VAALCO ENERGY Announces Third Quarter 2011 Results
HOUSTON – November 7, 2011 – VAALCO Energy, Inc. (NYSE: EGY) today reported third quarter 2011 revenues of $37.4 million compared to $32.6 million for the comparable period in 2010. The increase in revenues reflects higher commodity prices offsetting a decrease in sales volumes due to only two liftings in the quarter as compared to three liftings in the same quarter of 2010. Earnings per diluted share were $0.04 as compared to $0.22 in the comparable period of 2010 due primarily to the shortfall in sales and higher taxes.
Robert Gerry, Chairman and CEO, commented: “In Gabon, high taxes and a one-day delayed lifting negatively affected our bottom line, while in Angola the write-down of monies owed us by a defaulting partner had a similar effect to our net income. Without these events, our earnings per share would have compared favorably to the third quarter of 2010.
“We believe that we will have four liftings, lower taxes and no write-offs in the fourth quarter thereby ending the year on a high note with excellent fourth quarter and year-on-year comparables.
“We continue to experience strong production in Gabon and have commenced adding infrastructure to support a robust drilling program which is expected to commence in the third quarter of 2012.
“We remain confident that ongoing negotiations with Angola will result in a favorable renewal of our concession agreement. Following the renewal, we expect to purchase additional 3-D seismic in the deeper waters on the block in advance of a drilling campaign.
“Domestically, we have a rig on location to drill our second Granite Wash well in Texas and have contracted for a rig to commence drilling at Poplar Dome in Montana in early December. While the Bakken formation remains the main target, we will also evaluate the Three Forks, Nisku and Red River formations.”
Exploration and Development Activities
Gabon:
As previously announced, VAALCO is making modifications to the Avouma and Ebouri platforms to accommodate more wells and developing the specifications for construction of a new platform to be used for additional development wells in the Etame field. A multi-well drilling campaign is expected to begin in the third quarter 2012 from the existing platforms.
Onshore Gabon, seismic reprocessing on the Mutamba Iroru block continues and VAALCO expects to drill an exploration well on the block in mid-2012.
Angola:
In the third quarter, the government of Angola reported that they are continuing to negotiate with a potential replacement partner. Options to amend the two-well commitment are also being discussed by VAALCO with the government of Angola. As the outcome of the discussions with the Angolan government is unknown at this time, VAALCO recorded a provision in the third quarter of 2011 totaling $4.1 million against the accounts receivable from partners for the amounts owed to VAALCO above its 40% working interest. VAALCO is hopeful it will have future opportunity to recover some or the entire $4.1 million amount.
VAALCO applied for a second time extension to the production sharing agreement for Block 5 Angola in June 2011 as suitable rigs would not be available until after the expiration of the first extension period.
VAALCO has been provided assurances by the government of Angola that the extension will be approved.
United States:
During the third quarter of 2011, VAALCO drilled, completed and began production from its exploration well drilled in Hemphill County, Texas in the Granite Wash formation. Production rates are within the range of VAALCO’s expectations and a site has been selected for the second well to be drilled on the lease. A rig has been contracted and is on location.
In September 2011, VAALCO closed the agreement with Magellan Petroleum Corporation (NASDAQ: MPET) to acquire and develop an operating working interest in approximately 22,000 net acres covering the Middle Bakken and deeper formations in the East Poplar unit and the Northwest Poplar field in Roosevelt County, Montana. VAALCO had previously purchased a 70% working interest in 5,214 acres in Sheridan County, Montana. VAALCO has begun the process of planning and contracting for drilling
rigs for these two Montana properties, where it is the operator. Accordingly, a rig has been contracted to drill a single well in the recently acquired East Poplar unit and is expected to begin drilling the well before the end of the year.
2011 Third Quarter Financial Results Discussion
During the third quarter of 2011, VAALCO sold approximately 324,000 net barrels of oil equivalent at an average price of $112.85 per barrel compared to approximately 429,000 net barrels of oil equivalent at an average price of $76.17 per barrel in the third quarter of 2010. The lower sales volume is due to two liftings conducted in the quarter ended September 30, 2011 compared to three liftings conducted in the quarter ended September 30, 2010. Crude oil sales are a function of the number and size of crude oil liftings in each quarter from VAALCO’s floating production, storage and offloading (“FPSO”) facilities.
Crude oil production from the Etame, Avouma, South Tchibala and Ebouri fields averaged approximately 21,500 barrels of oil per day (“BOPD”) in the third quarter of 2011 compared to approximately 20,600 BOPD in the third quarter of 2010. The production increase in the third quarter was due primarily to offshore Gabon development wells drilled in late 2010.
Capital expenditures were $14.7 million for the third quarter and $24.2 million for the first nine months of 2011. Capital expenditures for the first nine months of 2011 were primarily comprised of the acquisition of interests in the Granite Wash formation in Texas and the Middle Bakken formation in Montana totaling $9.4 million, drilling a well in the Granite Wash formation lease in North Texas totaling $10.1 million and expansion modifications on the production platforms offshore Gabon totaling $4.3 million.
During the remainder of 2011, VAALCO anticipates its capital expenditures will be approximately $17.0 million attributable to VAALCO. Of this amount, $6.0 million is for platform modifications and other capital activity offshore Gabon and approximately $11.0 million is for drilling a second Granite Wash formation well in Texas and a well in the East Poplar unit in Montana.
Production expenses were $4.5 million in the third quarter of 2011 compared to $4.8 million in the prior year period. Production expenses for the quarter benefited from the effect of capitalizing expenses associated with the high volume of oil inventory at September 30, 2011, which reduced production expenses by $3.0 million. However, the reduction was largely offset by out-of-period expenses associated with the annual Gabon refinery subsidy payment. The “Domestic Market Obligation” expense of $2.9 million was incurred in the three months ended September 30, 2011, as compared to $0.8 million
in the same period in 2010. Exploration expense was $1.3 million for the third quarter of 2011 compared to $0.7 million for the comparable period in 2010. Exploration expense was higher primarily due to expenses of $0.6 million for exploration activities in North America, $0.4 million for exploration activities offshore Gabon, and $0.2 million for exploration activities in Angola.
Income tax expense for the third quarter of 2011 amounted to $17.1 million compared to $7.4 million for the prior year period. All income taxes for these periods were incurred in Gabon. Income tax expense for the third quarter of 2011 was higher than in the prior year period due to a 12% increase in the oil revenues and a higher percentage of oil allocated as “profit oil” versus “cost oil” in Gabon.
Balance Sheet
On September 30, 2011, VAALCO had unrestricted cash balances of $112.6 million and no debt. VAALCO expects its cash balances plus cash from continuing operations will be sufficient to fund VAALCO’s remaining 2011 and planned 2012 capital expenditure budgets and additional investments in working capital resulting from potential growth.
Conference Call
As previously announced, VAALCO will hold a conference call to discuss its 2011 third quarter results on Tuesday, November 8, 2011, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time). Interested parties may participate by dialing 1 (800) 230-1951. International parties may dial 1 (612) 288-0337. The confirmation code is 221436. This call will also be webcast on VAALCO’s web site at www.vaalco.com.
An audio replay will be available beginning approximately one hour after the end of the conference call through December 8, 2011 on VAALCO’s website and by dialing 1 (800) 475-6701. International parties may dial 1 (320) 365-3844. The confirmation code is 221436.
Summary financial results for the quarter are tabulated below:
Basic and diluted share information:
Forward-Looking Statements
This document includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those concerning VAALCO’s plans, expectations, and objectives for future drilling, completion and other operations and activities. All statements included in this document that address activities, events or developments that VAALCO expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include future production rates,
expected capital expenditures, prospect evaluations, drilling timing, completion and production timetables, negotiations with governments and third parties, reserve growth, and costs to complete wells. 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. These risks include, but are not limited to, inflation, lack of
availability of goods, services and capital, environmental risks, drilling risks, foreign operational risks and regulatory changes. 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. These risks are further described in VAALCO’s annual report on Form 10-K for the year ended December 31, 2010, on Part II, Item 1A of Form 10-Q for the quarter ended March 31, 2011 and other reports filed with the SEC which can be reviewed at http://www.sec.gov, or which can be received by contacting VAALCO at 4600 Post Oak Place, Suite 309, Houston, Texas 77027, (713) 623-0801. 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.
About VAALCO
VAALCO Energy, Inc. is a Houston based independent energy company principally engaged in the acquisition, exploration, development and production of crude oil. VAALCO’s strategy is to increase reserves and production through the exploration and exploitation of oil and natural gas properties with high emphasis on international opportunities. The company’s properties and exploration acreage are located primarily in Gabon and Angola, West Africa and the United States.
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