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VAALCO Energy, Inc. (NYSE:EGY)

Q4 2013 Earnings Conference Call

March 14, 2014 11:00 am ET

Executives

Steve Guidry - Chief Executive Officer

Greg Hullinger - Chief Financial Officer

Russell Scheirman - President, Chief Operating Officer, Director

Analysts

Leo Mariani - RBC

Eric Anderson - Hartford Financial

Chris Mcdougall - Westlake Securities

Joe Pratt - WFC Asset Management

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the VAALCO Energy End of Year 2013 Earnings Report. For the conference, all participant lines are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions) As a reminder, today's call is being recorded.

I would now turn the conference over to the Chief Executive Officer, Mr. Steve Guidry. Please go ahead, sir.

Steve Guidry

Thank you, John, and welcome everyone to VAALCO Energy’s fourth quarter 2013 and full year 2013 earnings call. With me today are VAALCO’s Chairman, our President and Chief Operating Officer, and Greg Hullinger, our Chief Financial Officer.

We have a lot to cover this morning, so without further delay, I will briefly hand it over to Greg to cover our cautionary statement.

Greg Hullinger

Great. Thank you, Steve. During the course of this conference call, the company will be making forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement.

Forward-looking statements are those concerning VAALCO’s plans, expectations future drilling and completion activity, expected capital expenditures, prospect evaluations, negotiations with governments and third parties reserve growth and other operations. Statements made during this conference call that address activities, events for development that VAALCO expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements based on assumptions made by VAALCO based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances.

Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond VAALCO's control. Investors are cautioned that forward-looking statements are not guarantees of future performance and that 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, titled forward-looking statements and in reports we file with the Securities and Exchange Commission, the latest of which was the 2013 Form 10-K that was filed with the commission on March 13, 2014.

Steve, back to you.

Steve Guidry

Thank you, Greg. Having just completed my first four months as CEO of VAALCO Energy, I must say that my excitement, my enthusiasm and optimism about the direction of our company and our prospects for future growth continues to rise. We are putting that excitement and that enthusiasm to work and have accelerated the pace of play in delivering on our plans for 2014 and beyond, addressing head-on the obstacles and impairments that had slowed our progress in the past.

I am going to spend a little time talking about our fourth quarter and full year 2013 results at a very high level. Then I'll ask Greg and Russ to follow-up with a more detailed discussion. Before I start though, I'd like to talk just a bit about our strategy and the opportunities that we see for VAALCO.

As most of you are already aware, VAALCO's Etame Marine block blocking in Gabon is the backbone of the company's operations and continues to generate strong, reliable cash flow, which provide the currency necessary to fund our growth opportunities. Currently, our opportunities for longer-term growth lie in the exploration prospect in Equatorial Guinea Block E and Angola Block 5, where we have made significant progress over the last several months. We believe this represents outstanding opportunity for significant value creation for our shareholders.

However, to better balance our reliance on higher risk, higher reward exploration, VAALCO also is looking to make the right discovered resource acquisition, which is to say we seek to acquire an asset that has had a substantial non-producing discovery on it that we can readily develop and bring to market in a relatively short order, and which would then provide greater certainty to our production, reserve and cash flow growth.

We are currently scouring West Africa in search of that right opportunity. The development of a discovered resource in West Africa matches our proven competencies and skill set. VAALCO has demonstrated in the past the ability to repeatedly exploit, develop and bring to market numerous discoveries on the Etame block. We are committed to repeat that success elsewhere.

A bit about the results in terms of the fourth quarter 2013, VAALCO reported net income of $26.4 million or $0.46 per diluted share. That is compared to a net loss of $18.9 million or $0.33 per diluted share for the comparable period in 2012. For the full-year 2013, we reported record net income of $43.1 million or $0.74 per diluted share, compared to net income of $600,000 or $0.01 per diluted share for 2012.

As I mentioned earlier, we had a wide range of opportunities within our portfolio and we have continued to make progress on our growth projects in Equatorial Guinea and Angola. In particular, we expect to drill four exploration wells by the end of 2015. This is an aggressive drilling program for these two areas, and of course, we will continue to have capital obligations in Gabon with our expansion projects.

We recognize that in order to fund our drilling program, while maintaining our traditional balance sheet flexibility, we needed to take on leverage, so in February of this year, VAALCO announced that we executed a loan agreement with the International Finance Corporation for a $65 million reserve base loan facility, secured by the assets of the company's Gabon subsidiary. We intend to use these proceeds of the loan facility to support our Gabon development program. This in turn frees up the cash generated from the block for use on opportunities outside of Etame field and the Etame block.

With that, I will pass the call over to Greg to discuss our financial results in further detail.

Greg Hullinger

Great. Thanks, Steve. I am going to spend the next few minutes reviewing the key financial information for the fourth quarter 2013 as well as 2013 full-year result. As you've probably seen in our press release or the 10-K that we filed yesterday, VAALCO finished the year with a strong quarter and reported record net income for calendar year 2013.

As Steve mentioned, the company reported net income of $26.4 million for the fourth quarter 2013, as compared to a net loss attributable to VAALCO of nearly $19 million in the fourth quarter of 2012. The strong net income reported for the fourth quarter of 2013, when compared to the same period in 2012, comes down to three factors, VAALCO's share of the oil liftings from our Gabon operations, income taxes paid in Gabon and the impact of prior year exploration effort that negatively impacted the fourth quarter of 2012.

Our share of the barrels of oil lifted during the fourth quarter of 2013 in Gabon was 10% higher than our share of lifting sold during the same period in 2012, resulting in a revenue increase of nearly $5 million. However, our larger factor was the impact of income taxes paid in Gabon.

With the active rig program and construction costs for the two new platforms built in Louisiana. We kept the cost account at a high level throughout the year. The impact of this is that we have a much higher percentage of the oil sold during the fourth quarter 2013, compared to the fourth quarter 2012, being allocated as cost oil barrels which do not bear income tax.

Our production sharing contract provides for up to 70% of the oil lifting value to be applied to cost recovery, or in other words, the government Gabon received income taxes on a minimum of 30% of the lifting value which is profitable component. With the high level of capital investment, the amount of tax paid in the fourth quarter of 2013 was $11.4 million less than the amount paid in the fourth quarter of 2012.

The last factor explaining the variance between the two comparative quarters was the impact of dryhole expenses incurred in the U.S. in the 2012 period. Exploration expense recorded fourth-quarter of 2013 was $30 million less than the same period in 2012. Steve also mentioned that for the year VAALCO reported a record net income of $43.1 million for the full-year 2013 compared to $0.6 million that we recorded for calendar year 2012. Again, the factors that comprise the $42.5 million increase in net income year-over-year are primarily due to significantly lower income taxes payable paid in Gabon and lower exploration expenses recorded in 2013.

Breaking it down a bit further, we did have an 11% decrease in our share of oil barrels lifted in Gabon in 2013 compared to 2012, and then coupled with a 2.5% average price per barrel decrease 2013 versus 2012. This resulted in approximately $25 million less in revenue for the year, so that makes the question where did the increase in net income from. Again, the answer is primarily attributable to the difference in the amount of income tax that we paid in Gabon in 2013 versus 2012.

Previously, I mentioned that we kept the cost account at a high level throughout 2013, therefore the reason for the lower taxes is a function of the expenses we incur in the capital investments we make, which drives the amount of barrels allocated as cost oil instead of profitable barrels and the latter of course being ones that bear income taxes. We paid approximately $48 million less in Gabonese income taxes in 2013 compared to 2012.

The other main factor impacting year-to-year variance in net income is that exploration expenses were properly $17 million lower in 2013 when compared to 2012, and the lower amount exploration expenses in 2013 is due to a lesser amount expense recorded for unsuccessful exploration wells.

Next, I am going to talk a little bit more about the details for the quarter. Operating income was $36 million for the fourth quarter 2013 compared to $2.3 million for the fourth quarter of 2012. Crude oil production from the Etame, Avouma, North Tchibala and Ebouri fields averaged a bit over 18,000 gross barrels of oil per day in the fourth quarter of 2013 compared to an average of approximately 15,800 gross barrels of oil per day during the same period in 2012, a 7% increase. The reason for the increase quarter-versus-quarter was the impact of a five-day production shut-in, in October of 2012 to conduct routine periodic maintenance on the FPSO vessel.

Production expenses for the 2013 fourth quarter were $8.6 million, nearly identical to $8.7 million amount recorded in the fourth quarter 2012. Exploration expense report for 2013 totaled $2.5 million compared to $36 million of exploration expense recorded in the fourth-quarter of 2012. The main component of the 2013 fourth-quarter spend was the write-off of drilling costs incurred in 2013 on the unsuccessful Dimba well, which we previously announced. We will record an additional amount of dryhole cost for this well in the first quarter of 2014 in the amount of $11.2 million VAALCO's share of the well. The 2012 exploration expense amount include dryhole cost for four wells that we drilled in the United States.

Income tax expenses for the fourth quarter of 2013 were $9.6 million compared to $21.1 million in the 2012 fourth-quarter, and as we know by now, the decrease in income taxes reflect the impact of the higher cost account, which results in a higher percentage of barrel allocated as cost oil barrels versus profitable barrels. The cost oil benefit was partially offset by the impact of the $5 million of increased revenue Q4 2013 versus Q4 2012.

Cash and cash equivalents, including restricted cash, totaled $143.7 million at the end of the fourth quarter 2013. The company did not have any long-term debt as of the end of 2013. As previously announced, and as Steve mentioned, the company finalized a $55 million revolving credit facility with the IFC in the first of quarter of 2014. The credit facility is available to be used for capital investments in Gabon and to-date we have not withdrawn down any amounts on the credit revolver.

Coupled with the cash position at the end of the year, the company ready access to significant capital resources, VAALCO's capital expenditure budget for 2014 is approximately $117 million. Lastly, although there was no repurchase activity in the fourth quarter of 2013, the company repurchased approximately 1.8 million shares of stock in 2013, at an average price of $6.49 per share, totaling $11.5 million.

Turning to 2014, we will be recording the first quarter, the additional dryhole cost of Dimba well I mentioned earlier and we expect to benefit from low income taxes to be paid in Gabon throughout 2014, resulting from the investments we are making pertaining to the construction and installation of the two new platforms as well drilling rig cost. Additionally, we have recently invoiced Sonangol P&P, our new working interest owner in Block 5 in Angola for over $8 million pertaining to unpaid partner share of cost dating back to 2009. Once this cash is received, this amount will be recorded as net income in our 2014 financials.

With that, that concludes my review of the VAALCO Energy, Inc.'s fourth-quarter and full-year 2013 financials. Russell Scheirman, our President, Chief Operating Officer is up next to provide you with an operational update.

Russell Scheirman

Thanks, Greg. I would like to update everyone on our ongoing activities at Etame, including the status of the two additional platforms that are being constructed onshore in Gabon, Mutamba project, Equatorial Guinea and our Angola activity.

Since our last call, we drilled the Dimba exploration prospect which despite an advantage structural position and hydrocarbon shows was non-commercial due to thinning of the Gamba reservoir over the prospect. The rig is currently on the Avouma platform, where it is performing a pump change on the Avouma 2H well.

We were able to secure a third slot from the [Ben Rinnes] well rig, so that after the Avouma 2H workover, we will follow along with the re-drilling of the South Tchibala 1H, which experienced a casing failure a few years back that we didn't realize, there was the casing failure until we tried to changeup the pumps last year.

The successful re-drilling of the reservoir section, we got a fourth producer to the Avouma South Tchibala platform complex and should help to mitigate field decline while we await the installation of the two new platforms and the six new development wells in the Etame area. As previously announced, we will be commencing a five-day to six-day maintenance shutdown in the FPSO this weekend.

In connection with the shutdown, we will also be performing some diving work to ready pull [lines] for the future platform expansions, so with the workover activity in the shutdown, it appears now that our next lifting will be in April. The two platforms for the Etame in Southeast, Etame/ North Tchibala development to remain on schedule with the fabrication of the two platforms at Gulf Island Fabrications and Houma, Louisiana.

As I described before, one platform will be installed at the Etame field to add in-fill wells to more fully develop that field. We anticipate drilling three wells initially and up to five wells off this platform over its life. The second production platform will develop the Southeast Etame discovery in the North Tchibala field. The North Tchibala wells be completed in the Dentale formation, which opens a new reservoir for offshore Gabon. The Dentale is successfully produced on-trend with our offshore fields onshore.

North Tchibala field will also exposes us to gas resource, which will be valuable as a fuel source for the Etame complex in the future, eliminating the need to use diesel for power generation. The platforms will be installed by EMAS, which is a company based in Singapore. They built a new installation vessel with a 3,000 ton lifting capacity to install both, the jackups and the decks. The vessel is currently in China, where the crane is being installed. It's due to arrive in Etame area and [distress] the two jackups in June of this year. It will then go up for some retrofit work and then will return in September to install the two decks on to the jackups.

EMOS will also have a second vessel that they will utilize for the pipeline project to connect the platforms with the FPSO. We will be rerouting some existing flow lines and laying hard pipe for the oil and fuel gas production. The work actually started this week with the arrival of the EMOS Expediter, which has all the pipe for the pipelines pre reeled onto the vessel.

Each platform represents about $40 million net investment for VAALCO, plus the cost of wells, which run about $7.5 million each net to VAALCO. With this project, our goal is for these two platforms to allow us to maintain production near to or above 20,000 barrels per day well into 2016.

I mentioned that front-end engineering design work continues for sweeping facility for sweetening facility for the Ebouri wells, which began to produce H2S last year. We expect the sweetening project to reach final investment decision this year with the facilities to be in place in late 2016, to come online in early 2017.

With that, I would like to move onshore Gabon to Mutamba. We filed an exploitation area around the Mutamba block in N'Gongui discovery that we announced last year. As Steve mentioned, we remain in discussions with the Gabonese government over the approval of this development area relating to new feels they are seeking to impose on our consortium.

The Gabon's government is focused on their deepwater licensing ground. They have limited the availability of administration to finalize the negotiations. We hope to include it in the near-term such that we can file our development plan in 2014. We envision time to discovery back to the Atora field, which is Total-operated field about five miles from N'Gongui. This would allow us access to a pipeline that goes to the coast where there's a lifting facility. As part of the negotiation for the development area, we are also negotiating an extension to the exploration area with an initial three-year term, so that's it for Gabon.

In Equatorial Guinea, we own a 31% interest in the provisional development area of Block P offshore Equatorial Guinea. This block is operated by GEPetrol, which is the national company which has a 58.4% interest and there are two other partners with about 5% each. Block contains a 2005 Devon discovery known as the Venus field, which encountered [crude oil] column in channel sand sequence. The discovery lies in an area of the water depth is about 800 feet.

There are other channels on the block that we plan to explore and we have a two-well drilling program planned. Once we work out arrangement with GEPetrol, how to share operatorship. We proposed a joint operatorship model with GEPetrol, which has been well received by GEPetrol and the Ministry of Mines and Energy and we are currently designing the organization to begin the planning process and acquisition of long lead time items for the drilling program.

Finally, moving to Angola, we are operating under a two-year extension until November 30, 2014 on our acreage there. We continue to move forward on testing our exciting exploration potential on Block 5. As we reported last quarter, after years of pressing for resolution of the partner issue, we were happy to learn that Sonangol E&P has signed a default of 40% interest to Sonangol P&P.

We have held technical workshop with our new partner and have successfully on boarded them. We have also met with the highest authorities at Sonangol E.P., our Concessionaire and have established several options available to us that will allow us to benefit from the recently new licensed seismic and drill our wells that are logical in more appropriate time.

While not all of our options included drilling of the well in 2014, we are putting ourselves in position to do so having received a number of bids to our February rig tender process. We will ensure that we are in a position to deliver on our commitments before the end of the extended primary term.

With that, Steve, I will turn it back to you.

Steve Guidry

Thanks, Russ. What I would like to do is, just to summarize maybe in conclusions some of the key elements that I think you heard us talk about this morning.

First, I should say I am very pleased with the progress that we've made in 2013, in particular very proud to be able to report record net income for the company. We have certainly have committed to redoubling our efforts to progress our exploration and development programs as you heard in Equatorial Guinea Gabon and Angola.

Just kind of a side note, between Russell, Greg and myself, over the last four months, we made eight trips to West Africa, all designed to move our projects forward, so I hope you see that we are very serious about progress and about delivery. We have had a wide range of opportunities within our portfolio as we talked about, so that of course is what drove us to put in place the credit facility that now gives us significantly more financial flexibility.

We certainly intend to continue to look for new opportunity as I mentioned, specifically the discovered resource opportunities that will help to expand our footprint in West Africa, and significantly add to our reserve base, but the other things that we've done your most recently haven't just focused on project progress. We've also taken steps to enhance our VAALCO team performance as well, and during my early tenure here, I worked closely with the board and with the management team to redesign the compensation system to one that is much more directly tied to shareholder value creation.

We have established a series of KPIs and individual goals and objectives that align the efforts of all VAALCO employees with the stated objectives and the deliverables of the company. Again, we are very excited about the direction that we have taken here at VAALCO, and we are committed to continuing to accelerate the pace of play in delivering on our plans for 2014 and for period beyond that as well.

This concludes our opening remarks. At this point, I will turn it back over to John.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Line of Leo Mariani with RBC. Please go ahead.

Leo Mariani - RBC

Hey, guys. You about some production downtime here, five to six days, to be sort of kind of shutting things down, pushing the lifting to April, I think in a recent press release, you guys also said there could be some other down time in the FPSO later this year that have something to do with installation of like fire prevention [system]. Can you give us some more detail, sort of timing of when you expect that and sort of length of shutdown for that?

Steve Guidry

It would probably be late third-quarter, early fourth quarter, and it would probably involve us a three to five-day shutdown, depending on how much of the work can be pre-done. We would try and tie it in with any shutdown time that would be required to get the new platforms up and running. There are other some things that have to get tied in. Some times when we have to have things shut down, so we try and work them all together to minimize and get it all done in one. That's kind of what we are doing on the shutdown.

Right now as we're prepositioning flow lines and things, so that we do that while we are shutting down for maintenance rather than having to do that as a follow-on.

Greg Hullinger

Leo, I might mention that the FPSO shutdown that is coming up is really a deferral of the one scheduled for the fourth quarter last year, but we deferred so that we could wrap up other projects and get the biggest betting for a buck, so the additional FPSO shutdown coming up in October is really the one we had scheduled for doing a number of activities annually coming up, so it's not likely we are more frequent ones and we will have to wait and see whether the one actually occurs in the fourth quarter this year or not.

Leo Mariani - RBC

Okay. I guess, with respect to those shutdowns, are you guys actually - I am assuming that you are shutting in the wells, all the productive wells?

Steve Guidry

Yes. The wells are all shut in. We have to flush the pipelines because of the wax issue, so that's what we are doing right now actually is flushing the lines. Then once that all that oil is flushed out of the lines, we can shutdown the FPSO systems. They are mainly doing, replacing valves and the sections of pipe where the NVT shows or pin corrosion this type of thing just to keep the ship up and running.

Leo Mariani - RBC

Okay. I guess, jumping over to capital for the year. You guys talked about your $117 million budget, maybe you can kind of give us little more detail around that just trying to figure out how much would be spent in the Etame concession, which I guess clearly get to that, you know, your cost there. Then how much of that do you think may potentially be in 2015? I am assuming you have got some Angola CapEx in there that maybe [narrowing] like a spend? Can you just kind of talk us through maybe what that number could be on sort of the lower end on the CapEx and what that Etame spend is?

Steve Guidry

Yes. The total Etame spend is about $75 million of the $117 million total. The balance is roughly $30 million Angola and $12 million in the EG, so those are the ones that could slip and slide around. We basically assumed that at least one well would get drilled in each area. May be we drilled two in EG and none in Angola or may drill one in Angola and EG slips. We are not quite certain, but that's sort of the breakdown of the $117 million.

Leo Mariani - RBC

Okay. That's helpful. I guess, realistically just to make sure. It's sort of clear. I mean, are you guys pushing with your partner in Angola to get an extension and then try to drill the wells in 2015. Is that your sort of ideal situation?

Steve Guidry

Yes. What we have talked about there, Leo, is that we bought some additional seismic about 1050 kilometers of seismic little further out in the deeper portion of the block. We see on 2-D, some of these deep-seated carbonate-like structures that Cobalt has been drilling, so we went ahead and bought the 3-D and we are merging that with our existing 3-D. That's over sort of the post-salt prospects on our block and one pre-salt that we have in shallow water and we are reprocessing all that all the way to pre-stack depth-migration and that process is going to take most of the year, so if and Sonangol is aware of this as is the Concessionaire, and so the conversations we are having is, do we really want to go drill two shallow water prospects when there's this big stuff out in the deeper section that we are trying to image with the new seismic processing.

They understand the logic of that, so we just have to work out what we will do. Weather we will hold off and drill both wells back-to-back or whether we will drill one now and that will give us an extension for one later or whether we can do some extension for both wells, and I have been over there and met with the President of the Concessionaire, and it was a pretty relaxed conversation and I think we will work something out. I may be going over there again in the next few weeks to see if we can. We are also holding another workshop with Sonangol P&P and the one at the end of this month, so we'll see how it all l shakes out.

Leo Mariani - RBC

Okay. With respect to comments on acquisitions that you guys have made here, you spoke about some scouring West Africa for deals there, so is there any comment on if you are seeing anything out there that you think is fitting of the acquisition model you guys are planning. Is that something you think can happen in the couple of months and you think it's more realistic it may take VAALCO a year or longer on an acquisition here?

Steve Guidry

Leo, this is Steve. We see several opportunities and down the coast. Some better fit than others obviously, but you know we continue to work through that. We have engaged with our board, we have talked about some of the options that are out there. It's tough for me to comment on whether or not we think something will actually happen in the near-term. It going to be a function of the quality of the opportunity and sort of our appetite for it, but we certainly continue to look.

I would say is it gets going us a lot of attention by the management team here, and certainly our technical team, but at the end of the day we won't be able to say for sure until we work through all the details.

Leo Mariani - RBC

Okay. I guess, just lastly on Mutamba. I mean, it kind of sounds like it's been a little slow going here. You talked about desire to kind of get a development plan filed sometime later this year. I guess, is there any update on when you actually might think could get first production here that's still slated for 2016 in the outlier?

Steve Guidry

Yes.

Leo Mariani - RBC

Okay. Thanks, guys.

Steve Guidry

Okay.

Greg Hullinger

Thanks, Leo.

Operator

Our next question is from thankfully of questions from Eric Anderson with Hartford Financial. Please go ahead.

Eric Anderson - Hartford Financial

Yes. Good morning. Pulling up on Leo's question on the purchase of a discovered, but undeveloped asset out there, what's the approximate range of sizes that folks are looking at? You know, sort of ballpark. I don't want to pen you down, but sort of the range you are looking at in terms of the capital cost?

Steve Guidry

It's a fairly broad range. For us, anything from in the $50 million to $75 million acquisition range and development cost in $100 million to $200 million range is what would be our sweet spot. We said we can do - positioned to do smaller acquisitions and we can something larger, but that would be what I would describe as our sweet spot.

Eric Anderson - Hartford Financial

This is something maybe you would do by yourself or may be in partnership with other companies that are out there?

Steve Guidry

It's both. Just depends on the opportunity something that we could either do ourselves or partner with it. Just depends on individual circumstance really.

Eric Anderson - Hartford Financial

Would you hope to have something done this year in that regard or is it just [something] taking your time on and be careful with?

Steve Guidry

Yes. We will take our time and we certainly will be careful and yes we would like to get it done this year, but like I said earlier it's going to depend on the quality of the opportunity that we see.

Eric Anderson - Hartford Financial

All right. If I could ask a question about the Dimba well, given that you had a hydrocarbon shows you know in the well are you thinking of possibly re drilling that maybe lower on the structure?

Steve Guidry

Well, we actually did sidetracked that well down dip. You know every well that's been drilled on the Etame block has had good Gamba sandstone, so we did drilled one and find 10 feet of Gamba and it's tight on the tar, so we sidetracked it down dip, we found that a reservoir but we also found little contact. It's just maybe too small, so the structure was there. If the sand had been the thickness that it is everywhere else on the block, it would have worked, but something in the way it was way down caused that to be the sand start region and that was a big surprise to us and that was the reason, so we've already just what you suggested.

Eric Anderson - Hartford Financial

Okay. Now, were you using 3-D seismic there?

Steve Guidry

We were in the 3-D seismic, you can see the base of the salt, but you can't really determine the thickness of the Gamba, so you have to rely on other wells that have been drilled to the north and south and the east of their that all have anywhere from 13 meters to 20 meters of sand in them then we come in three meters of sand that just was just total surprise.

Eric Anderson - Hartford Financial

How would you characterize the lower objective that was sort of the bailout target there that you are going down deeper too?

Steve Guidry

We just did not see a significant good sand development down there, so the rock that we drilled was not of reservoir quality. That we knew was the risk all along on that prospect.

Eric Anderson - Hartford Financial

Okay, but it would have been the upper section that would have made it appealing even if it were the normal 10 feet thickness?

Steve Guidry

Correct. If the Gamba had worked, we would have a development. The other was a deep-seated structure and it had some characteristics that look like some wells that were six or eight miles away that had stands in them, so the thought process was drill the Gamba, and then just keep going and see if those sands developed like they did in those wells six or eight miles away, where by the way they tested oil and we could see a structure, but we just didn't get the sand development that we were hoping for.

Eric Anderson - Hartford Financial

Lastly, if I could ask just, what are the types of day rates that you are finding out there in terms of the types of rigs that you are possibly in the market for prices softening a little bit, or how would you characterize the market?

Steve Guidry

Is not bad.

Greg Hullinger

I think, the rig rate we have for the Ben Rinnes is the low 100s, but the rig rates that were bid for Angola were - that which is a semi, were within what we had budgeted, so there are a few rigs available out there. The rigs we are looking at for our expansion project are probably little more sophisticated than the Ben Rinnes rig, so we will probably command middle 100s or below middle-100s, kind of rig rate range.

Eric Anderson - Hartford Financial

Okay. Appreciate you taking my questions.

Operator

Next, we'll go to Chris Mcdougall with Westlake Securities. Please go ahead.

Chris Mcdougall - Westlake Securities

Hello, gentlemen. Thanks for the thorough update and strong results, so going back to the last quarter, you were thinking that the production for Etame would be up above 20,000 barrels a day by first half of '15. Is that still the case?

Steve Guidry

Yes. This is Steve, Chris. We will get the platform set, and this in 2014, our rig program would start right at the end of 2014. Then our rig program for the new development would be throughout the first three-fourths of 2015, so you will see production increasing in increments throughout that period.

Chris Mcdougall - Westlake Securities

Okay, and so by the end of first half '15, kind of 20,000 barrels a day exit rate is a reasonable model?

Steve Guidry

Yes.

Chris Mcdougall - Westlake Securities

Great. Yes. Thank you.

Steve Guidry

Yes. Thanks, Chris.

Chris Mcdougall - Westlake Securities

Then one last thing, I think, [Leo] also covered most of the big items, but you do have the stock repurchase plan that you are about halfway through on the year. If the rate changes or changes of the current rate from - of executing on that or is that on hold?

Steve Guidry

It remains an option for us. We continue to see that as a potential option, but we don't have any specific plans as it stands. We are just continuing to look for the right opportunity without really an obligation, but with knowing that it's an option available to us.

Chris Mcdougall - Westlake Securities

Okay. Great. We look forward to seeing the progress into the next year. Thanks.

Steve Guidry

Thank You, Chris.

(Operator Instructions) We'll go to Joe Pratt with WFC Asset Management. Please go ahead.

Joe Pratt - WFC Asset Management

Hi. Thank you very much. What? - I didn't exactly catch when you expect the first production out of Mutamba?

Steve Guidry

2016.

Joe Pratt - WFC Asset Management

2016. Okay. Secondly, how does the sands in [Dentale] proved block next door compare to your sands and how it was discovered compared to the sand and the Etame A Block?

Steve Guidry

Well, from what we know they're finding hydrocarbons in Gamba, and in the Dentale, which is the same as what we have in Etame. We have never produced the Dentale. We are going to try and produce the Dentale. We expect to produce the Dentale. It's been tested at rates like 2,500 barrels a day back in the 80s, so with this new platform, we are going to try and learn about the Dentale.

The issue with the Dentale is, we don't know about connectivity of water are driving some of those things, so we want to learn from that. The good news is that that same platform will also be drilling wells into the Gamba, in the Southeast Etame discovery, so we kind of have a fallback if the Dentale isn't as good as we hope it will be, but my understanding is that the regime down here to the southeast, it's a continuation of the Gamba Dentale plays.

Joe Pratt - WFC Asset Management

Okay. Thank you very much.

Steve Guidry

Thanks Joe.

Operator

We will go to Neil Nelson with [NII]. Please go ahead.

Unidentified Analyst

Could you discuss the Avouma well with the damaged casing and when you think that will be back on production when you re-drilling it and will you continue to operate that well?

Russell Scheirman

Yes. We should be done with the workover on the 2H well end of the next week and put that well back on production. I don't know whether we mentioned, but that well actually the second pump on that well went down about 10 days before we were ready to get on it, which was disappointing. We were hoping to be able to get on before the second pump went down, but anyway we are on it now and we should have it back on production some time end of the next week early the following.

We will immediately slide over to the Tchibala 1H well. It's about 30-day workover. Basically, we will be sidetracking out of the 1303 since casing. We will cut and pull some of the nine and five to give us a window and we will side track out and just re-land the well into that casing and pumps and it should be a perfectly good well.

We are going to use a little heavier 9H 5H casing this time. We don't think it was actually the casing that part of it was a coupling that may parted and that maybe due to some sort of stress from salt, but we should be able to get a good 1,500 barrel a day well back that has been down now for several years.

Steve Guidry

Neil, this is Steve. I might just for a minute brag about our technical team. You know, the fact that in the Etame field, we run tandem submersible pumps for this very reason. The well that we are currently working over, the first pump failed some nine months ago, so we have been able to produce that well for nine months uninterrupted.

Unfortunately, as Russ pointed out, it went down 10 days before the rig showed up, but if we hadn't applied that technology of running dual tandem pumps in this well, we could have likely had the well down for nine months before the rig was available, so credit to technical team for stepping out and utilizing an approach to producing these wells that are not often utilized by other operators.

Unidentified Analyst

In the case of the Etame concession or you have subsea trees what happens when you install the new platforms? Do you run everything through the platform or do you leave those subsea trees in place and produce off of those?

Steve Guidry

We could have done it either way, but what we are going to do is, we are going to utilize the flow lines that are coming from the 5H and 6H well as our connection between the platform and the FPSO, so that we don't have to run a bunch of new risers and things over to the FPSO, so we are going to reroute the 5H and 6H well to the new platform and then use their dual flow lines as the conduit to get the oil back to the FPSO and that's the work that I was referring to that we are doing right now, while the shutdown is going on is worth disconnecting the 5H, 6H flow lines were laying up a loop that we can then come back later and connect up to the platform and then everything will be connected back to the FPSO, the subsea wells and then the new wells that we drill with dry trees on the platform.

Unidentified Analyst

Thank you. Greg, could you address, in the Q4 revenue barrels you had 531,000 Etame barrels approximate, but that represents only 24.587% of the total lifted from Q4 and that doesn't line up with your Etame working interest percent. Is there?

Greg Hullinger

It's a function of royalty, Neil.

Unidentified Analyst

Okay.

Greg Hullinger

Our 28% interest, we first drop off 13% from royalty, so if you take our 28% working interest times 0.87, it comes to the 24% number that you mentioned.

Unidentified Analyst

Okay. That explains it.

Steve Guidry

Yes. We don't report royalty as revenue. In Canada, they do for example, but we don't U.S., U.S. GAAP.

Unidentified Analyst

That covers all of my questions. Thank you very much.

Steve Guidry

Thank you, Neil.

Greg Hullinger

Thanks, Neil.

Operator

We do have follow-up from Eric Anderson. Please go ahead.

Eric Anderson - Hartford Financial

I wonder if I could just go back a little bit to, in your concession, in Equatorial Guinea, I believe in prior presentation possibly at or other intercom, Steve, you talked about that there was a approved discovery there that has not been developed. I just wonder if you could put that in perspective for us, then also possibly where that is in relation to wells that you are planning on drilling in the area.

Steve Guidry

It's known as the Venus field. It was a discovery made by Devon in 2005, and we estimate the grocery coverable to be around $17 million barrels -

Greg Hullinger

17 to 20.

Steve Guidry

…and it's a nice little discovery and actually Devon filed a development plan to develop it, but the government rejected it because they wanted them to drill some of the other channels to make sure that they size the FPSO correctly. They didn't wanted to go in there with a small FPSO, and then find them other [low] somewhere else and wish they had different facilities et cetera, so we have talked to the government about whether we could develop a standalone, and I think everybody just feels like we ought to drills these two other big channels sands and see what's in them before we decide what facilities we need out there.

Eric Anderson - Hartford Financial

How far apart are they from one another?

Steve Guidry

They are all within 15 miles of each other, maybe less. They are kind of like Etame, Avouma and Ebouri. You know, they could all be easily connected together, so there is the question of where do you want to have mother facility? Do you know really wanted at Venus or is one of the other that is a lot bigger and it would make more sense to have your FPSO near to that.

Eric Anderson - Hartford Financial

Or you hope to have a least one or both wells down this year?

Steve Guidry

We are trying as hard as we can.

Eric Anderson - Hartford Financial

Okay. Thank you very much.

Steve Guidry

Thank you, Eric.

Operator

At this point, there are no additional questions in queue.

Steve Guidry

Okay, John. That's great. I think, we will sign off for now and we will come back in May, when we talk about our first quarter 2014 results.

Operator

Ladies and gentlemen, that does conclude your conference today. Thank you for your participation. You may now disconnect.

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