VAALCO Energy Inc
NYSE:EGY
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VAALCO Energy Inc
Earnings Call Analysis
Summary
Q2-2024
In the second quarter of 2024, VAALCO Energy reported net income of $28.2 million ($0.27 per share) and adjusted EBITDA of $72.5 million, significantly up from the first quarter. The acquisition of Svenska boosted production, sales, and future growth prospects, particularly in Cote d'Ivoire. Full-year production is expected to range between 23,600 to 26,500 barrels per day. With no bank debt and a robust pipeline of projects, VAALCO is well-positioned for sustainable growth. Returning $6.5 million to shareholders through dividends, the company expects continued strong performance across its diverse asset base.
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Thank you operator. Welcome to VAALCO Energy's Second Quarter 2024 Conference Call. After I cover the forward-looking statements, George Maxwell, our CEO, review key highlights of the second quarter. Ron Ban, our CFO, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions.
During our question-and-answer session, we ask you to limit your questions to one and a follow-up. You can always reenter the queue with additional questions. I'd like to point out that we posted a supplemental investor deck on our website that has additional financial analysis, comparisons and guidance that should be helpful. With that, let me proceed with our forward-looking statement comments.
During the course of this conference call, the company will be making forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in our earnings release, the presentation posted on our website and the reports we file with the SEC, including our Form 10-K.
Please note that this conference call is being recorded. With that, let me turn the call over to George.
Thank you, Al. Good morning, everyone, and welcome to our Second Quarter 2024 earnings conference call. We began 2024 with positive operational and financial results, including strong earnings and adjusted EBITDA generation. Operational excellence and delivering consistent production is key to allowing us to grow adjusted EBITDA. For the past 2 years, we have met or exceeded our quarterly production guidance. We are executing at a high level and continue to deliver results in line or above our guidance. This is due to strong drilling and workover results in Canada and Egypt, coupled with strong uptime in Gabon.
Also, in the second quarter, we closed the Svenska acquisition at the end of April, which helped us to increase our earnings to over $28 million or $0.27 per share and grow adjusted EBITDA to $72.5 million. We continued to return cash to our shareholders in Q2 2024 through our quarterly dividend, and we announced a third quarter dividend as well.
I would now like to go through and give a quick update on our diverse portfolio of high-quality assets, beginning with our newest asset in Cote d'Ivoire. We quickly and efficiently closed the Svenska acquisition in an all pass deal for $40.2 million on April 30, 2024. Our team traveled to Cote d'Ivoire to meet directly with the Ministry of Hydrocarbons to officially introduce VAALCO as the new partner in Block CI-40. This acquisition is highly accretive on key shareholder metrics, provides another strong asset to support future growth and have significant upside potential.
We added a solid asset with reserves that exceeded our initial estimates, and we've been too at a very attractive price. Based on the results of our third-party reserve engineers, we have SEC net proved reserves as at year-end 2023 of 16.9 million barrels of oil equivalent with 93% oil.
Our previous 1P working interest CPR reserves were 13 million barrels of oil equivalent. This 30% increase in reserves further justifies the acquisition and improved semantics associated with the purchase. We are working with the operator of Cote d'Ivoire and will provide additional information in the second half of 2024 on the Baobab FPSO project planned in 2025 and future Baobab drilling plans.
Turning to Canada. We successfully drilled 4 wells in the first quarter of 2024, completed those wells in March and April on both wells online. As a reminder, we feel longer laterals to improve the economics of the program and all 4 wells are 2.75 mile laterals. 3 of the 4 wells had very strong initial rates with IP rates exceeding our type curve and one of the wells, the lower type curve.
To show the impact of the new wells in Q1, our Canadian production was about 60% liquids. And in Q2, Canadian production was approximately 75% liquids. The strong oil production has rebalanced production in Canada, more favorable liquids, which contributes to the strong production performance and our overall profitability. As the wells continue to produce, they are coming in line with our type curve, and we are optimistic about the future drilling potential in Canada.
As I mentioned last call, we are also targeting an exploration approval well in the third quarter of 2024 in our Southern Acreage. In our Southern Acreage we have minimal horizontal subsurface information and this exploration well is successful, to prove additional long lateral wells in the future with the potential to add proved undeveloped locations.
In Egypt, as we disclosed last quarter, the first half of 2024 is focused on high rate of return capital workover projects to help mitigate decline. As you saw in the earnings release, we had 4 recompletions in the second quarter with some very strong results, adding about 800 barrels of oil per day when you combine the 4 IP [indiscernible].
In addition to the successful workovers, I am very proud of the major milestone that we accomplished in the first half of 2024 in Egypt. We have grown over 2 million minors that had a lost time incident completing in the third quarter of this year. This is a testament to cemented to safety, training and dedication of all of our people in the field. As I mentioned on the last call, we have 10 to 15 well drilling program that we are currently valuing in Egypt. This project remains contingent on completion of the program evaluation and confirmation of the drilling rate.
We have not included this program our 2024 CapEx guidance and won't add it until confirmed. However, when we proceed with the program, we anticipate additional CapEx of approximately $9.5 million, which will also genuine additional production. We will see some additional production in 2024. However, the bulk of the additional production will impact early 2025 production. We have seen some positive announcements from the government in 2024, in particular, payment of a receivables, which is very encouraging. Ron will go into more details regarding the Egyptian receivables.
Turning to Gabon. In the second quarter, production was impacted by an [ Etame ] platform issue. Operationally, we had a planned maintenance turnaround in Etame in the third quarter. But due to the platform issue, we moved that forward into Q2. This issue was addressed when the platform was brought back online safely, and we will not have the turnaround now in the third quarter. You will notice that our Q3 production midpoint for Gabon exactly above the Q2 production of just under 7,500 barrels per day due to the movement of the turnaround at [indiscernible].
Given that we haven't drilled a well in Gabon in over a year, we are pleased with the positive overall production results and strong production uptime and improved declining curves on the well. The FSO and field reconfiguration projects in 2022 have allowed us to minimize downtime, capture efficiency and reduce overall OpEx. Looking ahead to 2025, we have prepared a firm 7-well program that we plan to initiate first half 2025, subject to executing a drilling rig. The proposed program includes an infill well and exploration well in the tone, a grand by infill well and a gas well for field fuel supply at sent this will reduce our dependency on diesel and reduce OpEx and 2 workover wells and our redrill of 3H on Ebouri.
We have completed the analysis on the Ebouri that we have highlighted in previous quarters. We will conduct 2 workovers on existing wells and drill one new well to increase production from Ebouri that will be treated with this chemical process. The study has indicated that downhole chemical injection can adequately cover the sweetening of the [indiscernible], and therefore, we anticipate that the more costly CapEx option for a full CFP will not be required. This is a positive outcome that should allow the company to access contingent resources and place them back into reserves upon completion.
Projected contracting, we plan to initiate the program in late Q1, early Q2 2025 and expect the campaign to continue throughout 2021. We will provide more detail on CapEx and volumes when we present our 2025 budget and guidance.
Our expected CapEx spend for 2024 on lone items remains as previously noted between $13 million and $40 million. Further discussions on block G&A have taken place, and we have included the signature bonuses in our 2024 CapEx forecast. On 25 March 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development. The finalization of these agreements included a carrier arrangement of the partners, Atlas and GEpetrol. This arrangement is on commercial terms of super plus 7%, which at today's rates is about 12.5%. This includes our 1P economics on those previously announced and we have included an illustration of that in our accompanying slide deck.
We will now proceed with our front-end engineering sign or feed study. We anticipate the completion of the team will lead to an economic final investment decision, or FID, which will enable the development of Venus. We are excited to proceed with our plans to develop, operate and begin production from the discovery in Block P offshore Equatorial Guinea over the next few years. We look forward to discussing this new of operations in more detail once the field study is complete.
In the first half of 2024, we have delivered or exceeded our guidance operationally and the solid financial results that have outpaced analyst expectations. We remain focused on growing production, reserves and value for our shareholders. I would like to thank our hardworking team to continue to operate and execute our plans. Over the past 2 years, we have greatly diversified our portfolio, which has expanded our ability to generate operational cash flow, all while growing our cash position and remaining bank debt free. We are well positioned to execute the projects in our enhanced portfolio under proven track record of success in the past few years, we instill confidence in our future.
With that, I would like to turn the call over to Ron to share our financial results.
Thank you, George, and good morning, everyone. I will provide some insight into the drivers for our financial results with a focus on the key points. Let me begin by echoing George's comments about our continued success into 2024, driven by our strong operational performance. The second quarter also saw some positive impact from the Svenska acquisition, including our first listing in Cote d'Ivoire in May. We generated $28.2 million in net income or $0.27 per share and around $72.5 million in adjusted EBITDAX, both significant increases over the first quarter.
Let's turn to production and sales, which along with realized pricing drives our revenue. As George mentioned, we've met or exceeded production guidance for the past 2 years, the production and sales up for the second quarter, driven by incorporating the Cote d'Ivoire volumes following the closing of the acquisition. We completed the listing in Cote d'Ivoire in May and received payment in June.
Total NRI sales for the quarter increased to 9,386 barrels of oil equivalent per day, above the midpoint of our guidance with production of 20,588 at the higher end of guidance. I'd like to reiterate that with a diversified portfolio of assets, we will have changes from the quarter-to-quarter and the mix of sales from each of our producing areas. This change in mix impacts our realized pricing and ultimately, our revenue and earnings. But if you look at the bigger picture and over the full year, you will see the impressive growth across our expanding portfolio of producing assets. Pricing remained solid in Q2, and our hedging program has always looked to help mitigate risk and protect our commitment to shareholder return. Our current hedge positions were disclosed in the earnings release.
Turning to costs. Our production costs for the second quarter of 2024 were impacted by a $50 million noncash purchase price adjustment in Cote d'Ivoire. According to GAAP rules, inventory purchased in the acquisition was mark-to-market at the time of the purchase and when the lifting occurred in May, prices had dropped, but the corresponding expense is recorded to production expense. Without this acquisition, related noncash adjustment, VAALCO would have been below the midpoint of our Q2 production expense guidance. We believe that Cote d'Ivoire production expense on an ongoing basis will be around $3 million net per month. Our focus remains on capturing synergies and keeping our costs low to enable us to maximize margins and increase our cash flow.
GA costs were also in line with guidance. And while they rose on an absolute basis, driven by our growth on a per barrel basis, they were virtually flat with Q1 2024. We commenced a back-office process improvement project with the implementation of a single cloud-based ERP across the whole company that will go live in Q3 2024 and should allow us to streamline processes and efficiently work across multiple offices located across the world.
Noncash DD&A costs increased quarter-over-quarter, primarily due to increased depletion costs associated with the addition of Cote d'Ivoire. Compared to the same quarter in the prior year, we saw a decrease in the absolute per barrel DD&A costs due to lower depletable costs in Gabon, Egypt and Canada and partially offset by the addition of Cote d'Ivoire.
Moving to taxes. And as I've previously stated, Gabon, our foreign income taxes are settled by the government through in-kind oil liftings. Last call, we discussed that we would have a government listing in May. In Q2, we settled $30.2 million in foreign income taxes for Gabon through development taking their oil barrels as payment in kind. We've discussed our mark-to-market of the in-kind oil in the past. With a lifting in Q2, the amount of in-kind oil has been reset. So in the near term, price fluctuations will not have as significant of an impact to a tax liability until the quantity of barrels of in-kind oil begins to build back up.
Tax costs in the second quarter of about $9.3 million resulted in an effective tax rate of about 25% in the quarter. This was lower than prior quarters and driven by nondeductible items such as the Svenska transaction costs regarding each state listing settling and the bargain gain associated with the Svenska transaction. Excluding the bargain gain, the effective tax rate is 53% for the quarter. Our new projected effective tax rate over the long term, excluding discrete items, the range is 55% to 60%.
Turning now to the balance sheet and the cash flow statement. Unrestricted cash at the end of the second quarter was $62.9 million, which was down compared to the first quarter due to several factors. In Q2, we paid $40.2 million for the Svenska acquisition. We spent $32.5 million in cash CapEx and returned $6.5 million through dividends to our shareholders. I'd also like to point out that we settled $30.2 million in taxes in Gabon through an in-kind oil lifting, which means the government received the cash associated with this lifting rather than VAALCO settling it and receiving the cash proceeds as we normally would.
I'd like to point out that there is some noise in the cash flow statement regarding the Svenska acquisition. We have a slide in the supplemental deck showing a waterfall to help to explain the movements. In the investing activities, you will see 40.6 million cash received in business combination. This was cash that Svenska had on the books to presell accrued liabilities that flowed through the operating activity section that VAALCO assumed with the purchase.
Last call, we discussed likely working capital movements primarily related to Egypt. In the second quarter of 2024, we sold all Egyptian production domestically, which drove our June accounts receivable higher. Following the end of the quarter, we did receive in early July, an $8 million cash payment for Egyptian accounts receivable. Additionally, EGPC has now provided written confirmation and recognized our invoice in their June payables related to the contractual backdated receivable from the merger of the PSCs of approximately $40 million. This is a major step forward and with EGPC demonstrating through March and July back payments to IOCs and with the new oil minister prioritizing resolving each payable situation we are pleased to continue to work with the Egyptian government, which has made a concentrated effort to reduce its dated bill payables in 2024.
As has been the case since the third quarter of 2018, recurring no bank debt and have credit facilities available to continue to build value. In Q2 2024, VAALCO paid a quarterly cash dividend of $0.0625 per common share or $6.5 million absolute. In 2024, we have now returned almost $20 million in shareholder returns. We also announced the third dividend payment of the year, which will be paid in September.
Let me now turn to guidance, where I'll give you some key highlights and updates. I want to remind you that guidance now includes the recently closed Svenska acquisition, which only affected 2 months for the second quarter and the full impact will be seen in the third quarter. Also, our full guidance breakout is in the earnings release and in our supplemental slide deck on our website with production breakout of both working interest and net revenue interest by asset area. For the total company, we are forecasting Q3 2024 production to be between 24,900 and 27,600 working interest barrel of oil equivalent per day and between 20,300 and 22,800 NRI barrels of oil equivalent per day. This is up compared to the second quarter due to the full impact of the Svenska acquisition and due to the Gabon turnaround timing that George discussed.
For the full year 2024, we are now forecasting our total company production to remain unchanged between 23,600 and 26,500 working interest barrels of oil equivalent per day and between 18,900 and 21,400 NRI barrels of oil equivalent per day.
Looking at production by asset for the full year, we are expecting natural decline in Gabon in Egypt. Although the capital work program in the first half of the year in Egypt has helped to mitigate some decline. In Canada, we've seen year-over-year growth from our drilling campaign. And in Cote d'Ivoire, we are reflecting operations from May through to December and our full year numbers. For the third quarter and the full year 2024, we're assuming our sales will be more or less in line with our production. Our absolute operating costs are expected to go down compared to Q2 due to the noncash purchase price adjustment and operating costs that drove costs higher in Q2.
Normalizing for the adjustment, then adding expected quarterly running costs, this will go up for the full year due to the normal operational expenses in Cote d'Ivoire. Taking all this into consideration, we are projecting our per barrel of oil equivalent range to decrease due to the additional Cote d'Ivoire volume. We're also expecting flat to slightly lower absolute G&A as we noted previously.
Finally, looking at CapEx, our 2024 capital spend is between $115 million and $140 million as we prepare for the 2025 FPSO change-out, the anticipated next drilling campaign in Gabon and the largely completed Canadian 2024 drilling program. For the third quarter, we are expecting a range of between $32 million and $54 million for our CapEx.
In closing, we are executing on our strategy and adding meaningful value. With this trend acquisition, we are forecasting a meaningful increase in production and sales, we should also increase our ability to generate additional adjusted EBITDAX and operational cash flow in the second half of 2024. We are very well positioned to execute and fund our robust capital program across multiple producing assets over the next several years.
With that, I'll now turn the call back over to George.
Thanks, Ron. We will continue to execute our strategy focused on operating efficiently, investing prudently, maximizing our asset base and looking for creative opportunities. As you have heard this morning, the first half of 2024 has been very profitable. We have generated $35.8 million or $0.34 per share in net income and almost $135 million in adjusted EBITDA.
With the closing of the Svenska acquisition at the end of April, we will see a positive impact to production, sales, OpEx per barrel of oil equivalent, operational cash flow and adjusted EBITDA for the second half of the year. Looking across our asset base, we are pleased with the Canadian drilling results. We are planning a drilling campaign at TAMI, and we are progressing the FEED study in Equatorial Guinea and optimizing production while executing workovers in Egypt.
Our entire organization is actively working to deliver a sustainable growth and strong results. I believe we have gained credibility over the past 2 years, having delivered on our commitment to the market and to our shareholders, and we will continue to deliver with the exciting slate of projects that we have over the next few years. We are in an enviable financial position with no bank debt and even a stronger portfolio of producing assets with future upside potential.
In addition to funding our capital program, we have remained focused on returning value to our shareholders. In Q2 2024, we returned over $6 million to our shareholders through dividends. We are on pace to deliver a further $0.25 per share annual dividend for 2024, matching what we paid out in 2023, with our current share price is a dividend yield of about 4%.
As Ron discussed, our 2024 guidance has the Svenska acquisition incorporated to strong production and sales expected to continue. We are truly excited about the future and VAALCO has multiple producing areas and future prospects that have diversified our risk profile under sources of income. We are confident in our ability to execute on the many projects ahead, largely because we have been highly successful over the past 2 years developing and growing our assets. Our disciplined approach to maximizing value for our shareholders by delivering growth in production, reserves and cash flow have led to expanding results thus far, and we believe that we will carry that momentum into the remainder of 2024 and beyond.
Thank you. And with that, operator, we are ready to take questions.
[Operator Instructions] And the first question comes from Stephane Foucaud with Auctus Advisors.
I've got 2. The first one is about the receivable in Egypt and particularly, the agreement that has been signed. Does this $40 million and $50 million that has been agreed, is it already on the balance sheet at the end of June? Or would that be something that could be added by when said the end of September comes in? That was my first question.
And my second question is around the exploration program in Canada in H2. What sort of volume million barrel could be the risk potentially by this program, just on sort of an idea of the order it?
Thanks, Stephane. I'll leave Ron to answer the first question. And once he is done that, I'll come back on the second one.
Thanks George. Stephane. Yes, in relation to the Egyptian receivable, that's the backdated contractual receivable that was basically therefore when we took over TransGlobe. So it was booked prior to us purchasing TransGlobe. And we've been looking for resolution for that really since day 1 in October 2022. It's been a long path to take, but we've managed to get to the position now where we've got the documentation. We've got an agreement through all of the departments in EGPC. And effectively, we're in the signing process in relation to each of those areas now. But the invoice has been cut. The values have been agreed they have recognized and given this recent confirmation that the net receivable is now sitting there at the end of June 2024 on their payables, too. So it's like anything else. It has to be on their payables registered before there's any chance you're getting any payment on it at all. And I'm glad to see we've succeeded on that part.
Sorry, I meant is that already in the balance sheet of VAACLO as receivable or not? That's what I meant rather than EGPC.
Ron did you hear that? Okay. We may have lost Ron. But I will answer the second question, Stephane. So with the exploration well in the Southern Acreage in Canada, what we're trying to do is about a year or so ago, some of the well performance came below the type curve and you lost some reserves there, also we did gain in the north. And what we're looking to do is reestablish those reserves with this exploration well. Roughly, I think it's between 8 million to 12 million barrels. We're looking to try and reestablish and that would open a play for further drilling in the Southern Acreage. So we're quite encouraged by looking at this well that we hope to spud in September and that will further enhance the program going into 2025.
And the next question comes from Chris Wheaton with Stifel.
George, in Ron absence, I think probably I'll ask you a slightly different question, which was Equatorial Guinea, it's good to see progress there for second half progress towards FID. Could you update on the timing after that though. At what point do you see moving towards actual first construction and therefore, first oil? And also, if they need to update the cost of the development or likely cost of the development, given that we still seem to be in an inflationary environment for offshore services at the moment.
Okay. I don't as I think I've mentioned before, what we did initially about 18 months ago was put together the plan of development, and that was fully costed. And that was fully costed with 3 wells plus a CapEx spend for [indiscernible] it was somewhere around about a gross spend of $280 million. The plan going through the FEED study is to try and reduce that CapEx and swap CapEx for OpEx because it's much more tax efficient given the short tenure of this development. So there is a little bit of adjustment that we're trying to achieve through this story to reduce the CapEx down to around about $160 million level growth and increase the OpEx position through the lease of the [indiscernible]
Now of course, there are some inflationary pressures still on services. However, part of the output from the FEED study, we'll be looking at particular opportunities where we can have some of the older jackup rigs converted into [indiscernible] and go through the lease arrangements. And as you're aware, there are quite a few of those units available here in the United States. So right now, I wouldn't be advising that we need to increase any of the cost profile. I'm kind of hoping that we get to a point where for Equatorial Guinea, we get to FID and we get into a planned structure that may allow us to piggyback on the Gabon campaign and a lot of equity will get it to come in on the back of that, which would be mid- to late '26 for drilling, which would then allow us to look at first oil sometime in '27.
And the next question comes from Jeff Robertson with Water Tower Research.
George, in Cote d'Ivoire, do you have any additional detail with the operator on the time line for the FPSO change out from what you've provided in the past. And while the FPSO is up station, will there be any significant operating costs in CI? Or will all the costs incurred on the capital cost lines?
Yes, that's a good question, Jeff. I mean, obviously, the update is having those discussions right now. At the moment, we have no change to what we initiated, which was a Q1 shutdown in 2025 for the vessel tooling station. We do not anticipate any significant OpEx. In fact, we're looking at retaining those operating costs being capitalized during the period of 2025. Those discussions are still ongoing because we'll retain those as part of the project cost. But obviously, there are ongoing costs for retaining the presence in CDI, but that won't be significant. The main focus will be on the FPSO refurbishment and the time line to get it back on station which will go through into 2026.
So as I said in my commentary earlier, when we come to finalize that position with the operator and finalize our position and timing of the 2025 drilling program at that point later this year when we come to give budget and guidance for '25, we can be a lot more specific in detail on -- and we will provide that detailed project plan slide to what everyone sees when we plan when it's planned for the vessel to leave and when it's plan for to come back where it's going and the cost structure is around that, and that will be linked to over the 2025 capital program for Gabon as well. So it's going to be probably towards the end of this year, we'll be able to give more detail there. But when we look at our ability to execute and fund that, our confidence levels remain extremely high, as Ron mentioned, we are debt free, but we do have debt lines available to -- and also cashing the balance sheet to more than coverage through that period.
[Indiscernible] Ron talked about progress with aged payables with EGPC. Can you provide any color on discussions around being able to sell oil into the export market as opposed to the domestic market?
Yes, a little bit. I mean, as you can tell, we're quite a small management team, so we're actually in different parts of the planet right now. That's -- the reason we do that is to make sure we can always have a senior, senior management team member meeting with various governments and for our CEO, is currently meeting with the Minister in Egypt as we speak in Alexandra. So waiting for the outcome of that discussion, we have initiated in detail what our investment plans are for Egypt. And I've mentioned that with the potential of a 15-mile drilling program. And -- but we're looking to see how we optimize both the commitment that the minister has made to tackle the aged receivables on EGPC, we made that statement publicly. We've seen them looking to [ corporate ] paid down 20% of each balances, which is encouraging. But as you're aware, it's not sufficient to make sure we can charge ahead with an accelerated investment, and we're looking to see that position improve.
At the moment, we don't -- and we have not forecast for export cargoes. We don't see that possibility at the moment because of the position with the type of crude we have initially, they could not refine that too, but that's now not the case. They are refining the [ Rascoude ] in country. So for the rest of this year, we're looking at domestic sales. But in saying that, we're still encouraged with the profiles and opportunities that we see in Egypt. We just need to see just a little bit of, as I think I said at one point, to move it from a great deal to a compelling one.
George. I was texting with Ron after you got disconnected early, and he confirmed that the receivable was on the books for VAALCO before now. So for Stephane's question, yes, the receivable was already booked. I think Ron is trying to get back in. I'm not sure if you actually…
Yes. I can get back on the customer travel and communications, but back online.
And the next question comes from Charlie Sharp with Canaccord.
I just wanted to clarify, if I may, the wells that you're planning to drill in Gabon next year and when you might be able to provide some guidance to us on what sort of production you might expect from those additional wells?
No problem, Charlie. We -- I kind of give a very brief overview of the wells we're planning. At the moment, we've got 7 wells firm. We've also got further 5 wells contingent that we will look or may include in the program. With regard to volumes and guidance, that's probably going to come out in our November call as we start to give more guidance into 2025 but the effect of we are a mixture of step-out wells and 1 or 2 an exploration well on the redevelopment around [indiscernible], which is the key pickup.
On a volumetric basis, what we're targeting is probably somewhere well north of 6 million to 8 million barrels of additional reserves coming in through the initial program, excluding the position on the gas well. We've been -- that's a risk position. I'm kind of hopeful that we'll see a little bit of improvement on that we've really given what we lost in reserves that went to contingent resource. So there may be a little bit of pickup on that, but we'll continue to study that. But that's more likely to be in November for you can land on the exact well sequencing and exactly what the IP rates we're broadcasting and the final reserve positions we're targeting.
And just finally, and one for Ron, if you still on. I think the operating cost for full year '24, you've indicated are higher than you had previously. I just wanted to be sure that I understood if that was really related to the Svenska acquisition? Or was there something else that was missing there?
Yes. So just in my script, I think there, Charlie, I mentioned that in Q2, you see production costs have gone up. And that's really in relation to the Svenska acquisition because they had made inventory crude oil on the FPSO, the 30th of April when we purchased the company. So that effectively means that that crude oil is mark to market. It's basically valued at market price. And then, of course, we produced and then we sold in May. And so when we do that and from an accounting point of view, you roll through that mark-to-market cost at the market price. So that's bumped our costs up by about $15 million, 15 in the quarter. And it will -- obviously, it's nonrecurring and it's noncash, you will not see it there in each of the other quarters. I also mentioned in my opening comments that we would typically see that, that net cost in Cote d'Ivoire would run about $3 million per month, $9 million net.
And the next question comes from William Dezellem with Tieton Capital.
George, would you please circle back to your comments about the H2S wells and what it is that you are going to be doing there and the time line that you anticipate those may be able to return back into production?
Yes. No problem, Bill. I mean, we've, as I mentioned, completed the study where we can now sweetheart downhole chemical injection rather than a more cost and mechanical process. So that is very good news. And that's based on the existing modeling structure we have. Obviously, as we come into the campaign and we start to add more wells in the brewery into production, we'll be able to revise and update that model with more subsurface data that's coming in through the production profile. Right now, these wells from a sequencing standpoint are -- we're planning them at the back end of the campaign, and that's primarily due to being able to get the quality of completion equipment we need for server treatment downhole. So those lead times are quite extensive up to 12 months and beyond. So they'll be at the back end of the program, of course, given that they are reasonably prolific wells if we can pull those forward by the equipment arriving earlier, then we will certainly do that and do that work on the [indiscernible] platform as early as possible. But as I say, at the moment, we're at the back end of the program to allow for [indiscernible] to be delivered on time.
And would you please remind us what the total shut in production is on those H2S wells?
Well, when there was shut in, they were shut in doing -- one of them is actually still in production at the moment, the Ebouri 2H and that's the one we've been using as a test piece for the sweetening program for downhole chemicals. But it was shut in, I think, and this goes back to 2014, so I'd have to check the numbers, but I think it was about 3,000 to 4,000 barrels a day that were shut in.
And it is just one well now that's shut in due to H2S.
It's only one well that's in production right now. The other wells are shut in. What we're planning to do is we will do some work on the existing well to make it more efficient when it comes to the [indiscernible]chemical injection make sure the line is fully functioning, and that will be an enhancement to that particular well production. We will then also do a sidetrack on the 3 -- what was the 3H well and move that to a more favorable location within the reservoir. And then we've got to reburnt completion on 4 to give it to -- and that's one of the -- these are one of the reasons that we need that specialized equipment. So those are the 3 -- one redrill citrated and 2 workovers are planned to get that ability production back up to optimum levels.
And then you will be drilling additional wells at a worry also to enhance the production there beyond bringing those wells back online through the recompletions. Is that -- [indiscernible] understanding that correctly?
There are potential additional [ Ebouri ] wells in the contingent program, but we need to get the first -- these 3 wells up and running first, and that will determine where we go next.
Congratulations on a sold quarter.
George, I was looking at add a little bit color to build there as well in relation to it being [indiscernible] being a long-term shareholder. Those wells were shut in when VAALCO a much smaller working interest in those reserves. Now we're bringing them back on, we're bringing them back on at nearly 60% working interest. So kind of [indiscernible] way too that we shut in with our position. And hopefully, we'll now be able to flow it with the greater working interest coming into VAALCO.
Actually, Ron, that's a great point, which I had overlooked. So with that in mind, what is the -- if the wells were to flow at the flow rate that they had at the time they were shut in. But taking into account your now greater working interest, what is the total production that you would expect from those wells?
Yes. I mean what I was saying before, Bill, in the 4,000 to 6,000 barrel lines was what I was giving you in our position. So that -- I already factored that in. So from a working interest perspective. But yes, I mean, the key here for me is getting this field back in production with multiple drainage points and then having that history match opportunity to study that against the existing model, see where our model in accuracy lies because no model is perfect. And what does that give us for additional opportunities for drilling thereafter. And that's where sequencing, we wouldn't have enough time wherever we place the wells. But there where we can do the [ BOPD ] program for me, the better because there may be some additional contingent opportunities there at the end of the program.
And the next question is from Stephane Foucaud with Auctus Advisors.
Again. Two quick follow-on clarification. The first one is about Egypt. You talked about the fact that you're looking for -- we are second part of the year, is that the only condition to go back to you doing? Because they have in mind that soon that you would need to have an export target, which I understand is not required anymore, but maybe there are some other things like payment from Egypt that the other condition to go back to drilling. So confirmation would be great.
And second for Ron, the EUR 116 million of other current capabilities is a big jump compared to I think last time -- is that purely related to the Cote d’Ivoire acquisition? Or is there something that's beyond the increase?
Okay. I'll jump on to the agent one. You're correct. And I think as I've said previously, we're looking for some kind of pickup to make sure that the drilling program in Egypt goes from extremely economic and exciting too compelling and anything that becomes compelling we execute immediately. There is still the condition of the drilling rig. We need to make sure we can get the right rig supplier that works for the types of wells and for the economics that we do in Egypt. We've got that identified. We're having discussions with that right now. So -- but the rig is not yet secured. And so yes, there is a mix of we were looking for export cargoes, as I explained in the previous answer, the export cargoes are probably not available given that the crude can now be refined in Egypt. So we're looking to see how quickly these investment profiles and return to the existing position we get. And hopefully, we'll get some positive feedback from [ forward's ] visit to the Minister today and see where -- how we cannot just execute this program, but enhance and accelerate our investment positions inside Egypt because the opportunities are there, and we'd be very keen to take them up.
So to answer your question, yes, we've no longer said we must have an export cargo because we understand the changes in the profiling country. But we are looking to see how as we invest this money, how it's going to be returned. I'll leave Ron to answer the next one.
Yes. No problem, George. Stefan. The increase in accrued liabilities there up to $160 million, if I picked your question up correctly. Yes, predominantly, that is in relation to, obviously, the Svenska transaction coming in. What I would give some color to that. I mean, obviously, the breakdown will be in our 10-Q when it comes out tonight. And when you look at that, there's probably about half of it is reported every period. So it's turning over and about half of it is probably more of a long-term item. It's certainly not going into next year, but it certainly would not look to move in Q2 -- sorry, Q3.
Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to George Maxwell for any closing comments.
Thank you very much, operator, and thank you for everyone who attended today's conference call and listening to our activities and operations for Q2. We've had another solid quarter. We're -- as you know, we're halfway through Q3. We've got a lot of activities ongoing for the rest of 2024. I think with the acquisitions and the derisk profile we have now, when you look at the activities that we're planning on each of our producing assets and nonproducing assets, we have a number of organic catalysts that will excite both the market and excite both our staff and our hard-working staff to get these things executed for us. So we've got a lot of work to do. We've got a lot of things upcoming but we've achieved part of our objective in creating our profile and our portfolio that gives this company decades of longevity. And that's very exciting for us.
So I'd like to thank everyone for their attendance, and we look forward to talking to you again in November for Q3. Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.