038 the company had a current provision of $3,600,000 and no amounts related to deferred taxes. The decrease in the current provision is primarily attributable to Gabon income taxes which were impacted by the increase in the amount of costs which can be deducted as a result of the PSC extension obtained in September 2018. With respect to deferred income tax for periods prior to the three months ended September 3038, the company had a full valuation allowance on its net deferred tax assets and deferred income tax was zero. In July 2019, the company reached an agreement in principle to resolve findings from legacy joint venture owners audits for the periods from 2007 through 2016 for $4,400,000 net to VAALCO.

The settlement covers a ten year period during which the Etame joint venture owners shared an expenditures totaling approximately $2,300,000,000 on a gross basis. The settlement amount is relatively insignificant to the expenditures period. The agreement in principle also provides procedures that we believe minimize the chances of significant audit claims in the future. The accrual of $4,400,000 is reflected in accrued liabilities and other line of the company's condensed consolidated balance sheet and recorded as a second quarter twenty nineteen expense in the condensed consolidated statements of operations in the line item other operating income expense net. The agreement in principle is expected to become final upon signing of a binding settlement agreement by all of the joint venture owners.

As detailed on Slide 18 in the presentation deck posted this morning on our website, we currently estimate that VAALCO's operational breakeven price 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 those amounts including workover expense, in general terms we estimate that each $5 increase in realized oil prices increases our annual adjusted EBITDAX by $6,000,000 This clearly shows our strong leverage to higher oil prices. Slides nineteen and twenty illustrate the further strengthening of our financial position and the continued build of working capital to fund our development drilling program. At the end of the second quarter, we had a cash balance of $48,600,000 which included $3,800,000 of cash attributable to non operating joint venture owner advances. At the end of the second quarter, VAALCO had $38,100,000 of working capital from continuing operations.

This metric excludes lease liabilities and amounts attributable to discontinued operations. On June 2039, VAALCO announced that its Board of Directors had authorized a stock repurchase program under which the company can repurchase up to $10,000,000 outstanding shares of the company's common stock over a period of twelve months through open market purchases, privately negotiated transactions or otherwise in compliance with Rule 10b-eighteen under the Securities Exchange Act of 1934. From June 20 through August 7, we have purchased 888,354 shares of common stock at an average price of 1.73 representing a total investment of approximately $1,500,000 VAALCO's cash position remains very strong and this is reinforced by the fact that we can execute this buyback program and also continue to fully fund our planned twenty nineteen-twenty twenty drilling program at Etame from cash on hand and cash flow from operations. The current estimated net capital expenditure range for 2019 which is primarily associated with this drilling program is $20,000,000 to $25,000,000 The twenty nineteen-twenty twenty drilling program will include up to three wells and two appraisal wellbores. We anticipate that it will completed in the 2020 and the total cost is forecasted at 25,000,000 to $30,000,000 In the 2019, VAALCO invested approximately $400,000 in capital expenditures.

We remain focused on strong operational execution and continuing to build cash to fund our twenty nineteen-twenty twenty development opportunities. With $48,000,000 in cash on hand, the removal of the uncertainty from our balance sheet with the finalization of the Angola settlement and the agreement in principle to resolve ten years' worth of outstanding joint venture audits coupled with 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 Cary.

Speaker 2

Thanks, Liz. Our foundation is solid with a high performing team, capacity for growth and a strong track record of operating responsibly. Over the past year, we have taken several actions to help strengthen the balance sheet and better position VAALCO for the future. We signed the PSC Extension in late twenty eighteen at Etame. We finalized the exit from Angola that removed all of our obligations there and we reached an agreement in principle to resolve ten years' worth of Etame joint venture owners audit claims.

We have removed all debt from the balance sheet and grown cash on hand to $48,600,000 We have significant near term and long term upside opportunities at Etame, which we have highlighted in our investment presentation on Slides nine and fourteen. With all of this potential, we believe that our stock price is currently undervalued. As such, the Board approved a share buyback program in June and we have already repurchased almost 900,000 shares of VAALCO stock. Our strong cash position and continued cash generation will enable us to execute a share buyback program while simultaneously funding our twenty nineteen-twenty twenty capital program from internally generated cash and cash on hand. Our focus is on profitable and accretive growth from a solid foundation.

I believe that moving forward, we will create substantial value for our shareholders by growing reserves and production at Etame and building our asset portfolio through mergers and acquisitions. The outlook for VAALCO is very promising and we are excited about the opportunities that lie ahead. Thank you. And with that, operator, we are ready to take questions.

Speaker 0

The first question comes from the line of Bill Dezellium.

Speaker 4

Thank you. I have a group of questions. First of all, would like to circle back to Slide nine and just make sure that I'm reading this correctly, that if we take the midpoint of your 2020 production guidance, which would be 4,600 net to VAALCO and compare that to the 3,600 net, you are looking for this drilling program to have a roughly 28% increase in your production. Is there anything that we're missing in that calculation?

Speaker 2

I think you got that exactly right, Bill. Thank you.

Speaker 4

Okay. Thank you very much. I hope that comes out according to plan or at the high end. So let me shift to your legacy issues. You cleaned up more of those this quarter.

What legacy issues still remain?

Speaker 2

There are it's hard to say though because the legacy issues kind of come out from the woodwork unexpectedly sometimes. But I am not aware of any significant legacy issues that are of the magnitude of the settling this joint venture audit with our Etame partners. And like I said, it's meaningful because it's ten years' worth of audit claims all settled at one time. And if we had settled these routinely on an annual or biannual basis, they wouldn't have been meaningful. So anyway, I don't see anything out there that I'm aware of that's a legacy issue that could impact that would have this much impact on us.

Speaker 4

Great. Thank you. And then where are you at relative to finding a promoted interest partner for Block P in Equatorial Guinea?

Speaker 2

Well, we are in the process of seeking a partner, of course. But what we want to do is we any partner that would come and join VAALCO wants to know who are the other partners in the block. And so we're really prevented from finalizing a farm out agreement or obtaining a partner until the ministry has approved the transfer of interest of the state's participating interest to a new joint venture owner. So once that happens, we have a group of people or a group of companies that we think are interested in the block and we will pursue them further.

Speaker 4

And so the government is aware of who that new partner is. It's now simply a matter of them approving it. Is that

Speaker 2

what you're That is yes, that is what I'm inferring. And to be clear, yes, the new partner has been submitted to the state for approval. The Minister of Mines and Hydrocarbons, the Minister of Mines knows who the company is that is proposing to state take over the state's participating interest and we're just waiting on the minister to approve.

Speaker 4

And now is this something more than a rubber stamp process because it seems that the state oil company is the one who is providing the new partner for the state Department of Energy essentially to approve. So it seems like that's the left hand dealing with the right hand and that should be simple.

Speaker 2

We would tend to agree with you, but there are other issues internally in Equatorial Guinea that I can't speak to. And so the process is taking longer than expected. But you're right, it is one branch of government making to another branch of government and it should be a formality, but it's just taking us longer than we expect.

Speaker 4

Okay. Thank you. And are you aware of who the recommended new partner is? And if so, are you able to share that with the companies that you'd potentially do a promoted partner interest with? And secondarily, share that with us?

Speaker 2

Well, yes, we are aware of who the company is that is proposed to take over the state's participating interest. And the answer to your other questions are no, unfortunately, we are not allowed to disclose information until the new partner is approved.

Speaker 4

And that would include disclosing it to a prospective promoted partner also? Yes. Okay. Thank you. And then lastly, the acquisition arena.

Would you bring us up to speed as to what you are doing, seeing and what's happening with that pipeline out there, please?

Speaker 2

Right, right. Well, like I've mentioned in other calls, we've got a group that's entirely focused. It's our new ventures group entirely focused on M and A. They are seeing opportunities. We're not at a point where we can discuss any one of the opportunities in detail, but there are opportunities there is a pipeline of opportunities.

We're focused in Africa. And like I've said in the past, we're going to probably look at dozens of opportunities to line up a few that are of particular interest to us to hopefully get to one where we can close on a transaction. And so I want to set the right expectations that we are we have a team dedicated to this. They are looking at numerous offers. But it's just going to take us time because we're going to go have to go through many, many opportunities to find the one that's accretive for VAALCO.

Speaker 4

Great. Thank you, Carey.

Speaker 2

All right. Thank you, Bill.

Speaker 0

Our next question is from the line of Charlie Sharp.

Speaker 5

Good morning, everybody. I also have a little selection of questions, if I may. And firstly, it's just really going back to the legacy issue, the agreement in principle that you've struck regarding the joint venture audit. And I know that you've taken a charge in the quarter related to that. I just wonder, is that charge is that a settled amount or is there perhaps room for adjustment to that in the future?

And what are the final, final steps as it were that you have to accomplish on the timeline for those before you are completely clear of that legacy issue?

Speaker 2

Right, right. Charlie, I view this I view the $4,400,000 settlement amount as the final amount. I think there is a very low probability that any of the partners will try to renegotiate that amount. And so the next steps are to for our partners to take the settlement agreement to their management teams, their Board of Directors and have the agreement approved. And so I believe that the next steps are just a formality.

The individuals from the joint venture partners or the representatives, I should say, from our joint venture partners that negotiated the agreement, I think negotiated in good faith to a number that their senior management will approve.

Speaker 5

Okay. That's very good. And the timeline for that, do you envisage that over the next months or perhaps longer than that?

Speaker 2

No, no, not longer than months. I would say maybe I'm being optimistic, but I would say weeks. Okay.

Speaker 5

Excellent. And then operationally, obviously, you've got the field shut in period in Q3 and production impacted by that and of course also the two wells that are off. Firstly, on those two wells at M4H and North Jubbala 2H, do you think those are just mechanical infrastructure issues or is there some subsurface risk that you've identified at the moment? And then in Q4, do you envisage those wells coming back and additional production from the new drilling contributing to the whatever the number is around 4,000 plus barrels per day?

Speaker 2

Right. So let me start with your last question. In Q4, we certainly expect for our very first well to come online towards the end of the year and contribute to twenty nineteen production. As far as the two wells that are shut in right now, it's we're still uncertain as to when those wells will come back and start producing again. And our plan is to give a production update here in the near future when we have more information regarding, for example, when the drilling rig arrives, when we have certainty on that date.

And so over the next few weeks or months, we will come out with more guidance on production to answer those questions. But right now, my expectation is that we will certainly have some production from a new well in 2019 and it's uncertain as to whether we will have production from the two wells that are shut in. So let me talk about very briefly the address your questions on the issues with the two wells that are shut in. The Etame 4H well is a subsea well that produces via gas lift. The mechanical issue we have is with the subsea wellhead and it's not a significant issue and we can repair the wellhead.

The challenge is finding the equipment and its remote operating vehicles that we can use to go and repair the wellhead. So, we we're sorting through that and looking for the right equipment to repair that wellbore. So, it's not the Tom 4H is certainly not a downhole issue. The North Chabala 2H is a Dentale well. It's one of the two Dentale wells we drilled back in 2015.

It's a flowing well. It's flowed for nearly four years now. And like I mentioned, back in July, we attempted an acid stimulation on that well. The stimulation was designed to remove damage that we felt like may have occurred when we drilled the well. Once we pump the acid stimulation, the well would not kick off again.

The acid stimulation fluids are heavier than natural reservoir fluids. And so what we need to do is bring in again, in some equipment into country to go and energize the reservoir and kick the well off, so it will start flowing again. So, again, it's not a downhole issue as much as we were trying to improve production from the well and we just can't get the well to kick off again. Now, is like I mentioned earlier, we're monitoring the well. There is a chance that the well will kick off on its own and we're watching that and that would be the very best outcome.

But otherwise, need to bring in some equipment where we can energize the well and get the well flowing again. So Charlie, did that answer your questions?

Speaker 5

Yes, that's terrific. Thank you very much.

Speaker 0

The next question comes from the line of Jamie Wieland.

Speaker 6

Hi fellows. First of all just a commentary about the clarity of the presentation, the detail on your charts on your website is truly outstanding and makes it really easy to understand where you are and where you're headed. I certainly applaud whoever is putting that together. One further statement on the non producing wells. When you were trying to stimulate the well, you were trying to get more production out of it?

And is what was your goal? You were trying to fix something, but were you trying to increase the flow or just maintain it?

Speaker 2

Trying to increase the flow, great question, Jamie. The well was producing roughly 400 barrels of oil per day. We felt like that if we pump the acid, the acid would dissolve some material that had damaged the wellbore and it was an attempt to increase production. So the well was producing flowing just fine at 400 barrels a day, but again, attempt was, well, let's see if we can clean things up and then produce at a higher rate.

Speaker 6

Okay. So once you have found the equipment and it's flowing again, you're still not sure whether that was successful or not? You won't know until you Correct. Till it starts to flow? Correct.

That's correct. Okay. A couple of other little things. On the balance sheet, the payment that you have to your partners, is that recorded on there, the potential payment?

Speaker 3

Yes. So that is recorded in accrued liabilities on the balance Okay.

Speaker 6

So it's lumped in with everything else?

Speaker 4

Yes. Okay.

Speaker 6

And then with the drilling program that you have, approximately how long does it take to drill these wells, your degree of certainty as you are drilling them? And then I guess from the time that those the drilling is finished, it's a very short time to hook up to your pipeline?

Speaker 2

It is. And that's one of the more fortunate aspects of our operations is that all of our platforms and pipeline infrastructure is in place. And so we are drilling wells from platforms. Just to remind everyone, are first in a couple of instances, we will drill an appraisal sidetrack or I'm sorry, an appraisal wellbore first to test some ideas and hopefully prove up additional reserves. That takes a couple of weeks and then it's probably thirty days to drill the development well to drill and complete the development well.

So in general, from spud to first production is six to eight weeks.

Speaker 6

Okay. And when do you expect to have the rig in your possession on-site?

Speaker 2

We're hoping in September, but it could be delayed.

Speaker 6

Could be delayed if someone has an option on the rig that they might drill another one? Correct.

Speaker 2

We're in line behind other operators contracts, who who signed their contracts before we signed our contract. And of course, there's a certain number of drill slots that are associated with each contract. And depending on whether other operators that are ahead of us in line, depending on whether they decide to go ahead and utilize all of their drill slots, it may delay us. And also if they have any issues and downhole problems that extend their drilling, that might delay us. But again, our best estimate is mid September.

And as soon as we have a firm date, Jamie, we will follow-up with and issue a press release.

Speaker 6

Okay. And once again, just to applaud the stock buyback program, it's a great prudent use of assets. I love the way you have hedged out your program so that your cash flow is well more than sufficient to fund all these things. And I love how well positioned you are for the future. Nice job.

Speaker 2

Great. Thank you, Jamie. Appreciate that.