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  September 30, 2023, 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.

In the first quarter of 2023, the Directorate of Hydrocarbons in Gabon approved a $26.6 million ($15.6 million, net to VAALCO) abandonment funding payment associated with the FPSO retirement. The Company received payment of $15.6 million in March 2023. No activity was noted in the abandonment funding account during the second or third quarter of 2023. 

FPSO charter

In connection with the charter of the FPSO, the Company, as operator of the Etame Marin block, guaranteed all of the charter payments under the charter through its contract term. At the Company’s election, the charter could be extended for two one-year periods beyond September 2020. These elections were made, and the charter was extended through September 2022. On September 9, 2022, the Company signed an addendum to the FPSO contract which extended the use of the FPSO through October 4, 2022 and ratified certain decommissioning and demobilization items associated with exiting the contract.

Pursuant to the addendum, the Company agreed to pay the charterer day rate of $150,000 from August 20, 2022 through October 4, 2022, and other demobilization fees totaling $15.3 million on a gross basis, ($8.9 million net to the Company). The Company relinquished control over the FPSO in the fourth quarter of 2022. VAALCO and the owners of the FPSO are negotiating a final settlement of amounts owed to each other and will settle on the Company’s restricted cash balances associated with the FPSO. In the second quarter of 2023, it was determined that there was more waste than anticipated connected to the FPSO from VAALCO's usage. As such, VAALCO incurred an additional $5.6 million in decommissioning fees, which was reported as a separate line item on the income statement. No additional expense was incurred beyond the initial expense. 

During the second quarter of 2023, the Joint Operating Group ("VAALCO, Addax, PetroEnergy and Tullow") were informed by BW Offshore the supplier of the former FPSO that waste disposal of naturally occurring radioactive material was present in the final volumes and tanks on the vessel as is typical. The Joint Operating Group have an obligation to lift and properly dispose of this waste. The Company has provided for an accrual for the collection and disposal of the waste via tank cleaning activities that began in September and will continue in October 2023. The cost is expected to be around $9.6 million gross ($5.6 million net to VAALCO).

Share Buyback Program

On November 1, 2022, the Company announced that the Company’s board of directors formally ratified and approved a share buyback program. The board of directors also directed management to implement a Rule 10b5-1 trading plan (the “10b5-1 Plan”) to facilitate share purchases through open market purchases, privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. The 10b5-1 Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over a maximum period of 20 months. Payment for shares repurchased under the share buyback program will be funded using the Company's cash on hand and cash flow from operations. Effective August 16, 2023, there was an amendment to the share repurchase plan allowing VAALCO to repurchase up to $2 million a month through November 2023, but this did not change the total repurchase amount of $30 million.

The following table shows the repurchases of equity securities related to the share repurchase program from July 1, 2023 through September 30, 2023: 

The following table shows the repurchases of equity securities related to the share repurchase program after September 30, 2023 through  November 3, 2023:

The actual timing, number and value of shares repurchased under the share buyback program will depend on several factors, including constraints specified in the Plan, the Company's stock price, general business and market conditions, and alternative investment opportunities. Under the Plan, the Company’s third-party broker, subject to SEC regulations regarding certain price, market, volume and timing constraints, would have authority to purchase the Company’s common stock in accordance with the terms of the Plan.

Merged Concession Agreement

On January 20, 2022, prior to the consummation of the acquisition, TransGlobe announced a fully executed concession agreement "Merged Concession Agreement" with the Egyptian General Petroleum Corporation (“EGPC”) that merged the three existing Eastern Desert concessions with a 15-year primary term and improved economics. In advance of the Minister of Petroleum and Mineral Resources of the Arab Republic of Egypt (the “Minister”) executing the Merged Concession Agreement, TransGlobe paid the first modernization payment of $15.0 million and signature bonus of $1.0 million as part of the condition's precedent to the official signing ceremony on January 19, 2022. On February 1, 2022, TransGlobe paid the second modernization payment of $10.0 million. In accordance with the Merged Concession, the Company agreed to substitute the February 2023 payment and issue a $10.0 million credit against receivables owed to it from EGPC. The Company will make three further annual equalization payments of $10.0 million each beginning February 1, 2024 until February 1, 2026. VAALCO recorded modernization payment liabilities of $27.1 million at September 30, 2023. On the unaudited condensed consolidated balance sheet, $9.7 million of the modernization payment liability was recorded in the line item "Accrued liabilities and other" and $17.4 million was recorded in "Other long-term liabilities". 

The Company also has minimum financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on February 1, 2020 (the "Merged Concession Effective Date") for a total of $150 million commencing on the Merged Concession Effective Date"). Through September 30, 2023, all investments have exceeded the five-year minimum $50 million threshold and any excess carries forward to offset against subsequent five-year commitments. 

As the Merged Concession Agreement is effective as of February 1, 2020, there will be effective date adjustment owed to the Company for the difference in the historic commercial terms and the revised commercial terms applied against the production since the Merged Concession Effective Date. In accordance with GAAP, the Company has recognized a receivable in connection with the effective date adjustment of $67.5 million as of October 13, 2022, based on historical realized prices. However, the cumulative value to be received because of the effective date adjustment is currently being finalized with the EGPC and could result in a range of outcomes based on the final price per barrel negotiated. As of September 30, 2023, the remaining $50.3 million of the original $67.5 million receivable is recorded on the unaudited condensed consolidated balance sheet in Receivables-Other, net. 

Government Related Receivables

Under Article 35 of the Etame PSC, the Company can be required to contribute to meeting the domestic market needs of Gabon by delivering to the Government, or another entity designated by the Government, an amount of its crude oil proportional to the Company’s share of production to the total production in Gabon over the year. In October 2021, the Company was notified by the Government to procure and deliver to Sogara refinery an amount of oil equal to its proportionate share of crude oil to meet the domestic market need in offset of its domestic market obligation in the Etame PSC. In exchange, the Company is entitled, per the Etame PSC, to a fixed selling price for the oil delivered.

In November 2022, a receivable from Sogara became past due and the Company has not received payments. At September 30, 2023, the amount due to the Company from the refinery is $17.9 million. A separate credit loss of $3.5 million has been provided for. The Company is in ongoing discussions with the Ministry of the Economy, Hydrocarbons and the Presidency of Gabon on finding a solution to the realization of the past due balances related to both the receivable from the refinery as well as past due VAT receivable amounts owed to the Company. The Company expects to recover the vast majority owed to it for both the VAT receivable and receivable under the oil supply arrangement, but the terms of recovery have not fully been finalized. 

Lease Obligations

The following table describes the future maturities of the Company’s lease liabilities at September 30, 2023:

Under the joint operating agreements, other joint venture owners are obligated to fund $49.6 million of the $120.3 million in future lease liabilities.