VAALCO Energy, Inc. (EGY) Earnings Call Transcript & Summary

[Audio Gap] Executive Officer, George Maxwell, from VAALCO Energy. I'm Jeff Robertson, Managing Director for Natural Resources at Water Tower Research. Before we begin, I would like to remind participants that our discussion today could include forward-looking statements as of today, June 4, 2024. VAALCO's disclosures regarding such statements can be found on the Investor Relations tab of its Corporate home page. So with that bit of housekeeping out of the way, George, welcome. Thank you for joining us today.

I'm pleased to do it. Thank you, Jeff, for inviting me.

VAALCO is an international oil and gas exploration and production company with assets located in Gabon, Egypt, Canada, Cote d'Ivoire and Equator Guinea. The company has been transformed over the past 2 years from a company with a single asset in Gabon to now one with a portfolio of countries with a combination of exploration and development projects. The most recent addition to the portfolio was the CI-40 license offshore Cote d'Ivoire, which was acquired in 2024 acquisition of Svenska Petroleum for net cash of about $40.2 million. George, I'd like to start with the notion of building a portfolio of international assets. And can you talk -- since Svenska is the most recent acquisition, can you talk about how Cote d'Ivoire fits into your acquisition strategy?

Yes, I can. I mean, we've been fairly open and direct with communication to the market on our inorganic growth strategy and our focus as an African development and production company. When we look at the key asset base that the company started with in Gabon and West Africa and also with Equatorial Guinea in West Africa, moving further up the coast towards Cote d'Ivoire, provided an excellent extension to our strategic investment area. Cote d'Ivoire itself is a very exciting country to enter. It's starting to heat up. There's been some significant discoveries recently by Eni. And for us, this is our first nonoperated venture into Cote d'Ivoire, working with a very experienced operator in an area, that deepwater offshore, we know particularly well in that area. The economics around the opportunity, and I'm not talking about the economics, I'm talking about the acquisition position, was particularly attractive for us. When we look at the skill sets required to enter into operations or even in a nonoperated basis in West Africa, there are some, obviously, barriers to entry. But we do have, inside the company, significant both subsurface and technical skill sets and a geopolitical understanding of the area that gives us, I think, a little bit of a competitive advantage. And I think some of that advantage can be seen in the speed at which we received approval for the acquisition. Traditionally, approaching the West African government post signing a deal with a condition precedence of government approval, it can take up to quite a few months, if not longer, to get that government approval. We were proactive during the discussions when we knew we had exclusivity. We sent a team directly into Abidjan to meet with the DGH and the government representatives and put forward our case for both the company's presentation, what we do, where we invest, how we invest and our track record for investment in other areas of West Africa. And our approach to Cote d'Ivoire and as a new country entrant, this is a first step opportunity for us, and we are excited to look at other opportunities in Cote d'Ivoire. With that type of approach and that level of openness and direct discussions with the ministries, we received approval from the government within 4 weeks, which, in my career in 30 years in Africa, is unprecedented.

George, you mentioned this is your first nonoperated venture. How do you envision working with Canadian Natural Resources, who operates the Cote d'Ivoire license?

The world of oil and gas is quite a small village, as you're aware, Jeff. So as you move around the world, you tend to bump into the same people in different jurisdictions. And as luck would have it, I'm from Scotland and CNR run those operations out of my hometown in Aberdeen. So there are not -- lots of connections already with people that work with CNR out of that operation that we've known for many years. As you know, I started my career in the North Sea, and many of the people who work in CNR and run CNR there are well-known to both myself and to Ron. So having that level of connectivity and being able to explain what our objectives are and coming in as a partner to this venture and where we're trying to build a position, where we're trying to be supportive towards the operator, even someone as large as CNR, we feel we can always add something to these operations. In particular, where some of the activities that are required on CI-40 are activities that we've just recently went through ourselves in Gabon. So we've got quite a lot of experience. We think we can add value to this position, but we're also cognizant of the fact that we are there to be supportive of what the operator's plans are, to challenge the operator's plans where we need to challenge them and to make sure that, collectively, we go forward with -- and execute an excellent project.

You mentioned you're working Gabon, which was the field reconfiguration at Etame. That Baobab field at CI-40, the FPSO there is scheduled to go in for a maintenance and upgrade schedule. How does your experience with what you just completed at Gabon that you alluded to play into how you could be constructive with this -- with the process in -- that's about to take place in Ivory Coast?

Yes. We -- as you know, in 2022, we went through that experience in replacing the FPSO. So we went through that project management hurdles. We went through the experience of having the vessel being refurbished in the dry dock. We went through the contracting schedules and how complex it could be and -- in any project, and nothing ever goes 100% as you plan. There's always the snagging activities. Then there's always the work breakdown structure areas we have to get into more detail. And we went through that learning curve and come out the other side, I think, with a particular skill around the costing, around the expediting, around the relationship with the subcontractors and also the main contractor, who would be looking after the overall refurbishment, to hit some of those key milestone points. And I think that was one of the key things that we learned through that process, was never leave anything undone. We held meetings on the project every 7 days at the senior level, and we went through and we burned all each of the key elements that were worrying the project team at the time where, hopefully, we expedite things. How could we keep things on track? How do we not get to the point where we've had a significant delay on production or delay on delivery. So those are some of the key elements to the team that we have here in Houston. I think we'll work with the teams in CNR to pass over some of that experience and also work closely to look at how they're handling the project and add some key insights to that, if needed.

So it clearly sounds like CNR has a partner who cares and who this project means a lot to now with VAALCO's position.

I truly believe CNR's commitment, I think, to this field is unwavering, and I think you do not embark upon this level of investment if you're not looking for a return and -- but all there for a commercial venture. So when we look at the level of investment required to upgrade the FPSO and look at the longevity that provides for all partners in CI-40, going out well into the 2030s into the late 2030s, I think that level of commitment signifies that there's long-term prospectivity within this license.

Can you outline, George, what you think the 2025-2026 development program might look like once the FPSO's back on station? And then what are really the upside opportunities that drew you to this asset?

We've looked at -- obviously, one of the key elements is longevity. So we've been looking at how do we create within the portfolio opportunities that look and create value for VAALCO and our shareholders well into the 2030s. So that's one of the first things that attract us is these longer-term developments. When we look at the development plan that's proposed for CI-40, the next drilling phase add considerable value and solidifies the economics around the investment, around the FPSO. There are further step-out opportunities that are still under the valuation that quite excite us. And as we get more into this license and get more into the geoscience activities, and I think that's where we -- again, because we have a full geoscience team here in Houston, we can add a lot of value in working in collaboration with CNR on some of those interpretations around either confirming interpretations or challenging interpretations for further step-out opportunities to provide longer-life position on the asset.

Operating or owning positions in 5 different countries bring or exposes the company to 5 different political and governmental regimes. George, was -- there obviously was a change in the government in Gabon in the third quarter of last year. Now you've been working with the new government for going on 9 months now. How receptive is the government to the existing terms of VAALCO's Etame contract? And how do they -- how supportive of -- are they of your future plans there?

So the -- one of the key things that perhaps isn't well understood about the fiscal regimes and particularly in West Africa is that majority of them have stabilization clauses, which allow you to basically retain the fiscal positions and the contractual positions at the time of signing regardless of subsequent laws that come in. So there's almost like an anti-grandfathering position, and that is to protect the investment case. One of the key things in many of the West African countries is fiscal stability. We're -- in my home country, you're not seeing that in the U.K. at all. In fact, the U.K. North Sea is being decimated by windfall taxes. But we see stabilization in the contractual arrangements in West Africa, and that's very true about Gabon as well. So we've got the licensing Gabon through to 2038 with that stabilization. One of the key things around diversification is that the geopolitical situations in Africa can always change. They change in South America. They change in many countries around the world. Having a diverse portfolio is there to ensure that any of that risk element is minimized. So in any one position, we -- and that's what we created in 2022 when we went and completed the acquisition of TransGlobe. We created that derisking of the income stream, the derisking of the cash flow with that diverse portfolio. Now obviously, the market reacted initially quite negatively to the change in regime in Gabon, but subsequently has more than recovered. So we work closely with all of our host governments, regardless of who they are, to ensure that our investment profile is protected and our returns are protected. So after a period of time, we went -- within 8 weeks of that change of government, we sat and had a direct one-to-one with the head of state and outlined our investment proposal, outlined on employment proposals, understood what their objectives were and what they were trying to achieve and aligned fully with that. So we -- whilst we have a drilling program has been delayed for all the right reasons in Gabon, we're still committed into the next drilling phase and the timing, which is due to start in 2025.

George, does some of that relationship-building paying dividends as you and BWE work to progress the contract for the -- for blocks G and H?

I think it is. We've been -- I mean, if you were going back through communications, we've probably been talking about G and H for, at least, 3 years now. And in the previous administration, it kind of got stalled. Last week, at the Louisiana Energy Conference, we were on the panel with BWE, and we both explained exactly why this made sense. It's the open acreage between our 2 asset bases. It's open acreage between the 2 closest infastructures that could evacuate any discovery. So it makes perfect sense for us to partner together and explore that area and also tie back into facilities and further utilize facilities to evacuate anything, any discoveries we have. What we have seen since the change in administration is a desire and an acceleration to get blocks G and H to a point of conclusion with ourselves, BW and, obviously, Panoro is in there as well as one of our partners.

George, VAALCO prioritizes having a country manager in place everywhere you have assets. How does that strategy fit -- facilitate relationships with host governments and then maybe help get things done with regulators?

It's twofold there. One of the reasons we have that strategy, you can't -- if you're choosing to operate in Africa, there's no better asset than boots on the ground, regardless of whether you're the operator or the nonoperator. Because at the end of the day, we have to have -- particularly with time differences with the difficulties traveling there, we have to have an understanding that anything we're investing, in any country we're investing in, we're sure and we have some security around that investment. And that comes through constant communication, communication to the administration, communication to the regulator of exactly what we're doing and why we're doing it, how we're doing it and having the connectivity around some of the key positions that you need to communicate with such as -- we can talk to the DGH in Cote d'Ivoire, and in Gabon, we talked with the MMH and Equatorial Guinea. These things are key because that builds a relationship. It builds also the opportunity that you can transcend any change in administration because you've brought those contacts, and you're not tied too closely to one administration. You're there with your investment position and your employment position. You're generating economic activity. All those things are key to allow us to be able to get that feedback direct from the host country that we're investing in and be able to deliver that communication with confidence back to shareholder. We know what we're doing. We've been in Africa a long time, and we'll never be in a country where we don't have somebody there. And that's important, and we're not going to rely on secondhand information to communicate on investment.

George, you touched on stabilization and PSCs in light of the government change over in Gabon. But are you seeing countries in West Africa compete for investment dollars with terms due to PSCs that they're -- that they talk to operators about?

Yes, slightly. I mean, the -- every country forms its own set of terms and conditions. And in Asia and Africa, the terms of the PSCs tend to be reasonably generous in the way that you can -- they're focused on investment. 100% focused on investments. So as soon as you stop investment, you stop the CapEx spend, you turn into -- the profit split and the tax oil becomes not punitive, but much, much higher. You can offset that through investments. So hosts is not competition because each country, I think, organizes its PSCs around what they see as their available resources. So the countries with the larger resources still have competitive PSCs, but maybe not as competitive as countries with smaller resources. So the size of the prize is also important when you're looking at the PSC economics. That being said, we -- when we look at our investment profile -- and the best example we've got is for Gabon, where, in 2022, our gross investment, over and above just our working interest position, was well in excess of $200 million, $250 million. And through those -- the extra oil that was produced and what we produced through 2023 and early '24, we recovered that position in just over 12 months. So depending on the terms, you're looking at your investment return on a cash basis between anything from 6 to 18 months maximum. So that's what makes them very attractive opportunities, rather than just a pure concession equity play that you see perhaps in the Gulf of Mexico or in the North Sea.

George, if we think back to the portfolio construction with the acquisitions that VAALCO has made, the most recent one but also the TransGlobe acquisition, how do you think about layering on new assets? Or does the Svenska addition, does it change anything about how you prioritize acquisition opportunities as you look at the landscape?

It does, obviously. I mean, the more assets or more countries that we operate in gives us both derisking, but it also gives us commitments that we have to follow. So we need to look at -- as we look at the opportunities and how they present themselves, we look at what the cash generation opportunities are for the asset that we're looking at or the company that we're looking out and look at our existing portfolio and the cash requirements to maintain the commitments of investments that we're making through the near-term period, like the next 3 years. And those things are key because one of the things we've always worked in VAALCO in the last 3 years is very principled about once we make a commitment to CapEx, we will protect that commitment to ensure that the project can be funded through to fruition. We either have the safety net of making sure we have the debt line available or we'll have hedges in place to make sure we have the cash flow available to meet the commitments. So the mix does change, and it becomes slightly more complex the more that you have in your portfolio. But some of these things also can be positive. You can look at a portfolio and find opportunities -- inorganic opportunities that would fit well in a particular year where maybe some assets are using cash and other opportunities can be generating cash, and the issue here is just to maintain that balance. So you can't -- despite how attractive an opportunity is, you can't have 3 in a row that require $200 million of CapEx in 2025. The company just can't do that. So you do have to be a bit more pragmatic in what's being applied. So when we look at these opportunities, we are always trying to balance within our means, right, and that is key. We have -- in this company today, we have all the capability we need to go after any opportunity that may present itself. The limiting factor is being able to do that, maintain the spend in the balance sheet we have, maintain our commitments of returns back to market that we've been steadfastly committed for the last 2 years. And we've been delivering that for last 2 years. So we're not about to break that model just because something really exciting comes up that may get us into difficulty.

It seems like a successful acquisition strategy or execution is often followed by the need to operate the assets that are acquired to really capture the value that you see at the time of the acquisition. VAALCO's production has exceeded guidance in recent quarters because of operational excellence in Gabon following the full field reconfiguration in 2022 as well as in Egypt and Canada in the first year, now 1.5 years of owning the assets from TransGlobe. Can you quantify how VAALCO's attention to detail in some of those assets has really added economic value?

I think when we look at what we have -- I mean, it's not well-understood. The capability inside the company is perhaps not well-publicized. So when we look at the skill sets that I have with the executive team around me and the teams that work for them, we've got hundreds of years of oil and gas experience, and it's not just based in Houston. It's all over the world. So when we look at places like what we can do in Egypt, how we could improve the infrastructure, how we could improve the health and safety position, which we were advertising back in Q1, I mean, we've made huge, huge strides in improving the positions in Egypt. And with that, improving the flow assurance, reducing their back pressure increases the production. Exactly the same has happened with the field reconfiguration in Gabon. So we go from a level of it has to be safe, it has to be as efficient as it can be. We have to make sure that the people understand the roles that we're employing them to do in country, and we have to get the expert leadership in as close to the operation as we can put it. And so we did that in Canada. We've done in Egypt. And in Gabon, last year, we changed out to local country management. So we've got local Gabonese running Gabon, which, again, is one of our positions. We try and get as many of the local leadership into our operations as early as possible. We take them over to Houston. We train them. We tell them this is what we're looking for, and it's a discussion we have every time I travel into each of the countries. It is really the matter that we live by. Operational excellence is what we deliver as a key strength, and it is demonstrated through what we do in engineering, what we do in drilling and what we do in production operations.

Last week, VAALCO announced results from some -- a couple of long lateral wells in Canada. Can you talk about how those wells affect your plans moving forward? And I believe you have an exploration well planned later this year in the third quarter for the southern part of your acreage. How could those results affect how you think about Canada in the next capital cycle in 2025?

I mean, I'm glad you brought that up. And Canada, for us, is a great example of looking at the operation, getting it fit for purpose so it's the right size, both in personnel and expertise, and having the right strategy. So we challenged the team in Canada back in early 2023 to come up with a 5-year plan with the position every producing operating unit that we have has to be contributive. It can't be a consumer of economic value from other assets. It has to be able to contribute. And this team put together a 5-year plan, how they could be positively contributing towards EBITDA and cash flow throughout that 5-year period. And that involve 2 things. It involved, like I say, getting the team at the right size with the right level of expertise, getting the right strategy together. So we communicated -- they communicated to me and we communicated to market that we -- the most economic positions we have are the 2.75 to 3-mile laterals and the 1 to 1.5 mile laterals, whilst economic, were not providing the level of returns that would allow the business to be contributive. In order to do the 2.75 and 3-mile laterals, we have to enter into and find the parcels of land that allowed us to drill through into adjoining blocks. So the land management up there has been excellent. We've been doing lots of negotiations to get access to these blocks that were impeding the length of the drill, and they've done an excellent job in doing that. And you see that with the delivery of the 4 wells this year. The IP rates were particularly strong in 3 and pretty good in the other one. Those IP rates will also reduce once we get the pumps and roads in, but pretty successful campaign. So when we look at how does it affect the capital cycle? We know roughly what we're planning to do for Canada for the next 4 years because they've put in place a 5-year plan. Now the exploration well to the south, that came in as a bit of an extra because one of the wells there wasn't performing, and that gave us an issue around the type curve analysis and reduced the reserve base. We're going in there because we believe that with this new world, we can reverse that technical scenario and add more reserves to the south part of the asset.

George, turning to Gabon. We talked briefly about the field reconfiguration and -- but -- and you also completed a drilling program in 2020 -- early 2023. Can you talk about now with the history of those results and the history with the field reconfiguration, how does that affect your development plans or your thinking around the development plan for a 2024-2025 campaign on Etame?

Well, the 2 things there. First, the -- really, the field reconfiguration with the central processing facility on the Etame platform, removing that from the FPSO give us much more control, as I mentioned, already reduced the back pressure in the field and allows us to have increased capacity through to the FSO. So whilst we have increased processing capacity, we are somewhat restricted in some of the platforms through available slots for drilling. So when we look at the 2022 campaign, we had mixed success. We had 2 very successful wells. We had 2 less successful wells into the Dentale So taking on that experience, we continue to study the Dentale. We're looking at this campaign, and we're looking at how do we maximize for the number of firm well positions for 2 reasons: one, to maximize the successful opportunity of the campaign; and for two, to attract as many competitive drilling units as possible because the campaigns are a larger size. So we'll be going in with a reasonably large firm position with a number of options. And with that, as I mentioned, we've got some limited slots on some of the platform. So we need to look at where we want to -- which platforms we want to drill on, where are the highest possibility of success, how do we derisk the step-out positions. And then the other opportunities, which are a little bit further field, which fall into potentially an exploration category, do we look at the opportunity for stepping out with subsea tiebacks? The objective of this campaign is to do exactly what we've been looking at in our inorganic portfolio. How do we get longevity into an asset that we've been producing for well over 20 years, well over 100 -- almost 131 million barrels extracted, but we believe there's more there? How do we carefully take this asset through into the mid-2030s? And this is what this campaign is looking to achieve.

You've talked recently about options to remove H2S and sweetened oil that was encountered at the Ebouri field, to commercialize reserves that have been stranded since those initial wells were shut in. Can you talk about the economic impact on VAALCO of solving that problem?

Yes. I mean, that is one -- when we look at these opportunities for how do we extend the life of the business in that particular area, obviously, G and H gives life extension as well to the infrastructure. We're successful in what we find anything there. But Ebouri is -- falls into from a -- for me, as a nontechnical person, from a geological standpoint, it falls into some low-hanging fruit. From a technical standpoint, it's challenging because we've got to make sure we can extract that crude safely and have it properly sweetened before we can produce it. So the first concept that the engineering group arrived at was a mechanical concept, which is heavy on CapEx but give surety on being able to sweeten the crude and deliver it. And the target is anything from 8 million to 12 million barrels of 2C moving back into reserves. As we work through that, we've been also looking at the existing well. There's still one Ebouri well producing right now, and we're currently sweetening that crude with downhole chemicals. So before we go and make commitments of major CapEx spend, we've -- just early in Q2, we initiated a study to look at the efficiency of continued downhole chemical injection. So rather than spending $80 million reconfiguring a platform, can we do it more simply with an increased OpEx cost, but get these wells on stream? So that analysis is being completed right now, which is why one of the reasons we know how many wells we're going to drill. We don't know the sequence. We don't know the names yet because we -- for the locations. Because until we complete this analysis, it will change perhaps the joint campaign around Ebouri. And it may be an accelerated campaign if we can use the chemicals to sweeten the crude, and that allows us to bring that all forward quickly or it may be at the end of the program where we've got -- the mechanical process has to be delivered before we can deliver the wells. There's a big cost differential between the CapEx and the OpEx positions, of course, and a timing difference. So it's important that we complete the study before we determine at what level and downhole chemicals and operate to and how -- what's the longevity around downhole chemicals. We know the mechanical process can take us all the way through, but it's $80 million. You don't want to spend that money if the OpEx position, the chemical solution can take you 90% of the way there. We'll have the results of that study in early Q3, and we'll be able to be a bit firmer on the results of that when we talk about our earnings call in August.

George, let's touch on Egypt just briefly. Are the economic conditions in Egypt having a significant impact on your near-term develop plans?

I mean, also, there's a number of challenging positions in Egypt right now. The economic situation has been challenging. We have fared, I think, reasonably well through that. We had a successful drilling campaign last year. We have maintained our workover campaign. In fact, we've increased it to 2 workover rigs this year to arrest decline. We're seeing the payment situation improve, but we're not seeing any export cargoes, which is one of the key things that really put the cherry on the top of investments in Egypt. So we need to continue to press with our partners at EGPC that we need to have some export cargoes. 1 or 2 export cargoes a year makes a huge difference to the economics in Egypt and makes the decision for further investment much, much easier. It's not that the domestic sales are -- prohibit investment. But at that point, with the domestic sales and the lower pricing, given the portfolio, it makes me have -- it makes that ranking of investment dollars a bit more challenging. We do have a campaign ready to go for the second half of this year. We're looking for a rig, and we're looking to see how we can make that into -- fall into a compelling investment position. And hopefully, we'll have some good discussions with -- we have, I'm sorry, good discussions with EGPC this month, what we hope to further into a more meaningful position on where the government can give us more indicative positions on export cargoes. I can't stress enough the difference between -- or we would be roughing to make investments in these programs with 1 or 2 export cargoes. Where without that, you do have to sharpen the pencil and have a look at it.

I'd like to go back to the portfolio nature of the asset base. In my mind, VAALCO combines a portfolio of short cycle-type development opportunities and did -- I think of that in terms of Canada and Egypt, if you can get the export cargo situation resolved, and Gabon really has relatively short cycle, plus long cycle-type opportunities. And then you lay on top of that Cote d'Ivoire with 2025 and 6 [ '26 ] and, ultimately, the Venus development plan in Equatorial Guinea. George, when you think about the portfolio that you have today and what it could mean for cash flow over the next 3 to 5 years, how do you characterize your mix of reservoir risk with timing and execution on the portfolio?

I think that you have to balance it. I mean, obviously, there are certain assets that we have -- we just entered into where the subsurface risk is limited. Obviously, we've got the producing positions in Canada, Gabon and Cote d'Ivoire, where you have -- we have lower risk with step-out opportunities. With Equatorial Guinea, the risk is slightly higher from a subsurface standpoint because we know the oil is there. It's proven. We know exactly how much is there. We know roughly the size of the tank, but it has complexities. It has complexities around the -- with the placing of the water injection well to make sure you can evacuate the maximum amount of crude. So when we look at the subsurface side, there are positions, such as in Gabon, with the Gamba where you're very confident that, yes, you can -- you know exactly where it is, and you can add an additional drainage point and perhaps [indiscernible] there as long as it's not interfering with other wells. We know exactly where we are with Baobab with the existing production and the potential for the next phase with the Phase 5 drilling. Canada, I think, has been proving itself with the strategy and the execution that we've had last year and this year. The -- when we -- once we've passed the geological risk assessment, you then get into execution risk. And execution risk, we try -- where I think this is one of our key strengths, this is where we try to minimize it significantly. For instance, when we look at what we're trying to do for the Venus development in Equatorial Guinea, we're going to spend all of this year going through a FEED study. That FEED study is there to determine a number of things. One, how can we be cost-effective for the equipment that we need? Do we reduce CapEx and increase the lease position? How can we -- we've got to do a seabird survey to make sure that where we want to drill from, we can actually place a unit there safely, the mudline is not too deep and we can actually execute the strategy from the shelf drilling into the deepwater location. We're not going to rush into that because if we rush into that, we increased considerably the execution risk. And that's why we do these FEED studies to get to FID. It doesn't just confirm the economics. It confirms the technical solution, and we -- it confirms that we have the ability and the equipment to execute it as planned. So -- and then it's very similar to where we go with working with CNR on Baobab, where the execution risk around this refurbishment, we'll be walking hand and step with CNR throughout this whole process because the key here in any of us is to safely execute a project as early as possible and get the production back and oil out of the ground as quickly as possible. So once -- and you've seen with us on the Etame program, we spent a lot of time on the subsurface side ranking and finding the opportunities that we think are the best opportunities to go and execute in the near term to provide longevity for Etame. That's why we've been delaying a bit of the program. That's why we've taken Ebouri into that program to provide that longevity, to get the technical solutions there and to maximize the utilization of the infrastructure we've invested in. Once we pass that threshold and we move to the execution side, we do that with a lot of confidence. We still get surprises. Any oil company does. We got surprises on the Dentale positions in the last drilling campaign. That's to be expected. But I think we try to minimize those risks by -- as much as possible from -- as we move from one phase, from subsurface, to operational and execution.

If I think about the dividend in the context of capital cycles and then production cycles on the asset portfolio, the visibility that VAALCO has today seems like you have a pretty long runway of an opportunity set to support your goals of returning cash to shareholders. Is that -- am I thinking about that correctly?

You are. I mean, we made that commitment, and we have made that commitment ever since I came in, that we will do these returns. We publish very clearly the parameters around how the company is planning to do it, the oil price scenario, and I've made the statement many times. I've made it in my town halls here in -- to all the staff that we budget the dividend, and it's just important to us as we budget engineering, G&A and CapEx. So we budget it on that basis, that the shareholders are -- we also plan and we hope we see the shareholders see significant capital growth in the stock as well. But that being said, we've made a commitment through 2025 in the current environment, and we will hopefully be able to refresh those commitments at the dividend level as to where it is. Now I know some shareholders are looking for dividend growth. And where the dividend was previously versus where the market is and where the interest rates are was attractive. It's now -- it's actually challenging with treasury yields. But at the same time, for a company our size, we start to buck the trend and making sure we are delivering dividends back. So there is an income opportunity there. And as a shareholder myself, that's important. That's why people are investing more capital growth and for income growth. And if we can give them that, then that's what we plan. We've done a $30 million buyback. The average price was just north of $4. So we proved the value of that as to where stock is today. And where the stock is today, we're currently giving about a 4.5% yield.

Would you like to turn to the balance sheet? A strong balance sheet is clearly critical to executing your business plans to fund the CapEx programs and a part of that shareholder return plan. As of March 31, 2024, unrestricted cash was $113 million, and you had 0 drawn on the $50 million RBL facility. Since the close of the first quarter, the Svenska acquisition was funded with cash on hand. We discussed the nature of short- and long-cycle projects. But can you just talk briefly about how you think about managing the capital spending cycle to maintain leverage and liquidity position, make it comfortable in the context of returning cash to shareholders?

Absolutely. That's what we talked about when we looked at the inorganic opportunities as well. How do you sequence the position so you don't overextend the company on commitments you've made? So when we look at 2025, for instance, we know we've got a CapEx-light year this year. We've got a CapEx-heavy year next year. So we will look to try and cash pool throughout '24, so we enter '25 in a stronger position as we entered '24. But we have to balance the -- where each asset requires the investment. So we know, for instance, that you're investing in Cote d'Ivoire in a nonproducing environment. So that's got to be managed very carefully and much more carefully than investing in, for instance, Gabon in a producing environment. So whilst the numbers may look large when you're saying we have to invest net to about $120 million in Gabon, part of that investment is coming back within the period. In fact, a great amount of that is coming back within the period. So you're not really $120 million out in the period. That's different when we look at Baobab. So that's where the management needs to be done, and the cash management needs to be worked on really carefully because we will be $120 million out because there is no production offsetting that. There's no accelerants. There's no cost oil coming back. So again, for how our PSCs work, the more we invest, the more oil we get back. And you get that oil back the next month from that period. So that's why investing in producing operations through a PSC, the headline number may look high watering, but it's not really the headline number. You brought those funds coming in very quickly. The one we'll need to manage carefully, obviously, is Cote d'Ivoire.

So I think what you said, George, and then correct me if I'm wrong, is the PSC terms help dictate where and how you invest capital because you do get the cost recovery pretty quickly.

You do. And one thing to bear in mind is even a nonproducing asset, such as Ivory Coast, which it will be in part of 2025, the uplift in the cost oil pool that you generate in 2025 will give you a huge entitlement when the asset comes back on stream in 2026. So you'll have -- you have the maximum level of oil entitlement coming through in the earlier part of '26. So whilst the -- you have no producing recovery in part of '25, you get that by way of oil entitlement coming in 2026. Now that you don't get that in Gabon, for instance, where you just get the step-up in cost oil that happens the next month. So it kind of levels out. It's much, much easier to predict than what we'll see in Cote d'Ivoire for '26. But the incentive to investment in the PSC in Cote d'Ivoire is 125% uplift on every dollar invested. So I mean it's a 25% return just on cost position, which is tremendous.

You've used cash for Svenska. Just in terms of where the balance sheet is now and what you kind of look at as your capital spending outlook over the next couple of years with the assets, does that have an impact on how you might think about financing another inorganic acquisition opportunity?

Well, as I said earlier, the -- yes, of course, it does. We're not going to overleverage the company. But every opportunity that we have added into our portfolio has to be in the compelling range. And part of that, the nature of it being compelling, is it doesn't challenge or put the company at any risk from its existing portfolio. It's not just, "Hey, this looks like a great deal. We've got to have it." A great deal that you must have that negatively impacts the rest of your portfolio is not a great deal. So we have to look at the opportunities that arise inorganically and say, "Yes, this will fit and it's good to buy it now because it's cash generative next year or it's got a 1-year return." I mean, like the Svenska deal, the cash out is fully repaid before we even take the asset offline. So these are -- we will continue to look at those, but we also are very cognizant of we've got a strong portfolio. We've got a strong balance sheet. We've got a particularly strong company with a strong future ahead of it. We're not going to destabilize that just because something shiny comes up in the market.

Well, George, it does sound like you have 5 different countries, each with its own levers to pull in terms of potential value creation. You touched on it just a minute ago, but can you just summarize your thoughts on how you think VAALCO's portfolio positions the company, I don't mean to grow the underlying asset base, but to support your cash return to shareholders plans?

There's 2 things there. We have expanded our footprint in Africa, and the expansion of that footprint is not just there to create, as we have created, I believe, opportunities in the near term and longevity for the company. It's also there to give us -- as we discussed earlier, we've got boots on the ground there. We have in every area looking constantly at opportunities to step out within the jurisdictions where we have experience. So it's not just about new country entrant. It's about expanding the footprint in the countries where we already are. And the more countries are there, the more of these opportunities arise. And some of these opportunities are not about acquisitions of companies or doing things in the stock market. They're discussions with the government and you're looking at brownfield opportunities that perhaps have been left by IOCs, are handed back to the government and we'll be looking at how we can generate those. These are very attractive opportunities when you're in country because they are either near-term production or they're in small production where you -- a small investment, you can ramp up the production and, therefore, further increase the cash flows that provide the returns to the market. It's not about continue -- I mean, I don't want to be here next year saying I've now got 15 countries in Africa. That's not the objective. The objective is if I have the same amount of countries we're invested in now but 5 blocks in each country, that would be the ideal scenario.

George, it sounds like there could be a lot of levers to talk about as they do get pulled in the countries that you operate in. So we'll leave that for another fireside chat in the future. I want to thank you very much for your time today.

Thank you much, Jeff. It's been a pleasure.

Thank you.