Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2014 Earnings Report Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct question-and-answer period. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Greg Hullinger. Please go ahead..

Thank you, Ana. Thanks to all of you for joining us on the call today to review the VAALCO Energy's third quarter 2014 operating and financial performance.

After I cover the forward-looking statements narrative Steve Guidry, VAALCO Energy's Chief Executive Officer and Chairman of the Board will speak on the key issues followed by a financial review that I will present. I will then be followed by Russell Scheirman, the Company's President and Chief Operating Officer.

Russ will provide a review of our operations in the three West African countries, where we have exploration and production activity. Following the presentations, all three of us will be pleased to answer any questions you may have. With that, let me proceed with our forward-looking statements guidance.

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 activities, expected capital expenditures, prospect evaluations, negotiations with governments and third parties, reserve growth, and other operations.

Statements made during this conference call that address activity, events or developments that VAALCO expects, beliefs or anticipates, will, or may occur in the future are forward-looking statements.

These statements are 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 the yesterday's press release titled Forward-looking statements and in the reports we filed with the Securities and Exchange Commission, notably the 2013 SEC Form 10-K filed with the Commission on March 13, 2014.

Please note that this conference call is being recorded and with that guidance, let me turn the meeting over to Steve Guidry. Steve?'.

Thank you, Greg and good morning, everyone and thanks to all of you for joining us this morning. Let me begin with some brief comments about our third quarter results and the status of some of our key projects.

VAALCO's third quarter financial results were impacted by lower prices and reduced lifting due to the scheduled maintenance that was performed by the operator of our FPSO facility located offshore Gabon, together with significantly lower realized oil prices.

The FPSO maintenance was in large part, to prepare the vessel for the tie-ins of the infrastructure necessary to produce the wells from our two new platforms. We believe, this progress puts us in a position to realize the benefit of the increased production in future periods, as we bring additional developmental wells on stream.

Turning to our operational performance first, we are particularly proud of the outstanding performance of our project team, as they flawlessly delivered not one, but two fully constructed production platforms from South Louisiana to the Continental Shelf of Gabon, on time and on budget.

In fact the platforms were constructed, transported and installed within one day of the project scheduled that was established some 18 months earlier. Moreover, the work was completed without harm to a single person or the environment. To add a bit more color, our team managed to commission the utility systems on the platforms.

Before the platforms left the dock in Louisiana, which made the process of hook up and commissioning in Gabon much more efficient.

Further testament to the quality of our multidisciplinary team was the arrival of the Transocean Constellation II jack-up rig, which began drilling the Etame 8-H well exactly on schedule and is making great progress in this regard. This will be the first, of at least six new development wells, we plan to drill on the Etame Marin block.

We believe, this is a clear demonstration of our outstanding project execution skills and further reinforces while VAALCO is well-suited to grow our West Africa business. I also want to acknowledge the great work, of our two key contractors involved in the construction. Transportation and installation of the platforms in jackets.

EMAS AMC of Singapore, was our primary supplier of heavy lift and Subsea pipelay vessels. The fabrication of the platforms and jackets would carry out by Gulf Island Fabricators of Houma, Louisiana. It's not for the excellent working relationship between ourselves and these key contractors.

The project would not have been successfully executed with regards to safety, cost and schedule. We continue to progress our opportunities in Equatorial Guinea and Angola as well.

In EG, we worked with GEPetrol, the national oil company of Equatorial Guinea and operator of Block P to prepare a revised capital budget and work program for submittal to The Ministry of Mines Industry and Energy that moves the development of the discovered resource at the Venus Field, ahead of any exploration drilling on the Block.

We are still working through the details of the work sharing and organizational structure that we will use in the joint operator ship model. In Angola, we took steps to assure we retain the exploration opportunities on Block 5 by electing to enter into the subsequent exploration phase.

Russ will go into more detail later, but VAALCO and our partners agreed that entering the subsequent exploration phase was an appropriate action given the uncertainty of our being able to obtain the previously offered extension to the initial exploration phase.

We are looking forward to spreading our first Block 5 exploration well Kindele, a post-salt, later this quarter. The semi-submersible Celtic Sea has been delayed a few weeks owing to a continuing operation on a well currently being drilled by Exxon Mobil, the rig is now scheduled to arrive in mid-December.

Turning now to onshore Gabon and the development of our Mutamba Iroru discovery, you may recall that we announced the signing of the PSC term sheet in our second quarter conference call.

We are currently working with the DGH and with the Council of the State, to ensure that the terms we have agreed to [indiscernible] with and are protected by the new 2014 Petroleum Law. So that VAALCO and its partner Total can then execute the agreement. Lastly, in regards to new opportunities in West Africa.

I can report that we continue to advance our analysis and understanding of a number of discovered resource acquisitions, but in light of the recent downturn in oil prices and the prospect for a longer term period of lower prices. We are being even more selective in our search to for the right opportunity.

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

Thank you, Steve. I will be providing you with an overview of the key financial information for the third quarter of 2014 that we reported yesterday in our 10-Q filing with the SEC and our earnings press release. The company reported net income of $3.1 million or $0.05 per diluted share for the third quarter of 2014.

This compared to net income of $2.4 million or $0.04 per diluted share in the third quarter of 2013. For the first nine months of the year, the company reported net income of $20.8 million or $0.36 per diluted share compared to net income of $16.7 million or $0.29 per diluted share in the third quarter of 2013.

Net income for the first nine months of 2014 was 25% higher than the net income reported for the same period in 2013. The financial results for the third quarter of 2014 were driven by a few key factors that I will explain in more detail in a minute.

These factors include, the fact that two liftings occurred during the quarter totaling 1.0 million barrels on a gross basis compared to 1.4 million barrels left on a gross basis from three liftings in the prior year quarter.

Certainly, the financial results for the quarter were impacted by the global falling oil prices and that has negative impact on our quarterly revenues. Third factor is that, we recorded a bad debt allowance of $1.8 million and I'll talk more about that in just a minute.

Next I'll provide some details that are relevant when looking at our third quarter financial results. Revenues in the third quarter, 2014 of $24.5 million were 35% lower than the $37.7 million, we reported in the third quarter, 2013.

VAALCO's share of the two liftings during the quarter totaled approximately 255,000 net barrels, a 32% decrease over the 2013, third quarter lifting volume of approximately 337,000 net barrels from three liftings.

Inventory aboard the FPSO, the floating production storage and offloading vessel was approximately 478,000 barrels on a gross basis at September 30, 2014 versus 381,000 barrels on a gross basis at September 30, 2013.

The average price we received for third quarter, 2014 lifted volumes was $94.57, 14% lower than the $110.54 price per barrel, we received in the third quarter, 2013. Remember that quarterly revenues are highly impacted by not only the timing, but also the size of the crude liftings.

Since, we can only sell what we produce a key measure to understand the growth production profile.

Production on a gross basis for the three months ended September 30, 2014 was approximately 411,000 net barrels as compared to 437,000 net barrels for the same period in 2013, a 6% decrease that was primarily attributable to a six-day plan maintenance shutdown by the owner of the FPSO facility.

Now let me move to other key financial components for the quarter. Operating income was $6.7 million for the third quarter of 2014 compared to $8.1 million for the third quarter, 2013. Production expenses for the 2014 third quarter were $7.1 million compared to $12.6 million for the 2013 third quarter.

The third quarter of 2014 was lower as the prior year third quarter was impacted by well work over costs and higher maintenance cost aboard the FPSO vessel and Avouma [ph] platform. Exploration expense for the third quarter of 2014 was $0.6 million compared to the $11.1 million recorded in third quarter, 2013.

The 2013 third quarter number was impacted by exploration hole cost. DD&A for the third quarter of 2014 was $4.3 million compared to $4.0 million in the third quarter of 2013. The increase reflects a higher composite DD&A rate for our offshore Gabon assets.

General and administrative expenses for the third quarter, 2014 totaled $4.0 million compared to $1.9 million in the same period in 2013. The higher G&A expense in the third quarter of 2014 was attributable to higher professional support cost and increased personnel cost.

Bad debt expense in the third quarter of 2014 was $1.8 million compared to $0.1 million in the same period in 2013. The Q3, 2014 is attributable to an accounts receivable allowance taken to reflect slow payment by the republic of Gabon to reimburse the company for value added taxes or VAT. Although, the companies exempt from these taxes.

The taxes are first paid to the suppliers of goods and services and then we file for reimbursement from the government. Across the industry in Gabon, the Republic of Gabon has not been repaying these amounts as timely as they had in the past.

We believe the amount will ultimately be repaid and we have received thus far in 2014 three payments from the government covering the April through June, 2014 time period, but in respect of accounting guidelines, we recorded the bad debt expense to reflect the slowdown and uncertainty in receiving payments dating back as far as August, 2012.

We will be able to reverse this expense, if we ultimately receive these money that are owed to us. Income tax expenses for the third quarter 2014 were $3.8 million compared to $5.7 million in the same three month period in 2013. The decrease of income taxes, reflect the impact of the lower volume of crude lifted during the quarter.

Cash and cash equivalence, including restricted cash totaled $146.6 million at the end of the third quarter of 2014. This compares to $143.7 million at the end of 2013, a very comparable figure. Capital expenditures are approximately $66 million, which is net of dry hole expenditures were expended in the first nine months of 2014.

During the third quarter of 2014, the company took an initial draw of $15 million on our $55 million IFC credit facility that we completed in the first quarter, 2014. VAALCO's expenditure budget for 2014 is expected to be approximately $99 million.

In October, 2014 the company received a provisional audit report related to our Etame Marin block operations from the Gabon, General Manager of Taxes. Some of you may have heard of the special industry wide audit of business practices and financial transactions that we undertaken at the direction of the Presidency.

The government utilized the services of Alex Stewart International for these audits. Earlier in 2014, the Gabon Tax Department was charged with finalizing these audits including the incomplete audit of VAALCO.

We have responded to the General Manager requesting meeting per view and resolve the provisional audit claims as VAALCO believes, the audit claims are unfounded. With that, that concludes my review of VAALCO Energy's Inc.

third quarter financials, again I'll be pleased to answer any financial questions, you may have during the Q&A segment of this call. Russell Scheirman our President and Chief Operating Officer will now provide you with an operational update..

Thanks, Greg.

Starting with Gabon production average just under 16,000 barrels per day during the third quarter, which is 3,900 barrels per day net to VAALCO? The production decrease in the third quarter, I think as both and Greg and Steven mentioned was due to the six-day [indiscernible] shutdown by the FPSO owners to prepare the FPSO vessel to proceed the new production from the Etame and Southeast Etame/north Tchibala platforms.

We call that second on, the SEENT platform. In addition, we also upgraded the fire and safety systems onboard and performed other maintenance activities to keep the vessel in maximum uptime, when we were running vessel. The shutdown was accomplished with no safety or environmental incidents.

Steve mentioned that installed that we installed both platform successfully on time and on budget, within 30 days on installing the first platform on a time, we mobilized the constellation two drilling rig over the platform over the Etame platform and commence drilling operations.

We are planning three wells at Etame, followed by three wells at SEENT in the initial campaign on these platforms. There are other potential locations which will evaluate as we get the results of these first six wells.

Additionally, we anticipate drilling a dry gas well off of the SEENT platform after the six developmental wells and this will provide us with a fuel gas source to run the power generation to power all the ESP's that we have on the facilities, for these new wells, that will allow us to eliminate the use of diesel and save substantial amounts of money in our operated cost.

The first well, which is the Etame 8-H well is being drilled in the Northern part of the Etame field and we recently set nine and five casing after tagging the Gamba sand. As of this morning, we have drilled out and performed our pressure integrity test and we are going to be drilling the horizontal section of that well, this week.

We hope to complete the well, the following week and then with some minor tie-ins we should have first oil, by the end of this month or early in December off the Etame platform. Our total net investment in Etame and SEENT will be about $333 million.

Most of that has been spent this year and will be spent next year with the drilling of the wells because of the way the cost account works, over half of this expenditure has already been called for coverage for existing production even though we don't have personnel yet from the project.

The goal of these two projects will be to grow our production to 20,000 barrels per day or more into 2016. As our operations mature, we are inevitably going to have workovers to perform, to maintain the submersible pumps that we use to move the oil and water produce from our fields.

During the third quarter, we did experience one such pump failure at the EAVOM3-H well, which will need to be replaced and we are currently anticipating scheduling that work sometime during the second quarter, 2015 in between the Etame wells and the SEENT wells.

In October of this year, we developed a tubing leak the Ebouri 2-H which is the only well producing at the Ebouri field. You may recall that the two wells in the Northern most part of the Ebouri field began to produce H2S back in 2012, it had to be suspended.

We don't believe the tubing leak in the 2-H well is H2S related as that well had continue to produce at very low levels at H2S. We are evaluating the cause of the leak and we'll need to perform wireline work to accomplish this evaluation.

Unfortunately the wireline unit is over on the new Etame platform and will be used by the constellation II for completing the Etame 8-H well. So until, we complete that well the unit is tied up and we have shut in the Ebouri 2-H well, awaiting that wireline unit. We expect to have the wireline unit over there sometime early next month.

In event the wireline work reveals that the tubing cannot be repaired by wireline, then we will have to schedule workover to pool everything out of the hole and run new pumps and new tubing well, that would happen concurrent with the workover at Avouma in between the Etame and the SEENT wells.

So the well maybe back on next month or sometime in the second quarter or early third quarter. Also because of the H2S that we have at Ebouri, we begun to design a crude sweetening facility. The facility, we've decided the best location for it will be near the Etame field, adjacent to the Etame expansion platform.

This will allow us to redevelop the Ebouri field and it will allow us to mitigate any potential further spread of H2S. We have a little bit of H2S in Etame and the Etame 5-H well, that well was a 200 barrel a day well. We had to shut it in because of H2S. So there is the potential that it could spread and we want to be in the position to handle it.

We had our operating committee meeting with all our partners here last month and they formally approved just going into frontend engineering designer feed on the project and we are trying to get to final investment decision by for second quarter, 2015 with the facilities then commissioned in 2017. Moving to onshore Gabon.

Last quarter, I noted that after over a 1 year discussion with the Gabonese Government over the approval of a development area for our N'Gongui discovery on the Mutamba block, VAALCO and our partner Total signed a term sheet with the government for a new production sharing contract over the block.

Between the time and the execution of the term sheet and completion of final negotiations of the pool production sharing contract language, the Government of Gabon signed into a law new petroleum code.

There are few things in that petroleum code that we need to make sure, that this new PSC conforms with and we've been working diligently with our partner and with the Directorate General of Hydrocarbon in Gabon to ensure that we are compliant with the code and this is something, we hope to get resolved in the next few months.

I know this thing is kind of going on and on, but we want to get right and the publishing of this new code, we need to take into account. Once we get the PSC side, we will move forward with the planning for the development on N'Gongui discovery that well logged 49-feet of oil pay in the Gamba formation.

We anticipate to proceed after reviewing the crude oil market situation and development cost and potential revenues. We will work Total our partner to tie this discovery back to facilities at a pipeline that they operate at the Atora field, which is about five miles away.

First production from the area could come 18 months to 24 months after final investment decision is made, but we'll have to work within the bounds of the current crude oil pricing environment. Leaving Gabon and going to EG, we have a 31% interest in a development area Block P offshore Equatorial Guinea.

It's operated by GEPetrol, which is the national oil company and they have a 58.4% interest, we have two other partners that have the other roughly 11%.

The Block contains the former Devon discovery known and Venus, which is in about 800-feet of water as Steve has mentioned and I've also stated last quarter, we have refocused GEPetrol and the consortium efforts on developing Venus, ahead of any exploration work and we have worked up a work program and budget, which we plan to submit to the Oil Ministry in the very near future.

We've been working on this joint operating model with GEPetrol and I think we are finally getting there. We have agreed the organizational chart and all parties have signed off on it. We'll do a lot of heavy lifting on that project, but we think it will be a good model to help train the GEPetrol people and work alongside them.

Project planning has commenced, to come up with this development plan and potentially long lead time items. We are looking for production in the 10,000 barrels to 12,000 barrel per day gross range from the field if all logistics can be worked out. We could have first well in 2017.

Again like at our onshore project in Gabon, we will have to review this long-term capital project in schedule given the current crude oil pricing environment, but we'll look to try and get all the engineering work done next year.

Once we've got established production, then we will proceed with the exploration project which are cost recoverable from that production, so this will reduce our risk exposures from these prospects given that we could cost recover whether they work or they're dry.

If they're successful, then it will be a matter of time going to be discoveries back to the infrastructure at Venus. Finally moving onto Angola, as Steve mentioned we elected to enter into the subsequent exploration period on Block 5, which allows the contractor unilaterally extend the Block by three years.

this move took away the pressure to get the two wells that we are required to drill the first exploration phase is drilled by the end of this month [indiscernible] happen.

And so now we are have three years to accomplish those two wells, but as a consequence we now also assume the work obligations of the subsequent period and that includes the seismic obligation and two addition wells.

We have already acquired sufficient seismic in the first period to satisfy the commitment for both, so there is no incremental cost be incurred by seismic. We've agreed with some of our partner on the first prospect in 2014 a post-salt well named Kindele.

It's an offset [indiscernible] discovery made about 20 years ago, the test of 1,100 barrels per day.

Well, we will drill in an adjacent up through in pulp lock and while it doesn't alter the tons of reserves that you may have heard some of these Kwanza Basin pre-salt discovery prospects are announcing, it does have unless growth recoverable potential in the 20 million to 50 million barrel range.

The relatively shallow water position and proximity to shore reduces our threshold for economic viability so we think it's worth going forward on this project. The well will take about 41 days to drill and will cost and estimate of $38 million gross, which is $19 million net to VAALCO.

We will be using the Transocean Celtic Sea, which Steve mentioned is working for Exxon as of this morning. It's been further delayed another week or two, so we are now looking at probably end of December, before we will actually get the rig.

As I discussed last quarter, we licensed 1,085 square kilometers of seismic data the deeper water portion of our block, the seismic is being used to evaluate structure similar to the one drilled by [indiscernible] cobalt, which led to their Kwanza Basin discoveries. We see ourselves along the same Atlantic line, these discoveries have been drilled.

So we are excited about in this seismic process and getting the results over in the first quarter. We've merged the seismic with an additional 1,175 kilometer database that we have in the center of the box, 2,200 square kilometer fully processed depth migrated database, which we should have early next year.

This we anticipate will allow us to high grade all the remaining prospects on the block, so that we can develop a drilling plan for the upcoming three years. So Steve, with that. I'll turn it back to you..

Thank you, Russ. When we closed out last quarter, we focused on really operational progress we've made on five fronts. The Etame expansion, the SEENT expansion, the Centralized crude sweetening project of the Ebouri redevelopment as we now call it and the projects on Venus development of Block P and the ongoing efforts in onshore Gabon at Mutamba.

Since that call, certainly all markets have changed significantly, but VAALCO and our balance sheet remained as strong as ever.

Now because we've committed to maintain a high degree of financial flexibility that our strong balance sheet provides, we think it's prudent at this time to review our 2015 capital budget and of the future years spending in order to determine just what impact these oil prices might have and our development project and on our ongoing operations.

We maintain a high level of confidence in the economic viability of the work activity on the Etame Marin investment offshore Gabon, even at the somewhat lower prices been what we are seeing today.

however, a period of sustained lower Brent crude pricing may result in us having to maybe tap the breaks a bit, possibly prompting a deferral with some of our longer term capital projects and triggering around the belt tightening related to our operating cost structure. You know regarding Block P and our onshore Block in Gabon and Mutamba.

We're continuing to review these opportunities under various oil price and capital cost scenarios to ensure that the project are sufficiently robust. In this regard, we will be more deliberate and cautious in making these investment decisions.

We remain convinced, that our hard work and our cooperation with our partners and our host governments will result in successful execution. Lastly, by the time of our next call we expect to have drilled and potentially tested the Kindele exploration well in Angola that Russ talked about targeting a post-salt structure on Block 5.

We have waited a very long time spread out first well on Block 5 and we are very excited to finally get that opportunity. So with that, that concludes our opening prepared comments.

What we will do now is, open it up to questions, Ana?.

(Operator Instructions) and our first question comes from Leo Mariani from RBC. Please go ahead..

Can you talk to what, current production is at the Etame or in Block? Obviously you had a recent well shut in, can you achieve the sense of kind of where it is right now?.

Yes, we are running about 14,500 barrels a day between 14,200 barrels and 14,500 barrels depending on, recycle one of the wells that Etame 4-H well. The Ebouri well was making about 2,500 barrels a day, when we had the tubing leak, so it was a strong well.

So we are anxious to get on it next month and find out what the problem is and hopefully, get it back online, but that's what we are running right now..

Got it and you guys talked about getting to 20,000 barrels a day there in that concession.

Is that kind of year end 2015 target, is that we should think about it?.

I think, we'll get there before then. I think we'll get there, by the time we finished the three wells at Etame.

If we get the Ebouri well back, if not by the time we've done the two workovers, kind of mid-year, we should be there and then as we roll additional wells in, we'll be tightening the decline curve and hopefully, maybe growing a little bit above it. We'll just have to see..

Okay and I guess, just in terms of the Mutamba situation here sounds like, you guys are kind of still working through some contract you gave us some parameters in terms of 10 million barrels to 12 million barrels of growth potential.

Could you maybe speak to the rough kind of cost that you guys are thinking about on that project at this point?.

It would be on the order of $10 to $12 a barrel to develop the initial phase of that. So it's, the economics are would be pretty good. We've got flow assurance issues, some other things to work through because it is waxy crude, but that's kind of the number, that's kind of the range we are looking at..

Leo, this is Steve, if you're referring to what we talked about this morning, we were talking about Block P heading 10,000 barrels to 12,000 barrel a day capacity..

I'm sorry, were you asking about Mutamba or were you asking about Block P?.

I was asking about Mutamba..

Okay, yes. Mutamba, we're looking at on the order $10 to $12 a barrel of CapEx cost to work that. Initially, we'll be talking about a couple wells and those wells might do a 1,000 barrels to 1,500 barrels a day, but ultimately, it would be a multi-well onshore type development..

Okay, I guess in terms of just your balance sheet here.

Looks like you guys drew some debt for the first time in a quite a while, but you're still sitting out of cash, can you just let us know, why you chose to go the debt additional out of the postages, using your tax?.

That loan is sanctioned by the Government of Gabon, it's been approved the interest in fees under cost recoverable.

We weren't to perfect that loan, so by drawing on it, we notified the Gabonese Government that we've made the draw and we , if you will got the facility kicked off and there is no longer any contingent things that IFC can say, we need this or we need that. We were able to get the facility activated.

We want the IFC to have a little bit skin in the game. We called it, one of the reasons we went to the IFC as oppose to just a commercial bank, was because they're related to the World Bank and we think that, it's – some value in terms of them being our lender in an international scenario.

So getting the facility kicked off, making sure that the Gabonese Government was aware, that we are using the loans, so that we can cost recover the interest and fees and then making sure the IFC's was kind of part of the process, so those were main reasons we did it..

Okay, that's helpful and I guess just in terms of your Block in Angola there. I guess, obviously you picked up two additional wells, you've got to deal over the next three years are those by definition exploration wells and you have flexibility for those potentially be development wells..

They're currently defined as exploration wells, but one of the options that we will pursue with the government is to seek relief around that and so, and getting time to get that done. So we will be petitioning the government for some, but at the sense right now, they're defined as exploration wells..

Okay, it's helpful and I guess in terms of your third quarter results. Obviously a little disappointment there on the liftings, where you had kind of an incomplete lifting the end of the third quarter.

I know that you guys had changed up the way that you were kind of selling your oil production in the hope of being a little bit more consistent on your liftings, it didn't really happen, I guess you know this quarter here. Additionally just noticing that your oil price spread versus Brent also riding out, this quarter.

Can you guys maybe talk about in a little more detail?.

Yes, I mean unfortunately we picked a terrible environment to try this experiment like sweet crude is the one that, the United States is ramped in North Dakota and Texas and there is no longer any market for African like sweet crude coming into the US.

We are kind of caught up in the same scenario, that a number of other countries are caught up including Nigeria that you have to look hard to find the buyer. We have found new buyer in Australia that it had took two cargos, one in the September and one in early October. They come back for more and they're going to lift again in December.

We have another refinery in Wales that has taken two cargos, all of these are kind of new. Our traditionally market, which would come in to the Gulf Coast and go into Japan have dried up.

So we're just having work to problem and it's a tougher problem probably then anytime since back in '08 and the difference is this time, we are on a slot basis rather than having somebody who is obligated to lift. So..

Alright, so I guess that implied it.

You know, you'll have higher transportation cost, trying to get those barrels to Australia, that while you're pricing was any weaker here, you know it was about?.

Yes, that's one of them and I will say we did sell one cargo in Japan and we took a very, a pretty steep discount on that and then, by the time they got it to Japan of oil prices have run way and they weren't able to resell the cargo. So but that was their problem.

It's that kind of market, you know when you buy a cargo and you ship it to Japan or Australia, it takes six weeks to get there in this kind of market, a lot of things can change. So that makes people skittish in terms of what they're willing to do and so, we're just happen to deal with it..

Question on your G&A.

obviously, it was up a fair bit this quarter around $4 million, I guess you had some higher personnel cost and that sounds like some outside consultancy type cost to me, should that kind of continue to occur, as we go into 4Q, 2016 how should we think about sort of run rate G&A for VAALCO?.

Leo, about 50% of it is non-recurring, the other part actually is a little bit of increased personnel cost as we've ramped up for our two new wells and the couple of other positions.

So in all manner, it will continue, but about 50% of that was non-recurring most of this was some legal cost, some of it was like our, shop registration filing and some other fees and charges..

Alright, thanks guys..

And our next question comes from Bill Dezellem from Tieton Capital Management. Please go ahead..

Thank you, relative to the audit issue that you're dealing with, how is that anticipated to effective onshore the Gabon properties or are they completely unrelated and the government doesn't even interact on those two fronts?.

In terms of the special industry wide audit, the onshore block was totally excluded and I think it's because of minimal activity. The audit was confined to the offshore production block..

Greg, I guess well, I'm not going with this, just wondering though, if as it comes you getting approval and you making the final steps to being activities onshore if you get some sort of roadblocks throwing up as a result of you being tied up in the audit offshore?.

Bill, I don't think that there is an issue there at all and on our onshore block, actually The Ministry of Hydrocarbon they conducted an audit every two years on our operations and they audit for Mutamba rural block as well and we have not had any issues whatsoever with audits of our past amount spent there.

We had drilled a couple of wells in the past and all those costs have been verified by the audit that was performed by The Ministry of Hydrocarbon..

Thank you..

(Operator Instructions) and we have a question from Neil Nelson [ph] with DS [ph] Group. Please go ahead..

Can you give some color on the crude sweetening project as to whether your day consideration to during that on the top side of the FPSO or on the separate floater any cost cutting versus building a complete platform?.

Neil. This is Russ. We looked at other options, we quickly ruled out putting it on the FPSO.

We have found over the years, that anytime you cut anything on that FPSO it runs about three times, what you think it would cost just because of they don't have cranes to move things around, there is just a lot of logistical issues, we're trying to build the facility like this on the FPSO.

The other thing we are doing with this crude sweetening project. We are going to take it to where we can take all the water and gas out of the oil and pump pipeline quality crude if you will over to the FPSO and we're doing this because it will further debottleneck the amount of fluids that we can treat throughout the Etame complex.

So it just made more sense to put it on a platform. You can build those things in the yard, so much cheaper than if you try to stick build them offshore and you get away from the lease cost of having the lease uploading vessel, if we were to try new on a second floating vessel. So make more sense, to do with the platform..

Okay, thank you very much..

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Okay, so with that. We'll close down our third quarter financial review and again, we thank everyone for taking the time to join us on the call, this morning and you'll hear from us again in a few months time..

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