Q2 2023 VAALCO Energy Inc Earnings Call

Participants

Al Petrie; IR Coordinator; VAALCO Energy, Inc.

George Walter-Mitchell Maxwell; CEO & Director; VAALCO Energy, Inc.

Ronald Y. Bain; CFO; VAALCO Energy, Inc.

Charlie Sharp; Analyst; Canaccord Genuity Corp., Research Division

Christopher Courtenay Wheaton; Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division

Jeffrey Woolf Robertson; MD; Water Tower Research LLC

John Marshall White; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division

Richard Dearnley

Unidentified Analyst

William J. Dezellem; President, CIO & Chief Compliance Officer; Tieton Capital Management, LLC

Presentation

Operator

Good morning, everyone, and welcome to the VAALCO second quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please all conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask question. To ask a question you need to press star and then 1 on your touchtone telephones, to withdraw your questions, you may press star and 2. Please also note today's event is being recorded. And at this time, I'd like to turn the floor over to Al Petrie, Investor Relations Coordinator. Sir, you may begin.

Al Petrie

Thank you, operator. Good morning, everyone, and welcome to VAALCO Energy's second quarter 2023 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights along with operational results. Ron Dan, our CFO, will then provide a summary financial review. George will then return for some closing comments before we take your questions.

Thor Pruckl, our Chief Operating Officer, is also with us today and will be available for Q&A. 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 second quarter 2023 supplemental information 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-K. Please note that this conference call is being recorded. Let me now turn the call over to George.

George Walter-Mitchell Maxwell

Thank you, Al. Good morning, everyone, and welcome to our second quarter 2023 earnings conference call. We have continued to deliver exceptional results in 2023 bolstered by our expanded asset base following the transload combination. Our focus has been on optimizing production, managing our costs, optimizing our operations and allocating capital to drilling and development future growth plans. Through the execution of this strategy, we continue to generate the growth in EBITDA that has allowed us to increase the dividend and buy back shares, thus increasing total shareholder returns.

We paid our second quarter dividend and announced the third quarter dividend, and we are on track to pay out nearly double the dividend that we paid in 2022. Additionally, to date, we have returned $15 million through a share buyback program since November 2022, and this program continues through 2023 at current pricing levels. We have also fully funded our capital program, remain bank debt-free and expect to build meaningful cash in the second half of 2023 to fund exciting future projects across our diverse portfolio. I would now like to point out some key highlights and accomplishments for the second quarter.

We were above the high end of our production guidance and saw a quarterly increase of 7% to 19,676 NRI barrels of oil equivalent per day or 24,863 barrels on a working interest basis. This was driven by record production levels in Egypt and Canada from our successful drilling programs in both areas. Additionally, we saw less decline in Gabon than anticipated due to better operational uptime at Etame and operational enhancements due to the new FSO. You can clearly see how we have grown when you compare second quarter production this year with second quarter last year, we are up 114%.

Sales were up 47% compared to Q1 2023 due to the timing of a lifting in Gabon that was pushed from Q1 into Q2, and we also experienced higher production and sales volumes in Gabon, Egypt and Canada. Our increased sales allow us to grow adjusted EBITDA by 37% to $65.3 million, which was $17.5 million higher than Q1 despite lower realized pricing. We also generated $77.6 million in cash from operations, which allowed us to fund $27.1 million in CapEx and maintain our strong cash balance at quarter end of $46.2 million with no bank debt. We have positive momentum as we enter the second half of 2023, both operationally and financially, and we are building size and scale to sustainably grow VAALCO.

With a diverse portfolio of assets across 4 countries, including Gabon, Egypt, Equatorial Guinea and Canada, I will now spend a little time detailing our positive operational activity in each area. Let's begin with Egypt, where we have invested the largest amount of capital in 2023. Our drilling campaign in Egypt thus far has included the drilling of 12 vertical, including 1 injector well and 1 exploration well as well as a horizontal well. We are very pleased with the drilling performance in 2023. On the vertical wells, we're seeing significantly faster growing performance moving from a 2022 average of roughly 38 days per well to 8 to 15 days per well in 2023, which is a 60% reduction in cycle times.

By drilling the wells faster, we are cutting costs meaningfully and improving the economics of our wells in Egypt. We believe this step change in drilling allows us to consistently drill future vertical wells in under 15 days. In addition to the drilling efficiencies, we have also spent time and effort in Egypt reviewing the facilities and overall production operations. This effort has resulted in 2 meaningful changes that were enacted recently. The first is that we took steps to relieve pressure bottlenecks and back pressure, which resulted in a 500 barrel per day improvement in oil production.

The second was to improve our ability to prevent and capture potential sales by improving well sites with secondary containment measures and increased use of composite spoolable pipe for replacement of old lines and on the installation of new lines. We believe that this will make a significant move towards eliminating uncontained spills. These actions not only improved well performance, but also enhance our commitment to being good environmental stewards as part of our ongoing ESG initiatives. We continue to set production records in 2023, which is one of the key areas driving our ability to maintain and grow total company production. Our drilling and completions program in Egypt is a significant part of our 2020 capital program as we continue to develop one of our core assets.

We will still have several wells that need to be flat in the third quarter, but the vast majority of our capital spend in Egypt for 2023 has been completed. In Canada, as you recall, we drilled several wells in Q4, but completions were delayed and these wells came online in late December 2022 and January 2023. We also drilled 2 additional wells in the first quarter, a 1.5-mile lateral and a 3-mile lateral, which were also required for land retention purposes. Both wells were drilled and completed safely and cost effectively without incident. The wells were tied in and equipped in April and early May with overall cycle times that were significantly less than historical cycle things.

The wells began flowing EMEA produced very well. And in early July, the (inaudible) were run on both wells. Both wells production rates have continued to exceed pre-deal expectations, which is a very positive sign. We also believe that to better optimize our Canadian prospects going forward, we will move to 2.5 and 3-mile laterals almost exclusively, which we believe will further improve the economics of our development program. Canada also set a production record in 2023. Another reason we are performing so well as a company and exceeding our production targets.

With our 2023 drilling and completions program completely finished in Canada, we are taking the rest of 2023 to evaluate facility and pad optimization, future development wells and further refine our completion techniques. After we completed our combination with TransGlobe last year, we said we would look closely at Canada in the short term to see how we could improve efficiencies and increase the valuation and optionality of that acreage position, and we are very pleased with the results thus far. Turning to Gabon. As you know, we completed our 2021-2022 drilling campaign in the fourth quarter of 2022 and have won minimal new CapEx dollars in Gabon in 2023, primarily related to maintenance CapEx and long-lead drilling equipment.

Despite no 2023 drilling program, we have seen strong overall production numbers in 2023 with both the first and second quarters at the high end or exceeding the high end of our production guidance. In the fourth quarter of last year, we completed the FSO and field de-configuration project which is allowing us to operate more efficiently and economically while focusing operational excellence, including production uptime and enhancement in 2023 to minimize decline until the next drilling campaign. We are seeing multiple benefits from the FSO already. The impact of the cost savings from the new FSO are helping to offset some other higher costs from inflation and industry supply presence.

In addition, the FSO has greater storage and handling capacity, which is one of the reasons why our second quarter sales were so strong. As things stand today, the minor pipeline work on the same glass line we had in Q2 is now scheduled to be completed in September, which should help lower OpEx due to less diesel costs once completed. Our subsurface team have been working on the evaluation of the drilling prospects for our next drilling campaign at a term. We are ready to progress the planning of our 2024-2025 drilling program, which we are currently projecting to be a 3- to 4-well program with additional well options. All of this is dependent on rig availability. And last week, we issued an expression of interest to the market and searched for a rig that meets our requirements to begin the program in mid-2024.

We believe that we will be further along with the planning and have a better understanding of big availability and program timing and plan to discuss it in more detail at our next earnings call. Additionally, in Gabon, we are engaged in the final PSC negotiations with the government and our partners regarding blocks (inaudible), we remain excited about the upside potential of these blocks as they expand our acreage in Gabon, and we will update the market when we have more details. Let me now turn to a discussion on Equatorial Guinea, another area that holds significant future potential for VAALCO. VAALCO owns a working interest in Block P offshore Equatorial Guinea, where they were previously discovered but undeveloped resources as well as additional exploration potential.

In March 2023, we held a productive meeting with the MMH and our partners. During these meetings, we finalized multiple substantive documents for Block P, which includes the venous development relating to the production sharing contract. The GRA still has outstanding signatures in place, and we will be able to accelerate the project forward following approval by all stakeholders. We have an approved POD, and we will continue working with Allstate goals to move it forward towards FID. We have a proven operating track record for a development of this kind, and we look forward to demonstrating these capabilities as we progress the venous discovery into production. There are a lot of exciting projects and developments in 2023 and moving into 2024 that will continue to help VAALCO grow production, reserves and value for our shareholders.

I would like to thank our hardworking team who continue to operate and execute our plans. We have captured meaningful synergies and cost reductions of the TransGlobe acquisition already and continue to make progress towards capturing more efficiencies while continuing to build size and scale. We are bank debt free and remain firmly focused on the strategic vision of accretive growth while maximizing shareholder return opportunities and operating with the highest regard towards ESG. With that, I would like to turn the call over to Ron to share our financial results.

Ronald Y. Bain

Thank you, George, and good morning, everyone. Let me begin by echoing George's comments about our continued strong operational performance as we execute our strategic plan. With the integration of the business substantially behind us, we are much better positioned today with a growing and diversified asset base than ever before in VAALCO's history. Rather than rattling off a lot of numbers in beverage that you can review in the earnings release, our 10-Q, I'll give you some high-level numbers, but dive into explanations and drivers for our financial results this morning.

Let's begin with production and sales, which along with realized pricing drives our revenue. Production for the second quarter was very strong, above the high end of our guidance and up 7% compared to Q1 2023. Sales for the quarter were up considerably with all assets production performance resulting in increased sales. And as highlighted last quarter due to the timing of a cargo lifting Engebond shifting from Q1 to Q2. This was possible with greater storage and handling capacity within the FSO. We had said previously that the FSO not only help us reduce costs, but it also allows us to have larger listings and provides much greater flexibility when we have weather or title events.

Our strong sales led to a 36% increase in quarterly revenues or up nearly $30 million from the first quarter. Our strong volumes were partially offset by commodity pricing declines. Brent dropped about 4% quarterly, and our oil pricing held up in line with the benchmark softening with the largest reduction sequentially in Egypt. This was the result of all our Q2 Egyptian sales being sold domestically compared with 100% export sales cargo in Q1. We were also impacted by the significant decline in natural gas liquid and natural gas pricing in Canada. Benchmark natural gas pricing was down 39%, but we were able to slightly but this trend and realized gas prices were down 31% and NGL pricing was down 25% sequentially.

You will note in our earnings release yesterday, we provided a detailed breakdown of sales volumes along with commodity pricing by country in an effort to increase transparency. Regarding hedging, as shown in our earnings release and in our investor deck, we continue to implement a hedging program to help us mitigate risk and protect our commitment to shareholder returns. We've protected via costless oil collars index to Brent, a floor price of $65 for about 50% of our production hedged through the end of the year with upside to between $90 and $96.

Turning to costs, production costs included a onetime cost for removing and disposal of normally occurring radioactive material norms of $5.7 million from the decommissioned FPSO. This happens whenever a storage unit gets decommissioned and under typical lease contracts is deemed the responsibility of the lease. Excluding this onetime charge, our production costs were within guidance and production cost per barrel came in at the midpoint of guidance. While absolute costs were up quarter-over-quarter due to higher sales, our production cost per barrel are actually lower sequentially and year-on-year. G&A costs were also in line with guidance. For year-to-date 2023, G&A costs are higher by about $1 million from onetime charges for the reorganization and integration of TransGlobe.

But this is more than offset by the moving duplicate functions, reorganizing functional activities and taking advantage of our combined steel. When compared to the combined G&A costs seen in 2022 by both VAALCO and TransGlobe, we've seen meaningful reductions in costs well ahead of our target synergies of $5 million per annum. The full integration and reorganization of the business is being completed as we speak. We will continue to focus on the costs we can control to help improve our margins and the ability to generate operational cash flow. We generated adjusted EBITDAX of $65.3 million, an increase of 37% or $17.5 million sequentially.

Our strong sales and continuing work on controlling costs led to solid EBITDAX growth despite declines in commodity pricing as discussed earlier. Noncash DD&A costs increased in the second quarter on an absolute basis and in large part due to the incremental sales achieved compared to the first quarter. Costs were also higher due to accelerated capital spending in Egypt with the near completion of the 2023 drilling campaign, which has been highly successful and completed in record time. For 2023, we have seen an increase in DD&A due to the step-up of the TransGlobe asset valuation.

As a result, on a go-forward basis, for the balance of 2023, we believe that DD&A costs will range between $20 and $22 per barrel, in line with the Q1 and Q2 of this year. Target reserve additions for the wells completed will be reflected in our CPR as of the end of the year and will most likely lead to a change in our DD&A rate per barrel. Tax costs in the quarter of about $11.6 million resulted in an effective tax rate of about 63%. Corporate expenditures in the U.S.A. result in no foreign tax benefit, and we do not have sufficient U.S. domestic income to offset these trapped costs.

Additionally, we incurred about $600,000 of costs for our EG business as we continue to progress that project. This currently provides us with no ability to obtain a foreign tax credit. It's not operational, but does count towards our recoverable costs when we achieved first oil, which is expected in 2026. Taxes paid in both Gabon and Egypt with the respective states taking entitlement to the barrels. And in Canada, we still have sufficient net operating losses to cover any tax calculated. We reported adjusted net income of $11.9 million or $0.11 per diluted share after removing onetime items. Overall, we saw strong sales, lower pricing, lower per barrel production expenses, higher DD&A per barrel and an effective tax rate that remains around 65%. Turning now to the balance sheet and cash flow statement for Q2. Cash was $46.2 million on June 30, but we did receive about $20 million in cash receipts in July.

Our June 30 accounts receivable balance was $57.4 million and nearly 2/3 of that is in Egypt with EGPC. Concurrently, within accrued liabilities, our liability for excess cost all stands at $8 million and will likely be used as an offset for some of our EGPC receivables. We continue to work with EGPC on both collections and offsets. We can also confirm that we've successfully arranged the Q3 export cargo of about 500,000 barrels that will likely occur in late August. Crude oil inventory is flat sequentially and includes 206,000 barrels in under lift in Egypt, which will be used against the upcoming export cargo. The remaining inventory is within the FSO in Gabon. With completion of drilling in Canada and near completion in Egypt, we will start to see a reduction in the outstanding accounts payable and accruals. Sequentially, it is flat to $131 million.

As has been the case since the third quarter of 2018, we are carrying no bank debt and our credit facilities available to utilize for additional accretive acquisition opportunities to continue to build value. In Q2 2023, VAALCO paid quarterly cash dividend of $0.0625 per common share or $6.7 million and our share buyback was $6 million. As stated previously, growing our dividend and the share buybacks are a direct result of our expanded asset base and cash flow generation ability as a result of the TransGlobe acquisition. Aside from fully funding our shareholder returns, we also fully funded net capital expenditures of $27.1 million on a cash basis. These expenditures were primarily related to our drilling programs in Egypt and Canada. Let me now turn to guidance, where I'll give you some key highlights and updates. I want to remind you that our full guidance breakout is in the earnings release and in our supplemental slide deck on our website.

Also, we report all our production with both working interest and net revenue interest with the difference representing the royalties paid or taken in battles. As we have discussed, our highly successful capital programs in Egypt and Canada, coupled with our operational focus on uptime to mitigate the climb in Gabon is leading to a meaningful increase in production. For the full year 2023, we are raising production guidance for all our operational areas, leading to a total company production increase of about 7%. For the third quarter of 2023, we're expecting our production to decline slightly in Gabon, but hold flat to slightly up in Egypt and Canada compared to the second quarter.

Additionally, looking at our sales volumes, we are expecting to see strong sales, particularly in Egypt, where we are forecasting an export cargo in the third quarter, which should increase our sales volumes and realized pricing. Our costs have gone up slightly, both sequentially and for the full year guidance primarily due to the cent pipeline work expected to be completed in the third quarter. But our per barrel of equivalent costs are virtually unchanged due to the increased production and expected sales. Finally, looking at CapEx, we have said in the past that our 2020 capital spend is weighted towards the front half of the year. You can see that in the reduction from Q2 to Q3 on our expected capital spend.

Furthermore, due to the improvements in drilling and completion cycle times or a section in Canadian teams are coming in quite a bit below their expected capital spending ranges for the full year. As a result, we're reducing our full year capital spending by about $10 million at the midpoint. Coupled with higher expected production in sales, we believe that VAALCO is very well positioned to grow cash flow in the third and fourth quarters of 2023. I'd like to point out that we have an updated supplemental earnings deck that is a good analysis, key highlights and detailed overviews of our assets and performance. Additionally, we are detailing sales, pricing, production at the country level and in an effort to be more transparent and help our stakeholders better understand our strong assets that generate our cash flow.

I'd also like to announce that we've recently agreed in principle a resolution to the historic aged TVA debt as well as our domestic market obligations in Gabon that is now in the process of sign off by the various ministries. Despite the recent increase in our stock price driven by higher commodity pricing, we continue to trade at a very low multiple of EBITDA despite paying a strong dividend yield and being bank debt free. We continue to believe right now is an excellent opportunity to buy our common shares that are trading at a discount to their intrinsic value, which is the reason why we have decided to accelerate our share buyback program over the past few months. With that, I will now turn the call back over to George.

George Walter-Mitchell Maxwell

Thanks, Ron. As you have heard this morning, we continue to have tremendous success in our 2023 and believe that the second half of the year will continue to be very strong. We have generated $113 million in adjusted EBITDA, while funding all of our CapEx, quarterly dividends and share buybacks with cash flow and cash on hand and expect to meaningfully grow our cash position in the second half of 2023 from the current level of around $50 million. We accomplished all of this with lower realized commodity pricing to date in 2023, which shows our continued efforts towards capturing synergies and decreasing margins have been begun to positively impact 2023 results already.

We are delivering on our commitment to the market and to our shareholders, and we are in a solid financial position with no bank debt and growing cash balance. Our strategy remains unchanged, operate efficiently, invest prudently, maximize our asset base and look for accretive opportunities. Additionally, we have remained focused on returning value to our shareholders. In Q1 2023, we nearly doubled the quarterly dividend and paid that same increased dividend in Q2 2023 and announced the same amount for Q3. We are on track to deliver $0.25 per share annual dividend for 2023 that we promised last year.

We have also continued to repurchase common shares through the buyback program approved in 2022. Through the first 10 months of the program, we have returned $15 million to shareholders and repurchased 3.1 million common shares through buyback. Our highly successful 2023 capital programs in Egypt and Canada substantially completed the lower capital spend profile in the second half of 2023 should allow us to build meaningful cash. The plan for the significant cash flow generation (inaudible) 2023 above our existing obligations are to build a cash reserve for future drilling campaigns and development.

In addition, we will look to enhance or accelerate return to shareholders as well as evaluating potential accretive opportunities. We are working with our partners in EG and the exciting development plan for the Venus discovery on Block P as well as value to locations and planning for the next drilling campaign at Etame. We are taking the successes in Egypt and Canada in both drilling efficiency gains and facility optimization and applying it to our next planned drilling campaign. We should see a significant increase in activity in 2024 across our entire portfolio, which will continue to grow production, reserves and cash flow generation.

We are very excited for the future of VAALCO remain confident that we will continue to deliver superior long-term value to our shareholders. Thank you. And with that, operator, we are ready to take questions.

Question and Answer Session

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and then 1 using your a touchtone telephone. To withdrawal your questions, you may press star and 2. If you are using a speaker phone, we do ask you please pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then 1 to ask a question. We'll pause momentarily to (inaudible). And our first question today comes from John White from ROTH Capital. Please go ahead with your question.

John Marshall White

Good morning, and congratulations on a very strong quarter. I wondering, is it too early to talk about potential CapEx or range of potential CapEx associated with the 2024-2025 Gabon drilling program.

George Walter-Mitchell Maxwell

Well, I mean, what I mentioned earlier in the call is in order to solidify the CapEx position, that's why we went out for an expression of interest for the rig. We obviously have seen an increase in the day rates over the ‘21-‘22 campaign, and we've also seen much higher utilization of the jack up rigs in general in that market. So we do have, obviously, preliminary numbers that we work with and estimates, both on the drilling side. One thing I think it's worth pointing out for some of the positions already. We do have some long lead items in inventory. So not everything associated with the drilling campaign will be a cash cost because we purchased that previously. But yes, I mean we're basically taking the next quarter, John, to get the market information, pull things together, both for well locations, the types of wells that we're going to drill versus accelerant, step-outs, et cetera, and then the cost of that. And we'll be able to talk a lot more about that in the Q3 call.

John Marshall White

Okay. And what are you doing in Egypt that's resulting in such a dramatic decrease in drilling times?

George Walter-Mitchell Maxwell

Good question. I think we started the integration, and I'll go back to, I think, the Q3 call last year, we were asked the question of what are the plans and our plans were always to look at how we can improve the efficiency. Now that's resulted through a number of step measures. One is we've changed a number of policies and procedures there as how we operate. Secondly, we have a greater degree of coordination on equipment delivery. And in some cases in the past, we've seen the rig on standby for quite a long time waiting for equipment in order to proceed. We've solved that blockage. We have had a significant change out of personnel running these programs and are focusing on both drill efficiency and completion efficiency.

So it's a mixture of all 3. It's not a finger on any one, but the change out in personnel, the coordinated effort between supply chain and bill is one of the major issues. And then obviously, making sure we have a good performing drilling unit at the same time. But our levels, I think what's more important, yes, we've seen a step change in efficiency. Our commitment is that we can maintain that level of efficiency because we're confident that we can.

John Marshall White

Thanks for all that detail. I appreciate it, and I'll pass it back to the operator.

Operator

Thank you, John. Our next question comes from Charlie Sharp from Canaccord. Please go ahead with your questions.

Charlie Sharp

Thank you very much and thanks for taking my question. If I can echo the previous question or comments about such a good quarter, congratulations. I think, fairly short questions, if I may. One, on the gas line fixed on cent, can you quantify what you think the positive impact will be in terms of costs, once that is working again? And secondly, is it too soon to have some idea about the split of Gabon wells the next campaign between Gamba and Dentale?

George Walter-Mitchell Maxwell

Okay. I'll hear the first question with Ron. But on the efficiency, obviously, we utilize a lot of the field gas for infield power at Etame. At certain pressure levels, the line is bubbling. And so we're trying to maintain a pressure equilibrium in the line right now. So it doesn't leak and also it doesn't get plotted. By maintaining that equilibrium that has allowed us to not immediately go repair the line and wait for an opportunity when a do spread will be in Gabon rather than commissioning a die spread to mobilization to come to Gabon, and that reduces the cost. I'll let Ron talk about the efficiency of that and what it does for us.

Ronald Y. Bain

Thanks, George. Charlie, yes, with a sense gasoline being done, we haven't got the feel for feedstock for the FSO at the moment. So we are burning that diesel. And that diesel is based on a bunker cost coming in from Gabon. So quite high crude pricing. Essentially, that means that we're probably burning between $500,000 and $600,000 a month more than we should be due to not having that feed gas. So we see that dropping out in effectively in Q4. We see the pipeline repair itself basically happening in Q3.

We are in a lot of discussions at this point in time, getting a suitable vessel in to perform that repair. It will require a e-simulation vessel and (inaudible). And we've got the cost of that built into Q3, what I'd see is if we look at the saving between Q3 and Q4 in relation to the project, essentially, it's about the price of it. I think that we're burning on the diesel each month for the quarter. So essentially, if we get this done in Q3, we should see a big drop off in diesel costs in Q4. And the cost of that repair is somewhere between. we estimate at this point in time between $2 million and $3 million.

And to get to your second question on the 2024 drilling program, we are obviously, our subsurface team have been working hard on looking at the opportunities, both in the Gamba and in the subcrop Dentale and in the step-out opportunities. So whilst there are quite a number of wells currently in the portfolio, the selection of the wells and the sequencing of the wells, again, we'll hopefully be able to talk about more clarity in Q3. But as I said in my statement, at least a 3 to 4-well program with a number of options.

Charlie Sharp

Thank you so much.

Operator

Our next question comes from Chris Wheaton from Stifel, please go ahead with your question.

Christopher Courtenay Wheaton

Thank you, good morning guys, and let me say something to saying that it's great to see good operational discipline into really good numbers on the screen this morning, they're very much done. First question for you, George. Given the good drilling performance you've seen in Egypt and Canada, were you not tempted to maintain CapEx but do a bit more drilling and therefore, accelerate that growth in production and that great free cash flow we could see into next year. And I'm interested in why you chose to stop rather than spend that extra money, you spend the money you have reach budgeted? And then secondly, a question to Ron. If you look in absolute terms, costs (inaudible) were up about $10 million.

I know you in breaking it down to just sort of inflationary effect activity and then any one-off costs like example, the diesel burn you've identified in relation to the lack of fuel gas and performance?

George Walter-Mitchell Maxwell

Okay. Thanks, Chris. There's a couple of, I guess, nuances in what we said in our earlier statement, when we said our CapEx spend is almost complete. So let me talk about Egypt in the first instance. Right now, we are, I think, just today, completing our firm program. Has it been better successful? Well, yes, it has, they've clearly been successful. We're clearly excited by it. How are we taking a position that we will weigh the rig down. Right now, we're looking at least up to 3 contingent opportunities. And that is within our CapEx guidance range. So it doesn't change our guidance that we've provided.

It's within the range we've contingently allowed for those wells. And so yes, we say we've completed the firm campaign. There's a very high probability that we will continue the drilling program for at least another 2 to 3 wells in Egypt, and then we will be working up the well for the 2024 campaign in order to rest decline. When it comes to Canada, it's slightly different. One of the things we said in Canada, we need to look at how we can get develop the longer lateral wells and how we can make sure we have a land footprint that allows us to do that. So (inaudible) had those planned in the first half of this year, as we said, the second half of this year is looking at how we can come up with a number of drill-ready 2.75 to 3-mile lateral wells and do we need to make any additional land acquisition opportunities in order to do that. So that and again, is the preparation for our 2024 campaign up in Canada. Yes.

Christopher Courtenay Wheaton

Sorry Ron, can I just interrupt on that. Just one follow-up on, just to be clear, your production guidance revised today, does that include those 2 to 3 additional opportunities? Or are those on top of what you said on guidance?

Ronald Y. Bain

It will be on top. It does not include our existing guidance because these wells, I mean, we know what we're targeting, and we know we're planning for success, but we've been conservative. We've included the CapEx position within the CapEx guidance range. We have not included the production.

Christopher Courtenay Wheaton

That's very clear. Thank you George, sorry to interrupt you, Ron.

Ronald Y. Bain

No problem at all, Chris. The first part of your question, I'd really like to point out on per barrel equivalent, we're actually down quarter-to-quarter. So a lot of this is volumetric driven, as you can understand. But yes, there are a couple of one-off costs, obviously, in there. We pulled out the enormous cost and you can see that in those production costs. There was about $5.6 million is a one-off in relation to the waste disposal from the old FPSO. We've obviously got inventory crude adjustments as we've sold out of inventory in Q2, which obviously when you look at that, that is a consequence of the high sales in the period.

And what I'd say is around one-off costs really impact in Q2 for inflationary and other things like the San gas pipeline. I think you would be looking at $2.5 million to $3 million, Chris, within there. So I'd hope that $2.5 million to $3 million once the same pipeline is fixed, is largely negated and removed. But we do have inflationary pressure. We have seen it, as we said many times on our marine on our bulk expense on our helicopters. These contracts have seen some ratable increases as they come to renewal.

Operator

Our next question comes from Bill Dezellem from Tieton Capital. Please go ahead with your questions.

William J. Dezellem

Thank you. We have seen a number of new stories indicating that the majors are looking to divest African offshore assets. I know that you all have historically had an interest in continuing the acquisitions. I think you even have referenced that in the call here today. To what degree are you seeing a higher level of interest in divestitures and therefore, more opportunity than the past? Or is it similar to what you've been seeing? Would you characterize the dynamics there, please?

George Walter-Mitchell Maxwell

Okay. Thanks, Bill. And of course, we've been seeing for the last few years, that's been a focus where we see opportunities where there's a strategic divestiture for core areas that we focus on for growth. What we've seen more recently and I say for the bulk of 2023 is actually a significant reduction in opportunity from IOC divestitures. We talk about 2 of the majors, both BP and Shell have reversed policies from divestiture to investment and growing the oil and gas positions. So whilst we have participated in quite a number of programs in 2022 and early '23 for divestiture opportunities, I can honestly say that there are a lot more rare or less opportunities than they were 12 months ago.

In addition to that, we're also seeing increasing competition in our areas of focus particularly from European oil and gas companies, and particularly in the U.K. where the high tax regime at the moment in the U.K. is forcing the U.K. oil companies to spread the wings south into Africa, and we've seen a lot of interest. So we're kind of finding it much more complex now where there's less meaningful step-change opportunities and more competition. Now that doesn't mean to say that we completely change our focus. But before where we would have in any quarter, 8 to 10 potential projects that we would be evaluating, I would say that's now probably down to 4 or 5.

William J. Dezellem

And understanding that you only need 1 or 2 to make a difference. But let me flip the question upside down. If the competition is increasing to purchase and there are fewer assets for sale, does that lead to you all thinking about instead of being an acquirer let someone take you out particularly at a premium, given that you are currently trading at a discount?

George Walter-Mitchell Maxwell

I mean, as a public company, the best thing we can do is also make sure that our company is operating as efficiently as it can and producing as much oil as it's possible to produce. As many of the callers here today will know that this company was potentially on the market a number of years ago. Are we an acquisition target? Potentially, yes, because we operate in the areas that are becoming attractive for others. And as you say, we are trading at a discount to your current NAV. Does that change our strategy? No, I don't think it does. I think we have the capabilities, both in the experience set that we have inside the company as individuals as our core skill set for shallow water offshore and onshore production in Africa and the contacts in the region to give ourselves an opportunity for continued growth.

And you're absolutely correct. We may only have a reduced amount of opportunities that we're evaluating at any one point in time. But some of those are step change opportunities so you do only need 1 or 2 to come through.

William J. Dezellem

That's helpful. And then one additional question, please. Relative to the contiguous property in Gabon with BW. What's the update on that opportunity?

George Walter-Mitchell Maxwell

Yes. Well, actually, there was quite a lot of progress in activity actually in Q2 on that, and we had some meetings scheduled with the Ministry and our partners. As you know, it's coming to the election time in go born right now, and there was a kind of a frenzy come we get this over the line before the election. And everyone tried to it now appears that we probably won't get it over the line before the election, but we're keen to do so at the earliest opportunity. We're very pleased that the engagement from both the DGA and the partners has recommenced. And firstly, we don't talk a lot about G&A, and we haven't in the last couple of calls, I'm quite encouraged that we'll be adding that acreage with BWE towards the end of this year or beginning of next year after the elections.

William J. Dezellem

Thank you for taking the questions and congratulations on the production growth and good luck, whether it be with an acquisition or becoming the acquired.

Operator

Our next question comes from Richard Dearnley from Longport Partners. Please go ahead with your question.

Richard Dearnley

Good morning, explain where you are in figuring out the geology of the Dentale?

George Walter-Mitchell Maxwell

That's a good question. So as most of the listeners will be aware, we had a couple of dentale wells last year that were, in some cases, technical successes. And in other cases, the permeability was far lower than we had anticipated, given what we experienced previously. So we spent some time and we haven't come to a landing on this yet. This is why it's difficult to see what the sequencing of wells and where the wells will be for the 24 drilling program. But we started to break up the dentale between the upper dentale, which you'll hear perhaps the terminology coming up in the future called the subcrop dentale and the deeper dentale where the permeability is much, much lower.

The study is about how we can effectively and efficiently extract from the deeper dentale. I mean that's a study that's going to take us quite some time to understand and come to a resolution on. It's also, we've still got those 2 dentale wells. They are still producing, albeit at low levels. So we are getting some data from that. But right now, we're focusing on that particular study for the future. And for the drilling campaign coming up, we're focusing on the shallower dentale, which is much, much higher permeability, which we do have a lot of experience in.

So if we're looking at next year's drilling program, is there a possibility of a subcut dentale well, Yes, there is. Have we got that worked up and ready to discuss in detail, not yet. But that's where we are with the dentale study at the moment, Richard.

Operator

Okay. Jamie, we've got 2 questions that came in from Stephane Foucaud from Auctus who's having some issues with his telephone line right now. So let me go ahead and ask those to him. The first one is with Gabon drilling starting now sometime next year, maybe mid-year or whenever that might be, do we see the chance of any production growth in 2024 versus 2023 for Gabon?

George Walter-Mitchell Maxwell

Okay. So obviously, as I mentioned earlier, we've put the expression of interest out for the drilling unit. I also mentioned that when it comes to long lead items for the infill wells, we have the equipment. So the timing of the drilling program is dependent on the cost and the availability of the drilling unit. So it's all subjected to when we get these quotes back and when this availability is. Of course, if it comes in and obviously, the sequencing of the wells. So if it comes in Q2 for '24, we start drilling and the first well we drill is one of the Info wells and (inaudible) absolutely correct. It will have a production impact in 2024.

But as I said, is down to rig timing and well sequencing will be the key. And again, we'll be able to talk more about that in the Q3 conference call.

Operator

Okay. Great. And the next one is any of the costs that we may incur with drilling on box G&A? Are those in those exploration blocks? Are those ring-fenced? Or can those costs get included with the time cost?

George Walter-Mitchell Maxwell

Those costs are absolutely in the commercial terms in blocks will not be the same as the commercial terms in the (inaudible). There are potential opportunities where there are accumulations that may straddle the lease line. And in that case, the cost and initiatives will be split in accordance with unitization, but it's too early to talk about anything like that. The simple answer is the ring fencing of G&A and the cost around that will be absolutely subject to the term conditions that we finally negotiate on those blocks.

Operator

Okay. George, that sounds good. I'm going to turn it back to you, John.

Operator

And our next question on the audio side comes from (inaudible) Equity. Please go ahead with your question.

Unidentified Analyst

Hi, when you spoke to the fiscal year production number of 7%, you then went into Q3 with puts and takes, but I didn't come away understanding what the total for Q3 should be?

George Walter-Mitchell Maxwell

Carter, can you repeat it.

Unidentified Analyst

Sorry, you spoke to a forecast of production growth for the fiscal year of 7%. And then you started to talk about Q3 with Gabon down and you did puts and takes, but I don't know what the total for Q3 is for a production forecast?

George Walter-Mitchell Maxwell

Yes. Again, it's in the guidance, Carter, the Q3 guidance that we've got out there on a working interest basis is a low side 23,000 in the high side 24,800. So effectively a midpoint there about 24,000 barrels. So you will see, obviously, Gabon continuing at this point in time to decline because we haven't got an active drilling campaign. We've got some maintenance projects on the go. The optimization has worked extremely well in the first half of the year.

Certainly, on Egypt, as George mentioned there, we're really coming to the end of the firm and budgeted drilling campaign, although there are some other opportunities over and above and we've also got a number of workovers planned in Egypt, both through Q3 and Q4 that continue to arrest decline there. So that's where we see Q3 in relation to production.

Operator

Ladies and gentlemen, our next question comes from Jeff Robertson from Water Tower Research. Sir, please go ahead with your question.

Jeffrey Woolf Robertson

Thank you, George you talked a lot about the capital return program between the $0.25 dividend, and I think you have about $15 million remaining on the original $30 million share repurchase authorization. When you look ahead into 2024 with the prospects for the drilling campaign in Gabon and going into 25 and also ultimately spending money at EG for Venus. How do you think about the combination of the share repurchase, the dividend and making sure that VAALCO can fund the capital program as you build cash?

George Walter-Mitchell Maxwell

That's a good question. When we first initiated the dividend, we ran the numbers on our projections through 2025 because one of the key things we wanted to do was be able to show that the dividend was affordable, and we could sustain it. We did that at certain parameters. Ron might remind me, but I think it was around about $60 or $65 oil for the dividend. And we had a certain capital program included in that. And that's why we're testing the market right now to see where are the capital programs going to be in predominantly around the rig costs on the jack-ups for Gabon.

And at the moment, we don't see a significant impact of that forecast for the dividend based on our estimates of the capital program that we've got in-house. When it comes to the buyback, I mean that's slightly different, we initiated a buyback campaign again, based on a higher oil price, I think somewhere north of (inaudible) and we said we'd find that sustainable through that $30 million program at that level. And as you've seen, we continue to reconfirm that position as we go through the first $30 million. When it comes to whether we will continue to extend that program, there are a number of factors that we have to consider.

First and foremost, a 1-year yield raise is the available free cash flow to do that. And secondly, it's obviously determined as I think Bill mentioned earlier on where the stock price is and whether that stock price remains depressed.

Jeffrey Woolf Robertson

Thanks and just a follow-up. Ron, you said you all have a domestic cargo to be sold out of Egypt in the third quarter. Can you just remind me what dictates whether cargoes in Egypt are sold into the international cargo, who dictates or what dictates whether or not oil in Egypt is sold domestically versus going into the international market where I believe you get good exposure at a higher price?

Ronald Y. Bain

Yes. Good question again, Jeff. Yes, we have got a cargo confirmed for the end of August. That cargo is 500,000 barrels plus or minus 10%. So we're working to that. Obviously, it's always our preference to get those export cargoes and our PSC allows us to get those export cargoes. Now we have to work with our partner, EGPC in doing that. And we do have a domestic obligation too. So you saw us fulfill that domestic obligation through Q2. But yes, we've got one for Q3, and we're working at this point in time for a cargo for Q4, too.

And in both cases, we would see the differential that we can achieve in getting an export cargo versus the domestic cargo can be as much as $5 per barrel. So it's certainly our preference to go down that route.

Operator

Ladies and gentlemen, with that, we'll be concluding our question-and-answer session. I'd like to turn the floor back over to George Maxwell for any closing remarks.

George Walter-Mitchell Maxwell

Thank you very much, operator. I think we've had some very strong indicators for our performance in Q2. Those indicators weren't just driven from the performance in Q2. They were driven by the activities we commenced upon Q4 last year when we started to restructure and reorganize the business. We're seeing it contribute to our earnings profile, and we're seeing it contribute to our cash flow generation in operations and also through the synergy efficiencies that Ron mentioned earlier, which are substantive.

We're able to talk a lot more confidently on future programs in all 3 of our current producing areas with Egypt. We know we're going to have a program next year, and we'll outline that towards the end of this year. We know we'll have a program in Canada, and we've outlined the steps we're taking to get to define that program. And we know we were already starting to look at the market to execute the planning position for the program in Gabon next year. We have continued to make progress on the opportunity to go and drill in (inaudible).

And again, I hope to speak more about that in Q3. We had some ministerial meetings very recently to move that project forward. We have meetings with the Egyptian government later this month to try and progress, as Ron mentioned, the Q4 cargo and confirm the cargoes for 2024, so we can confirm our investment plan. So when we look at, we don't just want to be looking backwards at the performance that was achieved in Q2 because, like I said, that was contributed by all the efforts that came from Q4 and Q1 to get there. But we also have opportunities to now talk about having a stable platform base that is generating these types of returns for the company and for its shareholders.

And I hope we're going to deal with that and point forward to continue to grow the production base. I think it's been a very successful second quarter, a very successful first half. What I'm more pleased about is when we went through the acquisition with TransGlobe and to some of the shareholders on this call, we had one-on-one discussions. We told them exactly what we plan to do with the assets we were acquiring. We told them how we were planning to do it. And I'm very pleased to say we've realized those plans coming through in Q2. So with that, I'd like to thank everyone for the call and thank everyone for attending. And I look forward to talking to you in Q3.

Operator

Ladies and gentlemen, that will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.