VAALCO Energy Inc (EGY) 2026 Q3 法說會逐字稿

Good day and welcome to the VAALCO Energy third-quarter 2026 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Landis Blackburn, Director of Investor Relations.

Please go ahead.

Thank you, Operator. Welcome to VAALCO Energy's third-quarter 2026 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the third quarter. Ron Bain, our CFO, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions.

During our question-and-answer session, we ask that you limit your questions to one follow-up. You can always re-enter the queue with additional questions. We would like to point out that we posted a supplemental investor deck on our website 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 that 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 our earnings release, the presentation posted on our website, and in the reports we file with the SEC, including our Form 10-K. Please note that this conference call is being recorded.

Let me turn the call over to George.

Thank you, Landis. Good morning, everyone, and welcome to our third quarter 2026 earnings conference call. Over the past 2 years, we have streamlined and expanded our portfolio with acquisitions, disposals, and drilling campaigns, all while delivering consistently solid operational results. In the first 9 months of 2026, we delivered on our strategy with increased production and sales volumes leading to improving financial results. In Q3, we increased our NRI production by over 20% quarter-over-quarter to just over 20,100 net revenue interest barrels of oil per day, or 25,284 working interest barrels of oil per day.

We successfully completed the Phase 3 drilling campaign in Gabon, bringing on our fifth well in the program and releasing the rig in early October. The Baobab FPSO successfully completed its refurbishment, and the field resumed production in June as planned, with its first lifting in 2026 occurring in August and the Phase 5 drilling program starting in September. In Egypt, we continued to execute on our drilling campaign. All of these events have led to improving financial results, driven by increases in sales and continued strong pricing. We delivered $71.1 million in adjusted EBITDAX in the third quarter, more than in the entire first half of 2026, thanks in part to bringing CDI back online.

We are delivering on our guidance and remain confident in our ability to consistently execute on our strategy, which we believe will deliver additional value to our shareholders. I would now like to go through and provide a quick update on our diverse portfolio of high-quality assets, beginning with Côte d'Ivoire. We were excited to have production resume in Baobab in June 2026, and in August we had our first lifting occur in CDI since February 2025. As you know, in line with the project timeline, the FPSO at Baobab ceased hydrocarbon operations in January 2025, spent a year being refurbished in Dubai, and returned to Côte d'Ivoire in April 2026. We are very pleased how well the FPSO refurbishment went and that it was completed within the initial timeline expected.

The FPSO refurbishment was undertaken to extend the life of the vessel and to increase its capacity to support the significant development drilling program at Baobab that was kicked off in September. The plan for this program includes 4 producers, 2 or 3 injectors, and 2 workovers, providing potential meaningful additions to production from the main Baobab field, where we have a 10-year extension of the license to 2038. The program began drilling on a batch basis the top hole sections of all wells first. The first well is expected to be completed and brought online in early December, with a new well every 6 to 8 weeks following this first well. With that said, production and sales uplift from the drilling program at Baobab will not make a significant impact until 2027.

Also, offshore CDI on the CI-40 block is the Kossipo field, another development with significant upside that we are very excited about. In February 2026, VAALCO and PetroCI elected to participate in the development of the Kossipo field. We were confirmed as operator with a 60% working interest in the Kossipo field, just 8 km from the Baobab field. We are actively progressing a field development plan that we believe will be completed in the first half of 2027 using new ocean bottom node seismic data that is expected to help de-risk and enhance our evaluation and development plan. Our current assessment has a field with estimated gross 2C resources of approximately 100 million barrels of oil equivalent and almost 300 million barrels of oil equivalent in place.

Finally, in Côte d'Ivoire, we continue to evaluate the subsurface potential of our new exploration block CI-705, which we operate with a 70% working interest. We continue to see encouraging prospectivity on the block in play types proven throughout the Ivorian Basin, including both structural and stratigraphic traps in the Upper Cretaceous and Albian sections. Recent discoveries by both Murphy and Eni nearby and on trend with CI-705 provide additional validation of our play concepts and prospectivity. We have met all first exploration phase work commitments on the block and have been approved to proceed to the second exploration phase, which carries a work commitment including seismic reprocessing and drilling of 1 exploration well. I would like to remind you that 2.5 years ago we had no assets in Côte d'Ivoire and now have established a sizable position in Côte d'Ivoire consisting of a producing asset with upside at Baobab, operatorship of a discovery at Kossipo with plans to develop, and considerable upside potential on a prospective exploration block.

We are excited about the prospects of Côte d'Ivoire and their ability to help us achieve our production growth targets over the next several years. Moving to Gabon, a year ago we began our Phase 3 drilling program. I would like to note that the working interest production in Gabon in Q3 2025 was 7,118 barrels of oil per day, and in Q3 2026 we grew production to 9,577 barrels per day. This program was designed to reverse decline and increase production, and as you can see with our Q4 guidance, we expect production to increase further at Gabon with a midpoint of over 10,000 working interest barrels per day. The program over the past year has brought online 4 development oil wells and increased production by 2,500 working interest barrels of oil per day, or an increase of around 34%.

We also drilled a gas well to help us reduce operating costs associated with using higher-priced diesel and adding production uplift to our existing production. With the well-timed benefit of the gas well providing fuel, we are seeing a reduction in operating costs. In addition, we are reviewing the current operating model of the entire field to look for ways to structurally enhance our business to make the field more cost-effective and efficient as we move forward. We expect this process will lead to a reduction in both CapEx and OpEx moving forward. We released the rig in early October following completion of the Phase 3 drilling program.

We reduced the workover spend from our initial 2026 guidance range of up to $10 million to no spend due to the excellent ESP life. The wells in Ebouri continue to perform well with the chemical treatment, and we do not want to take these wells offline to perform maintenance workovers until it is necessary. Furthermore, if we do need to work over these wells, we can use our mobile workover unit that we have in-country to perform the workovers at an expected material cost saving compared to using a drilling rig. We are now evaluating the results of the drilling campaign and working the subsurface modeling to evaluate future potential drilling at Etame. In the meantime, we will look to reduce CapEx spending in Gabon to only essential maintenance for 2027.

Regarding our exploration blocks in Gabon, the Nyonie Marin and Guduma Marin, we continue to work with our partners on plans for the 2 blocks moving forward. We commenced a 3D seismic survey in November of 2025, which was completed in the first quarter of 2026. This survey fulfilled part of the Exploration Work Program commitment for these blocks. Processing of this seismic data has begun, with fast-track products arriving and delivery of final volumes expected by May 2027. Given the proximity of these blocks to the prolific producing fields of Etame and Dussafu, we are excited about the future possibilities for these blocks and will continue to mature prospectivity using the new seismic data.

Turning to Egypt, we resumed the drilling program in Egypt in May of this year. We are pleased with the operational performance and efficiency of the drilling program. The overall production results have driven an increase in production rates that will continue into Q4. We are further expanding the scope of the Egyptian drilling program and now expect to maintain a continuous drilling program in Egypt into the beginning of 2027. The corresponding production uplift can be seen in our increased Egypt guidance with no impact to our overall CapEx guidance for this year, which Ron will explain in more detail later in this call.

We also plan to continue optimizations, workovers, and recompletions that are focused on production enhancement. Egypt production remains strong as we continue to invest to drill development wells and delineate opportunities in Ghazalat that could open additional prospects in the future. Turning to Equatorial Guinea. In March 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P Plan of Development. Last summer, we began our Front-End Engineering Design, or FEED, study.

The initial FEED study is now complete and confirms the technical viability of our plan of development, but also highlights some of the risks and challenges from the shelf location. We have expanded the review to explore more efficient development opportunities through a subsea development versus the original shelf development, which would also significantly simplify the drilling operations and well design, and this evaluation is currently underway. We expect our final investment decision to be made before year-end 2026 and remain excited to proceed with our plans to develop, operate, and begin producing from the discovery in Block P offshore. We believe that the Venus discovery is an integral part of our future and helps us achieve our goal of more than doubling production organically over the next 5 years. In closing, we have an outstanding diversified portfolio of both producing assets and assets with significant upside opportunities.

We are delivering on our strategy through the successful execution of our drilling programs. Our third quarter results were very solid, and we believe that with the continued strong pricing through the end of 2026 and into 2027, we plan to build on these positive results. We remain focused on growing production, reserves, and value for our shareholders. I would like to thank our hardworking team who continue to operate and execute our plan. Over the past several years, we have significantly diversified our portfolio, enhancing our capability to generate operational cash flow while returning capital to shareholders and increasing our credit facility capacity.

We are well positioned to execute the projects in our enhanced portfolio, and our proven track record of success these past few years should instill confidence for our future. With that, I would like to turn the call over to Ron to discuss in more detail our financial results.

Thank you, George, and good morning, everyone. With the production coming back online in Côte d'Ivoire and the growth from the drilling at Gabon and Egypt, we anticipated good growth in revenue, profitability, and operational cash flow. As George discussed, operationally we are performing very well. And in the third quarter, we saw the impact being a material improvement in our financial results. We generated $71.1 million in adjusted EBITDAX, up 30% from the second quarter.

I'd like to discuss some of the factors that resulted in our solid Q3 financial results and discuss how we see these factors impacting results in the near term. Net revenue was up almost $12 million compared to Q2, with sales about 5% higher and realized pricing about 4% higher. Sales were 18,454 NRI barrels of oil per day in Q3, and we had our first lifting in Côte d'Ivoire since Q1 2025. We've also seen strong sales in Gabon and in Egypt due to successful drilling campaigns. Overall production in Q3 was 20,145 NRI barrels of oil per day or 25,284 working interest barrels of oil per day, an increase of over 20% compared to Q2 2026.

Turning to costs, even with a slight increase in sales volume, production costs for both Q3 on an absolute basis and on a per-barrel basis were lower than in Q2 and were at the midpoint of our guidance. Our focus remains on keeping our costs low to enable us to maximize margins and increase our cash flow. But with higher costs driven by the Iran conflict, we may see some inflationary pressure leading to expense increases in the near term. Looking at G&A, our cash G&A decreased to $7.4 million. The decrease in general administrative expenses was primarily as a result of $1.9 million of non-recurring professional service and legal fees that occurred in Q2.

Turning to hedging, as I've discussed in the past, our reserve-based lending facility requires us to have a more programmatic hedging program, which is more consistent over a rolling time horizon. Our strategy prioritized downside protection to safeguard cash flow to help fund capital commitments for the Côte d'Ivoire Baobab FPSO refurbishment, the Gabon Phase 3 drilling campaign, and debt servicing, and in the surety of our dividend program. In the past, we generally maintained between 30% to 40% of our production hedged at any period going out as far as 12 months. With the reduction in capital commitments in Q4 and into 2027, we are looking to opportunistically hedge and work with our RBL group to pragmatically hedge. As you know, the market continues to be very volatile and our hedges had about $22 million in realized losses in the third quarter, with an additional $35 million in unrealized derivative losses as we mark to market the positions.

We had about 33% of our guided Q3 working interest barrels hedged with costless collars. We continue to monitor the situation and have a baseline forward hedge position and will only look to add when an opportunistic event such as a geopolitical shock or spike into 2027. Moving to taxes, in the third quarter we reported an income tax expense of $20.3 million, which was comprised of a $25.5 million current tax expense and a deferred tax benefit of $5.2 million. Income tax expense included a $4.1 million unfavorable oil price adjustment as a result of the change in the value of the Government of Gabon's allocation of profit oil between the time it was produced and its present marked-to-market liability. In Q1, we had a state lifting in Gabon, which settled our tax position, and we do not see another state lifting in 2026, with our cost pool maximized with the spend on the drilling program, which is first to be recovered.

Similarly, we do not see a state lifting in Côte d'Ivoire in 2026, and in Egypt the tax barrels are settled monthly from the government's take. Turning now to the balance sheet and the cash flow statement. In Q3, we invested $86.9 million on a cash basis and $83.9 million on an accrual basis in net capital expenditures, which was below the midpoint of our guidance range. This was primarily related to new wells drilled as part of the drilling campaigns in offshore Gabon, Côte d'Ivoire, and Egypt. Unrestricted cash at the end of the second quarter was $51.3 million.

In April 2026, the aggregate borrowing base under the 2025 RBL facility increased to $300 million. We now have $239 million drawn on the credit facility with net debt of $188 million. As expected, we saw negative free cash flow in 2026 due to the investment we have made in development drilling and the one-time FPSO refurbishment capital expenditure. In 2027, with continued strong commodity pricing, we expect a reduced capital spending profile coupled with positive free cash flow generation later in the year. We believe that we are appropriately leveraged with the growing production across our highly sought-after West Africa and Egypt developmental areas.

We enter 2027 in a strong financial and operational position to continue executing our organic growth story and reduce net debt as we prepare to build cash again to execute on our next major capital project. On the past several calls, I've discussed how pleased we have been with the progress made on our Egyptian receivables, and I'm pleased to state that we remain current with our receivables. In Q3 2026, VAALCO paid another quarterly cash dividend of $0.0625 per common share or $6.7 million. We also announced the fourth quarter dividend payment, which will be paid in December. Let me now turn to guidance where I will give you some key highlights and updates.

As discussed in the past, the strong performance of our drilling campaigns is driving increases in production and sales that we believe will continue into Q4 2026. For Q4 sales, we are expecting the midpoint of guidance to be about 18% higher than the Q3 actuals. This is driven by a number of liftings, cargo sizes, and mix across all of our assets. In Q4, we expect to have 3 liftings in Gabon, 1 regular lifting and 1 smaller lifting at Côte d'Ivoire, which the operator is scheduled to meet the contracting group's domestic market obligation, and strong continued sales in Egypt. We expect our fourth quarter 2026 NRI sales volumes to range between 21,000 and 22,800 barrels of oil equivalent per day.

For Q4, we're projecting total production to be in line with Q3, as we see an additional uplift in Gabon and Egypt, offset by slightly lower production in Côte d'Ivoire due to drilling operations causing parts of the field to be shut in temporarily. For the total company, we are forecasting Q4 2026 production to be between 24,100 and 26,300 working interest BOE per day and between 18,800 and 20,900 NRI BOE per day. For the full-year production guidance, we are confident in the performance of our diversified assets, and we are narrowing the ranges for each area to reflect the first 9 months of actuals. Our full guidance breakout is in the earnings release and in our supplemental slide deck on our website with production breakout of both working interest and net revenue interest by asset area. We expect our absolute production cost for Q4 to be in the range of $25.50 to $28 per NRI barrel of oil equivalent.

This is slightly lower than Q3 as we are expecting solid sales increasing with costs also increasing on an absolute basis. For our exploration expense, we are forecasting a range between $3 million and $4 million for Q4. This is primarily seismic processing work in both the CI-705 as well as similar processing work by our partner in the Nyonie and Guduma blocks. In Q2, we dropped the offshore workover guidance to nil for the full year as the work in Gabon has not been required due to good ESP performance. We expect cash G&A to be in the range of $7.5 million to $9.5 million.

Finally, looking at CapEx, with the Gabon drilling campaign now concluded, we expect Q4 CapEx to be primarily from the Phase 5 drilling at Baobab and the continued Egyptian drilling. For Q4 2026, our capital spend is projected to be between $55 million and $75 million. For the full-year CapEx, we have expanded our capital budget in Egypt to allow us to drill more wells in 2026. And this was done with no overall increase in total company capital expenditure for the year. This will allow Egypt to exit the year at far higher production rates than we originally envisaged in our guidance call in March.

In closing, we saw continued improvements in our Q3 financial results that we guided to in August and expect to continue these solid results into Q4 2026. We are forecasting a continued increase in production, sales volumes, and margins, depending on the stability of current Brent pricing, which should produce favorable strong operational cash flow as we upscale our netback from the greater West African mix of barrels in the fourth quarter. We believe we remain well positioned to continue delivering on our strategy of growing production and reserves while adding meaningful value. In the first half of 2027, we forecast continued growth in our production driven by Côte d'Ivoire Phase 5 drilling and Egyptian drilling campaigns. With that, I'll now turn the call back over to George.

Thanks, Ron. Our 2026 results across our programs in Côte d'Ivoire, Gabon, and Egypt demonstrate continued successful execution of our strategy and our commitment to operational excellence. We have delivered strong operational and financial results over the past several years where we have met or exceeded guidance on a quarterly basis, and we believe that we can continue to meet or exceed our guidance in Q4 and in 2027. We successfully completed a drilling campaign in Gabon and released the rig in early October, having brought online 5 new wells at Etame, increasing year-over-year working interest production by almost 2,500 barrels of oil per day and driving down operating costs. In Côte d'Ivoire, following the successful restart of the Baobab field in June, we had our first lifting in August and Phase 5 drilling began in September.

In Egypt, we continue to drill development wells that are profitably increasing production and have extended our continuous drilling program into 2027. These results demonstrate the strength of our diverse portfolio across West and North Africa, offering a lower geopolitical risk profile alongside established production and infrastructure, access to global crude markets, and significant organic growth potential. Gabon provides a strong cash-generative base; Côte d'Ivoire and Egypt are driving near-term production growth. In E. G., we have the Venus development and in CDI, we have Kossipo, both of which represent the next major catalyst for VAALCO with potential to organically double the company's production.

Both of these projects have the potential to materially change VAALCO. We have successfully delivered major infrastructure projects in 2022 in Gabon and worked closely with our partner CNR to deliver Baobab refurbishment in 2026. In 2027, we expect to begin the early stages of executing on 2 of those types of projects that will be developed over the next 5 years. It takes a lot of work to plan, finance, develop, execute, and operate not 1 but 2 new major projects while maintaining our ongoing production base. I believe we have earned the credibility over the past several years, having delivered on our commitments to the market and to our shareholders, and we will continue to deliver with the exciting slate of projects we have over the next few years.

Our ability to remain focused on successfully executing our strategy is key to growing the company profitably over the remainder of the decade. There are numerous macro events that we cannot control, but the things that we can control, like operating efficiently and cost-effectively, investing prudently, and maximizing our production, will help us deliver the forecasted growth and profitability for our shareholders and partners. We are actively working to continue to deliver strong results that will fund our successful capital programs and drive growth, all while also returning value to our shareholders through a top-quartile dividend. Maintaining solid results, combined with continued attractive pricing, should generate considerable operational cash flow in 2027 and beyond. We are in an enviable position with a much stronger and diverse portfolio of producing assets with expected significant future upside potential.

Thank you. And with that, operator, we are ready to take questions.

(Operator Instructions) Stéphane Foucaud, Auctus Advisors.

So the first one is around realization in Q4, particularly with regard to discount or premium to Brent. How do you see that? And that's thinking about probably what you have already seen, lifting of a second parcel at the beginning of the quarter, and then the whole dislocation we are currently seeing. So that would be my first question. My following point for Ron is more around, so 2027, we're in free cash flow positive territory.

When would you see again the heavy CapEx year? '28, '29, '30, maybe '30 or maybe less than that? All right. Thank you.

Thank you, Stéphane. I'll touch on what we see in Q4. Obviously, when we look at the production levels and areas, a number of people take different positions on discount to Brent. So we would see issues around the freight. As everyone's well aware, the freight costs are increasing, but we have seen marked discounts to Brent in the Gabon pricing, but I'll let Ron touch on the other areas.

Yes, so, Stéphane, you're quite right. We've had an October lifting in Gabon. We actually got a premium to that. So, you know, there's no concerns on any discount in relation to Brent price on that. CDI is also looking very favorable, and that one's planned for November.

Outside of that, we have another 2 lifts in Gabon. Again, it will depend on what freight does. You know, the prices of freight are moving all over the place at the moment, based on the availability of tankers. And then we have a small domestic market obligation lift, a smaller lift with our partner CNR at the end of the year. And that's a co-load for the state with us as well.

So it's going to go up to about a 600,000-barrel cargo. So again, it should be decent pricing. The $64,000 question remains, what is freight cost in trying to get those tankers? But I can tell you the October one and the planned CDI large lift in November are already priced, and those are premiums. Moving on to free cash flow in 2027, obviously we will look at guidance later on going into 2027 for the street.

But what I would say is we've got the CapEx campaign for Phase 5 that will continue through the first half of the year. You know that's been signposted for some time, and then we'll be in significant free cash flow territory. When do we step up for the next development campaign? Well, that's something that we hope to come to the street with details on quite soon. Obviously, we're in the process of looking at Venus and the Venus development, but I don't see that being a major 2027 burden at this point in time.

Maybe small '28, '29s, things like that.

I think, sorry, Stéphane, so as I mentioned earlier in the call, we're looking at an FID decision for the end of this year. When we look at that FID position, if we go back to our market communications in the middle of this year, we basically were highlighting the production for Venus going into late '29, early '30. We are exploring opportunities there. If we get to FID, is it an opportunity to pull forward? And so there's multiple areas where we can get rigs, whether we can secure FPSOs, whether we can secure the long lead items that will come into that.

So when we actually look at when the expenditures will start to hit for Venus, that's something as soon as we get through the FID position we'll be able to communicate in much more detail. But I think I would say with Ron that there's minimal impact, in fact probably no impact in 2027 when we come to the development of Venus, but exactly which period it falls beyond that is difficult to say at the moment. Thank you.

David Round, Stifel.

Actually, just on what you're talking about there, so on the Venus FID, can you just talk about the critical path items towards achieving that in Q4? And then I think you alluded to it there, and I think you alluded to it in the presentation. Are you able to expand on the work that is going on behind the scenes in terms of sort of the bits and pieces that are going in to help you form your decision around development concept?

David, thanks for the question. As you're aware, we've published what the original plan of development was, which was basically off-the-shelf drilling and long-reach wells. We've been working considerably hard to look at more efficient drilling from a vertical position, which makes the development completely subsea. So what we have been looking at, given the amount of activity there is in the industry right now, is looking at the opportunities for FPSOs, looking at the timing and opportunities for the drillships, and in particular the timing of long lead items such as the trees and wellheads, which at any point when you place orders, it's looking at between 16 to 18 months. So when we're looking at what are the key works that are going on right now, there are 2 key aspects that are happening right now.

One is the completion of the engineering interface, which we've more or less completed, the documentation around the revised POD, and having that revised POD delivered to a company we're born with the economics and financial solutions that the various oil price scenarios, we have the sensitivity around to give us security around the project, and at that point we then deliver that to the government to get the amended POD approved so we can then go forward and execute. So we are in a position right now where, and I made the statement earlier, that our commitment towards an announcement on Venus with the FID is imminent or even 2026, we're comfortable with that, and the actual authority to go ahead will then depend on the government's position on approving the amended POD. However, as you would expect, we haven't been doing this in isolation, and we would expect a rapid approval of that POD as soon as we submit it.

Okay, that's really helpful. And my follow-up please, just on Egypt, with the drilling program continuing into 2027. Can you give us an indication of what the profile there looks like? Are we talking about offsetting declines? Could we see further growth on the back of that program, please?

I'll let Thor answer that.

Yes, it's essentially arresting decline and an increase over the coming years.

I think I lost you there for a bit, but it sounded like you're saying arresting decline is the main priority there.

Yes, increasing production as well.

Yes, I think what we're getting to, David, is it will be an increase in production as we continue this well program through the end of this year, and we'll be looking obviously to maintain that and arrest decline going into 2027. And I think we mentioned it when I said earlier in the call that the other opportunity, we're just about to commence drilling our commitment well in Ghazalat, which could open a whole new play for us if it's successful.

Okay, brilliant. Thanks, George.

Jeff Robertson, WaterTower Research.

At Baobab, can you talk a little bit about what you would anticipate the impact of the new water injectors to have on production and mitigating decline?

Well, the new water injectors that are within the program at the moment are there to support the production of the new production wells. So we personally anticipate that pressure support is going to not enhance production, but maintain the expected production curves that we forecast for the new wells. There are existing injectors into the reservoir that support the existing production wells. You can see that when we look at the BS&W numbers coming out from Baobab, it has very low BS&W numbers. The water injection is doing its job, it's not breaking through and coming back to surface, so it is giving the pressure support required to maintain the production profiles.

So to answer your question directly, we don't anticipate a huge uplift in production from the new injectors, but the new injectors are there to support the profile for the new wells.

In Egypt, I think you alluded to continuing activity into the first half of 2027. What goes through the thought process to maintain a program there, and how much opportunity do you have already identified that you could add new wells, offset production, and maybe even grow it?

Yes, we've got a, I guess, a portfolio of opportunities there to take us out for another 3 years already identified that essentially maintains production and slightly increases production over time. Thank you.

Bill DeZellem, Tieton Capital.

Would you please remind us, or maybe this is new information, but I need help understanding with CI-705 that you will be required to relinquish 25% of the block's area. Could you walk through the dynamics of that and the puts and takes behind that, please?

Yes, I mean I'm trying to recall. We've got a new map of CI-705 on the slide deck, if you could visit it, it certainly is in one of our slide decks. So CI-705 is a very large block; the block extends from the beach down to about 2,500-meter water depth. So when we look at going to the next phase, which we have committed to, and we have received approval from the government for, when we look at that, there is a requirement to relinquish 25%. Now, what we've looked at is in the shallow area near the beach, the geology there is of a structure that is almost guaranteed not to be hydrocarbon bearing.

It's more of a granite shelf. And if you look at slide 8 on the deck, you'll see that darker blue shaded area next to the beach. That is the 25% area that we've relinquished. The prospectivity on that particular area we see is not just negligible, but close to zero. So we're not relinquishing any opportunity for further development.

We're relinquishing an area that has very low geological prospectivity.

And, George, just to understand the reason behind that, the government would prefer not to have any risk of development too close to shore, and so they're asking for that acreage back. Is that essentially the backstory?

No. No, absolutely not. I mean, it is a normal requirement from an exploration block in many of the jurisdictions in Africa that you relinquish 25%. That primarily is to allow the government to go and relicense that area to another operator. So we take the opportunity to look at the lowest levels of prospectivity in those license areas that we have to make a relinquishment.

And in this case, this just happens to be the area next to the beach. It could have been the deepwater area. However, we see prospectivity in the deepwater area. So it's not related to nearshore development positions.

Great. Thank you for the remedial question.

Thanks, Bill.

(Operator Instructions) Jeff Robertson, WaterTower Research.

Just to follow on block CI-705, can you share your color on when an exploration well might be drilled on that block based on VAALCO exercising or moving on to the next phase?

Yes, I can. So we've got a commitment in the next phase to drill the well. We are currently going through and completing our seismic interpretation and analysis, and I think as I mentioned in the previous call, we took 3 seismic vintages and combined them together to get a better look at the geological structures. Now we currently, and I think you can probably see them on slide 8, where we can see structures of interest both in the shallow, mid-case, and deeper water sections of the block. What we have to determine at the moment is which of those 3 or 4 areas that we're excited about contain the highest prospectivity for success.

Once we've completed that evaluation, given the disparity in water depth, some of those opportunities are sitting at 150 meters and some of those opportunities are sitting close to 2,000 meters. And of course, as you'd appreciate, that is a completely different type of operation, a completely different type of rig. So once we determine which has the highest prospectivity for us, we'll then go and search for a drilling unit that's suitable to work in the water depths that we select. So when I'm looking at those timings and I'm thinking of those interpretations, I'm well into 2028 before I can see any drill bits spinning on this.

On the prospects going from shallow to deep water, would a shallow water prospect high grade what you see in deep water, and in essence be an extension of the geological system you're looking at?

No, they're not connected. I wouldn't say they're connected at all. What we're looking at right now is, as you move from west to east on CI-705, there's a correlation with the geological structures that come across towards Baobab and then into the discoveries with Baleine, et cetera, with Eni. So it's not necessarily linked to water depth because we have to link to the geological time and that can move in the water depth structure, but no, as you go from the beach, geological structures are distinct for us.

James Wilen, Wilen Management.

Two questions. First, on the EBITDAX in the quarter of a little over $70 million, am I correct in assuming that's pretty much the floor going forward for the next couple quarters? Obviously pricing is going to be different. That is a factor in there, but other than that, are we looking at that as the floor moving ahead?

Well, what I'd say to that, Jamie, is that, you know, obviously guidance is out there for Q4, obviously very strong sales, very strong production levels, our cost base is going down. I see growth in our EBITDAX between Q3 and Q4, depending on price, but my modeling's got a full-year average Brent at 95, and I'm seeing very good growth between Q3 and Q4.

Okay, and secondly, on the taxes we are paying, what are we paying in Gabon and Côte d'Ivoire given we have the cost oil in those places, and how long will we be relatively tax-free in each of those locations?

Yes, in both of them, we only pay the profit oil barrels, so there is no tax. We had a state lifting for Gabon in Q1 of this year and we won't have another state lifting until 2027. Now the positive news in relation to the drilling campaign in Gabon is that because commodity prices have held so high, we'll probably be through that cost pool into Q1 in 2027. So we'll be back onto the position where they will have a higher profit barrel split each month, depending on how the expenditure goes and what we've got upcoming in 2027. For CDI, when that cost pool is basically at peak level through that FPSO rebuild and obviously we've got the Phase 5 drilling, Phase 5 drilling will continue right through to the second half of 2027 at the moment.

And you've got to look at long-term pricing on there, we're seeing that one basically maximized for about a 3-year period. So you'll have a minimal state lifting for CDI probably for the next 3 years.

Okay, thank you.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to George Maxwell, CEO, for any closing remarks.

Thank you very much, Operator. Obviously, we've had a very strong quarter, and we're forecasting a strong quarter again to end 2026. As I mentioned earlier on the call, we've got some exciting development opportunities within our organic portfolio. We've managed to progress some of those on the call today with the information around Venus and the information around CI-705. The other key development that you're all aware of that comes in a few years will be the Kossipo development on CI-40, again, where VAALCO is the operator.

We've got some exciting projects and activities going on right now with the drilling performance in Egypt, which has been an extremely strong performance during 2026, and we see that continuing in 2027 and in 2028. And I'll just remind everyone, these are low-cost, high-impact wells, 500 to 700 barrels a day of the new wells coming in for $1.5 million per well and delivering within 20 days on each well, so high-impact wells.

And in addition to that, we've got the high-volume, high-margin wells coming in on CI through the Phase 5 drilling campaign. And as the top hole sections have all been drilled, we'll start to see the delivery of these wells in rapid succession, 1 commencing towards the end of November, and then we'll see them coming in January and March and thereafter. So exciting opportunities ahead, increases in production ahead, and with the high oil prices, obviously forecasted increases in profitability through a significantly heavy CapEx phase.

You can see us coming out of that towards the second quarter of 2027 and then being significantly cash generative into the second half of 2027. So again, we've proven our ability to execute these projects efficiently and maintain the high production levels and create a portfolio for growth, as I mentioned earlier, through to the end of the decade. I'd like to thank everyone for joining the call, and I look forward to talking to you again in our 10-K call in March. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.