VAALCO Energy Inc (EGY) 2021 Q2 法說會逐字稿

Good morning, and welcome to the VAALCO Energy's Second Quarter Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to VAALCO Energy's Second Quarter 2021 Conference Call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights along with operational results. Ron Bain, who was named CFO in June, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions. (Operator Instructions) I would like to point out that we posted a Q2 2021 supplemental investor deck on our website this morning that has additional financial analysis, comparisons and guidance that should be helpful.

With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will be making forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release, the presentation posted on our website and in the reports we filed with the SEC, including the Form 10-Q that was filed yesterday. Please note that this conference call is recorded.

Let me now turn the call over to George.

Thank you, Al. Good morning, everyone, and welcome to our second quarter 2021 earnings conference call. Thus far, 2021 has been an exciting year for VAALCO, where we have completed a very accretive acquisition opportunity that arose in late 2020. We closed the acquisition of Sasol's 27.8% working interest in Etame in February 2021 with cash on hand. The accretive nature of the deal are very apparent in our first half 2021 results with significant increase to our production, adjusted EBITDAX and cash flow. In the second quarter, we produced an average of 8,018 net barrels of oil per day, which was an increase of 55% over the first quarter, driven by the inclusion of all 3 months of the increased NRI production due to the Sasol acquisition.

The second quarter also reflected stronger revenue due to higher realized pricing and strong sales. This helped to boost our adjusted EBITDAX to $21.9 million in Q2 2021. And we have now generated $40 million in adjusted EBITDAX for the first half of 2021, which is more than in either of the previous 2 full calendar years and over 6x what we generated in the fourth quarter of 2020. We are happy with the ongoing strength of the oil price environment. And with the significant increase in production, we wanted to lock in a meaningful portion of our free cash flow and adjusted EBITDAX to assure that we have the funds for our upcoming capital program later this year and into 2022.

Turning our attention to the future. Our strategic vision is built on accretive growth through organic drilling opportunities and through acquisitions. As you saw in our Q2 results, we are generating significant cash flow in preparation for our 2021 - 2022 drilling campaign. Also during the second quarter, we accelerated the processing of our 3D seismic in order to maximize the impact to the upcoming drilling campaign. We continue to expect all the data will be fully processed and analyzed by the fourth quarter, and we are using the seismic to optimize our drilling locations for the drilling campaign. Additionally, we are derisking future drilling locations and potentially identifying new drilling locations with the 3D processing.

In June, we secured a contract with Borr Drilling Limited to drill 2 development wells and 2 appraisal wellbores with options to drill additional wells. Depending on commitments related to the rig, we believe that we can begin drilling as early as December of this year. If the 4-well program is successful, the estimated increase in gross field production is 7,000 to 8,000 barrels of oil per day or 3,500 to 4,100 net barrels of oil production per day to VAALCO, when the drilling campaign is completed in 2022. Hand-in-hand with the production increase will be the margin expansion and per barrel cost reductions.

About 90% of our production costs are fixed and as production increases, our per barrel cost will decrease dramatically. Every new barrel we bring online is more economic because of the low variable costs. So as we grow production, we are also growing our margin per barrel and reducing our cost per barrel. From a capital standpoint, the estimated cost of the program is between $115 million and $125 million growth or $73 million to $79 million net to VAALCO.

The upcoming drilling campaign has the potential to generate significant additional free cash flow, especially when you combine the sustained higher oil prices with our low-cost operating structure. Our strategy is to utilize the additional free cash flow to fund organic and potentially inorganic accretive growth opportunities in the future. In line with our strategy to be a low cost operator, we are constantly looking at ways to minimize costs and improve margins. From an operating cost standpoint, our current FPSO costs are about 40% of our total production expense.

The nonbinding LOI, which VAALCO announced in April of this year expired without any mutually agreeable contract being reached. We are in advanced talks to finalize a binding agreement with other parties that will reduce our costs and meet our schedule in line with what we previously announced. We expect to update the market at the earliest opportunity, and we still expect that the project will be fully operational before our FPSO contract end. This will dramatically improve our margin per barrel, and we will be able to deliver more free cash flow to fund our future growth opportunities.

Looking at the second half of 2021, we have several operational events coming up. We're now planning on completing 2 workovers during the third quarter when we initially had planned to do just one in the second half of 2021. We believe there is significant cost savings associated with performing the 2 workovers sequentially. One of the workovers is expected to provide potential production uplift, while the second is to install an updated ESP design on a well where the existing ESP is showing signs of potential failure. As a result, our guidance for workover cost is slightly higher than before. But given the cost savings benefit of doing 2 workovers sequentially, our expected costs are not going to double when compared to the cost of completing just one.

We're also planning our annual 7-day field maintenance turnaround, which is expected to take place in September and be completed by the end of the quarter. As always, our annual production guidance included that planned turnaround. Unfortunately, the FPSO will not be able to perform its full annual maintenance turnaround at the same time due to safety protocols. As a result, we have to schedule an additional 60 turnaround in the fourth quarter to accommodate the additional FPSO maintenance. Taking into account the planned and unplanned turnarounds, potential uplift from the workover as a natural decline, we expect production in the second half of 2021 to average between 7,000 and 7,800 net barrels of oil per day.

This is just a bit lower than we had estimated earlier this year for the second half of the year before we knew of the additional quarter 4 FPSO maintenance event. Our annual guidance hasn't changed, and we still expect to be within the range of 6,800 to 7,400 barrels of oil per day. Without the unplanned second maintenance event, we believe we would have been well above the midpoint of our 2021 full year guidance. As a reminder, since our 2021/2022 drilling campaign doesn't begin until late this year, we are not currently forecasting any material production uplift from that drilling campaign in 2021, but we should see significant uplift in 2022.

For sales volumes, we haven't changed our annual guidance of 7,100 to 8,000 barrels of oil per day. We expect third quarter sales to be in the range of 7,800 to 8,500 barrels of oil per day. As we have discussed before, sales volumes do not always equal production volumes due to the timing and signs of liftings. Going forward, we plan to continue to provide sales volumes guidance on an annual and quarterly basis. If we expect a material change in our actual sales volume compared to guidance, we will inform the market. As a result, going forward, we will no longer post monthly liftings on our website. We arrange the timing and size of liftings to optimize revenue, which means that we will not always have 3 liftings per quarter and the size can change somewhat from lifting to lifting. Posting liftings is not a common occurrence in the industry, and we believe our investors will be better served with us given quarterly sales guidance with material updates provided by us as needed.

I would now like to give you a quick update on some exciting new developments in Equatorial Guinea. We have a substantial working interest in Block P, and we are evaluating several development step out and exploration opportunities in our acreage. We are excited about the opportunities on the block and believe it makes sense to move this project forward with a more definable time line and potential development. We have recently completed our drilling feasibility study for the stand-alone development of the Venus discovery in Block P, and we are moving forward now with a field development concept. As we work through the development, we will provide more details about potential timing, capital costs and reserves and production estimates. We are committed to profitably exploiting the resource potential of our assets and Equatorial Guinea could become a significant operational asset moving forward.

In summary, our outstanding employees continue to operate and execute on VAALCO's strategy of accretive growth and free cash flow generation through cost effectively maintaining core production. We have a strong balance sheet. And with our increased production base and new hedges, we have locked in sufficient cash flow to fund our upcoming capital obligations, post maintaining upside. As you can see, we are firmly focused on maximizing shareholder return opportunities and operating with the highest regards towards ESG, where we progress our strategic objectives focused on accretive growth.

I would now like to introduce Ron Bain, our new Chief Financial Officer. I have known and worked with Ron for many years, and his guidance has been an integral part of our success in the past. His leadership of large geographically diverse financial teams listed in both the U.S. and U.K. and strong ties to the London investment and banking communities make him an important addition to VAALCO.

With that, I would like to turn the call over to Ron to share our financial results.

Thank you, George, and good morning, everyone. Let me begin by saying I'm very pleased to have recently joined the VAALCO management team. Like George, I knew VAALCO well for my days working with him at Eland and see the significant potential we have at VAALCO in both Gabon and Equatorial Guinea. I look forward to getting to know our shareholders and analysts over the coming months.

Turning to our financials. Adjusted EBITDAX totaled $21.9 million in the second quarter of 2021 compared with $18 million in the prior quarter and more than doubled the $10.1 million in the same period of 2020. Adjusted EBITDAX for the second quarter of 2021 was higher than both prior periods, primarily due to the increased sales volumes and higher realized prices. Our adjusted net income for the second quarter of 2021 totaled $8.4 million or $0.14 per diluted share as compared to an adjusted net income of $8.7 million or $0.15 per diluted share for the first quarter of 2021. Higher sales and realized pricing were offset by higher DD&A due to the bargain purchase price accounting associated with the Sasol acquisition and onetime severance costs.

In the second quarter of 2020, VAALCO reported $5.3 million in adjusted net income or $0.09 per diluted share. Additionally, we reported strong net income of $5.9 million or $0.10 per diluted share in the second quarter of 2021, which included a $10 million loss in derivative instruments, of which $5.7 million was an unrealized loss. As George mentioned, the second quarter reflected significant increases in sales and continued strong realized pricing.

Turning to production. So production for the second quarter of 8,018 net barrels of oil per day increased 55% from 5,180 net barrels of oil per day in the first quarter of 2021, driven by the Sasol acquisition volumes being included in the company's results for all 3 months of Q2 compared to only about 1 month in Q1. Second quarter 2021 production was up 48% from the second quarter of 2020. Sales volumes in Q2 2021 were up 4% from the first quarter and up 2% compared to the same period in 2020. The increase in volumes is primarily due to the additional Sasol interest. Our crude oil price realization increased 14% to $69.61 per barrel in the second quarter of 2021 versus $61.31 per barrel in the first quarter of 2021, and was up 146% compared to the $28.31 per barrel in the second quarter of 2020.

Our hedging strategy for 2021 has been to lock in the majority of our 2021 production volumes to protect cash flows and assure funding of our capital program in 2021 and 2022, but still allow for some additional upside. In January 2021, we entered into a crude oil commodity swap arrangement for a total of 709,262 barrels at a dated Brent weighted average price of $53.1 per barrel for the period from and included in February 2021 through January 2022. These swaps settle on a monthly basis. In May, we added more crude oil swaps of 672,533 barrels at a dated Brent weighted average price of $66.51 per barrel for the period from and including May 2021 through October 2021.

And last week, we entered into an additional commodity swap at a dated Brent weighted average of $67.7 per barrel for the period from and including November 2021 through February 2022 for a quantity of 314,420 barrels. After entering into this latest hedge, VAALCO now has 70% of its production hedged through October 2021 and 50% of its production hedged from November 2021 through February 2022. We took similar actions in 2019 before we began our 2019/2020 program, and we'll continue to assess our needs to mitigate price risk and protect cash flow in the future as we consider any additional future derivative contracts.

Turning to our expenses. Production expense, excluding workovers for the second quarter of 2021 was $16.1 million, which was flat with the first quarter of 2021 despite the higher sales and $3.9 million higher than in the second quarter of 2020 due to higher sales and the increase in working interest associated with the Sasol acquisition. The per unit production expense, excluding workover of $25.02 per barrel in the second quarter of 2021 decreased as compared to $26.02 per barrel in the first quarter of 2021 and $19.31 in Q2 2020. The per unit production expense, excluding workovers, decreased 4% as compared to the first quarter of 2021 due to the increased sales, but flat actual cost.

The per unit rate in the second quarter of 2021 increased 30% from the rate in the year ago quarter, primarily due to the increase in working interest costs associated with the Sasol acquisition, but sales were nearly flat year-over-year. The second quarter of 2020 included 4 liftings that increased sales. Included in total production expense are COVID-19 related costs incurred to protect the health and safety of the company's employees, which totaled approximately $800,000 in the second quarter of 2021. Production expense for the third quarter of 2021, excluding workovers, is projected to be between $20 million and $22 million, or $27 to $30 per barrel of oil sales.

Keep in mind that Q3 2021 is an increase in absolute and per barrel cost compared to the second quarter of 2021 due to the 7-day planned maintenance turnaround. As George mentioned, we are now planning on completing 2 workovers during the third quarter, where we initially had planned to do just one in the second half of 2021. We've adjusted our guidance for workover cost to $8 million to $10 million net to VAALCO from $5 million to $6 million previously. We do get the benefit of doing the 2 workovers in succession, so our expected costs are not double the cost of just completing one.

DD&A for the second quarter of 2021 was $5.8 million or $9.05 per net barrel of oil sales compared to $4.1 million or $6.7 per barrel in the first quarter of 2021 and $2.8 million or $4.44 per barrel in the second quarter of 2020. DD&A was higher comparable to the prior periods due to the higher depletable costs associated with the Sasol acquisition. Our asset base for the Sasol acquisition was valued at fair market value in a stronger pricing environment that which we negotiated the deal price.

General and administrative expense for the second quarter of 2021, excluding stock-based compensation expense, was $4.2 million compared with $3 million in the first quarter of 2021 and $2.3 million in the second quarter of 2020. The increase in Q2 2021 compared to Q1 2021 was a result of additional severance costs associated with changes in key personnel. The per unit G&A rate, excluding stock-based compensation on the second quarter of 2021, a $6.57 per barrel of oil sales was higher than both the first quarter 2021 and the second quarter of 2020 due to higher severance costs with relatively small changes in sales. For the third quarter, we are forecasting G&A, excluding stock-based compensation to be between $2 million and $3 million, which is more consistent with our expected run rate without these onetime costs.

Noncash stock-based compensation expense was impacted by the change in the SARs liability as a result of changes in the company's stock price during the quarter. For the second quarter of 2021, the stock-based compensation expense related to SARs was an expense of $400,000 compared to an expense of $1.2 million for the first quarter of 2021. For the second quarter of 2020, there was expense of $700,000 related to SARs.

Turning now to taxes. Income tax expense for the 3 months ended June 30, 2021, was $2.8 million. This is comprised of a $3.3 million of a deferred tax benefit and a current tax expense of $6.1 million. The income, $2.2 million income tax benefit for the 3 months ended June 30, 2020, included a $3.4 million deferred tax benefit and a current tax expense of $1.2 million. For both Q2 2021 and 2020, VAALCO's overall effective tax rate was impacted by nondeductible items associated with operations and deducting foreign taxes rather than crediting them for United States tax purposes.

At June 30, 2021, we had an unrestricted cash balance of $22.9 million, which included $2 million in net joint venture owner advances. Working capital at June 30, 2021, was negative $9 million compared with a negative $15.8 million at March 31, 2021, while adjusted working capital at June 30, 2021, turned positive to $4.3 million compared to negative $2.7 million at March 31, 2021. For the second quarter of 2021, net capital expenditures, excluding acquisitions, totaled $3.1 million on a cash basis and $1.8 million on an accrual basis. These expenditures were primarily related to the purchase of our mobile workover unit, equipment and enhancements as well as early costs associated with the 2021/2022 drilling program. As has been the case since the second quarter of 2018, we are carrying no debt.

And with that, I'll now turn the call back over to George.

Thanks, Ron. As we look at 2021 and beyond, this is a very exciting time for VAALCO. I believe it is paramount that businesses are sustainable in order to provide benefits to all stakeholders with a focus on growth and investor returns. With that in mind, I am pleased to announce that we have completed our second ESG report that was primarily developed in close alignment with the recommendations of SASB as we significantly enhanced our disclosures and related discussions. The core volumes outlined in our report are a part of our culture and provides a solid foundation that assures our success as a trusted operator, a generous partner to the communities where we operate and as good stewards to the environment.

We have a strong asset base in Etame that is generating meaningful free cash flow and adjusted EBITDAX in the current pricing environment, which is evident in our first half 2021 results. The $40 million that we have generated in adjusted EBITDAX in the first half of 2021 is more than VAALCO generated in either of the full years 2019 or 2020. Sustained operational excellence and robust financial performance at Etame serves as a -- the foundation for growing VAALCO through organic drilling and future accretive acquisition opportunities in line with our strategy. In April, we also purchased a hydraulic workover unit that we have used in the past for less than $2 million in total consideration. This unit is in Gabon and is being deployed in the third quarter to perform 2 workovers that should increase production.

Having a workover unit in-country will allow us to respond to any well downtime issue quickly and will save a significant time, production and cash flow when addressing workover requirement if an ESP unit goes down. But, we are not simply looking to maintain production in Gabon. There are meaningful development opportunities across our assets. We have completed the feasibility study for the standalone development of the Venus discovery in Block P in Equatorial Guinea, and we are moving forward now with our field development concept. Etame and potentially now Block P can enhance our business and provide a strong platform for organic growth and increased future cash flow.

As we continue to generate significant cash flows to fund our capital expenditures, we continue to evaluate ways to return some of that free cash flow to our shareholders. VAALCO has adopted share repurchase programs in the past, and we will consider similar programs in the future to complement our growth strategy. In the fourth quarter, we'll begin another drilling campaign at Etame. And with our recent additional hedges, we have locked in sufficient cash flow generation from operations to fund this program and desensitize the risk of oil price movement. As you can see, we are firmly focused on maximizing shareholder return opportunities and operating with the highest regards towards ESG, where we progress or refresh strategic objectives focused on accretive growth.

Thank you. With that, operator, and we are now ready to take questions.

(Operator Instructions) First question will be from John White of ROTH Capital.

Mr. Bain, congratulations again on your recent appointment. It looks like everything went a little better than planned. So very nice to see that. And thanks for the detailed operations update. I'm excited about Equatorial Guinea, the announcement there in Block P. That was a Devon discovery, I believe. Is that correct?

That's correct. I mean we're currently positioned within our net (inaudible) CPR report on a 2C basis of around 16 million barrels on the discovery.

And would you want to say who are your partners in Block P?

In Block P, we've got GEPetrol and Atlas are the partners.

All right. And the anticipated depths of the target zone?

Well, it's a good question. I think we're sitting at -- this is the target zone subsurface, so we have a planning to drill from on the surface.

2 vertical depths?

2 vertical depths. I believe we're into by 3,000 meters.

In sandstone, limestone, could you talk a little bit about the lithology?

We don't have that detail and at a moment. I think it is a sandstone plate, but I can come back to you on that one, John.

Okay. No. Is it too early to talk about timing of the potential well getting started?

Yes. Well, I think the key work that we performed in Q2 was, as we mentioned, the drilling feasibility. So we had to try and determine was it possible to reach the targeted zones from the shelf as opposed to trying to drill in a deeper water location. And that was really a paramount in order to assess whether we could get an economic development around that level of oil accumulations at 16 million barrels. Having established that was possible and water trajectories and the angles were sufficient with that coming in from a jack up. We're now looking at how we can have an efficient field development concept, again, from the shelf. So not fetching into the deeper water locations, but cost, as you know, ramp up very, very quickly. And I'm hoping to be in a position towards year-end to have a much firmer outline on a time table and a much firmer technical presentation on how we would turn to evacuate the oil.

The next question will be from Bill Dezellem of Tieton Capital.

Would you please, first of all, continuing on EG, update us with the production sharing contract update and what's going on with the ministry? Is that now complete? Or is there still more steps that you are waiting for?

It's more or less complete. I mean what was happening there, Bill, was we have one partner basically coming out through defaulting. So those amendments were taking place. I mean we've got them complete towards the beginning of Q2. And that was kind of good to go. But then we have one more amendment with another partner exiting with a small percentage. Those amendments are going through (inaudible). We don't have any issues around those amendments, purely just an administrative process. And the discussions we talked with the EG authorities, it's -- we are seeing it in a positive aspect.

And so we're now, as soon as those contracts are inked, you'll then have 25 years. Is that correct? Is that when the clock begins?

Well, we're currently in an exploration position. So we have to look at -- and as you know, we had an obligation for an exploration well. And what we're looking to do is get into the discussions around the Venus development and that Venus development fulfilling that obligation. And once we get that position agreed, at that point, the tenure of the PSC will be extended.

All right. And then relative to your comment in the release that you're accelerating the seismic processing, would you discuss what it is that you are doing more quickly? And what that will actually do for you, given that it doesn't sound like the rig will be coming on any more -- any sooner than originally discussed?

Yes. What we do there is basically, we're pulling forward the, what we call the hot package or the package of seismic interpretation that we have around the drilling locations, so we can get better clarity around where our subsurface well targets are. And what we want to do is basically make sure we have the same imaging -- sorry, better imaging from what we had previously to just confirm bottom hole locations for the targeted drilling. So the reason we pull that forward is basically to have a derisking to the drilling program, remove some uncertainty. So we're not chasing a tails post execution.

(Operator Instructions) The next question comes from Charlie Sharp of Canaccord.

Just a couple of questions. Firstly, around the workover and then the forthcoming drilling. And then a bit of a follow-up on the FPSO, if I may. Firstly, in terms of the workover, the extra workover that you have in the Q3, should I assume that, that's the Ebouri 2-H workover that I think had originally been planned as part of the drilling program? And secondly, on the drilling, given the extra work that you're putting into the new 3D seismic, what's your position at the moment in terms of possibly adding an additional fifth well to the program? And then on the FPSO, I understand that maybe it's too soon to disclose details. But would you expect to see the same sort of annual reduction in operating costs that you cited before using the Omni proposed FPSO with whatever it is that you plan to use and stay?

Thank you, Charlie. I'm walking from them not here on this one, but the second workover I believe is 12-H. And the reason we've had to come into that second workover was due to the failure of the lower ESP. The well is still performing at the moment, but it's performing on the upper ESP, and we don't want to take the risk of being there with the workover unit doing 2-H and then all of a sudden, leaving the workover to -- workover unit in 12-H of our ESP fail. So that's -- it's really just to make sure we have returned to the redundancy that we have in these wells with 2 ESPs. And like I said, we're not seeing -- we're seeing slight fluctuations in 12-H, but we're not seeing a complete failure on the well yet. But there is a result of the lower ESP failing, and we've got that scheduled in Q3.

With regard to the drilling program, as you know, we continually will be looking at the options. We've got additional 5 options on the drilling program. And that will be subject to the exciting target locations that we have availability of long lead items and obviously, making sure we can get it into our existing cash forecast. But yes, we have continued to evaluate a fifth well opportunity. And that beside the progression will be in a position to firm up on these evaluations towards beginning on middle of Q4. With regards to the change out of the FPSO to the FSO, yes, you can -- when we've been looking at this opportunity, and we've expanded the reach of potential suppliers on an FSO concept. We've set 2 things in mind when we've been looking at.

The first is schedule. It's absolutely critical that any contract we enter into, we have high confidence levels have been able to hit the delivery schedule well ahead of the contract end date of September 2022 for the existing FPSO. And secondly, we're looking at the cost opportunity and saying, can we -- in this additional expanded view of suppliers maintain the indicative cost savings that we mentioned in June of this year. And the answer to both of those is yes. Schedule is the priority. We cannot miss it, and we will not miss it, but we are also on track for those indicative cost savings.

Next question will be from Richard Dearnley of Longport Partners.

The question about the feasibility of reaching the zone from the shelf. I take it that means you expect that you'll be able to reach it from the shelf? Or what are the odds of the feasibility study being positive?

The feasibility study has been completed. The drilling team looked at various options as to what it would take to reach the targeted zones. The key aspects there are how high-risk the well is and the angle of attack that the well design is taking to get to the targeted subsurface location. We went through a number of aspects, including the well design, whether we had to do a rotating casing program, which, of course, is a higher risk position. And the results of those, based on starting the drilling at various water depth and definitely looked at 3 water depths. We looked between a 120 and a 140 meters. And the deeper we go, the shallow or the angle of attack for the well and the shallow we go, the higher the angle of attack.

And we've come to the conclusion that for the planned producing wells, we're well within the spectrum on the angle of attack to get these wells completed. So there's not really a significant -- as we see a significant drilling risk, I think from memory, again, we're looking at the well angles down in the 40 to 50 degree positions.

I see. And then the accelerated 3D, the acceleration of the 3D program, did that have a meaningful cost impact in the second quarter?

Yes. It was certainly more than we had put in our guidance, but it's about $600,000 in total that's always expensed even above in the (inaudible) I would suggest that Q3 will be similar to Q2.

Okay. George, I was e-mailed 2 questions from Stephane Foucaud with Auctus because he was having trouble with his phone line. So the first one, what is the latest of the FPSO contract with Omni?

Okay. Well, as I mentioned earlier in one of the questions I answered, we expanded the supplier base that we contacted to really have a much better review of our options. And specifically with the discussions around Omni, and we failed to meet a commercial -- a commercially acceptable settlement in which we can go forward and contract. We're still in discussions with a number of providers. And I would anticipate, within the next 2 weeks, we'll be able to come to market and advise them exactly about contracting position.

Okay. Great, George. And Ron, this one is more for you. Would be good guidance for the future or future years for workover yearly expense, he said he noticed that there's $8 million to $10 million that we set for the third quarter?

Yes. I believe we generally look at 1 to 2 workovers a year. Now that we own the [conduits], our guidance would generally be in the region of about $5 million to $10 million. We certainly look at that as the year progresses. Bearing in mind that the one planned workover we had for 2022 has been accelerated into 2021, I would think 2022 will be the more -- in the $5 million range. But for that's something, we'll take a look at in our budgeting process, which we're reviewing through now in August.

Operator, any other questions?

There are no other questions at this time. I'll turn it back to George Maxwell for any closing remarks.

Well, I'd like to, again, thank the audience for attending our Q2 and first half results. I think the positions that we're presenting for the company going forward in 2021 are very exciting. We have the opportunity of potentially opening a significant second leg of production opportunities in Equatorial Guinea. We have an expansive drilling program to try and fill the [outage] of processing positions we have in Gabon and all of that being self-funded inside the company.

So I think it's -- the outlook for second half 2021, albeit, and we do have a second unplanned shutdown for safety reasons in Q4, I still think it looks like a very exciting second half. And that leads us into the position for 2022, where the continuation of the drilling program and further enhancement of production give us very positive aspects towards the cash flow generation and the profitability of the company and going forward. And I'd like to thank you very much for everyone who has listened in.

The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.