VAALCO Energy Inc (EGY) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the VAALCO Energy Inc. third-quarter 2012 earnings report. For the conference, all the participants are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions). As a reminder, today's call is being recorded.

With that being said, I will turn the conference over to the Chairman and CEO, Mr. Robert Gerry. Please go ahead, sir.

Thank you, John, and good morning, ladies and gentlemen, and welcome to VAALCO Energy's third-quarter conference call. Please bear with me for a moment while I read our Safe Harbor Statement.

This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act -- 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.

These statements include expected capital expenditures, prospect of valuations, negotiations with governments and third parties and reserve growth. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from 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, 2011, and other reports filed with the SEC that can be reviewed at www.sec.gov.

Now joining me today will be Russell Scheirman, President and CEO, and Greg Hullinger, our CFO, but before I turn the meeting over to Greg to take you through our financials, I would like to mention a few things that have happened in the past few days that Russell will elaborate on.

You will note that from our earlier press release yesterday, that we have found hydrocarbons onshore Gabon with our partner the French [major] Total. Because we have an agreement with Total to drill this well as a tight hole, we are not at liberty at this time to discuss the details. So suffice to say that, so far, we are extremely pleased with the results and I believe our shareholders will be equally pleased when we are able to discuss it in some detail.

Our third-quarter earnings were actually pretty good if it was not for the write off we had to take on our Granite Wash acreage. In fact if you take out the impairment, we would have earned approximately $0.13. In other words more than triple our third-quarter 2011. And after Russell takes you through our operations, I will have a few more remarks at the conclusion of the prepared remarks.

So with that, Greg, I will turn it over to you.

Great, thank you, Bobby. And good morning, everybody. Thank you for joining us. As Bobby mentioned, our earnings were rather flat if not for the non-cash impairment that we took on our Granite Wash property. Let me run through some numbers for you.

Our third-quarter revenues were almost identical to the same period a year ago at $37.6 million compared to $37.4 million and net income attributable to VAALCO was $2.4 million or $0.04 a diluted share for the comparable period in 2011. As Bobby mentioned, we have a non-cash impairment of our Granite Wash property and as you have probably seen a lot of companies have taken impairments this quarter. I will show some numbers here for you in a moment, but suffice to say that our -- that reduction in the natural gas price took quite a toll on the investment there.

By taking the impairment now, however, we were left with less investment to write off in the future which may improve our results in the time periods to come.

Let me take you through some of those numbers now. In Gabon our revenues for the quarter were $37 million. That compared to the $36.4 million in the same period for last year. On a nine-month basis, we had $140 million worth of revenue compared to $147 million. So very comparable. The volumes associated with those revenues in the current quarter -- 342,000 barrels that compared to 322,000 barrels in the same period the year ago and for the year so far we are up 1.25 million barrels compared to 1.26 million barrels.

The price per barrel, we are still well above $100 for the quarter. We told our crew that $100 almost $108, that is $5.00 less than the same period a year ago and looking at the year in aggregate, we have had an average sales price of almost $112 a barrel and that is only about $1.00 less than it was for the same period in 2011.

I put some new information into the Q at this time to talk about the inventory, VAALCO's share of inventory that the Board, the FPSO, at the end of the quarter. We had 99,000 barrels of oil in the FPSO at the end of the quarter. That compared to 119,000 barrels in the FPSO at the end of the third quarter in 2011. That 99,000 barrels is worth about $11 million worth of revenue that we will see in the fourth quarter.

Let me take you on to the Granite Wash, where we also have a revenue stream from the two wells that we have producing there. Our condensate revenue for the quarter was $178,000. That compares to $146,000 for the three-month period a year ago. On a year-to-date basis, we are at about $0.6 million worth of revenue, and for the same period in 2011 it was the same amount as the third quarter as we only brought the first ground of wash well up in the third quarter of last year.

Condensate volumes for the quarter were identical at 2,000 barrels for the current quarter same as the third quarter in 2011. On a yearly basis, through nine months, we sold 7,000 barrels of condensate and that compares to 2,000 last year.

The price that we received for the condensate, current quarter $77.48. That is about $3.00 higher than what we received a year ago. On a year-to-date basis, we are down a bit in the third quarter because the year average was almost $83 a barrel and compared to a year ago it would have been close to $74 or about an $8.00 increase in the year-to-date condensate price.

If we look at natural gas and NGLs, our revenue for the quarter was $0.5 million. That compared to $800,000 in the same quarter a year ago. On a year-to-date basis, $1.5 million in the current year versus $0.8 million in the same period in 2011. On volumes, and these are wet volumes, so they include the natural gas liquids inside of it, we produced 100 -- well, we sold 147 Mmcf in the third quarter of this year as compared to 137 Mmcf in the same quarter a year ago. Year-to-date basis 421 Mmcf versus 155.

In terms of pricing, and this is where we got stuck with the impairment, in the current quarter the wet price -- so this includes the dry gas value and the equivalent of the pricing for the NGLs -- we are at $3.32 in the current quarter. A year ago, we were at $5.62. So a 41% decrease in that price. And there is a similar correlation in the year-to-date numbers.

So it was on that basis that we ended up having to impair the Granite Wash investment. We impaired it by $7.6 million. Our remaining investment there is about $7.5 million so it should be well structured if the gas prices rebound that we won't have that much more to amortize in the future periods.

That's the details on the revenues. Let me take you through just a couple of numbers on our financial statements.

Again, we have got a stellar balance sheet. We had a very aggressive quarter in terms of spending and we still ended up the quarter all in including our restricted cash had right at $150 million. That seems to be a number that we stick with quarter to quarter. We did have quite a bit of investing that we did in the third quarter and we still ended up in that position.

If you look down at all in our balance sheet you will see the crude oil inventory at $2.4 million. That is again held at the lower cost for market. That is worth $11 million to us when we sell it, which we have already had a lifting in the quarter and we've got a lifting under way right now as we speak.

Draw attention to one other number here. Work in progress is a lot higher than what you see for prior year at $44 million, and that includes a fairly sizable investment in four wells that are all in progress in Montana and Russell, in just a minute here, will take you through each of these wells and their current status.

On the liability side, we have got $38 million worth of liabilities, of course, no debt. Included in that $38 million is $10 million worth of asset retirement obligation which is the accounting concept of putting on to your books the discount value of what the ultimate obligation will be to retire our asset. And the majority of that is in offshore Gabon.

We have got total assets of nearly $300 million and equity at about $250 million -- $260 million. Revenues, I have taken you through for the most part, but if you look at our condensed statement of consolidation of operations, I'll just mention here as you look at production expenses they are a bit higher in the third quarter and a bit higher on a year-to-date basis. So, a primary difference for the increase in there is really the effects of some retroactive charging that we've done with or incurred when we renegotiated our contract on the FPSO. We have got a very competitive rate on the FPSO and by extending the contract for several years, we agreed to go back and restate some of the processing rates and so that includes the impact there.

You also see the impairment listed separately there -- $7.6 million on the Granite Wash.

Income taxes are a good number because we have been doing additional investments in Gabon on a number of projects; also getting ready to start our drilling campaign in December. That means our cost account has had more money in it which then means that we have less of our volume of barrels lifted going into the [profit/all] calculation. So our income tax expense for the quarter was $14.2 million versus $17 million on a year-to-date basis where it's $60.7 million versus $65 million that we spent a year ago.

Lastly on just a couple of items with regard to our cash flows, if you look at our cash flow statement, you will see we start with our nine months' worth of income at $24.3 million and if you take the effects of non-cash items and working capital changes, that generated net cash provided by operating activities of $44.8 million and the majority of that was actually consumed in our investing at $43.4 million. So you see essentially a very flat position change in our cash position from the prior period.

So with that, that's our financials. Very sound balance sheet. Fantastic shape.

Like Bobby said, we would have had a good income month had it not been for the writeoff that we were required to take on the Granite Wash property. We look forward to next quarter.

Thanks, Greg. I am Russell Scheirman, President and CEO of VAALCO, and I would like to spend the next few minutes taking you through our Gabon activities both onshore and offshore. We have some updates on Angola. We recently announced the acquisition of a block in Equatorial Guinea and then we finish up with a discussion of the activity in -- on our domestic properties in Montana.

I'll start with our biggest news, onshore Gabon in our Mutamba block. We mobilized a rig onto the N'Gongui Island on September 1. This was the same island on which we had drilled an unsuccessful test in 2010. That was a vertical well that we drilled. We were suspicious that we were near oil, based on the geochemical results from that well. We proceeded to execute a farmout and brought Totale in as a carrying partner for 50% with them carrying us on the next well. That was followed by a joint seismic reprocessing effort to try and figure out which direction we might want to go to confirm whether there was oil nearby, and it was decided between ourselves and Totale to drill a directional well from the same surface location. We actually drilled it about a kilometer east of the island and the result was a discovery of an oil column on that first original test.

We have since drilled three side tracks to delineate that column. The discovery is in the Gomba Sandstone, at a depth of just under 4,000 feet. That is the same prolific sandstone that we produce from our offshore fields at Etame.

We expect to get fluid samples over the weekend. This third sidetrack we drilled was much more near vertical so that we can get wireline tools down and get fluid samples so that we can analyze those for flow assurance and oil property determination, and will then work on a development plan to tie the discovery back to Totale operated field called Atora that is about six miles to the north of this island.

We actually may be able to develop this field from land because on the other side of the field there's a peninsula that comes from the mainland that we may be able to set up there. So we are not sure yet whether we would develop it from the island or from the peninsula but that will be one of the things that we will work out with Totale over the months to come.

This is a very exciting discovery for VAALCO and we look forward to being able to share the details of it with you shortly. But we are excited that we will have a positive impact on our future reserve bookings and that we will increase the cash flow for the Company from this discovery.

With that, I will move offshore at Etame. We are currently producing at about 19,500 barrels per day. We had a six-day shutdown in October to do work on the FPSO that kind of reduced the October volume. I think we averaged right at 15,000 barrels for the month of October with that six-day shutdown built in. But we are now back on at about the same rate we were before the shutdown.

Tomorrow we are going to install the produced water separation facility on the Avouma/South Tchibala platform and that will reduce the amount of water we are currently sending from Avouma to the FPSO, and we will make room for additional oil production when the drilling program commences at the end of this year.

The final schedule for that program is now at five well development and workover program. The 350 foot rig KC Deutag Ben Rinnes is due to arrive in the field on December 3 and will start at the South Tchibala Avouma field where we are planning two workovers and a development well in the Avouma fault block to improve recovery from that field. That development well as I've previously discussed will test the potential expansion of the Avouma structure based on our new mapping. We will investigate this area with a pilot hole and then that will determine where we will set our horizontal leg.

There is a possibility that if this expansion is large enough that that may make room for a second development well at Avouma.

After the Avouma program, we will move to Ebouri. We have a 7 million barrel prospect there. We call it the Ebouri platform prospect. It is right underneath the platform. We'll be drilling a pilot hole into that. If it is successful, we will complete that well. As I mentioned, it is 7 million barrels which will be about 1.7 million barrels net to VAALCO if it works.

There is also a Dentale objective that is a little deeper that is about 1 million barrels of potential which would be up about 0.25 million barrels to us if it proves to be successful.

That -- we also now have a workover to do at Ebouri. The one well that we are producing there, the Ebouri 2H, one of the pumps has failed. We run two pumps in all our wells so that we can keep the well going in the event of the first pump failing. But once we have a failure, our procedure is then to go in and replace both pumps. We have been able to do that such that all of our wells are on ESP. In the four years we have been on ESP, we have only had one situation where both pumps failed and that was over at Avouma and we will be fixing that well with the drilling program.

We have one remaining slot for the Ben Rinnes. We have a six well program, four firm and two optional. So I mentioned the three workovers and the two development wells so that leaves us one slot. We have two [exploration] prospects that we are high grading right now. One is the [Inley] which I have discussed before. It is about a 50 million barrel prospect. We are still processing seismic to conclude whether it's not -- we can upgraded from a lead to a prospect.

The other is a prospect that is just north of Etame. It is in the 17 million to 20 million barrel range. And the consortium will be evaluating those while we are -- the drilling program is ongoing and we will decide at the end of that program which one of those two wells we want to drill. Possibility we might drill them both if the rig is available, but right now we just have the one slot.

For the future, we have now completed the studies for two new production platforms in the Etame area. We will be setting one on the Etame field which will allow us to drill an additional three to five wells into that field. The second platform will develop the Southeast Etame discovery that we made about a year and half ago and also will be our first attempt to develop a Dentale reservoir at the North Tchibala field. The North Tchibala field contains two zones in the Dentale that were tested and are productive and we will be drilling at least two wells, one into each zone, to see how they do on longer production test.

North Tchibala also has a gas zone, actually two gas zones in it, and being able to source that gas will save us a lot of cost of diesel, et cetera, in the later life of the field. So that will be a good development for the Company.

Platforms are set to be installed in 2014 in the first part of 2014. Each of those platforms is about a $32 million net investment to VAALCO plus each well is about a $7.5 million net cost to VAALCO. So, this will be a fairly major capital program during 2013 and 2014. The flipside of that is it will keep our costs account full so we will be paying less taxes to countersubsidize the development of this.

It is interesting that over the next 18 months or so as we spend all this money, there are only two months when we will actually have -- not have positive cash flow. So the beauty of this cost account is you spend in the money and the next month you get it back in cost oil. So there's no hockey stick here of us having to go spend a bunch of our cash and then wait for it to come back after we come on production. We will recover these investments as we go out of existing production.

The goal of these two projects is to keep our production at 20,000 barrels a day or higher, well into 2016 at which point, hopefully, we will have some results from some of our exploration wells to follow on behind.

With that I will move to Angola. We mentioned last time that we had received a decree for a three-year extension until November 30, 2014. We have finally been advised by our block chairman that the partner that we nominated has been given the green light to enter into negotiations with Sonangol for their final approval to enter into the block. As soon as that is completed, we plan to begin to pursue our first subsalt prospect in about 400 feet of water using a semisubmersible drilling rig.

We also plan and our partners agreed to this -- or the nominated partner has agreed to this once they are in -- to acquires some additional seismic in the deep water. We are on 2-D, we see a structure that looks very similar to the one that Cobalt drilled in the Kwanza Basin that led to their big discovery. So we want to firm up and see whether we have a comparable prospect on our block.

I mentioned Equatorial Guinea. We acquired Petronas Caragali's interest in that block last week. It has a discovery on it called Venus that is anywhere from 15 million to 30 million barrels depending on who you ask. It's a 500-foot oil column in that discovery. It is a channel that is encased in shale. They had drilled three wells into it. One into the -- that has got a small gas. One into the main oil leg and then one that identified the oil water contact.

There are also two large prospects in the block. So the plan is to go ahead and drill those before we decide on what to do about developing Venus. Because if either one of those is successful it would require a much larger FPSO than what it would take to develop Venus. So we are hoping in 2013 if we can find a rig to get those two prospects drilled, the operating committee, the other -- I guess about a month ago OREO approved the budget for those two wells. We will be working closely with GEPetrol to help them operate those wells. Because they really don't have the organization to do it themselves. We are not the operator in name, but we are hoping that we will be essentially the technical operator and they will be the financial operator.

With that I will move to domestic. At Poplar Dome we had drilled a vertical well to test the Nisku at Red River and Winnipeg formations and those were unproductive. So we suspended the well in a fashion that we can come back and either sidetrack it or additional deepwater -- potential and or sidetrack it into the Bakken Three Forks. We drilled a Bakken Three Forks test. We fracked that well. The well is currently shut in waiting on artificial lift equipment so that we can produce back to frack water and unload the well. We hope to accomplish that in the next few months.

We will drill a third well on the Poplar Dome. It is a Nisku test and that will complete the three wells that we needed to drill to earn our 65% interest in the 22,000 acres. We should spud that well in December.

Moving to Salt Lake. Our first well has just been hooked up and is being produced back by an electrical submersible pump to unload the frac water. We have a one-month test set for that well. At the end of that, we will be able to announce the results of that first frac.

The second well that we drilled was also a Bakken Three Forks test or actually a Bakken horizontal, and we are currently fracking that well as we speak.

Also in the fourth quarter, we have one more well scheduled up in the Rockies. We have acquired 10,000 acres on the block in South Dakota and we will be drilling a vertical Red River test. That well should also spud some time in December.

So with that, Bobby, I will return it to you.

Thank you, Russell and Greg. In summary, let me just say that starting December this year, we probably will have drilling rigs working for VAALCO and our partners throughout most of 2013; be drilling large prospects in Angola and Equatorial Guinea, while developing and maintaining our core area offshore. Gabon, of course, we will announce at a later date our future plans for onshore Gabon.

Domestically, we are evaluating the ongoing opportunities for Poplar Dome on Roosevelt County, Montana, as Russell has mentioned, and Salt Lake in Sheridan County, Montana. We are working with our Poplar Dome partner, to ascertain the best drilling procedures and locations for perhaps future drilling.

There is a lot going on now in VAALCO. I know our stockholders have always been keen on getting our prospects drilled offshore Africa and I think 2013 will show the results of that.

But I am sure you all have some questions. So with that, John, I will turn it back to you to open the floor for any questions that may be out there.

(Operator Instructions). Leo Mariani, RBC.

Just real quick on Equatorial Guinea, you talked about there being existing discovery at Venus there. Can you kind of give us a little bit more color on that in terms of what you think the size of that discovery may be? And additionally, what type of capital we are talking about, develop that and then maybe how much would it cost to drill some of the exploration wells there?

Yes, the discovery would probably require three wells to develop it. One of which would be an injector well into the gas cap. The gas cap is small, but you don't want it to shrink or you smear oil up in there and you lose recovery. I think each of those wells completed would be comparable to what we spend on a subsea well in Gabon, which is something north of $50 million per well. And then the FPSO undoubtedly would be rented. There would be a small cost of getting it installed. But I think the entire project would be in the $150 million to $200 million range and we have a 31% share of that. So $50 million -- $50 million to $60 million net to VAALCO.

As I mentioned the reserves, the $30 million number was Devon's number. Devon originally owned this and (technical difficulty) barrels. Sorry, 30 million barrels -- did I say?

Dollars.

Dollars. Sorry. The 30 million barrels was Devon's number. When Devon sold out the Zafiro field, this was kind of a satellite that came with it. And the 15 million barrel low end number is a consulting firm that GEPetrol hired. I think there's some politics going on on these numbers because the government wants those big prospects to be drilled. They don't want the thing to be developed just for Venus. They want to see these other two prospects drilled.

These other two prospects are kind of look-alikes to the Saba field that is operated by MRata Hess in that area. So I mean they are big. But there's a chance there could be gas there as well as oil. So they need to be drilled to see what's there.

Russell is being modest. These prospects are 200 million together, conceivably net to VAALCO. So we are equally interested in drilling as the government of Equatorial Guinea is.

Got you. That is very helpful color there. I guess are you guys tendering for a rig as we speak? Get it right now now that this block has been approved?

Yes. We actually have a meeting with GEPetrol next week. We -- it was interesting. We had a meeting with the Minister of Mines to get approval of this deal last month. And at that meeting, he requested a joint letter from VAALCO and GEPetrol as to how this block will be operated.

So we have got to sit down -- we didn't have any standing really. We have been attending some of these meetings as an observer. We told GEPetrol that we were making the acquisition, but until it was approved by the government we couldn't really do anything other than just kind of stand by and listen. But now that we are officially in, it is time to sit down with GEPetrol and figure out how we are going to take this thing forward. And we'll get started on that next week.

All right, that is helpful color, for sure. Just kind of jumping over to Angola, you talked about sounds like the government is in final negotiations with your partner here. I guess I'm assuming that that would come along with another extension on this block to drill there, also?

Well, we have got it till the end of 2014. So we -- for sure we are going to get the one subsalt prospect that we delineated done just as soon as we can organize a rig and the partner is on board with that. That was the reason they wanted to get in the block.

The government has made it clear that as long as we are actively studying, pursuing, processing, that they will give us whatever time we need to determine when and where we drilled the second well. So I suspect if we can't get it all done by the end of 2014 and we have shown good faith and we bought the seismic and we spent the money to reprocess that we could get an extension. But we'll talk about that a year from now kind of thing.

The Angolans were here this week in our office. There were six of them from Angola. We went through all of this with them and I think Russell is absolutely right. They are enthusiastic now about getting a [presold] well drilled in Block 5. We showed them this additional prospect which we need to do some further work on. But at the moment it's humongous. And we are hoping that the 3D we intend to acquire -- we don't have to shoot it. This has already been shot. But we just have to buy it. And we have held off buying it until we have a partner.

Hopefully that the 3D will confirm what we're seeing on 2D. And we have also finally gotten 2D over the entire block from Conoco. So things are looking up finally.

That is helpful color, for sure. If you guys could also maybe just address the H2S that you are seeing offshore Gabon? I think in your release you talked about potentially having to go out there and remediate some of these wells and install some new equipment and upgrade the metallurgy out there. Any idea of how much that would cost and what the appetite is amongst the partners to do something like that?

Well, I think that we are still investigating the best procedures to handle that. And it's still really in the investigatory stage. And so, we don't have a definitive plan yet to be able to tell you about. I think the important thing to remember, the reserves are still there. They haven't gone anywhere.

So the procedures probably will come around to figuring out a way of installing some additional equipment on the platform and whatever in Ebouri. So we will see what -- we will keep you informed on that. But it is a little early.

All right. Thank you.

I just got a note handed to me here that our partner has now been approved in Angola. Can we tell them who it is? Okay, we are going to hold off telling you who that is until we get more than just a note handed to me here. So, but, all right. They have been approved. So now that opens up all kinds of opportunities for us in Angola.

Well, that's great news for sure.

Yes. Terrific. We are on a roll.

Yes, for sure. All right, well, thank you for the color.

I can't help it as CFO to mention that with that approval that company is prepared to make the payment that is owed to us for that 40% hangover since the other party left. So that just rolls right to income. That number is $5.5 million.

(Operator Instructions). Kim Pacanovsky, MLV & Co. Your line is open.

Sorry about that, good morning, everybody. Sounds like there's good news all around.

Could you --? Can we just talk about the discovery and I know that you really can't give us any specifics, but maybe you can talk about what your thinking was before the well was drilled. Maybe what the predrill was and if you can't go into that, maybe you could tell us what the initial well predrill was, and what kind of structure are you looking at compared with the structure at Atora, which I assume is also in the Gamba.

Well, I know in past presentations, certainly, that I have done when we talk about our concession onshore Gabon, when asked what do you think the reserves are, I have used the figure of about 20 million barrels. And I think I'm just going to leave it right there.

And that was the target size for the entire concession?

For our -- no. That's just for this prospect, of course.

That's what I thought. That's what I thought. Okay. Sorry.

Right. This discovery now sets up four or five additional leads that we have that will now take a hard look about turning into prospects.

Okay.

Of course, we have some $20 million in sunk costs that were associated with two wells that we previously drilled that were not successful. And we will be able to recover those sunk costs out a production from this field if we get it all on (multiple speakers).

So we have got a carry forward of $20 million in a cost account.

What is the timeline that it would take to build the infrastructure to carry crude oil up to Atora?

We will probably -- we will be able to talk about all of that probably in the next 30 to 45 days is my guess on that. I really want to leave, get out of this for a moment here before we (multiple speakers).

That's fine. I will move on to another subject. I understand.

As far as H2S is concerned, did the samples get actually finally get out of the country? Are they in a lab right now? Are they being analyzed? Do you know anything about concentrations? Any more detail?

We have had the samples tested in a lab in Congo to confirm that both wells had H2S in them. There was some -- some people thought isn't it weird that both wells would show up with H2S at the same time. One of them is a much lower concentrations than the other and it may be that we have been producing some H2S and just didn't really know it until the second well came in and it came fairly strong.

What we haven't gotten back yet is the analysis that is ongoing as to whether this is bacterial or volcanic H2S. And that will maybe help us understand where this stuff is coming from if we get those results.

But we have ascertained that another operator in Gabon have H2S in their well, and they bolted on to one of their platforms a facility that treats its and cleans it up and as we speak today, they are doing that to about 6,000 to 7,000 barrels a day of sour oil that they produce and they clean it up and send it on onshore to the Robie -- the Shell Robie terminal. So we won't be breaking any new ground here if we decide to do something similar to that. I think our existing platform probably couldn't handle all of the weight of that equipment.

So we will probably be looking at some sort of a satellite facility that we would set right next door to our Ebouri platform that would have, basically what you do is you heat stuff up and you treat it with sweet gas which sucks all the sour stuff out and then you burn the sour gas.

And if you had to put maybe a best- and worst-case scenario on how long it would take to have all this done. Best-case scenario of being able to treat it with this bolt-on worst-case scenario having to put in a whole separate platform -- again, what kind of a timeline could we be looking at?

Probably 2015.

All right. And then --

Understand that we are still producing the 2H well which was our best well by far in the field. In fact it single-handedly produces almost twice what the two wells that we shut down.

Right, yes, no I realize that.

And we will capture a fair amount of the reserves that would have been captured by those two wells we've shut in if we chose not to clean those wells up. In other words, the 2H well is the highest well on structure and everything moves towards it. It is just that we are suspicious that, by 2015 or 2016, maybe the H2S will have moved far enough to where it gets in that well. And then you would have a situation where you would just have to clean it up. So we are just going to have to clean it up.

Okay. And then the rig that is coming in is, I assume that is the transit if you say it is coming in in December. It is not still working on somebody else's well. Is that correct?

It has been in a yard being -- going through its five-year upgrade, et cetera. And the key was that they had to hire a big barge to ship the well from South Africa where it has been in the yard up to us. And they have firmed up the date with that barge will arrive and we know it is about a two-week journey. So you know, the barge is supposed to be there on 18 of November or something.

So once you know that date, then you know when the rig is going to get there.

Okay, terrific. And then just one quick last question. Coming into the Nisku, the first well was not successful in the Nisku and you are drilling it Nisku test with the third well. Can you just give us an idea of geologically what's changed between the location of the first and the third well that you think that you could be successful there?

Well, we were able to learn a little bit about our seismic with the first well. And we can see we can get high to that well on a Nisku structure and so that is also a very cheap well to drill to go ahead and earn the 22,000 acres because it's just like about a two-week well that we can just punch down.

Again, it could be converted to a Bakken well if Nisku doesn't work, but we have to get that third well drilled by year-end in order to earn. So that just seemed like we can get high to -- the Nisku was oily looking when we drove it. It just didn't produce. So we know there is oil in the system. And if we can get high to that we think that is a good shot.

That's great. Thanks. Thank you, gentlemen.

[Neil Nelson, Dares Group].

Good morning. Are there any comps in South Dakota on the Red River formation that you can use as a guideline for that property?

Yes, but I couldn't tell you the name of them off the top of my head. But I would be happy to send you an e-mail or something. It's a trend that runs for about 100 miles in where it's the Red River. They call it it goes into what they call kind of a trash zone where the porosity pinches out and you are playing a -- the porosity pinch out and we have got a well that made about 2,000 barrels on the edge of this thing that was, we think, in the trash zone and we think if we go east, which is away from that trash zone, we can get into the good permeability and, hopefully, make some wells.

The nearest field I want to say is eight or 10 miles away and was 50 million barrels. I mean the fields can be good if you find something. We don't think ours is that big, but we think it's got 20 -- chance of being 20 million barrels if it works.

And could you address the human resources, given all of the moving parts that you now have in terms of your ability to develop all of these opportunities?

Yes, we have got probably the scientists that have been working Angola and Equatorial Guinea that's all being done in-house. We have put together a group for our domestic program in the Bakken and they are the ones that are driving the South Dakota Prospect. So at the moment, we are okay, but we probably added a couple of people in our [G&T] department over the next four or five months to make sure that we can process all this new information that we are getting. But we are aware that of that and are looking for a little bit of additional help.

I am really encouraged by your patience and waiting out all of these events that have been so long to come to fruition and it looks like they are all coming together.

It has been a long wait. And I am sure stockholders have been -- well, I appreciate the patience of stockholders. Put it that way.

Thank you very much.

And Mr. Gerry, there are no further questions in queue.

Okay. Well thank you all very much, and look forward to seeing you in about three more months. Okay.

Goodbye.

Ladies and gentlemen, that doesn't include your conference for today. Thank you for your participation. You may now disconnect.