August 8, 2019 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

________________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 1-32167

________________________________

VAALCO Energy, Inc.

(Exact name of registrant as specified in its charter)

________________________________


Delaware		76-0274813
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

9800 Richmond Avenue Suite 700 Houston, Texas		77042
(Address of principal executive offices)		(Zip code)

(713) 623-0801

(Registrant’s telephone number, including area code)

________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock	EGY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

As of July 31, 2019, there were outstanding 59,200,796 shares of common stock, $0.10 par value per share, of the registrant.

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VAALCO ENERGY, INC. AND SUBSIDIARIES

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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets
June 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2019 and 2018	4
Condensed Consolidated Statements of Shareholders’ Equity
Three and Six Months Ended June 30, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2019 and 2018	6
Notes to Condensed Consolidated Financial Statements	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
ITEM 4. CONTROLS AND PROCEDURES	36
PART II. OTHER INFORMATION	36
ITEM 1. LEGAL PROCEEDINGS	36
ITEM 1A. RISK FACTORS	36
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES	37
ITEM 6. EXHIBITS	38

Unless the context otherwise indicates, references to “VAALCO,” “the Company”, “we,” “our,” or “us” in this Form 10-Q are references to VAALCO Energy, Inc., including its wholly-owned subsidiaries.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except share and per share amounts)


	June 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	48,557	$	33,360
Restricted cash		799		804
Receivables:
Trade		13,828		11,907
Accounts with joint venture owners, net of allowance of $0.5 million for both periods presented		130		949
Other		1,239		1,398
Crude oil inventory		553		785
Prepayments and other		4,808		6,301
Current assets - discontinued operations		—		3,290
Total current assets		69,914		58,794
Oil and natural gas properties and equipment - successful efforts method:
Wells, platforms and other production facilities		409,862		409,487
Work-in-progress		1,002		519
Undeveloped acreage		23,771		23,771
Equipment and other		10,903		9,552
		445,538		443,329
Accumulated depreciation, depletion, amortization and impairment		(393,669)		(390,605)
Net oil and natural gas properties, equipment and other		51,869		52,724
Other noncurrent assets:
Restricted cash		922		920
Value added tax and other receivables, net of allowance of $1.3 million and $2.0 million, respectively		2,742		2,226
Right of use operating lease assets		34,124		—
Deferred tax assets		30,946		40,077
Abandonment funding		11,550		11,571
Total assets	$	202,067	$	166,312
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,016	$	8,083
Accounts with joint venture owners		3,781		304
Accrued liabilities and other		19,539		14,138
Operating lease liabilities - current portion		10,500		—
Foreign taxes payable		453		3,274
Current liabilities - discontinued operations		4,847		15,245
Total current liabilities		47,136		41,044
Asset retirement obligations		15,214		14,816
Operating lease liabilities - net of current portion		23,624		—
Other long term liabilities		421		625
Total liabilities		86,395		56,485
Commitments and contingencies (Note 10)
Shareholders’ equity:
Preferred stock, $25 par value; 500,000 shares authorized, none issued		—		—
Common stock, $0.10 par value; 100,000,000 shares authorized, 67,452,385 and 67,167,994 shares issued, 59,756,235 and 59,595,742 shares outstanding, respectively		6,745		6,717
Additional paid-in capital		73,059		72,358
Less treasury stock, 7,696,150 and 7,572,251 shares, respectively, at cost		(37,870)		(37,827)
Retained earnings		73,738		68,579
Total shareholders' equity		115,672		109,827
Total liabilities and shareholders' equity	$	202,067	$	166,312

See notes to condensed consolidated financial statements.
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VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenues:
Oil and natural gas sales	$	25,230	$	24,426	$	44,995	$	52,071
Operating costs and expenses:
Production expense		9,819		12,817		18,038		23,777
Exploration expense		—		12		—		12
Depreciation, depletion and amortization		1,909		1,035		3,462		2,159
General and administrative expense		2,728		5,008		7,167		7,611
Bad debt (recovery) expense		5		145		(24)		89
Total operating costs and expenses		14,461		19,017		28,643		33,648
Other operating income (expense), net		(4,399)		314		(4,436)		338
Operating income		6,370		5,723		11,916		18,761
Other income (expense):
Derivative instruments gain (loss), net		1,911		(1,010)		(1)		(1,010)
Interest income (expense), net		201		(30)		388		(384)
Other, net		(145)		(214)		(383)		(145)
Total other income (expense), net		1,967		(1,254)		4		(1,539)
Income from continuing operations before income taxes		8,337		4,469		11,920		17,222
Income tax expense		9,208		3,582		11,961		7,624
Income (loss) from continuing operations		(871)		887		(41)		9,598
Income (loss) from discontinued operations, net of tax		(162)		(343)		5,509		(395)
Net income (loss)	$	(1,033)	$	544	$	5,468	$	9,203

Basic net income (loss) per share:
Income (loss) from continuing operations	$	(0.01)	$	0.02	$	0.00	$	0.16
Income (loss) from discontinued operations, net of tax		0.00		(0.01)		0.09		(0.01)
Net income (loss) per share	$	(0.01)	$	0.01	$	0.09	$	0.15
Basic weighted average shares outstanding		59,801		59,090		59,716		58,977
Diluted net income (loss) per share:
Income (loss) from continuing operations	$	(0.01)	$	0.02	$	0.00	$	0.16
Income (loss) from discontinued operations, net of tax		0.00		(0.01)		0.09		(0.01)
Net income (loss) per share	$	(0.01)	$	0.01	$	0.09	$	0.15
Diluted weighted average shares outstanding		59,801		59,851		59,716		59,358

See notes to condensed consolidated financial statements.
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VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands)


	Common Shares Issued	Treasury Shares	Common Stock		Additional Paid-In Capital		Treasury Stock		Retained Earnings		Total
Balance at January 1, 2019	67,168	(7,572)	$	6,717	$	72,358	$	(37,827)	$	68,579	$	109,827
Shares issued - stock-based compensation	160	—		16		31		—		—		47
Stock-based compensation expense	—	—		—		28		—		—		28
Treasury stock acquired	—	(45)		—		—		(105)		—		(105)
Net income	—	—		—		—		—		6,501		6,501
Balance at March 31, 2019	67,328	(7,617)		6,733		72,417		(37,932)		75,080		116,298
Shares issued - stock-based compensation	124	—		12		48		—		—		60
Stock-based compensation expense	—	—		—		594		—		—		594
Treasury stock acquired	—	(79)		—		—		62		(309)		(247)
Net loss	—	—		—		—		—		(1,033)		(1,033)
Balance at June 30, 2019	67,452	(7,696)	$	6,745	$	73,059	$	(37,870)	$	73,738	$	115,672


	Common Shares Issued	Treasury Shares	Common Stock		Additional Paid-In Capital		Treasury Stock		Retained Earnings (Deficit)		Total
Balance at January 1, 2018	66,444	(7,581)	$	6,644	$	71,251	$	(37,953)	$	(29,653)	$	10,289
Stock-based compensation expense	—	—		—		149		—		—		149
Net income	—	—		—		—		—		8,659		8,659
Balance at March 31, 2018	66,444	(7,581)	$	6,644	$	71,400	$	(37,953)	$	(20,994)	$	19,097
Shares issued - stock-based compensation	522	36		52		216		177		—		445
Stock-based compensation expense	—	—		—		397		—		—		397
Net income	—	—		—		—		—		544		544
Balance at June 30, 2018	66,966	(7,545)	$	6,696	$	72,013	$	(37,776)	$	(20,450)	$	20,483

See notes to condensed consolidated financial statements.

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VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Six Months Ended June 30,
	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,468	$	9,203
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations		(5,509)		395
Depreciation, depletion and amortization		3,462		2,159
Other amortization		121		191
Deferred taxes		7,667		—
Unrealized foreign exchange loss		21		79
Stock-based compensation		1,620		2,756
Cash settlements paid on exercised stock appreciation rights		(261)		(82)
Derivatives instruments loss		1		1,010
Cash settlements received (paid) on matured derivative contracts, net		1,563		(11)
Bad debt (recovery) expense		(24)		89
Other operating (income) loss, net		37		(338)
Operational expenses associated with equipment and other		(60)		1,739
Change in operating assets and liabilities:
Trade receivables		(1,921)		(6,051)
Accounts with joint venture owners		4,291		13,203
Other receivables		158		(23)
Crude oil inventory		232		1,965
Prepayments and other		(1,175)		(764)
Value added tax and other receivables		718		(249)
Accounts payable		(730)		(535)
Foreign taxes payable		(2,865)		5,431
Accrued liabilities and other		3,858		1,381
Net cash provided by continuing operating activities		16,672		31,548
Net cash used in discontinued operating activities		(91)		(892)
Net cash provided by operating activities		16,581		30,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures		(1,163)		(976)
Net cash used in continuing investing activities		(1,163)		(976)
Net cash used in discontinued investing activities		—		—
Net cash used in investing activities		(1,163)		(976)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuances of common stock		107		445
Treasury shares		(352)		—
Debt repayment		—		(9,166)
Net cash used in continuing financing activities		(245)		(8,721)
Net cash used in discontinued financing activities		—		—
Net cash used in financing activities		(245)		(8,721)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		15,173		20,959
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		46,655		32,286
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	61,828	$	53,245

See notes to condensed consolidated financial statements.
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VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Six Months Ended June 30,
	2019		2018
Supplemental disclosure of cash flow information:
Interest paid	$	—	$	257
Income taxes paid	$	—	$	2,720
Income taxes paid in-kind with crude oil	$	7,347	$	—
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment additions incurred but not paid at end of period	$

Form: 10-Q

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