Crude Oil and Natural Gas Properties and Equipment |
12 Months Ended |
|---|---|
Dec. 31, 2021 | |
| Crude Oil and Natural Gas Properties and Equipment [Abstract] | |
| Crude Oil and Natural Gas Properties and Equipment | 9. CRUDE OIL AND NATURAL GAS PROPERTIES AND EQUIPMENT The Company’s crude oil and natural gas properties and equipment is comprised of the following: As of December 31, 2021 As of December 31, 2020 (in thousands)Crude oil and natural gas properties and equipment - successful efforts method: Wells, platforms and other production facilities $ 488,756 $ 441,879Work-in-progress 13,515 169Undeveloped acreage 23,735 21,476Equipment and other 23,478 9,276 549,484 472,800Accumulated depreciation, depletion, amortization and impairment (455,160) (435,764)Net crude oil and natural gas properties, equipment and other $ 94,324 $ 37,036 Extension of Term of Etame Marin Block PSCOn September 25, 2018, VAALCO, together with the other joint venture owners in the Etame Marin block (the “Etame Consortium”), received an implementing Presidential Decree from the government of Gabon authorizing an extension for additional years (“PSC Extension”) to the Etame Consortium to operate in the Etame Marin block. The Company’s subsidiary, VAALCO Gabon S.A., currently has a 63.575% participating interest (working interest including the working interest attributable to the carried interest owner) in the Etame Marin block. The PSC Extension extends the term for each of the three exploitation areas in the Etame Marin block for a period of ten years with effect from September 17, 2018, the effective date of the PSC Extension. Prior to the PSC Extension, the exploitation periods for the three exploitation areas in the Etame Marin block would expire beginning in June 2021. The PSC Extension also grants the Etame Consortium the right for two additional extension periods of five years each. The PSC Extension further allows the Etame Consortium to explore the potential for resources within the area of each Exclusive Exploitation Authorization as defined in the PSC Extension. In consideration for the PSC Extension, the Etame Consortium agreed to a signing bonus of $65.0 million ($21.8 million, net to VAALCO) payable to the government of Gabon (the “signing bonus”). The Etame Consortium paid $35.0 million ($11.8 million, net to VAALCO) in cash on September 26, 2018 and paid $25.0 million ($8.4 million, net to VAALCO) through an agreed upon reduction of the VAT receivable owed by the government of Gabon to the Etame Consortium as of the effective date. An additional $5.0 million ($1.7 million, net to VAALCO) was to be paid in cash by the Etame Consortium following the end of the drilling activities described below. As required under the PSC Extension, the Etame Consortium completed drilling two development wells and two appraisal wellbores during the 2019/2020 drilling campaign with the last appraisal wellbore completed in February 2020. During September 2020, the Etame Consortium completed the two technical studies at a cost of $1.5 million gross ($0.5 million, net to VAALCO). In accordance with the Etame Marin block PSC, the Etame Consortium maintains a “Cost Account,” which accumulates capital costs and operating expenses that are deductible against revenues, net of royalties, in determining taxable profits. Under the PSC Extension, the Cost Recovery Percentage increased to 80% for the ten-year period from September 17, 2018 through September 16, 2028. After September 16, 2028, the Cost Recovery Percentage returns to 70%. The government of Gabon will acquire from the Etame Consortium an additional 2.5% gross working interest carried by the Etame Consortium effective June 20, 2026. VAALCO’s share of this interest to be transferred to the government of Gabon is 1.6%.Proved PropertiesThe Company reviews the crude oil and natural gas producing properties for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of such properties may not be recoverable. When a crude oil and natural gas property’s undiscounted estimated future net cash flows are not sufficient to recover its carrying amount, an impairment charge is recorded to reduce the carrying amount of the asset to its fair value. The fair value of the asset is measured using a discounted cash flow model relying primarily on Level 3 inputs into the undiscounted future net cash flows. The undiscounted estimated future net cash flows used in the impairment evaluations at each quarter end are based upon the most recently prepared independent reserve engineers’ report adjusted to use forecasted prices from the forward strip price curves near each quarter end and adjusted as necessary for drilling and production results.There was no triggering event in the year ended December 31, 2021 that would cause the Company to believe the value of crude oil and natural gas producing properties should be impaired. Factors considered included higher forward price curves for the fourth quarter of 2021 and capital expenditures in the period related to the Etame Marin block. Declining forecasted oil prices in the first quarter of 2020 caused the Company to perform an impairment review during this period. The impairment test was performed using the year end 2019 independently prepared reserve report, estimated reserves for the South East Etame 4H well completed in March 2020 and forward price curves. The Company performed a recoverability test as defined under ASC 932 and ASC 360, noting that the undiscounted cash flows related to the Etame Marin block were less than the book value for the block, resulting in the Company recording a $30.6 million impairment loss to write down the Company’s investment to its fair value of $15.6 million.Undeveloped Leasehold CostsVAALCO acquired a 31% working interest in an undeveloped portion of a block (“Block P”) offshore Equatorial Guinea in 2012. The Ministry of Mines and Hydrocarbons (“EG MMH”) approved our appointment as the operator of Block P on November 12, 2019. The Company acquired an additional working interest of 12% from Atlas Petroleum, thereby increasing its working interest to 43% in 2020, in exchange for a potential future payment of $3.1 million to Compania Nacional de Petroles de Guinea Equitoria, (“GEPetrol”) in the event that there is commercial production from Block P. On August 27, 2020, the amendment to the production sharing contract to ratify the Company’s increased working interest and appointment as operator was approved by the EG MMH In April 2021 Crown Energy, who held a 5% working interest elected to default on its obligations of Block P. On April 12, 2021, the non-defaulting parties assigned the defaulting party’s interest to the non-defaulting parties as required by the Joint Operating Agreement. As a result, VAALCO’s working interest will increase to 45.9% once the EG MMH approves a new amendment to the production sharing contract. As of December 31, 2021, the Company had $10.0 million recorded for the book value of the undeveloped leasehold costs associated with the Block P license. The Company has completed a feasibility study of a standalone development concept of the Venus discovery on Block P. VAALCO, working closely with tis other joint venture owners, is now in the process of formalizing the plan of development before submitting it to the EG MMH for their approval. The Block P production sharing contract provides for a development and production period of 25 years from the date of approval of a development and production plan. As a result of the PSC Extension discussed above, the exploitation area for the Etame Marin block was expanded to include previously undeveloped acreage. The Company allocated $6.7 million of the share of the signing bonus and $7.1 million of the $18.6 million resulting from the deferred tax impact for the difference between book basis and tax basis to unproved leasehold costs using the acreage attributable to the previous exploitation areas and the additional acreage in the expanded exploitation areas. Exploitation of this additional area is permitted throughout the term of the Etame Marin block PSC. As a result of discovering reserves in connection with drilling the South East Etame 4H development well in March 2020, $2.3 million of costs were transferred to proved leasehold costs leaving a remaining $11.5 million in unproved leasehold costs. In connection with the Sasol Acquisition discussed under Note 4, $2.2 million of reserves were attributed to undeveloped properties. The balance of undeveloped leasehold costs related to the Etame Marin block at December 31, 2021 was $13.7 million.Capitalized Equipment InventoryCapitalized equipment inventory is reviewed regularly for obsolescence. Adjustments for inventory obsolescence are recorded in the “Other operating income (expense), net” line item of the consolidated statements of operations. During the years ended December 31, 2021 and 2019, adjustments for inventory obsolescence were not material. For the year ended December 31, 2020, the Company recorded $0.9 million in adjustments for inventory obsolescence. |