VAALCO Energy Inc (EGY) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the third-quarter 2013 earnings report. 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)

I would like to turn the call over to Robert Gerry, please go ahead.

Thank you Linda, and good morning ladies and gentlemen, and welcome to VAALCO Energy's third-quarter conference call. Joining us today is VAALCO's new CEO, Steve Guidry; along with our President, Russell Scheirman; and Chief Financial Officer, Greg Hullinger. Before I introduce Steve and turn the proceedings over to him, please bear with me while I read our Safe Harbor statement.

This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 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 presentation 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, 2012 and other reports filed with the SEC that can be reviewed at www.SEC.gov.

Steve Guidry officially assumed the CEO position of VAALCO on October 21. Though he has spent the prior few weeks in our office familiarizing himself with all the internal and external operations and business of the Company. All of us here at VAALCO are excited over the new leadership, and speaking for myself I am most impressed with his knowledge of the industry, his high level of energy, and his astute business acumen. I truly believe VAALCO has found the right individual to successfully guide us in our next phase of growth.

Steve joins us after a highly successful career at Marathon Oil company where he covered the waterfront in a variety of positions with a strong emphasis on West Africa, where as you all know VAALCO has a vast majority of its assets. Steve is a petroleum engineer by training with operations his strong suit, as he has served Marathon for a number of years as their Central Africa the business unit leader, encompassing Equatorial Guinea, Gabon and Angola, countries in which VAALCO has a vital vested interest.

He moved to Libya in 2009 where he became Chairman of the Waha group, a joint venture between ConocoPhillips, Hess and Marathon. He returned to the US to lead up Marathon's worldwide business development effort, where he had the lead role in the 3.5 billion acquisition by Marathon of acreage in the core area of the Eagle Ford. I can tell you that not only is Steve a leader, he is a team player and the Board is united in their belief that Steve's background and leadership will be the catalyst VAALCO needs to successfully build and grow the Company for the benefit of all of our stakeholders. I will now turn the meeting over to Steve.

Thank you very much Bobby, I appreciate that introduction. I am very pleased and very excited to have joined VAALCO Energy and I look forward to working with the team as we move the Company forward. As Bobby mentioned my 32 years of experience, much of which was on the African continent, along with my time in M&A I believe has prepared me well for the role of CEO at VAALCO.

I have confirmed what I observed from the outset. VAALCO has quality assets, great people, and a strong desire to grow the business. I'm excited about the slate of projects already in progress, the setting of the two platforms at Etame, and Southeast Etame, North Tchibala, and the drilling of the six development wells, I believe provides the necessary resource development to continue VAALCO's long established track record of offsetting declines at Etame. These projects will enhance the Company's production in cash flow, providing the much needed liquidity for future growth.

While we're at the beginning of our process to formulate and validate and new strategic plan, I can tell you that the strategy will include a more balanced growth focus. The strong reliance on growth through exploration drilling will make way for a more aggressive discovered resource acquisition strategy. Balance is what it needed to provide greater certainty on production and reserve growth from value accretive development opportunities. We will be sharing move details on this strategy with you in the coming months.

Recognizing that our investors are most interested in the status of our plans to drill our identified exploration prospects at Angola and in Equatorial Guinea, I have an update that I think all of you will find interesting. Let me first began however by offering caution that we still do not have a completely clear path to begin drilling in Angola or Equatorial Guinea. However, we believe there have been some recent development in each case that will demonstrate real progress.

First let me talk a bit about Angola where as many of you know we have been waiting on an assignment of the outstanding 40% participating interest in Block 5 to VAALCO in order that we could then complete the previous negotiated [forma]. We have received notice from the national concessionaire Sonangol E&P of their plans to resolve this issue of the unclaimed outstanding interest. We believe the actions outlined will occur in the very near future. Once complete, this will clear the way for VAALCO and its partners to begin mobilizing the necessary resources and equipment to Angola to carry out the two well program.

In Equatorial Guinea, Greg and I are traveling to Malabo on Sunday to begin working through an agreed compromise in principle with the national oil company GEPetrol, to effectively share operatorship in Block P. If we are successful, this will place the block owners in a position to begin mobilizing resources and equipment to Equatorial Guinea to carry out that two well program as well. While in Malabo we will be meeting with the Minister of Mines and Energy, Gabriel Nguema Lima. I have worked very close with the minister in the past on major projects in Equatorial Guinea, and he and I are both very pleased to be working together again.

In Gabon, VAALCO and its partners continue to have dialogue with the government about awarding the exploitation permit and approval of the development plan. We are meeting this week with our partner Total -- we had a meeting this week with our partner Total to clarify the differences we have in interpretation of the subsurface, and to discuss the logistics of tying this discovery into their existing infrastructure. I will be meeting with the Minister and the Director General of hydrocarbons next week on this matter as well.

So that gives you a bit of a summary of where we are on the three exploration opportunities. I would like to turn it over to Greg Hullinger, our Chief Financial Officer for the financial report.

Thank you Steve, good morning everyone. Thank you for joining us on the call. I'll take you a bit through our Q3 performance as well as some year-to-date information.

VAALCO reported net income of $2.4 million, or $0.04 per share in the third quarter of 2013 versus $0.1 million, or $0.00 per share for the same period 2012. Through the first 9 months of the year VAALCO's net income stands at $16.7 million or $0.29 per share, compared to $19.6 million or $0.34 per share for the same period in 2012.

Next I'll give you a recap of some of the key drivers of the financial results in the third quarter of 2013 versus the same period in 2012. Foremost at the top would be are Gabon crude listings. We lifted essentially the same quantity in each comparative period. We lifted 337,000 net barrels in Q3 2013 versus 342,000 net barrels in quarter two -- I'm sorry, in quarter three of 2012, a 1% decrease. Neither quarter actually featured a late September lifting, which then obviously sets us up for a four-lifting quarter in Q4 as the crude purchaser has an end of year commitment to lift the available crude aboard the FPSO.

The sales price for the crude in quarter three of 2013 averaged $110.54 versus $107.94 in Q3 2013, that was a 2% increase. And then after you consider volumes and prices, which wasn't a tremendous amount of difference, the three principal movers were higher operating expenses, higher exploration expenses, and lower taxes paid to the Republic of Gabon. More on those three items in a moment but first let me take you to some information from the balance sheet.

Unrestricted cash remains solid at slightly over $100 million, combined with $13 million of restricted the Company has combined cash of approximately $113 million. And many of you know, the major component of restricted cash is the $10 million commitment to drill the two exploration wells on our block in Angola. As Steve just mentioned some positive news there that hopefully we'll get that program moving quickly, and once we drill those wells that restricted cash becomes unrestricted. Although cash is down from a comparative period of December 31 of 2012, as you will see on the balance sheet, it is not hard to see where the Company has been investing.

This year VAALCO has invested over $30 million for its share of the construction of the two new platforms being built in Louisiana for the offshore waters of Gabon. We also invested approximately $11 million in new development wells offshore Gabon. And we spent nearly $11 million on Treasury Stock purchases thus far this year totaling 1.8 million shares. And in addition we also expended over $7 million on our share of work over expenses to replace electric submersible pump on three of our offshore Gabon wells.

Current assets at $127 million are down 15% from the end of 2012. As you would expect to see, the decrease in cash and thus current assets is largely picked up in the property and equipment segment of the balance sheet. Property and equipment at $302 million is up 15% prior to DB&A. Total assets at $274 million are up 2% as of September 30, 2013 compared to December 31, 2012.

Moving on to revenues. Although revenues in the third order of 2013 were very similar to the third quarter of 2012, revenues are down significantly when looking at the full 9 months of 2013 versus the first 9 months of 2012. Year-to-date 2013 crude sales of 1.013 million net barrels were 19% lower than the 1.248 million net barrels were 19% lower than the 1.228 million net barrels totaled during the first 9 months of 2012. The average price we received for sales over the first 9 months of 2013 was $108.06, a 3% decrease from 2012 where the average price was $111.79 per share.

Lower sales volume is obviously a function of production. Inventory on board the FPSO as of September 30 of both 2013 and 2012 was very similar in both periods. Both periods we had a substantial inventory aboard the FPSO, actually in excess of 600,000 barrels in both periods. That sets up quite a few barrels to be lifted in the fourth quarter. Which we did a year ago and we expect that will happen again this year. Back to the decrease in production as a driver behind the lower year to date revenues. The main item of the production decrease is really a production deferral. And that was due to the shut in of two of the three producing wells in the Ebouri field due to the presence of hydrogen sulfide. We shut in those two wells of July 2012.

Plans are moving forward for the engineering, and ultimately the building and installation of H2S processing equipment in the current timing for being able to restore full production from the Ebouri field is in 2016. To a lesser extent other items have negatively impacted production as well. We have had three wells off production for portions of 2013 for the replacement of electrical submersible pumps. And any time we are moving the rig in the proximity of our platforms we curtail production while the rig is being moved on and off location.

We reported last quarter that we were also experience some generator issues on the Avouma platform and this also had an impact on production. The generator repairs had now been completed by the end of third quarter and any remaining production decline is attributable to essentially normal decline as the older wells mature. Revenues from the United States, which is really primarily the Granite Wash property in Texas, are not material in the details of volumes and values of those are included in our 10-Q. Next let me move back to expenses. I mentioned earlier that the three key drivers during the quarter were production expenses, exploration expenses, and taxes.

Production expenses were $12.6 million in Q3 2013 compared to $5.9 million in quarter two 2012. Expenses in the third quarter of 2013 include $2.1 million of well work over costs, $1 million associated with deck boiler repairs aboard the FPSO. And that deck boiler has now been completed and that $1 million is actually comprised of repairs and the fact we have to burn heavy fuel oil when the deck boiler is not available to us. Ordinarily it's using free natural gas from our production stream, so it's important that we get that piece of equipment back online. And like I said it is back online.

The generator repairs I mentioned on the Avouma platform set us back $0.8 million. We spent $0.7 million to temporarily suspend the two shut-in wells on the Ebouri platform. And we also spend $0.8 million, which is -- well it's really a reevaluation of the crude that is held on board the FPSO as inventory. So, all those items I just mentioned contributed to a higher than normal quarter of operating expenses. I would expect that these items will not be repeated in the fourth quarter.

Exploration expense through the third quarter of 2013 totaled $11.1 million compared to $700,000 for the same period 2012. The main components of the quarter three 2013 number are $6 million associated with the unsuccessful Ovoka exploration wells offshore Gabon. And we also recorded $3 million in dry-hole costs for an exploration well that we drilled in late 2012 in Montana.

During the third quarter we determined that the Company would not proceed with further completion activities on the well. We have a partner in that development and the partner has actually proposed further completion activities and we've declined to participate in that. And as such we have gone ahead and recorded our investment as a dry-hole cost. We also recorded $2 million in write-off of undeveloped exploration leaseholds. And this was primarily an undeveloped piece of acreage in Granite Wash in Texas.

DD&A expense was lower at $4 million compared to $4.9 million in Q3 versus Q3 of a year ago, due that the lower sales volumes that I discussed earlier. G&A expenses are in good shape at $1.9 million in Q3 2013 versus $2.5 million in Q3 2012. Income tax expense was significantly lower in the third quarter of 2013 than in the same period 2012, and those numbers are $5.7 million versus $14.2 million.

As in the other quarters in 2013, the high level of capital expenditures as well as our operating expenses, has kept our cost account at very high levels. And many of you are aware of how that process works where we are reimbursed through the crude that we sell up to 70% of that volume is available for cost recovery. So when you have got a lot of investing taking place, a lot of the barrels are coming back to VAALCO and its partners as cost recovery, and those do not bear income tax. So anyway most of the barrels sold during the quarter were cost oil barrels and as such do not bear Gabonese income tax.

We expect to continue to see low income taxes for the remainder of the year and into 2014. I probably get more calls after this call with regard to tax rates and tax information. I thought maybe I would run down real quickly some numbers for you. I took a quick look and just went back several years and looking at tax as a percent of Gabonese revenue. So here we have the Gabonese revenue and how much of that revenue goes back in the form of income tax. Again, in years where you've got a lot of investment that number will be lower. Where you don't, the opposite is true.

But I'm just going to read through a series of percentages going back to 2007. 2007, 38% of the Gabonese revenue was paid in income tax and then 43%, 32%, 26%. In 2011 it was 44%. So that gives you an indication that it wasn't an incredible amount of investing going on during that period. In 2012 the same case, 42%. And thus far in 2013, 22%. That's why were seeing the low Gabonese taxes. And as we continue to invest in the construction of our platforms and with the number of wells that we have been drilling we have that cost account really full this year.

Moving on to net income, I did mention earlier net income for the quarter ended September 30 was $2.4 million compared to $0.1 million for the same period 2012. Earnings per share again $0.04 compared to $0.00. And for the 9-month period net income of $16.7 million was slightly lower than the same position a year ago at $19.6 million. Earnings per share $0.29 compared to $0.34. With that let me turn it over to Russell Scheirman for an operational update.

Thanks Greg. I would like to provide some additional information on the upcoming two well program at Etame, the status of the two platforms we are building for Etame, and then briefly touch on our onshore Gabon Mutamba project, Equatorial Guinea and Angola.

At Etame we're currently producing at 18,000 barrels per day, which is up about 1000 barrels per day of where we were from the end of last quarter, and I'll talk about why that is in a minute. On the drilling side we have completed our six well drilling and work over program with a 350 foot jackup rig, the Ben Rinnes owned by KC Deutag. As we noted at the last conference call we successfully drilled and completed the Avouma 3H well, and it's producing just under 2,000 barrels per day. We also completed two work overs on the Avouma platform. The generator problems that we talked about last quarter at Avouma had mostly been solved which has allowed us to return one of the two wells that we were holding off production while those generator problems were being taken care of on the production.

Unfortunately when we attempted to return the second well to production we encountered problems which we believe are related to the casing in the well. We believe we have got parted casing in that well and we are currently studying this issue to determine if the well can be restored or if it will require sidetracking. We then moved the rig to Ebouri where we discussed the successful work over on the Ebouri platform last quarter in the dry-hole on the Ebouri prospect this quarter. We also announced the Ovoka open water well encounter, the only water bearing formation in Gamba was abandoned.

The rig is currently on a two well program with another operator in Gabon, it is on the second of those two wells. The consortium has decided to exercise our option for two additional wells so the rig will be returning to us, we believe in mid December. The first of the wells will be an exploration well on a prospect named Dimba. There is two potential objectives in this well, the Gamba, we see a closure in the Gamba and the deeper Lucina formation which would be a new horizon for VAALCO if we are able to find oil down there. There is existing Lucina production nearby that it's operated by Perenco, so there are proven Lucina reservoirs in the area.

The risk in the Gamba is primarily sub salt structuring. In the Lucina the risk is presence of good quality sands. They are turbidite in nature and they tend to meander but the seismic signature that we see on the seismic over this prospect is very similar to the signature we see on offset wells that had good sands in them. So that is what is encouraging us to go ahead and test this prospect. Potential reserve from this prospect on a gross basis range from 15 million to 40 million barrels depending on whether one, two, or both reservoirs are successful.

For the second well we will be returning to the Avouma platform to work over the Avouma 2H well. We experienced a premature pump failure on that well. And even though the well is on production since it is the best well in Avouma we believe it is prudent to go ahead and replace that pump so that we will have two good working pumps since we do not plan to have another rig out in the field until the end of 2014.

Moving to the platform construction for Etame and the Southeast Etame, North Tchibala development. We remain on schedule with the fabrication of these two platforms in Gulf Island in Houma, Louisiana. We are past the hurricane season now which increases our confidence in finishing these platforms on time. As I have described before, one platform will be installed at the Etame Field where we will drill up to three -- we'll drill three to five new wells on that platform over its life.

The second production platform will develop the Southeast Etame discovery and the North Tchibala discovery. The North Tchibala discovery also contains a gas resource which we will be valuable for fuels in the later life of the Etame complex. The platforms will be installed by a company called EMAS based in Singapore. They are going to be using a new installation vessel with 3,000 ton lifting capacity to install the jackups on the decks in the third quarter of 2014. They will also handle the pipe laying project to connect these platforms to the FPSO.

I can report to you that we have also located a rig which is available the same time as the completion of the installation of the platforms. So as it stands now we anticipate being able to commence drilling as soon as the platforms are drill ready. Each of these platforms represent about a $40 million net investment to VAALCO, plus the cost of the wells, which run at about $7.5 million each to VAALCO. But with these two projects we expect to maintain production at or above 20,000 barrels a day through 2016. Greg mentioned that the front-end engineering design for the sweeten facility is ongoing. We expect the sweetening project to reach final investment decision by year-end 2014, with the facilities in place by 2016.

With that I'll move to Mutamba onshore. We have filed for the exploitation agreement and are continuing to discuss this with the government of Gabon. We hope to conclude those negotiations this year, with them being able to get a development plan approved shortly thereafter, and move forward to tie the field back to a field that is nearby that it's operated by Total called the Atora Field. It's about 5 miles from the N'Gongui discovery. We're also negotiating an extension of the exploration area with an additional 3-year phase. That is it for Gabon.

In Equatorial Guinea we have a 31% interest in a provisional development area Block P. That block is currently operated by GEPetrol with a 58.4% interest, and there's two other partners with about 5% each. There is a existing discovery called the Venus discovery, which is a 300 foot oil column in a channel sand that was delineated by a couple of wells and it is in about 800 feet of water. We see additional channel sands nearby that we would like to commence a two well drilling program after we work out arrangements with GEPetrol over operatorship. Steve is going over there next week to talk to them about that.

In Angola we have a 2-year extension until November 30, 2014 on our acreage there. And Steve mentioned that we had received communications from the concessionaire of their proposed [scheme] to reactivate the interest which has been in default for this past several years. Once that is completed, we will immediately pursue the drilling of a sub-salt prospect in 400 feet of water using a semi submersible drilling rig.

And we also are discussing a second well and potentially the acquisition of some deep water seismic with Sonangol where we see some structure similar to the ones that were drilled by Cobalt in their Kwanza Basin discoveries. With that Steve, I'll turn it back to you.

Okay, thanks Russell. Just to close things out -- just to mention a few of the things and highlight and summarize some of what we heard about the future and what we see in the near term and then the longer term for VAALCO. Greg mentioned it but our internal estimates suggest that our full-year 2013 performance will be strong on the back of the four liftings in the fourth quarter of 2013 at Etame. This, combined with the increased capital spend will certainly result in the lower tax rate, as Greg mentioned, for total 2013 and it'll have a positive impact on our financials.

Our team continues to make great progress with the construction of two platforms as Russell mentioned, and we believe that sets us up for very strong 2015 production performance. I'm very pleased with what I've seen at this point with a demonstrated ability to progress, both for development projects and the exploration prospects that Russell mentioned. With Dimba being our near-term example of that, which we plan to spud in December 2013. So we are encouraged by the potential for Dimba, we are encouraged by the progress we are making at Angola and in EG both. We believe that all of this results in a great value add for the VAALCO portfolio so a lot of positive things happening in VAALCO currently.

So with that, what we would like to do is open the conference call to questions.

(Operator Instructions)

We do have a question from the line of Brad Heffern, a private investor.

Hey guys, that's Brad Heffern with RBC. Congratulations on your new role Steve. Just a question on Angola. I was wondering if you could provide some context as to whether the process that's currently going on is similar to the sort of farmout path that you guys were taking. Or if Sonengal has decided to just improve things in the more standard way that they were talking about before. And also I think maybe I heard in the prepared comments Steve, that you said partners. I was wondering if that is your preferred partners in Sonengal or if there is another partner being added to the mix.

Thanks Brad I appreciate that. The indications that we have received from the concessionaire at Sonengal EP sort of laid out the plan as they currently have it envision. We are currently not at liberty to talk about exactly what that plan is. So unfortunately we can't say any more than that. I will tell you that my experiences been when Sonengal E&P reduces to writing their intentions that typically you find in fairly short order they follow up on what they say. So, we are encouraged by that. What we will have to wait and see exactly what they do and how they formalize their plan before we really say any more about how then we move forward, but we are confident that their plan does clear the way for us to move forward.

Okay, understood. Talking about onshore Gabon, can you talk a little bit about what the current negotiations are discussing. Is it still over this proposed industrial zone that you talked about last quarter or is there something else going on?

Yes, it is basically just about some changes they want to make to the production shared contract that we have just got to iron out with them. And so we were going to meet with them this week, unfortunately I had a conflict and was not able to go so we pushed it back another couple of weeks and I intend to go there just as soon as I can to see if we can't put this thing to bed. But we had a meeting with Total this week and they are excited about the project. You know, this is one of their first onshore discoveries in Gabon in over a decade, so they are anxious to keep the project moving. So they are helping us behind the scenes.

Okay, got it. And then finally Steve, you know in your prepared comments you talked about more of a balanced growth strategy for VAALCO in the future. You know, respecting that you guys are going to put out more detail over the coming months, I was just wondering if you could provide a little more color. Does that mean you know, more focus on exploration or does that mean adding new assets? Any color you're willing to provide.

Thanks Brad, I appreciate that. You know, one of the things that I quickly came to realize after joining VAALCO is really the remarkable job that VAALCO has done in continuing to develop additional reserves at Etame. If you look at the history of Etame over the last 10 years, VAALCO has done a wonderful job of finding additional resource, developing that resource, adding reserves, adding production. For the most part kept that FPSO at, or near, capacity, which has been a pretty phenomenal effort. So looking forward you ask yourself what is next? How might VAALCO then capitalize off of that competency and billed rate. Well, when you think about adding additional rig reserves the first thing that comes to mind is the project that we have in front of us; Southeast Etame, North Tchibala, and the Etame platforms and then that's great.

But I think the real key is how do we then duplicate that and bring additional opportunities forward? Well, the logical place to look in the near term is EG and Angola where we have very perspective blocks. However, it is my view that it would make sense for VAALCO to balance that growth strategy by looking at discovered resource opportunities, maybe even looking at producing assets, to give us greater certainty around the production growth in around the reserve growth. And look to temper, to some extent, being totally reliant on exploration success as the growth engines for VAALCO. So that is sort of the--strategically that is kind of the view that we have at this point.

That's great, thank you.

Bill Dezellem, Tieton Capital, please go ahead.

Thank you, actually following up on that last comment relative to Etame. The two new platforms that are going in, do we understand correctly that the outcome there will likely be to maintain production at the field and offset decline rates as opposed to growing production in that field?

Well, it will grow it back to peak levels that we saw back in 2010 and 2011. We currently are producing around 18,000. We anticipate in the range of 15% to 20% decline between now and when we start bringing these two wells on. But then we will rapidly push it back up over 20,000 barrels per day and perhaps as high as 22,000 or 23,000 barrels per day depending on how the FPSO behaves. And we should be able to hold it there for a year plus and then we will actually expect to have a little bit of surplus production capacity that will then ease into as other wells decline. So we are always limited by the FPSO which can't handle more than 25,000 barrels of oil a day, no matter what we do, so.

And given what you know right now, what would be your anticipated time frame to get actual production back up to that 20,000 plus level?

The first half of 2015.

All right, that is helpful, thank you. And then secondarily, I believe that there was reference about Sonengal and when they put their plan in writing then it is really is solid. Have they put their plan in writing yet and I apologize if you actually did say that, I missed it.

We have received, this is Steve, we have received correspondence from Sonengal that explicitly indicates what they plan to do with the 40% interest that has been the subject of our discussions with them. So we are in a position now where we are waiting for them to act on that plan and we believe that they have already begun to take action so, but we need to see that has been codified and documented and that is what we are waiting on.

Yes this is the first time they have ever given us anything in writing. They have always talked with us about what they might do or this or that and the other, but they've actually given us something in writing this times we think that is a big step.

Thank you both.

Next we will go to the line of our Eric Anderson with Hartford Financial, please go ahead.

Yes, if I could follow-up a little bit on your plan to sort of have more development of proven reserves as opposed to the entire exploration focus. Are we to assume that this would still be sort of in the Western Africa area or might you look at developing reserves in other locations? Either there or in the United States?

This is Steve. A fair question. I just today I guess, I complete my third week on the job but that has been a question that we have been asking ourselves regularly in the first three weeks. And working closely with the team here, what we are doing is putting together kind of a higher level strategy review that we will be taking to the board, and that will allow us to then sort of come to agreement between the management team and the board as to exactly where we prefer to look for these discovered resource opportunities or producing asset opportunities. It has been my experience when you looked everywhere you're essentially looking nowhere. So what we will do is we will arrive at what we think is the best option for the Company and then we will increase our efforts around looking for discovered resources or producing assets in that particularly area. So, to this point that's undecided.

In this follow-up, would you have a preference for them being offshore or might you consider onshore in that area, Western Africa?

I think at this point it is not decided. At this point we are still open to either.

Okay I appreciate you taking my question.

Thanks.

(Operator Instructions)

We will go to the line of Neal Nelson with MNI, please go ahead.

You touched on the Lucina Sands in the drilling of the [Obaka] well and were not successful. And I believe someone had said that you never have seen oil that far south in the Lucina Sands in Gabon and I noticed you are going back again on the Dimba. Does the seismic tell you something different about these particular sands?

Yes, the seismic signature on the Lucina formation where we are drilling this well is very similar to the signature we see in some nearby offset wells that had good sands in them. They were wet sands, I will tell you that, but they were not on structure either. We have a structure that we see in the Lucina. So that is what is encouraging us to take the well deeper.

I will mention that in the past you may have heard us talk about a thing called the [N Lee] that we shock some shallow-water seismic on back in 2011. When we finally got that thing processed under 3-D there is a Lucina structure down there but there was no closure in the Gamba. So we decided not to drill that prospect because the Gamba is always good if you find it. And if there was no Gamba structure going just for the Lucina Sands we felt would've been too high of a risk. But this Dimba prospect has a Gamba closure for the way we map the seismic. And then if the Gamba works that would be great. We will then take it down into the Lucina to see if there is sand down there, so we have two chances at it (inaudible) than just one.

And for your CapEx for 2014, do you still have any plans to use debt financing as you start to see this big surge in CapEx for the platforms and wells that are going to be drilled associated with, plus the Angola MA activities potential?

We are working to develop a standby revolving-debt facility that we can use for these Gabon projects just as a backup to ensure that we have plenty of cash depending on the outcome of some of these other things that we're doing.

Thank you very much.

Next we will go to the line of Joe Pratt with Wells Fargo Advisers, please go ahead.

Hi, thank you for taking my call Steve. Can you address what appears to be a holdup in getting the Mutamba situation clarified?

Yes let me ask Russell who has been more involved in Mutamba. Let me ask him to handle that.

Were you on when we had an earlier question about that?

I apologize, I just joined the call.

Okay, no problem. The issue there is that the DGH has a part of our application for the exploitation area has brought up some additional taxes if you will, they are called the production fund that they want us to contribute towards, and a couple of other things that they are doing to the production share contract that were not in our original contract. And we are having to go through these with them because our position was we have a contract and we are now declaring an AEE and then where did these ideas come from? So, we are discussing these. They are not huge numbers but there is precedents involved and so we feel like we need to get this resolved in a manner that is fair to us as the contractor.

I was supposed to go over there this week to meet with them about this issue but unfortunately I was not able to and I am hoping to get over there in the next few weeks to sit down with the Director General of hydrocarbons and try and iron these things out. We had the minister and the director general here in Houston a few weeks ago to tour the construction of the Etame platforms and we had some conversations about this. And I have looked the Director General in the eye and said we have got to get this solved, and he said you need to come to Gabon so we will see hopefully we can get it solved.

Okay, thank you. And are you and Total negotiating that together or separately?

We are consulting with Total. We do not have them in the room per se since we are the operator, but we meet with them before and after in each of these sessions so they are up to speed and we are getting-- you know, their position is probably stronger than VAALCO's on some of these things, so we are having to work through with them how we get this sorted out.

And lastly I apologize if this has already been answered but on Equatorial Guinea and Angola, have your partners been identified and in those two situations whether you or the partners will be the operator?

Joe, this is Steve. With regards to Equatorial Guinea we have meetings with GEPetrol, the national auto company of Equatorial Guinea, next week to discuss an arrangement which we would essentially share operatorship of block P. So, we will have those conversations next week. We will be meeting with both GEPetrol and with the minister to discuss this arrangement.

In Angola, VAALCO is the operator in Angola. The partner, I don't know if you were on the call but exactly who we end up partnered with I think will be become very clear in the coming weeks. Right now Sonengal E&P has a plan that we just at this point cannot share until we get that plan finalized.

They did give us a plan in writing which is the first time they have ever done that.

Okay. Thank you.

There are no further questions at this time.

Okay, well let me thank everyone then for your time and your attention this morning. We appreciate your interest in VAALCO and we look forward to getting back together to talk about our fourth-quarter successes next year.

Ladies and gentlemen, that does conclude our conference for today. You may now disconnect.