VAALCO Energy, Inc. (EGY) Q2 2024 Earnings Call Transcript

VAALCO Energy, Inc. (NYSE:EGY) Q2 2024 Earnings Conference Call August 8, 2024 11:00 AM ET

Company Participants

Al Petrie – Investor Relations
George Maxwell – CEO
Ronald Bain – CFO

Conference Call Participants

Stephane Foucaud – Auctus Advisors
Christopher Wheaton – Stifel
Jeff Robertson – Water Tower Research
Charlie Sharp – Canaccord
Bill Dezellem – Tieton Capital

Al Petrie

Thank you operator. Welcome to VAALCO Energy’s Second Quarter 2024 Conference Call. After I cover the forward-looking statements, George Maxwell, our CEO, review key highlights of the second quarter. Ron Ban, 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. 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 filed with the SEC, including our Form 10-K.

Please note that this conference call is being recorded. With that, let me turn the call over to George.

George Maxwell

Thank you, Al. Good morning, everyone, and welcome to our Second Quarter 2024 Earnings Conference Call. We began 2024 with positive operational and financial results, including strong earnings and adjusted EBITDAX generation.

Operational excellence and delivering consistent production is key to allowing us to grow adjusted EBITDAX. For the past two years, we have met or exceeded our quarterly production guidance. We are executing at a high level and continue to deliver results in line or above our guidance. This is due to strong drilling and workover results in Canada and Egypt, coupled with strong uptime in Gabon.

Also, in the second quarter, we closed the Svenska acquisition at the end of April, which helped us to increase our earnings to over $28 million or $0.27 per share and grow adjusted EBITDAX to $72.5 million. We continued to return cash to our shareholders in Q2 2024 through our quarterly dividend, and we announced a third quarter dividend as well.

I would now like to go through and give a quick update on our diverse portfolio of high-quality assets, beginning with our newest asset in Cote d’Ivoire. We quickly and efficiently closed the Svenska acquisition in an all pass deal for $40.2 million on April 30, 2024. Our team traveled to Cote d’Ivoire to meet directly with the Ministry of Hydrocarbons to officially introduce VAALCO as the new partner in Block CI-40. This acquisition is highly accretive on key shareholder metrics, provides another strong asset to support future growth and have significant upside potential.

We added a solid asset with reserves that exceeded our initial estimates, and we’ve been too at a very attractive price. Based on the results of our third-party reserve engineers, we have SEC net proved reserves as at year-end 2023 of 16.9 million barrels of oil equivalent with 93% oil.

Our previous 1P working interest CPR reserves were 13 million barrels of oil equivalent. This 30% increase in reserves further justifies the acquisition and improved semantics associated with the purchase. We are working with the operator of Cote d’Ivoire and will provide additional information in the second half of 2024 on the Baobab FPSO project planned in 2025 and future Baobab drilling plans.

Turning to Canada. We successfully drilled 4 wells in the first quarter of 2024, completed those wells in March and April on both wells online. As a reminder, we drilled longer laterals to improve the economics of the program and all four wells are 2.75 mile laterals. Three of the four wells had very strong initial rates with IP-30 rates exceeding our type curve and one of the wells, the lower type curve.

To show the impact of the new wells, in Q1, our Canadian production was about 60% liquids and in Q2, our Canadian production was approximately 75% liquids. This strong oil production has rebalanced production in Canada, more favorable liquids, which contributes to the strong production performance and our overall profitability.

As the wells continue to produce, they are coming on line with our type curve, and we are optimistic about the future drilling potential in Canada.

As I mentioned last call, we are also targeting an exploration approval well in the third quarter of 2024 in our Southern Acreage. In our Southern Acreage, we have minimal horizontal subsurface information and this exploration well is successful to prove additional long lateral wells in the future with the potential to add proved undeveloped locations.

In Egypt, as we disclosed last quarter, the first half of 2024 is focused on high rate of return capital workover projects to help mitigate declines. As you saw in the earnings release, we had four recompletions in the second quarter with some very strong results, adding about 800 barrels of oil per day when you combine the 4 IP-30 rates.

In addition to the successful workovers, I am very proud of a major milestone that we accomplished in the first half of 2024 in Egypt. We have grown over 2 million mine hours that had a lost time incident completing in the third quarter of this year. This is a testament to implemented safety, training and dedication of all of our people in the field.

As I mentioned on the last call, we have 10 to 15 well drilling program that we are currently evaluating in Egypt. This project remains contingent on completion of the program evaluation and confirmation of the drilling rates.

We have not included this program our 2024 CapEx guidance and won’t add it until confirmed. However, when we proceed with the program, we anticipate additional CapEx of approximately $9.5 million, which will also generate additional production. We will see some additional production in 2024. However, the bulk of the additional production will impact early 2025 production.

We have seen some positive announcements from the government in 2024, in particular, payment of aged receivables, which is very encouraging. Ron will go into more details regarding the Egyptian receivables.

Turning to Gabon, in the second quarter production was impacted by an Avouma platform issue. Operationally, we had a planned maintenance turnaround in Avouma in the third quarter. But due to the platform issue, we moved that forward into Q2. This issue was addressed when the platform was brought back online safely, and we will not have the turnaround now in the third quarter.

You will notice that our Q3 production midpoint for Gabon is actually above the Q2 production of just under 7,500 barrels per day due to the movement of the turnaround at Avouma.

Given that we haven’t drilled a well in Gabon in over a year, we are pleased with a positive overall production results and strong production uptime and improved declining curves on the wells. The FSO and field reconfiguration projects in 2022 have allowed us to minimize downtime, capture efficiency and reduce overall OpEx.

Looking ahead to 2025, we have prepared a firm 7-well program that we plan to initiate first half 2025, subject to securing a drilling rig. The proposed program includes an infill well and exploration well in Etame, a Gamba infill well and a gas well for field fuel supply ascent this will reduce our dependency on diesel and reduce OpEx and two workover wells and a redrill of 3H on Ebouri.

We have completed the analysis on Ebouri that we have highlighted in previous quarters. We will conduct to workovers on existing wells and drill one new well to increase production from Ebouri that will be treated with this chemical process.

The study has indicated that downhole chemical injection can adequately cover the sweetening of the treat, and therefore, we anticipate that the more costly CapEx option for a full CFP will not be required. This is a positive outcome that should allow the company to access contingent resources and place them back into reserves upon completion.

Subject to contracting, we plan to initiate a program in late Q1, early Q2 2025 and expect the campaign to continue throughout 2025. We will provide more detail on CapEx and volumes when we present our 2025 budget and guidance.

Our expected CapEx spend for 2024 on long lead items remains as previously noted between $30 million and $40 million. Further discussions on Block G and H have taken place, and we have included the signature bonuses in our 2024 CapEx forecast.

On 25th of March 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development. The finalization of these agreements included a carrier arrangement of the partners, Atlas and GEPetrol. This arrangement is on commercial terms at SOFR plus 7%, which at today’s rates is about 12.5%.

This includes our 1P economics on those previously announced and we have included an illustration of that in our accompanying slide deck.

We will now proceed with our front-end engineering design or FEED study. We anticipate the completion of the FEED will lead to an economic final investment decision or FID, which will enable the development of Venus.

We are excited to proceed with our plans to develop, operate and begin production from the discovery in Block P offshore Equatorial Guinea over the next few years. We look forward to discussing this new area of operations in more detail once the FEED study is complete.

In the first half of 2024, we have delivered or exceeded our guidance operationally and the solid financial results that have outpaced analyst expectations. We remain focused on growing production, reserves and value for our shareholders.

I would like to thank our hardworking team to continue to operate and execute our plans. Over the past two years, we have greatly diversified our portfolio, which has expanded our ability to generate operational cash flow, all while growing our cash position and remaining bank debt free. We are well positioned to execute the projects and our enhanced portfolio and our proven track record of success in the past few years which just feel confidence in our future.

With that, I would like to turn the call over to Ron to share our financial results.

Ronald Bain

Thank you, George and good morning everyone. I will provide some insight into the drivers for our financial results with a focus on the key points. Let me begin by echoing George’s comments about our continued success in 2024 driven by a strong operational performance.

The second quarter also saw some positive impacts from the strange cash position losing our first lifting in Côte d’Ivoire in May. We generated $28.2 million in net income, or $0.27 per share and around $72.5 million in adjusted EBITDAX both significant increases over the first quarter.

Let’s turn to production and sales which along with realized pricing drives our revenue. As George mentioned, we’ve met or exceeded production guidance for the past two years with production and sales up for the second quarter driven by incorporating the Côte d’Ivoire volumes following the closing of the acquisition. We completed the lifting in Côte d’Ivoire in May and receive payment in June.

Total NRI sales for the quarter increased to 19,386 barrels of all equivalent per day above the midpoint of our guidance with production of 20,588 at the higher end of guidance. I’d like to reiterate that with a diversified portfolio of assets, we will have changes from the 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, on toward a full year you’ll see the impressive growth across our expanding portfolio of producing assets.

Pricing remains solid in Q2 and our hedging program has always looked to help mitigate risk and protect our commitment to shareholder return. Our current hedge positions were disclosed in the earnings release.

Turning to costs, our production cost for the second quarter of 2024 was impacted by a $15 million non-cash purchase price adjustment in Côte d’Ivoire. According to dark rules inventory purchased in the acquisition was mark-to-market for the time of the purchase and when the lifting occurred in May, prices had dropped, but the corresponding expense recorded to production expense.

Without this acquisition related non-cash adjustment, Vaalco would have been below the midpoint of our Q2 production expense guidance. We believe that Côte d’Ivoire production expense on an ongoing basis will be around $3 million net per month.

Our focus on capturing synergies and keeping our cost low to enable us to maximize margins and increase our cash flow.

G&A cost were also in line with guidance, and while the rules on an absolute basis driven by our growth on a per barrel we were virtually flat with Q1 2024. We commenced the office process improvement project with the implementation of a single cloud-based ERP across the whole company that will go live in Q3 2024 and should allow us to streamline processes and efficiently work across multiple offices located across the world.

Non-cash DD&A costs increased quarter-over-quarter, primarily due to increased depletion costs associated with the addition of Côte d’Ivoire. Compared to the same quarter in the prior year we saw a decrease in the absolute on per barrel DD&A cost due to lower depletable cost in Gabon, Egypt and Canada, and partially offset by the addition of Côte d’Ivoire.

Moving to taxes. And as I’ve previously stated, in Gabon, our foreign income taxes are settled by the government through in-kind oil liftings. Last call we discussed that we would have a government lifting in May.

In Q2, we settled $30.2 million in foreign income taxes for Gabon through the government taken their oil barrels as payment in-kind.

We discussed our mark-to-market of the in-kind oil in the past with the lifting in Q2, the amount of in-kind or oil has been reset. So in the near-term, price fluctuations will not have a significant of an impact to a tax liability until the quantity of barrels of in-kind oil begins to build back up.

Cash cost in the second quarter of about $9.3 million resulted in an effective tax rate of about 25% in the quarter. This was lower than prior quarters and driven by non-deductible items, such as the Svenska transaction cost, the Gabonese state lifting settling on the bargain gain associated with the Svenska transaction.

Excluding the bargain gain, the effective tax rate is 53% for the quarter. Our new projected effective tax rate over the long term, excluding discrete items ranges 55% to 60%.

Turning now to the balance sheet and cash flow statement. Unrestricted cash at the end of the second quarter to was $62.9 million, which were down compared to the first quarter due to several factors. In Q2, we paid $40.2 million for the Svenska acquisition. We spent $32.5 million in cash CapEx and returned $6.5 million through dividends to our shareholders.

I’d also like to point out that we settled $30.2 million in taxes in Gabon through an in-kindle oil lifting which means the government received the cash associated with this lifting, rather than Vaalco settling it and receive any cash proceeds as we normally would.

I’d like to point out that there is some noise in the cash flow statement regarding the Svenska acquisition. We have a slide in the supplemental deck showing a waterfall to help to explain the movements and the investing activities, you will see $40.6 million cash received in business combination. This with cash that’s Svenska had on the books to piece seller accrued liabilities, that flowed through the operating activities section that Vaalco issued with the purchase.

Last call, we discussed likely working capital movements, primarily related to Egypt. In the second quarter of 2024, we sold all Egyptian production domestically, which drew for June accounts receivable higher.

Following the end of the quarter, we did receive in early July an $8 million cash payment for Egyptian accounts receivable

Additionally, EGPC has now provided written confirmation and recognized our invoice in the June payables related to the contractual backdated receivable from the market of the PSCs of approximately $40 million.

This is a major step forward and with EGPC demonstrating through March and July back payments to IOCs and with the new oil minister prioritizing resolving the aged payable situation we are pleased to continue to work with the Egyptian government, which has made a concentrated effort to reduce its back dated bill payables in 2024. As has been the case since the third quarter of 2018, recurring new bank debt on hand credit facilities available to continue to build value.

In Q2 2024, Vaalco paid a quarterly cash dividend of six and a quarter cents per common share or six and $6.5 million absolute. In 2024, we have now returned almost $20 million in shareholder returns. We also announced the third dividend payment of the year, which will be paid in September.

Let me now turn to guidance where I’ll give you some key highlights and updates. I want to remind you that guidance now includes the recently closed Svenska acquisition which only affected two months for the second quarter and the full impact will be seen in the third quarter.

Also, our full guidance breakout is in the earnings release and in our supplement the slide deck on our website with production breakout about working interest and net revenue interest by asset area.

For the total company, we are forecasting Q3 2024 production to be between 24,900 and 27,600 working interest barrel of oil equivalent per day and between 20,300 and 22,800 NRI barrels of oil equivalent per day. This is up compared to the second quarter due to the full impact of the Svenska acquisition and due to the Gabon turnaround timing that George discussed.

For the full year 2024, we’re now forecasting our total company production to remain unchanged between 23,600 and 26,500 working interest barrels of oil equivalent per day and between 18,900 and 21,400 NRI barrels of oil equivalent per day.

Looking at production by assets for the full year, we are expecting natural decline in Gabon in Egypt although the capital work program in the first half of the year in Egypt has helped to mitigate some decline.

In Canada we are seeing year-over-year growth from our drilling campaign and in Côte d’Ivoire we are reflecting operations from May through to December and our full year numbers.

For the third quarter and the full year 2024, we are assuming our sales will be more or less in line with our production. Our absolute operating costs are expected to go down compared to Q2 due to the non-cash purchase price adjustment and operating costs that drove cost higher in Q2.

Normalizing for the adjustment then adding expected quarterly rolling costs, this will go up for the full year due to the normal operational expenses in Côte d’Ivoire. Taking all this into consideration, we are projecting our per barrel or equivalent range to decrease due to the additional Côte d’Ivoire volume. We’re also expecting flat to slightly lower absolute G&A as we noted previously.

Finally, looking at CapEx our 2024 capital spend is between $115 million and $140 million, as we prepare for the 2025 FPSO change out. The anticipated next drilling campaign in Gabon and the largely completed Canadian 2024 drilling program.

For the third quarter, we expecting a range of between $32 million and $54 million for our CapEx.

In closing, we are executing on our strategy and adding meaningful value. With the Svenska acquisition, we are forecasting a meaningful increase in production and sales, which should also increase our ability to generate additional adjusted EBITDAX and operational cash flow in the second half of 2024. We are very well positioned to execute and fund a robust capital 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. We will continue to execute our strategy focused on operating efficiently, investing prudently, maximizing our asset base and looking for accretive opportunities.

As you have heard this morning, the first half of 2024 has been very profitable. We have generated $35.8 million or $0.34 per share in net income and almost $135 million in adjusted EBITDAX.

With the closing of the Svenska acquisition at the end of April, we will see a positive impact to production, sales OpEx per barrel of oil equivalent, operational cash flow and adjusted EBITDAX for the second half of the year.

Looking across our asset base, we are pleased with the Canadian drilling results. We are planning the joint campaign at Etame and we are progressing with the FEED study in Equatorial Guinea and optimizing production, while executing workovers in Egypt. Our entire organization is actively working to deliver sustainable growth and strong results.

I believe we have gained credibility over the past two years having delivered on our Commitments to the market and to our shareholders and we will continue to deliver with the exciting slate of projects that we have over the next few years.

We are in an tangible financial position with no bank debt and given our strong portfolio of producing assets with future upside potential. In addition to funding our capital program, we have remained focused on returning value to our shareholders.

In Q2, 2024, we returned over $6 million to our shareholders through dividend and we are on pace to deliver further $0.25 per share annual dividend for 2024 matching what we paid out in 2023 with our current share price is a dividend yield of about 4%.

As Ron discussed, our 2024 guidance has the Svenska acquisition incorporated with strong production and sales expected to continue. We are too excited about the future and Vaalco now has multiple producing areas and future prospects that have diversified our rich profile under sources of income.

We are confident in our ability to execute on the many projects ahead, largely because we have been highly successful over the past two years, developing and growing our assets

Our disciplined approach to maximizing value for our shareholders by delivering growth and production, reserves and cash flow has led to expanded results thus far and we believe that we will carry that momentum into the remainder of 2024 and beyond.

Thank you. And with that, operator, we are ready to take questions.

Question-And-Answer Session

Operator

[Operator Instructions]

Yes. Thank you. [Operator Instructions]

And the first question comes from Stephane Foucaud with Auctus Advisors.

Stephane Foucaud

Hi guys. A follow-up. Thanks for taking my question. I’ve got two. The first is about the receivable in Egypt and in particularly with the agreement that have been signed. Those reached $40 million and $50 million that has been to it. Is it already on the balance sheet at the end of June or would there be something that could be added value when you said an asset under comes in? That was my first question.

And my second question is around the exploration program in Canada in H2, what sort of volume receivable could be the risk potentially by this program just runs off of a idea of the orders [Indiscernible] Thank you.

Thanks definitely the long term for the first question and once he’s done that. I’ll come back on the second one.

George Maxwell

Thanks, Stephan. I’ll leave that to Ron to answer the first question and once he is done, I’ll come back on the second one.

Ronald Bain

Hi, thanks, George. Stephan, yeah and in relation to the Egyptian receivable, that’s the backdated contractual receivable that was basically there for when we took over TransGlobe and we’ve been looking for resolution for that really since day one in October 2022. It’s been a long pass to take, but we’ve managed to get to the position now where we’ve got the documentation. We got an agreement through all of the departments in EGPC and effectively, we’re in the signing process in relation to each of those areas now. But the invoice has actually been cut. The values have been agreed. And they have recognized and given as written confirmation that the net receivable is now sitting there at the end of June 2024 on their payables too.

So it’s like anything else it has to be on their tables registered before there’s any chance that you are getting any payments on at all and I’m glad to see we’ve succeeded on that part.

Stephane Foucaud

Sorry, I meant is that we, you got already in the balance sheet of Vaalco as it revolve or not? That’s what I meant rather than EGPC.

George Maxwell

Ron, do you hear that? Okay, we may have lost Ron. But I’ll answer the second question Stephane. So, with the exploration well on the southern acreage in Canada, what we’re trying to do is, about a year or so ago, some of the well performance came below with type curve and we lost some reserves there also we didn’t in the North and what we are looking to do is re-establish those reserves with this exploration well.

And roughly, I think it’s between 8 million to 12 million barrels what we’re looking to try and re-establish and that would open a play for further drilling in the Southern acreage. And so, we’re quite encouraged by looking at this well that we hope to spud in September and that will further enhance the program going into 2025.

Stephane Foucaud

Great. That’s wonderful. Thanks, George.

Operator

Thank you. And the next question comes from Chris Wheaton with Stifel.

Chris Wheaton

Thank you, George, good afternoon and in Ron is absent. Sorry I think well probably I’ll ask you a slightly different question which was in Equatorial Guinea, it’s good to see progress there at the second half, progress towards FID. Could you update on the timing after that, but at what point do you see moving towards actual first construction and therefore first oil? And also if they need to update the cost of the development or likely cost of the development given the resourcing to be in an inflationary environment for offshore services at the moment?

George Maxwell

Okay. I don’t – as I think I’ve mentioned before, what we did initially about 18 months ago was put together the plan of development and that was fully costed – and that was fully costed with three wells plus a CapEx spend for a MOPU and it was somewhere around about a gross spend of $218 million. The plan going through the FEED study is to try and reduce that CapEx since what CapEx or OpEx because it’s much more tax efficient given the short tenure of this development.

So there is a little bit of adjustment that we’re trying to achieve through this FEED study to reduce the CapEx spend to around about $160 million level growth. And increase the OpEx position through the result of the MOPU. Now, of course, there are some inflationary pressures still on services. However, part of the output from the FEED study we will be looking at particularly opportunities where we can have some of the older jackup rigs converted into a MOPU and go through that recent arrangement.

And as you were aware, there are quite a few of those units available here in the United States. So, right now, I wouldn’t be advising that we need to increase any of the cost profile. I’m kind of hoping that we get to a point where for Equatorial Guinea, we get to FID, we get into a plant structure that may allow us to piggyback on the Gabon campaign and allow Equatorial Guinea to come in on the back of that which would be mid to late ’26 for drilling, which would then allow us to look at first oil sometime in 2017.

Chris Wheaton

Okay and that’s really helpful. Thank you, George. I’ll leave it there.

George Maxwell

Thank you.

Operator

Thank you. And the next question comes from Jeff Robertson with Water Tower Research.

Jeff Robertson

Thank you. George in Cote d’Ivoire, do you have any additional detail with the operator on the timeline for the FPSO change out from what you’ve provided in the past? And while the FPSO is upstation, will there be any significant operating costs in CI or will all the costs incurred be on the capital cost lines?

George Maxwell

Yeah, that’s a good question, Jeff. I mean, hopefully, just having those discussions right now. At the moment, we have no change to what we initiated which was a Q1 shutdown in 2025 for the vessel to leave station. We do not anticipate any significant OpEx and we’re looking at retaining those operating cost being capitalized during the period of 2025.

Those discussions are still ongoing because we’re retaining those as part of the project cost but obviously there are ongoing costs for retaining the presence in CDI. But that won’t be significant. The main focus will be on the FPSO refurbishment and the timeline to get it back on station which we will go through into 2026.

So as I said in my commentary earlier, when we come to finalize that position with the operator and finalize our position and timing of the 2025 closing program, at that point later this year when we come to give budget and guidance for ’25, we can be a lot more specific and detailed on – and we will provide that detail there, project plan slide to everyone see when we plan – when it’s time for the vessel to leave and when it’s time for it to combat where it’s going and the cost structures around that and that will be linked to I will say the 2025 capital program for Gabon, as well.

So it’s going to be probably. Towards the end of this year we will be able to give more detail there. But when we look at our ability to execute and fund that our confidence levels remain extremely high as Ron mentioned, we are debt-free but we do have deadlines available to and also cash in the balance sheet to more than covers through that period.

Jeff Robertson

And in Egypt, Ron talked about progress with aged payables with EGPC. Can you provide any color on discussions around being able to sell oil into the export market as opposed to domestic the market?

George Maxwell

Yeah a little bit. I mean, as you can tell we’re quite a small management team, in different parts of the planet right now that’s certain and the reason we do that to make sure we can always have a senior management team member meeting with various governments and for our CEO is currently meeting with the Minister in Egypt as we speak in Alexandra.

So I’m waiting for the outcome of that discussion. We have initiated in detail, what our investment plans are for Egypt and I have mentioned that with the potential of a 50 mile drilling program. And, but we’re looking to see how we optimize both the commitment that the minister has made to tackle the aged receivables on EGPC. He made that statement publicly.

We’ve seen them looking to 20% of each balances which is encouraging, but as you are aware it’s not sufficient to make sure we can charge ahead with an accelerated investment. And we’re looking to see that position improve. At the moment, we don’t and we have more forecast for export cargos. And we don’t see that possibility at the moment because of the position with the type of crews we have initially, they could not refine that tool, but that’s now not the case. They are refining the rust out of crude in country. So for the rest of this year, we’re looking at domestic fields.

But in saying that, we’re still encouraged with the profiles and opportunities that we see in Egypt. We just need to see just a little bit of – as I think I said at one point to move it from a great deal to a compelling one.

Al Petrie

Thank you. George I was texting with Ron after you got disconnected early and he confirmed that the receivable was on the books for a Vaalco before and now. So for Stephane’s question yes the receivable was already booked. And I think Ron is trying to get back in. I’m not sure if he actually can.

Ronald Bain

Yeah. Hi, Al, and I can get back on the customers and travel and communications, but back online.

Al Petrie

Okay. Great.

Operator

Thank you. And the next question comes from Charlie Sharpe with Canaccord.

Charlie Sharpe

Yes, good morning, good afternoon, wherever you are gentlemen. Thanks for the presentation. Very helpful. I just wanted to clarify if I may, the wells that you’re planning to drill in Gabon next year, and when you might be able to provide some guidance to us on what sort of production you might expect from those additional wells. Thank you.

George Maxwell

No problem Charlie – we – I kind of give a very brief overview of the wells where planning. At the moment we’ve got seven wells firm. We’ve also got further five wells contingent that we will look or may included in the program. And with regard to volumes and guidance, that’ probably going to comment in our November call, as we start to give more guidance into 2025.

But effectively are a mixture of step out wells and one or two an exploration well than the redevelopment around a goodie, which is the key pickup. On a volumetric basis, what we’re targeting is probably somewhere well north of 6 to 8 million barrels of additional reserves coming into the initial program excluding the position on the gas wells.

We’ve been – that’s a risk position and I am kind of hopeful that we’ll see a little bit of improvement on that to really given, what we lost on reserves went to contingent resource. So there may be a little bit pick up from that, but we will continue to study that. But that’s more likely to be in November so we can land on the exact for well sequencing and exactly what the IP rate we are forecasting and the final reserve positions we’re targeting.

Charlie Sharpe

It’s very helpful. Thanks and just finally on for Ron if he is still on. I think the operation costs full year ‘24 you’ve indicated are higher than you had previously slated. I just wanted to be sure that I understood if that was really related to the Svenska acquisition? Or was there something else that I was missing?

George Maxwell

Yeah, I think there, Charlie, I mentioned in Q2 you’ll see production costs have gone up and that’s really in relation to the Svenska acquisition because the inventory crude oil on the FPSO are the circuit at April when we when we purchased the company. So that effectively means that that crude oil is mark-to-market. It’s basically valued at market price.

And then, of course we produced and then we sold in May. And so, when we do that and from an accounting point of view, you roll through that mark-to-market cost at the market price. So that actually bumped our costs up by about $15 million, one five in the quarter and it will obviously – it’s a number coming in and it’s non-cash.

You will not see it there in each of the other clusters. I also mentioned in my opening comments that you would typically see that that net cost – that cost in Cote d’Ivoire will run about $3 million per month $9 million net.

Charlie Sharpe

Very helpful. Thank you.

George Maxwell

Thank you.

Operator

Thank you. And the next question comes from Bill Dezellem with Tieton Capital.

Bill Dezellem

Thank you. George would you please circle back to your comments about the H2S wells? And what it is that you are going to be doing there and the timeline that you anticipate those may be able to return back into production?

George Maxwell

Yeah, no problem, Bill. I mean, we’ve – as I mentioned, completed the study where we can now sweeten that through to chemical injection rather than a more cost and mechanical process. So that is very good news. And that based on the existing model and structures we have obviously as we come into the campaign and we start to add more wells and [Indiscernible] into production, we will be able to revise and update that model with more sub-surface data that’s coming into the production profile.

Right now, these wells, from a sequencing standpoint are – we are planning at the back end of the campaign and that’s primarily due to being able to get the quality of completion equipment we need for the sulfur treatment downhole.

So those lead times are quite extensive up to 12 months and beyond. So they will be at the back end of the program of course given that they are reasonably prolific wells as we can improve to look forward by the equipment arriving earlier then we would certainly do that and do that work on the ability platform as early as possible but to see it at the moment there we are at the back end of the program to allow for LLIs to be delivered on time.

Bill Dezellem

And would you please remind us what the total shut-in production is on those H2S wells?

George Maxwell

Well, when they were shut, they were shut in and doing – the one in fact is still in production at the moment ability 2 x and that’s the one we have been using as the test piece for the sweetening program for downhole chemical.

But it was shut in I think and this was back to 204 so that I’d have to check the numbers, but I think it was a about at the 4,000 barrels a day with the shut in.

Bill Dezellem

And it is just one well now is it shut in due to H2S?

George Maxwell

It’s only one well is in production right now. The other wells are shut in and what we are planning to is we will do some work on the existing wells to make it more efficient when it comes to the downhole chemical injection and make sure the line is fully functioned. And that would be an enhancement to that particular well’s production.

We will then also do a side track on the three – what was the 3H well and move that to move location within the reservoir and then we’ve got to rerun the completion of full rates which to give it and that’s one of the reasons that we need that specialized equipment. So these are the three – one redrill sites that we drill and two workovers are planned to get the ability production back up to optimal levels.

Bill Dezellem

And then you will be drilling additional wells to – also to enhance the production there beyond bringing, as well as back online through the re-completion. So is that correct – are we understanding that correctly?

George Maxwell

There are potential additional ability wells in the contingent program, but we need to get the first three wells up and running first and that will determine where we go next.

Bill Dezellem

Understood. Thank you and appreciate the time and congratulations on a solid quarter.

George Maxwell

Thanks, Bill.

Ronald Bain

And George, I was looking to add a little bit color to Bill there as well, in relation to the shut-in, as Bill been a long-term shareholder, those wells are shut in when Vaalco had a much smaller working interest in those reserves. Now we are bringing them back on – we’re bringing them back on at nearly 60% working interest. So kind of security is not way too that we shut in without position and hopefully we will now be able to explore with a greater working interest coming into to Vaalco.

Bill Dezellem

And actually, Ron, that’s a great point, which I had had overlooked. So with that in mind, what is the – if the wells we’re to flow at the flow rate that they had at the time they were shut in. But taking into account your now greater working interest what is the total production that you would expect from those wells?

Ronald Bain

Yeah, I mean, what I was saying before Bill, the four to six thousand barrel which was what I was giving you in our position. So that that had an impact at the end. So from a work interest perspective, but yeah, I mean the key here for me is to – is getting this field back in production with multiple drill points and then having that history and match opportunities to study that against the existing model see where our model and accuracies, because our new model is perfect.

And does that give us for additional opportunities for drilling thereafter. And that’s we are sequencing, we wouldn’t have enough time wherever we place the wells, but they are where we can do their booty program for me that the best are because there may be some additional contingent opportunities there at the end of the program.

Bill Dezellem

Great. Thank you both for that. I appreciate it.

Operator

Thank you. And the next question is a follow-up from Stephane Foucaud with Auctus Advisors.

Stephane Foucaud

Yes, thank you again. Two quick follow on clarification. This has finally about Egypt, you talked about the fact that to you’re looking for drill – for recur in second part of the year. Is that the only condition to go back to drilling because they already mine that someone that you would need to have an export to go which I’m just in is not required anymore, but maybe there are some more things like payment from Egypt or so far that be other condition to go back to drilling.

So confirmation would be great. And second for Ron, the 116 million off all the current ability is a big jump compared to I think last time. It’s actually related to the Cote d’Ivoire acquisition or is that something beyond the increase? Thank you.

For it we’re looking for some kind of interoperability to make sure that they don’t program because from you know extreme economic. And compound and if you can become compelling the executing each of this. The rest or we can deal with the Regular initial we can get the right. The right require

George Maxwell

Okay. I’ll jump on to the Egypt one. You are correct and I think as I said previously we are looking for some kinds of pick up to make sure that the drilling program in Egypt goes from extremely economic and exciting to compelling. Anything that becomes compelling and executing easily. The risk of the condition of the drilling rigs we need to make sure we can get the right rigs require the works for the types of wells that improve the economics that we do in Egypt.

We’ve got by identified. We’re having discussions with that right now, so but the rig is not if not yet secured. And so, yeah, there is a mix of we were looking for export cargos as I explained in the previous answer that the export cargos are probably not available given that the crude can now be refined in Egypt. So we’re looking to see how quickly these investment profiles are returned to the existing position to get and hopefully we’ll get some positive feedback from Paul’s visit to the minister today.

And see if we are – how we can – not just execute this program, but enhance and accelerate our investment positions inside Egypt because the opportunities are there. And we’ll be very keen to take them up. So to answer your question, yes, we no longer said, we must have an export cargo, because we understand the changes in the profile and complete. But we are looking to see how as we invest this money, how it’s going to be returned. And Al, do you want to answer the next one?

Al Petrie

Yeah, no problems, George. Hi, Stephane, the increase in accrued liabilities are up to 116 if I picked your question out correct, yes, predominantly that is in relation to obviously the same action coming in. What I would give some color to that, I mean obviously the breakdown will be in our 10-Q when it comes out tonight. And when you look at that, there’s probably about half of that is written every period. So it’s turning over on about half of it is probably more of a long-term item. It’s certainly not going into next year but it certainly would not look to move in Q2. Sorry Q3.

Stephane Foucaud

Great. Thank you very much.

Operator

Thank you. And this concludes our question and answer session. I would like to turn the conference back to George Maxwell for any closing comments.

George Maxwell

Thank you very much and thank you, for everyone that attended today’s conference call and listened to our activities and operations for Q2, We’ve had another solid quarter and we’re – as you know we are half way through Q3.

We’ve got a lot of activities ongoing for the rest of 2024. I think with the acquisitions and the dealers profile we have now. And when you look at the activities that we’re planning on each of our producing assets and non-producing assets, there were a number of organic catalysts that will excite both the market and excite both our staff and our working staff and get these things executed for us.

So we’ve got a lot of work to do. We’ve a lot of things upcoming. But we’ve achieved part of our objective and creating a profile in our portfolio that gives this company decades of longevity and that’s very exciting for.

So I’d like to thank everyone for their attendance and we’ll look forward to talking to you again in November for Q3. Thank you.

Operator

Thank you. The conference is now concluded. Thank you attending today’s presentation. You may now disconnect your lines.