November 7, 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 September 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

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VAALCO Energy, Inc.

(Exact name of registrant as specified in its charter)

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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
	EGY	London 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 October 31, 2019, there were outstanding 58,387,504 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
September 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2019 and 2018	4
Condensed Consolidated Statements of Shareholders’ Equity
Three and Nine Months Ended September 30, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 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	29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	36
ITEM 4. CONTROLS AND PROCEDURES	37
PART II. OTHER INFORMATION	38
ITEM 1. LEGAL PROCEEDINGS	38
ITEM 1A. RISK FACTORS	38
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES	38
ITEM 6. EXHIBITS	39

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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Table of Contents

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)


	September 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	57,227	$	33,360
Restricted cash		769		804
Receivables:
Trade		7,503		11,907
Accounts with joint venture owners, net of allowance of $0.5 million for both periods presented		113		949
Other		1,160		1,398
Crude oil inventory		775		785
Prepayments and other		6,996		6,301
Current assets - discontinued operations		—		3,290
Total current assets		74,543		58,794
Oil and natural gas properties and equipment - successful efforts method:
Wells, platforms and other production facilities		409,995		409,487
Work-in-progress		5,303		519
Undeveloped acreage		23,771		23,771
Equipment and other		12,523		9,552
		451,592		443,329
Accumulated depreciation, depletion, amortization and impairment		(394,975)		(390,605)
Net oil and natural gas properties, equipment and other		56,617		52,724
Other noncurrent assets:
Restricted cash		924		920
Value added tax and other receivables, net of allowance of $1.3 million and $2.0 million, respectively		3,035		2,226
Right of use operating lease assets		36,852		—
Deferred tax assets		25,903		40,077
Abandonment funding		11,112		11,571
Total assets	$	208,986	$	166,312
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,658	$	8,083
Accounts with joint venture owners		11,828		304
Accrued liabilities and other		23,886		14,138
Operating lease liabilities - current portion		12,432		—
Foreign taxes payable		3,211		3,274
Current liabilities - discontinued operations		326		15,245
Total current liabilities		58,341		41,044
Asset retirement obligations		15,709		14,816
Operating lease liabilities - net of current portion		24,397		—
Other long term liabilities		652		625
Total liabilities		99,099		56,485
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred stock, $25 par value; 500,000 shares authorized, none issued		—		—
Common stock, $0.10 par value; 100,000,000 shares authorized, 67,478,897 and 67,167,994 shares issued, 58,593,068 and 59,595,742 shares outstanding, respectively		6,748		6,717
Additional paid-in capital		73,263		72,358
Less treasury stock, 8,885,829 and 7,572,251 shares, respectively, at cost		(39,943)		(37,827)
Retained earnings		69,819		68,579
Total shareholders' equity		109,887		109,827
Total liabilities and shareholders' equity	$	208,986	$	166,312

See notes to condensed consolidated financial statements.
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Table of Contents

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share amounts)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenues:
Oil and natural gas sales	$	17,603	$	25,266	$	62,598	$	77,337
Operating costs and expenses:
Production expense		9,836		7,481		27,874		31,258
Exploration expense		—		—		—		12
Depreciation, depletion and amortization		1,509		1,130		4,971		3,289
Gain on revision of asset retirement obligations		—		(3,325)		—		(3,325)
General and administrative expense		4,738		2,811		11,905		10,422
Bad debt (recovery) expense		54		(157)		30		(68)
Total operating costs and expenses		16,137		7,940		44,780		41,588
Other operating income (expense), net		35		(6)		(4,401)		332
Operating income		1,501		17,320		13,417		36,081
Other income (expense):
Derivative instruments gain (loss), net		2,267		(1,026)		2,266		(2,036)
Interest income (expense), net		193		111		581		(273)
Other, net		(138)		(3)		(521)		(148)
Total other income (expense), net		2,322		(918)		2,326		(2,457)
Income from continuing operations before income taxes		3,823		16,402		15,743		33,624
Income tax expense (benefit)		7,681		(62,224)		19,642		(54,600)
Income (loss) from continuing operations		(3,858)		78,626		(3,899)		88,224
Income (loss) from discontinued operations, net of tax		(61)		(21)		5,448		(416)
Net income (loss)	$	(3,919)	$	78,605	$	1,549	$	87,808

Basic net income (loss) per share:
Income (loss) from continuing operations	$	(0.07)	$	1.31	$	(0.07)	$	1.48
Income (loss) from discontinued operations, net of tax		0.00		0.00		0.09		(0.01)
Net income (loss) per share	$	(0.07)	$	1.31	$	0.02	$	1.47
Basic weighted average shares outstanding		58,953		59,481		59,457		59,147
Diluted net income (loss) per share:
Income (loss) from continuing operations	$	(0.07)	$	1.28	$	(0.07)	$	1.46
Income (loss) from discontinued operations, net of tax		0.00		0.00		0.09		(0.01)
Net income (loss) per share	$	(0.07)	$	1.28	$	0.02	$	1.45
Diluted weighted average shares outstanding		58,953		60,818		59,457		59,846

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
Shares issued - stock-based compensation	27	—		3		23		—		—		26
Stock-based compensation expense	—	—		—		181		—		—		181
Treasury stock acquired	—	(1,190)		—		—		(2,073)		—		(2,073)
Net loss	—	—		—		—		—		(3,919)		(3,919)
Balance at September 30, 2019	67,479	(8,886)	$	6,748	$	73,263	$	(39,943)	$	69,819	$	109,887


	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

Form: 10-Q

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