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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER 0-20928
_______________________
VAALCO Energy, Inc.
(Exact name of small business issuer as specified in its charter)
DELAWARE 76-0274813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 POST OAK PLACE
SUITE 309
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713) 623-0801
Check whether the issuer (1) 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 [_]
As of May 11, 2000 there were outstanding 20,744,569 shares of Common
Stock, $.10 par value per share, of the registrant.
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VAALCO ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
March 31, 2000 and December 31, 1999................................. 3
Statements of Consolidated Operations (Unaudited)
Three months ended March 31, 2000 and 1999........................... 4
Statements of Consolidated Cash Flows (Unaudited)
Three months ended March 31, 2000 and 1999........................... 5
Notes to Consolidated Financial Statements.............................. 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................. 9
PART II. OTHER INFORMATION............................................. 12
2
VAALCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars, except par value amounts)
March 31, December 31,
2000 1999
--------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,681 $ 2,925
Funds in escrow 31 108
Receivables:
Trade 502 411
Other 145 131
Materials and supplies, net of allowance for inventory obsolescence of $9 333 332
Prepaid expenses and other 90 24
-------- --------
Total current assets 3,782 3,931
-------- --------
PROPERTY AND EQUIPMENT-SUCCESSFUL EFFORTS METHOD
Wells, platforms and other production facilities 1,341 1,331
Undeveloped acreage 541 703
Work in progress 1,901 2,331
Equipment and other 65 64
-------- --------
3,848 4,429
Accumulated depreciation, depletion and amortization (844) (840)
-------- --------
Net property and equipment 3,004 3,589
-------- --------
OTHER ASSETS:
Funds in escrow 8,326 9,966
Investment in unconsolidated entities 3,492 4,197
Deferred tax asset 370 370
Other long-term assets 71 35
-------- --------
TOTAL $ 19,045 $ 22,088
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 569 $ 609
Accounts with partners 389 403
-------- --------
Total current liabilities 958 1,012
-------- --------
MINORITY INTEREST 12 12
FUTURE ABANDONMENT COSTS 3,297 3,297
-------- --------
Total liabilities 4,267 4,321
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $25 par value, 500,000 shares authorized;
10,000 shares issued and outstanding in 2000 and 1999 250 250
Common stock, $.10 par value, 100,000,000 authorized shares
20,749,964 shares issued of which 5,395 are in the treasury in 2000 and 1999 2,075 2,075
Additional paid-in capital 41,215 41,215
Accumulated deficit (28,750) (25,761)
Less treasury stock, at cost (12) (12)
-------- --------
Total stockholders' equity 14,778 17,767
-------- --------
TOTAL $ 19,045 $ 22,088
======== ========
See notes to consolidated financial statements.
3
VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Unaudited)
(in thousands of dollars, except per share amounts)
Three months Ended March 31,
----------------------------
2000 1999
------- -------
REVENUES:
Oil and gas sales $ 289 $ 126
------- -------
289 126
------- -------
OPERATING COSTS AND EXPENSES:
Production expenses 74 59
Depreciation, depletion and amortization 4 2
Exploration costs 554 --
General and administrative expenses 408 490
------- -------
Total operating costs and expenses 1,040 551
------- -------
OPERATING LOSS (751) (425)
OTHER INCOME (EXPENSE):
Interest income 155 259
Equity loss in unconsolidated entities (2,393) (511)
Other, net -- 25
------- -------
Total other income (expense) (2,238) (227)
------- -------
LOSS ATTRIBUTABLE
TO COMMON SHAREHOLDERS $(2,989) $ (652)
======= =======
LOSS PER COMMON SHARE:
BASIC AND DILUTED $ (0.14) $ (0.03)
======= =======
WEIGHTED AVERAGE COMMON SHARES:
BASIC 20,745 20,755
======= =======
DILUTED 20,834 20,930
======= =======
See notes to consolidated financial statements.
4
VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(in thousands of dollars)
Three months
Ended March 31,
---------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,989) $ (652)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 4 2
Equity loss in unconsolidated entities 2,393 511
Exploration expense 554 --
Change in assets and liabilities that provided (used) cash:
Funds in escrow 1,717 5,119
Trade receivables (91) 44
Accounts with partners (14) (4,812)
Other receivables (14) (1)
Materials and supplies (1) (20)
Prepaid expenses and other (66) (12)
Accounts payable and accrued liabilities (40) (123)
------- -------
Net cash provided by operating activities 1,453 56
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposals of property and equipment 27 (960)
Investment in unconsolidated entities (1,688) (519)
Other (36) (249)
------- --------
Net cash used in investing activities (1,697) (1,728)
------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (244) (1,672)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,925 6,671
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,681 $ 4,999
======= ========
See notes to consolidated financial statements.
5
VAALCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,2000
(Unaudited)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of VAALCO Energy, Inc. and
Subsidiaries (collectively, "VAALCO" or the "Company"), included herein are
unaudited, but include all adjustments consisting of normal recurring
accruals which the Company deems necessary for a fair presentation of its
financial position, results of operations and cash flows for the interim
period. Such results are not necessarily indicative of results to be
expected for the full year. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1999.
VAALCO Energy, Inc., a Delaware corporation, is a Houston-based independent
energy company principally engaged in the acquisition, exploration,
development and production of crude oil and natural gas. VAALCO owns
producing properties and conducts exploration activities as operator of
consortium internationally in the Philippines and Gabon. Through
participation in a partnership with Hunt Oil Company, VAALCO has additional
international exploration interests. Domestically, the Company has
interests in the Texas Gulf Coast area.
VAALCO's Philippine subsidiaries include Alcorn (Philippines) Inc., Alcorn
(Production) Philippines Inc. and Altisima Energy, Inc. VAALCO's Gabon
subsidiaries are VAALCO Gabon (Etame), Inc., VAALCO Production (Gabon),
Inc. and VAALCO Energy (Gabon), Inc. VAALCO Energy (USA), Inc. holds
interests in certain properties in the United States.
2. RECENT DEVELOPMENTS
The Company is the operator of a 3,073 square kilometer concession known as
the Etame Block offshore Gabon, West Africa, with a working interest
ownership of 17.9%. The Company made a Gamba sandstone discovery on the
concession in 1998, which tested approximately 3,700 barrels of oil per day
on a 32/64's inch choke. In January 1999, the Company completed the
drilling of the Etame 2V delineation well on its concession offshore Gabon.
The well logged oil pay in the Gamba Sandstone, however, the reservoir was
encountered at a lower depth than expected. During the second quarter of
1999, a seismic reprocessing effort was commenced to better delineate the
Gamba reservoir, which lies below a layer of salt. In February 2000, the
Company completed the seismic reprocessing activities and has recommended
to the consortium a third drilling location. At least one delineation well
is planned for the year 2000.
The Company holds a 7.5% limited partnership interest in Hunt Overseas
Exploration Company, L.P. ("Hunt"). Hunt holds concessions in Peru,
Argentina, Ethiopia, Niger, Ghana and Nova Scotia on which exploration
activities have been conducted since formation of the partnership in 1995.
The Company's obligations under the partnership were to contribute up to
$22.5 million for its share of the exploration phase of the partnership,
$22.3 million of which had been funded as of March 31, 2000. In addition,
if
6
VAALCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,2000
(Unaudited)
Hunt discovers oil, the Company may be required to contribute an additional
$7.5 million to fund the appraisal of the discovery.
In November 1999, Hunt mobilized a semi-submersible drilling rig to Ghana
to drill an exploration well offshore Ghana. The well targeted a large
turbidite structure at a location in 3,000 feet of water depth. The well
was plugged and abandoned after encountering non-commercial oil shows in
February 2000.
Hunt also mobilized a land rig in November 1999 to Niger from Algeria, to
drill three exploration wells on prospects on the partnership's concession
in Niger. The wells tested three separate structures, which were defined
through a seismic campaign undertaken in 1996. All three exploration wells
were abandoned with no significant hydrocarbon shows.
VAALCO's share of the costs of the well offshore Ghana and the three wells
in Niger was approximately $4.0 million, all of which was funded as of
March 31, 1999. In February 2000, a payment was made to the partnership of
approximately $1.7 million.
The recent drilling campaign in Niger and Ghana essentially completes the
expenditure of funds available for the exploration phase of the
partnership. The partnership may seek carried interests on the concessions
from farm-in partners prior to the expiration of the concessions. However,
Hunt has indicated that companies that do not wish to participate further
in the partnership may elect to reassign their interests in the partnership
to Hunt Oil and be released from further obligations to the partnership.
The Company is currently studying its options under such an arrangement and
expects to make a decision during the second quarter of 2000.
Because the exploration phase of the partnership is essentially completed,
the Company has taken a charge of $2.3 million against its share of the
partnership assets in the first quarter, fully depleting exploration assets
carried for the partnership. The remaining value attributed to the Hunt
investment consists of VAALCO's 7.5% interest in cash held by the
partnership, net of current assets and liabilities. To secure its remaining
obligations to the partnership, pending any future release from these
obligations, the Company maintains an escrow account. As of March 31, 2000,
$8.3 million remained in the escrow account. If Hunt does not call all of
the escrowed funds as provided in the partnership agreement of Hunt, or if
the Company chooses to leave the partnership with the consent of Hunt Oil,
the cash collateral will be released to the Company.
3. EARNINGS PER SHARE
The weighted average common shares outstanding represent those of
historical VAALCO for the applicable periods.
The Company accounts for earnings per share in accordance with the
Statement of Financial Accounting Standard No. 128 - "Earnings per Share."
("SFAS No. 128") which establishes the requirements for presenting earnings
per share ("EPS"). SFAS No.
7
VAALCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,2000
(Unaudited)
128 requires the presentation of "basic" and "diluted" EPS on the face of
the income statement. Basic earnings per common share amounts are
calculated using the average number of common shares outstanding during
each period. Diluted earnings per share assumes the conversion of preferred
stock to common stock and the exercise of all stock options having exercise
prices less than the average market price of the common stock using the
treasury stock method.
8
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS REPORT 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 ("EXCHANGE ACT"). ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS REPORT (AND THE EXHIBITS HERETO),
INCLUDING WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S FINANCIAL
POSITION AND ESTIMATED QUANTITIES AND NET PRESENT VALUES OF RESERVES, ARE
FORWARD LOOKING STATEMENTS. THE COMPANY CAN GIVE NO ASSURANCES THAT THE
ASSUMPTIONS UPON WHICH SUCH STATEMENTS ARE BASED WILL PROVE TO HAVE BEEN
CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THE
SECTION "RISK FACTORS" INCLUDED IN THE COMPANY'S FORMS 10-KSB AND OTHER PERIODIC
REPORTS FILED UNDER THE EXCHANGE ACT, WHICH ARE HEREIN INCORPORATED BY
REFERENCE. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED BY THE CAUTIONARY STATEMENTS.
INTRODUCTION
The Company's results of operations are dependent upon the difference between
prices received for its oil and gas production and the costs to find and produce
such oil and gas. Oil and gas prices have been and are expected in the future
to be volatile and subject to fluctuations based on a number of factors beyond
the control of the Company. The Company's production in the Philippines
(representing substantially all of the Company's oil production since 1994) is
from mature offshore fields with high production costs. Since 1996, the Company
has produced into barges, which transport the oil to market. Due to weather and
other factors, the Company's production is generally highest during the first
and fourth quarters of the year. The Company's margin on sales from these
fields (the price received for oil less the production costs for the oil) is
lower than the margin on oil production from many other areas. As a result, the
profitability of the Company's production in the Philippines is affected more by
changes in oil prices than production located in other areas.
The Company uses the successful efforts method to account for its investment in
oil and gas properties whereby costs of productive wells, developmental dry
holes and productive leases are capitalized and amortized using the units-of-
production method based on estimated net proved reserves. The costs of
development wells are capitalized but charged to expense if and when the well is
determined to be unsuccessful. Geological and geophysical costs and the costs
of carrying and retaining undeveloped properties are expensed as incurred.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of capital resources is derived predominantly from
the private placement of Common Stock, Preferred Stock and debt financing to
fund its exploration operations.
The Company produces oil from the Matinloc and Nido fields in the South China
Sea, located in the Philippines. During the year ended December 31, 1999, total
production from the fields was
9
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
approximately 313,000 gross barrels of oil. Production in three months ending
March 31, 2000 was approximately 79,000 gross barrels of oil. Substantially all
of the Company's crude oil and natural gas is sold at the well head at posted or
index prices under short-term contracts, as is customary in the industry. The
Company markets its share of crude oil under an agreement with Seaoil, a local
Philippines refiner. While the loss of this buyer might have a material effect
on the Company in the near term, management believes that the Company would be
able to obtain other customers for its crude oil.
The Company has recommended the drilling of an additional delineation well on
the Etame Block offshore Gabon during 2000. The Company's share of the cost of
the well is estimated to be $1.1 million.
The Company has a 7.5% interest in Hunt, which has entered into production
sharing contracts and other arrangements that entitle it to explore for oil and
gas, both onshore and offshore, on approximately 34 million acres in various
countries, including Argentina, Canada, Ethiopia, Ghana, Niger and Peru. The
Company's obligations under the partnership were to contribute up to $22.5
million for its share of the exploration phase of the partnership, $22.3 million
of which had been funded as of March 31, 2000. In addition, if Hunt discovers
oil, the Company may be required to contribute an additional $7.5 million to
fund the appraisal of the discovery.
Because the funds designated for the exploration phase have been essentially
depleted without a commercial discovery, Hunt has indicated that Companies that
do not wish to participate further in the partnership may elect to reassign
their interests in the partnership to Hunt Oil and be released from further
obligations to the partnership. The Company is currently studying its options
under such an arrangement and expects to make a decision during the second
quarter of 2000. If Hunt does not call the escrowed funds as provided in the
partnership agreement of Hunt, or if the Company chooses to leave the
partnership with the consent of Hunt Oil, the cash collateral will be released
to the Company.
The Company participates in a joint venture with Paramount Petroleum, Inc. to
conduct exploration activities primarily in the onshore Gulf Coast area,
including Alabama, Mississippi and Louisiana, wherein the Company receives one
half of all interests earned by the joint venture. The Company invested $3.0
million in the Paramount joint venture, $1.4 million of which has been impaired
to date. There can be no assurance that the Company will realize a return on
this investment or that the Company's investment in the Paramount joint venture
will be successful.
The Company continues to seek financing to fund new and existing projects and to
acquire additional assets. The Company will rely on the issuance of equity and
debt securities, assets sales and cash flow from operations to provide the
required capital for funding future operations. While there can be no assurance
the Company will be successful in raising new financing, management believes the
prospects the Company has in hand will enable it to attract sufficient capital
to fund required oil and gas activities.
During 2000, the Company anticipates that it will make capital expenditures on
oil and gas properties of approximately $3.5 million, including Hunt partnership
expenditures.
10
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Approximately $1.7 million of the projected capital expenditure amount had been
spent as of March 31, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues
Total revenues were $289 thousand for the three months ended March 31, 2000
compared to $126 thousand for the comparable period in 1999. Higher crude
prices in 2000 accounted for the increase in revenues.
Operating Costs and Expenses
Total production expenses for the three months ended March 31, 2000 were $74
thousand compared to $59 thousand in 1999. 2000 expenditures included generator
repairs at Matinloc. Exploration expense was $554 thousand for the three months
ended March 31, 2000, compared to $0 in 1999. Exploration expense included $392
thousand for dry hole expense associated with a well drilled in Demmit County,
Texas and $162 thousands for costs associated with lease expirations in Brazos
County, Texas. General and administrative expenses for the three months ended
2000 and 1999 were $408 thousand and $490 thousands, respectively a reduction of
$82 thousand for the quarter.
Other Income (Expense)
Interest income of $155 thousand was received from amounts on deposit in 2000
compared to $259 thousand in the quarter ended March 31, 1999. Smaller balances
on deposit in 2000 compared to 1999 caused the difference. The equity loss in
unconsolidated entities in the quarter ended March 31, 2000 of $2,393 thousand
consisted of partnership expenses of $2,257 thousand associated with the Hunt
partnership. The expenses consisting primarily of exploration expense for dry
holes in Ghana and Niger, expenses for partnership general and administrative
costs, and a decision by the Company to write off its share of all exploration
assets other than cash and net working capital held by the partnership given the
essential completion of the exploration phase of the partnership. In addition,
$136 thousand of equity loss was incurred associated with the Paramount joint
venture during the first quarter 2000. 1999 period losses consisted of $511
thousand associated with Hunt partnership exploration expenses and the Paramount
joint venture.
Net Loss
Net loss attributable to common stockholders for the three months ended March
31, 2000 was $2,989 thousand, compared to a net loss attributable to common
stockholders of $652 thousand for the same period in 1999. The net loss in for
both periods was primarily due to exploration costs associated with Hunt and the
Paramount joint venture.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3. Articles of Incorporation and Bylaws
3.1(b) Restated Certificate of Incorporation
3.2(b) Certificate of Amendment to Restated Certificate of Incorporation
3.3(b) Bylaws
3.4(b) Amendment to Bylaws
3.5(c) Designation of Convertible Preferred Stock, Series A
27. Financial Data Schedule
_____________
(a) Filed as an exhibit to the Company's report on Form 8-K filed with the
Commission on March 4, 1998 (file no. 000-20928) and hereby incorporated
by reference herein.
(b) Filed as an exhibit to the Company's Registration Statement on Form S-3
filed with the Commission on July 15, 1998 and hereby incorporated by
reference herein.
(c) Filed as an exhibit to the Company's Report on Form 8-K filed with the
Commission on May 6, 1998 and hereby incorporated by reference herein.
(b) Reports on Form 8-K.
None
12
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VAALCO ENERGY, INC.
(Registrant)
By /s/W. RUSSELL SCHEIRMAN
----------------------------------------
W. RUSSELL SCHEIRMAN, PRESIDENT,
Chief Financial Officer and Director
(on behalf of the Registrant and as the
principal financial officer)
Dated May 11, 2000
13