VAALCO Energy, Inc. (EGY) Q1 2019 Earnings Report, Transcript and Summary

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 have been above the midpoint of our guidance range. For the second quarter, we expect production to be in the range of 3600 to 3800 barrels of oil per day net. As a reminder, the production impact from our 2019 development drilling program will not boost production until late in the year and thus will have a significantly greater impact on 2020 production. Our realized oil pricing declined slightly to $64 and $0.17 per barrel in the first quarter. But we continued to generate meaningful adjusted EBITDAX of $9.7 million in the quarter and expand our cash on hand to over $46 million at the end of the first quarter. Now, I would like to update you on our 2019 development drilling program. As part of the PSC Extension in Gabon, we committed to drilling two development wells and two appraisal well bores by September 2020. As previously announced, we plan to begin drilling up to three development wells, and two appraisal well bores in 2019, funded from cash on hand and cash generated from operations. We have secured a rig that will be available to begin drilling these wells in the third quarter of 2019, and we plan to continue drilling through the first quarter of 2020. Our current plans are to bring the first well online in the fourth quarter of 2019 with the remaining wells online in the first half of 2020. In our most recent presentation posted to the VAALCO website, we have included a detailed description of the 2019 drilling campaign, which will satisfy our work commitment under the PSC Extension. These development drilling locations are easily drilled off of our existing platforms with a jack-up rig and the wells can be placed on production quickly with minimal increase in operating and overhead costs. The appraisal well bores we are drilling are to assess the Dentale potential in Etame and evaluate a Gamba step out area in the southeast to Etame. If the appraisal well bores prove up resources in these areas, there is the potential to add approximately 5 million net barrels of 2P reserves and access up to six additional well locations and future drilling campaigns. Our vision is to repeat similar drilling programs multiple times over the next several years and continue adding reserves and production to help us achieve our vision 2025 goals. Again, and I can't emphasize this enough. We expect our estimated 2019 net capital investment budget of $20 million to $25 million will be funded by cash on hand and cash flow from operations. The investment community in the last 12 months has become increasingly focused on the ability of all E&P companies to generate free cash flow in an extended period of volatile oil prices like we have been experiencing. Our management team has long understood the importance of generating free cash flow to sustain our company and ultimately allow us to grow. We have a strong, stable production base with a team focused on minimizing costs and generating free cash flow and that has helped us build our cash balance. Let me now provide a brief update on Equatorial Guinea. As we discussed on our fourth quarter 2018 call, our 31% interest in Block P, has been in suspension for several years. However, in September 2018, the Equatorial Guinea Ministry of Mines and hydrocarbons lifted the suspension. As a reminder to everyone, GEPetrol is the state owned oil company and one of our partners in Block P. GEPetrol was required to introduce a new investor or joint venture owner to the Equatorial Guinea Ministry of Mines by March 28, 2019 and GEPetrol has fulfilled this requirement. Upon the Ministry of Mines approving the new joint owner, the contractor group has one year to begin drilling operations. VAALCO intends to seek a new joint venture owner on a promoted basis that will cover all or substantially all of the cost to drill an exploratory well. Value to drill would result in the loss of our interest in the license and we would have to write down I'm sorry, we would have to write-off $10 million on our books for the value of our undeveloped leasehold costs associated with the Block P license. We are working with our joint venture owners to evaluate the timing and budgeting for development and exploration activities under a development and production area in the block, including the approval of a development and production plan. Finally, I would like to discuss our process to do a list on the London Stock Exchange. We recently initiated a process to pursue dual listing in Europe to better position VAALCO alongside our international peer group. We think that this is the right time for VAALCO to seek a standard listing on the London Stock Exchange, which we believe will provide us access to a broader group of international institutional investors and a broader range of equity research analysts. The process will progress over the next four to six months. Before I conclude my opening remarks, I would like to welcome Liz Prochnow, as our Chief Financial Officer. Liz has been an integral leader for VAALCO over the past four years as our Chief Accounting Officer. She is knowledgeable about our operations and has a strong financial background to help guide VAALCO into the future. With that, I would like to turn the call over to Liz to discuss our financial results.

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 from an including June 2018 through June 2019, for quantity of approximately 400,000 barrels. As of March 31 2019, there were 68,000 barrels for commodity price swaps remaining for 2019. In May 2019, VAALCO executed a crude oil swap at a Dated Brent weighted average price of 66.70 per barrel for the period from an including July 2019 through June 2020, for a quantity of 500,000 barrels. These are the only derivative contracts that the company currently has in place. We will continue to evaluate ways to mitigate risk, ensure future cash flows for our drilling programs and allow for upsides to rising commodity prices through our hedging project. In the first quarter, we recorded a noncash market-to-market charged related to our cruel swaps of $3 million. However, we realized $1.1 million cash gain on the swaps was settled during the first quarter. As of March 31 2019, the estimated market-to-market value at the remaining commodity price swaps at 68,000 barrels in 2019 was an asset of $0.5 million, which is recorded and prepayments and other line on the condensed consolidated balance sheet. Turning to expenses, total production expense excluding work overs for the first quarter of 2019 was $8.1 million or 27.3 per barrel of oil sale, compared with $10.7 million or 27.17 per barrel in the same quarter of 2018, and $9.6 million or 23.84 per barrel in the fourth quarter of 2018. For the first quarter of 2019, our per barrel costs were below the midpoint of guidance as we continue to manage our controllable expenses. For the second quarter of 2019, we expect production expense excluding work overs to be between $9 million and $10.5 million or 27 to 31 per barrel, and annual guidance remains the same at $26 to $30 per barrel. DD&A for the first quarter of 2019 was $1.6 million, or 5.23 per barrel of oil. This compares to $1.1 million or 2.86 per barrel in the 2018 first quarter, and $2.3 or 5.75 per barrel in the fourth quarter 2018. The year-over-year increase in DD&A per barrel of oil reflects an increase in depletable costs associated with the PSC Extension, partly offset by favorable impact of the upward revisions to reserves as of December 31, 2018. We expect our full-year DD&A range to remain unchanged at 5.5 to 6.54 barrel of sales. General and administrative expense for the first quarter of 2019, excluding noncash compensation was $2.7 million or 9.15 per barrel of oil as compared to $2.3 million or 5.80 per barrel of oil in the first quarter of 2018 and $2.5 or 6.14 per barrel of oil in the fourth quarter of 2018. We expect our full-year G&A excluding noncash compensation to remain unchanged between $9 million and $10 million. Noncash stock based compensation expense related to Stock Appreciation Rights or SARs within an expensive $1.7 million during the three months ended March 31, 2019, as compared to an expensive $0.2 million in the comparable 2018 period, and the credit of $1.5 million in the fourth quarter 2018. SARs are revalued quarterly based on the closing stock price at the end of the quarter, which was $2.24 at the end of the first quarter of 2019 versus $1.47 per share on December 31, 2018. Stock price variability greatly impacts the fair value the SARs and there will be an expense or credit that every quarter associated with the mark-to-market value of the SARs. Income tax expense attributable to continuing operations for the first quarter 2019 was $2.8 million compared to $4.0 million in the same period in 2018 and expense of $11.3 million in the fourth quarter 2018. Income tax expense for the first quarter of 2019 included $1.8 million noncash deferred tax expense, whereas the fourth quarter of 2018 included $9.3 million of noncash deferred tax expense. There was no deferred tax expense in the first quarter of 2018. Beginning of the second quarter of 2018, the government of Gabon elected to lifted share profit oil which we report is income taxes. As a result, the Gabon income taxes are being settled when the government of Gabon lifts its share production. These settlements are expected to occur once or twice per year, depending on production levels. The government of Gabon took its first lifting of oil since its election in September 2018. At March 31, 2019, VAALCO had $4.5 million of foreign taxes payable which was settled in April 2019, when Gabon took an oil lifting. We do not anticipate any further lifting by Gabon in 2019. As detailed on Slide 20 in the presentation deck presented this morning on our website, we currently estimate the VAALCO's operational breakeven in 2019 is approximately 37 per barrel of oil sales. And our free cash flow breakeven price in 2019 is approximately 47 per barrel of oil sales, with both amounts including work over expense. In general terms, we estimate that each $5 increase in realized oil price increases our annual adjusted EBITDAX by $6 million. This clearly shows our strong leverage to higher oil prices. Slides 21 and 22 illustrate the further strengthening our financial position and the continued build of cash to fund our development drilling program. At the end of the first quarter, we had an unrestricted cash balance of $46.2 million, which included $4.4 million of cash attributable to non-operating joint venture owner advances. This does not include an additional point $8 million in restricted cash, primarily related to deposits in Gabon, which is classified as current assets or the additional $0.9 million of restricted cash, which is classified as long-term assets. At the end of the first quarter, VAALCO had working capital from continuing operations, excluding lease liabilities at $33.8 million. With the first quarter 2019 financial results, we have adopted the new lease accounting rules. Under these rules, we recognize long-term right of use assets at $36.6 million, along with short term lease liabilities at $10.3 million and long term lease liabilities at $26.3 million. A significant portion of the amount attributable to our right of use assets is related to our FPSO. These amounts are higher than one would expect, and they include those our share in our joint owners share at the least cost. Recording of the gross cost is required and as a leasing standard, because VAALCO is the operator and the party to the underlying lease contracts. The impact of reporting the short term portion of the lease liabilities resulted in a decrease in working capital at $10.3 million. The new leasing standard had no impact on our income statement. VAALCO's cash position remains very strong and we continue to expect that our 2019 capital expenditures will be funded by cash on hand and cash flow from operations. The current estimated net capital expenditure range for 2019, which is primarily associated with the drilling program is $20 million to $25 million. The drilling program will include up to three development wells and two appraisal well bores, and we anticipate that it will be completed in the first quarter 2020. In the first quarter of 2019, VAALCO invested in approximately $0.8 million in capital expenditures and for the second quarter of 2019, VAALCO effects have been minimal capital expenditures on some long term lead items in maintenance capital, with the majority of our capital expenditures recurred in the second half of 2019. We have carried our strong operational execution into 2019 and remain focused on continuing to build cash to fund our 2019 development opportunities. With $46 million in cash on hand, the Angola settlement agreement and no debt on our balance sheet we are one of the best financial positions in the company's recent history. With this, I will now turn the call back over to Cary.

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.