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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


(Mark One)

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

 

For the quarterly period ended September 30, 2023

 

or

 

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

(Registrants 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 Securities Exchange Act of 1934 during the preceding 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  ☒    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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

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 Rule 12b-2 of the Exchange Act).        Yes      No   ☒

 

As of November 3, 2023, there were outstanding 105,158,757 shares of common stock, $0.10 par value per share, of the registrant. 


 

 

  

 
 

 

VAALCO ENERGY, INC. AND SUBSIDIARIES

 

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Condensed Consolidated Balance Sheets September 30, 2023 and December 31, 2022

2

Condensed Consolidated Statements of Operations and Comprehensive Income Three and Nine Months Ended September 30, 2023 and 2022

3

Condensed Consolidated Statements of Shareholders’ Equity Three and Nine Months Ended September 30, 2023 and 2022

4

Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2023 and 2022

5

Notes to Condensed Consolidated Financial Statements (unaudited)

7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

22

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

37

ITEM 4. CONTROLS AND PROCEDURES

38

PART II. OTHER INFORMATION

39

ITEM 1. LEGAL PROCEEDINGS

39

ITEM 1A. RISK FACTORS

39
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 39

ITEM 5. OTHER INFORMATION

47

ITEM 6. EXHIBITS

41

 

1

  

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

  

As of September 30, 2023

  

As of December 31, 2022

 
  

(in thousands)

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $103,353  $37,205 

Restricted cash

  111   222 

Receivables:

        

Trade, net

  22,788   52,147 

Accounts with joint venture owners, net of allowance for credit losses of $0.6 and $0.3 million, respectively

  1,635   15,830 

Foreign income taxes receivable

     2,769 

Other, net of allowance for credit losses of $3.5 and $0.0 million, respectively

  64,826   68,519 

Crude oil inventory

  9,287   3,335 

Prepayments and other

  16,115   20,070 

Total current assets

  218,115   200,097 
         

Crude oil and natural gas properties, equipment and other - successful efforts method, net

  467,877   495,272 

Other noncurrent assets:

        

Restricted cash

  1,787   1,763 

Value added tax and other receivables, net of allowance of $9.9 million and $8.4 million, respectively

  9,462   7,150 

Right of use operating lease assets

  3,510   2,777 

Right of use finance lease assets

  87,971   90,698 

Deferred tax assets

  31,222   35,432 

Abandonment funding

  6,268   20,586 

Other long-term assets

  1,616   1,866 

Total assets

 $827,828  $855,641 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable

 $43,924  $59,886 

Accounts with joint venture owners

  1,151    

Accrued liabilities and other

  76,470   91,392 

Operating lease liabilities - current portion

  3,539   2,314 

Finance lease liabilities - current portion

  7,810   7,811 

Foreign income taxes payable

  33,256    

Current liabilities - discontinued operations

  673   687 

Total current liabilities

  166,823   162,090 

Asset retirement obligations

  45,201   41,695 

Operating lease liabilities - net of current portion

  82   686 

Finance lease liabilities - net of current portion

  77,862   78,248 

Deferred tax liabilities

  76,120   81,223 

Other long-term liabilities

  17,369   25,594 

Total liabilities

  383,457   389,536 

Commitments and contingencies (Note 10)

          

Shareholders’ equity:

        

Preferred stock, $25 par value; 500,000 shares authorized, none issued

      

Common stock, $0.10 par value; 160,000,000 shares authorized, 121,341,251 and 119,482,680 shares issued, 105,714,499 and 107,852,857 shares outstanding, respectively

  12,134   11,948 

Additional paid-in capital

  356,424   353,606 

Accumulated other comprehensive income

  844   1,179 

Less treasury stock, 15,626,752 and 11,629,823 shares, respectively, at cost

  (65,145)  (47,652)

Retained earnings

  140,114   147,024 

Total shareholders' equity

  444,371   466,105 

Total liabilities and shareholders' equity

 $827,828  $855,641 

 

See notes to condensed consolidated financial statements.

 

2

  

 

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

2023

   

2022

 
   

(in thousands, except per share amounts)

Revenues:

                               

Crude oil, natural gas and natural gas liquids sales

  $ 116,269     $ 78,097     $ 305,912     $ 257,738  

Operating costs and expenses:

                               

Production expense

    39,956       23,312       106,760       67,147  

FPSO Demobilization

          8,867       5,647       8,867  

Exploration expense

    1,194       56       1,259       250  

Depreciation, depletion and amortization

    32,538       8,963       94,958       21,827  

General and administrative expense

    6,216       1,979       16,835       10,507  

Credit losses and other

    822       1,020       2,437       2,083  

Total operating costs and expenses

    80,726       44,197       227,896       110,681  

Other operating income (expense), net

    5             (298 )     (5 )

Operating income

    35,548       33,900       77,718       147,052  

Other income (expense):

                               

Derivative instruments gain (loss), net

    (2,320 )     3,778       (2,268 )     (37,522 )

Interest expense, net

    (1,426 )     (234 )     (5,375 )     (355 )

Other income (expense), net

    183       (7,707 )     (1,494 )     (10,514 )

Total other expense, net

    (3,563 )     (4,163 )     (9,137 )     (48,391 )

Income from continuing operations before income taxes

    31,985       29,737       68,581       98,661  

Income tax expense (benefit)

    25,844       22,843       52,203       64,467  

Income from continuing operations

    6,141       6,894       16,378       34,194  

Loss from discontinued operations, net of tax

          (26 )     (15 )     (58 )

Net income

  $ 6,141     $ 6,868     $ 16,363     $ 34,136  

Other comprehensive income (loss)

                               

Currency translation adjustments

    (2,216 )           (335 )      

Comprehensive income

  $ 3,925     $ 6,868     $ 16,028     $ 34,136  
                                 

Basic net income per share:

                               

Income from continuing operations

  $ 0.06     $ 0.12     $ 0.15     $ 0.57  

Loss from discontinued operations, net of tax

                       

Net income per share

  $ 0.06     $ 0.12     $ 0.15     $ 0.57  

Basic weighted average shares outstanding

    106,289       59,068       106,876       58,900  

Diluted net income per share:

                               

Income from continuing operations

  $ 0.06     $ 0.11     $ 0.15     $ 0.57  

Loss from discontinued operations, net of tax

                       

Net income per share

  $ 0.06     $ 0.11     $ 0.15     $ 0.57  

Diluted weighted average shares outstanding

    106,433       59,450       107,072       59,335  

 

See notes to condensed consolidated financial statements.

 

3

  

 

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Unaudited)

   

Common Shares Issued

   

Treasury Shares

   

Common Stock

   

Additional Paid-In Capital

   

Accumulated Other Comprehensive Loss

   

Treasury Stock

   

Retained Earnings

   

Total

 
   

(in thousands)

 

Balance at January 1, 2023

    119,483       (11,630 )   $ 11,948     $ 353,606     $ 1,179     $ (47,652 )   $ 147,024     $ 466,105  

Shares issued - stock-based compensation

    633       (187 )     64       210                         274  

Stock-based compensation expense

                      683                         683  

Common shares purchased

          (981 )                       (4,517 )           (4,517 )

Treasury stock

                                  (860 )           (860 )

Dividend distributions

                                        (6,735 )     (6,735 )

Cumulative effect of adjustment upon adoption of ASU 2016-13 on January 1, 2023

                                        (3,120 )     (3,120 )

Other comprehensive loss

                            (125 )                 (125 )

Net income

                                        3,470       3,470  

Balance at March 31, 2023

    120,116       (12,798 )   $ 12,012     $ 354,499     $ 1,054     $ (53,029 )   $ 140,639     $ 455,175  

Shares issued - stock-based compensation

    1,090       (249 )     109       (1 )                       108  

Stock-based compensation expense

                      708                         708  

Common shares purchased

          (1,161 )                       (5,023 )           (5,023 )

Treasury stock

                                  (1,003 )           (1,003 )

Dividend distributions

                                        (6,717 )     (6,717 )

Other comprehensive loss

                            2,006                   2,006  

Net income

                                        6,752       6,752  

Balance at June 30, 2023

    121,206       (14,208 )   $ 12,121     $ 355,206     $ 3,060     $ (59,055 )   $ 140,674     $ 452,006  

Shares issued - stock-based compensation

    135       (16 )     13       198                         211  

Stock-based compensation expense

                      1,020                         1,020  

Common Shares Purchased

          (1,403 )                       (6,026 )           (6,026 )

Treasury stock

                                  (64 )           (64 )

Dividend Distributions

                                        (6,701 )     (6,701 )

Other comprehensive income

                            (2,216 )                 (2,216 )

Net income

                                        6,141       6,141  

Balance at September 30, 2023

    121,341       (15,627 )   $ 12,134     $ 356,424     $ 844     $ (65,145 )   $ 140,114     $ 444,371  

 

   

Common Shares Issued

   

Treasury Shares

   

Common Stock

   

Additional Paid-In Capital

   

Accumulated Other Comprehensive Loss

   

Treasury Stock

   

Retained Earnings

   

Total

 
   

(in thousands)

 

Balance at January 1, 2022

    69,562       (10,939 )   $ 6,956     $ 76,700     $     $ (43,847 )   $ 104,488     $ 144,297  

Shares issued - stock-based compensation

    300       (64 )     30       168                         198  

Stock-based compensation expense

                      404                         404  

Treasury stock

                                  (387 )           (387 )

Dividend Distributions

                                          (1,929 )     (1,929 )

Net income

                                        12,164       12,164  

Balance at March 31, 2022

    69,862       (11,003 )   $ 6,986     $ 77,272     $     $ (44,234 )   $ 114,723     $ 154,747  

Shares issued - stock-based compensation

    263       (54 )     27       31                         58  

Stock-based compensation expense

                      616                         616  

Treasury stock

                                  (401 )           (401 )

Dividend Distribution

                                                    (1,943 )     (1,943 )

Net income

                                        15,104       15,104  

Balance at June 30, 2022

    70,125       (11,057 )   $ 7,013     $ 77,919     $     $ (44,635 )   $ 127,884     $ 168,181  

Shares issued - stock-based compensation

                                               

Stock-based compensation expense

                      581                         581  

Treasury stock

                                               

Dividend Distribution

                                        (1,944 )     (1,944 )

Net income

                                        6,868       6,868  

Balance at September 30, 2022

    70,125       (11,057 )   $ 7,013     $ 78,500     $     $ (44,635 )   $ 132,808     $ 173,686  

 

See notes to condensed consolidated financial statements.

 

4

  

 

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   

Nine Months Ended September 30,

 
   

2023

   

2022

 
   

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 16,363     $ 34,136  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Loss from discontinued operations, net of tax

    15       58  

Depreciation, depletion and amortization

    94,958       21,827  

Bargain purchase gain

    1,412        

Exploration Expense

    1,194        

Deferred taxes

    (2,305 )     39,540  

Unrealized foreign exchange loss

    932       914  

Stock-based compensation

    2,332       2,300  

Cash settlements paid on exercised stock appreciation rights

    (282 )     (805 )

Derivative instruments (gain) loss, net

    2,268       37,522  

Cash settlements paid on matured derivative contracts, net

    (62 )     (42,683 )

Cash settlements paid on asset retirement obligations

    (4,796 )      

Credit losses and other

    2,437       2,083  

Other operating loss, net

    317       5  

Operational expenses associated with equipment and other

    2,560       953  

Change in operating assets and liabilities:

               

Trade receivables

    29,364       5,683  

Accounts with joint venture owners

    15,090       (11,118 )

Other receivables

    694       (2,904 )

Crude oil inventory

    (5,952 )     (2,661 )

Prepayments and other

    1,198       (1,120 )

Value added tax and other receivables

    (3,719 )     (5,371 )

Other long-term assets

    2,942       (2,842 )

Accounts payable

    (10,083 )     4,129  

Foreign income taxes receivable/payable

    36,025       24,928  

Accrued liabilities and other

    (11,076 )     25,182  

Net cash provided by (used in) continuing operating activities

    171,826       129,756  

Net cash used in discontinued operating activities

    (15 )     (57 )

Net cash provided by (used in) operating activities

    171,811       129,699  

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Property and equipment expenditures

    (77,365 )     (103,853 )

Net cash provided by (used in) continuing investing activities

    (77,365 )     (103,853 )

Net cash used in discontinued investing activities

           

Net cash provided by (used in) investing activities

    (77,365 )     (103,853 )

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from the issuances of common stock

    593       257  

Dividend distribution

    (20,153 )     (5,816 )

Treasury shares

    (17,493 )     (788 )

Deferred financing costs

    (83 )     (1,535 )

Payments of finance lease

    (5,246 )     (193 )

Net cash provided by (used in) in continuing financing activities

    (42,382 )     (8,075 )

Net cash used in discontinued financing activities

           

Net cash provided by (used in) in financing activities

    (42,382 )     (8,075 )

Effects of exchange rate changes on cash

    (321 )      

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

    51,743       17,771  

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

    59,776       72,314  

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

  $ 111,519     $ 90,085  

 

See notes to condensed consolidated financial statements.

 

5

 

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES (Unaudited)

 

   

Nine Months Ended September 30,

 
   

2023

   

2022

 
   

(in thousands)

 

Supplemental disclosure of cash flow information:

               

Interest paid, net of amounts capitalized

  $ 6,622     $ 401  

Supplemental disclosure of non-cash investing and financing activities:

               

Property and equipment additions incurred but not paid at end of period

  $ 23,820     $ 39,105  

Recognition of right-of-use operating lease assets and liabilities

  $ 2,582     $  

Recognition of right-of-use finance lease assets and liabilities

  $ 3,273     $ 1,851  

Asset retirement obligations

  $ 2,487     $  

 

See notes to condensed consolidated financial statements.

 

6

  

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND ACCOUNTING POLICIES

 

VAALCO Energy, Inc. (together with its consolidated subsidiaries “we”, “us”, “our”, “VAALCO” or the “Company”) is a Houston, Texas-based independent energy company engaged in the acquisition, exploration, development and production of crude oil, natural gas and natural gas liquids ("NGLs") properties. As operator, the Company has production operations and conducts exploration activities in Gabon and Canada and hold interests in two production sharing contracts (“PSCs”) in Egypt. The Company has opportunities to participate in development and exploration activities in Equatorial Guinea, West Africa. As discussed further in Note 3 below, VAALCO has discontinued operations associated with activities in Angola, West Africa and Yemen.

 

The Company’s consolidated subsidiaries are VAALCO Gabon (Etame), Inc., VAALCO Production (Gabon), Inc., VAALCO Gabon S.A., VAALCO Angola (Kwanza), Inc., VAALCO Energy (EG), Inc., VAALCO Energy Mauritius (EG) Limited, VAALCO Energy, Inc. (UK Branch), VAALCO Energy (USA), Inc., VAALCO Energy (International), LLC, VAALCO Energy (Holdings), LLC, TransGlobe Energy Corporation, TG Energy UK Ltd., TransGlobe Petroleum International Inc., TG Holdings Yemen Inc., TransGlobe West Bakr Inc., TransGlobe West Gharib Inc., TG Energy Marketing Inc., and TG NW Gharib Inc., TG S Ghazalat Inc.

 

These unaudited condensed consolidated financial statements (“Financial Statements”) reflect the opinion of management and all adjustments necessary for a fair presentation of results for the interim periods presented. All adjustments are of a normal recurring nature unless disclosed otherwise. Interim period results are not necessarily indicative of results expected for the full year.

 

These condensed consolidated financial statements have been prepared in accordance with rules of the Securities and Exchange Commission (“SEC”) and do not include all the information and disclosures required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. They should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which includes a summary of the significant accounting policies.

 

Allowance for credit losses and other – On January 1, 2023, the Company adopted Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”). ASU 2016-13 requires an entity to measure credit losses of certain financial assets, including trade receivables, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. 

 

The Company estimates the current expected credit losses based primarily using either an aging analysis or discounted cash flow methodology that incorporates consideration of current and future conditions that could impact its counterparties’ credit quality and liquidity. Uncollectible receivables are written off when a settlement is reached for an amount that is less than the outstanding historical balance or when the Company has determined that the balance will not be collected.

 

The following table provides an analysis of the change of the aggregate credit loss allowance and other allowances.

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2023

  

2022

  

2023

  

2022

 
  

(in thousands)

 

Allowance for credit losses and other

                

Balance at beginning of period

 $(13,519) $(6,389) $(8,704) $(5,741)

Credit loss charges and other, net of receipts

  (822)  (1,020)  (2,437)  (2,083)

Cumulative effect of adjustment upon adoption of ASU 2016-13 on January 1, 2023

        (3,120)   

Foreign currency gain (loss)

  238   355   158   770 

Balance at end of period

 $(14,103) $(7,054) $(14,103) $(7,054)

 

Prepayments and Other – Included in “Prepayments and other” line item of the Company’s September 30, 2023 condensed consolidated balance sheet are $2.3 million of prepayments related to fixed assets, $4.3 million of prepayments related to royalties in Gabon, $1.0 million in Gabon and corporate prepaid insurance, $1.2 million in short-term employees loans and advances to Gabon employees, $4.0 million in Egyptian advances to contractors, and $3.3 million in other prepaid items. 

 

7

 

Fair value of financial instruments

 

   

As of September 30, 2023

 
 

Balance Sheet Line

 

Level 1

  

Level 2

  

Level 3

  

Total

 
   

(in thousands)

 

Assets

                 

Derivative asset

Prepayments and other

 $  $  $  $ 
   $  $  $  $ 

Liabilities

                 

SARs liability

Accrued liabilities and other

 $  $239  $  $239 

Derivative liability

Accrued liabilities and other

     2,162      2,162 
   $  $2,401  $  $2,401 

 

`

   

As of December 31, 2022

 
  

Balance Sheet Line

 

Level 1

  

Level 2

  

Level 3

  

Total

 
    

(in thousands)

 

Assets

                  

Derivative asset

 

Prepayments and other

 $  $102  $  $102 
   $  $102  $  $102 

Liabilities

                  

SARs liability

 

Accrued liabilities and other

 $  $556  $  $556 
   $  $556  $  $556 

  

 

2. NEW ACCOUNTING STANDARDS

 

Adopted

 

The Company adopted ASU 2016-13 (“ASC 326”) on January 1, 2023 using the modified-retrospective approach. The modified-retrospective approach consists of applying the amendments in ASU 2016-03 through a cumulative-effect adjustment, if required, to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company’s current method and timing of recognizing credit losses is in accordance with ASC 326 and is consistent with the previous method of recognizing credit losses, except for one receivable, which now utilizes the Discounted Cash Flow method for computing its Expected Credit Loss (“ECL”). The Company recorded an ECL allowance of $3.1 million as an opening balance adjustment to retained earnings at January 1, 2023.

 

On October 3, 2023 the Company adopted the provisions of ASU 2022-06, “Reference Rate Reform (Topic 848)”: Deferral of the Sunset Date of Topic 848, to extend the expiration date of Topic 848 through December 31, 2024 and ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to debt contracts, receivables, leases, derivatives, and other contracts impacted by reference rate reform and other transactions affected by the cessation of the LIBOR. The adoption of these provisions changed the LIBOR rate interest rate component under the Company’s RBL Facility to a Secured Overnight Financing Rate (“SOFR”) plus margin and changed the discount rate component under the Company’s RBL Facility from a 6 month LIBOR to a 6 month SOFR rate. Due to the provisions of ASU 2020-04 and 2023-06, the Company accounted for the change as a modification of debt.

  

 

3. ACQUISITIONS AND DISPOSITIONS

 

TransGlobe Merger

 

In 2022 VAALCO completed the acquisition of TransGlobe during the fourth quarter. Subsequent to the acquisition, during the first quarter of 2023, a bargain purchase gain adjustment was recorded, impacting the deferred tax liability. At September 30, 2023, the purchase accounting for the business combination has been completed. During the three months ended  September 30, 2023 the deferred tax liability in Egypt did not change. During the nine months ended September 30, 2023, the deferred tax liability in Egypt was increased by $1.4 million, respectively, as of the date of the acquisition. This resulted in a decrease to the bargain purchase gain of a corresponding $1.4 million for the nine months ended September 30, 2023, and is reflected in VAALCO's condensed consolidated statements of operations in the line, “Other expense, net.” 

 

8

 

The actual impact of the TransGlobe acquisition was an increase to “Crude oil, natural gas and NGLs sales” of $134.0 million and $21.0 million of “Net income” in the condensed consolidated statements of operations and comprehensive income for the nine months ended September 30, 2023. The impact for the three months ended  September 30, 2023 was an increase to “Crude oil, natural gas and NGLs sales” of $59.0 million and $19.3 million of “Net Income” in the condensed consolidated statements of operations and comprehensive income. 

 

The unaudited pro forma results presented below have been prepared to give the effect of the TransGlobe acquisition discussed above on the Company’s results for the three and nine months ended September 30, 2022, as if the acquisition had been consummated on January 1, 2021. The unaudited pro forma results do not purport to represent what the Company’s actual results of operations would have been if the TransGlobe acquisition had been completed on such date or project the Company’s results of operations for any future date or period.

 

  

Three Months Ended September 30,

   

Nine Months Ended September 30,

  
  

2022

   

2022

  
  

(in thousands)

   

(in thousands)

  

Pro forma (unaudited):

          

Crude oil, natural gas and natural gas liquids sales

 $137,926 

(a)

 $442,718 

(a)

Operating income

 $60,176 

(b)

 $231,694 

(d)

Net income

 $32,544 

(c)

 $105,401 

(e)

           
           

Basic net income per share:

 $0.30   $0.97  

Basic weighted average shares outstanding

  108,375    108,207  
           

Diluted net income per share:

 $0.30   $0.97  

Diluted weighted average shares outstanding

  108,757    108,642  

 

(a)

The unaudited pro forma net revenues associated with Crude oil, natural gas and natural gas liquids sales have been adjusted for shipping and handling costs based on the Company’s historical policy and revenue recognition is based on the Company’s working interest, less royalties, the entitlement method.
(b)The unaudited pro forma operating income for the three months ended September 30, 2022 reclassifies depreciation expense, for certain leases identified as operating leases, to production expense and adjusts depreciation, depletion and amortization expense related to the depletable assets and asset retirement obligations acquired in the acquisition based on the purchase price allocation.
(c)The unaudited pro forma net income for the three months ended September 30, 2022 reclassifies interest expense, for certain leases identified as operating leases, as production expense.

(d)

The unaudited pro forma operating income for the nine months ended September 30, 2022 removes the $26.0 million impairment reversal recorded by TransGlobe in 2022, reclassifies depreciation expense, for certain leases identified as operating leases, to production expense and adjusts depreciation, depletion and amortization expense related to the depletable assets and asset retirement obligations acquired in the acquisition based on the purchase price allocation.

(e)

The unaudited pro forma net income for the nine months ended September 30, 2022 reclassifies interest expense, for certain leases identified as operating leases, as production expense.

  

 

4. SEGMENT INFORMATION 

 

The Company’s operations are based in Gabon, Egypt, and Canada, and the Company has an undeveloped block in Equatorial Guinea. Each of the Company’s reportable operating segments is organized and managed based upon geographic location. The Company’s Chief Executive Officer, who is the chief operating decision maker, and management review and evaluate the operation of each geographic segment separately, primarily based on operating income (loss). The operations of all segments include exploration for and production of hydrocarbons where commercial reserves have been found and developed. Revenues are based on the location of hydrocarbon production. Corporate and other is primarily corporate and operations support costs that are not allocated to the reportable operating segments.

 

9

 

Segment activity of continuing operations for the three and nine months ended September 30, 2023 and 2022 as well as long-lived assets and segment assets at September 30, 2023 and December 31, 2022 are as follows:

 

  

Three Months Ended September 30, 2023

 

(in thousands)

 

Gabon

  

Egypt

  

Canada

  

Equatorial Guinea

  

Corporate and Other

  

Total

 

Revenues:

                        

Crude oil, natural gas and natural gas liquids sales

 $57,275  $50,307  $8,687  $  $  $116,269 

Operating costs and expenses:

                        

Production expense

  20,731   16,040   2,627   259   299   39,956 

FPSO Demobilization

                  

Exploration expense

     1,194            1,194 

Depreciation, depletion and amortization

  14,583   12,967   4,948      40   32,538 

General and administrative expense

  348   54      94   5,720   6,216 

Credi