Thanks, Jeff. It's always a pleasure to get to talk to you.
Great. I wanted to start, Ron, I know VAALCO's history in Africa predates your arrival at the company, but from your perspective, what makes the African countries that VAALCO operates in good places to put capital?
Yeah. No bother, Jeff. I think first and foremost is, before we go into each country, is why Africa? Africa itself is a continent, and it's vast, and it has under-invested basins right across the continent. It's been in oil production for close to 100 years in certain countries, so the infrastructure has improved over that time period. For us, we look at it's investment-friendly PSCs that get both the government and the contractor aligned with one another. Those infrastructures that I talked about and export routes are very much in place, and it makes capital efficient for us if we look to do any sort of tie-backs, tie into any pipelines that are there. You've got a growing domestic population and a growing energy requirement.
Ultimately you've got the majors who have started divesting non-core African positions over the years providing a sort of sustained pipeline of accretive entry points. We see that continuing with certainly some of the majors going to more ultra-deep water, Jeff, and letting some of their more shallow water assets come up for sale. I think if you look at the countries specifically we're in, Gabon, you're quite right to say it preceded us joining the company in 2021. It's a core operated asset in Gabon offshore. We've had that asset since 2002, and I think it's been in production since 2004, and it's been an absolutely prolific asset to us. It's still doing 17,000 bbl a day, each day, and cumulatively, we've now lifted about 150 million bbl of oil from that development. It was one of the first things we did when we came in.
Sasol was a partner in the Etame license in 2021, and it decided to divest its working interest. It was an obvious solution to us, an opportunity for us to double down and take that, being the operator too of the license. Therefore, we doubled our position very quickly when we came into the company. Second asset we've got is Egypt. Egypt was an attractive asset to us. We got it when we acquired TransGlobe in 2022. That Egyptian asset provides scale. That was one of the key things when we looked at combining these two public companies, between TransGlobe and VAALCO, both small companies. You're combining them into a larger company, which obviously meant that we scaled up in production, on reserves, on cash flow. We had synergistic savings opportunities from taking that PLC boards from two down to one.
You've got your operational efficiencies from being a much larger company at that point in time. So Egypt provides us a, I would say, a stable baseline cash flow that is very economic for us in that we can accelerate or decelerate depending on the economic environment. It's onshore, so the lifting costs are low. Indeed, our F&D costs are low. So we can scale up and scale back very quickly in Egypt, which is a great bow to our arrows there in Africa. Ivory Coast is our latest acquisition. We got that in 2024, when we acquired Svenska's interest in the Baobab field. We're partnered with a great operator in Canadian Natural Resources. We did that acquisition for all cash.
The net cash that we paid for it, which was about $42 million, represented about $9,000 per fluid bbl back at the time, Jeff. That acquisition fully paid itself back before we saw the FPSO go out, to get its refurbishment in 2025. It's now back on station now and back on production, and back to giving us 4,500 bbl a day production. So that's our producing assets, Jeff, but we've also got some great opportunities and development assets that I'm sure we'll speak about later.
From a macro standpoint, obviously the situation in the Persian Gulf is roiling oil markets. Has that shined a spotlight on West Africa as maybe a diversity of supply for consumers in Europe and other parts of the world for that matter? Secondly, if it hasn't yet, do you anticipate that it will? Do you expect it might draw more competition or more interest in the countries that where VAALCO owns assets?
I think you're dead right there, Jeff. I think a number of parts there to go on. I think from a security of supply situation, obviously it's well away from where we are in West Africa, and indeed where we are even in North Africa, in Egypt. We are away from the conflict areas, which does mean that we've got more security around our barrels. As a continent, right across Africa, there are security issues in some of the countries. We're generally in some of the more developed countries. I'd say the more benign countries from that. There are challenges in certain countries in Africa that we wouldn't necessarily maybe go and take an opportunity to go and look at. But certainly the countries that we're in, we're very happy to be in, and indeed, we've expanded in each one of those areas.
I think from a competition point of view, we can see a lot of consolidation in the marketplace. I think right across the globe, worldwide, you see that consolidation kicking into play. So we can see that continuing. We also think it will give us opportunities, too. We've been a little bit of a consolidator in that time period. As I say, as the majors go hunting ultra-deep water, I think that will give us some more opportunities, too, as they go to divest some of their more mature assets, which is really the area that we play in, Jeff.
Ron, we touched that VAALCO has been in Gabon for several decades, I think going on 30 years. Does the relationship and the reputation that the company has built in Gabon help it secure or help it build relations with other host governments in the area?
I think so, Jeff. I think there's two parts to that. First of all, not only are we in Gabon, we're offshore, so we've developed quite a skill set over the years there for being an offshore E&P company. We are the largest U.S. investor in Gabon, and that, again, gives us some opportunities to help shine the attractiveness of Gabon to the wider U.S. We've introduced the president to the commerce on a couple occasions in the U.S. We'll see that continue. I think what it has done is over the years, we've developed a wonderful skill set, Jeff, in Gabon from our staff. Today, our percentage of national staff employees surpasses even the state-owned E&P companies that are there, which is great, and we've had some fantastic engineering developments, improvements over the years. All our processing is now handled on the platforms themselves.
We've had multiple successful drilling campaigns in that area, and that area is primarily hidden under a salt dome. It's a challenging geology, but we've done very well over the years. The company covers a whole suite of disciplines. We've got subsurface geology, reservoir management through to engineering development, and then operational practices and support. I think all of that skill set that we've now got is great because we've built up that base to be able to then take that and take that model and multiply that model across each of the areas that we're now in.
One of the hallmarks of your business approach is to have a country manager everywhere you operate. Is that really a convenience or is that a key tenet of your strategy that helps you work with regulators and the local economy and local governments, for each asset area that you operate in?
I think if you think about it, the first line of who's representing us in country is our people in country. Therefore, not only do they need to know the language and the cultural nuances of basically being in the country, but they have to have a deep understanding of the values that we have and the principles that we have of a company. We're very protective of that, and we've actually developed some fantastic local managers in each of the areas. Indeed, in nurturing that talent, we've been able to move some of that talent across the board as we've got new opportunities and new country entrants. We've also hired very well. We've got some great women leaders. Hermélia Hayes runs our Gabon operation. Iman Hill runs our Egyptian operation. They're supported by a great female support team as well.
I do think it's a combination of all of that. That local management presence is really key to us in being able to get opportunities in country. I think the latest example of that is in Ivory Coast , a new country entrant to us, as I say, in 2024 with the Baobab acquisition. You saw quite soon after it, we put local boots in country, and very quickly with those relationships and those contacts, we managed to secure that CI-705 license for only $3 million. They're very much a very sought-after basin. I think it's extremely important to us, and I think it's one of the attributes that we've got that makes us a little bit different.
Ron, you mentioned earlier that one of the attributes that has drawn VAALCO to some of the countries in West Africa are the fiscal terms. Each country obviously has its own fiscal regime, but oil and gas resource development is generally very important to the economies of everywhere you operate. Do the countries structure their terms to, in essence, thinking of a way to compete for capital on a global energy landscape, and do they work with operators to find the right kind of terms that make a project economic for both sides?
Yeah. I think every country does structure its fiscal policies to attract foreign direct investment.
Yes
Right across the board. You could argue some of the Western countries have actually gone against that over the last decade or so. But in Africa, you've got such a vast and under-invested basin. The governments are really keen to design their production sharing contracts to attract and keep business activity in country. So yeah, we definitely see those countries are more open for business, especially on hydrocarbons and oil and gas.
I want to touch on some of the incentives that countries have in place under VAALCO's contract terms. VAALCO is wrapping up its latest development campaign at the Etame field offshore Gabon and is participating in a new development campaign at the Baobab field, which you referenced in Côte d'Ivoire. Ron, can you talk about how the capital investment that VAALCO has made in Gabon will impact entitlement production under some of the cost-sharing mechanisms of the contract in 2026 and 2027, and I guess beyond?
Yeah, certainly can. I think, Jeff, the key thing with all our production contracts is that we get compensated through production barrels. We get cost recovery of that investment through being compensated in barrels of production, albeit to a ceiling each period. After that, you share the remaining barrels with the state partner at an agreed ratio that is within the contracts themselves. The higher you can negotiate that cost ceiling, the quicker you can return your investment. In Gabon, which you quite rightly touched on, and Ivory Coast , we have ceilings of 80%. What does that mean? That means that up to 80% of the production barrels can go our way if we have adequate cost pool. That cost pool is both operational spend and capital spend. You then basically carry those spends forward until they are fully recovered.
Ivory Coast goes even one step further than that, in that it encourages even more investment by allowing an uplift for every capital dollar you spend. In CI-40, the Baobab, we get a 25% uplift for every dollar we spend in capital, and CI-705, it is a 15% uplift. Again, those cost pools are to be recovered first before the state gets its proportion, its share. Of course, at 80% ceilings, they are very good contracts from an Africa perspective. Outside of that, once you have recovered your costs, the state then shares, as I say, those percentages based on what we call the profit oil allocation. For our part in Gabon, that profit oil allocation, I think, is 45% to us and 55% to the state. In Ivory Coast , it is even better than that. I think it is 53% to us and 47% to the state.
Even once you have fully recovered your costs, you then go into those percentage changes. I think additionally, what I would point out with those countries, and I will include Egypt in this too, we do not have any additional corporate taxes to pay because the profit oil barrels from that allocation is used to settle the company's taxes in country. There is no additional cash taxes. It is a very good contract that encourages investment and foreign direct investment into country, allows the state to share, and we look at that as overall government take. Everything then is a negotiation of how quickly you can get that investment return back at the front end. As high you can get that ceiling at the front end, the quicker you will return your cash to your shareholders.
Ron, am I right to think that in a period of higher oil prices, you will recover your costs faster because obviously the price, there are fewer barrels that need to make up the dollar of invested capital, and that helps the return on the capital that you deployed?
It certainly does, Jeff. We had it really when in 2022, we had quite a bit of capital invested when we had our FPSO change out to an FSO in Gabon, and we had a drilling campaign. We built up quite a bit of a cost pool, and we carried forward quite a bit of cost pool through the COVID era. When you put those two things together, we were thinking years out that we would be recovering that cost pool. Because the Ukraine-Russia conflict hit in 2022, 2023, we saw that cost pool basically get recovered within 12 months. Yes, definitely in those situations, you will get higher production recovery, up to your cost pools. Really that is because of the price of oil, the reference price. Now, I will put a caveat to that. I never talked about Egypt there because Egypt is slightly different.
Egypt's cost ceiling is a lot lower than what we have in its more West African peers. It has a 40% cost ceiling. But where Egypt really comes into its own is in low commodity prices, it starts to basically move the allocation of barrels more to the contractor than to the state. Unfortunately, under high commodity prices, it does switch a little bit more to the state, and indeed, you are limited to the amount of cost you can put in there because there is a thing called excess cost recovery, which limits you really to what your lifting costs are, not referencing off the Brent price itself. But overall for us, Egypt gives us that stable cash flow, as I say, that we can accelerate or decelerate, as we so wish. We typically hold that between 10,000 bbl and 12,000 bbl a day.
We have done since 2022, and it has given us some very good cash flow, especially in 2025.
Ron, you are working on developing new projects in Equatorial Guinea, Côte d'Ivoire, as you mentioned, the new block that you have, and as well as in Gabon. Do each of those projects come to a point where you come up with your development plan, and then you go to the government and say, "Here is what we are thinking," and they say, "Well, here is what we are thinking," and you kind of explain what the economics are needed on your end to make it work, and you kind of come to a heads of agreement for each individual play?
Well, I think what I would say to that, Jeff, is you generally are negotiating your production sharing contract at the front end. It's sometimes, most of the time before you got through the exploration periods. You might have some high spots that you're quite happy about and you're going after. That generally, as I say, is at the front end when you're negotiating that production sharing contract. So the terms are generally set in there. That doesn't mean to say that they're set for good. Certainly from an EG perspective, and we've been looking at our Venus development for some time. We've had many a conversation with the state and the minister there in relation to what we would need to see for it to become a more compelling project to us.
Those discussions have helped us move certain terms that were inherent in the original PSC that was negotiated prior to us taking it over. So it's not like the terms are locked forever, Jeff. They are open to discussion and, as we said earlier, the governments are keen for foreign direct investment. If they see that you do have a challenge, they are certainly open to sitting down and having a conversation with them and seeing what they can do to assist wherever possible.
You've got a portfolio of assets that provide both near and long-term growth. I think at your Capital Markets Day, VAALCO put out a slide that showed production, I think going over 50,000 BOE a day, potentially in 2030. I know there's a number of different projects in there, Ron, but do the contract terms and the way you think about economics and funding, does that have a play or a role in how you sequence some of the activity that you see in front of you?
Undoubtedly. The first thing is, once you've got a development plan, and you work through that investment decision, you're looking at a number of things. You have to look at not just the individual well components, you have to look at that holistic view of the economic field life. What you think prices will be doing, not in the short term, but in the medium to long term. You've got to take all of those things into consideration. As I say, we build all our models up front. Our economist, and our department there, they're kind of key in all of those discussions. It all starts in the rocks. You need to make sure that the oil's there, for one, and the opportunities are good opportunities. So you've got to consider that drilling risk.
You've got to consider the subsurface risks, take that holistic approach, then you lay these out. We generally look at everything. We look at long term Brent oil price of about $65, Jeff, in the long term. Then we'll look and see what our internal rates of return are, what do government take percentages over the field life. We'll model that, have a number of sensitivities, and if we need to, we will go back and talk with the state, if we can't make it work.
I guess it all comes back at the end of the day to good reservoir rocks with high oil saturation is the fundamental driver of all the economics.
It is. George is always keen to keep telling everyone, and he's so right. Everything starts in the rocks. If you've got a fantastic basin there, then you've got a chance. We're in some world-class basins. I think we've seen with the Ivory Coast and the amount of new entrants in there, and the amount of majors that have now got blocks in there. We're in a very good position. Gabon's been a fantastic area for us over the years, and will continue to be so. I mean, we've got a great partner in BWE, BW Energy and Panoro. We've all been very successful in Gabon, and we look forward to the exploitation of our Niosi and Guduma blocks there, which, as you know, we want to talk a lot more in the coming years on. We're very excited about CI-705 in Ivory Coast .
That's a very large acreage. We've got a number of bright spots on there. We're very happy to have got that for $3 million, as I say, and in a very much sought after basin. At the same point in time, our Egyptian business has been a great business for us, and we're continuing to drill layer two, Jeff, and expand that business wherever possible. As I say, it's a business that we can switch on or off quite quickly, and it's served us very well since we got it in 2022.
I'd like to wrap up our discussion with just some comments from you on funding priorities over the next several years as you look at the opportunity set in front of VAALCO. Then second to that, returning cash to shareholders has been an important part of the strategy for the last several years. How does the dividend factor into your overall capital allocation process?
Yeah. From an exciting suite of projects in front of us, we've got many. The Venus development, we're working through the investment study on that at the moment. We're working through the SDP for Kossipo. Now we're operator of that with a 60% working interest and a great opportunity there. So we'll look for SDP in that in 2027. For us, we've come off quite a high capital campaign, capital intensive campaign over, I would say, the last 18 months. We'd probably continue with that, with the phase V drilling in CDI through Q1, Q2 of 2027. So, we see that period after 2027, we'll have a lot of production available, a lot of sellable barrels, and we think we'll have a lot of free cash flow, which we've got great opportunities to then go reinvest into.
From a dividend perspective, it was something we put in place immediately when we came into the company. We did that in 2021. I think we set it at about a 4% or 5% yield the way we looked at it at the time, and we sensitized that to a $65 Brent oil price. It's been an ever present, Jeff, ever since we introduced it in 2021. Indeed, we doubled it in 2022 when we had this transform position. It's not been the only form. We've also had the share buyback. Again, when commodity prices were high in 2022, and we had, let's say, less competing capital projects at that point in time. We took the opportunity to return more through a buyback.
I think collectively we've returned over $130 million since 2021, which is more than the market cap from when the day we walked into the business. So I think the dividend for us, it's been an ever present. We see it as a discipline for us to make sure it's the first thing on our budget when we're looking at the planning round. We see it as basically a reward back to our loyal shareholders for investing with us. That together with the capital growth.
I think we'll leave it there for this session. I want to thank you so much for taking the time to join us. I would like to mention to participants that if you have questions or would like to schedule a meeting with management, please indicate that preference in the conference portal, and we will do our best to answer questions and work around coordinating meetings with VAALCO's management. Ron, thank you for taking the time.
Pleasure, Jeff. Thank you again.
Thank you.