VAALCO Energy, Inc. (EGY) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, we thank you for standing by. And welcome you to VAALCO Energy’s End of Year 2011 Earnings Report. [Operator Instructions] And as a reminder, this conference is being recorded. I’ll now turn the conference over to your host, VAALCO’s CEO and Chairman, Robert Gerry. Please go ahead.

Thank you, Amanda, and good morning, ladies and gentlemen, and welcome to VAALCO’s fourth quarter and year-end 2011 investor conference call. I’m joined this morning by Russell Scheirman, our President and COO, Greg Hullinger, our CFO. Please bear with me for a moment while I read our Safe Harbor statements. This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1953 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are those concerning VAALCO’s plans, expectations, and objectives for future drilling, completion, and other operation and activities. All statements included in this presentation that address activities, events or developments that VAALCO expects, believes, or anticipates will or may occur in the future are forward-looking statements. These statements include expected capital expenditure, prospect evaluations, negotiations with governments and third parties, and reserve growth. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. These risks are further described in VAALCO’s annual report on Form 10-K for the year ended December 31, 2011 and other reports filed with the SEC that can be reviewed at www.sec.gov. Before turning to Greg for financial, let me make a few comments. I think we had a very good year in 2011, and if we didn’t take the impairment charge in the Granite Wash, and an ongoing write down of our Angola properties, VAALCO would have earned probably around $0.75 a share for the full year, which was about 16% better than we earned in the previous year. But speaking about Angola, we have discussed in the past, the oil possibilities for our Block 5, our 1.4 million acre block in the Kwanza basin of Angola. And with the recent announcement by Cobalt of their subsalt discovery in the same basin, additional focus has zeroed in on VAALCO’s holdings. We have suggested in previous presentation and conference calls about Block 5, and the keyword here is could, contain up to 300 million barrels of oil in place and Sonangol has further suggested that they believe it could be up to 500 million barrels of oil in place. Of our estimates, and I think Sonangol's are based on only the shallower post salt depositions. And while we’ve always stated desire to test the subsalt, Cobalt’s success has made it even more compelling. We have a legitimate subsalt prospect called Loengo, which we intend to drill. However, let me emphasis this, that post-salt also remains an enticing target with potential reserves that could be a company maker for VAALCO. We may very well drill the post-salt first, and conceivably a 100% VAALCO, while we sort through potential partners to grow deeper in more expensive pre-salt. Cobalt’s discovery has created added interest in our block and we currently have 6 parties reviewing or about to review our data. Basically, I think our near-term goal is to secure drilling rig, and decide which post-salt prospect to tackle first. But should a partner be secured quickly that we would more likely drill Loengo first. Without a doubt, we have a few regulatory loops to jump through Sonangol before we are off to the races, but I’m reasonably confident that this can be accomplished. And I’ll have a few more comments about all this after Greg, and Russell get through their presentation. So with that, I’ll turn it over to Greg for our financial review.

Thank you, Bobby. Good morning everybody, and thank you for joining our call. I’m going to take you through quarter 4 financial information, and then give you a brief full year recap as well. I think what I’m going to talk about, though it really has a recurring theme, its prices, volumes and taxes, the majority of our pricing is based on dated brand, so we’re benefiting from very high prices. Our volumes are primarily coming from Gabon offshore, which have been strong not only during the quarter, but all year along. And taxes, which referred to our taxes that we paid to the Republic of Gabon were extremely high. So the results are heavily eared around high prices, high volumes and high taxes. Okay, now for some numbers. Net income attributable to VAALCO in the fourth quarter of 2011 was just slightly lower than the quarter a year-ago at $8.7 million, it was $8.9 million a year ago. Earnings per share on a diluted basis was identical at $0.15 per share. Our sales revenues were significantly higher at $67.8 million versus $38.2 million, and this was on volumes of 623,000 barrels compared to 441,000 barrels. We did have 4 liftings in the fourth quarter of 2011, where we had 3 liftings in the fourth quarter of 2010. Many of you will recall from our quarter 3, where we only had 2 liftings that impacted revenues and volumes for the third quarter. Price is strong, for the quarter we averaged on a BOE basis, $111 even and for year ago quarter, $87.02. Production expenses were higher in the fourth quarter 2011 versus 2010, $11.2 million versus $6.2 million. And the primary reason for that increase is that we match our production expense to sales, so again 2 liftings in the third quarter, 4 liftings in the fourth quarter. And this comparison is taking again fourth quarter of this 2011, versus the same period in 2010. Exploration expense was nominal at $2.1 million compared to $4.7 million in the fourth quarter last year, and majority of that money was associated with a seismic shoot that we’re doing at Gabon, which started in the fourth quarter, and $1.4 million of that total was spent on that effort. Income tax, this was a tough one to swallow, $28.4 million in the quarter compared to $8.4 million in the fourth quarter last year 2010, a full $20 million higher. I’ll talk a little bit more about taxes when I get to full year. There is only one really unusual item in our fourth quarter, Bobby, mentioned it, it’s the Hefley well impairment, that’s our first Granite Wash well. We took a impairment of almost $5 million during the quarter. And essentially the story there is that, soon after initial production, which began in August of last year, the production rates over a period of months come down, and the production really was at the lower end of our expectations. We did some waterline work to try and understand what was going on with the well, we ran into some obstructions, actually tried to mill them out, and in the end we put the well back on production, where it’s currently making about 20 barrels of oil per day and 1.5 MMcf a day. As such, Netherland, Sewell, our independent reserve estimators came through and have signed rather low reserves to this well. PDP reserves were little over 13,000 barrels of oil and about 830 MMcf of gas. At our current production rate, that’s only about 2 years worth of production. So hopefully, we can keep the flow going for a long period of time and exceed that. But any case the rules have us take the reserves that are found, we compare that to the value of the well. And so we take our initial investment, we added in a bit of leasehold, we used forward strip pricing. And then we ended up reducing the value of the well to its current value, and that though is just below $5 million that we took during the quarter. That’s kind of the big items for the fourth quarter, let me shift over to the full year. And again same theme applies, prices, volumes and taxes. Net income attributable to VAALCO for the full year was $34.1 million, just a little less than a year ago, for 2010 $37.3 million. Our earnings per share in 2011 was $0.59 on a diluted basis compared to $0.55 in 2010. The sales revenue significantly higher at $210.4 million compared to $134.5 million. Sales volume 1.9 million versus 1.7 million barrels of oil equivalent, and strong pricing that we average for the year on a BOE basis, almost $112, and that compared to $78.38 in 2010. Production expenses for the full year, a little bit higher $26.7 million compared to $22.1 million. And the primary drivers of that increase are, partly it’s the variable cost associated with the higher production. And then in the third quarter, I talked about the concept of the market, sorry the domestic market obligation that we have to pay in Gabon, were essentially it's a subsidy that we pay to the government for running the one and only refinery in the country. All the producers of oil and gas have to subsidize the refinery essentially at 25% discount for the crude that they purchase. Moving on, exploration expense for the full year was $5.7 million compared to $6.8 million in 2010, and I already mentioned, the majority of that or a good bit of it is associated with the seismic shoot that was going on in Gabon in the fourth quarter. Income taxes for the year, $93.5 million in 2011 compared to $35.3 million in the prior year. Income tax again is a function of the concept of cost oil and profit oil. Essentially, we are allowed to recover cost oil, it’s an allocation, and the cost oil that we get returned to us is tax free. The cost oil essentially takes care of any of our operating expenses, plus any investment that we’re doing in the country. Once we run through those balances, the remainder of oil constitutes profit oil, and we split that with the Republic of Gabon, where they take 55%, and the remaining 45% gets split out to VAALCO and its partners. We didn’t have that much going on investment wise in 2011, Russell, is going to talk about our ambitious plans in 2012 in Gabon, but in 2011, we were kind of modifying our platforms to get ready for drilling in 2012, and not a whole lot else. So our investment numbers were low in Gabon, and operating expenses were essentially normal, but again with the high prices, and with the high production volumes, which turned in high sales volumes, we ended up having a lot of oil in the profit oil bucket that we end up paying income tax on. Unusuals for the year, I just mentioned the Hefley impairment that we recorded in the fourth quarter, and the other unusual was the Angola accounts receivable write down. And again, I explained that in the third quarter, but while we’re sorting out our situation with the Republic of Angola, and getting a new partner on board, any expenses that we have incurred above our 40% working interest, plus the 10% carry our share for the government participation, we end up putting into our accounts receivable. Once we get a new partner, we are going to recover our intention anyway to recover those money from the new partner that will join us on the block. But accounting rules have it where Greg has to write those numbers down, while we don’t have a partner in place. So for the year, we’ve impaired ourselves $4.4 million, which we hope we will put back into the income statement in 2012. So it’s in our full year results, impacted us by, I believe $0.07 a share, and again that will come right back to us if we successfully get a partner on-board and move forward that way. Balance sheet, I’m just going to mention cash. We finished the year with $137.1 million. We’ve got an additional $12.2 million of restricted cash, which is primarily commitment in all of the drilled 2 wells. With that, that’s the highlights of our financials. It was a good year for us. And I’ll turn it over to Russ, for an operational update.

Thanks, Greg. I’d like to spend the next few minutes taking you through our offshore Gabon [indiscernible] projects, our onshore Gabon drilling plant in Rutamba. Our second well at the Granite Wash, and the well that we just completed at the Poplar Dome in Montana. I’ll also update you on our key drilling plans in the U.S. At the time, we continue to maintain production rates at 21,000 barrels per day with good performance from all 3 fields. We’ve completed the platform modifications to accommodate the new wells at South Tchibala, Avouma, and Ebouri on the platform. And then we’re also currently performing electrical upgrades and modifications to power up the new wells that they come on stream including adding generators to both the Avouma and the Ebouri platform. Our 4 well drilling program offshore Gabon has firmed up for this summer when we will begin using the 350 foot jack-up rig, the KC Deutag Ben Rinnes. We’ll start that program with an exploration pilot hole at Ebouri and a new fault block. This is our best potential for reserve adds at Etame this year as we’re targeting about 7 million barrels of recoverable oil from the Gamba, which will be about 1.7 million net to the VAALCO in the most likely case if the well is successful. An additional 1 million to 2 million barrels of oil growth about, 0.5 million barrels net to VAALCO is potentially recoverable in the deeper Dentale, which we will test if the Gamba is successful. In the Ebouri pilot hole success case, our plans are to complete one well, one new development well in the pilot hole area, and then we’ll follow that up with one new well in the main field fault block. If the pilot hole is unsuccessful, we’ll complete a second Ebouri well in the main fault block, so either way we’re going to have 2 new development wells producing at Ebouri this year. At South Tchibala, Avouma, we’re planning a development well in the Avouma fault block to improve recovery from that portion of the field. These are reserves that are currently being carried as proved undeveloped. We’ll also be performing a work over on the Avouma 2H well, which is the best well in the South Tchibala, Avouma field. This well has had a failure of one of 2 ESPs in the well, and we’re currently running that well with the second ESP. We have a philosophy that we run 2 ESPs, but this is submersible pumps. In the event, the first one fails, we’ll change out both ESPs at the first available opportunity to maintain the well, and keep the well on production. So far the philosophy is working, and we lost an ESP, but we are able to keep the well going with the second one, and we’ll change out both once we get a rig over to the Avouma platform. We have 2 optional well plots for the Ben Rinnes. I could envision in the second work over, if we have an ESP failures in over the course of year. So we wanted to have the flexibility to change that out. If that would happen, as well we shot that shallow water seismic that Greg referred to last November, it should be processed by the third and fourth quarter of this year. We have a, what we call the NLEED [ph] which was the main reason we shot that seismic and it’s about a 50 million barrel recoverable prospect, so it's a big prospect, it has 3 potential zones, the Gabon and some of the deeper Millenius zones it will be looking at in that well. So depending on how things go we decided reprocessing, we may be able to get that well added on to the tail of our program, but that would be some time in 2013. We mentioned over the past year we’ve been studying new platform at Etame and I'm happy to announce that we’ve awarded detailed engineering to McDermott to just commence that platform design for installation in late 2013 and drilling in 2014. We anticipate 3 to 5 wells from that platform over its life. We are also finalizing our recommendation for our fourth platform in the Etame areas to develop the south-east Etame discovery North Tchibala field. The North Tchibala also contains a gas resource which will be valuable for fuel in the later life of the Etame complex. North Tchibala is a Dentale field that was discovered by Elf back in the in the '80s, the Chad wells were tested in excess of 2,000 barrels a day from Etame. It will be a new frontier for the consortium if we decided to develop that field, but we’re pretty close to making the recommendation and when we do that and we’ll be meeting with our partners next week to discuss that in more detail. Each platform represents about a $32 million net investment for VAALCO plus the cost of the wells. The wells run about $7.5 million each net to VAALCO. So we need to drill 3 wells at a time and a couple 2, 3 wells at Southeast Etame and Avouma. We’ll be talking about $100 million net to VAALCO over the course of those 2 years to be those 2 projects. But our goal with these 2 projects is to maintain production near or above 20 barrels per day into 2016. Moving to the onshore on our Mutamba block, we’ve agreed on a target zone with our partner to Total, which clears the way for an exploration well this summer. This is a 10 million to 20 million barrel Gamba prospect, in which we’ll have a 50% working interest. The good news is if successful, the prospect can be easily tied back to the Total operated at Atora field, which is about a 40 million, 50 million barrel cumulative Total has that’s nearby, which will allow us to have early production from our Mutamba block. So we are looking forward to that well later this year. Bobby has discussed our plans in Angola. So I’ll now move to Texas and Montana activity in the U.S. In the Granite Wash in North Texas we’ve completed our second well and we’re in the process of performing a 14-stage frac job on the 4,000 foot lateral that we drilled. That frac should be completed by next week and we hope to begin testing the well week after that that. We had good shows in the lateral. So we have high hopes for this well. Greg mentioned on our first well, we think we may have had partner casing in that well. We were only able to get down to the first stage of the 14 fracs that we did in that well when we try to go in and see which stages were producing to understand better why the weights were low. We now have an offset well, it’s just southeast of us, that has been a fantastic well. So we’re in a good area, we just need to get the right track on this second well, and hopefully it will do better. At the Poplar Dome in Montana, we just completed a vertical well to gather data on the Bakken, the Three Forks, the Nisku, Red River and Winnipeg formations. We successfully cored the middle Bakken and the Nisku, and a portion of the Three Forks, but we’ll be analyzing that core over the next few weeks. Besides the Bakken and Three Forks, we have encouraging indications of hydrocarbons in the Nisku, Red River and the Winnipeg formations. We cased the well, and once we complete our core analysis, plans are to go in and test this zones of entry choosing a service rig, which I would expect to commence in the next 4 to 8 weeks. In terms of drilling, we’re planning 4 wells for 2012. We’ll drill 2 wells at the Poplar Dome, at least one of which will be a horizontal Bakken test, and depending on the outcome of that well, we’ll either drill a second Bakken or after we see what kind of hydrocarbon we have in the other formations, we may be drilling a development well to further develop one of those. We’re also planning 2 horizontal Bakken wells in the Salt Lake area and Sheridan County, which is near the Canadian border. We’re have an interest in about 6,000 acres. The drilling program is currently scheduled to commence in May. So with that, Bobby. I’ll turn it back to you.

Thank you, both. I think probably there is more questions out there, and I think that, that’s the best way for me to travel is to listen to what you want to ask, and then try to answer to the best of our ability. So Amanda, why don’t you see who wants to ask questions?

[Operator Instructions] Our first question comes from the line of Kim Pacanovsky with MLV & Company.

I’m curious about the difference, the very large difference in the estimates for Angola between you and Sonangol, between 300 million barrels and 500 million barrels. What are the some of the assumptions that account for those differences?

If Sonangol had the higher estimates, I think they’re working off a more promotional set of figures than VAALCO is to be honest with you. 350 million is the figure we use in earlier presentations, there is no great science to that. I would, we of course remember, in that there have been 12, 13, 14 wells drilled on Block 5 in the past. At least 5 of them had oil shows in them, and a couple produced -- well one produced close to 2,000 barrels a day, another one tested about 700 barrel. These are all drilled by major oil companies back in the 80s, the price of oil was probably around $14 to $16 a barrel. And without a doubt these are not big in barrel oil fields which they were looking for. These are more in the neighborhood again to reach field maybe up to 100 million barrels in place and they all walked. Again, they were looking for 500 million on up and the price of oil $14, $16 a barrel was not interesting to them. A little flavor on all of this. The reason Angola, and perhaps Gabon have a couple hot topics now is all because of South America being connected with Africa, hundreds and millions of years ago and -- people have always thought, while it works in East and South America, why it shouldn’t work in West Africa. And nobody has really tested that until along comes Cobalt and Maersk, can't forget Maersk. Now I don’t want to over emphasize it, but we are 100 miles north of Cobalt, there is a lot of water and a lot of geologic change that can happen in that distance. But it is -- we’re still in the Kwanza basin, this is where the discoveries are and I’m told, there is no reason that a pre-salt couldn’t exist where we are. So we’re most anxious to give it up a try. Now again, we’ve got a few hoops to jump through to get there, to be able to drill this. And I don’t want to go into all the details because we’re talking to Sonangol, about this, but we’re optimistic we can get there and at least drill a post-salt well this year, even if we have to do it a 100% VAALCO.

And what’s the cost difference between a post-salt and a pre-salt well?

What was the what?

What was the difference in ASCD.

About probably $10 million to $15 million.

$25 million to $35 million.

Sorry, I am sorry. Can you repeat that again, $10 million to $15 million?

Yes, $25 million for a post-salt versus $35 million to go through salt.

Okay. Okay, great. And when you -- what kind of downtime are you expecting to replace those 2 ESP’s?

Oh, it’s about a 10 day work over, it’s…

Okay. And what is that well producing?

It’s producing around 2000, 2200 barrels a day, it’s a good well.

Okay. And just a couple of numbers questions. What do you anticipate the tax rate to be in the first quarter. Should I assume it’s going to be similar to the fourth quarter?

Yes. We won't have a major expenditure until the third quarter.

Yes, so first and second quarter will be similar.

Will be similar, correct.

Okay. And finally, liftings for first quarter, what are you expecting?

First quarter, we should have 3 lifting’s, we’ve already had 2. We actually got a little lucky on this one, we have January lifting kicked into February and prices for February are about $10 a barrel higher than they would have been in January. So we’ve had 2 liftings in February and we expect to have a third lifting. The 2 liftings so far I believe were 1.35 million barrels gross and they’ve nominated 700,000 barrels for the end of March. So it will be right at 2 million barrels gross that we will lift it in the first quarter.

Next in queue is Brad Heffern of RBC Capital Markets.

I just had a quick expense question for you. Looking at the production cost, I know that there was an extra lifting in the fourth quarter, so you matched the expenses for the production there, but on a per barrel basis it still look like it was up pretty significantly from the previous quarters, I was just wondering what was going on there?

There was not too much in there Brad, besides that. There were couple of small adjustments, but nothing really significant.

Okay. But what I am getting at is the previous quarters it was like maybe $11, $12, $13 a barrel, but it was something like $18 a barrel in the fourth quarter?

Yes, there was a couple of things going on there. We were paying $2.50 a barrel tariff on production over 20,000 barrels a day and I think our production with the board lifting was higher, so more that tariff that cramped in the fourth quarter. We’ve also had some timing of invoices if you will, the FPSO they get to bill us for things like unused maintenance days and some catering costs and things. They tend to sometimes they'll wait around and you’ll get 6 months worth of catering in the -- they will hit it one quarter, so it wasn’t anything that was to where we think it’s going to be $18 a barrel going forward, I think it was more just in a quarter type invoice and movements. Now we’re in negotiations with the FPSO owner for a 5 year extension on the FPSO and this is giving them one last bite of the apple, if you will, we probably have one of the cheapest FPSO’s in the world. Right now we pay something like $65,000 a day for FPSO and the market rate for new one is in excess of $150,000 a day. So I would expect that in 2012 we will see some increase in cost for our FPSO, it could be on the order of $20,000 a day on a gross basis which could mean $6,000 a day net to us. Of course that cost recoverable, so right into the cost accounting, we get half that back if you will in the form of lower taxes. But just by way of guidance you should know that we are in that negotiation because of this new Etame platform.

Okay, got it. [indiscernible].

I have got Brad, one more item in there, our DMO estimates was quite a bit higher in Q4 versus year ago. There are 4 million of crude for 2011, so that's at a conservatively higher rate and that’s the function again our price and then looking at what we had to pay in the prior year. So we have got a $1 million in our fourth quarter expenses associated with the DMO obligation.

Okay. Switching over to Granite Wash. [indiscernible] that it’s expected to cost $14 million. I was curious, I think the previous well was something like $10 million, $11 million, what’s the difference there?

So we got stuck 500 feet where we have the lateral and I mean that’s having to, we left our motor and about 1,000 feet of casing and had to sidetrack the well and redrill the laterals. That was a tough well from the standpoint that we, the rig had a problem and was literally shut down for a week and we were sitting there with all our drill pipe and mug motors in the hole while they repaired this problem. At that point, the shrink came out and we were pleasantly surprised. But when you leave the hole open for that length of time, bad things going to happen. You start getting swell in shale and this happen together and we were just a little unfortunate that the rig had that incident that kept the hole open for probably 10 days longer than it should have been and we got stuck. So we ended up running pipe to get all that shale the stuff behind us and then redrilling the laterals.

Okay got it. In the Bakken, how long do you guys think these lab results are going to take for the cores?

About a month.

A month, okay.

That’s one Sam hoping in the next 4 to 8 weeks to get on that well.

Okay. Sure. And is there any update as when you guys think you’re going to make a decision for the VAALCO and Southeast Etame?

I suspect we’ll be able to tell you by the next quarterly conference call. We’re trying to get it through. I think we have a majority of the partners that are in favor of it but we would like to have it be unanimous. We don’t want anybody go in non-consent pessimistic. So we just need to work it through with all our partners.

Next in queue is Sasha Kostadinov with Shaker Investments.

First of all, excellent cash flow for the quarter. Could you help me think about how to the model your income tax expense, because obviously it varies quite a bit depending on your investment spending in Africa. So is there a -- I mean how can we view this? How can I model this looking from outside? Or maybe let me ask a question from kind of a 10,000 foot level. As a shareholder in the U.S., how do we extract the income that you earn and turn it into benefit to me as a shareholder?

Well, as to your first question, we have a $130 million capital budget in Gabon for next year on a gross basis, and our share of that is 28%, and we will probably spend 80% plus of that in third and fourth quarters. So if you have a little model setup where you take out our $15 a barrel in operating costs, as cost oil and then you take out the third and fourth quarter, I mean first and second quarter about 20% of that $130 million, and the balance in the third and fourth quarter, you ought to be able to get pretty close to what kind of tax rates we’d be looking at each quarter.

Okay. Okay, so then I know you guys are -- you have a lot of potential there, but you’re also shifting to the U.S., so tell me in terms of -- as a U.S. shareholder, how we benefit from this awesome potential reserve in Africa?

Well hopefully you benefit through the appreciation of the stock price, if we’re correct in all this. As Russell alluded to, I believe our capital program for this year is roughly $75 million, that does not include Angola. That's net to VAALCO -- not including Angola. So we can add on another 30 some odd million on that number. We’re now little bit of in excess of 100 million. If we’re successful we can burn a lot of money, putting all of that on production. So but it will all come back to you, we think in the appreciation of VAALCO’s stock price as we add reserves. I mean I’ve said this many times, do not call VAALCO, we don’t call VAALCO. We sit here with a cash business, it’s very nice, but a little growth, probably last couple of years. Roughly the same reserves, roughly the same production, and this is the year we hope to reverse that, and we have to benefit to stockholders by a substantial appreciation in the price per share of VAALCO. And I don’t know how to better answer that, if people suggest, well, why don’t you buy in your stock? I don’t think that’s a particularly good use of VAALCO’s money. We’re going to need that money, and you’ll see, we’ll start using that in the second half, and well into 2012 or 2013, so hopefully our plan is to increase reserve to increase cash flow and increase the price of VAALCO’s stock.

[Operator Instructions] Now we’ll go to the line of Jamie Wilen with Wilen Management.

Just want to throw one more tax rate question at you, so basically in the first half of the year you’re going to be looking at, let’s just say 70% tax rate. And the back half of the year 25% tax rates, is that the ballpark?

Yes, that’s probably about, that’s right.

75% sounds pretty good for the first half, and then much reduced from there. So I think you’re fairly close. And then moving forward, we’re going to be spending lots of money, so hopefully we are staying at a 25% tax rate the following year, for everything?

Yes. That’s right, because we’ll be building that Etame platform and installing.

Okay, government of Gabon has to love you guys, you’ve been paying them a lot of taxes for a lot of years. Was there any way we could have avoided paying that major late tax league tax last year?

Well, we anticipated starting the drilling program a little bit earlier, but rig timing was just such that we couldn’t get a rig until this summer.

Okay, but that doesn't that effect how much you are willing to pay for the rig, how much you have to pay as an offset in taxes that you can delay paying?

Yes. I mean it wasn’t a question of, could we get a rig for higher rate it was question of could we get a rig? And unfortunately the rig that we have is being used by Chevron, who as you may or may not know had a blow out in Nigeria, and they had -- not only did they lose the rig they had the blow out on, they had to grab 2 of their other jack-up rigs to go drill release wells. So there are 3 wells wide in your rig fleets, so they hung on to this rig as long as they could contractually. So there is nothing we can do about that, but their time is about up and we will get the rig.

Could you possibly put on your website just a chart laying out your monthly drilling activities in each of the various regions. I know you have it laid out with in the press conference -- within your press releases, but we know it’s easy to see what the month flow is as we’re putting the drill bit down.

Yes, we have that.

Okay. And lastly in Angola so the money we’ve spent, we spent whatever it was --$4 million this year. That’s a post tax number I assume?

Yes. It is.

Okay. And as soon as we sign the partnership that comes right back to us off the towards the income statement post tax?

It does. With an interested party to join us on the block all the information goes back to Sonangol and negotiation takes place, but we make sure that Sonangol knows that the first 5 million of whatever they extract from a new partner comes back to VAALCO.

Okay. So this new partner has to be approved by Sonangol or is this -- is it just all in your court this time that you can choose a partner that you are more comfortable with?

No. It goes back to Sonangol, but they’ve been very cooperative with us, we’ve been providing them with the names of the companies that are interested and I think we will get good cooperation from them in getting a new partner signed.

Okay. And are you going to setup some sort of war room with a deadline such that somebody’s got to come to the table sooner rather than later?

We are working with 9 companies that have all expressed an interest, one came through out office it’s last week and we are signing up confidentiality agreements and we are trying to get them into our office as quick as possible and we are telling them first come first serve.

Okay. We would hope to have this wrapped up one way or the other by, by the end of June or prior to that?

You’re putting us -- where are we? April, May, June – yes, that will give us time to drill.

We’ve tried to let Sonangol know that we’re very anxious to move forward, but we don’t control the full clock. And we’ve had -- now sometimes it takes a while to get all of that considered and moving as quickly as we'd like. So what we can commit VAALCO is totally engaged in this and we will be pushing Sonangol to try to help us expedites this.

Okay, the 9 players that have somewhat expressed some interest, can you describe the quality from top to bottom of those players as opposed to who we had to deal with last time?

Some of them, you’ve heard of, in fact I’m sure everybody has heard of a few. Some are middle market and the few you’ve never heard of.

Okay, but all with lots of capital and ready to go.

Right. Well a few may not have the capital.

To be honest, one company that we’re in, but we need to raise the capital. So we took that as a, thank you very much. We have to keep looking.

Last in queue is Zachary Prensky of Little Bear Investments.

Yes, assuming that you’re on your timetable of choosing your pre-salt partner by June. What logistical issues are there, that would prevent you from getting another rig out there and just restarting to drill this year. In your prepared remarks it didn’t sound at all like, like when you have a partner, the pre-salt will begin to be drilled this year. So it sounds like it's a 2013 event, what’s holding that back?

Well actually we have ordered all of the tubulars that we need and we will warehouse those in Aberdeen, Scotland because it’s a lot cheaper to warehouse it there than in Angola. So there would be the process of moving those tubulars out into Angola and securing the rig. I know the rig that will suit us just fine that’s currently sitting in the Port Gentil, harbor of Gabon the illusion key. It just got through drilling a well for partners, the drill, discovery in area of Gabon, so it’s drilled already and not working. So I don’t think the kind of rig we need is going to be that hard to find at least, say what I know today. The submersible that are tough to find are the ones that are out operating the down in 3000 meters of water depth in some of those kind of rig is really high spec drill ships and submersibles. But for the low spec ones, they are not busy, and we wouldn't have much problem finding one.

So we can, because I understand you correctly the rig and the tubulars that’s not a problem, so the logistic are not what’s going to hold you back here?

That’s correct, more getting partner and getting everything, but down in Senegal getting all their approvals.

Right, and that sounds like that’s on or before June of this year?

If we have a partner.

Yes, with all the interest you have it, it sounds like you’re confident you can, obviously there is no guarantees of anything. But you are pretty confident that the partners and the financial side will be nailed down by the end of June. Is that correct?

I think that’s a fair guess, if we’ve got enough of these guys looking, so I think anybody would assume that one of them will come through.

Right, so let’s assume somebody does come through. I think that even Cobalt and Maersk I think that’s a pretty good debt, that’s why we’re shareholders. That’s why all of us I think are shareholders, you guys have had a good track record and the pre-salt is what it is. So assuming that gets done, why can’t you start to drill in the fourth quarter of this year?

We could.

You could. So theoretically conceivably there is a possibility that the CapEx budget for this year goes up given an additional pre-salt well that you are a partner on?

That’s very possible.

Okay. That’s excellent. Lastly do you have any guidance on your free cash flow after your CapEx, do you believe that given your plans, it was a $75 million outside of Angola where do that leave you cash flow wise for the year?

If prices stay where they are today, we will probably cash flow an extra $10 million or $15 million above that.

Good. Okay. So the $75 million given the prices stay stable, you should be okay and actually build the cash slightly.

Slightly.

There are no further questions in queue. Please continue.

Okay. No more questions, we appreciate it. And thank you all for your attention and we will see you in 3 months or so. Great. Thanks again. Bye-bye, thanks, Amanda.

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