Good morning, and welcome to the VAALCO Energy Second Quarter Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Al Petrie, Investor Relations Coordinator.
Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to VAALCO Energy's Q2 2021 Conference Call. After I cover the forward looking statements, George Maxwell, our CEO, will review key highlights along with operational results. Ron Bain, who is named CFO in June, will then provide a more in-depth financial review. George will then return for some closing comments before we take your During our question and answer session, we ask you to limit your questions to 1 and a follow-up.
You can always reenter the queue with additional questions. I would like to point out that we posted a Q2 2021 supplemental investor deck on our website this morning That has additional financial analysis, comparisons and guidance that should be helpful. With that, let me proceed with our forward looking statement comments. During the course of this conference call, the company will be making forward looking statements. Investors are cautioned that forward looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward looking statements.
VAALCO disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, Future events or otherwise. Accordingly, you should not place undue reliance on forward looking statements. These and other risks are described in yesterday's press release, the presentation posted on our website and in the reports we file with the SEC, including the Form 10 Q that was filed yesterday. Please note that this conference call is recorded. Let me now turn the call over to George.
Thank you, Al. Good morning, everyone, and welcome to our Q2 2021 Earnings Conference Call. Thus far, 2021 has been an exciting year for VAALCO, where we have completed a very accretive acquisition opportunity That arose in late 2020. We closed the acquisition of Sasol's 27,800,000 working interest in Itami in February 2021 with Cash on hand. The accretive nature of the deal are very apparent in our first half twenty twenty one results, With significant increase to our production, adjusted EBITDAX and cash flow.
In the second quarter, we produced an average of 8,000 and 18 net barrels of oil per day, which was an increase of 55% over the Q1, driven by the inclusion of all 3 months of the increased NRI production due to the Sasol acquisition. The second quarter also reflected stronger revenue due to higher realized Pricing and strong sales. This helped to boost our adjusted EBITDAX to $21,900,000 in Q2 2021. And we have now generated $40,000,000 in adjusted EBITDAX for the first half of twenty twenty one, Which is more than in either of the previous 2 full calendar years and over 6 times what we generated in the Q4 of 2020. We are happy with the ongoing strength of the oil price environment and with the significant increase in production, we wanted to lock in a meaningful portion of our free cash flow Adjusted EBITDAX to ensure that we have the funds for our upcoming capital program later this year and into 2022.
Turning our attention to the future, our strategic vision is built on accretive growth through organic drilling opportunities and through acquisitions. As you saw in our Q2 results, we are generating significant cash flow in preparation for our 2021, 2022 drilling campaign. Also during the Q2, we accelerated the processing of our 3 d seismic in order to maximize the impact to the upcoming drilling campaign. We continue to expect all the data will be fully processed and analyzed by the Q4 and we are using the seismic to optimize our drilling locations for the drilling campaign. Additionally, we are de risking future drilling locations and potentially identifying new drilling locations With the 3 d processing.
In June, we secured a contract with Boar Drilling Limited to drill 2 development wells and 2 appraisal well bores with options to drill additional wells. Depending on commitments related to the rig, we believe that we can begin drilling as early as December of this year. If the 4 well program is successful, the estimated increase in gross fuel production is 7,000 to 8,000 barrels of oil per day Or 3,500 to 4,100 net barrels of oil production per day to VAALCO when the drilling campaign is completed in 2022. Hand in hand with the production increase will be the margin expansion and per barrel cost reductions. About 90% of our production costs are fixed and as production increases, our per barrel cost will decrease dramatically.
Every new barrel we bring online is more economic because of the low variable costs. So as we grow production, we are also growing our margin per barrel and reducing our cost per barrel. From a capital standpoint, the estimated cost of the program is between $115,000,000 $125,000,000 gross or CAD 73,000,000 to CAD 79,000,000 net to VAALCO. The upcoming drilling campaign has the potential to generate significant additional free cash flow, especially when you combine the sustained higher oil prices with our low cost operating structure. Our strategy is to utilize the additional free cash flow to fund organic and potentially inorganic accretive growth opportunities in the future.
In line with our strategy to be a low cost operator, we are constantly looking at ways to minimize costs and improve margins. From an operating cost standpoint, our current FPSO costs are about 40% of our total production expense. The non binding LOI, which VAALCO announced in April of this year, expired without any mutually agreeable contract being reached. We are in advanced talks to finalize a binding agreement with other parties that will reduce our costs and meet our schedule in line with what we previously announced. We expect to update the market at the earliest opportunity and we still expect that the project will be fully operational before our FPSO contract ends.
This will dramatically improve our margin per barrel and we will be able to deliver more free cash flow to fund our future growth opportunities. Looking at the second half of twenty twenty one, we have several operational events coming up. We are now planning on completing 2 workovers during the Q3, When we initially had planned to do just one in the second half of twenty twenty one, we believe there is significant cost associated with performing the 2 workovers sequentially. 1 of the workovers is expected to provide potential production uplift, while the second is to install an updated ESP design on a well where the existing ESP is showing signs of potential failure. As a result, our guidance for workover costs is slightly higher than before.
But given the cost savings benefit of doing 2 workovers sequentially, Our expected costs are not going to double when compared to the costs of completing just one. We are also planning our annual 7 day field maintenance turnaround, which is expected to take place in September and be completed by the end of the quarter. As always, our annual production guidance included that planned turnaround. Unfortunately, the FPSO will not be able to perform its full annual maintenance turnaround at the same time due to safety protocols. As a result, we have to schedule an additional 6 day turnaround in the Q4 to accommodate the additional FPSO Taking into account the planned and unplanned turnarounds, potential uplift from the workover is a natural decline, We expect production in the second half of twenty twenty one to average between 7,007,800 Net barrels of oil per day.
This is just a bit lower than we had estimated earlier this year for the second half of the year before we knew of the additional quarter four Our annual guidance hasn't changed and we still expect to be within the range of 6,800 to 7,400 barrels of oil per day. Without the unplanned second maintenance event, we believe we would have been well above the midpoint of our 2021 full year guidance. As a reminder, since our 2021, 2022 drilling campaign doesn't begin until late this year, we are not currently forecasting any material production uplift from that drilling campaign in 2021, but we should see significant uplift in 2022. For sales volumes, We haven't changed our annual guidance of 7,100 to 8,000 barrels of oil per day. We expect 3rd quarter sales to be in the range of 7,800 As we have discussed before, sales volumes do not always equal production volumes due to the timing and size of liftings.
Going forward, we plan to continue to provide sales volumes guidance on an annual and quarterly basis. If we expect a material change in our actual sales volume compared to guidance, we will inform the market. As a result, going forward, we will no longer post monthly listings on our website. We arranged the timing and size of listings to Optimize revenue, which means that we will not always have 3 liftings per quarter and the size can change somewhat from lifting to lifting. Posting listings is not a common occurrence in the industry, and we believe our investors will be better served with us giving quarterly sales guidance with material updates provided I would now like to give you a quick update on some exciting new developments in Equatorial Guinea.
We have a substantial working interest in Block P and we are evaluating several development step out and exploration opportunities in our acreage. We are excited about the opportunities on the block and believe it makes sense to move this project forward with a more definable timeline and potential development. We have recently completed our drilling feasibility study for the standalone development of the Venus discovery in Block P And we are moving forward now with a field development concept. As we work through the development, we will provide more details about potential timing, Capital Costs and Reserves and Production Estimates. We are committed to profitably exploiting the resource potential of our assets We have a strong balance sheet and with our increased production base and new hedges, we have locked in sufficient cash flow to fund our upcoming capital obligations whilst maintaining upside.
As you can see, we are firmly focused on maximizing shareholder return opportunities and operating with the highest regards towards ESG, while we progress our strategic objectives focused on accretive growth. I would now like to introduce Ron Bain, our new Chief Financial Officer. I have known and worked with Ron for many years and his guidance has been an integral part of our success in the past. His leadership of large geographically diverse financial Teams listed in both the U. S.
And UK and strong ties to the London Investment and Banking Communities make him an important addition to VAALCO. With that, I would like to turn the call over to Ron to share our financial results.
Thank you, George, and good morning, everyone. Let me begin by saying I'm very pleased to have recently joined the VAALCO management team. Like George, I knew VAALCO I will go
well from my days working with him at
Yealand and see the significant potential we have at VAALCO in both Gabon and Equatorial Guinea. I I look forward to getting to know our shareholders and analysts over the coming months. Turning to our financials. Adjusted EBITDAX Total CAD21,900,000 in the Q2 of 2021 compared with CAD18 1,000,000 in the prior quarter And more than double the $10,100,000 in the same period of 2020. Adjusted EBITDAX for the Q2 of 2021 It was higher than both prior periods, primarily due to the increased sales volumes and higher realized prices.
Our adjusted net income for the Q2 of 2021 totaled €8,400,000 or €0.14 per diluted share As compared to an adjusted net income of $8,700,000 or $0.15 per diluted share for the Q1 of 2021. Higher sales and realized pricing were offset by higher DD and A due to the bargain purchase price accounting associated with the Sasol acquisition and one time severance costs. In the Q2 of 2020, VAALCO reported CAD5.3 million in adjusted net income or CAD0.09 per diluted share. Additionally, We reported strong net income of CAD5.9 million or CAD0.10 per diluted share in the Q2 of 2021, which included a CAD10 1,000,000 loss in derivative instruments, of which CAD5.7 million was an unrealized loss. As George mentioned, the 2nd quarter reflected significant increases in sales and continued strong realized pricing.
Turning to production. So production for the Q2 of 8,018 net barrels of oil per day increased 55% From 5,180 net barrels of oil per day in the Q1 of 2021, driven by the Sasol acquisition volumes being included And the company's results for all 3 months of Q2 compared to only about 1 month in Q1. 2nd quarter 2021 production Was up 48% from the Q2 of 2020. Sales volumes in Q2 2021 We're up 4% from the Q1 and up 2% compared to the same period in 2020. The increase volumes is primarily due to the additional Sasol interest.
Our crude oil price realization increased 14% to $69.61 per barrel in The Q2 of 2021 versus $61.31 per barrel in the Q1 of 2021 and was up 1 146% compared to the $28.31 per barrel in the Q2 of 2020. Our hedging strategy for 2021 has been to lock in a majority of our 2021 production volumes to protect cash flows And assure funding of our capital program in 2021 2022, but still allow for some additional upside. In January 2021, we entered into a crude oil commodity swap arrangement for a total of 709200 and 62 barrels at a dated Brent weighted average price of $53.10 per barrel for the period from and including February 2021 through January 2022. These swaps settle on a monthly basis. In May, we added more crude oil swaps 672,533 barrels, a dated Brent weighted average price of $66.51 per barrel For the period from and including May 2021 through October 2021.
And last week, we entered into an additional commodity swap, Our dated Brent weighted average of $67.70 per barrel for the period from and including November 2021 through February 2022 for a quantity of 314,420 barrels. After entering into this latest hedge, VAALCO now has 70% of its production hedged through October 2021 And 50% of its production hedged from November 2021 through February 2022. We took similar actions in 2019 before we began our 2019 2020 program and we'll continue to assess our needs to mitigate price risk and protect cash flow Turning to our expenses. Production expense, Excluding workovers for the Q2 of 2021 was £16,100,000 which was flat with the Q1 of 2021 despite the higher sales And $3,900,000 higher than in the Q2 of 2020 due to higher sales and the increase in working interest associated with the Sasol acquisition. The per unit production expense excluding workover of $25.02 per barrel in the Q2 of 2021 decreased as compared to $26.02 per barrel in the Q1 of 2021 and $19.31 in Q2 2020.
The per unit production expense excluding workovers decreased 4% as compared to the Q1 of 2021 Due to the increased sales but flat actual cost. The per unit rate in the Q2 of 2021 increased 30% from the rate In the year ago quarter, primarily due to the increase in work and interest costs associated with the Sasol acquisition, but sales were nearly flat year over year. The Q2 of 2020 included 4 liftings that increased sales. Included in total production expense are COVID-nineteen related costs Encouraged to protect the health and safety of the company's employees, which totaled approximately 800,000 in the Q2 of 2021. Production expense for the Q3 of 2021, excluding workovers, is projected to be between $20,000,000 $22,000,000 Our $27 to $30 per barrel of oil sales.
Keep in mind that Q3 2021 has an increase per barrel cost compared to the Q2 of 2021 due to the 7 day planned maintenance turnaround. As George mentioned, we are now planning on completing 2 workovers during the Q3, where we initially had planned to do just 1 in the second half of twenty twenty one. We've adjusted our guidance for workover cost to $8,000,000 to $10,000,000 net to VAALCO from $5,000,000 to $6,000,000 previously. We do get the benefit of doing the 2 workovers in succession, so our expected costs are not double the cost of just completing 1. DD and A for the Q2 of 2021 was $5,800,000 or $9.05 per net barrel of oil sales Compared to $4,100,000 or $6.70 per barrel in the Q1 of 2021 and $2,800,000 or $4.44 per barrel in the Q2 of 2020.
DD and A was higher comparable to the prior periods due to the higher depletable costs associated with the Sasol acquisition. Our asset base for the Sasol acquisition was valued at fair market value in a stronger pricing environment than which we negotiated the deal price. General and administrative expense for the Q2 of 2021, excluding stock based compensation expense, was $4,200,000 compared with $3,000,000 in the Q1 of 2021 and $2,300,000 in the Q2 of 2020. The increase in Q2 2021 Compared to Q1 2021 was a result of additional severance costs associated with changes in key personnel. The per unit G and A rate, excluding stock based compensation, in the Q2 of 2021, a $6.57 per barrel Of oil sales was higher than both the Q1 2021 and the Q2 of 2020 due Higher severance costs was relatively small changes in sales.
For the Q3, we are forecasting G and A, Excluding stock based compensation to be between $2,000,000 $3,000,000 which is more consistent with our expected run rate without these one time costs. Non cash stock based compensation expense was impacted by the change in the SARs liability as a result of changes in the company's stock price during the quarter. For the Q2 of 2021, the stock based compensation expense related to SARs was an expense of CAD400,000 compared to an expense of CAD1.2 million for the first For the Q2 of 2020, there was expense of CAD700,000 related to SARs. Turning now to taxes. Income tax expense for the 3 months ended June 30, 2021, was $2,800,000 This is comprised of 3,300,000 of a deferred tax benefit and a current tax expense of 6,100,000 The income, CHF2,200,000 income tax benefit for the 3 months ended June 30, 2020 included a CHF3,400,000 deferred tax benefit And a current tax expense of $1,200,000 For both Q2 2021 2020, VAALCO's overall effective tax was impacted by nondeductible items associated with operations and deducting foreign taxes rather than crediting them for United At June 30, 2021, we had an unrestricted cash balance of $22,900,000 which included €2,000,000 in net joint venture owner advances.
Working capital at June 30, 2021, was negative €9 1,000,000 compared with a negative €15,800,000 at March 31, 2021, while adjusted working capital at June 30, 2021 turned positive to €4,300,000 compared to negative €2,700,000 at March 31, 2021. For the Q2 of 2021, net capital expenditures, excluding acquisitions, totaled $3,100,000 on a cash basis and $1,800,000 on an accrual basis. These expenditures were primarily related to the purchase of our mobile workover unit, Equipment and enhancements as well as early costs associated with the 2021, 2022 drilling program. As has been the case since the Q2 of 2018, we are carrying no debt. And with that, I'll now turn the call back over to George.
Thanks, Ron. As we look at 2021 and beyond, this is a very exciting time for VAALCO. I believe it is Paramount that businesses are sustainable in order to provide benefits to all stakeholders with a focus on growth and investor returns. With that in mind, I am pleased to announce that we have completed our 2nd ESG report that was primarily developed in close alignment with the recommendations of SASB as we significantly enhance our disclosures and related discussions. The core values outlined in our report are a part of our culture And provides a solid foundation that assures our success as a trusted operator, a generous partner to the communities where we operate and as good stewards to the environment.
We have a strong asset base in Itami that is generating meaningful free cash flow and adjusted EBITDAX In the current pricing environment, which is evident in our first half twenty twenty one results. The $40,000,000 that we have and adjusted EBITDAX in the first half of twenty twenty one is more than VAALCO generated in either of the full years 2019 or 2020. Sustained operational excellence and robust financial performance at Itami serves as the foundation for growing VAALCO through organic drilling and future acquisition opportunities in line with our strategy. In April, we also purchased a hydraulic workover unit that we have used in the past This unit is in Gabon and is being deployed in the 3rd quarter to perform 2 work Having a workover unit in country will allow us to respond to any well downtime issue quickly and will save us significant time, production and cash flow when addressing workover requirement if an ESP unit goes down. But We are not simply looking to maintain production in Gabon, there are meaningful development opportunities across our assets.
We have completed the feasibility study for the standalone development of the Venus discovery in Block P in Equatorial Guinea, We are moving forward now with a field development concept. Itami and potentially now Block P can enhance our business and provide a strong platform for organic growth and As we continue to generate significant cash flows to fund our capital expenditures, we continue to evaluate ways to return some of that Free cash flow to our shareholders. VAALCO has adopted share repurchase programs in the past, and we will consider similar programs in the future to complement our growth strategy. In the Q4, we will begin another drilling campaign at Itami and with our recent additional hedges, we have locked in sufficient cash flow generation From operations to fund this program and desensitize the risk of oil price movement. As you can see, we are firmly focused on maximizing shareholder return And operating with the highest regards towards ESG, while we progress or refresh strategic objectives focused on accretive growth.
Thank you. With that, operator, and we are now ready to take questions.
We will now begin the question and answer session. First question will be from John White of ROTH Capital.
Good morning, George. Good morning,
John. Mr. Bain, congratulations again on your recent appointment.
Thank
you. Well, congratulations on the quarter. Looks like everything went a little better than planned. So very nice to see that and Thanks for the detailed operations update. I'm excited about Equatorial Guinea, the announcement there and Block P, That was Devon Discovery, I believe.
Is that correct?
That's Great. I mean, we're currently in a position within our Netherlandsville CPR report On a 2C basis of around 16,000,000 barrels on the discovery.
Thanks for that. And would you want to say who are your partners in Block P?
In Block P, we've got GEPetrol and Atlas are the partners.
All right. And the anticipated depth of the target zone?
Well, that's a good question. I think we're sitting at this is the target zone self surface or where we're planning to drill from on the surface. True vertical depth? True vertical depth, I believe, is around about 3,000 meters.
Thank you. In sandstone, limestone, could you talk a little bit about the lithology?
We don't have that detail at hand at the moment. I think it is a sandstone play, but I can come back to you on that one, John.
Okay. No. Thank you. Is it too early to talk about Timing of the potential well getting started?
Yes. Well, I think the key What we performed in Q2 was, as we mentioned, the drilling feasibility. So we had to try and determine Was it possible to reach the targeted zones from the shelf as opposed to trying to drill in a deeper water location? And that was really paramount in order to assess whether we could get an economic development around that level of oil accumulations at Having established that, that was possible and well trajectories and the angles were Sufficient was coming in from a jackup. We're now looking at how we can have an efficient field development concept, Again, from the shelf, so not fetching into the deeper water locations, but costs, as you know, ramp up Very, very quickly.
I'm hoping to be in a position towards year end to have a much firmer Outline on a timetable and a much firmer technical presentation on how we would plan to evacuate the oil.
Okay, very good. It's exciting and I'm looking forward to learning more. I'll turn it back to the operator now.
Thank you, Joe. Thanks, Joe.
The next question will be from Bill Dezellem of Tieton Capital. Please go ahead.
Thank you. Would you please, first of all, continuing on EG, update us with the production Sharing contract update and what's going on with the ministry, is that now complete or is there still more steps that you are waiting for?
It's more or less complete. I mean, what was happening there, Bill, was we have one partner basically Coming out through defaulting, so those amendments were taking place. I think we got them complete towards the beginning of Q2 And that was kind of good to go, but then we have one more amendment with another partner exiting with a small percentage. Those amendments are going through now. We don't have any issues around those amendments.
It's purely just an administrative process. The discussions we've had With the EG authorities, we're seeing it in a positive aspect.
And so we're now as soon As those contracts are inked, you'll then have 25 years. Is that correct? Is that when the clock begins?
Well, we're currently in an exploration position. So we have to look at and as you know, we have an obligation for an exploration well. And what we're looking to do is get into the discussions around the Venus Development and that Venus Development fulfilling that obligation. And once we get At that point, the tenure of the PSC will be extended.
All right. Thank you. And then relative to your comment in the release that you're accelerating the seismic processing, Would you discuss what it is that you are doing more quickly and what that will actually do for you Given that it doesn't sound like the rig will be coming on any sooner than originally discussed?
Yes. What we do there is basically we're pulling forward what we call the whole package or the package of seismic Interpretation that we have around our drilling locations, so we can get better clarity around where our subsurface well targets are. And what we want to do is basically make sure we have the same imaging sorry, better imaging from what we had previously Just confirm bottom hole locations for the targeted drilling. So the reason we pulled that forward is basically to add a derisking to the drilling program, remove some uncertainty, So we're not chasing the tables close to execution.
Great. Thank you.
The next question comes from Charlie Sharp of Canaccord.
Yes. Thank you very much for taking my question. Good morning, gentlemen. Just a couple of questions. Firstly, around the work over and then the And then a bit of a follow-up on the FPSO, if I may.
Firstly, in terms of the workover, the extra workover that you have in the Q3, should I assume that that's The Aburi 2H workover that I think had originally been planned as part of the drilling program. And secondly, on the drilling, given the extra work that you're putting into the new three d seismic, What's your position at the moment in terms of possibly adding an additional 5th well to the program? And then on the FPSO, I understand that maybe it's too soon to disclose details, but would you expect to see the same sort of Annual reduction in operating costs that you cited before using the Omni proposed FSO Thank
you, Charlie. I'm I'm walking from memory because I have my notes here on this one, but the second workover, I believe, is 12H. And the reason we've had to come into that second workover is due to The failure of the lower ESP, the well is still performing at the moment, but it's performing on the upper ESP, And we don't want to take the risk of being there with the workover unit doing 2H and then all of a sudden leaving the workover with a workover unit and 12H So that's it's really just to make sure we have returned to the redundancy that we have on these wells with 2 ESPs. And like I said, we're not seeing we're seeing slight fluctuations in twelve rigs, but we're not seeing a complete failure on the well yet, But as a result of the lower ESP failing, we've got that scheduled in Q3. With regard to the drilling program, as you know, we continually will be looking at the options.
We've got Additional 5 options on the drilling program, and that will be subject to exciting target locations that we have, Availability of long lead items and obviously making sure we can get it into our existing cash forecast. But Yes, we are continuing to evaluate a 5th well opportunity. And about the size of the vessels, we'll be in a position With regard to the change out of the FPSO to the FSO, yes, you can when we've been looking at this opportunity And we've expanded the reach of potential suppliers on an FSO concept. We've got 2 things in mind when we'll be looking at it. The first is schedule.
It's absolutely critical that any contract we enter into, we have High confidence levels have been able to hit the delivery schedule well ahead of the contract end date of September 2022 for The existing FPSO. And secondly, we're looking at the cost opportunity and saying, can we in this additional And the view of suppliers maintain the indicative cost savings that we Mentioned that in June of this year, and the answer to both of those is yes. Schedule is the priority. We cannot miss it and we will not miss it, But we are also on track for those indicative cost saves.
Next question will be from Richard Burnley of Longport Partners.
Good morning. The question about the Reaching the zone from the shelf, I take it that means you expect that You'll be able to reach it from the shelf or what are the odds of the feasibility study
The feasibility study has been completed. The drilling team looked at Various options as to what it would take to reach the targeted zones. The key aspects there are How high risk the well is and the angle of attack that the well design is taking to get to the targeted subsurface location. We went through a number of aspects, including the well design, whether we had to do a rotating casing program, which, of course, There's a higher risk position. And the results of those based on starting the drilling at Various water depth, we looked at 3 water depths, we looked between 120 and 140 meters.
And the deeper we go, the shallower the angle of attack for the well and the The higher the angle of attack and we've come to the conclusion that for the planned producing wells, we're well within the spectrum and the angle of attack To get these wells completed. So there's not really a significant as we see a significant drilling risk. I think From memory, again, we're looking at the well angles down in the 40s, 50 degree positions.
I see. Thank you. And then the accelerated 3 d, the acceleration of the 3 d program, Did that have a meaningful cost impact in the second quarter?
Yes. It was certainly more than we had put in our guidance, but it's about $600,000 in total that was I would suggest that Q3 will be similar to Q2.
I see. Thank you.
Okay, George. I was e mailed two questions from Stephane Foucaud with Octus, So the first one, what is the latest of the FPSO contract with Am?
Okay. Well, as I mentioned earlier in one of the questions I answered, we expanded the supplier base That we contacted to really have a much better review of our options. Specifically, with The discussions around Omni, I know we failed to reach a commercially acceptable settlement in which we can go forward in contract. We're still in discussions with a number of providers. And I would anticipate within the next 2 weeks, we'll be able to come to market and advise them exactly about contracting position.
Okay, great. George, and Ron, this one's more for you. What would be good guidance for the future of future years for workover yearly expense? He said he noticed that there was $8,000,000 to $10,000,000 that we said for the Q3.
Yes. I believe we generally look at 1 to 2 workovers a year. Now that we own the CUD unit, Our guidance will generally be in the region of about $5,000,000 to $10,000,000 We certainly look at that as the year progresses, Bearing in mind that the one planned work over we have for 2022 is being accelerated into 2021. I would think 2022 will be lower, It's in the $5,000,000 range. But that's something that we'll take a look at in our budgeting process, which we're reviewing through now in August.
Okay. Thank you, Ron. Operator, any other questions?
There are no other questions at this Time, I'll turn it back to George Maxwell for any closing remarks.
Well, I'd like to, again, thank the audience for listening to our Q2 and first half results, I think the positions that we're presenting For the company going forward in 2021 are very exciting. We have the opportunity of potentially opening A significant second leg of production opportunities in Equatorial Guinea. We have an expansive drilling program to try and fill the alloys of processing positions we have in Gabon And all of that being self funded inside the company. So, I think it's the outlook for second half twenty twenty one, albeit We do have a second unplanned shutdown for safety reasons in Q4. I still think it looks like a very exciting second half.
And that leads us into the position for 2022 where the continuation of the drilling program and further enhancement of production We have very positive aspects towards the cash flow generation and profitability of the company in going forward.
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.