VAALCO Energy - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $121.7M, diluted EPS was $0.11, and Adjusted EBITDAX was $76.2M; NRI sales were 1.872M BOE. Sequentially, revenue fell 13% and YoY declined 18% on timing of offshore cargoes and slightly lower realized pricing.
• Net income rose 6% q/q to $11.7M as production expenses and DD&A fell q/q, partially offsetting lower sales; realized commodity price was $64.77/BOE (vs. $65.41 in Q3).
• 2025 guidance embeds lower volumes due to Baobab FPSO dry-dock, and a CapEx ramp to $270–$330M; VAALCO added a new $190M revolver (up to $300M) and maintained its $0.0625/share quarterly dividend.
• Management highlighted 57% YoY SEC proved reserves growth to 45.0 MMBOE, an expanded Gabon drilling program beginning Q3 2025, and said Q4 Adjusted EBITDAX was ahead of consensus, supporting a re-rating catalyst as execution unfolds through 2026.

What Went Well and What Went Wrong

What Went Well

• Record financial performance: FY 2024 Adjusted EBITDAX reached $303.0M, and Q4 Adjusted EBITDAX was $76.2M; CFO noted Q4 was “ahead of consensus estimate”.
• Operational delivery: Q4 production landed at the midpoint of guidance (20,775 NRI BOEPD; 25,300 WI BOEPD) and NRI sales of 20,352 BOEPD were toward the high end of guidance.
• Cost control: Q4 production expense fell 14% q/q to $36.5M ($19.52/BOE), below prior guidance, with DD&A decreasing vs. Q3; “our production costs for the fourth quarter were below the low end of guidance” (CFO).

What Went Wrong

• Revenue headwinds: Q4 commodity sales fell to $121.7M, down 13% q/q and 18% YoY, primarily on cargo timing and slightly lower realized pricing.
• DD&A mix: Q4 DD&A of $37.0M was 82% higher YoY driven by Côte d’Ivoire depletable costs (partly offset by lower Gabon/Egypt/Canada).
• Other expense and FX: Q4 other income (expense), net was an expense of $9.7M, including a $6.4M reduction to the Svenska bargain purchase gain and foreign currency losses.

Transcript

Operator (participant)

Good day, and welcome to the VAALCO Energy Fourth Quarter 2024 Earnings Conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations. Please go ahead.

Al Petrie (Head of Investor Relations)

Thank you, Operator. Welcome to VAALCO Energy's Fourth Quarter and Full Year 2024 Conference Call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of 2024 and discuss our plans for 2025. Ron Bain, our CFO, will then provide a more in-depth financial review. George 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 re-enter the queue with additional questions. I'd like to point out that we have posted a supplemental investor deck on our website 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 does not claim 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 our earnings release, the presentation posted on our website, and in the reports we file with the SEC, including our Form 10-K. Please note that this conference call is being recorded. Let me turn the call over to George.

George Maxwell (CEO)

Thank you, Al. Good morning, everyone, and welcome to our Fourth Quarter and Full Year 2024 Earnings Call. Over the past two years, we have delivered record-breaking operational and financial results while meeting or exceeding our quarterly guidance targets. Maintaining operational excellence and consistent production across our portfolio is essential to expanding adjusted EBITDA, which has allowed us to grow inorganically and also to fund organic growth initiatives better positioning VAALCO for the future. Before I go into more details about the exciting opportunities that we have across our asset base, let me first summarize some high-level financial and operational results that led to a record-breaking year and some key items that have occurred thus far in 2025. For Full Year 2024, we increased our adjusted EBITDA to $303 million, a new company record.

We also had record production of almost 25,000 working interest barrels equivalent per day and record sales of almost 20,000 net interest barrels per day. Our SEC proved reserves grew 57% year over year to $45 million BOE, and our 2P CPR reserves grew to $96.1 million BOE. We sustained our commitment to returning cash to shareholders in 2024, and over the past two years, we have returned $83 million to our shareholders through our ongoing dividend program and share buybacks. We completed the Svenska acquisition in April 2024, and by year-end 2024, we had already seen a 1.8 times payback on the initial investment. We have positive momentum as we enter 2025, both operationally and financially. We are building size, scale, and profitability to sustainably grow VAALCO.

I would now like to go through and give an update on our diverse portfolio of high-quality assets, beginning with our newest assets in Côte d'Ivoire. I would like to remind you that a year ago, we had no production or interest in Côte d'Ivoire, and then in April 2024, we swiftly and efficiently completed the Svenska acquisition, securing a valuable asset. Based on the results of our third-party reserve engineers, our year-end 2024 SEC net proved reserves of $16.5 million BOE was higher than our estimate at the time of closing, and the 2024 reserves were reduced by production of $1.2 million BOE. In alignment with the projected timeline, the FPSO ceased hydrocarbon operations as scheduled on January 31, 2025, with the final lifting of crude oil from the vessel occurring in early February. Our partners of the CI-40 block have commenced mobilization efforts for the FPSO.

The vessel is planned to be towed to the shipyard in Dubai for refurbishment upon departure from the field in March 2025. Significant development drilling is expected to begin in 2026 after the FPSO returns to service with meaningful additions to production from the main Baobab field. The Council of Ministers recently approved a 10-year extension of the license on CI-40, extending it to 2038. In March 2025, we announced a farm-in agreement for the CI-705 block offshore Côte d'Ivoire, where we will operate with a 70% working interest and a 100% paying interest under a commercial carrier arrangement through the seismic reprocessing and interpretation stages and potentially drilling up to two exploration wells. We are partnering with Ivory Coast Exploration Oil and Gas SAS and PetroSea.

We believe the CI-705 block is favorably located in a proven hydrocarbon system, near existing infrastructure with access to a strong growing domestic market and attractive upside potential. It is located in the prolific Tano Basin and is approximately 70 km to the west of our CI-40 block and 60 km west of ENI's recent Calao discovery. We invested $3 million to acquire our interest in the new block, and our initial assessment is that there are both oil and natural gas prospects of a diverse place on the block. We plan to conduct a detailed integrated geological analysis to assess and mature our understanding of the block's overall prospectivity. We have demonstrated our ability to acquire, develop, and enhance value through accretive acquisitions, and we are excited about the prospects in Côte d'Ivoire.

Turning to Canada, we successfully drilled four wells in the first quarter of 2024, completed those wells in March and April, and brought the wells online. As a reminder, we drilled longer laterals to improve the economics of the program, and all four wells were 2.75 mi laterals. We are very pleased with the production results from our drilling program, and as you can see, they're in the production mix in Canada. In Q1, our Canadian production was about 60% liquid, and in Q2 through Q4, our Canadian production was approximately 75% liquid from the new wells coming online with a lowered GOR. The strong oil production has rebalanced production in Canada more in favor of liquid, which contributes to the strong production performance. As I mentioned in the last call, we drilled a well in the southern acreage in the fourth quarter.

In our southern acreage, we have minimal horizontal subsurface information, and this exploration well was drilled to help us better understand the acreage and potentially add proved undeveloped locations. We do not have 30-day initial production rates from the well yet, but the well has been completed and placed on pump. We are monitoring the well's results and will provide an update on it in the future. In Egypt, as we disclosed last quarter, our focus for most of 2024 was on the high rate of return capital workover projects that help mitigate decline. In the fourth quarter of 2024, we had two re-completions, and for the full year 2024, we had 12 completed to help mitigate decline. Also, in the fourth quarter, we contracted a rig and drilled two wells, starting a drilling campaign that will carry into the first half of 2025.

We expect to drill an additional eight to 13 wells in 2025 as part of this drilling program in Egypt. By drilling these wells in late 2024 and in the first half of 2025, we are maximizing the positive impact of our Egyptian production throughout the year. In addition to the successful workovers and drilling we have seen over the past two years, I am very proud of a major milestone that we have accomplished in Egypt. We did not have a lost-time incident in 2024, and thus far in 2025, we have not had a lost-time incident, which means we have gone over 3.5 million man-hours without an incident. This is a testament to our commitment to safety, training, and dedication, which is of the utmost importance to us all, of all our people in the operation.

We continue to work with the Ministry and EGPC on our outstanding receivables. Our rate of collections has improved in the second half of 2024 and has continued to outpace revenues in early 2025. We fractured one of our wells in the South Ghazalat in the Western Desert late in the fourth quarter, and we are evaluating the results. We are considering a follow-up exploration well in the nearby prospect on the block. Moving to Gabon, given that we haven't drilled a well in Gabon for over two years, we are pleased with the positive overall production results, with strong production uptime and improved decline curves on the wells. The FSO and field reconfiguration projects in 2022 have allowed us to minimize downtime, capture efficiency, and reduce overall OpEx.

We secured a drilling rig in December 2024 for our 2025-2026 drilling program, which is planned to begin in Q3 2025. The rig has a firm commitment of five wells with an additional five well option. We are targeting at least two wells to be drilled and completed in 2025, with the remainder of the program to occur in 2026. In total, we now anticipate drilling three infill development wells, one oil exploration well, a high GOR well to support the field fuel needs, and two workovers. We have option to drill additional wells if information gathered during the program results in the high grading and de-risking of already identified well locations. Since the last call, we have continued to review the well sequencing of the program and the testing of the Ebouri shutting wells.

We are conducting an extended flow test on the Ebouri 4H well to gather information on the H2S concentrations at this location, to aid in equipment design, and to evaluate our chemical crude sweetening process. I am pleased to say that the H2S concentration is within our modeling expectations. This well has now flowed for over two months, demonstrating our ability to treat the oil and has provided us some additional production in the process. This well will be worked over during the program and should provide a nice boost to oil production. Regarding our exploration blocks in Gabon, the Nyosi Marine and the Geduma Marine, we are working with our partners and the operator BW Energy on plans for the two blocks moving forward. A seismic survey to fulfill a work commitment on Nyosi is being planned for acquisition in late 2025 or early 2026.

Given the proximity of these blocks to the prolific producing fields of Etame and Dussafu, as well as the recent BW Energy discovery at the Bourdon Prospect in the Dussafu concession, we are excited about the future possibilities for this block. Turning to Equatorial Guinea. In March 2024, we announced the finalization of documents related to the Venus Block P plan of development. In the second half of 2024, we began our front-end engineering design or feed study. We anticipate the completion of the feed study will lead to an economic final investment decision, or FID, in 2025, which will enable the development of Venus. We are very excited to proceed with our plans to develop, operate, and begin producing from the discovery in Block P offshore Equatorial Guinea over the next few years.

We look forward to discussing this new area of operations in more detail once the FEED study is complete. Turning to reserves, we're very pleased with the growth of our SEC proved reserve base despite a significant decline in pricing. Our acquisition in Côte d'Ivoire, coupled with our positive reserve revisions due to field performance in Gabon and drilling results in Egypt and Canada, more than offset production and slightly lower pricing. SEC proved reserves at year-end increased 57% to 45 million BOE, and our PV10 increased 11% from $342 million to $379 million. Our 2P CPR estimate, which includes proven and probable reserves using VAALCO's management's assumption for future pricing and cost reported on a working interest basis prior to deductions for government royalties, saw a year-over-year increase of 24% to 96.1 million BOE. The 2P CPR NPV10 saw a 9% increase to $687 million at year-end 2024.

The value of our Svenska acquisition, as well as our efforts across our asset base to improve production, manage costs, and expand our asset through drilling, can be seen in the positive results from our reserve report. We have a strong runway of opportunities that will continue to add value, and as you can see from our SEC proved reserves, 2P CPR reserves and corresponding PV10 values compared to our current market cap, our stock is quite undervalued. In closing, we have an outstanding diversified portfolio of assets that have significant upside opportunities. We remain focused on growing production, reserves, and value for our shareholders. I would like to thank our hardworking team who continue to operate and execute our plans.

Over the past two years, we have significantly diversified our portfolio, enhancing our capacity to generate operational cash flow and adjusted EBITDA, return capital to shareholders, grow our cash reserves while increasing our credit facility capacity. We are well positioned to execute the projects in our enhanced portfolio, and our proven track record of success in these past few years should instill confidence in our future. With that, I would like to turn the call over to Ron to share our financial results.

Ron Bain (CFO)

Thank you, George, and good morning, everyone. Let me first echo George's comments about our continued success driven by our diversified and high-performing asset base. Over the past two years, we have met or exceeded our quarterly and annual production guidance, leading to consistent and operational and financial results, including record adjusted EBITDA generation in each of the last two years.

In the fourth quarter, we reported $76 million in adjusted EBITDA ahead of consensus estimate. For the year 2024, we saw a positive impact from the Svenska acquisition and $303 million in adjusted EBITDA. We generated an additional $23 million, or 8% increase in adjusted EBITDA year over year. Our adjusted EBITDA growth outpaced our production and sales growth, which shows that we expanded margins in 2024, aided by Côte d'Ivoire acquisition and continued focus on costs. Turning to production and sales, which, along with realized pricing, drive our revenue. Production for the fourth quarter remained solid at 25,300 working interest barrels of oil equivalent per day, at the midpoint of our guidance. Our fourth quarter sales were 20,352 net barrels of oil equivalent per day, which is at the higher end of guidance.

We, together with our partners, completed three liftings in Côte d'Ivoire in Q4, driving our sales growth and emptying the FPSO for the dry docking project, which began in January of 2025. I'd like to reiterate that with a diversified portfolio of assets, we will have changes from quarter to quarter in the mix of sales for each of our producing areas. This will be seen in our 2025 guidance numbers, as we have some major projects in Gabon and Côte d'Ivoire. This change in mix impacts our realized pricing and ultimately our revenue and earnings. If you look at the bigger picture over the past three years, we've more than doubled production, and over the next several years, you'll see another step-changing growth across our expanding portfolio of producing assets.

Pricing remained fairly stable in the fourth quarter and full year 2024, and our hedging program has always looked to help mitigate risk and protect our commitment to shareholder returns. Our current hedge positions were disclosed in the earnings release. Turning to costs, our production costs for the fourth quarter of 2024 were below the low end of guidance, both on an absolute basis and on a per barrel basis. For the full year 2024, we were at the bottom of our guidance range. Absolute expense was $37.7 million, and on a per barrel basis was $20.16. For the full year 2024, while the absolute costs were up by about $10 million, our per barrel costs were slightly lower at $22.48. Our focus remains on keeping our costs low to enable us to maximize margins and increase our cash flow.

G&E costs were well below the midpoint of guidance, and they fell quarter over quarter. We commenced a back-office process improvement project with the implementation of a single cloud-based ERP system across the whole company that went live in Q3 2024. This is helping us to streamline processes and efficiently work across multiple offices located around the world. We will continue to develop this in 2025. Moving to taxes. As I've previously stated, in Gabon, Egypt, and Côte d'Ivoire, our foreign income taxes are settled by the government through oil liftings in Gabon and Côte d'Ivoire, and the government taking a share in Egypt. Turning now to the balance sheet and cash flow statement. Unrestricted cash at the end of the fourth quarter declined slightly to $82.6 million.

Post year-end, on the 3rd of January 2025, we received a payment of $11.3 million for Côte d'Ivoire listing and $4 million from EGPC, so our year-end cash balance could have been $15 million higher. The reduction from Q3 closing cash was driven by an additional $13 million in capital spend sequentially. In Q4, we spent $41.5 million in cash CapEx, and returned $6.5 million through dividends to our shareholders. Additionally, in February 2025, we offset the next annual monetization payment of $10 million due to EGPC for 2025 that relates to the PSU consolidation a few years ago by way of paydown of H receivables. We have one more annual payment due under that agreement. This offset has allowed us to reduce the legacy receivable balance with EGPC, while they've kept their ongoing operational payments current.

Looking at our working capital changes year over year, there were two main drivers to the increase in current assets and liabilities. The first is related to the acquisition of Côte d'Ivoire in Q2, which increased both our assets and our liabilities. The second is related to Egypt, where we saw an increase in our trade receivables. In Egypt, during the first six months of 2024, when all of our crude was switched to being refined locally, we continued to transfer and export cargo. This resulted in collections in the first half of 2024 running behind sales, which was tracking behind some of our peers after we had come off a strong collection year in 2023, where we also had two export cargos and had a nine-month filling campaign.

In the second half of 2024, we focused on working with the state to allow many suppliers to receive Egyptian payments, allowing us to accept a greater quantity of collections, as well as utilize offsets and some U.S. dollar collections to better keep pace with revenues. We've maintained this focus in 2025, with today's collections including offsets, local currency, and US dollar receipts now exceeding revenues. As George outlined, we have an active drilling campaign that will kick off in mid-2025 at Gabon. An FPSO upgrade project for Baobab in Q1 in Côte d'Ivoire, as well as an additional drilling in Egypt and Canada. To support these development capital programs this month, we entered into a new revolving credit facility with an initial commitment of $190 million and the ability to grow to $300 million.

This new facility replaced our existing undrawn revolving credit facility, and it provides short-term funding that may be needed from time to time to supplement our internally generated cash flow and cash balance. In Q4 2024, VAALCO paid a quarterly cash dividend of $0.0625 per common share, or $6.5 million. In 2024, we returned $33 million to shareholders through dividends and buybacks. We also announced the first dividend payment of 2025, which will be paid later this month. Let me now turn to guidance, where I'll give you some key highlights and updates. I want to remind you that guidance for 2025 was the field at CI-40 shutting in on January 31, 2025, and our drilling campaign in Gabon not kicking off until early Q3, so the production and sales for 2025 are expected to be lower than 2024.

We'll jump up materially in 2026 when the FPSO is back online in Côte d'Ivoire and the full impact of the Gabon drilling campaign is realized. Our full guidance breakout is in the earnings release and in our supplemental slide deck on our website with the reduction breakout of both working interest and net revenue interest by asset area. For the total company, we are forecasting Q1 2025 production to be between 21,550-22,750 working interest BOE per day, and between 16,550-17,650 net revenue interest BOE per day. This takes into account the FPSO shutdown and natural decline. For the full year 2025, we are forecasting the production range for the total company to be between 19,250-22,310 working interest BOE per day, and between 14,500-16,710 net revenue interest BOE per day.

For the first quarter, we are forecasting our sales to be higher than our production, but for the full year, we believe that sales will be more or less in line with our production. In Q1, we are forecasting two liftings from Gabon, the first being a state lifting to settle our current taxes. With a substantial capital and operational program in 2025 for Gabon, we forecast this state lifting could be the only state lifting in the calendar year. We expect our absolute operating cost to be lower compared to 2024, but because of the lower sales in 2025, we are projecting our BOE expense to increase to a range between $24-$28 per BOE. We are also expecting flat to slightly lower absolute G&A.

Finally, looking at CapEx, our 2025 capital spend is projected to be between $270 million and $330 million as we begin the drilling campaign in Gabon. Execute the 2025 FPSO turns out to Côte d'Ivoire and continue drilling in Egypt and Canada. George outlined the multiple programs across our assets, as we believe that our efforts in 2025 will allow us to experience another step change in production in 2026 and beyond. For the first quarter, we're expecting a range of between $70 million and $90 million for our CapEx. In closing, we are well positioned to continue executing our strategy of growing production and reserves while adding meaningful value. We have a long track record of successfully delivering results that meet and exceed expectations.

We achieved many things in 2024, from record sales and record adjusted EBITDA to completing the strength acquisition and already paid back operationally 1.8 times the initial deal investment. Despite all of this, we continue to trade at a very low multiple of EBITDA despite having a top quartile dividend yield amongst NYSE income stocks. We have a new up to $300 million revolving credit facility and over $80 million in cash on the balance sheet, ready to fund a robust organic capital program of high return growth opportunities that should help us set new record sales and adjusted EBITDA in 2026 and beyond. We've delivered, and we are very well positioned to continue to execute at a high level across our diversified assets over the next several years. With that, I'll now turn the call back over to George.

George Maxwell (CEO)

Thank you, Ron.

As you have heard this morning, we have successfully delivered strong operational and financial results for the past several years by successfully executing our strategic vision. Our strategy remains unchanged: operate efficiently, invest prudently, maximize our asset base, and look for accretive opportunities. We have delivered record growth and profitability over the past three years, and we are poised to deliver more in the future. Looking across our asset base, we have a multitude of projects to execute. In Gabon, we have an extensive drilling campaign at Etame that should add reserves and production. The FPSO refurbishment project in Côte d'Ivoire has already begun, and we are working with the operator on the development drilling program that should begin in 2026.

Also in Côte d'Ivoire, we'll be acquiring additional regional well data, licensing seismic data, and conducting further geological evaluations of our newest block, CI-705, where we are the operator with a 70% working interest. We have additional drilling campaigns planned in Egypt and Canada to help offset decline. In Equatorial Guinea, we are progressing the feed study and looking to take the project to FID in the first half of 2025. Our entire organization is actively working to deliver sustainable growth and strong results to continue funding our capital programs while also returning value to shareholders through our top quartile dividend. I believe we have gained credibility over the past three years, having delivered on our commitments to the market and to our shareholders, and we will continue to deliver with the exciting slate of projects that we have over the next few years.

We are in an enviable financial position with a much stronger and diverse portfolio of producing assets with significant future upside potential. Over the past two years, we have returned over $83 million to our shareholders through dividends and share buybacks, and we are on pace to deliver another $0.25 per share annual dividend for 2025, which at our current share price is a dividend yield of about 6.5%. We are truly excited about the future, and VAALCO now has multiple producing areas and future prospects that have diversified and a risk profile and are sources of income. Our disciplined approach to maximizing value for our shareholders by delivering growth and production, reserves, and cash flow has not been reflected in our stock price, but we believe that we will see the market begin to properly value VAALCO as we execute on our organic opportunities over the next few years.

Thank you, and with that, Operator, we are ready to take questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. As a reminder, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Your first question today will come from Jeff Robertson with Water Tower Research. Please go ahead.

Jeff Robertson (Managing Director)

Thank you. Good morning. George, on the exploration projects in both Gabon and CI, can you talk about the cycle times?

I mean, I know there's a tremendous amount of variables in there, but the cycle times between when you drill and when you might be able to produce if you make a discovery?

George Maxwell (CEO)

Yeah. The cycle times, first and foremost, on the two new blocks in Gabon, they've basically just been approved and the decree is just being issued. Where we are with that, with conjunction with our partners, BW Energy and Panoro, is I think in the coming weeks we're going to have the first TCM with the partners, and that will start to outline the work program and budget for 2025 and 2026. The first activity there is going to be a seismic acquisition, and that's likely to take place sometime in Q1 2026.

From seismic acquisition in Q1, we then go to the processing and interpretation, which is likely to take most of 2026. There is also a commitment well, so I do not see us actually spinning the drill bit on the first block until late 2026 at the earliest, probably early 2027. On the Côte d'Ivoire block, it is slightly different. We have farmed into that. There is a third-party seismic acquisition that has already taken place by, I think it is TGS. We would be looking at acquiring that source data and taking that into interpretation. The acquisition of that information would be into Q2 or Q3 this year, and then probably six months of interpretation to identify and firm up the targets.

You may see in the supplemental deck that was published this morning, we have a little bit of an overview of 705, and we've kind of given you a little bit of information as to where we already see some targets identified within the block that made it interesting for us to make that acquisition. 705 is, again, likely to be once we've got the interpretation, we don't have a commitment to drill, but we have an option to drill. The commitment is really just seismic acquisition and interpretation, and then we move to the next phase, which would be committing a drilling program over those identified targets.

Jeff Robertson (Managing Director)

Secondly, the capital campaign in 2026 in both Gabon and CI, can you talk about what impact that will have on your cost recovery pools as you move into 2026?

George Maxwell (CEO)

Yeah, that's a great question because when we look at the CapEx spend and you look at the absolute number between $217 million and $300 million, you immediately think, well, that's a very large number. You have to take into account, particularly in the producing asset of Gabon, that we start to recover that capital as soon as we have the successful wells on production. The actual cash sink on that capital isn't at the headline number. When we look at the starting position of the drilling program for Gabon, that's due to start in the beginning of Q3. As I mentioned in the earlier script, we're hoping to get at least two wells drilled and completed and on stream before the end of the year. That cash that's going out, it's already coming back in before the end of this year.

More importantly, when we look at CDI, it's obviously a different scenario because it is all cash out because the asset is currently off production. To incentivize the investment, the production sharing contract does offer a 25% uplift for every dollar that you invest. As we look at the position in CDI, which is about 40-45% of our capital program this year, you already have a 25% uplift in that investment as soon as production recommences in early 2026. It is an extremely attractive PSC that incentivizes this level of investment.

Jeff Robertson (Managing Director)

Thank you.

Operator (participant)

Your next question today will come from Chris Wheaton with Stifel. Please go ahead.

Chris Wheaton (Managing Director)

Thank you very much indeed. A couple of questions, if I may. Firstly, just coming back to the point on CapEx.

In Gabon, last time we had a big drilling campaign in 2022, we were able to get production up not quite doubled sequentially year on year. I'm interested in, do you think you could achieve something similar given the additional drilling you've got planned for late this year into 2026? Because that's obviously then going to have quite a significant impact on volumes, certainly exit volumes from, say, 2026 onwards. Also, coming back to Côte d'Ivoire, I'd love to understand more how much that CapEx is FPSO, how much of that is long lead time for the drilling plan for 2026, because it feels like as soon as the FPSO is back, you want to be drilling as well because you want to be putting as much flow through your new FPSO as possible.

Also, to maximize the cost recovery, as you just mentioned in your last answer, George. I think I've also got a question on working capital that maybe I'll finish off with Ron after those two, but those two for starters. Thank you.

George Maxwell (CEO)

Okay. Let me start with the Gabon program. As all the listeners will be aware, we were trying to initiate this program back in 2024 as a four-well program. We went back to reevaluate the whole performance of Etame based on the enhanced performance we were seeing from the production after the field reconfiguration. That forced us to go back and look again rather than just have a run-of-the-mill standard drilling campaign. Are there things we're now seeing post the reconfiguration that can enhance the opportunity of the drilling campaign?

As you have seen, when we were talking about this over a year ago, we were talking about a four-well campaign. We are now talking about a five-well campaign with five options. We have really seen a lot of opportunity to get the drill bit spinning again in Etame that has been very prolific for us in the past. Yes, we obviously have some forecasts in there for IP rates for the first two wells going in. To answer the question on the cost recovery, and I think Ron mentioned it in his script, we do see a GOC lifting coming in Q1, but with the level of investment going into Gabon this year, we do not really see another government lifting for the rest of the year. The cost pool will increase with that investing in the drilling activity.

The target has always been longevity into the next phase of the Etame license, which is 2028-2033. I think the success base of this particular program highlights both the prolific nature of Etame and gives us much more confidence and comfort that we're going right through into the mid-2030s with production on this asset. When we look at the Côte d'Ivoire position, yes, a lot of the long lead items in relation to the drilling campaign have already been purchased. The vast majority of the capital you're seeing coming through for Côte d'Ivoire relates to the MV10 refurbishment in 2025, and that will continue into 2026. We're awaiting discussions with the operator about rig selection and rig confirmation, and we expect to be able to say something about that in Q2.

Chris Wheaton (Managing Director)

Great. I was going to have a follow-up. Sorry.

George Maxwell (CEO)

Thor is just going to augment that a little bit for you.

Thor Pruckl (COO)

Yeah. Just a step back to the Gabon program. One of the things that we were able to do with the delay in the program from 2024 was the Ebouri SAR wells and the Ebouri enhancements on the SAR processing facilities to coincide with that drilling program.

Chris Wheaton (Managing Director)

Great. Thank you. Ron, one question from me on working capital. There has been quite a significant outflow in the year. I wondered if you were expecting any of that to reverse in 2025 because that was obviously quite a significant hit to your free cash flow generation this year. Sorry, in 2024.

Ron Bain (CFO)

Indeed, Chris. I think I would really see two parts to that. First part is yes.

We see, obviously, with the CDI, with the fields shut in in Q1, the outstanding receivables and the oil on crude oil inventory is all collected in Q1. Additionally, in 2024, and I kind of laid it out in my speech earlier, in Egypt, we obviously had, in the first half of the year, I would say we were a little bit slow to pivot to the fact that our crude was basically being refined in country. That meant we lagged collections in that first half of the year. Our new country manager came in in the summer, took a little bit of speed, obviously, with the ministry and EGPC changes at the same time. That needed to settle down. Really, from about August, September time, we really got after it.

What you'll see is our collections significantly improved in the second half of the year and has improved even further into Q1 2025. Partly that's because we've looked at different ways of being able to work with the state and with other suppliers, with approximately now between 90% and 95% of all supplies in country being paid in Egyptian pounds. We can't accept more Egyptian pounds from the state. As you know, US dollars has always been an issue for the state, especially in 2024, both with the Gaza conflict, obviously impacting the Suez Canal, and the tourism income being down. That's been worked with EGPC, our partner, to be able to do that and with our suppliers. It's working very well for us now into Q1.

We're seeing, as I stated, revenues and collections keeping pace with one another, and indeed, in Q1 so far, we're outpacing that.

Chris Wheaton (Managing Director)

When you say outpacing that role, that's excluding Côte d'Ivoire?

Ron Bain (CFO)

Yes, that's excluding Côte d'Ivoire. I'm specifically just looking at Egypt on its own there, Chris, when I say it's outpacing revenue.

Chris Wheaton (Managing Director)

Right. I just wanted to make sure I understood what perimeter you were referring to in that comment.

Brilliant. That's really helpful, Ron. Thanks very much indeed. I'll hand it back to the operator. Thank you.

Operator (participant)

Your next question today will come from Charlie Sharp with Canaccord. Please go ahead.

Charlie Sharp (Analyst)

Good morning or good afternoon, gentlemen. I appreciate the presentation earlier. Question really on Côte d'Ivoire and the refurbishment of the FPSO.

What are the critical path items in this process that you will be looking for in that work in Dubai that you might be announcing to the market as well? What do you see as the timing for that field coming back, the Baobab field coming back on stream? Thank you.

George Maxwell (CEO)

I'll start with part of it, and then I'll hand it over to Thor, who knows a lot more about this. I think the first thing that's critical to understand is, although we are not the operator, we are integral inside the project with our own personnel, working very closely with CNR. Because of the size and nature of this project and the importance to our success, we have a team working directly with the operator in the execution of this project.

The second thing we would say, Charlie, is that when we look at the timeline of the project and where we are today, we're already 10% through the timeline of the project and slightly, I'm going to say slightly ahead, Thor. I will let Thor give you more detail.

Thor Pruckl (COO)

Yeah. Thanks, Charlie. I think we mentioned earlier the production was shut in January 31, which was on schedule. The tow to Dubai should commence here on the 24th of March. The disconnection was completed. Essentially, the tow tugs are either in place or being put in place for that to start. The critical path, I guess, aside from sort of the normal ship work that has to be done in the dry dock, is probably the turret bearing.

That turret bearing was ordered, I think, almost a year ago and is en route now to Dubai from West Germany. That is really probably one of the key milestones that we are looking for. We expect the quayside arrival in late May, and we expect it to leave the quayside in January of 2026, with commissioning starting in early May of 2026. Depending on how the commissioning works, it will be anytime between sort of mid to late May for first oil.

Charlie Sharp (Analyst)

That is helpful. Thank you. The follow-on from that is, and I am just looking at your slide 16, key milestones and catalysts, with that now coming on stream sometime maybe Q2, late Q2 next year, and the bulk, I suppose, of the Gabon drilling campaign next year. How should we think about CapEx next year?

Should we think it'll be for Gabon and Côte d'Ivoire pretty similar to this year, but a bit more weighted towards Gabon?

Thor Pruckl (COO)

The Gabon drilling program should be entering its final phases late 2026. The CapEx profile on Côte d'Ivoire on the FPSO should be pretty well done by May, with the drilling program commencing probably in July is what we're seeing of 2026, sir.

George Maxwell (CEO)

The other thing to bear in mind, Charlie, is that we've got the potential for five options on the Gabon drilling campaign. Depending on how successful we are in the firm program, we may look at extending that program. As we mentioned in the script earlier, we do expect to immediately roll into a Côte d'Ivoire drilling campaign in phase five on Baobab to hook up as soon as the vessels be commissioned.

Thor Pruckl (COO)

Yeah.

In fact, I believe some of the risers for the drilling program are being installed during the commissioning phase. Okay.

Charlie Sharp (Analyst)

The additional drilling in Côte d'Ivoire, it sounds like we should be thinking in terms of a similar CapEx level next year to this year.

George Maxwell (CEO)

I would say, obviously, we do not give guidance for 2026 at this time, but you can see the work program flowing through, so it is a reasonable assumption. The only difference I would say, again, is that with both assets fully on production, the recovery of that CapEx will be really accelerated, particularly through CDI.

Charlie Sharp (Analyst)

That is great. Thank you.

Operator (participant)

Your next question today will come from Bill Dezellem with Tieton Capital. Please go ahead.

Bill Dezellem (Founder, Chief Investment Officer, and President)

Yeah. Thank you.

Relative to the wells that have H2S, now that you have found a way to process that, does that open up a significant amount of acreage that previously was essentially closed off or off-limits to you because of your lack of processing capability?

Thor Pruckl (COO)

That's a tough one to answer. We're both looking at each other here going, "Okay. How do we answer that one?" It does unlock additional locations, and some of those locations we're looking at inside the 2025-2026 program. We do have an additional well planned for Ebouri in that firm program. Depending on that, it may allow us to look further afield from Ebouri. The reason why we're saying that is that there's a fault line that we're dealing with there, and we're not clear on what's on the other side of that fault line, which is what this well potentially would address.

That is one question there. There are also some wells that are sort of isolated, I guess, between Ebouri and Etame that may possibly, down the road, allow us to look at a bit closer that were originally drilled and showed some levels of H2S that are not tied in right now.

Bill Dezellem (Founder, Chief Investment Officer, and President)

Great. Thank you both. I appreciate it.

Operator (participant)

Your next question today will come from Jamie Willen with Willen Management. Please go ahead.

Jamie Wilen (Owner)

Yes. On the H2S wells, how many are we going to be looking at initially? Are those the first part of the drilling program, and do we have the tools in hand to be ready to extract them? Could you tell us the approximate volumes that those wells were doing when they were shut in?

Thor Pruckl (COO)

Okay. The Ebouri platform currently has two wells that are tied in.

The third one is tied in but not producing. The Ebouri 2H has been online for some time, and it produces sort of anywhere between 1,300-1,500 barrels a day. It's a fairly low H2S concentration well. The Ebouri 4H was shut in, I'm going to say, about 10 years ago due to high H2S levels. That well was brought on in December on a test basis to see if we could handle a higher H2S with the chemical programs that we're using now. There was some question on when we brought that well on because it's been sitting so long where the ESPs were going to actually operate. In fact, the ESPs came online, and the well is producing, as of yesterday, around 1,600 barrels a day of flow at a higher level H2S, which we're still able to handle with the chemical injection program.

It's still within our model. Both those wells will get a workover in the program coming up. In addition to that, we're drilling a third Ebouri well into a sour area and expect it to be somewhere in that same range.

Jamie Wilen (Owner)

I think when the first wells are going to be drilling?

George Maxwell (CEO)

Sorry. Are those the first in the sequence?

Jamie Wilen (Owner)

Yes. That's the question.

Thor Pruckl (COO)

No, those are the tail end of the sequence, actually. The first wells are Etame wells, and then a Cincinate well, and then an exploration well, and then the Ebouri wells.

Jamie Wilen (Owner)

Within the sequencing, is that a 2026 number?

Thor Pruckl (COO)

The last Aburi well in the current sequence that we're looking at would be a 2026 well.

George Maxwell (CEO)

A lot of that, Jamie, is to do with the long lead items.

When we put these wells on test and we understand what we've got for H2S concentration, we then need to order the equipment that can handle severe service. The lead time on the severe service now we can specify is much longer than the standard completions that we do at Etame. If they can be accelerated, of course, we'll look at resequencing the program to ensure that we put production wells ahead of, for instance, the exploration well. It is all down to delivery of the equipment.

Jamie Wilen (Owner)

Okay. Lastly, on Côte d'Ivoire, what is the actual cost for the FPSO as opposed to how much we're putting into items for the next drilling campaign there?

George Maxwell (CEO)

At the moment, the gross cost position of the FPSO for the total project is around about $650 million. Some of that's already been spent.

We are, as you know, about one-third of that, roughly, about 30%. We have already spent some of it. When we look at the long lead items for the drilling program, such as the trees, the subsea trees, and the control pods, they have already all been purchased. Some of those were purchased before we acquired the company and the commitment had been made. Some of the equipment was being bought through 2024 and into 2025. I think Thor was going to give us an update.

Thor Pruckl (COO)

Are we talking the drilling program or are we talking the FPSO?

George Maxwell (CEO)

We are talking the FPSO.

Jamie Wilen (Owner)

Will the FPSO create any efficiencies that will be helpful when it returns?

Thor Pruckl (COO)

The work on the FPSO itself is pretty well putting it back into the original condition.

There will be probably some enhancements on instrumentation, monitoring equipment, valving, and those types of things, increased levels of trim. Obviously, the swivel is a big issue there. Overall, the FPSO is able to handle the production quite well. There are no real topside significant changes that have to be done. A lot of modernization is really what it amounts to.

Jamie Wilen (Owner)

Okay. Thank you.

Thor Pruckl (COO)

Sorry, metal replacement.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to George Maxwell for any closing remarks.

George Maxwell (CEO)

Thank you, Operator. I think as we have grown the company over the last few years, we have created a portfolio now organically that can make a significant step change as we come into 2026.

We've had a couple of light CapEx years in 2023 and 2024, but we've put a lot of technical work and technical effort into our key point-forward production targets, particularly in Gabon. We've looked at how we've managed to recover the positions in Egypt and arrest decline through workovers and new drills. We've successfully refract the South Ghazalat position, another of our concessions in Egypt, where we'll be looking at that later in 2025 to see can we build an even bigger program in the Western Desert for Egypt. We've rebased the program in Canada to go for longer laterals and more economically viable wells. We have an exciting project, hopefully, to get through to FID with Equatorial Guinea, which would give us, again, a massive boost to production in 2027.

We now have a lot more opportunities with a diverse portfolio to de-risk our positions, even though we have considerable investing activities in 2025 and 2026. As I said earlier, those investing activities with the quality of the production sharing contracts we have with our host governments make these a very exciting investment. We'll be monitoring very closely our execution of these projects because the key for us, as we've done in previous years, is to deliver these projects on time, on budget, whether we operate them or whether we do not operate them. We will be very focused on delivering that and communicating that throughout the year. I would like to thank everyone for the time today and thank everyone for their attendance and the quality of the questions. Thank you very much.

Operator (participant)

Conference has now concluded. Thank you for attending today's presentation.

George Maxwell (CEO)

You may now disconnect.