May 11, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Form: 10-Q

Documents

Table of Contents

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 March 31, 2020

¨ 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
Common Stock	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 April 30, 2020, there were outstanding 57,456,139 shares of common stock, $0.10 par value per share, of the registrant.

Table of Contents

VAALCO ENERGY, INC. AND SUBSIDIARIES

Table of Contents



PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets
March 31, 2020 and December 31, 2019	3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2020 and 2019	4
Condensed Consolidated Statements of Shareholders’ Equity
Three Months Ended March 31, 2020 and 2019	5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2020 and 2019	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	35
PART II. OTHER INFORMATION	36
ITEM 1. LEGAL PROCEEDINGS	36
ITEM 1A. RISK FACTORS	36
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)



	March 31, 2020		December 31, 2019
ASSETS	(in thousands)
Current assets:
Cash and cash equivalents	$	60,973	$	45,917
Restricted cash		994		911
Receivables:
Trade		—		14,335
Accounts with joint venture owners, net of allowance of $0.0 million and $0.5 million, respectively		117		2,714
Other		2,241		1,517
Crude oil inventory		3,865		1,072
Prepayments and other		10,859		3,292
Total current assets		79,049		69,758
Crude oil and natural gas properties and equipment - successful efforts method:
Wells, platforms and other production facilities		442,866		422,651
Work-in-progress		—		7,378
Undeveloped acreage		21,476		23,771
Equipment and other		9,367		11,157
		473,709		464,957
Accumulated depreciation, depletion, amortization and impairment		(430,209)		(396,699)
Net crude oil and natural gas properties, equipment and other		43,500		68,258
Other noncurrent assets:
Restricted cash		925		925
Value added tax and other receivables, net of allowance of $1.7 million and $1.0 million, respectively		3,543		3,683
Right of use operating lease assets		30,448		33,383
Deferred tax assets		—		24,159
Abandonment funding		11,227		11,371
Total assets	$	168,692	$	211,537
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	14,804	$	15,897
Accounts with joint venture owners		11,271		—
Accrued liabilities and other		22,990		29,773
Operating lease liabilities - current portion		12,050		11,990
Foreign taxes payable		4,177		5,740
Current liabilities - discontinued operations		395		350
Total current liabilities		65,687		63,750
Asset retirement obligations		16,421		15,844
Operating lease liabilities - net of current portion		18,379		21,371
Deferred tax liabilities		11,758		—
Other long term liabilities		34		852
Total liabilities		112,279		101,817
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, 67,799,100 and 67,673,787 shares issued, 57,632,974 and 58,024,571 shares outstanding, respectively		6,780		6,767
Additional paid-in capital		73,681		73,549
Less treasury stock, 10,166,126 and 9,649,216 shares, respectively, at cost		(42,081)		(41,429)
Retained earnings		18,033		70,833
Total shareholders' equity		56,413		109,720
Total liabilities and shareholders' equity	$	168,692	$	211,537

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



	Three Months Ended March 31,
	2020		2019
	(in thousands, except per share amounts)
Revenues:
Crude oil and natural gas sales	$	18,389	$	19,765
Operating costs and expenses:
Production expense		9,749		8,219
Depreciation, depletion and amortization		3,103		1,553
Impairment of proved crude oil and natural gas properties		30,625		—
General and administrative expense		754		4,439
Bad debt (recovery) expense and other		810		(29)
Total operating costs and expenses		45,041		14,182
Other operating expense, net		(31)		(37)
Operating income (loss)		(26,683)		5,546
Other income (expense):
Derivative instruments gain (loss), net		7,339		(1,912)
Interest income, net		116		187
Other, net		(31)		(238)
Total other income (expense), net		7,424		(1,963)
Income (loss) from continuing operations before income taxes		(19,259)		3,583
Income tax expense		33,478		2,753
Income (loss) from continuing operations		(52,737)		830
Income (loss) from discontinued operations, net of tax		(63)		5,671
Net income (loss)	$	(52,800)	$	6,501

Basic net income (loss) per share:
Income (loss) from continuing operations	$	(0.91)	$	0.01
Income (loss) from discontinued operations, net of tax		0.00		0.09
Net income (loss) per share	$	(0.91)	$	0.10
Basic weighted average shares outstanding		57,975		59,630
Diluted net income (loss) per share:
Income (loss) from continuing operations	$	(0.91)	$	0.01
Income (loss) from discontinued operations, net of tax		0.00		0.09
Net income (loss) per share	$	(0.91)	$	0.10
Diluted weighted average shares outstanding		57,975		60,683

See notes to condensed consolidated financial statements.

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VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)


	Common Shares Issued	Treasury Shares	Common Stock		Additional Paid-In Capital		Treasury Stock		Retained Earnings (Deficit)		Total
	(in thousands)
Balance at January 1, 2020	67,674	(9,649)	$	6,767	$	73,549	$	(41,429)	$	70,833	$	109,720
Shares issued - stock-based compensation	125	—		13		(13)		—		—		—
Stock-based compensation expense	—	—		—		145		—		—		145
Treasury stock	—	(517)		—		—		(652)		—		(652)
Net loss	—	—		—		—		—		(52,800)		(52,800)
Balance at March 31, 2020	67,799	(10,166)	$	6,780	$	73,681	$	(42,081)	$	18,033	$	56,413


	Common Shares Issued	Treasury Shares	Common Stock		Additional Paid-In Capital		Treasury Stock		Retained Earnings (Deficit)		Total
	(in thousands)
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	—	(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

See notes to condensed consolidated financial statements.

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VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended March 31,
	2020		2019
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(52,800)	$	6,501
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
(Income) loss from discontinued operations		63		(5,671)
Depreciation, depletion and amortization		3,103		1,553
Impairment of proved crude oil and natural gas properties		30,625		—
Other amortization		60		60
Deferred taxes		35,638		1,742
Unrealized foreign exchange gain		(22)		(12)
Stock-based compensation		(2,569)		1,723
Derivatives instruments (gain) loss		(7,339)		1,912
Cash settlements received on matured derivative contracts, net		718		1,131
Bad debt (recovery) expense and other		810		(29)
Other operating loss, net		31		37
Operational expenses associated with equipment and other		578		(109)
Change in operating assets and liabilities:
Trade receivables		14,335		2,871
Accounts with joint venture owners		13,812		4,986
Other receivables		(755)		311
Crude oil inventory		(2,793)		(489)
Prepayments and other		(993)		(202)
Value added tax and other receivables		(370)		738
Accounts payable		(1,130)		(3,923)
Foreign taxes payable		(1,284)		1,037
Accrued liabilities and other		(2,073)		(581)
Net cash provided by continuing operating activities		27,645		13,586
Net cash used in discontinued operating activities		(18)		(101)
Net cash provided by operating activities		27,627		13,485
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures		(11,980)		(788)
Net cash used in continuing investing activities		(11,980)		(788)
Net cash used in discontinued investing activities		—		—
Net cash used in investing activities		(11,980)		(788)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuances of common stock		—		47
Treasury shares		(652)		(105)
Net cash used in continuing financing activities		(652)		(58)
Net cash used in discontinued financing activities		—		—
Net cash used in financing activities		(652)		(58)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		14,995		12,639
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		59,124		46,655
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	74,119	$	59,294

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES (Unaudited)

Three Months Ended March 31,