Q4 2023 VAALCO Energy Inc Earnings Call

Participants

Al Petrie; IR Coordinator; VAALCO Energy Inc

George Maxwell; CEO & Director; VAALCO Energy Inc

Ron Bain; CFO; VAALCO Energy Inc

Stephane Foucaud; Analyst; Auctus Advisors

Charlie Sharp; Analyst; Canaccord Genuity Ltd.

Jeff Robertson; Analyst; Water Tower Research LLC

Chris Wheaton; Analyst; Stifel, Nicolaus & Company, Inc.

Jamie Wyland; Analyst; Wyland Management

Presentation

Operator

Good morning and welcome to the VAALCO Energy Fourth Quarter 2023 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.

Al Petrie

Thank you, operator, and welcome to VAALCO Energy's Fourth Quarter and Full Year 2023 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the fourth quarter and full year 2023. 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 you to limit your questions to one and a follow up. You can always reenter the queue with additional questions.
I'd 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 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, or 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 now turn the call over to George.

George Maxwell

Thank you, Al. Good morning, everyone, and welcome to our fourth quarter and full year 2023 earnings conference call. I'm very pleased with our ability to deliver exceptional operational and financial results in 2023, exceeding our guidance and expectations following the Trans World combination that occurred in late 2022, our focus has been on optimizing production, managing our costs and capturing operational and cost synergies, all while executing capital drilling campaigns to enhance profitability and growth. Through the execution of this strategy, we have significantly grown our cash position while fully funding our capital program, shareholder dividends and buybacks, all of our remaining bank debt free, we returned over $50 million to shareholders in 2023 through dividends and buybacks. And in 2024, we have already announced an acquisition that will utilize a portion of that $121 million in cash on the balance sheet to add 4,500 working interest barrels per day and 13 million barrels of 1P working interest CPR reserves.
Before I go into more detail on our many accomplishments over the past year and upcoming 2024 key items. Let me first summarize some high-level financial and operational results that led to a record-breaking year. We grew production by 83% year over year, which helped us deliver record-breaking adjusted EBITDA of $218 million in 2023. This was a 50% increase over 2022, despite a 26% decrease in realized commodity pricing. Our record production levels were driven by our successful drilling campaign programs in Egypt and Canada as well as high operational uptime in Gabon by midyear, we increased our production guidance given the strong performance that we had experienced in the first half of 2023.
And we finished the year at the top end of our increased production guidance with 18,710 NOI barrels of oil equivalent per day or 23,946 barrels on a working interest basis. The diversity of our asset base has allowed us to grow and generate significant operational cash flow to fund our activities. In 2023. We generated almost $120 million in free cash flow and returned over $50 million of the free cash flow back to shareholders through dividends and buybacks. After fully funding our capital program and paying dividends and buyback. We grew unrestricted cash to over $120 million at the end of 2023. We have positive momentum as we enter 2024 both operationally and financially. And we are building size, scale and profitability to sustainably grow VAALCO. We recently announced an accretive all-cash acquisition of Svenska that expands our diversified portfolio of assets to include offshore Côte d'Ivoire.
Let's begin our overview of VAALCO's assets with the new acquisitions. A few weeks ago, we announced we were acquiring Svenska petroleum exploration and an all-cash deal with no issuance of debt or equity. The gross purchase price of $66.5 million has an effective date of October first, 2023 and is subject to customary closing adjustments. We believe that the net cash we will need to pay at closing, which we expect to occur in the second quarter of 2024 will be between $30 million and $40 million as we are adding an asset with strong current production and reserves at a very attractive price. This acquisition is highly accretive on key metrics to our shareholder base and provides another strong asset to support future growth that provides us with additional diversification and strategically expands our West African focus area.
The Cote d'Ivoire. Baobab field in Block CI40 has strong production of about 4,500 working interest barrel of oil equivalent and is 99% oil, one P. working interest CPR reserves from this proven producing asset are 13 million barrels at October first, 2023. And the two P working interest CPR reserves are 21.7 million barrels. We are very excited about the significant organic upside opportunity that is well defined and the potential 2026 drilling campaign, a build up and the future to support development opportunity.
Baobab field has many parallels with the timing in terms of the historic production profile and how the upside is realized through development drilling campaigns, meaning this is an asset type that we understand well, the field has been significantly derisked through the drilling of 24 production wells, five injection wells and a near 20-year production history planned drydocking and upgrading of the FPSO in 2025 will position the field for the expected production growth from the potential 2020 drilling program for future drilling campaigns for many years to come.
We are partnering with a great operator and believe our significant development experience offshore West Africa and the successful managing of our FPSO changeover in 2022 will provide insight and experience to help enhance future success of buildup. This acquisition contributes to our ability to generate sustainable cash flow for many years and provides another producing asset base that should enhance our ability to continue to return cash to shareholders as some condition precedents remain outstanding. We have not included production from Svenska in our 2024 guidance or any capital expenditures in 2024 capital budget.
Turning to Egypt, our 2023 drilling campaign saw some very positive results. We completed our 2023 campaign faster and at a lower cost than we originally planned, which allowed us to increase the drilling program from the original 2023 budgeted position. We finalized the last well in the program, October and in 2023, we drilled 18 vertical wells, including one injector well and two exploration wells as well as a horizontal well. Overall, we had a very economic drilling program with strong production performance and we are very pleased with our drilling performance in 2023.
On the vertical wells, we're seeing significantly faster drilling performance, moving from a 2022 average of about three wells drilled every four months to now drilling two wells per month, which is a 60% reduction in cycle times. By drilling the wells faster, we are cutting costs meaningfully and improving the economics of our wells in Egypt. In addition to the drilling efficiencies, we have also spent time and effort in Egypt reviewing the facilities and overall production operations. These efforts resulted in increased production, lower costs and better safety and environmental performance in Egypt and addition, we achieved a major milestone in the first quarter of 2024, with 1 million man hours without a lost time incident. The improvement in process flow and the drilling program resulted in SEC. one P. additions of 4.8 million barrels on an NOI basis.
As we look to 2024, we are currently planning to reduce capital spend as we evaluate a potential drilling program. We are focusing on the first half of the year on capital workovers that are forecasted to offset decline rate for the first half of this year. We have a 10 to 15 well drilling program that we are currently evaluating for the second half of the year. This program remains contingent on completion of the program evaluation and confirmation of a drilling rig for this period. We have not included this program within our firm CapEx guidance until confirmed. However, if successful, we anticipate additional CapEx of approximately $18 million, which will also generate additional production. The macroeconomic position in Egypt has seen some headwinds recently.
However, we have seen some positive announcements from the government over the past few weeks, which are encouraging. In Canada. We drilled two wells in the first quarter of 2023, a 1.5 mile lateral and a three mile lateral. Both wells were drilled and completed safely and cost effectively without incident. The wells were tied in and equipped in April and early May, with overall cycle times that were significantly less than historical cycle times. The wells began flowing in May with good production rate and in early July that pump and Rod will run on both wells. Both wells initial production rates exceeded expectations, and we are now continuing to produce a slightly above the expected type curves Canada sour production vessel for us in 2023 by eclipsing 3,000 barrels per day working equivalent on working interest in Q2. Another reason we performed so well in Canada, and exceeded our production targets while using the results and learnings from our 2023 drilling and completions program to enhance or 2024 drilling, we believe that to better optimize our Canadian prospects.
Going forward, we will move to 2.5 and three mile laterals almost exclusively, which we believe will further improve the economics of our development program in addition, we have optimized facilities and parts while also refining our completion techniques. We have continued to add acreage around the existing land footprint to help extend the lateral length of our wells. We had a small increase in year-end proved reserves in Canada tied to additional proved undeveloped locations from these acquisitions. In the first half of 2024, we're drilling four wells in the northern part of our lease holdings that are 2.5 and three mile laterals and anticipate having them all completed and flowing in the second quarter. In addition, we're also targeting an exploration appraisal well in the South. After completing these development wells. This should provide a strong production boost in Canada. And as you can see from our guidance we expect our production in Canada to increase in 2024.
Our Canadian assets continue to produce strong production and contribute to our overall ability to generate strong operational cash flow turning to Gabon national, we completed a previous drilling campaign in the fourth quarter of 2022. Uninvested only minimal CapEx dollars in Gabon in 2023, primarily related to maintenance CapEx and long lead drilling equipment. We are seeing strong overall production results in 2023 through reduced maintenance requirements and improved decline curves on the wells. The FSO infield reconfiguration projects in 2022 have allowed us to capture the efficiency and OpEx savings in the full year 2023, while enhancing production uptime and minimizing field decline prior to the next drilling campaign.
Looking at 2024 and into 2025, we are preparing for our next drilling campaign as a Tammy. We initially had planned the three to four well campaign in Gabon with a mix of development appraisal wells and the gas well for infield power requirements. We also initiated a review of the Liberty field with a view to development opportunities to drill additional wells and workovers, which will target between 8 million to 12 million barrels of oil. This is currently in our onesie and twosie reserve numbers. This will require some enhancement of the body platform to handle crude sweetening equipment. Our engineering and subsurface plans are nearing completion to allow a move towards FID later this year, which if approved will enhance the planned drilling program in Gabon. Some technical and regulatory approvals are still to be obtained in addition to completing the evaluation, and we will provide a further update on this exciting project. When we confirm the scope and timing of our two bond drilling program, we're expecting to spend between 30 and $40 million and long-lead items in 2024 preparing for and in anticipation of the drilling campaign.
Turning to block G and H, we held some discussions with our partners and have made some encouraging progress this quarter. And plan to move towards further discussions and negotiations in the second quarter of this year, we will provide a further update in Equatorial Guinea efforts have continued and have intensified to finalize the deal we have with our partners. I am pleased to say that we have only some confirmatory details remaining outstanding. And upon receipt, we expect to move this project into firm CapEx FEED study in the very near future.
Turning to reserves, we are very pleased with the growth of our SEC proved reserve base despite a significant decline in pricing. Our positive reserve revisions due to positive field performance in Gabon and drilling results in Egypt and Canada, coupled with the reserves added with some land purchases in Canada helped to more than offset production and downward pricing. Sec proved reserves at year end increased by 3% to 28.6 million barrels of oil equivalent. The lower SEC pricing impacted our PV10 values for 2023, despite the slight increase in 1P barrels.
Overall, our PV-10 decreased 45% from 600 R to PCP. Our estimate, which includes proven and probable reserves using bulk of management assumptions for future pricing and cost reported no working interest basis prior to deductions from government royalties. So a year-over-year increase of 1% to 77.3 million barrels of oil equivalent. Once again, strong operational performance and reserves additions outweighed the impact of lower pricing and production. The two PCPRMPV. 10 volume was impacted mainly by pricing and cost inflation as we saw a 23% decrease to $631 million by year-end 2023.
In closing, we delivered outstanding results in 2023, and I'm excited about 2024 and beyond. We are focused on growing production reserves and value for our shareholders we have delivered significant shareholder returns during 2023 and have retained a strong balance sheet. I would like to thank our hard-working team who continue to operate and execute our plans. We are bank debt free and remain firmly focused on our strategic vision of accretive growth while maximizing shareholder return opportunities and operating with the highest regards towards ESG.
With that I would like to turn the call over to Ron to share our financial results.

Ron Bain

Thank you, George, and good morning, everyone. I will provide some insight into the drivers for our financial results and rather than repeating what you can reading in the earnings release or our 10-K, I will focus on the key points. Let me begin by echoing George's comments about our continued success in 2023, driven by strong operational performance that yielded record financial results. In the fourth quarter, we generated $44 million in net income or $0.41 per share and $96 million in adjusted EBITDA. Both were significant increases compared to prior quarters and ahead of consensus estimates. The exceptional fourth quarter numbers helped to push our full year 2023 net income to $60.4 million or $0.56 per share and adjusted EBITDA to $280 million. We have a strong cash position, a clean balance sheet and no bank debt. I'm proud to say that we are much better positioned today with a growing and diversified asset base than ever before in VAALCO's history.
Let's turn to production and sales, which along with realized pricing drives revenue production for the fourth quarter remained solid by the high end of our guidance with our sales for the quarter. Also at the higher end of guidance, the production performance of our assets in 2023 was buoyed by successful drilling in Egypt and Canada and mitigating decline in Gabon through operating efficiencies with a diversified portfolio of assets. We will have changes from quarter to quarter in the mix of sales from each of our producing areas this change in mix impacts our realized pricing and ultimately our revenue and earnings. But if you look at the bigger picture and over a full year, you'll see impressive growth across our expanding portfolio of producing assets. We saw growth in total sales volumes quarter over quarter and overall realized pricing increase from the third quarter due to higher sales mix in Gabon versus Egypt. This drove our fourth quarter revenues to $149 million. For the full year 2023, we saw revenue increase by a little over $100 million. This was driven by sales increasing 86% year over year, but somewhat offset by lower realized pricing, which declined 26%. You will note in our earnings release yesterday, we provided a detailed breakout of sales volumes along with commodity pricing by country.
Regarding hedging, as shown in our earnings release, we continue to implement a hedging program that helps mitigate risk and protect our commitment to shareholder return. We have costless collars in place for Q1 through Q3 2024. All our collars have a floor price of $65 for around 15% of our production through Q. three 2024, with upside on the collars to between $92 and $100. It's worth noting we have 85% of our production through Q3 2024 unhedged, whilst protecting our commitment to our dividend.
Turning to costs, our production costs for the full year 2023 were below the low end of guidance on an absolute basis and at the bottom end of guidance on a per barrel basis, we remain focused on capturing synergies and keeping our costs low to enable us to maximize margins and increase our cash flow, while absolute costs were up 36% year over year, primarily due to higher sales volumes our production cost per barrel or 27% lower year on year. This demonstrates that we are delivering on cost synergies and cost-saving initiatives like the FSO project last year, G&A costs were also in line with guidance when compared to the combined G&A costs seen in 2022 by both VAALCO and TransGlobe. We've seen meaningful reductions in costs well ahead of our target synergies. The sale integration and reorganization of the business is behind us, and we've commenced a back office process improvement project with the implementation of a single cloud-based ERP across the whole company.
Non-cash DD&A costs decreased considerably quarter over quarter, primarily due to year end depletion adjustments, mostly in Egypt that were made in the fourth quarter. Once we've completed our reserves evaluation on our 2023 Competent Person's Report compared to the prior year in 2023, we have seen an increase in DD&A that's due to the step-up of the TransGlobe asset valuation and because of the additional investment in new wells brought online for both Egypt and Canada in the fourth quarter, we agreed on a protocol with the Gabonese state for a long-standing debt from TVA, together with an outstanding debt from the government owned Saugata refinery.
This was by way of transfer of state profit oil bottles to Tommy contractors in settlement of its debts. This reduced the quantity of bottles we are holding as foreign taxes payable, and that will likely be settled by the lifting of the remaining bottles in 2024. We had no company state listing in 2023, primarily due to the protocol agreement for Hardisty lifting in 2022 of approximately 600,000 barrels. Such costs in the fourth quarter of about $37.6 million resulted in an effective tax rate of about 46% in the quarter. This was lower than prior quarters and driven by the revaluation of tax oil bottles held for Gabon. As I stated before, in Gabon for foreign income, taxes are settled by the government through in-kind oil payments at the end of each quarter, we have to mark-to-market the in-kind oil. So in general, when the prices rise, it has a negative impact to our accrued taxes and if prices fall, we see a benefit thus reducing our tax liability. We cannot control the movement of the underlying commodity price to which this in-kind all is marked to. We continue to guide that 60% to 65% effective tax rate is a correct effective tax rate over the long term, excluding discrete items.
Turning now to the balance sheet and cash flow statement, unrestricted cash rose to $121 million as of December 31st, 2023. We plan to use a portion of this cash to fund the Svenska acquisition. Last call, we discussed likely working capital movements, some of which occurred in the fourth quarter of 2023 related to the reduction in accounts payable associated with the 2023 capital program at the beginning of 2024, we're projecting a build in injection accounts receivable associated with domestic sales in the first quarter. That will be partially offset by our annual modernization payment. Additionally, we have certain annual cash payments that tend to be paid early in the new year, including the domestic market obligation, Gabon and insurances Finally, as part of being a responsible operator and community partner in Gabon, we are executing on community engagement projects sanctioned by the PSC that were previously accrued. These items will impact our working capital position in the first quarter of 2024. As has been the case since the third quarter of 2018, we are carrying no bank debt and credit facilities available to utilize for additional accretive acquisition opportunities to continue to build value.
In Q4 2023, VAALCO paid a quarterly cash dividend of six and a quarter cents per common share or $6.7 million and our share buyback was about $6 million. For the full year 2023, we returned $50.3 million or 42% of our free cash flow to shareholders through dividends and share buybacks. In February, we announced the first dividend payment of the year at the same quarterly rate as 2023. Aside from fully funding our shareholder returns, we also fully funded over $70 million of capital expenditures in 2023. These expenditures were primarily related to our drilling program in Egypt and Canada with some maintenance CapEx on long-lead items for Gabon.
Let me now turn to guidance, but I'll give you some key highlights and updates. I want to remind you that guidance does not include the recently announced Svenska acquisition and will be updated once the acquisition is finalized. Also, 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 for the total company, we are forecasting Q1 2024 production to be between 21,700 and 22,400 working interest barrels of oil equivalent per day and between 16,800 and 17,300 net revenue interest barrels of oil equivalent per day. This is down slightly from the fourth quarter of 2023 due to natural decline. But that said, we do expect solid production growth in Canada due to our drilling program in 2024. For the full year 2024, we are forecasting our total Company production to be between 20,800 and 23,400 working interest barrels of oil equivalent per day and between 16,100 and 18,300 net revenue interest barrel oil equivalent per day.
Looking at production by asset, we had expected natural decline in Gabon and Egypt, although we do have a capital workover program in Egypt in the first half of 2024 that should help mitigate decline in Canada. As I've mentioned, we expect year-over-year growth from our drilling campaign for full year 2024. We are assuming our sales will be in line with our production. But for the first quarter, this may not be the case. You will notice that Q1 sales in Gabon have a wide range. This is because our lifting in Gabon is scheduled for the end of March and could potentially shift into April. Of course, if that happens, it will not impact the full year sales, but impact our first and second quarter sales in Gabon. Our absolute operating costs are expected to remain in line with 2023, but we are projecting our per barrel oil equivalent range to potentially increase slightly due to less projected revenue bottles. We're also expecting small increases in absolute G&A, a per barrel of oil equivalent G&A costs, primarily due to resourcing requirements Finally, looking at CapEx, our 2024 capital spend of $70 million to $90 million includes drilling for long lateral development wells in our northern acreage in Canada, long lead items in Gabon, preparing for the 2025 drilling campaign and capital workovers in Egypt. For the first quarter, we are expecting a range of between $22 million and $28 million for our CapEx.
In closing, we continue to trade a very low multiple of EBITDA despite having a strong dividend yield and being a bank debt-free by year-end 2023, we had over $120 million in cash on the balance sheet, generated $280 million in adjusted EBITDA and trading well below two times EBITDA with this mask acquisition, we should see an increase in production and sales. While we continue to generate significant adjusted EBITDA and operational cash flow in 2024, we are very well positioned to execute and fund our CapEx program across multiple producing assets over the next several years.
With that, I'll now turn the call back over to George.

George Maxwell

Thanks, Ron. For our strategy remains unchanged, operate efficiently, invest prudently, maximize our asset base and look for accretive opportunities.
As you have heard this morning, we have successfully delivered strong operational and financial results in 2023 by executing on our strategic vision for effective drilling campaigns in Egypt and Canada helped both areas grow production in 2023 and our continued focus on operational uptime helped combined minimize decline all three areas of strong production performance that exceeded guidance. We generated record adjusted EBITDA of $280 million and free cash flow of $120 million. So funding over CapEx, quarterly dividends and share buybacks with cash flow and cash on hand, we ended the year with over $121 million in cash on hand, and we're using some of that cash to make it very accretive acquisition. We have delivered on our commitment to the market and to our shareholders. And we are in an enviable financial position with no bank debt and a greater portfolio of producing assets with future potential upside.
In addition to funding our capital program and growing our cash position, we have remained focused on returning value to our shareholders. In 2023, we returned $50.3 million to our shareholders through dividends and buybacks that are 42% of the free cash flow that we generated. We nearly doubled our quarterly dividend and have continued that higher rate into 2024. We are on pace to deliver another $0.25 per share annual dividend for 2024 matching what we paid out in 2023, which at our current share price is a dividend yield of nearly 6%. We have continued to repurchase common shares through the buyback program approved in 2022 since inception of the program back in November 2022, we have returned over $28 million to shareholders and repurchased in excess of 6 million common shares. We are committed to returning value to our shareholders and in 2024, we're targeting returning over $25 million of free cash flow to shareholders. We are expecting to close the Svenska acquisition sometime in the second quarter of 2024. And once it closes, we will see an immediate boost to production adjusted EBITDA and cash flow in both absolute and per-share terms.
Our current 2024 guidance does not have the Svenska acquisition incorporated. But once it closes, we will provide updated guidance. We are truly excited about the future, and Varco is now in a very enviable position. We have multiple producing areas and future prospects that have completely diversified our risk profile and our sources of income. We will remain disciplined in our approach to maximize value for our shareholders by delivering growth in production reserves and cash flow. We are drilling for longer lateral wells right now in Canada, purchasing long lead items and preparing for the planned drilling campaign in Gabon and in Egypt, we have multiple workovers and and are evaluating additional 10 to 15 well drilling program. Our success over the past two years has generated meaningful change at Barco and created significant development opportunities well into the future. We are very excited for the future of our core remain confident that we will continue to deliver superior long-term value to our shareholders. Thank you. And with that, operator, we are ready to take questions.

Question and Answer Session

Operator

(Operator Instructions) Stephane Foucaud, Auctus Advisors.

Stephane Foucaud

Thank you. Morning afternoon, gents. Thanks for taking my question. And it less possible to go back to the to the guidance, the CapEx and production guidance, the guidance, I think, George, you talked about the on the Gabon CapEx, deferred CapEx from 30 to 40. Could you come back on the other items, please? And particularly if there is I don't think there is but confirmed if there is anything associated with the FEED study and for for EG and related to that. So should I understand that there should not be any uptick in production in Gabon around the end of the year because the drilling program is more likely to start in 25 rather than 24?

George Maxwell

Thank you. Thank you, Stephane. So yes, we are looking at $30 million to $40 million of CapEx within Gabon, which is primarily related to maintenance CapEx and long-lead items for the drilling program. And one thing that I mentioned during the introduction was that we do have we're currently evaluating a drilling program in Egypt, which is not in guidance. And but should that get confirmed that would add an additional $18 million of CapEx for those 10 to 15 wells. You are correct in that when we were looking at the program and particularly the focus on the revision of the Buly field, that is the reason that we're delaying slightly the Gabonese program is to allow that program to have a much wider scope and therefore, a greater number of wells which will lower the overall cost from the drilling because we'll have more wells to spread mobilization demobilization over and that makes them much more efficient. And also, we're targeting effectively what were originally proven reserves for Gabon and the ability fielding converting them from contingent. So there's quite a lot of opportunities within within the CapEx program.

Stephane Foucaud

Thank you. And so the split between Egypt and Canada for the firm CapEx?

Ron Bain

Hi, Stephane. It's Ron. Let me take that element for you on the breakdown of the CapEx. So as we said in the guidance, we got $70 million to $80 million I would say for guidance purposes, you're looking at Gabon being between 40% and 45% of that you get between 10% and 15%, Canada, 35% to 40% and then the other will be corporate and possibly feed studies.

Stephane Foucaud

And you're referring for that maybe for EG?

George Maxwell

It's steady. Yes, I mean so just to recap, I mean, we as I mentioned earlier in the call, we have made significant progress on on Block P with the or the position with the partners. And first, we're not in a position right now at this time to confirm move towards a FEED study on on the business development. I do anticipate in the very near future.

Stephane Foucaud

Great. Thanks.

Operator

Charlie Sharp, Canaccord.

Charlie Sharp

Yes, good morning, gentlemen, and thanks for taking my call and congratulations on a great set of results. If I could just just trying to clarify a little bit more Gabon, if I may. I think, George, you said at the beginning your piece on Gabon that you initially planned a three or four well program, presumably that did not include the potential additional to see 8 million to 12 million barrels of resources that you highlighted might might be more than three or four wells that's what I'm trying to get out and exactly what might that encompass in terms of targets, reserves versus resources?

George Maxwell

Yes. So you're correct in that the initial program did not include the opportunity of the redevelopment of the Buly field, some of the total, we would say, probably an additional two wells and one workover. And so that would take the program on a almost firm basis between six and seven wells and obviously we will tie options onto that as well.
The target for contingent resource conversion to reserves for the Buda redevelopment remains between 8 million to 12 million barrels. As I mentioned in the commentary, one of the wells is for field fuel supply. So gas wells, I won't add anything, but it will reduce further reduce our OpEx and in the field as we replace natural gas with diesel and the other targets, obviously, it's difficult to give you a range and we're looking at an appraisal step-out well, but we were looking between that 2 million to 4 million barrels on the other two wells.

Charlie Sharp

That's great. Thank you. And can I just follow up with one question and on the CI. 40 license. And I think you've indicated that the FPSO will be going on for maintenance and upgrades in 2025 four, presumably for a year or more of what's the reason for that? And how much is that all going to cost and presumably that will be cost recoverable in the following year?

George Maxwell

And the hard question really because obviously, we're not the operator of bill Bob, and those plans have yet to be finalized by the operator. And our anticipation is obviously these would be fully cost recoverable there is a time schedule that would take the vessel off station for a period of time. We once we are in a position to have direct discussions with the operator, obviously we'll be in a position to comment more accurately on both the outage and time delays where the drydocking will take place and the nature of the upgrades and the in our evaluation. Clearly, we included estimates both for time and CapEx within that, and we're very confident there are estimates here on the conservative side to allow us to make the statement of how accretive we believe this transaction is and but it would really be upon completion, we'll be able to give a more accurate picture, Charlie.

Charlie Sharp

Thank you.

Operator

Jeff Robertson, Water Tower Research.

Jeff Robertson

Thank you. Good morning, George, it's slightly premature based on your answer to the previous question. But from your understanding is the FPSO work that is expected to be done in Ivory Coast. Is it similar at all to what Valkyrie did at atomic in terms of trying to upgrade the field to lower costs and create better run times.

George Maxwell

Allow that follow on to that when he is he's sitting beside me. So the so the upgrade is really based around the class on the vessel itself. So if you recollect on Gabon, we actually changed the vessel out from an FPSO and FSO. In this case, what's happening is is that the vessel has reach class limits and needs to go into drydock to get class resumed. So that's the first part of it. While it's there, they'll obviously pick up some metal replacement. They'll do some additional work probably on the Process Equipment, I would expect cleaning it up or really reinvigorating it for the next phase of its life. And then the other part that needs to be done is there needs to be some bearing replacements on the turn on the subsea side, there's really not a lot of work that's happening there. So it's the same, but somewhat different more of a topside scopes in the subsea scope.

Jeff Robertson

Thanks. And from a perspective on the rig program in Gabon and ultimately, if you get the JOA finalized for EG, George can you talk about the effect, India, just cost fluctuations that are having an impact on how you evaluate as of work going into the FID in the FEED work?

George Maxwell

Yes, I can Jeff. I mean, obviously, from where vocal, where two years ago a capital allocation was relatively simple one as a single-asset company capital allocation and a multi-asset company becomes No, I wouldn't say more problematic becomes a challenging us to as to where we get the best return for the investment.
Now when we look at where we were 18 months ago and preparing the plan of development for Venus in Equatorial Guinea. Obviously, pricing both on drilling units on production units has moved considerably now. We believe we've maybe seen the top of that cycle now, and we're starting to maybe see at the plateau often from where it was in its historic highs and in 2023. And that's really the purpose of the FEED study not really to go on them reconfirm or challenge the technical position inside the plan of development and the plan of development. However, we do you see a better way of doing it.
And we do see a more economic way of doing it that will come into that FEED study. But the project itself has fairly robust economics despite its CapEx intensity we're looking at. But that CapEx position, you see how we can challenge that between CapEx and leasehold we've been looking at, but also from a tax perspective, but bear in mind that, albeit a relatively small project at a 17 million to 20 million barrels recoverable, it has a very short life, which gives it an attractive cash flow. So and throughout 2024, we'll be working on that FEED to firm up both the timing of the development, how it fits into our overall corporate CapEx program and ensuring that the FEED study can deliver us towards an FID position.

Jeff Robertson

Thank you.

Operator

Chris Wheaton, Stifel.

Chris Wheaton

Thanks and good afternoon. Good morning, guys, and two questions, if I may. Firstly, wonder if you'd go back to Equatorial Guinea and just understand what the time might be of the stages you need to get through to be able to get to FID here was obviously you're in the FEED stage. It sounds like you would in the FEED stage at the moment you need to get through to FID. Some point. I'm presuming now that now is going to be next year sometime in 2025 because you need to get the operating agreement sorted out as well.
My second question is kind of related to Equatorial Guinea. But after you fold it in the sense that our acquisition of the pay about stake, I'm presuming you'd quite like to do both Equatorial Guinea and the Cote d'Ivoire, redevelopment, some of some tedious Lee idea financially, I'm interested in what you see there is a risk of you see any risk. Have you not been able to do that. So I would have thought your and given your cash flows and your balance sheet strength, we're quite able to do both of those projects simultaneously. If you want to I guess the question is how good are they returns when you stack them up against each other customers are thinking?

George Maxwell

Okay. The first question, am I where we are positioned now with with Equatorial Guinea where through through efforts from from everyone in particular efforts from the IMMA. to the government in Equatorial Guinea, we've got, I would say, 99% alignment on where we want to be within material way. And as I've indicated, I can't say for sure today, but I do expect to see for sure in the very near future that the GOE. issues are ostensibly behind us. Like I said in my opening remarks, we're looking at confirmatory documentation as opposed to negotiating documentation, which is a big step forward from where we've been previously, and that does allow us to move into FEED. And I'm kind of guessing the Inova may move into FEED given the complexity from Bluewater development there. We are estimating nine months and feed. It could go quicker. It could go slower, but it'll given we have two seabed surveys, environmental impact assessments and like it is starting from a blue water location. And I do anticipate nine months is a reasonable timeframe to get to feed and feed will deliver. And we do anticipate delivering FIT during that same period. Obviously, we'll be able to give much more surety and quality around what's happening in the Transco acquisition, which we do expect to close in Q2 and become a full partner with the operator CNRL throughout the rest of this year. As we as we get into that position, we can give more clarity as to what the costing and timings are for the i the rehabilitation of the MV. 10 and the challenges, as you pointed out, Chris, about a number of CapEx opportunities coming together at the same time.
Well, we looked at the matter is there are certain things that must happen. And clearly, there's a timeframe that we will be engaged with the CNRL around of what is happening for that field to to shut down and recommence. So there's there's a commitment there that we are absolutely committed to based on the operator's time schedules as soon as we can discuss that with them. And when we look at our own operations with regard to the drilling program and the enhancement that we talked about, the opportunities in Gabon for early 2025 and the timing around the EG. development. Again, as I said, we've looked at EG. development and said, well, it's CapEx intensive. However, we're looking at opportunities where we replace CapEx with miss opportunities, given the tax environment in EG and also given that a nice dovetail opportunity between drilling programs in Gabon and Equatorial Guinea. So we can, as I mentioned earlier back to two, I think it was Charlie, that we may have seven up to seven well program opportunity in Gabon. We can tag that the potential 10 well opportunity and a much more exciting program for a rig operator, a dovetail to the wells that we have planned in Equatorial Guinea. So far, I do agree with you. We're financially. We're placed exceptionally well to execute all of these projects. But but we're not challenged to the extent that we see we'd have to delay any as a result of financial constraints. It's really going to be on technical.

Chris Wheaton

Great. That's really helpful. And thanks very much indeed.

Operator

Go ahead.

Thank you and congratulations on a great quarter. Would you please talk about the sourcing of the Svenska deal and then talk about if you would be willing to do an additional transaction in 24 or if if this isn't for now?

George Maxwell

I think I think obviously, additional transactions are difficult to comment on Bill, as you'd appreciate, but we do look for opportunities where and our natural experience and the experience we have inside the company and where we can get a deal structure that we see as immediately accretive and immediately adding production.
So are we a company that's going to look around for Bluewater exploration acreage that's not really doesn't fit our bill, but we will be looking at opportunities where we see production now.
Do we have enough for now? Yes, we've got a lot of a lot of opportunities. And with the opportunities we've acquired to date, we've created considerable longevity to the production profile. The Volvo has when you look at the source, I'm not quite sure what you're referring to when it comes to source. And we've got lots of information and around opportunities as they exist in in West Africa and in other parts of the world when we looked at this particular opportunity that we've managed to conclude, subject to closing precedence is that we actually looked at that some time ago when we were running or another company called you. And then we a lot of these deals as some of you will be aware in Africa can take a long time to percolate and what really aided and abetted of VAALCO's opportunity to close this particular deal was our knowledge of the asset, which came from from a number of years ago, and our speed of which we could do technical and financial due diligence, and that came from the knowledge base we have inside the Company. So the real sources is inherent inside Vocus DNA right now, and we do apply that to areas where maybe some of our shareholders have never heard of before, but we know there's accretive opportunities in those disciplines in those geographies.

George, it's very helpful. Thank you. Very much. And one country that or area that we have heard of is Canada. And given the success that you have had there, would you be willing to make additional acquisitions in Canada? How are you thinking about that?

George Maxwell

That's a good question, and I will respond exactly the same challenge that the Board gave the executive team over over 12 months ago, they said, Look, this is a nice business, a small business. How do you make it more viable?
How do you make it more contributive to the overall corporate plan? How do you make it cash generative post still expanding the opportunities inside Canada, and that's exactly what we've done.
We have a five-year plan that was put together by the Canadian management team at an excellent plan and I have to commend them for putting it together in that plan. As we mentioned, we're moving to longer lateral wells to enhance the economic returns that we get from from our investment activities there. And in order to do that, we have to acquire land parcels that connect the disconnected land parcels that we have to allow the three mile laterals instead of a one-mile lateral?
Well, we have to go into joint ventures where we see opportunities in connecting those land parcels where perhaps the existing incumbent does now, and that's exactly up. Some of this campaign of drilling right now is based on that strategy as well, where we have went into agreements with partners and adjoining land parcels with us will be tremendous and co-venture initially on one instance, they decided they didn't want to and we've taken it 100%. So I see opportunities to grow that strategy but I don't see a growing and to a no three or four or five times the footprint we have today. But we do have a very nice contributing business in Canada right now.

Thank you and congratulations again on a good quarter.

Operator

Jamie Wyland, Wyland Management.

Jamie Wyland

My nice quarter on all fronts. So a couple of cash questions. As you So talk about the acquisition, you're paying $60 million, but it'll be $30 million to $40 million in cash by the time it closes I assume that means that the operation is generating north of $5 million a quarter for you when it when it closes?

Ron Bain

Yes. I mean, Jim, it's Ron. As we said before, the business itself is operating about 4,500 barrels equivalent to us per day when we close. And we see that is effectively going to be able to reduce the overall cash payment that we pay because the effect of the 1st of October 2023. So we're looking at this deal as being and as I say, it's going to close somewhere between $30 million and 40 million in cash. And what's our business still continuing to deliver on those bottles right through until 2025. And we see that business effectively paying itself back at present oil prices.
Very, very quickly.

Jamie Wyland

Wonderful job. At the end of the third quarter, you talked about kind of building cash in the fourth quarter of about $50 million. And I realize you had the buyback program, the dividend and the payables actually declined by $20 million. So it looks like you hit that $50 million target less of those outflows for shareholder returns and our payable decline?

Ron Bain

That's correct, Jamie. I mean cash flow from operations was over $51 million for the quarter, and we did guide that in the transcript, we did state that because the drilling programs were over and there's a lag between between now and the invoices being processed, they would have an accounts payable outflow, and we did see that in Q4.

Jamie Wyland

Got you. I'm very pleased to see that acquisition was done for cash as opposed to shares, considering how undervalued our shares are as you look at the buyback program, we're coming up on the nearing the end of the $30 million. Would you expect to reauthorize an additional sum for the buyback given the accretiveness of the acquisition and how good the operations have been over the past year and the future outlook?

George Maxwell

I mean, that's a good question. As I said earlier, the capital allocation is a key consideration that we're going to address at the upcoming meetings once we've completed and fully understand the program inside the Svenska acquisition. But I've said we haven't had direct discussions with the operators. So until we have the opportunity to sit down and fully understand those plans, then it allows us to give a longer-term cash management plan as to how we allocate that and make sure we despite our very strong balance sheet to make sure we avoid going into a debt position, not but there is a bad thing when you're looking at what kind of growth opportunities we have, but we will be planning to steer away from excellent.

Jamie Wyland

As you talk about the closing of the acquisition in the second quarter, are you looking at the end of the second quarter or that that's a 90 day period? How would you forecast it to be middle beginning or end of quarter four and I are traveling to Cote d'Ivoire in two weeks' time.

George Maxwell

And based on the reception we get from the Minister, I'll be able to answer that. But so far, the ministerial comments have been very positive on Baku entering the country.

Jamie Wyland

Okay, excellent. Great job, fellows. Thank you.

George Maxwell

Thank you, Jim.

Operator

Jeff Robertson, Water Tower Research.

Jeff Robertson

Thanks, George. Just a geopolitical question. Can you comment on any impacts that your Egypt operations are having moving export cargoes, given what's going on in the Red Sea and then you've operated with the new government of Gabon now for five or six months. And just a comment on how things are going with that.

George Maxwell

On the first instance with regard to cargoes on the Red Sea, we're seeing no impact on that, primarily because we're still working with the EGPC to plan or 2024 cargoes. And we're hopeful to get that discussions resolved in the very near future.
And so I guess so from from the the shipping instances are taking place in the Red Sea, not that it's absolutely not no impact to us whatsoever. But the impact is we still have discussions right now with EGPC regarding our 2024 cargoes. And as we have our Q1 call in May, know, hopefully we are in a position to give a resolution to that with some timings for these cargoes.
With regard to Gabon, and I had a very good meeting with the president back in November and administer them when I travel down to a deliverable, had a really good private dinner with the president and understand understood his aspirations for the country and how we can work with them to achieve them. We have seen some changes in regulatory framework in Gabon, which we're going to have to work with and in particular, new finance outages, we added 5% to the withholding tax and we need to work working with the government how best and efficiently our investment is not impacted by that when we look at the drilling program. But overall, I think we have seen, as I mentioned last year, during the announcement of the Q2, we have seen no impact to our operations. And I can attest to the meeting we had in November with the president, you know, we see no impact to our future investing of opportunities in Gabon. We have seen, as I mentioned earlier that we've had stalled discussions around a block G unit and with our partners, BWE. and Manolo, we've seen an acceleration of those discussions. And in Q4 and Q1 and hopefully by the end of Q2, we've got some more exciting news on those opportunities.

Jeff Robertson

Thank you.

Operator

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

George Maxwell

Thank you very much. I think it's a it's always a pleasure to have had such a monumental achievements in 2023 when we look at all the reorganization and integration work that had to happen post Transco post the reconfiguration in Gabon, and we're starting to see and reap the benefits of both of these transactions in 2023 to then couple that with an opportunity to and more exciting asset bases to our company and start another journey in another jurisdiction with the without a long degree of longevity in at least another 14, 15 years of production is also very exciting. So I think we should enjoy the moment and we've got a lot of hard work ahead of us, a lot of opportunities to develop more oil in the near term and with the with the capital investment, we have a strong balance sheet and as you've as I've already pointed out, we've got a very strong team here in Houston and in other places of the world to make sure we can execute in every jurisdiction that we operate, and I'd like to thank everyone. Thank you very much for the call.

Operator

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