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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

x

Non-accelerated filer

¨

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

x

¨

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.


2


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.

3


Table of Contents

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.


4


Table of Contents

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.


5


Table of Contents

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.

6


Table of Contents

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES (Unaudited)

Three Months Ended March 31,

2020

2019

(in thousands)

Supplemental disclosure of cash flow information:

Interest expense paid in cash

$

$

Income taxes paid in cash

$