- --------------------------------------------------------------------------------
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 SEPTEMBER 30, 2001
[_] 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 November 5, 2001, there were outstanding 20,744,569 shares of Common
Stock, $.10 par value per share, of the registrant.
- --------------------------------------------------------------------------------
VAALCO ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
September 30, 2001 and December 31, 2000......................... 3
Statements of Consolidated Operations (Unaudited)
Three months and Nine Months ended September 30, 2001 and 2000... 4
Statements of Consolidated Cash Flows (Unaudited)
Nine Months ended September 30, 2001 and 2000.................... 5
Notes to Consolidated Financial Statements.......................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 10
PART II. OTHER INFORMATION......................................... 15
2
VAALCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars, except par value amounts)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,948 $ 12,440
Funds in escrow 36 751
Receivables:
Trade 208 237
Other 122 153
Materials and supplies, net of allowance for inventory obsolescence of $5 330 329
Prepaid expenses and other 138 24
-------- --------
Total current assets 8,782 13,934
-------- --------
PROPERTY AND EQUIPMENT-SUCCESSFUL EFFORTS METHOD
Wells, platforms and other production facilities 2,396 1,154
Undeveloped acreage 633 555
Work in progress 6,118 2,268
Equipment and other 82 65
-------- --------
9,229 4,042
Accumulated depreciation, depletion and amortization (970) (850)
-------- --------
Net property and equipment 8,259 3,192
-------- --------
OTHER ASSETS:
Investment in unconsolidated entities 836 1,448
Deferred tax asset 410 410
Other long-term assets 52 57
-------- --------
TOTAL $ 18,339 $ 19,041
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 508 $ 463
Accounts with partners 1,984 2,047
Income taxes payable - 10
-------- --------
Total current liabilities 2,492 2,520
-------- --------
MINORITY INTEREST 12 13
FUTURE ABANDONMENT COSTS 3,294 3,294
-------- --------
Total liabilities 5,798 5,827
-------- --------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $25 par value, 500,000 shares authorized;
10,000 shares issued and outstanding in 2001 and 2000 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 2001 and 2000 2,075 2,075
Additional paid-in capital 41,215 41,215
Accumulated deficit (30,987) (30,314)
Less treasury stock, at cost (12) (12)
-------- --------
Total stockholders' equity 12,541 13,214
-------- --------
TOTAL $ 18,339 $ 19,041
======== ========
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 Nine Months Ended
September 30, September 30,
------------------------ -----------------------
2001 2000 2001 2000
------- ------- ------- -------
REVENUES:
Oil and gas sales $ 396 $ 229 $1,230 $ 1,004
Gain on sale of assets -- -- 215 --
------ ------ ------ -------
Total revenues 396 229 1,445 1,004
------ ------ ------ -------
OPERATING COSTS AND EXPENSES:
Production expenses 195 123 504 350
Depreciation, depletion and amortization 73 2 125 10
Exploration expense -- 320 -- 910
General and administrative expenses 494 470 1,282 1,330
------ ------ ------ -------
Total operating costs and expenses 762 915 1,911 2,600
------ ------ ------ -------
OPERATING LOSS (366) (686) (466) (1,596)
OTHER INCOME (EXPENSE):
Interest income 28 159 250 449
Equity loss in unconsolidated entities 2 (47) (443) (3,002)
Other, net 4 9 2 (11)
------ ------ ------ -------
Total other income (expense) 34 121 (191) (2,564)
------ ------ ------ -------
LOSS BEFORE TAXES (332) (565) (657) (4,160)
Income tax expense (benefit) (1) - 16 3
------ ------ ------ -------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (331) $ (565) $ (673) $(4,163)
====== ====== ====== =======
LOSS PER COMMON SHARE:
BASIC AND DILUTED $(0.02) $(0.03) $(0.03) $ (0.20)
====== ====== ====== =======
WEIGHTED AVERAGE COMMON SHARES:
BASIC AND DILUTED 20,745 20,745 20,745 20,745
====== ====== ====== =======
See notes to consolidated financial statements.
4
VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(in thousands of dollars)
Nine Months Ended September 30,
-------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (673) $(4,163)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 125 10
Equity loss in unconsolidated entities 443 3,002
Exploration expense -- 905
Gain on sale of assets (215) --
Change in assets and liabilities that provided (used) cash:
Funds in escrow 715 10,043
Trade receivables 29 54
Accounts with partners (63) 463
Other receivables 31 (8)
Materials and supplies (1) (2)
Prepaid expenses and other (114) (66)
Accounts payable and accrued liabilities 45 (140)
Income taxes payable (10) --
------- -------
Net cash provided by operating activities 312 10,098
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposals of property and equipment 1,023 55
Additions to property and equipment (6,000) (209)
Exploration Expense - (331)
Investment in unconsolidated entities 169 (406)
Other 4 (26)
------- -------
Net cash used in investing activities (4,804) (917)
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (4,492) 9,181
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,440 2,925
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,948 $12,106
======= =======
Cash Income Taxes Paid $ 21 $ --
======= =======
See notes to consolidated financial statements.
5
VAALCO ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(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, 2000.
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
consortiums internationally in the Philippines and Gabon. 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. and VAALCO Production (Gabon),
Inc. VAALCO Energy (USA), Inc. holds interests in certain properties in the
United States.
2. RECENT DEVELOPMENTS
In January 2001, the Company acquired a 65% interest in the Etame Block
offshore Gabon, West Africa from Western Atlas Afrique, Ltd. a subsidiary of
Baker Hughes. Consideration for the acquisition was $1 million in cash and a
future net profits interest in the event the existing discoveries on the
block are developed. The Company resold 52.5% of the interest held by Western
Atlas Afrique to two companies for $1 million and their proportionate
assumption of the future net profits interest. The Company now holds a 30.35%
interest in the Etame Block and is operator of the 3,073 square kilometer
concession.
The Company drilled the Etame 1 well and made a Gamba sandstone discovery on
the Etame 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 well, which delineated the oil water contact for the
discovery. Because the Gamba reservoir lies below a layer of salt and is
structurally complex, during 1999 and the first half of 2000, a seismic
reprocessing effort was performed to better map the Gamba reservoir. Based on
the seismic reprocessing effort, the Company drilled a third well, the Etame
3V well, on the discovery during the first quarter of 2001. The well found
pay in the Gamba sandstone approximately 1.2 kilometers (0.75 miles) away
from the Etame 1 well. In addition, pay was found in the Dentale sandstones
below the Gamba sandstone. A total of 34 meters (110 feet) of gross pay
interval was encountered in the Etame 3V well.
6
VAALCO ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
In June 2001, drilling of the Etame 4V delineation well was completed. The
well was drilled approximately 2.4 kilometers (1.5 miles) from the Etame 1
discovery well and logged 32 meters (105 feet) of oil column with net pay of
approximately 24 meters (80 feet). The well was conventionally cored and
recovered 17 meters (57 feet) of oil-saturated sandstone in the Gamba and
Dentale formations. The Gamba sandstone, the primary target reservoir, was
approximately 14 meters (45 feet) thick in the well and was full of oil
throughout the entire interval. This represents approximately 30 percent
greater sand thickness than seen in the previous wells within the Gamba
formation.
As a result of the two successful delineation wells drilled this year, the
Etame consortium has approved a budget to develop the field. Initial
development will consist of three subsea wells connected to a floating
production, storage and offloading tanker ("FPSO") at a cost of approximately
$37 million ($11.2 million net to the Company). The project is expected to
come online in the third quarter of 2002 at initial flow rates of at least
12,000 barrels of oil per day. To fund its share of the development project,
the Company has negotiated a line of credit of $10 million available through
2002. To date, no borrowings have been made from this line of credit. The
Company is actively negotiating with other funding sources for permanent
financing for the project.
The Company has awarded the contract for the FPSO, for the trees and for the
flowlines and umbilicals to service companies based on bids conducted over
the last several months. The Company has also entered into a letter of intent
to contract a drilling rig to complete the three wells beginning after March
1, 2002.
In June 2001, the Company announced the results of a well drilled in Brazos
County, Texas. The well was completed at an initial flow rate of 525 barrels
of oil per day and 1.4 million cubic feet of gas per day. The well was
completed horizontally in the Buda and Georgetown formations. An offset
location was completed in September and flowed at an initial rate of 191
barrels of oil per day and 1.8 million cubic feet of gas per day. VAALCO has
a 30 percent interest in the project.
The Company has elected to terminate its joint venture with Paramount
Petroleum, Inc., effective June 1, 2001, which focused on domestic onshore
prospects in Mississippi, Alabama and Louisiana. The Company will receive its
proportionate 93.75% interest in kind in all remaining prospects within the
joint venture upon completion of assignment documentation.
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 Statement of
Financial Accounting Standards ("SFAS") No. 128 - "Earnings per Share," which
establishes the
7
VAALCO ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
requirements for presenting earnings per share ("EPS"). SFAS No. 128 requires
the presentation of "basic" and "diluted" EPS on the face of the income
statement. Basic EPS is calculated using the average number of common shares
outstanding during each period. Diluted EPS 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. The Company's preferred stock is convertible into
27,500,000 shares of common stock. As all of the convertible securities were
anti-dilutive at September 30, 2001, basic EPS is equal to diluted EPS.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was
amended in June 1999 by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" and in June 2000 by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS No. 133, as amended, is
effective for derivative instruments and hedging activities that require an
entity to recognize all derivatives as an asset or liability measured at its
fair value. Depending on the intended use of the derivative, changes in its
fair value will be reported in the period of change as either a component of
earnings or a component of comprehensive income. Retroactive application to
periods prior to adoption is not allowed. The Company adopted SFAS No. 133,
as amended, effective January 1, 2001. The adoption had no effect on the
Company's financial position or results of operations as all existing
contracts either do not meet the definition of a derivative or qualify for
the normal purchases and sales exemption. The Company does not currently
engage in hedging activities.
On July 20, 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." The Statements will change the accounting for business
combinations and goodwill in two significant ways. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method will be
prohibited. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Thus, amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of that statement, which for the Company will be January
1, 2002.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible, long-lived assets and the associated asset retirement
costs. This Statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred by capitalizing it as part of the carrying amount of the long-lived
assets. As
8
VAALCO ENERGY, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
required by SFAS No. 143, the Company will adopt this new accounting
standard on January 1, 2002.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This
Statement establishes a single accounting model for the impairment or
disposal of long-lived assets. As required by SFAS No. 144, the Company will
adopt this new standard on January 1, 2001.
The Company is currently evaluating the effects of adopting these
pronouncements.
9
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 is from
mature offshore fields with high production costs. 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's results of operations are also affected by currency exchange
rates. While oil sales are denominated in U.S. dollars, operating costs are
predominately denominated in pesos. An increase in the exchange rate of pesos
to the dollar will have the effect of increasing operating costs while a
decrease in the exchange rate will reduce operating costs.
A substantial portion of the Company's oil production is located offshore of the
Philippines. The Company produces 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 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.
10
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company's primary source of capital resources has been from
cash flows from operations, private sales of equity, borrowings and purchase
money debt. In 2001 and 2000, the Company's primary uses of capital have been
to fund its exploration operations.
The Company produces oil from the Matinloc and Nido fields in the South China
Sea, the Philippines. The fields produced approximately 415,000 gross barrels
of oil during 2000. For the nine months ended September 30, 2001, total
production from the fields was approximately 262,000 gross barrels of oil. More
recently, the Company has begun producing oil and gas from wells drilled in
Brazos County, Texas. These wells produced 35,000 gross barrels of oil and 125
million gross cubic feet of gas during the third quarter of 2001. VAALCO has a
30% working interest in these wells. 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 in the Philippines under agreements with Seaoil and Caltex,
both local Philippines refiners. While the loss of these buyers 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 invested $3.0 million in the Paramount joint venture of which
$2.0 million has been impaired as of September 30, 2001. The Company has
elected to terminate its joint venture with Paramount Petroleum, Inc., effective
June 1, 2001 and received a cash payment of $169 thousand from the joint
venture. The Company will receive its proportionate 93.75% interest in kind in
all remaining prospects within the joint venture upon completion of assignment
documentation.
Effective June 30, 2000, the Company elected to withdraw from Hunt Overseas
Exploration Company L.P. ("Hunt"). The Company formerly held a 7.5% limited
partnership interest in Hunt. 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 June 30, 2000. In
addition, if Hunt discovered oil, the Company may have been required to
contribute an additional $7.5 million to fund the appraisal of the discovery.
As a result of withdrawing from the Hunt venture, Hunt released certain funds in
escrow totaling $8.4 million and reimbursed the Company $1.3 million for its
share of net working capital in the partnership as of June 30, 2000.
The Company continues to seek financing to fund the development of existing
properties and to acquire additional assets. The Company will rely on the
issuance of equity and debt securities, asset 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 2001, the Company anticipates that it will make capital expenditures on
oil and gas properties of approximately $8.0 million, primarily in Gabon. An
additional $7 million is
11
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
anticipated to be spent in Gabon in 2002 to complete initial development of the
Etame Field. The Company has negotiated a $10 million line of credit through
2002 to fund the Etame Field development. The Company is actively seeking more
permanent financing to fund additional development of the Etame field. The
anticipated capital expenditures exclude potential acquisitions. Other than the
funding required to develop the Etame field, which will be sourced from outside
the Company, the Company believes the cash on hand at September 30, 2001 will be
sufficient to fund the Company's capital budget through 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
Revenues
Total revenues were $396 thousand for the three months ended September 30, 2001
compared to $229 thousand for the comparable period in 2000. The increase in
revenues in 2001 is due to the production from Brazos County, Texas.
Operating Costs and Expenses
Total production expenses for the three months ended September 30, 2001 were
$195 thousand compared to $123 thousand in 2000. Expenditures in 2001 included
additional activity at the Nido field in the Philippines and operating costs
associated with the Brazos County wells. The Company did not have any
exploration expense for the three months ended September 30, 2001, compared to
$320 thousand in 2000. Exploration expense in 2000 represented dry hole expense
associated with onshore domestic wells in which the Company participated.
Depreciation, depletion and amortization increased from $2 thousand in the three
months ended September 30, 2000 to $73 thousand in the three months ended
September 30, 2001 due to depletion associated with production from the Brazos
County wells. General and administrative expenses for the three months ended
2001 and 2000 were $494 thousand and $470 thousand. Increased activity level
associated with the planning for the development of the Etame field in Gabon
accounted for the increase in general and administrative costs.
Other Income (Expense)
Interest income of $28 thousand was received from amounts on deposit in 2001
compared to $159 thousand in the quarter ended September 30, 2000. The decrease
can be attributed to smaller balances on deposit in 2001 when compared to 2000
and lower interest rates in 2001. The equity gain in unconsolidated entities in
the quarter ended September 30, 2001 was $2 thousand compared to a loss of $47
thousand in 2000. The loss reported in the quarter ended September 30, 2000 was
associated with the Paramount joint venture and consisted of the write off of
unsold prospect costs.
12
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Taxes
The Company reversed $1 thousand in accrued income tax expense, associated with
activity in the Philippines, in the quarter ended September 30, 2001.
Net Loss
Net loss attributable to common stockholders for the three months ended
September 30, 2001 was $331 thousand, compared to a net loss attributable to
common stockholders of $565 thousand for the same period in 2000. The reduced
net loss in 2001 was primarily due to the lack of exploration costs associated
with the Company's investment in unconsolidated entities.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000
Revenues
Total revenues were $1,445 thousand for the nine months ended September 30, 2001
compared to $1,004 thousand for the comparable period in 2000. Revenues from
the Brazos County production plus a gain on the resale of certain interests
acquired in Gabon in 2001 contributed to a net increase in revenues.
Operating Costs and Expenses
Total production expenses for the nine months ended September 30, 2001 were $504
thousand compared to $350 thousand in 2000. Expenditures in 2001 included
additional activity at the Nido field and in Brazos County. The Company did not
have any exploration expense for the nine months ended September 30, 2001,
compared to $910 thousand in 2000. Exploration expense in 2000 was associated
with dry hole costs and lease expiration expense associated with domestic
onshore activity in Texas. Depreciation, depletion and amortization increased
from $10 thousand in the nine months ended September 30, 2000 to $125 thousand
in the nine months ended September 30, 2001 due to depletion associated with
production from the Brazos County discovery. General and administrative
expenses for the nine months ended 2001 and 2000 were $1,282 thousand and $1,330
thousand. The Company benefited from overhead reimbursements associated with
capital expenditure programs in Gabon in 2001.
Other Income (Expense)
Interest income of $250 thousand was received from amounts on deposit in 2001
compared to $449 thousand in the nine months ended September 30, 2000. The
decrease can be attributed to smaller balances on deposit in 2001 when compared
to 2000 and lower interest rates in 2001. The equity loss in unconsolidated
entities in the nine months ended September 30, 2001 is $443 thousand compared
to a loss of $3,002 thousand in 2000. The loss reported in the nine months
13
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ended September 30, 2001 was associated only with the Paramount joint venture
and consisted of the write off of unsold prospect costs. The loss reported in
the nine months ended September 30, 2000 was primarily associated with
exploration costs incurred by the Hunt partnership from which the Company
withdrew effective June 30, 2000.
Income Taxes
The Company incurred $16 thousand in income tax expenses, associated with
activity in the Philippines, in the nine months ended September 30, 2001,
compared to $3 thousand in 2000.
Net Loss
Net loss attributable to common stockholders for the nine months ended September
30, 2001 was $673 thousand, compared to a net loss attributable to common
stockholders of $4,163 thousand for the same period in 2000. The net loss in
both periods was primarily due to exploration costs associated with the
Company's investment in unconsolidated entities and operating losses.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3. Articles of Incorporation and Bylaws
3.1 Restated Certificate of Incorporation (incorporated by reference to
exhibit 4.1 to the Company's Registration Statement on Form S-3 filed
with the Commission on July 15, 1998, Reg. No. 333-59095).
3.2 Certificate of Amendment to Restated Certificate of Incorporation
(incorporated by reference to exhibit 4.2 to the Company's
Registration Statement on Form S-3 filed with the Commission on July
15, 1998, Reg. No. 333-59095).
3.3 Bylaws (incorporated by reference to exhibit 4.3 to the Company's
Registration Statement on Form S-3 filed with the Commission on July
15, 1998, Reg. No. 333-59095).
3.4 Amendment to Bylaws (incorporated by reference to exhibit 4.4 to the
Company's Registration Statement on Form S-3 filed with the Commission
on July 15, 1998, Reg. No. 333-59095).
3.5 Designation of Convertible Preferred Stock, Series A (incorporated by
reference to exhibit 4.1 to the Company's Report on Form 8-K filed
with the Commission on May 6, 1998, File No. 000-20928).
(B) REPORTS ON FORM 8-K.
None
15
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 November 12, 2001
16