VAALCO Energy Inc (EGY) 2011 Q3 法說會逐字稿

Thank you, ladies and gentlemen, for standing by. Welcome to the third-quarter 2011 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time.

(Operator Instructions) As a reminder, this conference is being recorded.

I will now turn the conference over to Chairman and Chief Executive Officer Robert Gerry. Please go ahead.

Thank you, Carrie, and good morning, ladies and gentlemen. Welcome to VAALCO's third quarter conference call. Please bear with me for a moment while I read our forward-looking statement.

This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those concerning VAALCO's plans, expectations, and objectives for future drilling completion, and other operations and activities. All statements 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.

Investors are cautioned that forward-looking statements are not guarantees of future performance, and that actual results or developments may differ materially for those projected in the forward-looking statements. These risks are further described in VAALCO's annual report on form 10-K for the year ended December 31, 2010, and on Form 10-Q for the quarter ended March 31, 2011, and other reports filed with the SEC, which can be reviewed at www.SEC.gov, or which could be received by contacting VAALCO.

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. (inaudible - technical difficulties) joining me this morning, Greg Hullinger, our CFO, and [Lin Espy], our Vice (inaudible) and Head of Production. I will turn it over to Greg here in a minute, I just want to say one preliminary word. Our earnings, obviously, for this quarter were down from the previous year. But if you read the rest of the press release, I think you can see most of that was a 1-time event, and we're looking very forward to a robust fourth quarter and year.

So, it is amazing what 1 day can do to our earnings. The lifting the curtain 1 day later in October instead of the end of September, and that, obviously, cost us a number of opportunities in the sales department. So, anyway, that is a 1-time event.

But with that, I will let Greg take you through our financial statement, and I will come back on at the conclusion of Lin's report. Go ahead, Greg.

Thank you, Bobby. And good morning, everyone. Thank you very much for joining us on our conference call this morning. As Bobby mentioned, the fundamentals behind our numbers really are good. And what I'm going to do is kind of take you through some of the statistics. And I'm going to talk to you about the events that actually took a toll on the earnings per share for the quarter.

If we start by looking at the sales volume for the 3-month period, from a sales volume, we were off 24%. As Bobby mentioned, we only had 2 liftings during the quarter, instead of 3. It is only when we have a lifting that we can recognize the sale in our revenue column. The lifting at the end of September slipped into the first day of October, and believe me, on October 1, we all felt the impact of that, and knew what that would do in terms of us showing our revenue for the quarter.

I can say that we have already lifted 1.4 million barrels gross in the fourth quarter. We've got 2 liftings under our belt. Of course, the 1 that we had to time on October 1. But we did have the lifting occur at the end of October on schedule. We've got another lifting, of course, scheduled at the end of November and December. And believe me, we will be putting pressure on the purchaser to make sure that that lifting in December gets finished in December, so that we can count that as revenue for the calendar-year 2011.

So, sales volume down, but not gone. It's already there. It's in our tally for the fourth quarter. The price was very good, looking year on year. During the quarter, we sold our crude at an average price of $112.85. That compared to $76.17 for a quarter ago, third quarter from 2010.

Looking at the fundamentals, our production, barrels of production per day on a gross basis in 2011 were 21,500. For the same period a year ago, 20,600. So, we produced more during the quarter. Unfortunately, it all went into the storage tank at the FPSO, where we couldn't realize it all as sales.

Tax, of course, is another big item that has been with us all year long. You see a high-tax number in our financials. For the quarter, $17.1 million, that's $10 million higher thereabouts compared to the same period a year ago. And essentially that comes from the same description we've given you each quarter. But when we're not busy doing capital investing, then the amount of money that goes into the cost account is less. And the first oil that we recover is cost oil.

So, if it takes fewer barrels to recover our costs, then the barrels transfer over into the profit oil split. And on that split, the government keeps 55% of the value, and the consortium, of which VAALCO has about a 30% interest, we keep 45% of that Delta. So, again, when we are not investing heavily, we see a high tax rate. And we certainly see it in these 2 comparable periods.

Our net income for the quarter, $2.4 million versus $12.5 million. I'm going to give you a little color there. Earnings-per-share basis, $0.04 for the quarter versus $0.22 for the same quarter a year ago. Looking at the 9 months, it gets normalized out a little bit. Our sales volume actually is almost identical with where we were at this point last year. Of course, what we've been saying is we have had higher production, so we have a higher opportunity to lift more barrels.

The price for the first 9 months, almost identical to what we saw during the quarter. Big uptick in the price in the 9-month average for this year versus last year. On a production basis for the first 9 months, we were at 22,200 barrels of oil per day gross compared to 20,000 for the first 9 months a year ago.

Taxes -- huge story. $65 million incurred for the first 9 months versus about $27 million for the same period a year ago. Net income thus far through 9 months, $25.4 million versus $28.5 million. And on an earnings-per-share basis, we have done $0.45 compared to $0.50 at this point last year.

Bobby mentioned that during the quarter that we had a couple of unique events that all took a toll on our earnings, and of course, our earnings per share. The easiest one, of course, to explain is the revenue. We've just been through there. But essentially that results in approximately a $0.10 earnings-per-share hit. Had we had that lifting in the third quarter, we would have expected our earnings per share to have been higher by $0.10.

Two additional items had an impact during the quarter. One that you most certainly have read about is that we took a provision on our Accounts Receivable in Angola totaling $4.1 million, and this had a toll of $0.07 per share. I'm going to come back on that one here in just a moment.

And then the third event was -- this one is a little difficult -- but it's the concept of a requirement that we have in Gabon to help provide for a financial subsidy for the local refinery. Essentially, all of the oil producers in the country have to subsidize the oil price 25% of what goes through the refinery. It is called domestic market obligation. And the way that it works is, in the third quarter of this year, we received a bill from the government for the calendar-year 2010. Of course, we had made accruals for this expense throughout 2010, and we use that same basis to make accruals in the first 2 quarters of 2011. When the bill came in, the bill was substantially higher than what we were expecting.

We do take into account -- there's really about 3 basic provisions in the calculation. One is the impact of the increasing value of the crude, the increased cost. We take that into account when we make the accruals.

The second component is -- how big is VAALCO's gross production as a percent of total country production. And nothing gets published during the year, but I can tell you that number stays fairly similar. And actually there is an uptick in production from 2010 -- actually from 2009 to 2010, but we recovered on that with our accruals as well. The component that caught us off guard was the volume accrued that ran through the local refinery. The quantity was up 61% year on year 2010 versus 2009. And we did our due diligence, we checked it out, and what we found is that they had a major turnover of -- turnaround of some of the facilities there are at the refinery. There had been units offline for some period of time. And so it had a real peak production year at the refinery in 2010.

As such, they ran 6.1 million barrels of crude through the refinery as opposed to a little over 4 million in 2009. Impact of that was that we have to make a higher DMO payment. So, when we settled the bill in the third quarter of this year, we ended up having to essentially incur $1 million of additional expense relating to 2010. And to adjust the first 2 quarters' accruals in 2011, that was an additional $800,000. So, if I look at the out-of-period aspect of that DMO payment, that impacted our earnings per share by $0.03. Now, unlike the revenue, which flows into the fourth quarter, that is a done deal. We just ended up having to incur a bigger piece of expense in the third quarter than what we had anticipated.

Let me go back to Angola for just a moment. Essentially we took -- well, if you look -- we are 40% working interest owner in Angola. You're familiar with the story there where InterOil, our former partner defaulted, and effective December 1 in 2010, the government took InterOil out of the concession. Well, from that point we've continued to have minimal spending that we have been doing in country. We've been building our Accounts Receivable for all the amounts in excess of our 40% working interest.

And the way that we get that money back is essentially -- the primary way would be with a replacement partner. A quarter ago in our release we talked about how bullish we were with regard to a potential party being named as a replacement partner. That work continues. But because of the lack of having that partner in place now, we felt that it was appropriate that we don't have a viable party at the moment to whom we will be paying that receivable, so we have taken a provision that we hope to recover at a point in the future.

So, again, out of those 3 events -- the revenue find its way into the fourth quarter, the Angola provision on bad debt we hope will come back to us in the months to follow, and the third impact was on that higher domestic market obligation, which did impact the quarter by $0.03. Those are really the keys for the quarter. With that, I think I will just wait in case there are any questions, where anybody might want some additional detail.

And I will turn it over to Lin Espy, who will give us an update on the operations in Gabon.

Thank you, Greg. In Gabon, production is running ahead of last year, and is currently running about 21,500 barrels a day. We are also making good progress on our platform expansion project. Both the Avouma and Ebouri platforms are being expanded to handle additional development wells. We completed the expansion on the Avouma platform and expect to complete the expansion on the Ebouri platform this December.

This sets us up to start our new drilling program, which will commence mid-year next year. It is a firm 4-well drilling program, with 2 option wells. And what we'll do during this program is we will drill 2 new Ebouri development wells, 1 new Avouma development well, and we will also have 1 scheduled workover to replace a failed ESP. Now note, as part of the first Ebouri development well, we intend to drill a pilot hole in an untested flank that lies under the basalt beneath the Ebouri field. If successful, we hope we can warrant an additional well or 2 development from this flank.

We also have some positive news on the new development front. We have reached agreement with our partners to proceed into detailed engineering for a new platform to be placed in the Etame field. This will allow for additional development wells, and further development of the Etame field. We will look to get formal government approval and final partnership sanctioned by next year for this project.

So, with the advancement of this new Etame platform project underway, this also let us focus more attention on the Southeast Etame discovery and the existing north Tchibala discovery. And we are evaluating multiple development options, which will allow us to advance this project. And lastly, in Mutamba, our onshore exploration block, our collaboration with our new farm-in partner, Total, continues to make good progress reprocessing the seismic. Our geoscientists are pleased with the initial results. And several promising leads are being developed.

And with that, I will turn it back over to you, Mr. Gerry.

Thank you, Lin. Let me touch on a few of the developments that VAALCO is pursuing at the moment. I want to reflect on Angola just for a minute. As Greg explained, we are in negotiations with Angola to renew that concession. We believe that block 5 is an exceptional opportunity for VAALCO. And we intend to go ahead and purchase additional 3D on that block and for doing that we are negotiating with Angola to extend our concession for another 3 years. Whether that comes to pass, I can't say. But that is how much confidence we have got in the block, and we think that this will also interest potential partners to come into the block.

We intend to drill a well there next year, if we have our druthers about us. And at least 1 well, VAALCO may very well drill it 100% to VAALCO, at a cost of about $35 million. That is what we would like to do. A lot of it depends upon negotiating it correctly with the country of Angola. But that is what we are in the process of doing.

As far as what we are doing domestically in the United States, our second well -- the rig is on location for the [second] Granite Wash well. We ought to commence drilling that in the next 5 to 7 days. We are looking forward to that. The big play we have obviously is in the Bakken. We have a rig that should arrive there in the beginning of December. We have 22,000 acres gross of Poplar Dome about 14,000 net to VAALCO.

This is a unique property. It is on the Poplar done; it's in the (inaudible) Indian Reservation. 22,000 acres are all held -- could be all held by 1 well. And it is currently held by shallow production. So VAALCO does not have any obligations to hold acreage with a necessity to drill a number of wells to hold that acreage. So everything we do in Poplar Dome is for exploration not to hold acreage but it's to develop revenues for VAALCO, and thus, the stockholders of VAALCO.

We have additional Bakken in Sheridan County, northern part of Montana. We have about 5,200 gross acres there. We are scheduling or searching for a rig to move up to that. It may not be until the Spring that we accomplish that, but that's in the works. And again, we have a 70% interest in Sheridan County, and a 65% interest in the Poplar Dome.

VAALCO, primary purpose at the moment is to add revenues and to add income. We are actively searching for a partner -- a merger partner or an acquisition to add bulk and add value to VAALCO. I've said this before -- we're very actively pursuing it. And while I can't comment on the progress of it at the moment, I just want you all to know that it is very much in the forefront of what we are doing around here.

To just back up for a moment, it was not a bad quarter. And the -- I think you will find the fourth quarter will be quite robust. We should have 4 liftings, as Greg mentioned. Our write-off will not occur in the fourth quarter, and our taxes will be somewhat lower than they were in the third quarter, simply because of all the work that Lin mentioned that we are doing on the Ebouri and the Avouma platform. So that, in summary, is what VAALCO is up to at the moment.

And we will open it up for questions.

(Operator Instructions). Steve Berman, Pritchard Capital Partners, your line is open.

First, a couple of questions on Angola. At 1 point, I think you said there might be a rig available in next March. Is that still the case or has that slipped a little bit?

That slipped a little bit. Steve, it is probably third quarter. In Angola.

In Angola, Right. Is Senegal still willing to [back stuff]? It will be a partner if you don't find a third-party to step for InterOil?

No, they are not going to be our partner. They told us that it wasn't in their budget, which was obviously a disappointment. They are still, though, very actively trying to seek a partner for us, whether they are successful at that I can tell you. I think I mentioned before that they had a Chinese company that was most interested in it. The Chinese company wants into a couple of other concessions. Angola has told us they are having trouble putting together all 3 of the concession on terms that the Chinese will accept. But it's still an ongoing project. I think, again, you have heard this time after time about Angola trying to do something there. And we are getting close, though, to doing something. And I think our enthusiasm here is that we want to drill it. It is not something that we are going to walk away from. In fact, we are going to get our feet a little deeper into it by negotiating to buy some more seismic, which is available -- 3-D seismic, which is available out there in the marketplace and that is on our concession that will push us a little bit further into the deeper waters, which is a good thing. A lot of PR out there about Brazil and Angola being tacked together sometime in the past, if it works in Brazil, why shouldn't it work in Angola. And we would like to pursue that opportunity.

Okay. What is the budget for that seismic? How much do you think it will cost you?

I don't want to tell you because somebody else may come in. I'm not trying to be coy with you, Steve. It is less than we paid for the first block of seismic.

Moving up to the Poplar Dome, do you intend to complete that well after -- the reason I ask is that some companies out because of the weather will begin to drill, but then wait till the spring to complete wells when the weather is better. It's pretty intense as far as that goes.

We probably will not complete that well. It is a test well. We are going to probably core the Bakken, the Three Forks, the Nisku, and the Red River. All of those set up as possible targets from this 1 well. So this is -- and we could always come back and complete it. But we are making this a test well to see what else we got on the block. The Nisku is [prevalent] in the area as is in the Three Forks. This is great opportunity take a hard look at what we've got up there. Any one of these can produce. In fact, all 4 of them can produce. So more about that probably in the first quarter conference call next year, when we have that under our belt. The weather gets a little bad up there. You probably -- we've got a winterized rig, though, coming our way. So we will be able to work through a portion of, certainly, December. We should know something early first quarter of next year.

And last 1, now and I'll let someone else go. In the Granite Wash, have you added any acreage there. To ask a different way, what's the current acreage position?

I'm sorry. Would you say that again?

The current acreage position in the Granite Wash, I think that, at one point, you said you might add a little but more acreage. So where do you stand now?

We have about 1000 acres. That's it. It is hard to find acreage.

That's net? 1000 net?

That is pretty much net.

Thanks, Bobby. I will let someone else chime in.

Brad Heffrin, RBC Capital Markets, your line is open.

Another question on the Granite Wash here. Could you go through how that first well is holding up? What the current production is and maybe if you have enough production for a new UR estimate?

The first well is doing about $2 million a day and probably 30 to 40 barrels of oil a day. The problem we had with that only half of the frack material reached its destination. So we were planning on a 14-stage frack, probably 6 or 7 are open. We are doing some coil tubing work up there to see what -- clean it out a little bit further to see if that would bring in more production. But I can't tell you right now. But working off the premise -- I think what happened, or so I'm told what happened, is that the formation radically [tightened] up. It was much harder than the equipment was -- that we had available to frack it. So it was a surprise to everybody. The next well that we designed is on the same block. We have the high confidence that we finally got the right equipment and the result should be substantially better than the first well. So we have got -- the first well will pay out. The second well, we hope will give a robust rate of return. And we will go from there.

Okay. Great. And just a little bit of an accounting question. Could you walk through what expenses get allocated to third quarter versus fourth quarter, given the [missed lifting]. I assume that the (inaudible) we all get recognized in the third quarter, but you haven't paid taxes on the oil yet.

Brad, I can take that. Essentially, we take and of course we match production expenses with the sales. So we re-class $3 million in operating expenses to capital that we will release to expense in the fourth quarter. When I mentioned that the missed lifting in the quarter was $0.10 per share, that took into account the offset of those operating expenses.

Okay. Great. That's it for me. Thanks.

[Alan Hanes], [Hopefield] Asset Management, your line is open.

So did you mean that the $0.10 shortfall from the third lift will hit the earnings line as $0.10 in the December quarter? Or that is net of the taxes you will have to pay?

That is actually net of the taxes as well.

So that will be incremental --

Incremental to the quarter.

-- to the December quarter. And how should we view how much tax you have to pay for the December quarter, assuming that you have, let's say, fattish sales of production?

It is a difficult one to project, Alan. But if we look at it, and you can take what we paid so far this year and extrapolate that is going to be somewhere in the ballpark. Because we're going to be paying profit tax on 4 liftings in the quarter instead of 3. But what Bobby mentioned earlier was something that will benefit us is that we have got quite a bit of CapEx that we are spending here in the fourth quarter associated with those modifications on the 2 platforms. In gross terms that is about $20 million, VAALCO has about a third of that. So that will all end up in our cost account, all in the quarter. And then that will be oil that won't go into the profit tax calculation. Taxes are a difficult one to predict, though. But essentially we will take our operating expenses and add in our CapEx and then we'll recover those barrels first. And then the remainder will go to the profit oil.

In the $17 million tax is there any substantial amount of income tax, any other tax or is most of the profit sharing tax.

No, Alan, it is all Gabon tax.

It's all Gabon tax. So the December quarter the percentage wise will be much lower than what you are paying in the third quarter, that's what you are saying?

On a revenue dollar it will be at a lesser amount. However, we are counting on having higher revenue dollars.

Yes, of course.

You're right. The rate should be lower because this is the first quarter during in the year that we actually will load up considerable CapEx.

Okay. My last question is on that $4.1 million bad debt expense, was there anything showing up differently from last quarter that prompts you to write it down, or is it that you just have to do this for accounting and auditing purposes?

I actually agreed with taking the provision, Alan. It is a bit of a conservative position. But the event that really tripped it was in the second quarter -- we've been working with the government since December 2010 to bring on a new partner. And we've had quite a few people come through looking, and the majors, some smaller companies. But we were very close, we thought, to having a new partner be named in the second quarter. That gave us a lot of confidence that we would be seeing as part of the purchase price for that new partner to join that block and other blocks, that we would be seeing that money coming back to us here in the short-term.

So that gives a lot of credibility to having that accounts receivable on your balance sheet. We met with the Angolans here in Houston in late October. And the view was a little more pessimistic because we're anxious to move forward. We need a partner. And the view was that the process continues and that there is still a good likelihood that the deal will be created. But just the fact that it wasn't as near at hand that we access that it was appropriate at this point, rather than taking this on into the fourth quarter that we go ahead, recognize the event now. That we don't have a willing partner at the moment to pay that money to us. However, I'm pretty confident. I have to be a little careful there, going with too much optimism. But I'm fairly confident that we will have the ability to call that money back, either from a new partner or possibly through other means, which might include legal action with our former partner.

There is still $8.9 million of accounts receivable with your partners on your balance sheet. Is that part of this whole thing? Or is it separate, it is something different?

That's separate. That's -- we cash call our partners in Gabon for expenditures that are coming up. At any one particular month-end, we will have 1-month's worth of cash calls outstanding. That is normal.

So the $4.1 million is all the exposure you have? You wrote it the whole thing down?

We wrote the whole amount down. We didn't exactly write it off. We took a provision. I could write down and I hope in the months to come, I can talk about writing it back up.

Great. Thank you very much.

Jamie Wilen, Wilen Management, your line is open.

As you do write it back up, that will be recorded as a gain? If that indeed does happen?

Yes, sir.

Okay.

That will be income.

Every quarter, we have a lifting right on the last day of the month or within a day or two. We are a publicly held company not a privately held company, so these things matter a lot. And you're saying you don't have that much control, but you were going to try and push them to get there a day or two ahead of time. Why can't we have a contract where we get a lifting in the middle of the month?

It's entirely up to the purchaser of the crew, Jamie. They would balk at that. It is a tanker specific type of lifting. It is rare that the same tanker comes by to pick up our product. Sometimes it bypasses, sometimes they come to us empty, sometimes they come to us three-quarters full. Whatever. Whatever.

What is in the contract it makes it advantageous for them to come on the last day of the month? Is it because they get to see what the prices for the whole month and decide how much or little they want to pick up? Or which month they want to do it in?

There is a bit of that in play, no doubt.

Without a doubt.

Can't we change that contract to say every month starts on the 15, and ends on the 15?

Jamie, it is an area that the contracts typically are set up to have a bit of flexibility on the liftings, the nomination process, which also includes the volumes. We've actually improved our contracts over the years. Just a few years back, we were subject to a lot of small liftings. And every lifting that occurs, we have to have boat support and incur a lot of additional cost associated with that. We have steadily increased the minimum quantity that can be lifted under our contracts. And our current purchaser has been doing a very good job in terms of scheduling their worldwide fleet. Where they're looking for a pickup of this volume at the end of the month. And then they've got dedicated purchasers probably to specific refineries. So the timing works out well for them to pick up that crude in that time window. And if you look through the years, they've done a real good job at meeting that -- at the intended calendar of that. If we were concerned about that, that might be something we should consider in our future contracts. But these trading companies, they do enjoy a bit of flexibility over the nomination in terms of quantity and the timing for when they get it. What they have to respect from our side is that we can only produce for so long, and then at some point, we fill up the FPSO and then we'd have to curtail production. So short of that, which we have never had to do, we don't have an incredible amount of leverage on the purchaser.

Okay. For the ones of a day or two, you have a lot of explaining to do each time. It would kind of behoove you to get out of that routine if you possibly could. I assume this contract goes through the end of each year if not more?

End of this year. Believe me we will be putting pressure on them to get that lifting in at the end of the year. It is very important to us.

What we lose in the third quarter we gain in the fourth quarter.

Exactly.

I fully understand that. I can't believe the world doesn't see those little nuances, but that is what happens in the world. And speaking of that point, I still love the balance sheet. I know you have a lot of capital expenditures to go. But I think it behooves us to authorize some sort of a buyback of $20 million, $30 million. We've got a wonderful balance sheet, wonderful opportunities, and a rather low stock price relative to that. I would hope the board wouldn't just actively considered, but authorize and initiate a program like that.

I'll bring it up to the next board meeting once more.

Okay.

Neil Nelson, DERS Group. Your line is open.

Could you give some color on your 2012 total CapEx and/or number of wells you're planning to drill?

It's still shaping up, Neil, but Lin had mentioned that our drilling program offshore Gabon next year has taken shape, where we've got a 4-well commitment plus a 2-well option that we could extend if we so desired. Of those 4 wells, 3 will be new development wells, 2 coming from Ebouri, 1 coming from the Avouma platform. And Lin mentioned that we are going to do the one workover because we've got 1 failed pump on a well. And our strategy is that we don't wait for the second pump to go out, and then lose a well. So we go ahead and work it over when we have a rig nearby. The minimum we have the 4 wells offshore and possibly 2 additional wells there. We do have the onshore well that we will drill in -- on our onshore block in concert with [Total]. But you might recall that as part of the farm out arrangement with Total, they're going to pay 75% of that cost. We've been tabulating up for our boards the total CapEx numbers. They're still a little bit fluid. Angola was a bit of a wild card. I'm not sure exactly there whether we'll have drilling going on there next year or not. I don't think we have got a precise number, Neil, but that is the overall piece on a foreign front. And then on the domestic side, again, we are going to drill a second Granite Wash well and get that in this year. That is a little less than $10 million. And then our first Bakken well we will start up toward the end of this year. And we do have a 3-well drilling commitment on our Poplar Dome unit. Each 1 of those wells are expected to be $5 million each to VAALCO. We will spend a total of $15 million between somewhere at the beginning of December of this year and running through the course of next year.

Probably around $60 million.

And in the first quarter conference call, Russ, I thought mentioned something about a 2-well plan for Angola, and if you changed that back to 1, are you committed on the rig in terms of the number of wells that you are planning to drill?

We have no commitment to any rig at the moment. It is -- we are still in the process of negotiating that. And it is also part of the negotiation we're having with the country of Angola, Neil. So I don't really want to get into that. But we have no -- we have good indications we can get a rig after the first half of next year. How many wells to be drilled? We are not committing to that right now.

And the last question is there was a mention about Harvest Resources and their facilities to the south of the Etame. I think they've drilled 1 or possibly 2 wells, and -- but they have never connected them up. Is that too far away from the FPSO, from the current FPSO, to connect and would only be of interest if you drilled up the [Elily] Prospect and it was successful?

The chances are it is too far away. I am told that because of the length of the pipeline, the temperature will drop. I am bringing oil from Harvest's (inaudible) block to ours, and there is a good chance that we could find ourselves with a blocked pipeline filled full of wax. But more work is being done on that. And the jury is still a little bit out, but the present picking is it's probably too far to go. And Elily remains again, in a debate with our partners. No verdict has been reached, but VAALCO keeps pushing it and so we will see what happens.

And 1 more last question. On the new platform that you are talking about for Etame or South Etame, is it still the idea there to position it so that you can reach both the North Tchibala and the South Etame.

No. The new Etame platform will be atop the Etame structure. The distance is too far for the Southeast Etame, North Tchibala accumulations.

Stop me if I'm wrong, but we're still talking to our partners about a potential development of Southeast Etame maybe with a subsea well or conceivably a very basic platform where we could tackle North Tchibala also. That's still being debated, I think.

That is exactly right.

The most recent focus was on the platform for the Etame field itself. And now that we have had to clear the hurdles on that and go into detailed design, focus moves then, I think, to the Southeast Etame area where we have the discovery. We will get to that oil one way or another. Like the gentleman mentioned, you could do it with a subsurface well or perhaps a minimalistic platform that could be used to drill more than 1 well into Southeast Etame or it could reach out to the North Tchibala area. Those discussions will be coming up in an upcoming meeting with the partners.

Thank you.

Karen, it looks to me like that's the completion of the questions.

Yes, sir, it sure is.

Thank you all very much. We will see you at the end of next quarter with some better news. Thank you all.

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