Hello, welcome to VAALCO Energy Inc. third quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. Now let's turn the call conference over to Al Petrie, Investor Relations Coordinator. Please go ahead, sir.
Thank you, operator. Welcome to VAALCO Energy third quarter 2019 conference call. After I cover the forward-looking statements, Cary Bounds, our Chief Executive Officer, will review key highlights of the third quarter, along with operational results. Liz Prochnow, our Chief Financial Officer, will provide a more in-depth financial review. Cary will 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 queue with additional questions. I'd like to point out that we posted an investor deck on our website this morning that has additional financial analysis, comparisons, and guidance that should be helpful. 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 statement, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release, the presentation posted on our website, and in reports we file with the Securities and Exchange Commission, including the 10-Q that was disseminated earlier today. Please note that this conference call is being recorded, and now let me turn the call over to Cary.
Thank you, Al Petrie. Good morning, everyone, and welcome to our third quarter 2019 earnings conference call. We've had a very exciting past few months and have achieved several significant milestones. In August, we completed our annual planned maintenance shutdown at Etame and restored production with no safety or environmental incidents. In September, we kicked off our 2019/2020 drilling campaign and recently announced the Etame 9P appraisal drilling results, which were better than expected for the Gamba and Dentale reservoirs. On September 26th, we began trading on the London Stock Exchange, which complements our listing on the New York Stock Exchange by providing us the opportunity to diversify our shareholder base and attract additional research coverage. The new listing also gives us additional options to raise new capital to grow our business in the future. In October, we began drilling the Etame 9H horizontal development well targeting the Gamba reservoir.
We plan to update you on the results in the coming weeks. Turning to operational results for the third quarter, we produced an average of 3,081 net barrels of oil per day, which was within our guidance range. We completed our annual planned maintenance shutdown at Etame in August on schedule and on budget, and subsequently restarted production. Production and sales volumes were lower in the quarter by about 250 net barrels of oil per day due to the temporary shutdown. Production was also impacted by the loss of the Etame 10H, Etame 4H, and North Tchibala 2H wells that are temporarily shut in. Earlier this year, the electric submersible pump failed in the Etame 10H well after operating for four and a half years. Prior to the pump failure, the Etame 10H well was producing approximately 200 net barrels of oil per day.
We are considering utilizing the Vantage drilling rig to perform a workover and replace the failed pump in the Etame 10H well. In total, production is down approximately 400 net barrels of oil per day due to these three wells. Looking ahead to the fourth quarter, we are currently drilling the Etame 9H well, which is expected to start producing in December. Taking into account the production uplift from the Etame 9H well and production deferrals from the three wells I just mentioned, we expect production for the fourth quarter to be in the range of 3,100-3,500 net barrels of oil per day. As a reminder, the production impact from our 2019/2020 drilling campaign is expected to increase our 2019 exit rate and should have a significantly greater impact on 2020 production.
We currently estimate our 2019 exit rate to be in the range of 3,800-4,100 net barrels of oil per day, assuming the Etame 9H is completed and online. Now, I would like to give you additional details on the drilling campaign that is underway now. As part of the PSC extension in Gabon, we committed to drilling at least two development wells and two appraisal wellbores by September 2020. As previously announced, the Etame 9P appraisal wellbore was drilled successfully and encountered both the Gamba and Dentale reservoirs at targeted depths as anticipated.
Based on the information we gathered in the Etame 9P wellbore, the Gamba oil column is thicker than pre-drill expectations and may result in higher ultimate oil recovery from the Etame field, including the Etame 9H development well that we are currently drilling, as well as the Etame 11H development well, which we plan to drill shortly after the Etame 9H. The preliminary analysis indicates that the Etame 9P wellbore encountered at least 45 feet of good quality Dentale oil sands with estimated gross recoverable oil resources of 3.9-14.9 million barrels of oil in the Dentale reservoir. This is very positive news for us as our pre-drill estimate was 4.6 million barrels of oil. As anticipated, we did not encounter H2S in either reservoir. As you can imagine, we are very excited about the results as we plan for future development wells in the Dentale reservoir.
After reaching total depth in the Etame 9P wellbore, the drill pipe became stuck while lying nearly horizontal in the Dentale section. After several attempts to break free, we decided to cut and pull the drill pipe, but a portion of the drill pipe and the bottom hole assembly could not be recovered. We plugged back to a shallower depth and began drilling the Etame 9H development well as planned. While we are still early in the drilling campaign, the additional time spent on the 9P, coupled with the loss of drill pipe in the bottom hole assembly, will likely add $3 million-$5 million net to the ultimate overall cost of the drilling program. Thus far, we have not encountered any significant issues drilling the Etame 9H development well.
We expect production to come online in December at a stabilized rate of approximately 2,500 to 3,500 gross barrels of oil per day, or 675 to 960 net barrels of oil per day. Following the Etame 9H well, we plan to drill the Etame 11H development well into the same Gamba reservoir. After we complete the 11H well, we are considering executing a workover to replace the electric submersible pump in the Etame 10H well, which is on the same platform. We then plan to move the rig to the Southeast Etame North Tchibala platform to drill the Southeast Etame 4P appraisal wellbore to evaluate a Gamba step-out area in Southeast Etame. Upon drilling the second appraisal wellbore, our drilling commitment as part of the PSC extension that we signed last year will be complete.
I do want to point out that if the Southeast Etame 4P appraisal wellbore proves up the Gamba in that area, then with our joint interest owners and government approvals, we plan to drill a third development well as part of this drilling campaign. So far, we are off to a great start, and our vision is to repeat similar drilling campaigns at Etame over the next several years and continue adding reserves and production. I can't stress enough the importance of our capital discipline and operational execution, as it allows us to continue to generate significant free cash flow, build our cash balance, and fund our capital programs at Etame from cash on hand and cash flow from operations. In addition to funding our drilling program, we are also actively returning value to our shareholders through a share repurchase program.
We believe the share repurchase program is an excellent opportunity to buy our common shares at a significant discount to their intrinsic value, and the program also reflects the board's confidence in the current value proposition of our stock. We are confident that we can continue to execute our share repurchase program and fully fund our 2019-2020 drilling campaign from cash on hand and cash from operations. Later on, Liz will provide additional details regarding the share repurchase plan. Before I turn the call over to Liz, I would like to discuss our listing in the U.K. We believe our story resonates well with the U.K. investor audience who have a strong interest in companies with the type of assets that we operate in Africa. It has already generated interest in VAALCO with new equity research coverage and increased access to international oil and gas investors.
While we don't have a current need for additional funding, should we find something particularly accretive and compelling and in line with our inorganic growth objectives, we can potentially use our London listing to tap into a deeper pool of capital. As you can see, we've had a very busy and productive 2019. We've enhanced our corporate, financial, and operational capabilities and positioned VAALCO to succeed for many years to come. With that, I would like to turn the call over to Liz to discuss our financial results.
Thank you, Cary. Good morning, everyone. As Cary mentioned, it's an exciting time for us at VAALCO with our drilling program well underway and with the early positive results. Additionally, we completed our listing on the London Stock Exchange, and we are very pleased to have two new analysts now providing research coverage on our company. In the third quarter, we reported a net loss of $3.9 million, or $0.07 per diluted share. This was impacted by a non-cash expense of $5.1 million, or $0.09 per share, related to deferred income tax, which was partially offset by non-cash benefit of $1.8 million, or $0.03 per diluted share, related to unrealized gains on crude oil swaps. Adjusting for the net impact of these items totaling $3.4 million, third quarter adjusted net loss was $0.6 million, or $0.01 per share.
Third quarter 2019 net loss was also impacted by lower revenues reflecting lower sales volume, as well as a $1.2 million, or $0.02 per diluted share, non-cash expense for stock options, restricted stock, and stock appreciation rights. Adjusted EBITDA totaled $4.5 million in the third quarter of 2019, which was likewise impacted by lower pricing and production. Through the first nine months of 2019, we had generated $27.1 million of adjusted EBITDA, which has helped us fund our capital program and remain free cash flow positive. Third quarter 2019 oil sales totaled 279,000 net barrels, compared with 329,000 net barrels in the same period a year ago and 357,000 net barrels in the second quarter of 2019.
Third quarter 2019 sales volumes were impacted by lower production volumes during the quarter, which was the result of the planned full field maintenance shutdown that occurred in August 2019, as well as the impact from the wells currently shut in. For the fourth quarter of 2019, we expect sales to increase as a result of higher estimated production from the Etame 9H well, which is currently being drilled and which is expected to come online in December. Our realized oil price for the third quarter of 2019 averaged $61.26 per barrel, down 19% from $75.40 in the third quarter of 2018, and down 11% from $68.62 in the second quarter of 2019. In the third quarter, we recorded non-cash mark-to-market unrealized gains related to our crude oil swaps of $1.8 million, while we realized a cash gain of $0.5 million on the swaps which settled during the quarter.
These swap agreements are at a Dated Brent weighted average price of $66.70 per barrel. As of September 30th, 2019, there were swaps outstanding for 394,735 barrels for the period from and including October 2019 through June 2020. We will continue to evaluate ways to mitigate price risk, ensure future cash flows for our drilling program, and allow for upside to rising commodity prices through our hedging program. Turning to expenses, total production expense, excluding workovers for the third quarter 2019 was $9.5 million, or $34.01 per barrel of oil sales. This compares with $7.5 million or $22.93 per barrel in the same quarter of 2018 and $9.8 million or $27.45 per barrel in the second quarter of 2019. For the fourth quarter of 2019, we expect production expense excluding workovers to be between $9 million and $11 million, or $30-$36 per barrel.
Production expense for the fourth quarter is expected to continue to be somewhat high as a result of planned preventive maintenance. DD&A for the third quarter of 2019 was $1.5 million or $5.41 per barrel of oil. This compares to $1.1 million or $3.43 per barrel in 2018 third quarter, and $1.9 million or $5.35 per barrel in the second quarter of 2019. The year-over-year increase in DD&A per barrel of oil reflects an increase in depletable costs associated with the PSC extension, partially offset by a favorable impact of the upward revisions to reserves at December 31st, 2018. We continue to expect our full year DD&A rate to be in the range of $5.50-$6.50 per barrel of sales.
General and administrative expense for the third quarter of 2019, excluding non-cash stock compensation, was $3.6 million or $12.86 per barrel of oil, as compared to $1.8 million or $5.59 per barrel of oil in the third quarter of 2018, and $2.8 million or $7.93 per barrel of oil in the second quarter of 2019. The expense for the third quarter was higher due to the increased professional fees associated with our listing on the London Stock Exchange as well as our growth initiatives. We expect our fourth quarter G&A, excluding non-cash compensation, to be between $2 million and $3 million.
Non-cash stock-based compensation expense related to Stock Appreciation Rights, or SARs, was a charge of $1.0 million during the three months ended September 30th, 2019, as compared to a charge of $0.8 million in the comparable 2018 period and a credit of $0.7 million in the second quarter of 2019. SARs are revalued quarterly based on the closing stock price at the end of the quarter, which was $2.03 at the end of the third quarter 2019 versus $1.67 per share on June 30th, 2019. Stock price variability greatly impacts the fair value of the SARs. There will be an expense or credit every quarter associated with the mark-to-market value of the SARs. Income tax expense for the three months ended September 30th, 2019 was $7.7 million. This is comprised of $5.1 million of deferred tax expense and a current tax provision of $2.6 million.
For the three months ended September 30, 2018, the company had a current provision of $4.0 million and a current deferred tax benefit of $66.2 million. The decrease in the current provision between the third quarter of 2019 and the third quarter of 2018 is primarily attributable to Gabon income taxes, which are impacted by a decrease in revenues. With respect to deferred income tax for periods prior to the three months ended September 30, 2018, the company had full valuation allowances on its net deferred tax assets and deferred income tax was zero. The deferred income tax benefit of $66.2 million in the third quarter of 2018 related to the recognition of deferred tax assets and the reversal of valuation allowances on the other deferred tax assets.
With respect to the third quarter of 2019, the deferred tax expense of $5.1 million in the third quarter of 2019 includes a $4.8 million charge to increase the valuation allowance on U.S. deferred tax assets, which was primarily due to a decrease in future estimated taxable earnings, primarily as a result of lower oil prices. As detailed on slide 23 in the presentation deck posted this morning on our website, we currently estimate that VAALCO's operational breakeven in 2019 is approximately $37 per barrel of oil sales, and our free cash flow breakeven in 2019 is approximately $47 per barrel of oil sales, with those amounts including workover expense. In general terms, we estimate that each $5 increase in realized oil prices increases our annual adjusted EBITDAx by $6 million. This clearly shows our strong leverage to higher oil prices.
At the end of the third quarter, we had a cash balance of $57.2 million, which included $11.8 million of cash attributable to non-operating joint venture owner advances. At the end of the third quarter, VAALCO had $29.0 million of working capital from continuing operations. This metric excludes lease liabilities and amounts attributable to discontinued operations. On June 20th, 2019, VAALCO announced that its board of directors had authorized a share repurchase program. Since inception of this program through November 5th, we have purchased nearly 1.6 million shares of our common stock at an average price of $1.80, representing a total investment of approximately $2.9 million. This represents 2.6% of the 59.8 million shares of common stock outstanding as of June 30th, 2019, just post implementing the program. Despite the weakness in oil prices, VAALCO's cash position remains very strong.
We can continue to opportunistically execute our buyback program and also fully fund our planned 2019-2020 drilling program at Etame from cash on hand and cash flow from operations. For the nine months ended September 30, 2019, we invested $8.4 million in accrual basis capital expenditures, primarily for the drilling program and to a lesser degree, for equipment and other. The current estimated net capital expenditure range for 2019, which is primarily associated with our drilling program, is expected to be at $20 million-$25 million. As Cary mentioned, the total cost of the 2019-2020 drilling program is now estimated to be approximately $3 million-$5 million higher than the original $25 million-$30 million estimate due to additional rig and service costs associated with the 9P well. The full 2019-2020 drilling program will include up to three developmental wells and two appraisal wellbores.
We anticipate that it will be completed in the first half of 2020. With this, I will now turn the call over to Cary.
Thanks, Liz. Over the past several years, we have worked diligently to strengthen our financial position and create opportunities for growth. We are debt-free with over $45 million in cash on hand, excluding cash attributable to joint owner advances, and we are generating strong operational cash flow that can be used to fund our drilling program. The 2019, 2020 drilling program is the first in a series of drilling campaigns where we hope to create significant value. I'm pleased that we have already seen results that are better than expected from the first appraisal well in the program. We are looking forward to the expected production increase from the next two Etame development wells on the drilling schedule, followed by an appraisal wellbore at Southeast Etame with the potential to add meaningful reserves.
I believe that moving forward, we will create substantial value for our shareholders by growing reserves and production at Etame and building our asset portfolio through mergers and acquisitions. In short, this is a very exciting time for VAALCO, and we are well positioned to deliver profitable and accretive growth. Thank you. With that operator, we are ready to take questions.
Yes. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing your keys. To withdraw the question, please press star and then two. At this time, we will pause momentarily to assemble the roster. The first question comes from Charlie Sharp with Canaccord.
Good morning, everybody, and thanks for taking my question. Just one quick question. You outlined the successful results from the 9P well in the plan and how that might impact 9H and 11H. Have you had any chance, yet to assess perhaps a wider implication across the license, or is that something that's work in train?
Right. That is work in progress, Charlie Sharp. That's a great question. The better than expected results that we saw in the Gamba will affect, you're right, the 9H and 11H, but it affects the entire Etame field. I say field, on the Etame license, we have four fields, and the Etame field is one of them in the Gamba reservoir. There are two other wells right now, the 10 and the 12 that are producing from the platform, or the 10 is shut in. Anyway, there's also the South Tchibala wells, the 6 and the 7. We think the good news we saw in the Gamba actually spreads across all of those wells, and we're evaluating the results and the impact, and we'll work with our reserve auditors and probably make an announcement when we finish our year-end reserves.
Okay. That's great. Thank you.
All right. Thank you, Charlie.
Thank you. The next question comes from Bill Lazarin with Titan Capital.
Thank you. I actually wanted to continue down this same path. What were you originally expecting in terms of the Gamba sands, in terms of the thickness? It came out, you said at least 45 feet. For the oil column, what was in your mind going in?
That's really a range, and I would say at the low end of the range, probably half that thickness. Somewhere between 25 and 45 feet.
You also came out with your initial press release with the Dentale, that you were thinking the sands were somewhere in the neighborhood of 35 feet, and then with the second release, you came out and said that it was at least 45 feet. What led to that upgrade in the Dentale sands in that intervening time?
Right. What led to that? That's a good question, Bill. We gathered information as we drilled the Etame 9P. The information we gathered was mainly well logs, it took some time to interpret those logs. There was an initial interpretation, we wanted to get the news out very quickly with our initial interpretation. After our engineers and geoscientists had more time to study the logs, the interpretation improved, we made another announcement.
Great. Well, congratulations on that.
Thank you.
Talk, if you would, please, about the implications of the Dentale sand, which, if I understand correctly, is underneath the Gamba. Pretty much your entire production has been from the Gamba. How do we think about this now that the Dentale, which is an entirely new reservoir, if I understand this correctly, being at the same thickness as the Gamba?
Well, what we've found is what we call oil down to. We know that there's at least 45 feet of oil. It could be thicker. That's part of what's driving the range of reserves I mentioned, four to 14 million barrels. There's a range around thickness, and then there's a range around aerial extent. How wide or what area does the Dentale cover? That's what's driving the range four to 14 million barrels of oil recoverable. It may take two to three wells to recover all of that oil, but that analysis is going on right now. We're combining what we learned from the well bore and the well logs that we took, combining that with our seismic interpretation and our mapping, and coming up with our best estimate of where to drill development wells.
Cary, are you thinking that it is possible that with your assets, that you just are on the verge of finding that you have double the oil than what you previously did? What I'm thinking is if the Dentale is the same as the Gamba.
Structurally, it's different. No, the Dentale is not the same as the Gamba. It's a very good quality sand, but not as good as the Gamba. Like I said, structurally, it's different. I would point you back, when I think of the future potential in the field, or I should say on the license, I would look across at all of our opportunities. What we've said on our website in our investor deck is that we have a line of sight to another 123 million barrels of potential reserves and resources. To date, we've produced over 110. If everything works out as planned, we're halfway through the life of the field, or I should say, the life of the license.
Great. Thank you. I would like to ask, relative to your share repurchase, what was the highest price that you paid?
We haven't really disclosed that separately. You can gather some of the information, but I think the last quarter we disclosed that the average price was around $1.75 or so. Cumulatively, we're now at around $1.80. The price has kicked up a bit during this past quarter, which you would expect.
Great. Thank you. One additional question, as I think about your drilling program. You built cash coming into this. You are paying for the program out of cash and cash flow. It appears to me as though you'll be benefiting from increased production, cash generation. I suspect, given what you have inferred, that you'll be coming back with another drilling program, and it almost seems as though you have a drill, produce, build cash, or I guess, increase production, build cash, and repeat process that you're starting to develop. Are we understanding philosophically how you're thinking about this?
That is exactly correct. I have nothing to add to that, Bill. That's exactly what we are doing.
Okay. Thank you for the help. Congratulations on making it through this quarter.
All right. Thank you, Bill.
Thank you.