10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 8, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
VAALCO Energy, Inc.
(Exact name of registrant as specified in its charter)
| |
|
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
9800 Richmond Avenue Suite 700
|
|
| (Address of principal executive offices) |
(Zip code) |
(
(Registrant’s 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 |
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.
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).
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 |
☐ |
|
☒ |
|
| 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
VAALCO ENERGY, INC. AND SUBSIDIARIES
Table of Contents
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 |
$ | $ | ||||||
| Restricted cash |
||||||||
| Receivables: |
||||||||
| Trade, net of allowances for credit loss and other of $ and $ million, respectively |
||||||||
| Accounts with joint venture owners, net of allowance for credit losses of $ and $ million, respectively |
||||||||
| Egypt receivables and other, net of allowances for credit loss and other of $ and $ million, respectively |
||||||||
| Crude oil inventory |
||||||||
| Prepayments and other |
||||||||
| Total current assets |
||||||||
| Crude oil, natural gas and NGLs properties and equipment, net |
||||||||
| Other noncurrent assets: |
||||||||
| Restricted cash |
||||||||
| Value added tax and other receivables, net of allowances for credit loss and other of $ and $ million, respectively |
||||||||
| Right of use operating lease assets |
||||||||
| Right of use finance lease assets |
||||||||
| Deferred tax assets |
||||||||
| Abandonment funding |
||||||||
| Other long-term assets |
||||||||
| Total assets |
$ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | $ | ||||||
| Accounts with joint venture owners |
||||||||
| Accrued liabilities and other |
||||||||
| Operating lease liabilities - current portion |
||||||||
| Finance lease liabilities - current portion |
||||||||
| Foreign income taxes payable |
||||||||
| Total current liabilities |
||||||||
| Asset retirement obligations |
||||||||
| Operating lease liabilities - net of current portion |
||||||||
| Finance lease liabilities - net of current portion |
||||||||
| Deferred tax liabilities |
||||||||
| Other long-term liabilities |
||||||||
| Total liabilities |
||||||||
| Commitments and contingencies (Note 10) |
||||||||
| Shareholders’ equity: |
||||||||
| Preferred stock, $ par value; shares authorized, issued |
||||||||
| Common stock, $ par value; shares authorized, and shares issued, and shares outstanding, respectively |
||||||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive income |
||||||||
| Less treasury stock, and shares, respectively, at cost |
( |
) | ( |
) | ||||
| Retained earnings |
||||||||
| Total shareholders' equity |
||||||||
| Total liabilities and shareholders' equity |
$ | $ | ||||||
See notes to condensed consolidated financial statements.
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 |
$ | $ | ||||||
| Operating costs and expenses: |
||||||||
| Production expense |
||||||||
| Exploration expense |
||||||||
| Depreciation, depletion and amortization |
||||||||
| Transaction costs related to acquisition |
||||||||
| General and administrative expense |
||||||||
| Credit losses and other |
||||||||
| Total operating costs and expenses |
||||||||
| Other operating income (expense), net |
( |
) | ||||||
| Operating income |
||||||||
| Other income (expense): |
||||||||
| Derivative instruments gain (loss), net |
( |
) | ||||||
| Interest expense, net |
( |
) | ( |
) | ||||
| Other income (expense), net |
( |
) | ( |
) | ||||
| Total other expense, net |
( |
) | ( |
) | ||||
| Income before income taxes |
||||||||
| Income tax expense |
||||||||
| Net income |
$ | $ | ||||||
| Other comprehensive income (loss) |
||||||||
| Currency translation adjustments |
( |
) | ( |
) | ||||
| Comprehensive income |
$ | $ | ||||||
| Basic net income per share: |
||||||||
| Net income per share |
$ | $ | ||||||
| Basic weighted average shares outstanding |
||||||||
| Diluted net income per share: |
||||||||
| Net income per share |
$ | $ | ||||||
| Diluted weighted average shares outstanding |
||||||||
See notes to condensed consolidated financial statements.
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 |
( |
) | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| Shares issued - stock-based compensation |
||||||||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Treasury stock |
— | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Dividend distributions |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Other comprehensive loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net income |
— | — | ||||||||||||||||||||||||||||||
| Balance at March 31, 2024 |
( |
) | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| 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 |
( |
) | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||
| Shares issued - stock-based compensation |
( |
) | ||||||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Treasury stock |
— | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Dividend distributions |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Cumulative effect of adjustment upon adoption of ASU 2016-13 on January 1, 2023 |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Other comprehensive loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net income |
— | — | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
( |
) | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||
See notes to condensed consolidated financial statements.
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 |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation, depletion and amortization |
||||||||
| Bargain purchase loss |
||||||||
| Deferred taxes |
( |
) | ||||||
| Unrealized foreign exchange loss |
( |
) | ||||||
| Stock-based compensation |
||||||||
| Cash settlements paid on exercised stock appreciation rights |
( |
) | ( |
) | ||||
| Derivative instruments (gain) loss, net |
( |
) | ||||||
| Cash settlements paid on matured derivative contracts, net |
( |
) | ( |
) | ||||
| Cash settlements paid on asset retirement obligations |
( |
) | ( |
) | ||||
| Credit losses and other |
||||||||
| Other operating loss, net |
||||||||
| Operational expenses associated with equipment and other |
( |
) | ||||||
| Change in operating assets and liabilities: |
||||||||
| Trade, net |
( |
) | ||||||
| Accounts with joint venture owners, net |
( |
) | ||||||
| Egypt receivables and other, net |
( |
) | ||||||
| Crude oil inventory |
( |
) | ( |
) | ||||
| Prepayments and other |
( |
) | ||||||
| Value added tax and other receivables |
( |
) | ( |
) | ||||
| Other long-term assets |
( |
) | ||||||
| Accounts payable |
( |
) | ( |
) | ||||
| Foreign income taxes receivable/(payable) |
||||||||
| Deferred tax liability |
( |
) | ||||||
| Accrued liabilities and other |
( |
) | ( |
) | ||||
| Net cash provided by (used in) operating activities |
||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Property and equipment expenditures |
( |
) | ( |
) | ||||
| Net cash provided by (used in) investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from the issuances of common stock |
||||||||
| Dividend distribution |
( |
) | ( |
) | ||||
| Treasury shares |
( |
) | ( |
) | ||||
| Payments of finance lease |
( |
) | ( |
) | ||||
| Net cash provided by (used in) in financing activities |
( |
) | ( |
) | ||||
| Effects of exchange rate changes on cash |
( |
) | ( |
) | ||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
( |
) | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
$ | $ | ||||||
See notes to condensed consolidated financial statements.
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 |
$ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: |
||||||||
| Property and equipment additions incurred but not paid at end of period |
$ | $ | ||||||
| Recognition of right-of-use finance lease assets and liabilities |
$ | $ | ||||||
See notes to condensed consolidated financial statements.
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 $
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 |
$ | ( |
) | $ | ( |
) | ||
| Credit loss charges and other, net of receipts |
( |
) | ( |
) | ||||
| Cumulative effect of adjustment upon adoption of ASU 2016-13 on January 1, 2023 |
( |
) | ||||||
| Foreign currency gain (loss) |
( |
) | ||||||
| Balance at end of period |
$ | ( |
) | $ | ( |
) | ||
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 |
|
$ | $ | $ | $ | ||||||||||||
| $ | — | $ | — | $ | — | $ | — | ||||||||||
| Liabilities |
|||||||||||||||||
| Derivative liability |
|
$ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | ||||||||||||||
| ` |
As of December 31, 2023 |
|||||||||||||||||
| Balance Sheet Line |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||||
| (in thousands) |
||||||||||||||||||
| Assets |
||||||||||||||||||
| Derivative asset |
|
$ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||||
| Liabilities |
||||||||||||||||||
| SARs liability |
|
$ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||||
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 $
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.
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 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Operating costs and expenses: |
||||||||||||||||||||||||
| Production expense |
||||||||||||||||||||||||
| Exploration expense |
||||||||||||||||||||||||
| Depreciation, depletion and amortization |
||||||||||||||||||||||||
| Transaction costs related to acquisition |
||||||||||||||||||||||||
| General and administrative expense |
||||||||||||||||||||||||
| Credit losses and other |
||||||||||||||||||||||||
| Total operating costs and expenses |
||||||||||||||||||||||||
| Other operating income (expense), net |
( |
) | ( |
) | ||||||||||||||||||||
| Operating income |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Other income (expense): |
||||||||||||||||||||||||
| Derivative instruments loss, net |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Interest (expense) income, net |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Other (expense) income, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Total other expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Income (loss) before income taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Income tax (benefit) expense |
( |
) | ||||||||||||||||||||||
| Net income (loss) |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||
| Consolidated capital expenditures |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 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 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Operating costs and expenses: |
||||||||||||||||||||||||
| Production expense |
||||||||||||||||||||||||
| Exploration expense |
||||||||||||||||||||||||
| Depreciation, depletion and amortization |
||||||||||||||||||||||||
| General and administrative expense |
||||||||||||||||||||||||
| Credit losses and other |
||||||||||||||||||||||||
| Total operating costs and expenses |
||||||||||||||||||||||||
| Operating income (loss) |
( |
) | ( |
) | ||||||||||||||||||||
| Other income (expense): |
||||||||||||||||||||||||
| Derivative instruments gain, net |
— | — | — | — | ||||||||||||||||||||
| Interest (expense) income, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Other income (expense), net |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Total other expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| Income (loss) before income taxes |
( |
) | ( |
) | ||||||||||||||||||||
| Income tax expense (benefit) |
||||||||||||||||||||||||
| Net income (loss) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
| Consolidated capital expenditures |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (in thousands) |
Gabon |
Egypt |
Canada |
Equatorial Guinea |
Corporate and Other |
Total |
||||||||||||||||||
| Long-lived assets: |
||||||||||||||||||||||||
| As of March 31, 2024 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As of December 31, 2023 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (in thousands) |
Gabon |
Egypt |
Canada |
Equatorial Guinea |
Corporate and Other |
Total |
||||||||||||||||||
| Total assets: |
||||||||||||||||||||||||
| As of March 31, 2024 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As of December 31, 2023 |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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 |
$ | $ | ||||||
| Income attributable to unvested shares |
( |
) | ( |
) | ||||
| Numerator for basic |
||||||||
| Loss attributable to unvested shares |
( |
) | ||||||
| Numerator for dilutive |
$ | $ | ||||||
| Weighted average shares (denominator): |
||||||||
| Basic weighted average shares outstanding |
||||||||
| Effect of dilutive securities |
||||||||
| Diluted weighted average shares outstanding |
||||||||
| Stock options and unvested restricted stock grants excluded from dilutive calculation because they would be anti-dilutive |
||||||||
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 |
$ | $ | ||||||
| Other items reported in revenue not associated with customer contracts: |
||||||||
| Carried interest recoupment |
||||||||
| Royalties |
( |
) | ( |
) | ||||
| Net revenues |
$ | $ | ||||||
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 $
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 |
$ | $ | ||||||
| Royalties |
( |
) | ( |
) | ||||
| Selling costs |
( |
) | ( |
) | ||||
| Net revenues |
$ | $ | ||||||
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 |
$ | $ | ||||||
| Gas revenue |
||||||||
| NGL revenue |
||||||||
| Royalties |
( |
) | ( |
) | ||||
| Selling costs |
( |
) | ||||||
| Net revenues |
$ | $ | ||||||
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 |
$ | $ | ||||||
| Work-in-progress |
||||||||
| Undeveloped acreage |
||||||||
| Equipment and other |
||||||||
| Total crude oil, natural gas and NGLs properties, equipment and other |
||||||||
| Accumulated depreciation, depletion, amortization and impairment |
( |
) | ( |
) | ||||
| Net crude oil, natural gas and NGLs properties, equipment and other |
$ | $ | ||||||
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 |
$ | $ | ||||||||||
| July 2024 - September 2024 |
Collars |
Dated Brent |
$ | $ | ||||||||||
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 |
$ | ( |
) | $ | ( |
) | |||
| Unrealized gain (loss) |
( |
) | ||||||||
| Derivative instruments gain (loss), net |
$ | ( |
) | $ | ||||||
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 |
$ | $ | ||||||
| Gabon contractual obligations |
||||||||
| Capital expenditures |
||||||||
| Accrued wages and other compensation |
||||||||
| Egypt modernization payments |
||||||||
| Other |
||||||||
| Total accrued liabilities and other |
$ | $ | ||||||
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, $
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 $
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 |
$ | $ | ||||||||||||||
| February 1, 2024 - February 29, 2024 |
$ | $ | ||||||||||||||
| March 1, 2024 - March 12, 2024 |
$ | $ | ||||||||||||||
| Total |
||||||||||||||||
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 $
The Company also has minimum financial work commitments of $
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 $
11. DEBT
As of March 31, 2024 and December 31, 2023, the Company had
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 $
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 and (ii) consolidated cash and cash equivalents shall not be lower than $
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 -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,
Restricted shares
Restricted stock granted to employees will vest over a period determined by the Compensation Committee that is generally a -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,
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
For the three months ended March 31, 2024, the income tax expense of $
As of March 31, 2024, the Company had
14. OTHER COMPREHENSIVE INCOME
The Company’s other comprehensive loss was $
The components of accumulated other comprehensive income are as follows:
| Currency Translation Adjustments |
||||
| (in thousands) |
||||
| Balance at December 31, 2023 |
$ | |||
| Other comprehensive income (loss) |
( |
) | ||
| Balance at March 31, 2024 |
$ | |||
ITEM 2. MANAGEMENT’S 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; |
| ● |
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.
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.
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 |
Type |
Completion Zone |
Perforation Interval (ft) |
IP-30 Rate (BOPD) |
||||||
| K-81 |
1-Jan-24 |
Recompletion |
Asl-D |
13.1 | 154 | ||||||
| EA-55 |
10-Jan-24 |
Frac & Complete |
Redbed |
Hydraulic Frac |
143 | ||||||
| H-22 |
7-Feb-24 |
Recompletion |
Yusr-A |
9.8 | 82 | ||||||
| K-65_ST1 |
14-Feb-24 |
Recompletion |
Asl-D |
13.1 | 43* | ||||||
| K-85 |
16-Mar-24 |
Recompletion |
Asl-D |
13.1 | 420 | ||||||
| K-84 |
21-Mar-24 Under WO |
Recompletion |
Asl-G |
16.4 | In Progress |
||||||
Canada
The 2024 drilling campaign commenced in January 2024 with the drilling of 9-12-30-4W5, was spud on January 17, 2024. Our four planned wells in the north of the license have since been drilled. The first well was drilled to a total depth of 22,732 feet. The second well of the program, 10-12-30-4W5, was spud on February 9, 2024, and drilled to a total depth of 21,736 feet. The third well on the program, 11-12-30-4W5 was spud on February 23, 2024, and drilled to a total depth of 21,624 feet. The fourth well on the program was spud on March 9, 2024 and drilled to a total depth of 20,669 feet. The drilling rig was released on March 24, 2024. Completion of the wells was initiated in late March, and will be completed in April, followed by equipping and tie-in, with first production forecast to be in May 2024.
ACTIVITIES BY ASSET
Gabon
Offshore – Etame Marin Block
Development and Production
We operate the Etame Marin Block on behalf of a consortium of companies. As of March 31, 2024, production operations in the Etame Marin block included fifteen platform wells, plus two subsea wells tied back by pipelines to deliver crude oil and associated natural gas through a riser system to allow for delivery and processing at the Etame platform. From the Etame platform, the crude oil is pumped through a riser system to the FSO where it is stored and ultimately offloaded. The leased FSO is anchored to the seabed on the block. The Etame field currently has a combined total of seventeen producing wells. During the three months ended March 31, 2024 and 2023, production from the block was 1,437 million barrels ("MBbls") (735 MBbls, net) and 1,603 MBbls (820 MBbls, net), respectively, as discussed below in “Results of Operations”.
Egypt
In Egypt, our interests are spread across two regions: the Eastern Desert, which contains the West Gharib, West Bakr and North West Gharib merged concessions, and the Western Desert, which contains the South Ghazalat concession. Both of our Egyptian blocks are production sharing contracts ("PSC") among the Egyptian General Petroleum Corporation (“EGPC”), the Egyptian government and us. We have an equal ownership interest, with EGPC owning the other portion, in the joint venture that has a 100% working interest in both PSCs. During the three months ended March 31, 2024 and 2023, production from the Eastern Desert was 950 MBbls (641 MBbls, net) and 903 MBbls (616 MBbls, net), respectively, as discussed below in “Results of Operations.”
Canada
In Harmattan, Canada, we own production and working interests in the Cardium light oil and Mannville liquids-rich gas assets. This property produces oil and associated natural gas from the Cardium zone and liquids-rich natural gas from zones in the Lower Mannville and Rock Creek formations at vertical depths of 2,000 to 2,600 meters. All gas is delivered to a third party non-operated gas plant for processing. During the three months ended March 31, 2024 and 2023, production from our Canadian assets was 215 MBoe to our working interest (180 MBoe, net) and 239 MBoe (211 MBoe, net), respectively, as discussed below in "Results of Operations".
Equatorial Guinea
As of March 31, 2024, we had $10.0 million recorded for the book value of the undeveloped leasehold costs associated with the Block P license. In February of 2023, we acquired an additional 14.1% participating interest, increasing VAALCO’s participating interest in the Block to 60.0%. This increase of 14.1% participating interest increases our future payment to GEPetrol to $6.8 million at first commercial production of the Block. In March 2023, Atlas voted to participate in the Venus Development. Amendment 5 of the PSC was approved by all parties in March 2023 with this updated participating interest, and execution of the Venus development plan has been initiated. VAALCO, as operator, is in the process of working through the project charter and timing of key milestones. In March 2024, all partners signed the final documents, and the Government of Equatorial Guinea has approved the Joint Operating Agreement (“JOA”) related to the previously approved Venus-Block P plan of development.
The Block P PSC provides for a development and production period of 25 years from the date of approval of a development and production plan for the area associated with the Venus development. The PSC also includes the portions of Block P not associated with the Block P - Venus development.
CAPITAL RESOURCES AND LIQUIDITY
Cash Flows
Our cash flows for the three months ended March 31, 2024 and 2023 are as follows:
| Three Months Ended March 31, |
||||||||||||
| 2024 |
2023 |
Increase (Decrease) in 2024 over 2023 |
||||||||||
| (in thousands) |
||||||||||||
| Net cash provided by operating activities before changes in operating assets and liabilities |
$ | 33,785 | $ | 32,803 | $ | 982 | ||||||
| Net change in operating assets and liabilities |
(11,953 | ) | 9,203 | (21,156 | ) | |||||||
| Net cash provided by (used in) operating activities |
21,832 | 42,006 | (20,174 | ) | ||||||||
| Net cash provided by (used in) investing activities |
(16,618 | ) | (27,700 | ) | 11,082 | |||||||
| Net cash provided by (used in) in financing activities |
(14,455 | ) | (13,539 | ) | (916 | ) | ||||||
| Effects of exchange rate changes on cash |
(208 | ) | (309 | ) | 101 | |||||||
| Net change in cash, cash equivalents and restricted cash |
$ | (9,449 | ) | $ | 458 | $ | (9,907 | ) | ||||
The $20.2 million decrease in net cash provided by operating activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, was driven primarily by changes in operating assets and liabilities during the period. The net decrease in changes provided by operating assets and liabilities of $21.2 million for the three months ended March 31, 2024 compared to the same period of 2023 was related to a decrease in trade receivable and receivables accounts with joint venture owners (collectively $41.0 million). Partially offsetting these changes were increases in cash provided on changes in Egypt receivables and other, net and crude oil inventory, as well as a decrease in cash used on foreign income taxes payable (collectively positive $22.4 million).
The $11.1 million decrease in net cash used in investing activities during the three months ended March 31, 2024 was due to capital spending costs associated with the development drilling programs in Egypt and Canada not exceeding prior year expenditures along with reduced current year expenditures for Gabon. For the three months ended March 31, 2023, cash used in investing activities was due to the Etame field reconfiguration and other items to support the 2021/2022 drilling campaign.
Net cash used in financing activities during the three months ended March 31, 2024 included $6.5 million for dividend distributions, $6.4 million for treasury stock repurchases made under our stock repurchase plan or as a result of tax withholding on options exercised and on vested restricted stock, and $2.1 million of principal payments on our finance leases partially offset by $0.5 million in proceeds from options exercised. For the three months ended March 31, 2023, cash used in financing activities included $6.7 million for dividend distributions, $5.4 million for treasury stock repurchased under our stock repurchase plan, and $1.7 million of principal payments on our finance leases partially offset by $0.3 million in proceeds from options exercised.
Capital Expenditures
For the three months ended March 31, 2024 we had accrual basis capital expenditures of $24.0 million compared to $25.4 million accrual basis capital expenditures for the same period in 2023. For the three months ended March 31, 2024, our cash spending primarily related to the new wells drilled as part of the drilling campaign in Canada. During the same period in 2023, our cash spending primarily related to the payments for the 2023 drilling campaigns in both Egypt and Canada.
See discussion below in “Capital Resources, Liquidity and Cash Requirements” for further information.
Regulatory and Joint Interest Audits
We are subject to periodic routine audits by various government agencies, including audits of our petroleum Cost Account, customs, taxes and other operational matters, as well as audits by other members of the contractor group under our joint operating agreements.
Commodity Price Hedging
The price we receive for our crude oil significantly influences our revenue, profitability, liquidity, access to capital and prospects for future growth. Crude oil commodities and, therefore their prices can be subject to wide fluctuations in response to relatively minor changes in supply and demand. We believe these prices will likely continue to be volatile in the future.
Due to the inherent volatility in crude oil prices, we use commodity derivative instruments such as swaps to hedge price risk associated with a portion of our anticipated crude oil production. These instruments allow us to reduce, but not eliminate, the potential effects of variability in cash flow from operations due to fluctuations in commodity prices. The instruments provide only partial protection against declines in crude oil prices and may limit our potential gains from future increases in prices. None of these instruments are used for trading purposes. We do not speculate on commodity prices but rather attempt to hedge physical production by individual hydrocarbon product in order to protect returns. The counterparty to our derivative swap transactions was a major oil company’s trading subsidiary, and our costless collars are with Glencore. We have not designated any of our derivative contracts as fair value or cash flow hedges. The changes in fair value of the contracts are included in the unaudited condensed consolidated statements of operations and other comprehensive income (loss). We record such derivative instruments as assets or liabilities in the unaudited condensed consolidated balance sheet.
Cash on Hand
At March 31, 2024, we had unrestricted cash of $113.3 million. We invest cash not required for immediate operational and capital expenditure needs in short-term money market instruments primarily with financial institutions where we determine our credit exposure is negligible. As operator of the Etame Marin block in Gabon, we enter into project-related activities on behalf of our working interest joint venture owners. We generally obtain advances from joint venture owners prior to significant funding commitments. Our cash on hand will be utilized, along with cash generated from operations, to fund our operations.
We currently sell our crude oil production from Gabon under a crude oil sales and marketing agreement ("COSMA") with Glencore. Under the COSMA all oil produced from the Etame G4-160 Block offshore Gabon from August 2022 through the final maturity date of the Facility, expected to be May 15, 2027, will be bought and marketed by Glencore, with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors. Sales with Glencore are normally settled 30 days from the delivery date.
Revenues associated with the sales of our crude oil in Egypt are recognized by reference to actual volumes sold and quoted market prices in active markets for Dated Brent, adjusted according to specific terms and conditions as applicable per the sales contracts. Revenue is measured at the fair value of the consideration received or receivable. For reporting purposes, we record the EGPC’s share of production as royalties which are netted against revenue. With respect to taxes in Egypt, our income taxes under the terms of the Merged Concession Agreement are the liability of TransGlobe Petroleum International ("TGPI"), a wholly-owned indirect subsidiary of VAALCO. TGPI's income taxes are paid by EGPC on behalf of TGPI out of EGPC’s production entitlement. The income taxes paid to the Arab Republic of Egypt on behalf of TGPI are recognized as oil and gas sales revenue and income tax expense for reporting purposes. Terms of settlement for sales to EGPC are within 30 days from the delivery date.
Revenues from the sale of crude oil, natural gas, condensate and NGLs in Canada are recognized by reference to actual volumes delivered at contracted delivery points and prices. Prices are determined by reference to quoted market prices in active markets for crude oil, natural gas, condensate, and NGLs based on product, each adjusted according to specific terms and conditions applicable per the sales contracts. Revenues are recognized net of royalties and transportation costs. Revenues are measured at the fair value of the consideration received or receivable. Settlement of accounts receivable in Canada occur on the 25th of the following month after production.
Capital Resources, Liquidity and Cash Requirements
Our primary source of liquidity has been cash flows from operations and our primary use of cash has been to fund capital expenditures for development activities in Gabon, Egypt and Canada. We continually monitor the availability of capital resources, including equity and debt financings that could be utilized to meet our future financial obligations, planned capital expenditure activities and liquidity requirements including those to fund opportunistic acquisitions. Our future success in growing proved reserves, production and balancing the long-term development of our assets with a focus on generating attractive corporate-level returns will be highly dependent on the capital resources available to us.
Based on current expectations, we believe we have sufficient liquidity through our existing cash balances and cash flow from operations, including the addition of our Egypt and Canada segments, to support our current cash requirements, including the FSO charter, drilling programs, as well as transaction expenses and capital and operational costs associated with our business segments' operations. However, our ability to generate sufficient cash flow from operations or fund any potential future acquisitions, consortiums, joint ventures or pay dividends or other similar transactions depends on operating and economic conditions, some of which are beyond our control. If additional capital is needed, we may not be able to obtain debt or equity financing on terms favorable to us, or at all. We are continuing to evaluate all uses of cash, including opportunistic acquisitions, and whether to pursue growth opportunities and whether such growth opportunities, additional sources of liquidity, including equity and/or debt financings, are appropriate to fund any such growth opportunities.
Merged Concession Agreement
For information on the Merged Concession Agreement, see Note 10 to the Condensed Consolidated Financial Statements.
RBL Facility Agreement and Available Credit
For information on our RBL Facility Agreement and Available Credit, see Note 11 to the Condensed Consolidated Financial Statements.
Cash Requirements
Our material cash requirements generally consist of finance leases, operating leases, purchase obligations, capital projects and 3D seismic processing, dividend payments, merged concession agreement, future lease payments and abandonment funding, each of which is discussed in further detail below.
Completed Acquisition - On February 29, 2024, we entered into a Share Purchase Agreement to purchase all of the issued shares in the capital of Svenska for $66.5 million in cash, subject to adjustment as described in the Share Purchase Agreement. The acquisition closed on April 30, 2024 after certain necessary regulatory approvals were obtained. Pursuant to the Share Purchase Agreement, we acquired Svenska’s primary asset: a 27.39% non-operated working interest in the deepwater producing Baobab field in Block CI-40, offshore Cote d’Ivoire in West Africa. We also acquired a 21.05% non-operated working interest in OML 145, a non-producing discovery located offshore of Nigeria that is not expected to be developed at this time. 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.
Abandonment Funding - Under the terms of the Etame PSC, we have a cash funding arrangement for the eventual abandonment of all offshore wells, platforms and facilities on the Etame Marin block. As a result of the PSC Extension, annual funding payments are spread over the periods from 2018 through 2028, under the applicable abandonment study. The amounts paid will be reimbursed through the Cost Account and are non-refundable. At March 31, 2024, the balance of the abandonment fund was $10.7 million ($6.3 million, net to VAALCO) 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 unaudited condensed 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.
Leases - We are a party to several operating and financing lease arrangements, including operating leases for the corporate office, a drilling rig, rental of marine vessels and a helicopter, warehouse and storage facilities, equipment and financing lease agreements for the FSO, a marine vessel, generators and turbines used in the operations of the Etame Marin block and for equipment, offices and vehicles used in the operations of Canada and Egypt. The annual costs of these leases are significant to us.
Merged Concession Agreement - On January 20, 2022, prior to the consummation of the Arrangement, TransGlobe announced a fully executed Merged Concession Agreement with EGPC that merged the three existing Eastern Desert concessions with a 15-year primary term and improved economics. As part of the agreement, the Company is required to make annual modernization payments of $10.0 million per year through February 2026. In accordance with the Merged Concession Agreement, we agreed to substitute the 2023 and 2024 payments and issue two $10.0 million credits against receivables owed from EGPC. We will make two further annual equalization payments of $10.0 million each beginning February 1, 2025 until February 1, 2026.
We also have 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, 2022, our financial work commitments have exceeded the five-year minimum $50 million threshold and any excess carries forward to offset against subsequent five-year commitments.
BWE Consortium – On October 11, 2021, we announced our entry into a consortium with BW Energy and Panoro Energy and that the BWE Consortium has been provisionally awarded two blocks in the 12th Offshore Licensing Round in Gabon. Negotiations to finalize the commercial terms were held in 2023, however they were halted late in the year due to the presidential elections. The negotiations were started again at the request of the Gabonese Government in early February 2024, where the consortium and the government came to an agreement on the fiscal terms on February 9, 2024. The next step is concluding the terms of the PSC with the Gabonese government. BW Energy will be the operator with a 37.5% working interest. We will have a 37.5% working interest and Panoro Energy will have a 25% working interest as non-operating joint owners. The two blocks, G12-13 and H12-13, are adjacent to our Etame PSC, as well as BW Energy and Panoro’s Dussafu PSC offshore Southern Gabon, and cover an area of 2,989 square kilometers and 1,929 square kilometers, respectively.
Trends and Uncertainties
Geopolitical Conflict and Other Market Forces – The outbreak of armed conflict between Russia and Ukraine in February 2022 and the subsequent sanctions imposed on the Russian Federation has, and may continue to have, a destabilizing effect on the European continent and the global oil and natural gas markets. The ongoing conflict has caused, and could continue to intensify, volatility in oil and natural gas prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time.
For example, shortly after the outbreak of the conflict through the year ended December 31, 2023 and on-going into 2024, we noticed that the lead times associated with obtaining materials to support our operations and drilling activities has lengthened, leading to delays and, in most cases, prices for materials have increased. Management believes the ongoing war between Russia and Ukraine, the Houthis attacks on maritime vessels in the Red Sea region, conflicts in the Middle East and the related impact on the global economy are causing supply chain issues and energy concerns in parts of the global economy, as well as destabilizing impacts on the global oil and natural gas market. In addition, increased inflation, higher interest rates and current turmoil in certain governments are impacting the global supply chain market.
Commodity Prices – Historically, the markets for oil, natural gas and NGLs have been volatile. Oil, natural gas and NGLs prices are subject to wide fluctuations in supply and demand. Our cash flows from operations may be adversely impacted by volatility in crude oil and natural gas prices, a decrease in demand for crude oil, natural gas or NGLs and future production cuts by OPEC+.
ESG and Climate Change Effects – Sustainability matters continue to attract considerable public, regulatory and scientific attention. In particular, we expect continued required reporting attention on climate change issues and emissions of greenhouse gases (“GHG”), including methane (a primary component of natural gas) and carbon dioxide (a byproduct of crude oil and natural gas combustion) and freshwater use. This increased attention to climate change and environmental stewardship coupled with stepped up government incentives around renewable energy sources may result in demand shifts away from crude oil and natural gas products, higher regulatory and compliance costs, additional governmental investigations and private litigation against us. For example, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources. In addition, institutional investors, proxy advisory firms and other industry participants continue to focus on ESG matters, including climate change. We expect that this heightened focus will continue to drive ESG efforts across our industry and influence investment and voting decisions, which for some investors may lead to less favorable sentiment towards carbon assets and diversion of investment to other industries. Consistent with the increased attention on ESG matters and climate change, we have prioritized and are committed to responsible environmental stewardship by monitoring our adherence to ESG reporting requirements, including establishing and communicating short and long-term goals and targets, furthering the reduction of our carbon footprint and measurement of GHG emissions. Sustainability remains an important topic to us, and we are in the process of developing a multi-year plan to establish and document our progress in achieving goals we set for ourselves across all areas of sustainability. Our plans will enable us to monitor and improve matters related to ESG and climate change going forward.
For the past three years the Company has matured its reporting in line with the recommendations of the Task force on Climate-related Financial Disclosures (“TCFD”), which is recognized as the global standard in climate-related reporting. The full TCFD report was included within the 2023 ESG Report (rather than in this Annual Report on Form 10-K or in the annual report which was published in connection with the annual meeting), as the ESG Report details with environmental, social and governance matters which the TCFD report forms an important part of the 2023 Sustainability Report is available on the Company's website.
In summary the Company considers itself aligned with both the Governance and Strategy pillars and the recommendations therein. It does not consider itself aligned with Risk Management nor Metrics and Targets, but has made meaningful progress against certain of the underlying recommendations and provides statements of intent to address these recommendations during 2024.
CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies subsequent to December 31, 2023.
NEW ACCOUNTING STANDARDS
See Note 2 to the Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
| Three Months Ended March 31, | ||||||||||||
| 2024 |
2023 |
Increase/(Decrease) |
||||||||||
| (in thousands except per Boe information) |
||||||||||||
| Net crude oil, natural gas and NGLs sales volume (MBoe) |
1,490 | 1,224 | 266 | |||||||||
| Average crude oil, natural gas, and NGLs sales price (per Boe) |
$ | 66.43 | $ | 65.68 | $ | 0.75 | ||||||
| Net crude oil, natural gas, and NGLs revenue |
$ | 100,155 | $ | 80,403 | $ | 19,752 | ||||||
| Operating costs and expenses: |
||||||||||||
| Production expense |
32,089 | 28,200 | 3,889 | |||||||||
| Exploration expense |
48 | 8 | 40 | |||||||||
| Depreciation, depletion and amortization |
25,824 | 24,417 | 1,407 | |||||||||
| Transaction costs related to acquisition |
1,313 | — | 1,313 | |||||||||
| General and administrative expense |
6,710 | 5,224 | 1,486 | |||||||||
| Credit losses and other |
1,812 | 935 | 877 | |||||||||
| Total operating costs and expenses |
67,796 | 58,784 | 9,012 | |||||||||
| Other operating expense, net |
(166 | ) | — | (166 | ) | |||||||
| Operating income |
$ | 32,193 | $ | 21,619 | $ | 10,574 | ||||||
| (in thousands) |
||||
| Price |
$ | 1,116 | ||
| Volume |
17,459 | |||
| Other |
1,177 | |||
| $ | 19,752 |
(1) The price in the table above excludes revenues attributed to carried interests.
The table below shows net production, sales volumes and realized prices for both periods.
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Net crude oil, natural gas and NGLs production (MBoe) |
1,533 | 1,647 | ||||||
| Net crude oil, natural gas, and NGL sales (MBoe) |
1,490 | 1,224 | ||||||
| Average realized crude oil, natural gas and NGLs price ($/Boe) |
$ | 66.43 | $ | 65.68 | ||||
| Average Dated Brent spot price* ($/Bbl) |
$ | 83.00 | 81.07 | |||||
Crude oil, natural gas and NGL revenues:
Production expenses increased $3.9 million, or approximately 13.7%, for the three months ended March 31, 2024 to $32.1 million from $28.2 million for the same period in the prior year. The increase in production expense was primarily driven by higher operating costs. VAALCO has seen inflationary pressure on personnel and contractor costs. In February 2024, the Government in Gabon enacted a new Finance Act which has resulted in an increase to withholding taxes on foreign supplied goods and services. On a per barrel basis, production expense, excluding workover expense and stock compensation expense, for the three months ended March 31, 2024 decreased to $15.71 per barrel from $23.91 per barrel for the three months ended March 31, 2023 primarily as a result of higher sales volumes for the current period.
Exploration expense for the three months ended March 31, 2024 and 2023 was not material to our results.
Depreciation, depletion and amortization costs increased $1.4 million, or approximately 5.7% for the three months ended March 31, 2024 to $25.8 million from $24.4 million for the same period in the prior year. The increase in depreciation, depletion and amortization expense is due to higher depletable costs in Gabon, Egypt, and Canada.
Credit losses and other increased by $0.9 million to $1.8 million for the three months ended March 31, 2024 from $0.9 million for the three months ended March 31, 2023. We adopted Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”) on January 1, 2023. In connection with the adoption of ASU 2016-13, we established an opening balance sheet adjustment related to a receivable from a state sponsored oil refinery where we delivered oil pursuant to the domestic market needs obligation under the Etame PSC. For the three months ended March 31, 2024, no allowance was established related to this receivable as the state sponsored oil refinery made timely payments of the amounts owed to the Company.
Interest expense, net was $0.9 million for the three months ended March 31, 2024 compared to an expense of $2.2 million during the same period in 2023. The decrease of net interest expense for the three months ended March 31, 2024, primarily results from a decrease in our amortization of debt issue costs and commitment fees incurred on the Facility partially offset by interest income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
We are exposed to market risk, including the effects of adverse changes in commodity prices, foreign exchange rates and interest rates as described below.
FOREIGN EXCHANGE RISK
Our results of operations and financial condition are affected by currency exchange rates. While crude oil sales are denominated in U.S. dollars, portions of our costs in Gabon are denominated in the local currency (the Central African CFA Franc, or XAF), and our VAT receivable as well as certain liabilities in Gabon are also denominated in XAF. A weakening U.S. dollar will have the effect of increasing costs while a strengthening U.S. dollar will have the effect of reducing costs. For our VAT receivable in Gabon, a strengthening U.S. dollar will have the effect of decreasing the value of this receivable resulting in foreign exchange losses, and vice versa. The Gabon local currency is tied to the Euro. The exchange rate between the Euro and the U.S. dollar has historically fluctuated in response to international political conditions, general economic conditions and other factors beyond our control. As of March 31, 2024, we had net monetary assets of $6.0 million (XAF 3,646.2 million) denominated in XAF. A 10% weakening of the CFA relative to the U.S. dollar would have a $0.6 million reduction in the value of these net assets. For the three months ended March 31, 2024, we had expenditures of approximately $16.7 million (net to VAALCO), denominated in XAF.
Related to our Canadian operations, our currency exchange risk relates primarily to certain cash and cash equivalents, accounts receivable, lease obligations and accounts payable and accrued liabilities denominated in Canadian dollars. We estimate that a 10% decrease in the value of the Canadian dollar against the US dollar would increase the value of the net assets for the three months ended March 31, 2024 by approximately $1.2 million. Conversely, a 10% increase in the value of the Canadian dollar against the US dollar would decrease the value of the net assets for the three months ended March 31, 2024 by approximately $1.5 million.
We are also exposed to foreign currency exchange risk on cash balances denominated in Egyptian pounds. Some collections of accounts receivable from the Egyptian Government are received in Egyptian pounds, and while we are generally able to use the Egyptian pounds received on accounts payable denominated in Egyptian pounds, there remains foreign currency exchange risk exposure on Egyptian pound cash balances. Using month-end cash balances converted at month-end foreign exchange rates at March 31, 2024, we estimate that a 10% increase in the value of the Egyptian pound against the US dollar would increase the cash value for the three months ended March 31, 2024 by $31 thousand. Conversely, a 10% decrease in the value of the Egyptian pound against the US dollar would decrease our US dollar cash value for the three months ended March 31, 2024 by $26 thousand.
We do not utilize derivative instruments to manage foreign exchange risk.
We maintain nominal balances of British Pounds Sterling to pay in-country costs incurred in operating our London office. Foreign exchange risk on these funds is not considered material.
COUNTERPARTY RISK
We are exposed to market risk on our open derivative instruments related to potential nonperformance by our counterparty. To mitigate this risk, we enter into such derivative contracts with creditworthy financial institutions deemed by management as competent and competitive market makers.
COMMODITY PRICE RISK
Our major market risk exposure continues to be the prices received for our crude oil, natural gas and NGLs production. Sales prices are primarily driven by the prevailing market prices applicable to our production. Market prices for crude oil, natural gas and NGLs have been volatile and unpredictable in recent years, and this volatility may continue. Sustained low crude oil, natural gas and NGLs prices or a resumption of the decreases in crude oil, natural gas and NGLs prices could have a material adverse effect on our financial condition, the carrying value of our proved reserves, our undeveloped leasehold interests and our ability to borrow funds and to obtain additional capital on attractive terms. If crude oil sales were to remain constant at the most recent quarterly sales volumes of 1,490 MBoe, a $5 per Bbl decrease in crude oil price would be expected to cause a $7.5 million decrease per quarter in revenues and operating income (loss) and a $5.8 million decrease per year in net income (loss).
With respect to our crude oil sales in Gabon, the price received is based on Dated Brent prices plus or minus a differential. If crude oil sales were to remain constant at the most recent annual sales volumes of 669 MBbls, a $5 per Bbl decrease in crude oil price would be expected to cause a $3.3 million decrease per quarter in revenues and operating income (loss) and a $3.0 million decrease per quarter in net income (loss).
Egypt production is based on Dated Brent prices, less a quality differential and is shared with the Egyptian government through PSCs. When the price of oil increases, it takes fewer barrels to recover costs (cost oil or cost recovery barrels) which are assigned 100% to the Company. The PSCs provide for cost recovery per quarter up to a maximum percentage of total production. Timing differences often exist between VAALCO’s recognition of costs and their recovery as VAALCO accounts for costs on an accrual basis, whereas cost recovery is determined on a cash basis. If the eligible cost recovery is less than the maximum defined cost recovery, the difference is defined as "excess". In Egypt, depending on the PSCs, our share of excess ranges between 5% and 15%. If the eligible cost recovery exceeds the maximum allowed percentage, the unclaimed cost recovery is carried forward to the next quarter. Typically, maximum cost oil ranges from 25% to 40% in Egypt. The balance of the production after maximum cost recovery is shared with the government (profit oil). Depending on the contract, the Egyptian government receives 67% to 84% of the profit oil. Production sharing splits are set in each contract for the life of the contract. Typically, the government’s share of profit oil increases when production exceeds pre-set production levels in the respective contracts. During times of high oil prices, the Company may receive less cost oil and may receive more profit-sharing oil. During times of lower oil prices, the Company receives more cost oil and may receive less profit oil.
With respect to our crude oil and NGLs sales in Canada, the prices received is based on NYMEX WTI (west Texas Intermediate) prices plus or minus a differential. Natural gas sales are based on Canadian index price that whose price is based, in part, on the NYMEX Henry Hub Natural Gas futures contracts. If Canadian BOE sales were to remain constant at the most recent yearly sales volumes of 180 MBbls, a $5 per Bbl decrease in crude oil price would be expected to cause a $0.9 million decrease per quarter in revenues and operating income (loss) and a $0.7 million decrease per quarter in net income (loss).
As of March 31, 2024, we had unexpired derivative instruments outstanding covering approximately 435 MBbls of production through September of 2024.
Interest Rate RISK
Changes in market interest rates affect the amount of interest owed on outstanding balances under our Facility. However, as of March 31, 2024 we had no amounts drawn under the facility. The commitment fees on the undrawn availability under the Facility are not subject to changes in interest rates. Additionally, changes in market interest rates could impact interest costs associated with any future debt issuances.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation was performed with the participation of senior management, under the supervision of the principal executive officer and principal financial officer. Based on their evaluation as of March 31, 2024, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are subject to litigation claims and governmental and regulatory proceedings arising in the ordinary course of business. It is management’s opinion that none of the claims and litigation we are currently involved in are material to our business.
Our business faces many risks. Any of the risks discussed elsewhere in this Quarterly Report and our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.
For a discussion of our potential risks and uncertainties, see the information in Item 1A. “Risk Factors” in our 2023 Form 10-K. Except as set forth below, there have been no material changes in our risk factors from those described in our 2023 Form 10-K.
We have limited control over the assets we do not operate.
We have limited control over matters relating to development and exploitation activities, including the timing of and capital expenditures for such activities and compliance with environmental, safety, and other standards, of assets where we are not the operator. The operator and our fellow non-operating owners of these properties may act in ways that are not in our best interest. Additionally, we are dependent on the operator and our fellow non-operating owners of such projects to fund their contractual share of the capital expenditures of such projects. Our dependence on the operator and such parties could have a material adverse effect on our business, results of operations or financial condition.
There are no assurances that we will be able to extend the Block CI-40 Petroleum Production Sharing Contract (“Block CI-40 PSC”).
The Block CI-40 PSC expires in April 2028. The Block CI-40 PSC can be extended by 10 years so long as certain conditions are met. Negotiations to extend the Block CI-40 PSC began in January 2024, led by the operator, CNR International (Côte d'Ivoire) S.A.R.L (the “operator”), with the Director General of Hydrocarbons and the Government of the Côte d’Ivoire. Any extension is subject to approval of the Council of Ministers and formal approval by presidential decree. There can be no assurance that an extension will be approved or that any extension’s terms will not contain terms less favorable than our present arrangement. If the Block CI-40 PSC expires, our results of operations would be adversely affected.
The floating, production, storage and offloading vessel (the “FPSO”) in Côte d'Ivoire is scheduled to come offline for scheduled maintenance in January 2025. Our results will be adversely affected until the FPSO is returned to service which may be a time later than we expect.
As an offshore asset, we, along with the operator and contractors of the Block CI-40 PSC, depend on the FPSO to store the crude oil produced prior to sale to customers. The FPSO contract expires in December 2025. The FPSO is expected to be non-operational beginning on or around January 2025, during which time it will be put on dry dock and undergo maintenance. The FPSO is expected to return to service in 2026. During this time, production relating to the Block CI-40 PSC will be halted and we will receive no revenues from the Block CI-40 PSC. Additionally, there can be no assurance that the FPSO will return to service in the expected timeframe or that the costs of returning it to service will not be more than expected, and in either such case our results would be adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sale of Equity Securities
There were no sales of unregistered securities during the quarter ended March 31, 2024 that were not previously reported on a Current Report on Form 8-K.
Issuer Repurchases of Common Stock
On November 1, 2022, we announced that our board of directors formally ratified and approved the share buyback program ("the Plan") that was announced on August 8, 2022 in conjunction with our business combination with TransGlobe. The board of directors also directed management to implement the Plan to facilitate share purchases through open market purchases, privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Exchange Act. The Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over up to 20 months. Payment for shares repurchased under the share buyback program were funded using our cash on hand and cash flow from operations. The share buyback program was completed March 12, 2024.
The following table represents details of the various repurchases under the Plan during the quarter ended 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 | ||||||||||||||
During the three months ended March 31, 2024, of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act)
(a) Exhibits
(a) Filed herewith
(b) Furnished herewith
* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K, and portions of this exhibit have been redacted in compliance with Item 601(b)(2) and Item 601(a)(6) of Regulation S-K.
Pursuant to 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/ Ronald Bain |
| Ronald Bain |
||
| Chief Financial Officer (Principal Financial Officer) |
Dated: May 8, 2024