10QSB/A: Optional form for quarterly and transition reports of small business issuers
Published on March 4, 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB/A
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
|_| 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 August 11, 1997 there were outstanding 15,466,527 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
June 30, 1997 (Unaudited)-as restated and December 31, 1996.........3
Statements of Consolidated Operations (Unaudited)
Three and six months ended June 30, 1997-as restated and 1996.......4
Statements of Consolidated Cash Flows (Unaudited)
Six months ended June 30, 1997-as restated and 1996.................5
Notes to Consolidated Financial Statements.............................6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................9
PART II. OTHER INFORMATION...........................................14
2
VAALCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PAR VALUE AMOUNTS)
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)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
SIX MONTHS
ENDED JUNE 30,
-------------------
1997 1996
------- -------
(AS RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES: SEE NOTE 5)
Net income (loss) ...................................... $ 2,727 $ (181)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation, depletion and amortization ........... 302 618
Seismic and exploration costs ...................... 66 115
Gain on sale of assets ............................. (3,332) (1,140)
Change in assets and liabilities that provided
(used) cash:
(8) --
Funds in escrow
Accounts with partners ............................. (315) (1,162)
Trade receivables .................................. (994) (131)
Other receivables .................................. 425 (156)
Crude oil inventory ................................ -- 971
Materials and supplies ............................. (64) 135
Prepaid expenses and other ......................... (25) 50
Accounts payable ................................... 819 430
Accrued liabilities ................................ (424) (387)
------- -------
Net cash used in operating activities ............ (823) (838)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Seismic and exploration costs .......................... (66) (158)
Additions to property and equipment .................... (108) (453)
Proceeds from sale of assets ........................... 4,672 1,825
------- -------
Net cash provided by investing activities ........ 4,498 1,343
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ............................... -- 1,000
Repayments of debt obligations ......................... (4,720) (700)
Advances from related parties (net) .................... 1,424 3
------- -------
Net cash (used in) provided by financing
activities ................................... (3,296) 303
------- -------
NET CHANGE IN CASH AND EQUIVALENTS ..................... 379 808
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD ............ 1,055 701
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD .................. $ 1,434 $ 1,509
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash paid for interest ......................... $ 231 $ 158
======= =======
Depletion costs previously capitalized in crude
oil inventory .................................... $ -- $ 533
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
VAALCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(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 which the Company deems
necessary for a fair presentation of its financial position and results of
operations for the interim period. Such results are not necessarily
indicative of results to be expected for the full year. The Balance Sheet
at December 31, 1996 has been taken from the audited financial statements
at that date. 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, 1996.
2. CURRENT DEVELOPMENTS
In July 1997, the Company completed a private placement of four million
shares of common stock. Certain selling shareholders accounted for 500,000
of the private placement shares. The private placement resulted in $3.2
million net proceeds to the Company. Concurrent with the private placement
of equity, the Company redeemed all of the issued and outstanding shares
of its 10% Cumulative Series A Preferred Stock. Payment of the redemption
price and payment of accrued and unpaid dividends were satisfied by the
issuance of an aggregate of 2,740,663 shares of Common Stock.
Also, in July 1997, the Company amended its Certificate of Incorporation
to increase the number of shares of Common Stock it is authorized to
issue. As a result of such amendment, the Company is authorized to issue
50,000,000 shares of Common Stock of which 15,466,527 shares were issued
and outstanding on August 11, 1997.
Effective August 1, 1997, Mr. Robert L. Gerry, III was elected Chairman
of the Board of the Company. Mr. Gerry was previously vice chairman of
Nuevo Energy Company. Mr. Gerry will also serve as the Company's Chief
Executive Officer. Mr. C. W. Alcorn resigned as Chairman of the Board
but will remain a director of the Company.
During 1997, the Company completed the restructuring of its international
assets. Certain marketable securities held by the Company in Alcorn
Petroleum and Minerals Corporation ("APMC"), a publicly listed Philippines
company were sold for a gain of $0.7 million. Proceeds of $3.4 million
were used to retire debt. In addition, the Company sold the balance of its
assets in India, consisting of a 4% net profit interest in the PY-3 Field,
and a 20% working interest in the Gulf of Cambay Block CB-OS/1. The assets
were sold to Hardy Oil & Gas (U.K.) Ltd. for a gain of $2.5 million.
6
In the Philippines, the Company announced a farmout in the fourth quarter
of 1996 which will result in a $7.0 million 3-D seismic survey program
over acreage held by the Company. The seismic acquisition commenced in
February 1997 and at July 31, 1997 was 67% completed.
On April 4, 1997, in Gabon, the Company executed the previously announced
farm-in agreement with Western Atlas Afrique, Ltd. for the acquisition of
seismic and drilling of a well on the Etame Contract.
3. DEBT OBLIGATIONS
In December 1996, the Company issued $0.6 in debt associated with the
acquisition of certain properties in the Gulf of Mexico. The loan is
secured by an assignment of revenue interests ranging from 45% to 65% in
certain properties. The loan is recourse only to the assigned revenue
interests, and is not guaranteed by the Company. The balance on the note
at June 30, 1997 was $0.2 million.
The Company retired certain debt of its Philippines subsidiaries in April
1997.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings
Per Share". SFAS 128 established standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. This statement simplifies the
standards for computing EPS previously found in Accounting Principles
Board Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted. This statement
requires restatement of all prior-period EPS data presented. Considering
the guidelines as prescribed by SFAS 128, management believes that the
adoption of this statement does not have a material effect on EPS and thus
pro forma EPS, as suggested for all interim and annual periods prior to
required adoption, have been omitted.
7
5. RESTATEMENT
Subsequent to the issuance of the financial statements, the Company's
management determined that a receivable payment in the first quarter was
inadvertantly recorded to revenues net of operating expense. Certain other
immaterial reclassifications were made. The accompanying financial
statements have been modified accordingly. This results in a restatement
of the Company's accounts receivable, revenues and operating expenses.
A summary of the effects of the adjustments follows:
(In thousands of dollars except per share amounts)
AS PREVIOUSLY
REPORTED AS ADJUSTED
------------ ------------
As of June 30, 1997
Accounts Receivable - Trade ........... $ 1,455 $ 1,097
Accumulated deficit ................... (16,538) (16,896)
For the six months ended
June 30, 1997
Oil and gas sales ................... 1,715 1,262
Production expenses ................. 872 777
Net income (loss) ................... 3,085 2,727
Net income (loss)
attributable to common
stockholders ...................... 3,029 2,671
Income (loss) per common
share ............................. 0.34 0.30
8
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company's primary source of capital resources has been from
its production operations in the Philippines, asset sales and the issuance of
debt. The Company continues to produce the Nido and Matinloc fields in the
Philippines at approximately 675 BOPD.
Through a diversification program undertaken by management, the Company acquired
producing assets in the Gulf of Mexico and two interests in Gabon. The Company
has also accumulated approximately 1,603 acres in the Wilcox trend of Goliad
County, Texas.
In order to execute the diversification program, the Company has, among other
activities, been actively seeking farmout partners to progress the development
of its prospects. In this regard, the Company has successfully entered into
farmout agreements in one of its Gabon blocks and in its Philippines blocks in
exchange for carried work programs. For the domestic acquisition program, the
Company has relied on the private placement of equity and issuance of debt to
raise capital for these acquisitions. A more detailed description of the
Company's activities is described below.
In July 1997, the Company completed a private placement of four million shares
of common stock. Certain selling shareholders accounted for 500,000 of the
private placement shares. The private placement resulted in $3.2 million net
proceeds to the Company. Concurrent with the private placement of equity, the
Company redeemed all of the issued and outstanding shares of its 10% Cumulative
Series A Preferred Stock. Payment of the redemption price and payment of accrued
and unpaid dividends were satisfied by the issuance of an aggregate of 2,740,663
shares of Common Stock.
Also, in July 1997, the Company amended its Certificate of Incorporation to
increase the number of shares of Common Stock it is authorized to issue. As a
result of such amendment, the Company is authorized to issue 50,000,000 shares
of Common Stock of which 15,466,527 shares were issued and outstanding on August
11, 1997.
United States
In December 1996, the Company issued $618,000 in debt associated with the
acquisition of certain properties in the Gulf of Mexico. The loan is secured by
an assignment of revenue interests in certain of the properties. The loan is
recourse only to the assigned revenue interests, and is not guaranteed by the
Company. The balance of the note as of June 30, 1997 was $199,000. The Gulf of
Mexico properties consist of interests in seven offshore fields in ten lease
blocks. Four of the platforms in three of the fields, High Island blocks A-313,
A-314 and A-280, are being operated by VAALCO. The balance of the package
consists of non-operated interests in the West Cameron, Vermilion and Ship Shoal
areas of the Gulf of Mexico. No significant capital expenditures are anticipated
in 1997 for these properties.
9
In October 1994, the Company acquired a working interest in approximately 1,200
acres in Goliad County, Texas, in exchange for cash and warrants to purchase
shares of the Company's Common Stock, $.10 par value per share (the "Common
Stock"). The warrants have a term of three years and will consist of the right
to purchase 200,000 shares of Common Stock at an exercise price of $2.50 per
share and 200,000 shares of Common Stock at an exercise price of $5.00 per
share, subject to the terms and conditions of the acquisition agreement. A
working interest in an additional 403 acres was acquired during 1996. The
Company has an average 76% net revenue interest in the acreage and plans to
analyze this property in 1997 for potential drilling locations. The three year
lease has no drilling obligation requirements. Capital expenditures for 1997
will depend upon the outcome of analysis currently being done on the area.
Gabon
In July 1995, the Company acquired two blocks offshore Gabon, the Equata block
and the Etame block. Both blocks contain previous discoveries that the Company
is currently evaluating to determine their commercial viability. The Company and
its partners have an obligation to the Government of Gabon to obtain
approximately 1,500 line kilometers of seismic data and to drill one well on the
Etame block during the three-year term of the license.
In April 1997, the Company entered into an agreement with Western Atlas Afrique,
Ltd., a subsidiary of Western Atlas, which will perform the required seismic
surveys and pay a disproportionate 80% of the cost, up to $4.7 million, of the
estimated $5.8 million (dry hole cost) commitment well to earn a 65% interest in
the concession. The Company and its partners will be responsible for 20% of the
cost (35% over $4.7 million) of the commitment well. VAALCO's share of the dry
hole cost of the commitment well is estimated to be $0.7 million. At June 1997,
the Company completed the above mentioned acquisition of seismic data over the
property. These data are currently being processed to determine the best
location for drilling a well. The Company has contracted a drilling rig for the
first quarter of 1998 to drill the well.
Philippines
In October 1996, VAALCO and the other Service Contract No. 14 and Service
Contract No. 6 consortium members entered into a farmout agreement wherein the
farmee, an Australian company, is required to shoot a $7.0 million 3-D seismic
program over the service contracts during 1997. The Australian farmee company
will earn a 35% interest in the blocks for performing the work. In addition, the
Australian company has the option to drill two wells, one on each Service
Contract, to earn up to an additional 25% interest in each Service Contract.
Seismic acquisition under the farmout agreement commenced in February 1997 and
was 67% completed at July 31, 1997. No significant capital expenditures are
anticipated by the Company in 1997 for the Philippines operations.
10
Other Activities
In March 1997, the Company sold its Gulf of Cambay concession and its 4% net
profits interest in the CY-OS/2 concession, both in India, to Hardy Oil & Gas
(UK) Limited for $2.5 million. The Company applied $1.0 million of the proceeds
from the sale to complete the payment of the non-recourse loan made to the
Company by Hardy in 1996. The remainder of the note was paid in April 1997.
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 flows from
operations to provide the required capital for funding future operations. While
there can be no assurance that the Company will be successful in raising new
financing, management believes that the prospects the Company has in hand will
enable it to attract sufficient capital to fund required oil and gas activities.
Cash Flows Net cash provided by investing activities for the six months ended
June 30, 1997 was $4.5 million, an increase of $3.2 million, as compared to $1.3
million for the same period in 1996. The 1997 amount reflects cash received from
the sale of marketable securities and the sale of the Company's interest in
India.
Net cash used in financing activities for the six months ended June 30, 1997 was
$3.3 million, as compared to net cash provided by financing activities of $0.3
million for the same period in 1996. The 1997 amount reflects the payment of the
Company's long term debt.
Item 2 of this document 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. Although the Company believes that
the expectations reflected in such forward looking statements are based upon
reasonable assumptions, the Company can give no assurance that these
expectations will be achieved. Important factors that could cause actual results
to differ materially from the Company's expectations include general economic,
business and market conditions, the volatility of the price of oil and gas,
competition, development and operating costs and the factors that are disclosed
in conjunction with the forward looking statements included herein.
11
RESULTS OF OPERATIONS
Amounts stated hereunder have been rounded to the nearest $100,000, however,
percentage changes have been calculated using actual amounts.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUES
Total oil and gas sales for the three months ended June 30, 1997 were $0.8
million, an increase of $0.5 million, as compared to $0.3 million for the same
period in 1996. The 1996 revenues relate to the Company's oil production in the
Philippines. The 1997 revenues include revenues relating to the Philippines, as
well as oil and gas revenues relating to the Company's Gulf of Mexico operations
The gain on sale of assets of $1.1 million, recognized in the three months ended
June 30, 1996, was associated with the sale of the Company's interest in the
PY-3 field in India.
OPERATING COSTS AND EXPENSES
Production expenses for the three months ended June 30, 1997 were $0.5 million,
an increase of $0.3 million, as compared to $0.2 million for the same period in
1996. The increase is primarily due to production costs incurred in 1997
relating to the Gulf of Mexico operations.
General and administrative expenses for the three months ended June 30, 1997
were $0.2 million, a decrease of $0.4 million, or 56%, as compared to $0.6
million for the same period in 1996. The decrease is primarily due to reduced
overhead costs in the Philippines and overhead reimbursements in Gabon and the
Gulf of Mexico.
No preferred dividends were paid or accrued in the three months ending June 30,
1997. As part of the agreement to redeem the preferred stock in July, the
preferred shareholders waived the right to preferred dividends beyond March 31,
1997.
Other income increased by $0.2 million to $0.05 million for the three months
ending June 30, 1997 from a loss of $0.1 million for the comparable period in
1996. Certain inventory adjustments in 1996 accounted for the increase.
NET INCOME
Net loss attributable to common stockholders for the three months ended June 30,
1997 was $0.2 million, compared to net income attributable to common
stockholders of $0.4 million for the same period in 1996. The 1996 income
results from the recognition of a gain on the sale of assets associated with the
sale of the Company's interest in the PY-3 field in India.
12
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES
Total oil and gas sales for the six months ended June 30, 1997 were $1.3
million, a decrease of $0.9 million, or 42%, as compared to $2.2 million for the
same period in 1996. The 1996 revenues relate to the Company's oil production in
the Philippines, and included a final crude oil sale from the West Linapacan "A"
Field. The 1997 revenues include revenues relating to the Philippines, as well
as oil and gas revenues relating to the Company's Gulf of Mexico operations.
The gain on sale of assets of $3.3 million, recognized in the six months ended
June 30, 1997, was associated with the sale of marketable securities and the
sale of the Company's interest in India. The gain on sale of assets of $1.1
million, recognized in the six months ended June 30, 1996, was associated with
the sale of the Company's interest in the PY-3 field in India
OPERATING COSTS AND EXPENSES
Production expenses for the six months ended June 30, 1997 were $0.8 million, a
decrease of $0.6 million, or 46%, as compared to $1.4 million for the same
period in 1996. The decrease is primarily due to reduced operating costs in the
Philippines, offset by production costs incurred in 1997 relating to the Gulf of
Mexico operations.
Depletion for 1997 relates to the Gulf of Mexico properties. No depletion
expense was recorded in 1997 for the Philippine properties, as the property was
fully depleted. The 1996 amount represents depletion of the Philippine
properties.
General and administrative expenses for the six months ended June 30, 1997 were
$0.8 million, a decrease of $0.3 million, or 31%, as compared to $1.1 million
for the same period in 1996. The decrease is primarily due to reduced overhead
costs in the Philippines and overhead reimbursements in Gabon and the
Philippines.
Preferred dividends decreased from $0.1 million to $0.06 million due to the
termination of dividend payments at March 31, 1997.
Other net income increased by $0.2 million to $0.0 million for the six months
ending June 30, 1997 from a loss of $0.2 million for the comparable period in
1996. Certain inventory adjustments in 1996 accounted for the increase.
NET INCOME
Net income attributable to common stockholders for the six months ended June 30,
1997 was $2.7 million, compared to net loss attributable to common stockholders
of $0.3 million for the same period in 1996. The 1997 income results from the
recognition of a gain associated with the sale of marketable securities and the
sale of the Company's interest in India.
13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In July 1997, the Company completed a private placement of four million shares
of common Stock at a price of $1.00 per share to certain accredited investors.
Certain selling shareholders accounted for 500,000 of the private placement
shares. The private placement resulted in $3.2 million net proceeds to the
Company. The Company also issued warrants to purchase 345,325 shares of Common
Stock at an exercise price of $1.00 per share to the placement agent for
services rendered in connection with the private placement.
Concurrent with the private placement of equity, the Company redeemed all of the
issued and outstanding shares of its 10% Cumulative Series A Preferred Stock.
Payment of the redemption price and payment of accrued and unpaid dividends were
satisfied by the issuance of an aggregate of 2,740,663 shares of Common Stock.
The Company claimed exemption from registration under the Securities Act of
1933, as amended, of such warrants and shares issued by the Company under
Section 4(2) of such Act as a transaction by an issuer not involving any public
offering.
In July 1997, the Company amended its Certificate of Incorporation to increase
from 15,000,000 to 50,000,000 the number of shares of Common Stock authorized
for issuance. See Item 4, "Submission of Matters to a Vote of Security Holders".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent dated July 10, 1997, in lieu of a special meeting of
stockholders, holders of an aggregate of 6,042,750 shares of Common approved an
amendment to the Company's Certificate of Incorporation to increase from
15,000,000 to 50,000,000 the number of shares of Common Stock authorized for
issuance.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1* Certificate of Amendments to Certificate of
Incorporation, dated July 14, 1997, of the
Company.
Exhibit 3.2* Certificate of Amendments to Certificate of
Designation of 10% Cumulative Preferred Stock,
Series A dated July 14, 1997, of the Company.
Exhibit 10.1* Registration Rights Agreement, dated July 28,
1997, by and among the Company, Jefferies &
Company, Inc. and the investors listed therein.
27. Financial Data Schedule
______________
* Previously Filed
(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
Dated March 2, 1998
16