VAALCO executes agreement with Transocean regarding drilling program offshore Gabon

HOUSTON -- VAALCO Energy, Inc., has executed an agreement with Transocean Ltd., regarding the remaining contract term associated with the Constellation II rig utilized in the company’s recent drilling program offshore Gabon, which provides for payment of $5.1 million net to VAALCO’s interest for unused rig days under the contract. This amount, plus the company’s share of demobilization charges, will be paid in seven equal monthly installments beginning in July.

Operational update

Total company production for the second quarter of 2016 averaged approximately 4,700 net boepd, up 4% from 4,516 net boepd in the first quarter of 2016. On June 23, the electrical submersible pumps (ESPs) in the South Tchibala 2-H well failed, resulting in the well being temporarily shut-in. The well was producing approximately 1,700 bopd gross, or 415 net to the company, prior to being temporarily shut-in. VAALCO is working to mobilize a hydraulic workover unit to move onto the Avouma platform and replace the ESPs in the well, which is expected to be back on production by early fourth quarter 2016. The company said that using a hydraulic unit to replace the ESPs, rather than mobilizing a jackup rig results in substantially lower cost for the workover. VAALCO’s net share of the cost is expected to be approximately $1.5 million. The company further commented that it does not plan to change its annual production guidance at this time, as a result of this temporary well shut-in.

CEO Steve Guidry commented: “We are very pleased to have reached a fair and amicable settlement with Transocean following the release of the rig utilized in our offshore Gabon drilling program. We appreciate the relationship with Transocean and their support of our operations. While low oil prices were the primary factor in our releasing the rig, the benefit of our drilling program through that point was further evidenced in the second quarter, when our production averaged approximately 4,700 boepd, at the top end of guidance for the quarter. Thus far in 2016, we have experienced very high production uptime along with more shallow declines from new wells placed on production in the last 12 months. The shut-in of the South Tchibala 2-H well is expected to be only a short-term temporary disruption, therefore we don’t see a need to change our current annual production guidance of 3,700 to 4,500 boepd at this time.”