VAALCO Energy - Earnings Call - Q3 2020

Transcript

Speaker 0

Good morning, and welcome to the VAALCO Energy Inc. Third Quarter twenty twenty Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator.

Please go ahead.

Speaker 1

Thank you, Alyssa. Good morning, everyone, and welcome to VAALCO Energy's third quarter twenty twenty conference call. After I cover the forward looking statements, Kerry Bounds, our Chief Executive Officer, will review key highlights along with operational results. Liz Prochnow, our Chief Financial Officer, will then provide a more in-depth financial review. Carrie 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 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 that 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 this morning 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 turn the call over to Cary.

Speaker 2

Thank you, Al. Good morning, everyone, and welcome to our third quarter twenty twenty earnings conference call. This year has been difficult for the energy industry as we have faced many extraordinary challenges. From COVID-nineteen to supply and demand imbalances to low commodity prices, VAALCO has responded well to all of these challenges. Thus far, VAALCO's operations have not been materially impacted by the global COVID-nineteen pandemic, which is a testament to our dedicated workforce given that we have operated platforms under the precautionary measures for approximately eight months now.

We have managed through the logistical challenges that we have faced since the outbreak occurred and continue to put the safety of our employees, contractors and local stakeholders first. We are minimizing high risk activities and using on-site medical supervision to screen, test and monitor employees and contractors while in quarantine before going offshore. We have contingency plans in place in the event we are directly impacted by the pandemic. We continue to work with our vendors and suppliers to implement cost cutting measures and partner with other operators to reduce costs by sharing services and equipment such as support vessels and helicopters. As we've said before, approximately 90% of our costs are fixed and we can add production and improve our margins with minimal increase in cost.

Our strong production and lower costs have helped us to continue to generate solid cash flow and adjusted EBITDAX. We remain focused on operational excellence, which will lead to cash flow generation, allowing us to prepare for future drilling campaigns at Etame. In the third quarter, we produced an average of 4,405 net barrels of oil per day, which was right at the midpoint of our guidance range. Our third quarter twenty twenty production was up 43% from the same quarter in 2019 as a result of the three new wells that came online as part of our successful twenty nineteen-twenty twenty drilling program. However, our third quarter twenty twenty production was below our second quarter average of 5,410 net barrels of oil per day due to the planned full field maintenance shutdown in September and the production curtailment in Gabon due to an OPEC plus mandate.

As we discussed in our last conference call, we were asked to assist Gabon in meeting its OPEC plus production quota by temporarily curtailing production at Etame. In September, we performed our planned five day full field turnaround to perform maintenance on the Natifa FPSO and all four production platforms. The turnaround was performed on time, on budget and most importantly, with no safety or environmental incidents. Looking ahead, we expect to produce somewhere between 4,605 barrels of oil per day net to VAALCO in the fourth quarter, which is up 200 to 600 barrels of oil per day versus the third quarter. You will note that we have increased the lower end of the range for the fourth quarter in our new guidance of 4,600 to 5,000 barrels of oil per day from the 4,300 to 5,000 barrels of oil per day net fourth quarter estimate we gave during our last call.

We continue to see strong production uplift from better than expected performance from the three new development wells drilled and brought online as part of the twenty nineteen-twenty twenty drilling campaign. In the third quarter, despite continued low realized crude oil prices and production curtailments, we reported an adjusted EBITDAX of $7,000,000 which brings our year to date adjusted EBITDAX to $23,100,000 and we have only spent about $10,000,000 in CapEx thus far this year, thereby confirming our ability to generate free cash flow even in this difficult environment. In addition to managing our capital spending, we have also reduced our operating and G and A expenses. Liz will give more detail on this, but driving down our costs maximizes our ability to generate free cash flow.

Speaker 3

In September, we announced that we are acquiring and processing new proprietary three d seismic data over the entire Etame license. We believe the seismic data will help improve capital efficiency at Etame by allowing us to select drilling locations that maximize oil recovery and it will also allow us to identify new locations to add to our portfolio of drilling prospects. We expect to complete the seismic acquisition in the fourth quarter of this year with full processing completed by this time next year. When acquisition and processing are complete,

Speaker 2

this will be the first continuous three d seismic survey to cover the entire Etame license, which will allow for a more robust subsurface interpretation than ever before. We are proud of the highly successful and transformational drilling program that we completed earlier this year, and we believe that a new three d seismic survey will build on that success as we plan for future drilling programs at Etame. Now I'd like to give you a quick update on our activity in Equatorial Guinea. In the 2020, VAALCO acquired additional working interest from Atlas Petroleum, thereby increasing our working interest from 31% to 43%. The cost for acquiring the additional Block P working interest is a future payment of $3,100,000 that will only be made if there is commercial production from Block P.

In August, an amendment to our production sharing contract, reflecting our updated participating interest and naming us as operator, was executed by the Equatorial Guinea Ministry of Mines and Hydrocarbons. We're excited about the future at Block P and we are having ongoing farm out discussions with Levine Hydrocarbon. Under the farm out terms, Levine will potentially cover all or substantially all of Valka's costs to drill an exploratory well in Block P. We are optimistic that we will finalize the agreements with Levine and prepare for a drilling campaign that will commence in the next couple of years with minimal financial exposure to VAALCO. This is a challenging time in the energy industry, but we believe that we are well positioned with a strong debt free balance sheet, dollars 42,000,000 in cash and a stable production base that is free cash flow positive at current prices.

Going forward, we will maintain our focus on free cash flow and operational excellence to deliver both near term and long term profitable growth. With that, I will turn the call over to Liz.

Speaker 4

Thank you, Carrie, and good morning, everyone. In the 2020, we reported strong net income of $7,600,000 or $0.13 per diluted share. This is despite the impact of low crude prices and temporarily lower production expense because of the maintenance shutdown and OPEC plus curtailment. In the 2019, we reported a net loss of $3,900,000 or $07 per diluted share. Lower realized crude oil prices in this year's third quarter were more than offset by higher sales volumes year over year as a result of the additional production associated with the three successful wells from the twenty nineteen-twenty twenty drilling program.

Third quarter twenty twenty net income additionally benefited from lower operating costs and expenses compared with the same period last year. Third quarter twenty twenty earnings included a tax benefit of $2,800,000 while the same period a year ago had income tax expense of $7,700,000 In the 2020, net income was $600,000 or $00 per diluted share, which reflected the impact of significantly lower prices that were partially offset by higher sales volumes as

Speaker 3

well

Speaker 4

as a loss on derivatives of $800,000 and a tax benefit of 2,200,000.0 Adjusted net income in the 2020 increased to $2,300,000 or $04 per diluted share from an adjusted net loss in the 2019 of $600,000 or $0 per share, primarily as a result of $2,600,000 decrease in G and A expense. Third quarter twenty twenty adjusted net income was lower than $5,300,000 in the second quarter of this year, primarily because of realized gains of $6,500,000 in the second quarter from our derivative contracts. Adjusted EBITDAX totaled $7,000,000 in the 2020 compared with $4,500,000 in the same period of 2019. In the 2020, adjusted EBITDAX was 10 100,000 Adjusted EBITDAX for this year's third quarter was higher than the same period last year, primarily due to increased sales volumes associated with the new production from the three wells completed as part of the drilling program and lower operating costs and expenses. This was partially offset by lower realized prices.

Adjusted EBITDAX for the 2020 was lower than the second quarter, primarily due to the realized gain on derivatives of $6,500,000 mentioned earlier. Production for the third quarter of $44.05 net barrels of oil per day increased 43% from the 2019 due to the new wells which came online, but was down 19% for the 2020 due to the planned full field maintenance shutdown and the OPEC plus curtailments. Sales volumes in the 2020 were up 48% from the same period in 2019 because of the new wells, but was down 35% from the same 2020, primarily due to the combination of lower production as well as having three liftings in the third quarter versus four in the second quarter of this year. Our crude oil price realizations fell 29% to $43.63 per barrel in the third quarter twenty twenty versus $61.26 per barrel in the same period in 2019, but was up 54% compared to the $28.31 per barrel in this year's second quarter. At this time, we don't have any derivative contracts in place, but we will continue to assess our needs to mitigate price risk and protect cash flow in the future.

Turning to expenses. Production expense excluding workovers for the 2020 was $9,100,000 or $0.22 per net barrel of oil, which was within our guidance ranges. This expense was lower than $9,500,000 in the same period of 2019, primarily due to proactive cost reductions. And this was in spite of $400,000 in additional costs related to proactive employee related measures taken in response to the pandemic. Production expense for the third quarter twenty twenty was lower than the $12,200,000 in the 2020 as a result of less sales volumes.

The per unit production expense excluding workovers decreased significantly in the 2020 as compared to the 2019 as a result of higher sales volumes. For the full year 2020, we are looking to reduce the top end of the guidance range for our production expense excluding workovers to $38,000,000 versus the $39,000,000 previously reported and tightening the production expense per barrel of crude oil sales to $2,050 to $2,150 Production expense for the 2020 is projected to be between 9,000,000 and $10,000,000 or $19 to $23 per barrel of crude oil sales. While low crude oil prices have certainly had an interest and impact on our financial results, from an operational standpoint, we have not been materially impacted by the worldwide COVID-nineteen pandemic. Our guidance excludes any potential future impacts not currently being experienced. DD and A for the third quarter twenty twenty was $2,200,000 or $5.37 per net barrel of oil sales, which was above our per barrel guidance range.

DD and A per barrel was substantially unchanged from the same period in 2019. The per unit DD and A rate in the third quarter twenty twenty was higher than the rate in the 2020 due to the higher volumes attributable to fields with higher depletable costs, which resulted in DD and A per barrel being above our guidance range. We expect our DD and A for the fourth quarter of this year to be between $5 and $6 per net barrel of sales. General and administrative expense for the 2020, excluding noncash stock compensation expense, was 2,400,000.0 G and A was lower than the $3,600,000 in the 2019 as a result of lower professional fees, legal expenses and accounting and audit fees, but was similar to G and A expense in the 2020. The 2019 included one time G and A costs associated with our dual listing on the London Stock Exchange.

We are forecasting that the lower cash G and A run rate due to proactive reductions implemented in April will also occur in the 2020. As a result, for the full year 2020, we have lowered our forecasted cash G and A to be between 10,000,000 and 11,000,000 Noncash stock based compensation expense was a benefit of $200,000 during the three months ended 09/30/2020, reflecting the reduction in the SARs liability as a result of the decrease in the company's stock price during the quarter. For the 2019 and the 2020, our stock price increased, which resulted in charges to increase SARs liability during those periods. Turning now to taxes. Due to evaluation allowances on deferred tax assets recognized this year in combination with an overall negative effective tax rate, comparisons between quarters are challenging.

For the three months ended 09/30/2020, the company had an overall income tax benefit of $2,800,000 This was comprised of $5,300,000 deferred tax benefit and current tax expense of 2,500,000.0 Foreign income taxes are attributable to Gabon and are settled by the government taking their crude oil in kind. As detailed on Slide 27 in the presentation deck posted this morning on our website, we currently estimate that VAALCO's operational breakeven in 2020 is now approximately $26 per net barrel of oil sales and our free cash flow breakeven price is approximately $33 per net barrel of oil sales. Keep in mind that our realized prices are benchmarked to Brent crude oil prices. These breakeven prices have gone down this year due to higher production levels as well as lower costs in general as well as lower costs. In general terms, we estimate that each $5 increase in the realized oil price increases our annual adjusted EBITDAX by approximately 9,000,000 This clearly shows our strong leverage to higher oil prices.

At 09/30/2020, we had an unrestricted cash balance of $42,000,000 which included $6,000,000 of cash attributable to non operating joint venture owner advances. Despite the challenges of low prices, adjusted working capital at 09/30/2020 increased to 29,300,000 compared with $24,100,000 as of 06/30/2020. In the 2020, we had essentially minimal net capital expenditures on an accrual basis, reflecting the efforts to manage expenditures in the current low oil price environment. As Carey discussed, we recently agreed to acquire new three d seismic data in the 2020. We estimate the gross cost of both the acquisition and processing of the seismic survey to be between $12,000,000 and $15,000,000 or $4,000,000 to $5,000,000 net to VAALCO.

We plan to invest $3,000,000 to $3,500,000 net to VAALCO in the 2020 and the balance in 2021, all of which we expect to fund with cash on hand and to cash from operations. As has been the case since the 2018, we are carrying no debt. With this, I will now turn the call back over to Carey.

Speaker 2

Thanks, Liz. While the current pricing environment remains volatile, we continue to react decisively to drive down our costs and improve our margins. Over the past several years, we have worked diligently to build a solid foundation for the future. We have taken actions to strengthen VAALCO operationally and financially, including eliminating all debt and growing our production base, which will allow us to better navigate cyclical energy markets and leave us uniquely placed to consider growth opportunities. We remain focused on continuing to generate positive cash flow as we prepare for future drilling campaigns on the Etame license.

VAALCO has a strong producing asset in Gabon with significant upside. We hope to repeat the success of the twenty nineteen-twenty twenty drilling program and continue adding reserves and production through the life of our Etame license in Gabon. We recently initiated a new three d seismic acquisition campaign at Etame that will conclude in the 2020 with processing fully completed by the 2021. This full field three d survey will optimize future drilling locations, provide better imaging of existing satellite and infill locations as well as identify additional prospects to add to our drilling portfolio. We are very excited to acquire, process and analyze the data and then incorporate it with our twenty plus years of knowledge as operator of the field.

With a debt free balance sheet, approximately $42,000,000 in cash on hand at September 30 and a strong asset base at Etame that continues to generate free cash flow, we have positioned VAALCO to weather near term uncertainties. Additionally, we continue to evaluate opportunities that are consistent with our inorganic growth strategy, and we believe that we are well positioned to deliver long term growth in line with our strategic objectives. Thank you. And with that, operator, we are ready to take questions.

Speaker 0

The first question today comes from Charlie Sharp of Canaccord. Please go ahead.

Speaker 5

Thank you very much and thank you, Carrie and Liz for a comprehensive update. Much appreciated. If I may just ask a question around the seismic and the prospectivity that you see, highlighted the success of the twenty nineteen-twenty twenty drilling program. And I am not looking for specific details, but perhaps you could paint a picture of the number of well locations, future well locations that you might see based upon the current interpretation of data. And also then perhaps you could just explain a little bit about the dovetailing perhaps of interpretation with fast track processing of certain areas of the new three d seismic?

In other words, do you have to wait until all of that seismic is fully processed? Or is there a way of kind of accelerating that interpretation process? Thank you.

Speaker 2

Right. Okay. Well, Charlie, good to hear from you, and I'm happy to share what our strategy is with the seismic. And in our investor deck, on Slide 18, you'll see a list of prospects and a list of wells. And what I would focus you in on and to answer your question on where we would accelerate processing, it would be in the areas where we have what we call our satellite prospects.

And so these are prospects that were identified on the existing three d, where the new three d will give us better imaging of those prospects and high grade those is what our intention is. And so I think the idea would be to accelerate its processing where we see these satellite prospects where that have, on average, reserves or I'm sorry, resource potential of 5,000,000 barrels. But of course, that's the middle of the range. It could be much more than that. So that's the one of the primary objectives of the seismic acquisition campaign is to better define our satellite prospects and then also to better define our well locations, our infill well locations, in and around Southeast Etame, for example.

But so that's our objectives. And we will start processing immediately. And like you mentioned, accelerate processing around our satellite prospects and have final processing or fully processed data towards the end of next year.

Speaker 6

Okay. Thank you.

Speaker 0

The next question comes from Bill Dezellem of Tieton Capital. Please go ahead.

Speaker 3

Great. Thank you. I'll follow on to that last question. When you've begun the survey or as you're thinking about the survey, what are you speculating that you're going to determine? Are you thinking that there is a lot more oil out in those satellite prospects?

Or are you really doing this more to identify precise locations for infill wells? What's your gut feeling of what you're going to find and ultimate purpose?

Speaker 2

Right, right. And Greg, hi Bill, good to hear from you as well and great question. And so the primary objective, I would say, is to define the satellite prospects and understand have a better understanding of what the oil potential is so that we can prioritize our capital spending in the future. So we would drill the prospect with the most confidence and the most oil. And so that's the primary objective.

Think secondary maybe to that is better defining where to place wells in existing fields. But also what I would also mention is when the government granted our license extension back in 2018, we actually picked up additional acreage. And so there's areas that we really haven't studied before. And what I'm hoping is that we find in these new areas that we find additional prospects. And so those are the objectives, Bill.

Speaker 3

That's very helpful. And your gut feeling from what you know is relative to these satellite prospects, what are you thinking or hoping that the shoot will confirm?

Speaker 2

What I'm thinking and hoping that we can confirm is that the probability of success is 75% or greater. We have several prospects that are the probability of success is seventy five percent. And so first of all, I'd like to move that up to maybe 90%. I don't know. And then like I said, second, I'm hopeful that the prospects are larger.

And like I mentioned, the seismic will tell us where we have the most confidence and where we have the most potential resources.

Speaker 3

Great. That's appreciated. And I just used up my question and my follow-up. Would you like me to go back in queue or shall I continue?

Speaker 2

Go ahead and continue, Bill. That's fine.

Speaker 3

Great. Thank you. And cut me off anytime. The G and A that you referenced in the press release being 800 or pardon me, 400,000 higher as a result of COVID and the proactive things that you're doing. Is that going to go away anytime soon?

Or basically, should we count that as an ongoing part of your expense structure as long as COVID is an issue?

Speaker 2

You would count it as part of our ongoing cost structure as long as COVID is an issue because the what we're doing is we're mitigating the impact of an outbreak on our any of our facilities, which would be devastating. So I look at that cost as minimal because it has kept us it has enabled us to continue producing with no real impact on operations. But yes, you would we'll continue to see that cost as long as the epidemic is still running.

Speaker 4

And I also want to this is Liz. I'd like to just clarify, those costs are primarily in our production expense rather than G and A.

Speaker 3

Yes. As I was asking the question, I confused it with my next one. So that's a great clarification, Liz, which is that G and A did decline $800,000 sequentially. What allowed that to happen? Great job, but how did you do that?

Speaker 4

Okay. And you're talking about overall G and A, right?

Speaker 3

That's right. Overall G and A down in Q3 versus Q2.

Speaker 4

Yes. Most of what's going on there has to do with the SARs liability. So we have to mark that to market at the end of the period. So whatever the stock price is on the last day of the quarter, that's going to drive the valuation for that liability. And so when you end up with an increase in the stock price, then we have to record additional expense.

And when you have a decrease, you record a reversal of that expense. So that's to a large degree what's going on. I would say beyond that, it's pretty stable between the quarters.

Speaker 3

The only benefit one can think of, of a lower stock price?

Speaker 4

Yes. I have to say I agree with you. I like client charges for that.

Speaker 3

I understand. One other accounting question, if I may. The reduction in your tax valuation allowance, with all of the uncertainty that the pandemic is causing, what gave you the confidence to reduce that valuation allowance?

Speaker 4

I have to say, and this is just confusing, but it's part of the mechanics of The U. S. GAAP rules on interim period tax allocation. So there's some odd rules that you have to apply and you end up with in our situation, we've got income in some quarters and we've got losses in other quarters. And because we ended up with an overall negative effective tax rate, you end up allocating the taxes oddly versus what you would expect.

I know that's not that's probably not the most helpful answer, but it's really the best I can give for something that you almost have to be a tax expert to really make sense of it. Candidly, if it were me, would change the way the rules were because I just don't think it's helpful for the investors to see the allocations the way they are. But this is what we're stuck with. So by the end of the year, I think overall, it will make sense. But on a quarterly basis, it's difficult to understand.

Speaker 3

So maybe I should take this offline, but I'm going to take one more stab at it and then I'll move on. Yes. So is this an indication that you would expect greater profitability than what you were previously expecting? And as a result, that's mechanically why this needs to be done? And again, that will be more obvious in the fourth quarter?

Or is it something entirely less logical?

Speaker 4

It's something entirely less logical. So basically, this is kind of how to look at it. We forecasted what we thought the full year was going to be in terms of taxable income. And then we had to take a portion of the valuation allowance and allocate it in the first quarter when we had losses using a negative rate. And then and so that ended up putting on a bigger valuation allowance in the first quarter than what we were projecting for the whole year.

And so it reverses out over the subsequent quarters. It is a very odd result, but you kind of got a hint of that in the first quarter when we had this very large deferred tax liability, which doesn't make a lot of sense if you're writing down all your deferred tax assets. But that deferred tax liability amortizes off to zero by the end of the year. Apologies for the hyper technical explanation, but that is it.

Speaker 3

Great. No, I appreciate it, Liz. Thank you. And then last one for me is the production decline in the third quarter versus the second quarter. How much of that was due to the FPSO maintenance versus how much was the OPEC component?

So we recognize the wells themselves are producing could produce better than what you did.

Speaker 2

Right. And the way to think about that, Bill, is the turnaround for maintenance on the FPSO and the platforms was a five day turnaround. And so you can take the average production for the quarter and multiply by five, and that was the impact of the turnaround. And so the rest of the reduction was related to the OPEC curtailment so that Gabon could meet their quotas.

Speaker 3

Great. Thank you both.

Speaker 2

Okay. Thank you.

Speaker 0

Next question comes from Jamie Wilen of Wilen Management. Please go ahead.

Speaker 6

Good morning. I've been reading about the your partner in the town is looking to sell their minority interest and there seems to be lots of buyers circling around Carriere Energy, BW Energy and maybe others. And could you tell me the status of that? Do we have right of first refusal? Are we in their bidding?

Do we wait till the end? And what does that say about what we think our part of this partnership is worth?

Speaker 2

Right. Jamie, I can't comment on divestiture process and who's participating and what the status is. That is really for Sasol to comment on. And what I can say is, yes, there is in our joint operating agreement at Etame, there is an opportunity for not only VAALCO but the other partners to preempt the sales process. Again, I can't comment on those details because that is Sasol's process to notify the joint venture partners.

So under our JLA, though, there would be an opportunity for VAALCO and the other partners to preempt. And other than that, all I can say is we've said repeatedly, we're very happy with the Etame asset. And for the right price, we would increase our stake, whether it's Sasol, Addix or Petroenergy. But I cannot comment on the process other than that.

Speaker 6

Did Sasol put out any deadline dates or when they wanted bids to be in by?

Speaker 2

Jamie, again, I can't comment on their process.

Speaker 6

You mentioned with when you were talking about the seismic that with the 2018 extension from Gabon that they gave you new areas. What did they give you? I didn't recall reading about that.

Speaker 2

Okay. What yes, if you refer to, again, Slide 18, I don't know if you have access to our investor deck. But on Slide 18, there's an outline of the license today. And if you go back in time prior to the extension, we had three separate, what they call, AEEs, and they were production areas basically. There was one to the Southeast that was a boomer.

There was one in towards the middle that was a Tom and Southeast to Tom, then there was one further to the North that was a bury. And they were not continuous. And so the acreage we picked up is the acreage in the center of the field in between, say, a bury and a tom and then in between a tom and a puma, if that makes sense.

Speaker 6

Excellent. Good. When you put out your forecast for fourth quarter and looking forward, how do you factor in what you may have to do for to meet Gabon's requirements for OPEC? And could you also what percentage did you cut back? Do they force you to cut back because of the OPEC restrictions?

Speaker 2

Right. Well, the let me take your second question first. The percentage we cut back was a negotiation between VAALCO and the government. And for that reason, I'm not I really cannot give you any of the details other than we worked with the government on target production rate for VAALCO based on VAALCO's long commitment long term commitment to Gabon, the wells we recently drilled. And so we so each operator really independently negotiated an allocation.

And so I can't comment other than that. But we did make it clear to the Gabonese government that we were we've invested heavily in Gabon recently, and we have a long term commitment, and we need rates that allow us to recover our investments. So but your first question on the fourth quarter, what you'll see in our guidance range is, has the OPEC production curtailment requirement built into it. And so that the range that we put out and again, that range is the low end of that range is up compared to the prior fourth quarter forecast. So the OPEC curtailment is already if there is one, is already built in.

Speaker 6

Okay. And lastly, with the next drilling program, it going to wait until the three d seismic is complete? Is it this is a 2022 item or a function of oil prices? Or where do you look at that?

Speaker 2

Well, there's a couple of let me make a couple of points here. We don't really of course, we have to wait until the seismic acquisition is complete. And then as we talked about earlier with Charlie Sharp, we will accelerate processing in certain areas where we see today, see the most prospectivity. So it's we don't necessarily have to wait until all of the processing is complete to identify well locations. So we'll start processing early next year, have data have the survey interpreted again all throughout next year.

And in terms of the next drilling program, so let me say the seismic survey will not slow down the timing of the next drilling program. We've always talked about eighteen to twenty four months in between drilling programs. So that's still our ambition and our schedule. Kind of think about eighteen to twenty four months from when we concluded the drilling program last April, that's when we would target picking up again. So that would be late next year into early twenty twenty two, something like that.

Speaker 6

Great. Thanks, Gary. I appreciate your time.

Speaker 2

Okay. Thank you, Jamie. Good to hear from you.

Speaker 0

Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Cary Baums for any closing remarks.

Speaker 2

Yes. I wanted to thank everybody for participating, and we look forward to speaking with you again next quarter.

Speaker 0

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