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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 March 31, 2024

 

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 May 3, 2024, there were outstanding 103,455,525 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 March 31, 2024 and December 31, 2023

2

Condensed Consolidated Statements of Operations and Comprehensive Income Three Months Ended March 31, 2024 and 2023

3

Condensed Consolidated Statements of Shareholders’ Equity Three Months Ended March 31, 2024 and 2023

4

Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2024 and 2023

5

Notes to Condensed Consolidated Financial Statements (unaudited)

7

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

21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

33

ITEM 4. CONTROLS AND PROCEDURES

34

PART II. OTHER INFORMATION

35

ITEM 1. LEGAL PROCEEDINGS

35

ITEM 1A. RISK FACTORS

35
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 35

ITEM 5. OTHER INFORMATION

47

ITEM 6. EXHIBITS

37

 

1

  

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

  

As of March 31, 2024

  

As of December 31, 2023

 
  

(in thousands)

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $113,321  $121,001 

Restricted cash

  140   114 

Receivables:

        

Trade, net of allowances for credit loss and other of $0.8 and $0.5 million, respectively

  44,897   44,888 

Accounts with joint venture owners, net of allowance for credit losses of $0.8 and $0.8 million, respectively

  35   1,814 

Egypt receivables and other, net of allowances for credit loss and other of $6.0 and $4.6 million, respectively

  44,591   45,942 

Crude oil inventory

  2,386   1,948 

Prepayments and other

  12,374   12,434 

Total current assets

  217,744   228,141 
         

Crude oil, natural gas and NGLs properties and equipment, net

  457,419   459,786 

Other noncurrent assets:

        

Restricted cash

     1,795 

Value added tax and other receivables, net of allowances for credit loss and other of $0.0 and $0.0 million, respectively

  5,033   4,214 

Right of use operating lease assets

  1,444   2,378 

Right of use finance lease assets

  89,587   89,962 

Deferred tax assets

  30,329   29,242 

Abandonment funding

  6,268   6,268 

Other long-term assets

  1,323   1,430 

Total assets

 $809,147  $823,216 

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable

 $16,747  $22,152 

Accounts with joint venture owners

  3,836   5,990 

Accrued liabilities and other

  60,345   67,597 

Operating lease liabilities - current portion

  1,466   2,396 

Finance lease liabilities - current portion

  10,974   10,079 

Foreign income taxes payable

  37,836   19,261 

Total current liabilities

  131,204   127,475 

Asset retirement obligations

  47,644   47,343 

Operating lease liabilities - net of current portion

     33 

Finance lease liabilities - net of current portion

  77,802   78,293 

Deferred tax liabilities

  71,228   73,581 

Other long-term liabilities

  8,679   17,709 

Total liabilities

  336,557   344,434 

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, 121,940,831 and 121,397,553 shares issued, 103,455,525 and 104,346,233 shares outstanding, respectively

  12,194   12,140 

Additional paid-in capital

  358,827   357,498 

Accumulated other comprehensive income

  426   2,880 

Less treasury stock, 18,485,306 and 17,051,320 shares, respectively, at cost

  (77,566)  (71,222)

Retained earnings

  178,709   177,486 

Total shareholders' equity

  472,590   478,782 

Total liabilities and shareholders' equity

 $809,147  $823,216 

 

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 March 31,

 
   

2024

   

2023

 
   

(in thousands, except per share amounts)

 

Revenues:

               

Crude oil, natural gas and natural gas liquids sales

  $ 100,155     $ 80,403  

Operating costs and expenses:

               

Production expense

    32,089       28,200  

Exploration expense

    48       8  

Depreciation, depletion and amortization

    25,824       24,417  

Transaction costs related to acquisition

    1,313        

General and administrative expense

    6,710       5,224  

Credit losses and other

    1,812       935  

Total operating costs and expenses

    67,796       58,784  

Other operating income (expense), net

    (166 )     -  

Operating income

    32,193       21,619  

Other income (expense):

               

Derivative instruments gain (loss), net

    (847 )     21  

Interest expense, net

    (935 )     (2,246 )

Other income (expense), net

    (487 )     (1,153 )

Total other expense, net

    (2,269 )     (3,378 )

Income before income taxes

    29,924       18,241  

Income tax expense

    22,238       14,771  

Net income

  $ 7,686     $ 3,470  

Other comprehensive income (loss)

               

Currency translation adjustments

    (2,454 )     (125 )

Comprehensive income

  $ 5,232     $ 3,345  
                 

Basic net income per share:

               

Net income per share

  $ 0.07     $ 0.03  

Basic weighted average shares outstanding

    103,659       107,387  

Diluted net income per share:

               

Net income per share

  $ 0.07     $ 0.03  

Diluted weighted average shares outstanding

    104,541       108,752  

 

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, 2024

    121,398       (17,051 )   $ 12,140     $ 357,498     $ 2,880     $ (71,222 )   $ 177,486     $ 478,782  

Shares issued - stock-based compensation

    543             54       393                         447  

Stock-based compensation expense

                      936                         936  

Treasury stock

          (1,434 )                       (6,344 )           (6,344 )

Dividend distributions

                                        (6,463 )     (6,463 )

Other comprehensive loss

                            (2,454 )                 (2,454 )

Net income

                                        7,686       7,686  

Balance at March 31, 2024

    121,941       (18,485 )   $ 12,194     $ 358,827     $ 426     $ (77,566 )   $ 178,709     $ 472,590  

 

   

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  

Treasury stock

          (981 )                       (5,377 )           (5,377 )

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  

 

See notes to condensed consolidated financial statements.

 

4

  

 

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 
   

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 7,686     $ 3,470  

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

               

Depreciation, depletion and amortization

    25,824       24,417  

Bargain purchase loss

          1,412  

Deferred taxes

    (3,441 )     2,471  

Unrealized foreign exchange loss

    (102 )     512  

Stock-based compensation

    898       649  

Cash settlements paid on exercised stock appreciation rights

    (154 )     (233 )

Derivative instruments (gain) loss, net

    847       (21 )

Cash settlements paid on matured derivative contracts, net

    (24 )     (59 )

Cash settlements paid on asset retirement obligations

    (29 )     (123 )

Credit losses and other

    1,812       935  

Other operating loss, net

    166       13  

Operational expenses associated with equipment and other

    302       (640 )

Change in operating assets and liabilities:

               

Trade, net

    (9 )     21,357  

Accounts with joint venture owners, net

    (683 )     18,911  

Egypt receivables and other, net

    1,346       (2,309 )

Crude oil inventory

    (438 )     (8,443 )

Prepayments and other

    (2,278 )     983  

Value added tax and other receivables

    (2,734 )     (1,361 )

Other long-term assets

    (1,017 )     1,051  

Accounts payable

    (5,984 )     (6,739 )

Foreign income taxes receivable/(payable)

    18,912       8,193  

Deferred tax liability

          (3,250 )

Accrued liabilities and other

    (19,068 )     (19,190 )

Net cash provided by (used in) operating activities

    21,832       42,006  

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Property and equipment expenditures

    (16,618 )     (27,700 )

Net cash provided by (used in) investing activities

    (16,618 )     (27,700 )

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from the issuances of common stock

    447       274  

Dividend distribution

    (6,463 )     (6,735 )

Treasury shares

    (6,344 )     (5,377 )

Payments of finance lease

    (2,095 )     (1,701 )

Net cash provided by (used in) in financing activities

    (14,455 )     (13,539 )

Effects of exchange rate changes on cash

    (208 )     (309 )

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

    (9,449 )     458  

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

    129,178       59,776  

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

  $ 119,729     $ 60,234  

 

See notes to condensed consolidated financial statements.

 

5

 

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES (Unaudited)

 

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 
   

(in thousands)

 

Supplemental disclosure of cash flow information:

               

Interest paid, net of amounts capitalized

  $ 1,409     $ 1,488  

Supplemental disclosure of non-cash investing and financing activities:

               

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

  $ 19,226     $ 39,584  

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

  $     $ 1,429  

 

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 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 and holds a non-operator interest in Cote d’Ivoire. The Company has opportunities to participate in development and exploration activities in Equatorial Guinea, West Africa. 

 

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, 2023, which includes a summary of the significant accounting policies.

 

Reclassification – Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations and Comprehensive Income and Condensed Consolidated Statements of Cash Flows for fiscal year ended December 31, 2023, in the amounts of $673 thousand, $15 thousand, and $15 thousand, respectively, to reclassify the discontinued operations account balances and transactions.

 

Allowance for credit losses and other – 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 March 31,

 
  

2024

  

2023

 
  

(in thousands)

 

Allowance for credit losses and other

        

Balance at beginning of period

 $(6,029) $(8,704)

Credit loss charges and other, net of receipts

  (1,812)  (935)

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

     (3,120)

Foreign currency gain (loss)

  12   (73)

Balance at end of period

 $(7,829) $(12,832)

 

7

 

Fair value of financial instruments

 

   

As of March 31, 2024

 
 

Balance Sheet Line

 

Level 1

  

Level 2

  

Level 3

  

Total

 
   

(in thousands)

 

Assets

                 

Derivative asset

Prepayments and other

 $  $  $  $ 
   $  $  $  $ 

Liabilities

                 

Derivative liability

Accrued liabilities and other

 $  $420  $  $420 
   $  $420  $  $420 

 

`

   

As of December 31, 2023

 
  

Balance Sheet Line

 

Level 1

  

Level 2

  

Level 3

  

Total

 
    

(in thousands)

 

Assets

                  

Derivative asset

 

Prepayments and other

 $  $403  $  $403 
   $  $403  $  $403 

Liabilities

                  

SARs liability

 

Accrued liabilities and other

 $  $163  $  $163 
   $  $163  $  $163 

 

 

2. NEW ACCOUNTING STANDARDS

 

Not Yet Adopted

 

In August 2023, FASB issued new guidance to provide specific guidance on how a joint venture, upon formation, should recognize and initially measure assets contributed and liabilities assumed. The rules become effective prospectively for all joint venture formations occurring on or after January 1, 2025. VAALCO is currently assessing the impact of this guidance.

 

In November 2023, FASB issued new guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The rules become effective for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. The standard requires additional disclosures about operating segments. VAALCO is currently evaluating the impact of adopting this guidance on the consolidated financial statements.

 

In December 2023, FASB issued new guidance to improve Income Tax disclosures to provide information to assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The rules become effective for annual periods beginning after December 15, 2024. The standard modifies required income tax disclosures. VAALCO is currently evaluating the impact of adopting this guidance on the consolidated financial statements.

 

 

3. PENDING ACQUISITION

 

On February 29, 2024, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) to purchase all of the issued shares in the capital of Svenska Petroleum Exploration Aktiebolag, a company incorporated in Sweden (“Svenska”) for $66.5 million in cash (the “Purchase Price”), subject to adjustment as described in the Share Purchase Agreement. The Company subsequently closed its acquisition of Svenska for the net purchase price of $40.2 million, on April 30, 2024 after certain regulatory and government approvals were received.  The purchase price was funded by a combination of a dividend of cash on Svenska’s balance sheet to the seller immediately prior to the consummation of the acquisition and $40.2 million of VAALCO’s cash-on-hand.

 

 

4. SEGMENT INFORMATION 

 

The Company’s operations are based in Gabon, Egypt, Canada and Equatorial Guinea. Each of the reportable operating segments are organized and managed based upon geographic location. The Company’s Chief Executive Officer, who is the chief operating decision maker, evaluates 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.  

 

8

 

Segment activity of continuing operations for the three months ended March 31, 2024 and 2023 as well as long-lived assets and segment assets at March 31, 2024 and December 31, 2023 are as follows:

 

      Three Months Ended March 31, 2024  

(in thousands)

 

Gabon

   

Egypt

   

Canada

   

Equatorial Guinea

   

Corporate and Other

   

Total

 

Revenues:

                                               

Crude oil, natural gas and natural gas liquids sales

  $ 57,504     $ 36,961     $ 5,690     $     $     $ 100,155  

Operating costs and expenses:

                                               

Production expense

    16,713       12,751       2,379       245       1       32,089  

Exploration expense

          48                         48  

Depreciation, depletion and amortization

    13,451       8,336       3,897             140       25,824  

Transaction costs related to acquisition

                            1,313       1,313  

General and administrative expense

    634       169       12       78       5,817       6,710  

Credit losses and other

    20       1,634             158             1,812  

Total operating costs and expenses

    30,818       22,938       6,288       481       7,271       67,796  

Other operating income (expense), net

    (166 )                             (166 )

Operating income

    26,520       14,023       (598 )     (481 )     (7,271 )     32,193  

Other income (expense):

                                               

Derivative instruments loss, net

                            (847 )     (847 )

Interest (expense) income, net

    (1,317 )     (410 )     24             768       (935 )

Other (expense) income, net

    (94 )                 (1 )     (392 )     (487 )

Total other expense, net

    (1,411 )     (410 )     24       (1 )     (471 )     (2,269 )

Income (loss) before income taxes

    25,109       13,613       (574 )     (482 )     (7,742 )     29,924  

Income tax (benefit) expense

    16,293       7,033                   (1,088 )     22,238  

Net income (loss)

  $ 8,816     $ 6,580     $ (574 )   $ (482 )   $ (6,654 )   $ 7,686  

Consolidated capital expenditures

  $ 6,287     $ 4,328     $ 12,559     $ -     $ 848     $ 24,022  

 

9

 
   

Three Months Ended March 31, 2023

 

(in thousands)

 

Gabon

   

Egypt

   

Canada

   

Equatorial Guinea

   

Corporate and Other

   

Total

 

Revenues:

                                               

Crude oil, natural gas and natural gas liquids sales

  $ 36,737     $ 34,784     $ 8,882     $     $     $ 80,403  

Operating costs and expenses:

                                               

Production expense

    14,415       11,110       2,254       362       59       28,200  

Exploration expense

    8                               8  

Depreciation, depletion and amortization

    9,845       10,795       3,711             66       24,417  

General and administrative expense

    618       179             129       4,298       5,224  

Credit losses and other

    935                               935  

Total operating costs and expenses

    25,821       22,084       5,965       491       4,423       58,784  

Operating income (loss)

    10,916       12,700       2,917       (491 )     (4,423 )     21,619  

Other income (expense):

                                               

Derivative instruments gain, net

                            21       21  

Interest (expense) income, net

    (1,507 )     (808 )     (4 )           73       (2,246 )

Other income (expense), net

    517                   (1 )     (1,669 )     (1,153 )

Total other expense, net

    (990 )     (808 )     (4 )     (1 )     (1,575 )     (3,378 )

Income (loss) before income taxes

    9,926       11,892       2,913       (492 )     (5,998 )     18,241  

Income tax expense (benefit)

    6,578       4,992                   3,201       14,771  

Net income (loss)

  $ 3,348     $ 6,900     $ 2,913     $ (492 )   $ (9,199 )   $ 3,470  

Consolidated capital expenditures

  $ 3,689     $ 11,571     $ 10,165     $     $     $ 25,425  

 

10

 

(in thousands)

 

Gabon

   

Egypt

   

Canada

   

Equatorial Guinea

   

Corporate and Other

   

Total

 

Long-lived assets:

                                               

As of March 31, 2024

  $ 166,596     $ 167,215     $ 111,313     $ 10,000     $ 2,295     $ 457,419  

As of December 31, 2023

  $ 171,787     $ 171,224     $ 105,189     $ 10,000     $ 1,586     $ 459,786  

 

(in thousands)

 

Gabon

   

Egypt

   

Canada

   

Equatorial Guinea

   

Corporate and Other

   

Total

 

Total assets:

                                               

As of March 31, 2024

  $ 302,389     $ 253,656     $ 120,598     $ 11,365     $ 121,139     $ 809,147  

As of December 31, 2023

  $ 309,394     $ 263,015     $ 114,215     $ 11,327     $ 125,265     $ 823,216  

 

 

11

  
 

5. EARNINGS PER SHARE 

 

Basic earnings per share (“EPS”) is calculated using the average number of shares of common stock outstanding during each period. For the calculation of diluted shares, the Company assumes that restricted stock is outstanding on the date of vesting, and the Company assumes the issuance of shares from the exercise of stock options using the treasury stock method.

 

A reconciliation of reported net income to net income used in calculating EPS as well as a reconciliation from basic to diluted shares follows:

 

    Three Months Ended March 31,  
   

2024

   

2023

 
   

(in thousands)

 

Net income (loss) (numerator):

               

Net Income

  $ 7,686     $ 3,470  

Income attributable to unvested shares

    (15 )     (29 )

Numerator for basic

    7,671       3,441  

Loss attributable to unvested shares

    15       (18 )

Numerator for dilutive

  $ 7,686     $ 3,423  
                 

Weighted average shares (denominator):

               

Basic weighted average shares outstanding

    103,659       107,387  

Effect of dilutive securities

    882       1,365  

Diluted weighted average shares outstanding

    104,541       108,752  

Stock options and unvested restricted stock grants excluded from dilutive calculation because they would be anti-dilutive

    529       195  

 

12

  
 

6. REVENUE

 

Gabon

 

The Company currently sells crude oil production from Gabon under term crude oil sales and purchase agreements (“COSPAs”) or crude oil sales and marketing agreements ("COSMA or COSMAs"). The following table presents revenues from contracts with customers as well as revenues associated with the obligations under the Etame PSC.

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Revenues from customer contracts:

 

(in thousands)

 

Sales under the COSPA or COSMA

  $ 64,788     $ 42,601  

Other items reported in revenue not associated with customer contracts:

               

Carried interest recoupment

    1,174        

Royalties

    (8,458 )     (5,864 )

Net revenues

  $ 57,504     $ 36,737  

 

With respect to the government’s share of Profit Oil, the Etame PSC provides that corporate income tax is satisfied through the payment of Profit Oil. In the consolidated statements of operations and comprehensive income, the government’s share of revenues from Profit Oil is reported in revenues with a corresponding amount reflected in the current provision for income tax expense. Payments of the income tax expense are reported in the period that the government takes its Profit Oil in-kind, i.e. the period in which it lifts the crude oil. As of March 31, 2024, the Company has a $37.5 million foreign income tax payable related to Gabon. The Company had an $18.9 million foreign income tax payable as of  December 31, 2023.  

 

Egypt

 

The following table presents revenues in Egypt from contracts with customers: 

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Revenues from customer contracts:

 

(in thousands)

 

Gross sales

  $ 63,192     $ 54,621  

Royalties

    (26,120 )     (19,340 )

Selling costs

    (111 )     (497 )

Net revenues

  $ 36,961     $ 34,784  

 

Canada

 

The following table presents revenues in Canada from contracts with customers:

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Revenues from customer contracts:

 

(in thousands)

 

Oil revenue

  $ 4,153     $ 6,654  

Gas revenue

    820       958  

NGL revenue

    1,976       2,463  

Royalties

    (1,117 )     (1,193 )

Selling costs

    (143 )      

Net revenues

  $ 5,689     $ 8,882  

 

 

Information about the Company’s most significant customers

 

For the three months ended March 31, 2024 the Company had one customer that comprised 100% of its sales for Gabon. In Egypt, one customer made up 100% of revenue.  In Canada, three separate customers made up approximately  40%,  30% and  19% of revenue, respectively.

 

 

13

  
 

7. CRUDE OIL, NATURAL GAS and NGLs PROPERTIES AND EQUIPMENT

 

The Company’s crude oil, natural gas and NGLs properties and equipment is comprised of the following: 

 

   

As of March 31, 2024

   

As of December 31, 2023

 
   

(in thousands)

 

Crude oil, natural gas and NGLs properties and equipment - successful efforts method:

               

Wells, platforms and other production facilities

  $ 1,481,103     $ 1,468,542  

Work-in-progress

    7,404       4,183  

Undeveloped acreage

    53,683       52,109  

Equipment and other

    51,357       47,794  

Total crude oil, natural gas and NGLs properties, equipment and other

    1,593,547       1,572,628  

Accumulated depreciation, depletion, amortization and impairment

    (1,136,128 )     (1,112,842 )

Net crude oil, natural gas and NGLs properties, equipment and other

  $ 457,419     $ 459,786  

 

 

8. DERIVATIVES AND FAIR VALUE

 

The Company uses derivative financial instruments from time to time to achieve a more predictable cash flow from crude oil production by reducing the Company’s exposure to price fluctuations. See the table below for the list of outstanding contracts as of March 31, 2024:

 

Settlement Period

Type of Contract

Index

 

Average Monthly Volumes

   

Weighted Average Put Price

   

Weighted Average Call Price

 
       

(Bbls)

   

(per Bbl)

   

(per Bbl)

 

April 2024 - June 2024

Collars

Dated Brent

    65,000     $ 65.00     $ 100.00  

July 2024 - September 2024

Collars

Dated Brent

    80,000     $ 65.00     $ 92.00  

 

 

14

 

The following table sets forth the loss on derivative instruments on the Company’s unaudited condensed consolidated statements of operations and comprehensive income:

 

        Three Months Ended March 31,  

Derivative Item

 

Statements of Operations Line

 

2024

   

2023

 
       

(in thousands)

 

Commodity derivatives

 

Cash settlements paid on matured derivative contracts, net

  $ (24 )   $ (59 )
   

Unrealized gain (loss)

    (823 )     80  
   

Derivative instruments gain (loss), net

  $ (847 )   $ 21  

 

 

9. CURRENT ACCRUED LIABILITIES AND OTHER

 

Accrued liabilities and other balances were comprised of the following:

 

   

As of March 31, 2024

   

As of December 31, 2023

 
   

(in thousands)

 

Accrued accounts payable invoices

  $ 18,523     $ 21,225  

Gabon contractual obligations

    10,108       15,794  

Capital expenditures

    13,903       10,136  

Accrued wages and other compensation

    1,599       3,746  

Egypt modernization payments

    8,672       9,933  

Other

    7,542       6,763  

Total accrued liabilities and other

  $ 60,347     $ 67,597  

 

  

 

10. COMMITMENTS AND CONTINGENCIES

 

Abandonment funding

 

Under the terms of the Etame PSC, the Company has a cash funding arrangement for the eventual abandonment of all offshore wells, platforms and facilities on the Etame Marin block. At March 31, 2024, $10.7 million ($6.3 million, net to VAALCO) of the abandonment fund has been funded on an undiscounted basis. The annual payments will be adjusted based on revisions in the abandonment estimate. This cash funding is reflected under “Other noncurrent assets” in the “Abandonment funding” line item of the consolidated balance sheets. Future changes to the anticipated abandonment cost estimate could change the asset retirement obligation and the amount of future abandonment funding payments.

 

15

 

Share Buyback Program

 

On November 1, 2022, the Company announced that the Company’s board of directors formally ratified and approved a share buyback program. The board of directors also directed management to implement a Rule 10b5-1 trading plan (the “10b5-1 Plan”) to facilitate share purchases through open market purchases, privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. The 10b5-1 Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over a maximum period of 20 months. Payment for shares repurchased under the share buyback program were funded using the Company's cash on hand and cash flow from operations. The share buyback program was completed March 12, 2024.  Under the share buyback program, we purchased a total of 6,797,711 shares at an average price of $4.41 per share.

 

The following table shows the repurchases of equity securities related to the share repurchase program from January 1, 2024 through March 31, 2024

 

Period

 

Total Number of Shares Purchased

  

Average Price Paid per Share

  

Total Number of Shares Purchased as Part of Publicly Announced Programs

  

Maximum Amount that May Yet Be Used to Purchase Shares Under the Program

 

January 1, 2024 - January 31, 2024

  446,366  $4.48   446,366  $3,516,205 

February 1, 2024 - February 29, 2024

  474,100  $4.22   474,100  $1,516,630 

March 1, 2024 - March 12, 2024

  347,137  $4.33   347,137  $3,773 

Total

  1,267,603       1,267,603     

 

 

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Merged Concession Agreement

 

The Company is a party to the Merged Concession Agreement with the Egyptian General Petroleum Corporation (“EGPC”). In accordance with the Merged Concession Agreement, we are required to make $10.0 million annual modernization payments through February 1, 2026. The $10.0 million modernization payment due  February 1, 2024 was offset against receivables owed to the Company from EGPC. On the consolidated balance sheet at March 31, 2024, $9.4 million of the remaining modernization payment liability was recorded in the line item "Accrued liabilities and other" and $8.7 million was recorded in "Other long-term liabilities". 

 

The Company also has minimum financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on February 1, 2020 for a total of $150 million over the 15 year license contract term. Through March 31, 2024, the Company's financial work commitments have exceeded the five-year minimum $50 million threshold and any excess carries forward to offset against subsequent five-year commitments. 

 

As the Merged Concession Agreement was signed in January 2022 and is effective as of  February 1, 2020, there was an effective date adjustment owed to the Company for the difference in the historic commercial terms and the revised commercial terms applied against the production since the Merged Concession Effective Date. In accordance with GAAP, the Company has recognized a receivable in connection with the effective date adjustment of $67.5 million as of  October 13, 2022, based on historical realized prices. However, the cumulative value to be received because of the effective date adjustment is currently being finalized with the EGPC and could result in a range of outcomes based on the final price per barrel negotiated. As of  March 31, 2024, the remaining $50.3 million of the original $67.5 million receivable is recorded on the unaudited condensed consolidated balance sheet in "Egypt receivables and other, net". 

 

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11. DEBT 

 

As of  March 31, 2024 and December 31, 2023, the Company had no outstanding debt. 

 

RBL Facility

 

On  May 16, 2022, the Company entered into an agreement with Glencore, and other lenders, to provide a senior secured reserve-based revolving credit facility for a maximum principal amount of up to $50.0 million. Beginning  October 1, 2023 and thereafter on  April 1 and  October 1 of each year during the term of the RBL Facility, the $50 million initial commitment, was reduced by $6.3 million. At March 31, 2024, the amount available to be drawn under the facility was $43.8 million.

 

The RBL Facility agreement contains certain debt covenants, including that, as of the last day of each calendar quarter, (i) the ratio of Consolidated Total Net Debt to EBITDAX (as each term is defined in the RBL Facility agreement) for the trailing 12 months shall not exceed 3.0x and (ii) consolidated cash and cash equivalents shall not be lower than $10.0 million at any time. The amount the Company can borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the RBL Facility agreement. Regarding the requirement, the Company must deliver its annual financial statements to Glencore within 90 days of the end of each fiscal year. At March 31, 2024, the Company was in compliance with all debt covenants and had no outstanding borrowings under the facility.

 

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12. STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS

 

Stock options and performance shares

 

Stock options have an exercise price that may not be less than the fair market value of the underlying shares on the date of grant. In general, stock options granted to participants will become exercisable over a period determined by the Compensation Committee of the Company’s board of directors that is generally a three-year period, vesting in three equal parts on the anniversaries from the date of grant, and may contain performance hurdles.

 

The Company used the Monte Carlo simulation to calculate the grant date fair value of performance stock option awards. The fair value of these awards will be amortized to expense over the derived service period of the option.

 

For options that do not contain a market or performance condition, the Company uses the Black-Scholes model to calculate the grant date fair value of stock option awards. This fair value is then amortized to expense over the service period of the option.

 

During the three months ended March 31, 2024 and 2023, no stock options were granted.

 

Restricted shares

 

Restricted stock granted to employees will vest over a period determined by the Compensation Committee that is generally a three-year period, vesting in three equal parts on the anniversaries following the date of the grant. Restricted stock granted to directors will vest on the earlier of (i) the first anniversary of the date of grant and (ii) the first annual meeting of stockholders following the date of grant (but not less than fifty (50) weeks following the date of grant). The vesting of the restricted stock is dependent upon, among other things, the employees’ and directors’ continued service with the Company.

 

During the three months ended March 31, 2024 and 2023, no restricted shares were granted.

 

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13. INCOME TAXES   

 

VAALCO and its domestic subsidiaries file a consolidated U.S. income tax return. Certain foreign subsidiaries also file tax returns in their respective local jurisdictions that include Canada, Egypt, Equatorial Guinea and Gabon.

 

The foreign taxes payable are attributable to Gabon for the three months ended March 31, 2024 and 2023.

 

The Company’s effective tax rate for the three months ended  March 31, 2024 and 2023, excluding the impact of discrete items, was 61.05% and 60.96%, respectively. For the three months ended March 31, 2024 and 2023, the Company’s overall effective tax rate was primarily impacted by tax rates in foreign jurisdictions higher than the US statutory rate and by non-deductible items associated with operations.

 

For the three months ended March 31, 2024, the income tax expense of $22.2 million includes a $1.6 million unfavorable oil price adjustment as a result of the change in value of the government of Gabon's allocation of Profit Oil between the time it was produced and the time it was taken in-kind. After excluding this impact, income taxes were $20.7 million for the period. 

 

As of March 31, 2024, the Company had no material uncertain tax positions. The Company’s policy is to recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.

 

 

14. OTHER COMPREHENSIVE INCOME 

 

The Company’s other comprehensive loss was $2.5 million for the three months ended March 31, 2024. The functional currency of our Canadian segment is the Canadian Dollar. All of the Company’s other comprehensive income arises from the currency translation of our Canadian segment to USD.

 

The components of accumulated other comprehensive income are as follows: 

   

Currency Translation Adjustments

 
   

(in thousands)

 

Balance at December 31, 2023

  $ 2,880  

Other comprehensive income (loss)

    (2,454 )

Balance at March 31, 2024

  $ 426  

 

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbors created by those laws. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included in this Quarterly Report that address activities, events or developments that we expect or anticipate may occur in the future, including without limitation, statements regarding our financial position, operating performance and results, reserve quantities and net present values, market prices, business strategy, derivative activities, the amount and nature of capital expenditures, payment of dividends and plans and objectives of management for future operations are forward-looking statements. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “forecast,” “outlook,” “aim,” “target,” “will,” “could,” “should,” “may,” “likely,” “plan,” and “probably” or the negative of such terms or similar expressions, we are making forward-looking statements. Many risks and uncertainties that could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements include, but are not limited to:

 

 

volatility of, and declines and weaknesses in crude oil, natural gas and natural gas liquids (“NGLs”) prices, as well as our ability to offset volatility in prices through the use of hedging transactions;

 

the discovery, acquisition, development and replacement of crude oil, natural gas and NGLs reserves;

 

impairments in the value of our crude oil, natural gas and NGLs assets;

 

future capital requirements;

 

our ability to maintain sufficient liquidity in order to fully implement our business plan;

 

our ability to generate cash flows that, along with our cash on hand, will be sufficient to support our operations and cash requirements;

 

our ability to attract capital or obtain debt financing arrangements;

 

our ability to pay the expenditures required in order to develop certain of our properties;

 

operating hazards inherent in the exploration for and production of crude oil, natural gas and NGLs;

 

difficulties encountered during the exploration for and production of crude oil, natural gas and NGLs;

 

the impact of competition;

 

our ability to identify and complete complementary opportunistic acquisitions;

 

our ability to effectively integrate assets and properties that we acquire into our operations;

 

weather conditions;

 

the uncertainty of estimates of crude oil, natural gas and NGLs reserves;

 

currency exchange rates and regulations;

 

unanticipated issues and liabilities arising from non-compliance with environmental regulations;

  our limited control over the assets we do not operate;
  our ability to extend the Block CI-40 Petroleum Production Sharing Contract in Cote d’Ivoire;
  the impact and duration of scheduled maintenance of the floating, production, storage and offloading vessel in Cote d’Ivoire;

 

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the ultimate resolution of our abandonment funding obligations with the government of Gabon and the audit of our operations in Gabon currently being conducted by the government of Gabon;

  the ultimate resolution of our negotiations with the Egyptian General Petroleum Corporation ("EGPC") relating to amounts owed to us for the difference in the historic commercial terms and the revised commercial terms applied against the production since the Merged Concession Effective Date, February 1, 2020;
 

the availability and cost of seismic, drilling and other equipment;

 

difficulties encountered in measuring, transporting and delivering crude oil, natural gas and NGLs to commercial markets;

 

timing and amount of future production of crude oil, natural gas and NGLs;

 

hedging decisions, including whether or not to enter into derivative financial instruments;

 

general economic conditions, including any future economic downturn, the impact of inflation, and disruption in financial credit;

 

our ability to enter into new customer contracts;

 

changes in customer demand and producers’ supply;

 

actions by the governments and other significant actors with respect to events occurring in the countries in which we operate;

 

actions by our joint venture owners;

 

compliance with, or the effect of changes in, governmental regulations regarding our exploration, production, and well completion operations including those related to climate change;

 

the outcome of any governmental audit; and

 

actions of operators of our crude oil, natural gas and NGLs properties.

 

The information contained in this Quarterly Report and the information set forth under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”), identifies additional factors that could cause our results or performance to differ materially from those we express in forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this Quarterly Report and the 2023 Form 10-K, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. When you consider our forward-looking statements, you should keep in mind these risk factors and the other cautionary statements in this Quarterly Report.

 

Our forward-looking statements speak only as of the date the statements are made and reflect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be affected by inaccurate assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations and assumptions. Our forward-looking statements, express or implied, are expressly qualified in their entirety by this “Cautionary Statement Regarding Forward-Looking Statements,” which constitute cautionary statements. These cautionary statements should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

 

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances occurring after the date of this Quarterly Report.

 

INTRODUCTION

 

VAALCO is a Houston, Texas-based, African-focused independent energy company with strong production and reserve portfolio of assets in Gabon, Egypt, Equatorial Guinea and Canada, currently engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs. 

 

 

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RECENT DEVELOPMENTS

 

Dividend Policy 

 

On February 26, 2024, VAALCO issued a press release announcing its quarterly cash dividend of $0.0625 per share of common stock for the first quarter of 2024 ($0.25 annualized), which was paid March 28, 2024 to stockholders of record at the close of business on March 8, 2024.

 

Payment of future dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including current financial condition, the tax impact of repatriating cash, operating results and current and anticipated cash needs. 

 

Recent Operational Updates 

 

Gabon 

 

VAALCO completed its last drilling campaign in the fourth quarter of 2022. We are currently evaluating locations and planning for the next drilling campaign at Etame that is expected to occur early in 2025. In October 2022, VAALCO successfully completed its transition to a Floating Storage and Offloading vessel (“FSO”) and related field reconfiguration processes. This project provides a low cost FSO solution that increases the storage capacity for the Etame block and improved operational performance. The Company continues to focus on operational excellence, production uptime and enhancement in 2024 to minimize decline until the next drilling campaign.

 

At the end of March 2024, all wells were online with expected production profiles. The gas lift compression system increased the production and the reliability of two subsea wells, positively impacting our volumes for the quarter ended March 31, 2024. Gas lift compression and subsea wells remained online with a high level of reliability through the quarter ended March 31, 2024.

 

We have dedicated significant efforts to optimize the new flow line configurations through the Etame Facility. These efforts to maintain high uptime availability of the Etame Facility and, in turn, the entire Etame field, during the first quarter of 2024. Combining this with focus on individual well and facility chemical injection optimization and facility pipeline pigging adjustments both on frequency of pigging as well as flow path targeting, has increased production through decrease in pipeline internal buildup and resulting drop in pipeline back pressure. This has provided more stable operations resulting in lower downtime. Through the end of 2023 and the first quarter of 2024, this continues to be a focus with positive results in production rates and uptime.

 

Preventative maintenance activities on facilities and facility equipment remained at scheduled levels. Equipment reliability and availability remain at high levels. The actual percentages of corrective maintenance performed versus preventative maintenance performed remain well within VAALCO and industry best practice standards.

 

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Egypt  

 

We have deferred 2024 drilling to work up a robust drilling program which is expected to commence in late 2024. We are in the process of contracting a second workover rig to supplement the current workover rig, which will allow us to substantially slow any decline until the 2024/25 drilling program starts.

 

We completed the K-81 recompletion at the start of the first quarter which was a carry-over from our 2023 drilling activity. The EA-55 well, drilled in October 2023, was completed and put online in January 2024. Three workover recompletions have been performed on H-22, K-65-ST1 and K-85. Both H-22 and K-65 ST1 had sanding issues and may need sand screens fitted to achieve peak production; whereas K-85 has come on with very strong production. The OGS-10 workover rig is currently working on the fourth workover well K-84. With the low cost of workover under $0.2 million the well economics are proving to be very good.

 

A summary of the Egyptian workover campaign's impact in the quarter ended March 31, 2024 is presented below:

 

VAALCO Egypt 2024 Workover Wells

 

Well

Workover date