Ladies and gentlemen, good morning, thank you for standing by, and welcome to VAALCO Energy Third Quarter 2015 Earnings Report. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Investor Relation Coordinator, Mr. Al Petrie. Please go ahead. Al Petrie Thanks, Tom. And on behalf of the management team, I welcome all of you to today's conference call to review VAALCO's third quarter 2015 operating and financial performance. After I cover the forward-looking statements narrative, Steve Guidry, VAALCO's Chairman and CEO, will review key highlights of the third quarter. Following Steve's comment, Greg Hullinger will provide a more in-depth financial review and update to our 2015 guidance. Cary Bounds, our COO will then review operational results in more detail and our plans for the balance of 2015. Steve will then return for some closing comments before we take your questions. On November 6th, the company issues a statement in response to Group 42 and Bradley Radoff filing a consent solicitation material. VAALCO's responsive matters are discussed in the filing, and the Board will be providing a recommendation to our shareholders in due course. We appreciate you limiting any questions in today's call to those regarding third quarter financial and operational matter, and not regarding the consent solicitation. Please note that our earnings call today does not constitute the solicitation of consent or proxy. During our question session, we ask you to limit your questions to one and the follow-up. With that, let me proceed with our forward-looking statement guidance. During the course of this conference call, the company will be making forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. Forward-looking statements are those concerning VAALCO's plans,…

Thank you, Al. Good morning everyone, and welcome to our third quarter 2015 earnings conference call. Before I get in to the quarterly results, let me begin by welcoming Don McCormack to our executive team as our CFO. Don has extensive financial background in the energy industry, having served in key financial leadership positions with other publicly traded EMP companies. He has significant international and domestic experience in accounting, treasury, M&A, and corporate finance. His overall financial and public markets' experience will serve VAALCO well in the future. Let me also thank Greg Hullinger for his financial leadership here at VAALCO over the past seven years. Greg was actively involved in all facets of our business and was a trusted financial advisor to senior management and the Board, and was our primary investor relations contact. We wish him the best in his upcoming retirement. On the call this morning, we will reference an updated supplemental information slide deck located on our Web site, which builds on the improvements that we made last quarter on enhancing the information we provide to our shareholders. As you already know, 2015 has been a volatile year for the energy industry with continued weakness and uncertainty in commodity prices. Because of this volatility, our strategy is directed toward lowing cost, investing in projects that yield good economic return in the current price environment, while remaining focused on shareholder value. Our development drilling success in our multi-well offshore Gabon program resulted in continued production growth in the third quarter. Contributing to that increase in volumes was strong production from our Southeast Etame 2-H well, completed in July, and an incremental production from the North Tchibala 1-H well, completed in mid September. Combined with the two successful wells drilled earlier this year on the Etame platform, our…

Thank you, Steve. I will be reviewing key financial information pertaining to the third quarter of 2015 that we reported yesterday in our earnings press release and the SEC Form 10-Q. I will also be providing guidance information pertaining to the remainder of the year. We reported an adjusted net loss of $6.5 million or $0.11 per diluted share for the third quarter of 2015. Adjusted EBITDAX was $8.2 million in the third quarter of 2015. The third quarter adjusted net loss number is before $18 million non-cash impairment charge related to the Etame Marin Block, offshore Gabon. Also included -- pardon me, also excluded was $9.2 million non-cash charge exploration expense for a well that we drilled in 2012, onshore Gabon in the Mutamba Iroru Block. I'll be talking more about these items in a couple of minutes. For comparison, adjusted net income for the second quarter of 2015 was $0.6 million or $0.01 per diluted share. Including the impairment and well write off, GAAP net loss for the third quarter was $33.7 million or $0.58 per share. This compares to a net loss of $5.2 million or $0.09 per diluted share in the second quarter of 2015. The impact of lower oil prices continues to be clearly seen in our quarterly revenue number. Revenues up $17.5 million reported for the third quarter of 2015 were lower than the 27.1 million of revenues for the second quarter of 2015. The average oil price we received in the third quarter of 2015 was $43.97 per barrel, compared to $59.16 per barrel in the second quarter of this year; a 26% decrease. Going back a year ago to the third quarter 2014, the oil price averaged $94.67 per barrel, a decrease of 54% when compared to the third quarter of 2015.…

All right. Thank you, Greg, and I'm excited to provide more details on the positive operational developments that we had this past quarter, and then take a look ahead for the balance of 2015. Let me start with a few comments on production performance. The wells drilled and completed so far in 2015 have made a substantial contribution to our production rates. As Steve mentioned, third quarter production exceeded the high end of our guidance range. The primary driver behind exceeding third quarter production expectations was better than expected performance from the new wells that came online in the quarter, which were the Southeast Etame 2-H and the North Tchibala 1-H. However, the production uplift from our new wells was partially offset by the natural decline we see in the underlying base production from wells drilled prior to 2015. In addition, strong production from the new wells also helped us overcome loss production as a result of shutting in the South Tchibala 2-H well due to an electric submersible pump failure. Now, I'll turn to our drilling campaign, and talk about our development well results. All of our third quarter drilling was conducted from the SEENT platform, which was installed in late 2014. The SEENT platform came online trouble-free in July with first oil from the Southeast Etame 2-H well. As I mentioned earlier, production performance from the Southeast Etame 2-H well exceeded expectations, and the well continues to produce its strong rate. Upon completion of the Southeast Etame 2-H, we successfully drilled and completed the North Tchibala 1-H, which is a development well in the Dentale D-9 formation, which was discovered in 1977 prior to VAALCO having an interest in the block. The Dentale formation already produces from onshore Gabon fields that have never produced offshore. We're very proud…

Thanks, Cary. As we look past the North Tchibala 2H development well, currently drilling, and the upcoming 3-well Avouma South Tchibala workover program, we will consider any further drilling beyond that point in 2016 on a well-by-well basis. As previously discussed, in early 2014, VAALCO and its partners contracted with Transocean for the use of the Constellation II jackup rig through July 5, 2016. We have a portfolio of additional Etame development wells in both the Gamba and the Dentale formations as options for continuing the drilling program beyond this year's commitment. Additionally, to provide us with maximum flexibility next year, we've hired a broker to actively market the rig to other operators. Should VAALCO and its partners elect to not fully utilize the rig for the entire contract duration, and if the subleased options are not available, a day rate charge for the unused portion of the contract would be incurred. We are currently discussing our 2016 budget with our partners. And as you can see on Slide 13 of the supplemental information packet, we have several scenarios that we are currently evaluating. The first possible scenario is to release the rig after the workovers, which will cost us approximately $9 million in unutilized day rate charges net to VAALCO. But you should keep in mind that we benefited from lower day rates than we otherwise would've had with a shorter term rig contract. In this scenario, our total net capital expenditure for 2016 would be estimated to be in the $14 million to $16 million range. That's inclusive of the day rate charge payment to Transocean. The second scenario is to drill one additional development well, likely an Etame platform well with the Dentale pilot test that Cary mentioned. This would result in approximately $20 million to $26…

Okay. Tom, we're ready to open up the queue for questions.

Thank you. [Operator Instructions] Our first question today comes from the line of Leo Marina with RBC Capital. Please go ahead.

Hi guys, appreciate the update. I was hoping to get a little bit more color on how that first well in Southeast Etame is currently holding up in terms of what it's producing, and then with the overall current production in VAALCO right now?

Thanks, Leo. The well is doing very well. The Southeast Etame well continues to perform well. In fact, as we said in our prepared remarks, we're very happy with the last four wells that we drilled, the four wells we drilled in 2015. The Southeast Etame, just as a reminder, was drilled to an area of the field that's a Gamba producer. So it's continuing to exhibit the kind of performance that we've come to expect from the Gamba. And for more details, let me just ask Cary to give us an update on that well in particular. I can tell you that our current production is, right now, circa 20,000 barrels a day gross.

That's right, Steve. Our gross production is around 20,000 barrels a day gross, and a big contributor is the Southeast Etame 2-H well. And Leo, it is -- we have not really seen any material decline in the well's rate or pressures. It's a very strong well.

Okay. So I guess it came on at 3000 barrels a day. So it's still at 3000 barrels a day, is what you're saying?

Yes, very close to 3000 barrels a day.

Okay. In terms of your oil price realizations in the third quarter, I guess they are roughly $6 below Brent. Want to get a sense of where you think those are going to be going forward. I know that you guys were able to get a new contract [indiscernible] production.

Yes, Leo. Let me take that one. We have experienced a widening of the differentials in West Africa. We -- last time oil prices dipped to this level, we saw a widening of the differentials. That improved a bit when we saw the bump this summer, when prices went back above $60. But we're continuing -- now that prices are back down again, the differential is beginning to widen. So I think it's a sign that West Africa crude oil is right now, in this environment, have to travel further, and are just less sought after. But we are using an estimate of about $5-a-barrel differential going forward.

Okay, that's helpful. And I guess in terms of the Dentale reservoir, obviously a good first well resolve there. Trying to get a sense, do you have any reserves booked in the Dentale in terms of either 1P or 2P at year end '14?

Yes, we do. I'll say this, that the majority of those reserved [ph] are booked and probable, not in proven developed, but I think -- let me ask Cary to give you confirmation on that.

If I recall correctly, Leo, it's a very nominal amount that's booked and proven, maybe 0.2 million barrels, and then I think 0.3 million barrels are in probable. And that's for, like I said, the Dentale development offset.

And those numbers are net to that.

Okay. Thanks, guys.

Our next question comes from Matt [indiscernible] with Titan Capital. Please go ahead.

Great, thank you. I was curious. The guidance for Q4, does it include any costs for the activist investor, the situation that you're facing here today?

We were looking to limit our comments to Q3, but you're right. Q4, we are anticipating additional costs. Those costs are not included in any guidance that we've given. They'd be extraneous to that current guidance, and so, you should look for us to report on that. It's kind of a separate item in Q4.

Okay, okay. Also wanted to ask about Angola, the [indiscernible] timeline, as you sit here today, what's your expectation with current pricing? I know you have the data room open. Just discuss your expectations around Angola today.

Right. Well, we're very excited about the uptake that we've seen in companies interested in our data room in London. The number continues to climb, but I want to say we had 12 companies currently have indicated an interest. Four of those have been through the data room. The rest are in queue to go through the data room. So, lot of interest in the project. What we've done is for 2016 we have included monies in our budget for long lead materials to put us in a position to be able to executive on drilling program in 2017, and it's too early right now for us to say just exactly how the form out [ph] will turn out, but we're hopeful that we will be successful in giving a carry on these wells, and will be able to move forward according to the plan.

Great. Thank you.

There are no other questions queuing up at this time.

Okay. Well, let me thank everyone for your attention, and your participation in this morning's call. We look forward to visiting with you in the end of our -- at the end of the 2015 where we can give you a full year view of how our performance backed up.

Tom, it looks like we have picked up one more question that's come up, from Leo Marina.

Okay. We will go to the Leo Marina's line, RBC. Please go ahead.

Hey, guys, just a quick follow-up question here. Obviously your CapEx trending upwards in 2015, kind of chunky number here on the third quarter, just over $30 million. Trying to get a sense, you guys referenced some higher drilling costs, are you guys actually seeing kind of higher per well cost, or was this been more resulted some mechanical issues we had to re-drill some wells this year in terms of your well costs?

A good question, Leo. Let me speaks [ph] up, then I'll ask Cary to give you some additional details, but in drilling [indiscernible] last time, we're drilling wells that are really cutting-edge for Gabon. These wells we're drilling really are the first wells that have ever been drilled in -- deviated wells that have been drilled through the formations that we're drilling, primarily the Dentale, which is a stack same shield sequence, and we've had some hole stability and mechanical issues with the wells we drilled off at present [ph]. I'm happy to say that our team has reassessed our approach to these wells. We've had an outside party come in and look at all of our drilling plan, drilling parameters. We've made adjustments to the drilling plans, and with time we've been able to really get our hands around the drilling cost, and we had fewer and fewer drilling problems on the SEENT platform as we've gone from the -- first off the Etama well. We had fewer on the North Tchibala 1-H well and we had minimal problems now on the North Tchibala 2-H well. So, they have done a great job of -- Cary, take a little bit of…

Yes. That's a good summary, Steve, and I'll just add that like Steve mentioned, we have incorporated lessons learned from our early wells in the drilling campaign, and we found that we needed the change, say, the well design to account for H2s. So we've added metallurgy to the new wells that is compatible to H2s. Based on some of the hole stability issues we saw early in the campaign, we switched from drilling with water base mud to oil base mud, and that increased the cost a little bit. And then unfortunately early in the campaign we did leave bottom hole assemblies behind in two wells, and that cost us some money, but like Steve said, we're seeing some dramatic improvements, and we don't envision that will happen again.

Okay. So, what do you see as a kind of run rate number to drill one of these wells in the Etame, where we're in concession with the jackup going forward here, in terms of gross and the net?

It depends if you're drilling down below Dentale, but our Gamba wells, I think we're currently estimating to be in the range of $32 million gross. So, just over $10 million, I'm not sure. And the Dentale wells, I think we're estimating to be gross of in the $37 million to $39 million.

Okay. Thank you, guys.

Thank you.

We did have one other question, would you like to take that?

Yes, that would be fine.

Okay. We'll go to line of John Kornitzer with Kornitzer Capital Management. Please go ahead.

Can you hear me okay?

Yes, we can, John. Good morning.

Good morning. On these wells, what do you need for gross production to make them profitable at $45 a barrel or $50?

Yes. So, we don't have that number in front of us right now, but we're estimating that these wells were, I'd tell you, add $55 oil. I think we're estimating these wells to be rate of returns in the 30% to 40% range.

Okay.

To your point, John, we think that a 1500 barrel a day gross initial rate is what's necessary for us to earn an acceptable rate of return on a Gamba well.

Okay. I know you were also been coming in at over 1500 barrels a day.

We have been, yes.

Okay. I think, I mean you've done an excellent job with this company. You said you had bad luck this past year in drilling some of these wells, and the cost were extremely high, but when I think about the number of oil companies, you know, bankruptcy, they have lost a tremendous amount of their value, because oil dropped down to 40 some dollars a barrel. You guys are in excellent shape financially. We're not talking about you going bankrupt. I'm not talking about restructuring any debt. We're not talking about anything that's life threatening to the company, except the price of oils down and that's just going to be a matter of patience where to go back up. What I don't understand is -- I'm extremely happy with the company, okay, and I think you guys have done an excellent job, okay. Nobody can predict when the well when you drill it. Your cost overruns because what rigs were the past couple of years, because oil was over a 100 -- was very acceptable, drilling a rig was very tough, you had timelines you had to drill. Monday morning quarterbacking is a great deal of that in football and basketball and baseball and everything else, but Monday morning quarterbacking is easy, but being there making the tough decisions is tough, and I want to congratulate you on the excellent jobs you guys have done over the years, especially with the new team you're doing a great job, the Board is pinned with you all the way, and it's very hard you changed things within the company within 10 days, and people not up to speed can make a big blunder going forward. So, I congratulate you, and keep up the good work.

John, thanks for those comments. We've done everything we can to make the best of a bad situation, and I think it was fortunate for our company that as oil prices well we did have the cash balance necessary to continue to fund the development. That was a luxury that most other EMP companies did not have, and I think it's put us in a very favorable position now with production near peak level. The way we see, we will be able to weather the storm going forward. Thank you for the comment.

You're welcome. You well deserve it.

There are no other questions queued up at this time.

Again, thanks to everyone for your time this morning, and thanks for your interest and your questions and your investments. We appreciate it. Thank you very much.

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