Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the VAALCO First Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I will now turn the call over to Mr. Al Petrie, Investor Relations Coordinator.

Thank you, Amy. Good morning, everyone, and welcome to VAALCO Energy's first quarter 2019 conference call. After I cover the forward-looking statements, Cary Bounds, our Chief Executive Officer, will review key highlights of the first quarter, along with operational results. Liz Prochnow, our Chief Financial Officer, will then provide a more in-depth financial review. Cary will then return for some closing comments before we take your questions. During our questions session, we ask that you limit your questions to one and a follow-up. You can always reenter the queue with additional questions. I would like to point out that we posted an updated investor deck on our website this morning that has additional financial analysis, comparisons guidance that should be helpful. With that, let me proceed with our forward-looking statements comments. During the course of this conference call, the company will be making forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release, the presentation posted on our website and in the reports we file with the SEC, including the Form 10-Q that was filed yesterday. Please note that this conference call is being recorded. Let me now turn the call over to Cary.

Thank you, Al. Good morning, everyone and welcome to our first quarter 2019 earnings conference call. I'm very pleased with our first quarter results. And I would like to start by reviewing the agreement we have reached to finalize our exit from Angola. In the first quarter of this year, VAALCO and Sonangol E.P., signed a settlement agreement which allows for the termination of VAALCO's rights, liabilities and all outstanding obligations for Block 5 in Angola. The settlement agreement includes a payment of $4.5 million to Sonangol E.P and elimination of the receivable from Sonangol P&P. The receivable is related to joint interest Billings and was reflected as current assets from discontinued operations at year-end 2018. The cash payment from VAALCO will become due within 15 days after the execution of an executive decree from the Ministry of Mineral Resources and Petroleum. VAALCO had previously accrued a $15 million liability associated with the potential payment for relinquishing Block 5. As a result of the agreement, VAALCO adjusted this liability and recognized a net of tax noncash benefit from discontinued operations of $5.7 million in the first quarter of 2019. Combining the PSC Extension at Etame with our exit from Angola strengthens VAALCO's ability to grow from a solid foundation, which includes robust reserves and resources, a clean balance sheet with $46 million in cash on hand and an extended time horizon for continued production and reserve growth in Gabon. Turning to operational results, production for the first quarter averaged 3496 barrels of oil per day net, which was at the low end of our guidance range due to a work stoppage by non VAALCO employees on the FPSO that reduced production in the quarter by approximately 200 barrels of oil per day. Without this unexpected third party interruption, we would…

Thank you for those kind words had in introduction, Cary. Good morning, everyone. Our financial results for the first quarter will once again strong. We reported net income of $6.5 million or $0.10 per diluted share. Several items impacted net income including after tax, noncash income of $5.7 million or $0.09 per diluted share due to the settlement of the outstanding obligations in Angola. A noncash mark-to-market charge of $3 million or $0.05 per diluted share related to our crude oil swaps, and noncash deferred income tax expense of $1.8 million or $0.3 per diluted share, as well as a noncash charged for employee Stock Appreciation Rights or SARS of approximately $1.7 million or $0.03 per diluted share. Adjusted net income for the first quarter of 2019 total $5.6 million or $0.09 per diluted share. Adjusted EBIT DAX total $9.7 million in the first quarter of 2019, compared with $14.5 million in the same period of 2018 and $16.9 million in the fourth quarter of 2018. First quarter oil sales totaled 297,000 net barrels, compared with 393,000 net barrels in the same period a year ago, and 401,000 net barrels in the fourth quarter of 2018. This is the fourth and first quarter of 2018 had increased oil sales due to additional lifting. In the first quarter of 2018, there was a split lifting that carried over from 2017 and in the fourth quarter of 2018 included multiple listings in the month of December. I realized oil price for the first quarter 2019 averaged 64.17 per barrel, down liberally from 64.52 in the fourth quarter of 2018 and down 7% from 68.69 in the first quarter of 2018. In June 2018, VAALCO executed a crude oil swap at Dated Brent weighted average price is $74 per barrel for the period…

Thanks, Liz. We have positioned VAALCO financially and operationally to see to succeed in the near term and long term. With the Angola agreement, we have a clean balance sheet with no debt and ample working capital. With the PSC Extension in place, we have the runway to build a robust future from a world class producing asset. Our foundation is solid with a high performing team, capacity for growth and a strong track record of operating responsibly. I'm optimistic that we will create substantial value for our shareholders by executing on our drilling program at Etame, where we see significant upside, which we have highlighted in our investment presentation on slides 11 through 13. We are striving to become a premier African operator with a more diversified portfolio and with our vision 2025. We are targeting five times growth in production then reserves to create value for our shareholders. We have a team with a clearly differentiated African expertise, a strong producing asset with significant upside and we are pursuing M&A opportunities where we can utilize our operational expertise to maximize value creation. Our focus is on profitable and to creative growth that will add value for our shareholders. The outlook for VAALCO is promising and we are very excited about the opportunities that lie ahead. Thank you. And with that, operator, we are ready to take questions.

Thank you. [Operator Instructions] First question is from Stephane Foucaud.at GMP Securities.

Good morning, guys. Could you flush out the values of milestones that would lead to the London listing please other words, what do we need to see the long term of what needs to be done effectively to stop trading in the U.K.? Thank you.

What effectively needs to be done to start drilling? I'm sorry to start trading in the U.K. and thank you for the question. We are going through the steps now. And it's really filling out the applications and forms required by the London Stock Exchange in the regulator. We've started that process and we're - we're working through that now we expect like I mentioned to finish that process and have approval to start trading within four to six months.

Right. Thank you.

Your next question is from Jamie Wieland of Wieland Management.

On Equatorial Guinea, you say you've got 12 months to find a partner. Could you tell us, what you are? Where you are in the process? And where we are in the processes?

Yes. Good morning Jamie. Absolutely, an Equatorial Guinea where we are in the processes, we are working with GEPetrol to have their working or participating interest transferred over to a new partner. Once that occurs and we expect that to occur imminently, we are looking for a partner to take part of our interest and we will promote them and they will carry like I said a substantial portion of our cost to drill an exploratory well, we have already started the marketing process to find a partner. Now we will not finalize that process until we know who are who GEPetrol will ultimately assign their interest to. So the first step is for ministry approval for GEPetrol to assign their interest and then we'll continue and finalize our process and bring in a partner that will take part of our interest.

So you have 12 months from a date that has not yet been determined? Is that correct?

That is correct. And the deadline, just to be clear, the deadline in 12 months is to begin drilling.

Okay. And as far as the drilling in Gabon, when do you expect that to be to begin? I know you said in the back half of the year, but could you be a little bit more specific?

Late third quarter - like third quarter, early fourth quarters, but I think late third quarter.

And you'll be drilling three wells this year, was it carrying over into next year could quite asking?

It carrying over into - yeah it's carrying over into next year.

Okay.

So two this year and one early next year at this point.

And -

What do - let me clarify Jamie. We expect to bring one well online this year and two wells online by the middle of next year, the first half of next year.

Okay. And then balance sheet wise of that $46 million. Some of that goes to we have already paid the in Angola and some of that is our joint venture, Joint Venture Partners money as well?

We have not made the cash payment to Angola yet. The process in Angola is for a ministry degree to be filed. Once the ministry decree is filed, we have 15 days to make the payments so we have not made the $4.5 million cash payment in Angola yet, and yes, we are holding a portion of - our portion of our cash is our partner's cash that we will use to pay our invoices.

Yeah, it's just the normal monthly bills. So depending on the timing of when they fund their cash calls, and we ended up with $4.4 million at the end of the quarter.

Okay. And as far as your as your hedging program, as you look out each year, would we assume you're going to be hedging a third or 40% of your oil well ahead and advanced just to limit the risk and secure the cash flow for the year?

That is exactly right, Jamie. Yes.

Okay. I'm good. Thank you very much.

Okay. Thank you.

Your next question is from Bill Dezellem of Tieton Capital.

Well, thank you. Would you please repeat what you said towards the very end of your remarks Cary, relative to something about five times I thought it was five times increase?

Right. What we're targeting Bill is, by 2025, and this is a commitment of our management team or management team got together and we discuss what is our vision for VAALCO by 2025. And we said we'd like to be five times larger, and to define five times larger that could mean five times production or five times reserves or five times market cap, but regardless, we will be five times larger, but we're not going to do it at the sake of shareholder value. And so, we have - we have constrained ourselves and we have said we will grow by five times in one or all of those areas. But along the way, we will be top quartile in total shareholder return. And so, the growth target is a combination of total shareholder return or growing value for our shareholders combined with a meaningful growth in size of the company.

Great, thank you. And you said the three areas that you were looking at that could qualify would be reverse production and or market value?

Correct, correct.

Well, I hope your - hope you're successful and beat your target on all three accounts.

Thank you, Bill.

If I may continue with additional questions, Equatorial Guinea once the GEPetrol has found their partner and are assigned their interest. It sounds like since you already have your - in every reading you correctly, you already have your partner lined up assuming is that GEPetrol does not surprise you in some way. You have someone who is ready to take part of your position?

No, we do not have someone lined up with the moment. We are marketing our interest, we began that process. And so there are several candidates and we have not decided which partner we would - we will engage with yet. But that's engaging a partner to take on VAALCO's interest is still is not finalized. I'm sorry, though I didn't mean to mislead you, but we are marketing and we're marketing in parallel with GEPetrol marketing their interest once we know who takes over GEPetrol interest that will give us the final information we need to go out and finish our marketing process.

And so I guess what I'm really trying to get my arms around is how tight is that one year time line, once the clock starts ticking? Is that very doable, or is that really pushing a bit?

In my opinion, it's doable.

Great. That's helpful. And I know I'm going to pass by two questions. May I continue? Or would you prefer with that?

No, no, that's fine. That's all right.

Thank you. And then the fewer listings that you had in the first quarter or maybe the other way said is the increased number of listings in Q4 that lead to less in Q1? What are the implications for the second quarter, particularly given the government that they're lifting in April?

Right. The implications for the second quarter are there was inventory that carried over from the first quarter to the second quarter. And so if we can schedule our liftings on time and or I'm not on time, I shouldn't say that but at the right times, and lift the right volumes, we could have higher listings in the second quarter. Now, I can't promise that yet again, it depends on availability of tankers availability of support equipment that comes along when we do a lifting. But yes, the opportunity is there to increase listings in the second quarter, because there was inventory carried over from the first to the second quarter. And I hope it goes without saying it's always our goal to maximize our liftings and leave as little inventory as possible at the end of the quarter. And that's always what we try to do. We weren't quite able to do that at the end of the first quarter. But we'll - we'll again, we'll try to do that by the end of the second quarter.

And then from the April lifting that the government did for their taxes, so that would have a negative implication for your cash flow in the second quarter. But do we understand correctly it has zero impact on earnings because you're actually accruing for that as you as you go along?

Yes. That is correct.

Okay. Thank you. And then I would like to shift if I could two acquisitions, which really ties back to the five folds increase that you are looking for the business overtime. Can you talk about the acquisition pipeline and just the general update of what you are - your evaluation process and what you're seeing out there? And maybe well - I'll have the next question, go ahead and answer that one.

Right. Well, as I said, in the past, in terms of acquisitions, the - we've restraint or confined ourselves to a geographic area, that's Africa, because Africa is what we know, ideally, an acquisition would be in Africa, offshore oil. Now, I say in Africa, there are places where there's higher political risk. And so we're looking at Africa, where we can manage the political risk and then also where we have technical expertise and operational expertise. And so within those areas, yes, we are seeing a pipeline of opportunities and the opportunities tend to come from companies that are listed in London, in fact, and so we spend a lot of time in London talking to other companies about their assets. I don't there's nothing to announce today, but it is a very active process and we have a team dedicated to identifying and ultimately executing on an acquisition.

And Cary you have been evaluating acquisitions there for some time. And so this next question is not intended to poke you in the eye but really more than understand, what you've been up against or working through, so given that you have been evaluating acquisitions for some time. What has been the inhibitor so that you have not announced an acquisition yet?

It's really - there's been, I guess, not a single inhibitor. It has been our - we've had a focus up until late last year internally on first extending Gabon and then now finalizing Angola. And so we've accomplished those challenges are those goals and objectives. And so, now we have time to step back and apply more resources to acquisition. So I'll say, part of it was while we're, we were working in parallel on our internal portfolio of opportunities and looking outside and so and again, another opportunity we have is the drilling program coming up. So it's been a balance of where we put resources to make sure that we're building a strong foundation and that we are executing on our future. That's been part of it. Another part of it is - we're very, very picky, to be honest, when we don't want to go and execute a transaction for the sake of executing a transaction. And in my background, what that means is we've got to look at 100 opportunities to find one that might work. And then that will take a fair bit of a fair amount of time to even do due diligence and finalize something. So these do the right acquisition takes a long time. If we had, if we do something quickly, I want to be careful that we don't do it quickly and do the wrong deal. So anyway, I hope that answers your question, Bill.

It does. Thank you. Appreciate the time and the extra questions.

Sure.

You have a follow-up question from Stephane Foucaud on GMP securities.

Thanks for taking my question. My first question, and first, your talks on about six follow-up whereas in case of to being success in Gabon in the current design program. You talked about the upside to - was associated to the sanction during program. But what would be the 2P upside for the six new wells? That'd be my first question. And my second question is around EG, and as with regards to the portion that you look at that you are looking to farm out. What sort of detail we would you be looking for, is that ground floor transaction, is that would you be looking for some sort of office store historically investment? What are we to carry? What are we talking about? Thank you.

Right, Stephane great questions. And first off I'll start with the 2P upside from the appraisal wells. There's two appraisal wells like I mentioned earlier, one will test the Dentale which is a deeper sand beneath the Atam field. And the other appraisal well we'll test Gamba structure that's adjacent to a producing Gamba structure at Southeast Etame. And so what we're - what we're giving out in terms of 2P upside is a range. Its $2.8 million barrels to $5.8 million barrels that may be converted from either contingent or perspective resources. There's a - there's different pools right now. But anyway, the combined contingent plus perspective resources that couldn't be converted to 2P reserves are $2.8 to $5.8 million barrels. Then your second question on the deal structure that we're pursuing for Equatorial Guinea. It's a carry, it's a simple carry, we do not plan to cash out or sell our interest, we want to maintain exposure to the upside in Equatorial Guinea. So that ideally it would be a carry, so….

And will it be some - you took about $10 million invested. So the sort of Cary we look at that the milky pool of investment. So but sometimes we've seen 241341, do you have a sense of what would be acceptable?

Well, since we're trying to negotiate the final terms right now I'm hesitant to answer that question, but it we are taking into consideration some costs and prior costs. And you're right, we have $10 million of prior costs. So that is a consideration when we're talking to the companies and so there is a multiple, you're, you're right, it's the 241321 some multiple that makes sense. We believe there is significant upside, in particular with the Southwest Grindea exploration prospects. So obviously we're at the higher - we're at the higher end of the multiple that we're seeking. But I really can't comment right now since we're in negotiations on what I think the final multiple might be.

Okay. Thanks a lot. And back on my first question to you talk about the range of 2P, it would be targeted by the current program. But my question was more around you talk about six additional follow on location if that's what is successful. So what would be the upside associated to the forward locations rather than your plan associated to the current program?

Okay. Right. I'm sorry, let me try to explain that again, the when we talk about the six wells that may be proved up based on the two appraisal well bores were drilling. So there's no 2P reserves associated with the appraisal well bores. Once we complete those, they may defined six locations and across the six locations we're looking at, anywhere from 2.8 to 5.8 million barrels of 2P reserves.

Okay.

Okay.

[Operator Instructions] Your next question comes from Charlie Sharp of Canaccord.

Hello, Charlie.

Good morning, everyone. Hi, how's it going? Hope you're having a good morning. I just like to explore a little bit further Stefan's question. And try and tie that in as possible to your five times growth targets over let's say the next six years. I think you said that on a time. You expected that you would be able to repeat the 2019 program perhaps several times the sort of cycle of investment resource to reserve production. And I'm just wondering, your wider vision for at beyond the 2019, 2020 program, how much organically, do you think that that asset can contribute to your five times growth target? And therefore that gives us some idea of what you need to achieve perhaps in organically to deliver those targets?

Right. What we see at a time in terms of remaining resources is $126 million. Let's call it $125 million barrels growth. So that's what we're that is what remains and what we're targeting. We've booked 10 million barrels net right now, of those resources. So let's, let's say there's of 125 million that's 35 million barrels net to VAALCO, we've already booked 10 of it, there's another 25. So that's three times growth and so we need to for the other to make it up to five, we've got to make up the difference with an acquisition. Is that what you were driving at Charlie?

That is exactly what I was driving out. So really, it can provide a big chunk of your growth. So you don't need to be investing in let's say, lots of other assets, it's perhaps one or two other assets in West Africa that would enable you to deliver that growth?

That is exactly right. And that is a - that is exactly right. And if I could, I'd like to add on to that, that those one or two assets are we can come in and we can take over and operate those with minimal increase in G&A cost. And then so that is exactly our strategy to achieved five times growth mainly from Etame accomplish the rest with one or two acquisitions without increasing G&A significantly.

And could I just as a short follow-up, ask whether you would be inclined more towards appraisal into production, development and production or some development, some production with some built on potential?

I think no - I think ideally, it would be appraisal that would lead to more production, but we are open to production with bolt-on exploration type potential, but I think it's a foregone conclusion that we need some production to support a new acquisition.

Yeah. That's very helpful. Thank you.

There are no further questions at this time.

All right. I would like to thank everyone for participating in our call and we look forward to our next call.

Thank you for participating in today's teleconference. At this time, you may all disconnect.