VAALCO's Discusses Q2 2012 Results - Earnings Call Transcript

VAALCO Energy, Inc. (EGY)

Q2 2012 Results Earnings Call

August 8, 2012 11:00 AM ET

Executives

Robert Gerry – Chief Executive Officer

Russell Scheirman – President and COO

Gregory Hullinger – Chief Financial Officer

Analysts

Kim Pacanovsky - MLV & Co.

Chris McDougall – Westlake Securities

Presentation

Operator

Welcome to the Second Quarter 2012 Earnings Report Conference Call. At this time our participants will be in a listen-only mode. Later we will conduct a question-and-answer session and the instructions will be given at that time. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, CEO, Mr. Robert Gerry. Please go ahead sir

Robert Gerry

Thank you, Laurie and good morning ladies and gentlemen and welcome to VAALCO energy's second quarter investor conference call. Joining me today will be Russell Scheirman, our President and Chief Operating Officer; and Gregory Hullinger our Chief Financial Officer.

Please bear with me while I read a brief Safe Harbor statement. This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities 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 evaluations, 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, 2008 and other reports filed with the SEC, which can be reviewed at www.sec.gov.

Before I turn the meeting over to Greg and Russell for their reports let me make one quick comment, as you saw in our press release which was released yesterday evening, we are pleased to confirm that the country of Angola has extended our lease on Block 5 in Angola for another two years until November of 2014. That's an important event for VAALCO. There has been some speculation I think, at least in conversations in the marketplace that Angola might not renew VAALCO's concession there. We always felt fairly comfortable that they would, but it's good to have in place an official document that confirms that.

We now are pursuing with Sonangol, our prospective partner on Block 5. Sonangol has already met with our proposed partner and when you raise [words] na agreement has been arrived at, and we can proceed in locating the rig and begin our drilling program. I also want to reassure you, we are not going to wait until 2014 to drill a well. Our prospective partners are in agreement with VAALCO that the first exploration well will be on our Luengo prospect and will be both a coastal and a (inaudible) pass. The minute we can hear from Sonangol that they have accepted our partner, we will proceed with locating a rig, and get high behind getting the well drilled

We will have some more comments towards the end of the meeting, but I will now turn the meeting over to Greg Hullinger, with his update on our financial statements and then Russell Scheirman will update you on our operations. Greg?

Greg Hullinger

Thank you, Bobby. Good morning everyone. I am going to cover the financials for the second quarter 2012. We reported net income attributable to VAALCO of $10.4 million in a quarter or $0.18 per diluted share. This compares to the same year ago period of $11.8 million or $0.20 per diluted share. Our revenues were very similar quarter-on-quarter $58 8 million versus $58.5 million, I will go into more detail in that here in just a minute.

Let me turn my attention over to the balance sheet and I will give you some of the highlights there. Cash and cash equivalents, they show a total of $138 million of unrestricted cash, but I can very quickly get that number up to about $160 million, deeper in our balance sheet, we show restricted cash of about $11 million, the majority of that is associated with money that we have restricted for the obligation in Angola, that Bobby was talking about just a few minutes ago.

We have a $5 million per well obligation on the two obligatory wells. So we have restricted cash to that too.

Also if you see on our balance sheet under receivables, we have trade receivables of nearly $20 million, which is higher than normal. But essentially what we had was a crude oil lifting on June 1st and payment for that came in on July 1st, right on Target and that was an additional $15 million.

Normally, we have always have one crude lifting receivable out there, because the timing of that lifting was June 1, it shows up as receivable instead of cash at the end of the quarter. We did have four lifting's during the quarter. If you recall, in the first quarter we had two so we are back on track. I might mention that our crude oil inventory at the FPSO was higher at the end of June 30 this year. We have 351,000 gross barrels, VAALCO owns about 28% of that amount in the FPSO. At the end of this quarter, we had 222,000 barrels in the FPSO at the same period at the end of last June.

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