VAALCO Energy Inc (EGY) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the third-quarter 2007 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Robert Gerry: Mr. Gerry, you may begin.

Thank you, Kim, and good morning ladies and gentlemen and welcome to VAALCO's third-quarter conference call. Bear with me while I read our Safe Harbor statement.

This conference call includes forward-looking statements as defined by the U.S. securities laws. Forward-looking statements are those concerning VAALCO's plans, expectations and objectives for future operations and activities. All segments included in this conference call that address activities, events, or developments that VAALCO expects, believes or anticipates will or may occur in the future are forward-looking statements. These risks are further described in VAALCO's annual report on Form 10-Ka for the year ended December 31, 2006 and other reports filed with the SEC.

Before I turn the meeting over to Russell, I'd like to make just a few comments to update you on the status of VAALCO. The rig that we will use to drill our well in the North Sea should leave its former location today which would put it on our location probably at the end of the week and we should commence drilling sometime next weekend. There was a storm in the North Sea which you may or may not have read about that delayed that process for about five to six days.

The other interesting event I think is that our production in the Etame Field is now roughly 22,500 barrels. So the contract we signed with Tinworth, the wells are responding very well and we are able now to increase production. We will probably hold it around here maybe get it to around the 23,000 barrel a day but at the moment it's looking very good.

So having said that, I'm going to turn it over to Russell and then I will put you in on some more details after he is finished. Russell?

Thanks, Bobby. I'm Russell Scheirman, Chief Financial Officer of VAALCO, and I'll go through our three- and nine-month financial statements for the period.

For the three months ended September 30, 2007, we sold 427,000 barrels at an average price of $73.79 per barrel, for total revenues of $34.8 million. That compared to 391,000 barrels at $65.50 per barrel in 2007 for total revenues of $25.6 million.

Our operating costs were $11.1 million in the three months ended '07 compared to $5.4 million in '06. The cause of the increase, $3 million of that was due to higher depreciation and depletion costs primarily associated with the Avouma development. In addition, our G&A was about $1.8 million higher and production costs were $0.7 million higher.

The reason G&A was so low in the 2006 period is we had a $40 million platform installation project in the third quarter of '06 which was the installation of the Avouma platform and we received overhead reimbursements associated with that project of about 3% of that number which offset the G&A in the third quarter of '06.

That resulted in operating income of the $23.7 million and or $23.8 million in the three months ended September 30, '07, compared to $20.3 million in '06. Other income which is primarily interest income offset by some interest expense was $1 million in the three months ended '07 compared to $0.6 million in the three months ended '06.

And then income tax was $14.7 million compared to $6.3 million in '06, again, because of the high capital expenditures that we had in the third quarter of '06 that also sheltered a bunch of income tax because we received that in the form of profit oil thereby reducing the amount of oil left that we had to pay taxes on out of the profit oil.

When you factor in minority interest, we ended up the quarter at $8.8 million or $0.15 per diluted share compared to $13.6 million or $0.22 per diluted share in '06.

Moving to the nine months, we sold 1.3 million barrels at $66.05 in the nine months ended '07, for revenues of $88.1 million compared to a little under 1.3 million, 1,278,000 barrels at $64.54 for the nine months ended '06 for $82.5 million.

Operating expenses were $36.8 million compared to $17 million. The big pieces of that are once again, DD&A was $8.5 million higher and '07 compared to '06 due to the depletion rates we used for Avouma. We also had $4.6 million in additional exploration expenses which was associated with the acquisition of the 3-D seismic in Angola and some 3-D seismic in Gabon.

The G&A is running about $5 million ahead of where it was last year. A lot of it due to CapEx -- or excuse me -- to G&A reimbursements we received for the large CapEx program we had associated with Avouma last year as well as the way we treat our stock-based compensation. And production costs are running about $1.7 million higher and that is primarily due to higher throughput through the FPSO where we pay some tariffs and also increases in both in helicopter costs that we're seeing in the service sector in general.

The good news is we have the FPSO locked in pretty at much a flat day rate, actually a declining day rate through 2015 and that is something like 70% of our production expense. So we're at least able to hold the line on the FPSO if not on the boats and helicopters and some of the other peripheral services.

When you factor in other income of $2 million compared to $1.2 million, and income tax of $33.3 million compared to $27.1 million and the minority interest, we ended up with net income of $17.1 million or $0.28 per fully diluted share compared to $35.1 million or $0.58 per fully diluted share in 2006.

With that, Bobby, I will turn it back to you.

Thank you, Russell. Some of the other activities that VAALCO is engaged in I've mentioned that the rig will be on our location next week in the North Sea. Just so you know, we continually are active in searching for additional prospects drilling opportunities in the North Sea. And to date we have looked at probably over 100 separate proposals to VAALCO. We've taken one. But think that will give you a feel of really the intense investigation that we are undertaking to try to find additional locations there.

As far as the Etame concession itself is concerned, we probably to date have about four prospects or leads that at the moment are looking very good. We have contracted for a rig, the Adriatic VI, under a letter of intent that will drill the Ebouri well and one additional well. Conceivably we could use that rig to drill two additional wells. It hasn't been decided yet but I suspect either by the end of the year or by our next conference call, we will be able to guide you exactly on how many wells we will drill and where their locations will be.

The Mutamba prospect or the Mutamba concession which is on shore; the Gabon as of today, we are flying our aero mag survey, aero magnetic survey over that concession. It probably will take three weeks to finish that, another month or so of processing but we should know by the end of the year where we want to commence drilling there. Our hopes are next year we can drill one and maybe to wells on Mutamba.

Angola, we are in the process of buying an additional 3-D from [Western Tchico]. The 3-D is just west of our current 3-D. That is in our 2008 budget but we should be able to buy it by the end of this year and start processing it. So far the processing is looking good. There is considerably more work that we need to do but some interesting drilling opportunities are beginning to appear.

We have just issued a sales contract -- excuse me -- we've just issued bids for interested parties to bid on our oil for 2008. I believe we've set out at least five bids and we'll see how they come in in the next few months.

VAALCO continues to investigate other opportunities. We are very actively seeking other prospects to drill. As you may know we have approximately $80 million cash in the bank. We will have good cash flow this year, very good cash flow next year and certainly the following year.

If you could tell me what the price of the commodity may be, I could probably give you a fairly close estimate of what our cash flow is. But we have plenty of cash available to take on other opportunities. Unfortunately in the international arena, some of these opportunities take a long time to bring to fruition. But as I've said frequently in the past and I will reiterate it, I think toward the end of next year, will be really the breakout year for VAALCO.

The knock on VAALCO has always been or it has been for a year the low reserves that we have, but to show you the consequence of any well that we may drill, even this well in the North Sea, we have 25% of it. It could almost double VAALCO's reserves. So we're looking forward to that.

So with that, I think, Kim, I will turn it back to you and open it up for any questions that they may have.

(OPERATOR INSTRUCTIONS) Leo Mariani, RBC Capital Markets.

It sounds like your production there on the Etame conception has ramped up nicely recently. Can you give us a breakout of what you guys are producing both the Avouma field and then the Avouma South Tchibala Field is at right now?

Yes, it's about 8500 barrels from Avouma and the balance from Etame.

Okay. Can we get a little more detail on the FPSO, sort of reup of the contract that you guys signed I guess last month here I guess you tacked on four additional years. Did your pricing on this go up? I thought there was also some discussion that there had to be some capital improvements done some of the flow items in the FPSO and just curious as to how that was treated financially here if VAALCO had to go and pay for some of those or if these guys picked them up?

There are really two things involved in the upgrading of the FPSO. One has to do with the flair system and the other has to do with the water handling system. We have I think explained in the past that the vessel itself is name plated for 30,000 barrels of fluid. Only 20,000 barrels of that can be oil. So we were pushing against the 20,000 barrels of oil and we wanted to be able to increase that production.

The settlement that we finally reached with the owners, Tinworth, was that we would pay an additional $2.50 for each additional barrel -- we pay it to Tinworth -- for each additional barrel that we produce over 20,000 barrels. Now, the entire water handling system will not be in place until sometime late next year, we're not quite sure when. There's quite a bit of construction that has to take place before that is accomplished.

But at that time, we ought to be able to take it to 25,000 barrels a day and a reminder there's a royalty break at 25,000 barrels so we may not exceed it. In other words, our royalty goes up beyond that point and we may try to stay within the 25,000 barrels.

I guess obviously Ebouri production coming on at some point in the second half of '08, I would think would potentially change your mind depending on how that works? Is that a fair statement?

Etame will be declining somewhat also during that period of time good, so Ebouri will make up -- Ebouri will make up the difference.

Okay and you still expect second half '08 start up there?

Yes, November.

November? Okay. I noticed your share count looks like it has been declining a little bit recently. Have you guys been buying back any stock?

We could only report that in our 10-Qs at the end of each quarter and I don't want to get into that now.

Okay.

Leo, the other thing is with our stock price, it got as low as just under $4. When you calculate a diluted share it's a weighted average of your stock price so some of the options that were out there are less dilutive, if you will. And that tends to also drop that diluted share price.

Okay. Do you have been estimate of your fourth quarter '07 CapEx in terms of what you think you're going to spend?

Yes, it's going to be just under $20 million. But $12 million of that is in the North Sea.

Okay, any breakdown as to where the rest of the money is being spent?

Most of it in Gabon. We may spend $1 million or so in Angola and most of it Etame. We are at the point where we are awarding the installation contract for the Ebouri platform. That platform is expected to sail away May 1 or so. And so there is some down payments that you have to make, that we expect to make in the fourth quarter associated with that contract.

Okay. Any estimate of '08 capital program?

Our share will be somewhere between $30 million and $35 million and that is without any additional North Sea activity and that includes the installation of Ebouri and a well in onshore and an exploration well offshore.

Okay, thanks a lot for your time.

Now, if we were able to drill a second exploration well or we also cut some prospects within our development areas in Gabon, that would be incremental and we're kind of talking to the rig market about that as we speak. We have a contingent well in the Angola budget but realistically I think it's going to be 2009 before we'll drill there.

TJ Schultz, Tejas Securities.

Hey, guys. Just following up on that breakout on the Etame Field. You said Avouma was 8500 and the balance was Etame. Realizing that Etame's declining and you want to keep it close to [22,500] what do you think the potential is for Avouma? I mean what can you pump that up to?

We think that we could easily do 10,000 barrels a day. We probably could do better than that but at the moment we are reluctant to push it too hard. But 10,000 sounds a reasonable number. Ebouri comes on November. It ought to come on between 4000 and 6000 barrels and we can juggle the production between Avouma, Etame, and Ebouri and you know keep it around the 25,000 barrel limit.

Okay. And what is the -- I mean can you approximate the decline rate on the Etame Field?

10% a year.

About 12, actually.

Okay, on Mutamba, I think the contract is a three-year contract coming up in '08 and there's a two-year extension. What is your timeline as far as deciding on the optional extension for the two-year extension? And then the spending of the $4 million, what has been spent so far and how much of that will be tied to the well -- exploration well in '08?

We've updated that number to probably 5 million for the well. We expect to start building roads at the beginning of the dry season to our location. We kind of have two locations that we've narrowed down and based on this aero mag and some other things we are doing with the seismic, we're going to decide whether we want to drill one or both of them. They are both located on the northern end of the concession. There are existing rows that run through there and we will just be building a section of road off to wherever we put our pad.

So I mean the road is half the well, typically, the road and the pad, the wells are shallow. They are 4000 -- or 4500 foot wells that can be drilled in a couple of weeks, two to three weeks. So, I would say in the second quarter we will start spending that money and then we would like to follow on. The dry season ends in October so we would like to have that well -- the road built and the well drilled by then which will give us plenty of time to make a decision on the extension.

I'd be surprised if we don't go into the extension one way or another even if we are not successful on the well because there are too many other leads on there that we need to think through.

Okay. I know you guys haven't hedged in the past. Have you given any more thought to hedging going forward?

We always think about it but I don't think we're going to do it.

Okay. Just a little bit more color on the North Sea. Can you give me on the rig specifically what rig that is -- for the North Sea?

The [Trans Ocean Prospect]. I think it was drilling for Antrim, Antrim and unfortunately for them, fortunately for us, it waited on their location for this storm. So the rig will go on our payroll probably tomorrow or the next day after they pull anchors and get off location.

Okay. And finally, just kind of some (inaudible) stuff here on the Ebouri I know you said a lot of the CapEx for the fourth quarter was the North Sea and the remainder was the Etame. I'm just trying to get a feel for when those Ebouri costs are going to hit and how much you estimate is left spending in CapEx for Ebouri?

Our share is around $25 million maybe $27 million and I'm thinking 6 plus of that in the fourth quarter and then a little bit in the first quarter and the second and third quarters will be where the balance of that expense with some of the falling into October, we're hoping to be on production November 1. The rig, we get the rig in September. So it is about 45-day well.

The platform should be installed and in place by June, July-ish and that will give us a couple months to get all the electronics up and running and all the computer software lined out, etc. So we'll have plenty to do out there while we're waiting on the rig.

All right. Great guys. Good luck in the North Sea.

Thank you.

[Kenneth Hounds], [MetLife Securities].

Good quarter, gentlemen. Just a little more on the North Sea. It sounds like the rig will be there in about a week. When do you -- I know it's hard -- but when do you anticipate perhaps having some results from that first well?

Probably around Christmas.

And what was the total depth?

I believe it was 13,000 feet.

Okay.

It's a 45-day well.

Okay and just -- oil?

Oil. The oil prospect in the [Bray] formation.

All right. Actually I saw something the other day they thought that Brent crude production might be down as much as 15% next year I guess from other old wells running off and so forth so there will probably be a good market for oil up there assuming your well hit comes in.

Well, we hope so. Probably it's not well-known out there, Marathon has taken a piece of this prospect. I believe they took 37.5% -- sorry recently. They have facilities fairly near by and should we be successful, we're going to hook our production up to their facility. So with them and they have the right to operate any development wells that we may elect to drill. So if we are successful it ought to be a pretty smooth process to bring it all on production.

That is great. And what is the potential for other wells on the prospect?

After we drill this one, it's good. If this one hits, we've got a couple more I think.

Kind of in 2007, the stock was kind of hurt by this reserve report. Is there going to be another reserve report in January or February?

It will be out in February.

Okay. And hopefully they will be a little kinder?

I think they might be a little kinder. I think they've got to give us some additional or certainly Russell does and me too, that they've got to give us some additional reserves. Well they don't have to do anything but we're hoping they give us some additional reserves in the Avouma area because it's producing beautifully. And the reserves that Netherland, Sewell have given us so far will run out at a very rapid rate. So that is to be said.

And I guess Ebouri too, right, once the wells are producing --?

Once it's on production.

Right, right.

Not to get anybody terribly excited, but I'm getting excited that -- and we'll see it may all go away but Ebouri could be bigger than we think it is today. And there's a lot of work being done on seismic and 3-D seismic. It's a possibility and we will just have to see. But we may need a couple more wells in Ebouri if everything pans out.

And all those could be tied too to the platform that comes in?

Yes. The thing that exists so far, knock on wood, in the Etame concession, the news that comes out seems to be good news as opposed to bad news. I don't know, I don't know why that is but it's a good area, the Gamba sand is terrific and things seem to happen in more of a positive method than a negative one. On granted there is some mechanical things that go on now and then but as far as the reservoirs themselves are concerned, they behave beautifully. And hopefully that will continue. But it's a good area to be in.

Isn't that Canadian producer is it [ADEX], is that how you pronounce that? They are also --

out of Geneva.

Geneva, okay.

They're listed in Toronto.

They are that big player in Gabon, right?

yes, they've got about one-third of our concession.

But they have a bunch of stuff onshore that they operate on pretty much 100%.

Right, is the stuff onshore giving you any hints regarding Mutamba or --?

It's a different are, but --.

Same formation --

-- same idea.

Okay. And they've had good reserves as far as you can tell, a good reserve or productions from their properties?

Yes.

Okay, great. It looks right close to turning the corner, gentlemen.

We hope so, it's taken a while. Don't give out.

Right. Thank you.

[Terry Chernoff], [Pathfinders].

A couple of questions, guys. First, just in reference to your previous comment about if the reserves are what Netherland, Sewell says they are, then the production will run out. Isn't it the other way around? If the production is what you say it is, then the reserves have to go up? Because you really can't justify that reserve level with sustaining the production level you are sustaining.

Well, that is what we hope. In the first three quarters, we at the reserve report we have now we've had to deplete one-third of what we invested in Avouma which tells you how fast we're chewing through their reserve estimate.

Right, but that would imply that this thing has a decline rate of 30% a year or something and it doesn't?

Yes, I know. So that's why --

Remind everybody that when we developed Etame, we had a reserve report that said 30 barrels and 16 million barrels proved developed from the first three wells and now we're up over 50 million barrels and most of that is proved developed. So not too dissimilar in our opinion to what we might expect from Avouma. Not those numbers but that level of a change.

Staying on the reserve issue, the reserve numbers net to you, net of royalties is like 6 million, your internal estimate in your presentation is 10.8 million. If I look at the ADEX presentation and I adjust for their share and your share and royalties, it's more like 17.3 million, but that is [3-P]. So is the truth somewhere between you and them or is it -- how do you -- how do you square your estimate with ADEX's estimate on the 3-P versus -- is yours 3-P, your 10.8 or is yours 1-P.

No, ours is more like 2-P. (multiple speakers) That's a difficult question to answer. I mean everybody's got their own opinion. That is what they think. You've got to be careful that they've taken royalties out of theirs. I think we do it on a net basis.

Right, ours or net of royalties and theirs are gross.

No, I'm adjusting for that.

Well, it's anybody's -- welcome to an opinion.

And a big component just for your information, a big component of their 3-P number is north Tchibala which is a [Dintal] prospect that we are a long ways from declaring commercial.

Okay.

So if there is a breakout and you take North Tchibala out of there, then you might get a better apples-to-apples number.

We don't have anything in there for North Tchibala.

We have nothing for that.

Are you about on the same page with them for the others?

It probably works out fairly close.

I think so.

Okay. All right, switching to taxes. When you expend money in Gabon, not only does your taxable income go down but your tax rate goes down. Is that fair to say? Is that correct?

That's correct.

So given the amount you're planning to spend in the next quarters, couple of quarters, what is that going to do to your tax rate and what is it going to do to your EPS because of the CapEx and the OpEx in Gabon?

Yes. I probably don't have specific numbers in my head but basically for every dollar in CapEx we spend, we reduce our taxes $0.50. So if we spend $7 million in the fourth quarter for example then we would reduce our taxes by $3.5 million over what it would have been.

But the flip side of that is that the way those taxes are calculated is you pay -- you get paid in barrels and if you're getting paid in $80 barrels instead of $60 barrels, it takes less barrels to pay you back the moneys you expend and that means there are more barrels left over as profit barrels. So it's kind of a double-edged sword. If commodity prices stay high for the entire quarter like they have been so far, you don't get the full $3.5 million benefit because it takes less barrels to pay you that benefit and therefore you get taxed on more barrels. Does that make sense?

And the majors have the same problem. If you read their projections in some of their countries, their reserves are going down as commodity prices go up and you say, why is that? And it is because they get less barrels to recover their costs and therefore have to pay taxes on more barrels.

How does that work on your reserves, the interaction between royalties, prices and your reserves?

Royalties are fixed. They are 15% off the top and we don't report them as revenue. So they are out of the equation. So then you basically subtract our operating costs and our CapEx and what is left is profit oil. And that we pay about a 52% tax rate on.

So if you look at the nine-month numbers and you look at the taxes that we paid this year versus last year, you see we paid $33.3 million compared to $27.1 million. We paid about $6 million more in taxes this year than last year even though the commodity price was only $1.50 different and that basically all translates to if you look at how much money we've invested in CapEx we'd invested close to $20 million versus only $9 million this year and there is the $5.5 million difference.

So revenue minus OpEx minus CapEx is profit oil and then 52% of that is your tax rate?

Exactly.

All right. And how much CapEx -- you said CapEx in the fourth quarter is going to be about --?

6 to $7 in Etame. It's going to be $20 million overall but $12 million of that is in the North Sea and that is not going to affect our tax rate.

Right. Okay. Okay, those are my questions.

Jamie Wilen, Wilen Management.

Just a follow-up to the tax rate question. Obviously expenditures outside of Gabon are not included in for tax purposes. How much of the external expenditures were there in the third quarter? And how much will you have there going forward?

In the third quarter it wasn't very high. It was about $600,000 that was outside of Gabon. But year-to-date it is close to $5 million outside of Gabon. Going forward, it will depend on the results of the North Sea well whether that is capitalized or expensed. We have to expense it if it's dry hole. And then if we purchase seismic late or this year or early next at Angola, our share of that is going to be in the $3 million to $4 million range. So, there is $15 million that would be outside of Gabon of that $35 million or so that we discussed.

Okay. On the platform, you say the actual capacity right now is how much?

Well, we don't know, okay. We are pushing the envelope right now.

You mean the FPSO?

Correct.

The FPSO is name plated to handle 35,000 barrels of total fluids and 20,000 of oil. And we know it will do more than 20 but we don't know how much more but we doubt it can make it to 25 for example until we add the water handling facilities which we're going to do in conjunction with Ebouri because we have to lift a skid up onto the FPSO and we will have a derrick barge there to install the platform so at the same time it can lift the water handling skid.

And the other big problem we've had is the flair system really wasn't designed for 30,000 barrels of fluids. Now you say, well wait a minute, a flair system burns gas. But what you there is that if you ever have been upset and all this fluid starts dumping toward the flair system you are supposed to have a big old surge tank to hold all that stuff until you can get everything sorted out. And that surge tank on FPSO is really not sized for 30,000 barrels of total fluids.

So we need to pick up a second package which is what they call a flair drum, it looks like a separator standing on its side that acts as a surge tank so that then you don't end up getting any liquid carryover into your flair. And that is really our problem right now is making sure because that is unsafe if you end up in a situation where you get oil going into your flair and catching fire and raining down all over the deck. Nobody wants that.

So that is what we are being very careful about is kind of easing into it and making sure that we don't do something silly and set things on fire. And next year by July or so when we've got the Ebouri platform installed, we'll have a new flair knockout drum and we will have a new expanded water handling system and then we feel like getting to 25 plus, it will be doable.

I hope I didn't get too technical but I mean that is really what the issue is that flair system. We have a way of handling the water using a spare tank on the ship for extra separation time. It's not something you want to do for 20 years because of corrosion issues but for a year it works just fine until we get this new water handling system in. But it's really the flair system.

And you expect between now and then to run at 22.5?

We hope to, yes.

Okay. And the expenditures to upgrade this, we pay for it all I assume and it will all be capitalized?

Actually they are paying for the flair upgrade and we're paying for the water handling upgrade and we've got a budget of around $5 million for that upgrade which will be cost recoverable. But the actual package -- that's 8 -- that's [8, 8] -- excuse me -- so our share would be 1.5 million or so. The actual module is a $1 million piece of equipment but it's getting it on the ship that costs all the money. With derrick barges costing $400,000 a day, if it takes you two or three days to pick the thing up and get it on the ship and this, that and the other, that is where the money is.

But the money you spent to in this call new contract for the FPSO, what are all those funds for? Is that just a payment to the owners to let you expand?

Well, no. The only thing we agreed to do is extend the contract through 2015 from 2011 and we had an option to buy that tanker. And we used that option to make sure that they didn't raise the day rate on the tanker for the four-year extension. So basically we got the four-year extension at the same price we were going to be paying in 2011 at the same CapEx rate. And in return, they made us raise our option price for the tanker in 2015 but the whole reason we negotiated that option was because the higher that option was, the higher they were going to be able to charge us if we wanted an extension.

And so everything -- it worked out fine for everybody. They get an extension but we also know that we've locked in the price of that tanker through 2015.

So that full price that you said for the extension and everything that includes your extra 250 per barrel that you're paying on the what you are taking out over --?

No, that will be over and above. So if we choose to produce above 20,000 barrels a day, we pay that 250. If we get to the point where the fields can't handle any more and we drop back down below 20, it all goes away and we're back where we were.

Got you. Okay, thanks, fellows.

(OPERATOR INSTRUCTIONS) Terry Chernoff, Pathfinders.

Earlier you said that if we gave you a price for oil, you would have an estimate of the cash flow. So what if we say oil is 75, pick a number, what would that do to your annual cash flow?

It's about the same as it would be this year, maybe a little bit more.

Okay, that was the question.

[Miles Neils], a private investor.

I was wondering in the North Sea if the production is capped at some value similar to what it is in Gabon? And royalties may be paid at a higher rate after that level?

There is no royalties in the North Sea. You just pay a 50% income tax on your profits and it is very similar to the U.S. system where you have tax loss carryforwards for your exploration costs in prior years that you chew through and once you chew through that, then you pay 50% on your net income.

Okay. Also I was wondering in the estimate of the North Sea prospects that you've looked at, you said that you have approximately been through 100 of them. Is there a cost associated with that such as just reading the prospectus or do you get to the point of actually reading seismic?

I think that probably a good half of them were beyond VAALCO's ability, some in ultra deep waters, some in high-pressure zones that we didn't want to get involved with. We probably investigated the seismic work on -- and I'm guessing here I could call you back and ask our geophysicist but I bet we scrutinized pretty carefully probably 30 to 50 of them and that is a guess on my part.

We have a consultant -- in fact, we've got an employee in the North Sea and a consultant that tries to uncover these deals for us. We're getting better at it and I suspect our decline rate or what we will look at will be a less onerous to VAALCO in the future. We like the North Sea. And we're hoping that we can pick up a couple more drilling opportunities.

Thank you, that is all I had.

Jamie Wilen, Wilen Management.

Just to a follow up earlier about the repurchase authorization. What are your thoughts about timing and price as to how you will execute the program?

The timing of it will become market-driven I suspect. I don't think that we're going to chase VAALCO stock if it turned into a bull market. I think the buy back is more to assure investors that we are there to protect the down side and we will let the upside take care of itself.

Below $5, do you plan on being relatively aggressive buyers?

I'm not going there either.

Okay. Okay, thank you.

(OPERATOR INSTRUCTIONS) At this time, I show no questions.

Okay, is that all, Kim?

Yes sir.

All right. Well thank you all very much. And we look forward to our next conference call. Again, thank you for attending.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may all disconnect.