REG - Vaalco Energy Inc - Final Q4 & FY 2022 Results
06/04/2023 07:15
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RNS Number : 6146V Vaalco Energy Inc 06 April 2023
VAALCO ENERGY, INC. ANNOUNCES FINAL FOURTH QUARTER
AND FULL YEAR 2022 FINANCIAL AND OPERATING RESULTS
HOUSTON - April 6, 2023 - VAALCO Energy, Inc. (NYSE: EGY, LSE: EGY) ("VAALCO"
or the "Company") today reported final financial and operating results for
the fourth quarter and full year of 2022. On October 13, 2022, VAALCO
completed the business combination with TransGlobe Energy, Inc.
("TransGlobe"); as a result, VAALCO's fourth quarter and full year 2022
results include the combined assets from the closing day through the end of
2022.
Highlights and Key Items:
● Reported full year ("FY") 2022 net income of $51.9 million ($0.73 per
diluted share) and Adjusted Net Income(1) of $104.3 million ($1.49 per
diluted share);
● Recorded fourth quarter 2022 net income of $17.8 million ($0.17 per
diluted share) and Adjusted Net Income of $19.2 million ($0.19 per diluted
share);
● Closed the strategic and transformational business combination with TransGlobe
on October 13, 2022;
● Increased quarterly cash dividend by 92% to $0.0625 per share of common stock
for the first quarter of 2023 ($0.25 annualized), from $0.0325 per share
($0.13 annualized) in 2022;
● Returned additional $7.5 million to shareholders through share buybacks from
initiation of program in November 2022 through March 31, 2023;
● Increased FY 2022 average daily production by 44% to 10,217 net revenue
interest ("NRI")(2) barrels of oil equivalent per day ("BOEPD"), or
12,177 working interest ("WI")(2) BOEPD;
● Sold 3,677,000 barrels of oil equivalent in 2022;
● Delivered fourth quarter 2022 production of 14,390 NRI BOEPD, or 18,262 WI
BOEPD;
● Sold 1,371,000 barrels of oil equivalent in fourth quarter of 2022;
● Generated record Adjusted EBITDAX(1) of $186.6 million in FY 2022 and
$49.8 million of Adjusted EBITDAX in the fourth quarter of 2022;
● Funded $159.9 million in cash capital expenditures during 2022 with cash on
hand and cash from operations;
● Increased year-end 2022 SEC proved reserves by 149% to 27.9 million barrels of
oil equivalent ("MMBOE") with the standardized measure value up 529% to $624
million;
● Increased year-end 2P CPR WI (4) reserves, which also includes Equatorial
Guinea, by 292% to 76.4 MMBOE with 2P WI CPR PV-10 (4) value up 344% to
$815 million, using management assumptions for future commodity pricing;
● Grew Adjusted Working Capital(1) to $48.8 million at year-end 2022, an
increase of 257% compared to the prior year;
● Finalized multiple substantive documents with VAALCO's partners and the
Ministry of Mines & Hydrocarbons in Equatorial Guinea for Block P which
includes the Venus development; and
● Announced 2023 operational and financial guidance including capital
expenditure range of $70 to $90 million for full year 2023.
(1) Adjusted EBITDAX, Adjusted Net Income, Adjusted Working Capital and PV-10 are
Non-GAAP financial measures and are described and reconciled to the closest
GAAP measure in the attached table under "Non-GAAP Financial Measures."
(2) All NRI production rates are VAALCO's working interest volumes less royalty
volumes, where applicable.
(3) All WI production rates and volumes are VAALCO's working interest volumes.
(4) See "Supplemental Non-GAAP Financial Measures" below concerning 2P CPR WI
reserves and 2P CPR WI PV-10.
1
George Maxwell, VAALCO's Chief Executive Officer commented, "In 2022, we
transformed VAALCO into a diversified, multi- country company focused on
sustainable growth and returning value to shareholders. We delivered record
financial results, completed a major acquisition and successfully executed
multiple high-impact operational projects. Production volumes grew 44% in
2022, and coupled with a strong commodity pricing environment, VAALCO was able
to generate significant operating cash flow and record Adjusted EBITDAX grew
to over $186 million. This allowed us to fully fund dividend and share
buyback programs, a $160 million capital program focused on lowering
long-term costs, and growing production while closing on a major acquisition
and remaining debt free. We are in a financially stronger position entering
2023 with more reserves, production and future potential than at any other
time in our history. We are a diversified, multinational exploration and
production company with 2P WI CPR reserves of 76.4 million barrels of oil
equivalent.
"This past year, we completed the transformational combination with TransGlobe
which has built a business of scale with a stronger balance sheet and a more
diversified baseline of production that will underpin VAALCO's future
opportunities for success. We are focused on generating meaningful cash flow
to fund our increased stockholder dividends, share buybacks, capital
expenditures and potential additional acquisitions. We have achieved the first
tranche of synergies related to the acquisition. We now have a streamlined
management team and Board and have captured the savings from delisting TGA and
eliminating other related duplicative public company costs. We continue to
rationalize our operational and G&A costs in 2023 as we look to attain
additional synergies beyond what we originally anticipated.
"In Gabon, we are very pleased to have successfully delivered a highly
complex, full field reconfiguration, maintenance turnaround and upgraded FSO
installation. This project was completed in October despite a difficult global
supply chain environment and is a testament to the dedication of our workforce
and partners who helped complete the project, underlining VAALCO's status as a
quality operator. The new FSO provides us with additional flexibility and has
an effective capacity for storage that is 50% larger than our relinquished
FPSO. It also reduces our expected storage and offloading costs by 50% which
we believe will lead to an extension of the economic field life, resulting in
a corresponding increase in recovery and reserves at Etame. We also completed
our 2021/2022 drilling program in Gabon that materially increased production
and extended the economic life of the field. We expect full payback on the
cost of the program by later this year.
"In March 2023, we held productive meetings with the MMH and our partners in
Houston. During these meetings we finalized multiple substantive
documents for Block P which includes the Venus development, relating to the
Production Sharing Contract. We are working on concluding remaining documents
and expect to update the market in the second quarter of 2023. We
anticipate a strong, efficient and economic development of this exciting
discovery with first oil projected for 2026. We believe that there are clear
strategic benefits in further diversifying the revenue generation and country
focus of our portfolio. VAALCO has a proven operating track record for a
development of this kind and we look forward to demonstrating these
capabilities as we progress the Venus discovery into production and further
demonstrates the meaningful value of our asset base.
"We are clearly well-positioned for continued success in this current
commodity price environment, with no net debt and strong free cash flow
generation. We have made significant progress integrating the TransGlobe team
and assets into our strategic vision. We are firmly focused on delivering
meaningful shareholder returns while continuing to progress our objective of
accretive growth."
TransGlobe Combination
On July 14, 2022, VAALCO announced that it had entered into a definitive
arrangement agreement pursuant to which VAALCO would acquire all of the
outstanding common shares of TransGlobe in a stock-for-stock strategic
business combination. Following shareholder approval by both companies, on
October 13, 2022, VAALCO closed the strategic combination with TransGlobe
Energy. The combined Company is trading on the NYSE and LSE under the ticker
symbol EGY. The combined Company is a leading African-focused operator with a
strong production and reserve base, a diverse portfolio of assets in Gabon,
Egypt, Equatorial Guinea and Canada, and significant future growth potential.
The impact from the combination is reflected in VAALCO's fourth quarter 2022
results following the closing on October 13, 2022.
2
Operational Update
Gabon
2021/2022 Drilling Campaign
VAALCO began its 2021/2022 drilling campaign in December 2021 with the
drilling of the Etame 8H-ST development well. The well came online in February
2022. VAALCO moved the contracted jack-up rig to the Avouma platform to drill
the Avouma 3H-ST development well. The well was completed and brought online
in April 2022 and was another successful development well targeting the Gamba
reservoir.
The third well drilled and completed was the South Tchibala 1HB-ST, which
discovered two potential Dentale producing zones, the Dentale D1 sand and the
Dentale D9. The second completion was in the shallower D1 which included a
hydraulic fracture treatment to increase both the production flow rate and
recovery from the D1 interval.
Following the completion of the South Tchibala 1HB-ST well, the rig was
mobilized to the Southeast Etame North Tchibala ("SEENT") Platform to drill
the North Tchibala 2H-ST well, targeting the Dentale formation. The North
Tchibala 2H-ST well is naturally flowing with no produced water at about 250
gross barrels of oil per day ("BOPD") and stable reservoir pressure indicating
minimal depletion. In the fourth quarter of 2022, the Company performed two
workovers, the North Tchibala 1-H well due to a safety valve in the well
that required replacement and the South East Etame 4H Well, which restored
production of about 1,350 gross BOPD. This well went offline because of an
upper electrical submersible pump ("ESP") failure and VAALCO was unable to
restart the upper ESP or the lower ESP to restore production.
The Company estimates the cost of the 2021/2022 drilling program with
four wells and two workovers to be $180 million, or $114 million, net to
VAALCO's participating interest. For 2022, the Company incurred approximately
$148 million, or about $94 million net to VAALCO's participating
interest. About 82% of that total spend occurred in 2022 and 18% was
previously recorded in 2021.
FSO Conversion and Field Reconfiguration
In August 2021, VAALCO and its co-venturers at Etame approved the Bareboat
Contract and Operating Agreement with World Carrier Offshore Services Corp to
replace the FPSO with an FSO at the Etame Marin block offshore Gabon for up
to eight years with additional option periods available. The FPSO contract was
set to expire in September 2022, however, on September 9, 2022, VAALCO 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. VAALCO worked closely with the FPSO
charterer regarding timing for commencing shutdown of production, schedule for
decommissioning and associated costs to ensure a smooth transition to the FSO.
The Teli, a double-hull crude tanker built in 2001, was re-engineered into a
FSO for use in the field.
VAALCO announced in October 2022 that all related FSO and field
reconfiguration processes were completed. First oil flowed into the Teli FSO
and the Company completed the annual field-wide maintenance turnaround
concurrently with the FSO and field reconfiguration. Compared to the FPSO
agreement, the new FSO is expected to reduce storage and offloading costs.
Additionally, we have increased the effective capacity for storage by over
50%, and led to an extension of the economic field life, resulting in a
corresponding increased recovery and reserves at Etame. This capital
investment is projected to save approximately $20 to $25 million gross per
year ($13 to $16 million net to VAALCO) in operational costs through 2030.
Equatorial Guinea
VAALCO owns a working interest in Block P offshore Equatorial Guinea, where
there are previously discovered but undeveloped resources as well as
additional exploration potential. In March 2023, VAALCO held productive
meetings with the MMH and its partners in Houston. During these meetings
VAALCO finalized multiple substantive documents for Block P which includes
the Venus development, relating to the Production Sharing Contract. The
Company is working on concluding remaining documents and expect to update the
market in the second quarter of 2023. VAALCO anticipates a strong, efficient
and economic development of this exciting discovery with first oil projected
for 2026. The Company believes that there are clear strategic benefits in
further diversifying the revenue generation and country focus of its
portfolio. VAALCO has a proven operating track record for a development of
this kind, and it looks forward to demonstrating these capabilities as the
Company progresses the Venus discovery into production and further
demonstrates the meaningful value of the Company's asset base.
3
Egypt
In Egypt, as of December 31, 2022, VAALCO's interests are spread across two
regions: the Eastern Desert, which contains the West Gharib, West Bakr and
Northwest Gharib merged concessions, and the Western Desert, which contains
the South Ghazalat concession. The Eastern Desert merged concession is
approximately 45,067 acres and the Western Desert, South Ghazalat concession,
is approximately 7,340 acres. VAALCO is the operator and has a 100% working
interest in both PSCs. Both of the Company's Egyptian blocks are PSCs among
the Egyptian General Petroleum Corporation ("EGPC"), Egyptian government and
VAALCO. The Company's oil entitlement is the sum of cost oil, profit oil and
excess cost oil, if any. The government takes their share of production based
on the terms and conditions of the respective contracts. VAALCO's share of
royalties is paid out of the government's share of production and taxes are
captured in the Egyptian government's net entitlement oil due and therefore
there is no additional tax burden to the Company. In December 2022, VAALCO
spudded the Arta77 HC well targeting the Nukhul reservoir. The lateral was
successfully drilled through reservoir encountering laterally 1,363 meters of
good oil and gas shows.
Canada
In Harmattan, Canada, VAALCO owns production and working interests in certain
facilities in the Cardium light oil and Mannville liquids-rich gas assets.
Harmattan is located approximately 80 kilometers north of Calgary, Alberta.
This property produces oil and associated natural gas from the Cardium and
Viking zones and liquids-rich natural gas from zones in the Lower Mannville
and Rock Creek formations at vertical depths of 1,200 to 2,600 meters. The
Harmattan property covers 46,100 gross acres of developed land and 29,300
gross acres of undeveloped land. VAALCO also owns a 100% working interest in a
large oil battery and a compressor station where a majority of oil volumes are
handled. All gas is delivered to a third party non-operated gas plant for
processing.
Year-End 2022 Reserves
VAALCO's SEC NRI proved reserves at December 31, 2022 increased by 149% to
27.9 MMBOE from 11.2 MMBOE at year-end 2021. Year-end 2022 reserves included
23.6 MMBOE in proved developed reserves and 4.3 MMBOE in proved undeveloped
reserves. The Company's SEC reserves were fully engineered by its third-party
independent reserve consultant, Netherland, Sewell & Associates, Inc.,
("NSAI") who has provided annual independent estimates of VAALCO's year-end
SEC reserves for over 15 years, and GLJ Ltd. ("GLJ"), who evaluates VAALCO's
Egyptian and Canadian reserves. In 2022, the Company added 18.6 MMBOE of SEC
proved reserves through the acquisition of TransGlobe's assets in Egypt and
Canada and 2.0 MMBOE due to positive revisions. These additions were partially
offset by 3.9 MMBOE of full year 2022 production which included 0.9 MMBOE of
production related to TransGlobe assets. VAALCO had a reserve replacement of
428% compared to the 3.9 MMBOE of production in 2022.
The standardized measure of VAALCO's SEC proved reserves, utilizing SEC
pricing increased to $624.5 million at December 31, 2022 from $99.3 million
at December 31, 2021. The SEC pricing utilized for PV-10 can be found in the
Company's annual 10-K disclosure.
MMBOE
Proved SEC Reserves at December 31, 2021 11.2
2022 Production (3.9 )
Revisions of Previous Estimates 2.0
Purchases 18.6
Proved SEC Reserves at December 31, 2022 27.9
At year-end 2022, in the case of Gabon, Egypt and Canada, and at September 30,
2022, in the case of Equatorial Guinea, NSAI and GLJ provided the 2P WI CPR
estimates of proven and probable reserves which were prepared in accordance
with the definitions and guidelines set forth in the 2018 Petroleum Resources
Management Systems approved by the Society of Petroleum Engineers as of
December 31, 2022 using VAALCO's management assumptions for future commodity
pricing and costs shown below under "Supplemental Non-GAAP Financial Measures
- 2P WI CPR Reserves". The 2P WI CPR reserves attributable to VAALCO's
ownership are reported on a WI basis prior to deductions for government
royalties. Management's year-end 2022 2P WI CPR estimate of reserves is
76.4 MMBOE to VAALCO's WI, an increase of 292% from 19.5 MMBO at December 31,
2021. The PV-10 value of VAALCO's 2P WI CPR reserves at year-end 2022,
utilizing management timing assumptions and escalated pricing and cost
assumptions, is $814.8 million, up 344% from $183.7 million at December 31,
2021.
See "Supplemental Non-GAAP Financial Measures" below concerning 2P WI CPR
reserves and 2P PV-10.
4
Financial Update - Fourth Quarter of 2022
Net income of $17.8 million ($0.17 per diluted share) for the fourth quarter
of 2022 was up compared with net income of $6.9 million ($0.11 per diluted
share) in the third quarter of 2022 and down compared to $34.4 million ($0.58
per diluted share) in the fourth quarter of 2021. The increase in earnings
compared to the prior quarter was primarily due to higher sales volumes due to
the TransGlobe transaction and a $10.8 million bargain purchase gain on the
acquisition. In addition, fourth quarter 2021 earnings included a $16.1
million non-cash deferred tax benefit, and a $6.1 million gain on derivative
instruments.
Adjusted Net Income for the fourth quarter of 2022 decreased to $19.2 million
($0.19 per diluted share) from Adjusted Net Income of $33.3 million ($0.56
per diluted share) in the third quarter of 2022 and increased compared with
Adjusted Net Income for the fourth quarter of 2021 of $12.5 million ($0.21 per
diluted share). The decrease in adjusted net income compared to the third
quarter of 2022 is due to movements in timing of deferred tax expense
(non-cash taxes).
Adjusted EBITDAX totaled $49.8 million in the fourth quarter of 2022, an
increase from the third quarter of 2022 of $42.4 million and more than double
the $22.6 million generated in the same period in 2021. The increase in
Adjusted EBITDAX compared to the prior periods is due to higher sales volumes
partially offset by lower realized prices.
Revenue and Sales Q4 2022 Q4 2021 % Change Q4 2022 vs. Q4 2021 Q3 2022 % Change Q4 2022 vs. Q3 2022
Production (NRI BOEPD) 14,390 7,554 90 % 9,157 57 %
Sales (NRI BOE) 1,371,000 709,000 93 % 731,000 88 %
Realized commodity price ($/BOE) $ 70.43 $ 77.31 (9 )% $ 103.61 (32 )%
Commodity (Per BOE including realized commodity derivatives) $ 70.24 $ 66.3 6 % $ 91.13 (23 )%
Total commodity sales ($MM) $ 96.6 $ 56.4 71 % $ 78.1 24 %
VAALCO had total sales volumes of 1,371,000 BOE compared to 731,000 BOE in the
third quarter of 2022 and 709,000 BOE for the same period in 2021. Fourth
quarter of 2022 realized pricing (including the effects of derivative
contracts) was down 23% compared to the third quarter of 2022 and increased
6% compared to the fourth quarter of 2021.
Costs and Expenses Q4 2022 Q4 2021 % Change Q4 2022 vs. Q4 2021 Q3 2022 % Change Q4 2022 vs. Q3 2022
Production expense, excluding workovers and stock comp ($MM) $ 40.8 $ 19.0 115 % $ 23.2 76 %
Production expense, excluding workovers ($/BOE) $ 29.8 $ 26.8 11 % $ 31.8 (6 )%
Workover expense ($MM) $ 4.7 $ 4.5 5 % $ - 100 %
Depreciation, depletion and amortization ($MM) $ 26.3 $ 4.1 542 % $ 9.0 192 %
Depreciation, depletion and amortization ($/BOE) $ 19.2 $ 5.8 229 % $ 12.3 57 %
General and administrative expense, excluding stock-based compensation ($MM) $ (0.3 ) $ 2.2 (114 )% $ 2.0 (115 )%
General and administrative expense, excluding stock-based compensation ($/BOE) $ (0.2 ) $ 3.1 (107 )% $ 2.7 (108 )%
Stock-based compensation expense ($MM) $ (0.1 ) $ 0.4 (132 )% $ - 100 %
Current income tax expense (benefit) ($MM) $ 1.7 $ 5.2 (67 )% $ (1.2 ) (242 )%
Deferred income tax expense (benefit) ($MM) $ 5.3 $ (16.1 ) (133 )% $ 24.0 (78 )%
5
Total production expense, excluding workovers and stock compensation,
increased in the fourth quarter of 2022 compared to the same period in 2021
and compared to the third quarter of 2022. The increase was primarily driven
by increased production and costs associated with the TransGlobe combination
as well as higher costs caused by inflationary pressures associated with
boats, diesel, personnel and costs stemming from the additional operational
activities related to the annual field-wide maintenance program, the FSO
conversion and field reconfiguration at Etame.
The fourth quarter of 2022 had $4.7 million in offshore workover expenses.
While there were no offshore workover expenses in the third quarter of 2022,
the fourth quarter of 2021 incurred $4.5 million in offshore workover
expenses.
Production expense per BOE, excluding workover costs and stock compensation,
was lower than the third quarter of 2022 due to more sales barrels during the
fourth quarter of 2022. Production expense per BOE, excluding workover costs
and stock compensation, was higher than the fourth quarter of 2021 due to the
increased sales and increased costs associated with the FSO conversion and
field reconfiguration.
In the line item, FPSO demobilization, VAALCO incurred $8.9 million in costs
associated with the retirement of the FPSO in the third quarter of 2022 as
VAALCO transitioned to the FSO. This was subsequently funded by a cash release
from the abandonment fund in 2023. There were no similar expenses incurred in
the fourth quarter of 2022 or 2021.
Depreciation, depletion and amortization ("DD&A") expense for the three
months ended December 31, 2022 increased to $26.3 million which was higher
than the third quarter of 2022 of $9.0 million and higher than the $4.1
million in the fourth quarter of 2021. The increase in depreciation, depletion
and amortization expense, compared to both periods, is due to higher
depletable costs associated with the FSO, the field reconfiguration capital
costs at Etame and the step-up to fair value of the TransGlobe assets.
General and administrative ("G&A") expense, excluding stock-based
compensation, decreased for the three months ended December 31, 2022 to
($0.3) million from $2.0 million in the third quarter of 2022 and $2.2
million for the same period in prior year. The decrease in general and
administrative expense is primarily driven by a large increase in operational
projects involving a majority of corporate resources, which realized a high
percentage of costs charged to projects.
Non-cash stock-based compensation expense was ($0.1) million for the fourth
quarter of 2022 and $0.4 million for the fourth quarter of 2021. Non-cash
stock-based compensation expense for the third quarter of 2022 was immaterial.
Other income (expense), net, was an income of $2.5 million for the three
months ended December 31, 2022. Other income (expense), net, normally
consists of foreign currency losses reflecting the continued US$ currency
strength against most currencies and in particular the Euro and CFA.
Additionally, for the three months ended December 31, 2022, other income
(expense), net included a $10.8 million bargain purchase gain on the
TransGlobe acquisition offset by $7.0 million of transaction costs
associated with the business combination with TransGlobe. For the full year
ended December 31, 2022, transaction costs were $14.6 million.
Foreign income taxes are attributable to Gabon and are settled by the
government taking their oil in-kind. Income tax expense for the three months
ended December 31, 2022 was an expense of $7.0 million. This is comprised of
$1.7 million of current tax expense and a deferred tax provision of $5.3
million. The income tax benefit for the quarter ended December 31, 2021 was
$10.9 million. This is comprised of $16.1 million of deferred tax benefit and
a current tax provision of $5.2 million. For both the three months ended
December 31, 2022 and 2021, VAALCO's overall effective tax rate was impacted
by non-deductible items associated with derivative losses and corporate
expenses. Additionally, the higher realized prices have contributed to higher
revenue but also higher taxes.
6
Financial Update - Full Year 2022
Reported net income for the full year 2022 of $51.9 million, or $0.73 per
diluted share with Adjusted Net Income of $104.3 million, or $1.49 per
diluted share. This compares to net income for the full year 2021 of $81.8
million, or $1.37 per diluted share while Adjusted Net Income was $39.6
million, or $0.67 per diluted share. The year-over-year change in net income
and adjusted net income is primarily the result of increased sales, higher oil
pricing and changes in deferred income tax expense (benefit). In 2021 there
was a $42.4 million deferred tax benefit and in 2022 there was a
$44.8 million deferred tax expense. The Company generated $186.6 million in
Adjusted EBITDAX for the full year 2022 compared to $85.8 million in 2021. The
increase was primarily the result of stronger revenues as a result of
increased crude oil prices and higher sales volumes.
Production increased by 44% to 10,217 NRI BOEPD or 3.7 MMBOE for full year
2022 compared to 2.6 MMBOE for the prior year, driven by the additional
production associated with the 2021/2022 drilling campaign at Etame. In
addition, from October 2022 there is the incremental production associated
with the TransGlobe combination. For the full year 2021, production was 7,119
NRI BOPD or 2.6 MMBOE. For the full year 2022, VAALCO's realized crude oil
sales price was $94.77 per BOE, or 34% higher than $70.66 per BOE that was
realized for full year 2021. Sales volumes increased 36% to 3.7 MMBOE in 2022
from 2.7 MMBOE in 2021.
For the full year 2022, total production expense, excluding workovers,
increased to $107.9 million compared to $72.6 million in 2021. The increase
was primarily driven by higher sales and costs associated with the TransGlobe
combination as well as inflationary pressures in 2022. The production expense
rate per BOE, excluding workover costs, was $29.33 in 2022 and $26.77 in 2021.
Workover expense for 2022 totaled $4.7 million and for 2021 totaled $8.7
million.
For the full year 2022, G&A, excluding stock-based compensation, was $8.0
million, a decrease of 35% compared with full year 2021 G&A, excluding
stock-based compensation, of $12.3 million. The decrease year-over-year was
primarily due to operational projects with the fourth quarter of 2022
realizing a high percentage of charged time. G&A includes $2.1 million and
$2.5 million of stock-based compensation expense for the years ended December
31, 2022 and December 31, 2021, respectively, that was primarily expense
related to SARs.
Capital Investments/Balance Sheet
For the fourth quarter of 2022, net capital expenditures totaled $56.0 million
on a cash basis and $48.8 million on an accrual basis, net of TransGlobe
acquisition. These expenditures were related to costs associated with the
2021/2022 drilling program as well as the FSO conversion and field
reconfiguration investments in Gabon and development drilling in Egypt and
Canada. For the full year 2022, VAALCO invested $159.9 million on a cash
basis and $434.4 million on an accrual basis, including the TransGlobe
acquisition.
At the end of the fourth quarter of 2022, VAALCO had an unrestricted cash
balance of $37.0 million. In addition, the Company had $46 million
outstanding with EGPC at December 31, 2022 associated with September to
December invoices, Canadian accounts receivable of $4.5 million for December
(collected in January), and Gabon accounts receivable of $1.7 million
(collected in January). Working capital at December 31, 2022 was $38.0
million compared with a deficit of $19.7 million at September 30, 2022, while
Adjusted Working Capital at December 31, 2022 totaled $48.8 million.
In mid 2022, VAALCO announced entry into a new credit agreement, effective May
16, 2022, for a new five-year Reserve Based Lending ("RBL") facility with
Glencore Energy UK Ltd. ("Glencore") that includes an initial commitment of
$50 million and is expandable up to $100 million. The facility is currently
secured by the Company's assets in Gabon and matures in 2027. Key terms and
covenants under the new facility include net debt to EBITDAX of less than
three times and requires VAALCO to maintain a minimum cash balance of $10
million. While VAALCO intends to fund its capital and shareholder returns
programs with internally generated funds, the facility enhances future
financial flexibility.
In conjunction with the TransGlobe merger, VAALCO assumed an existing
revolving loan facility with Alberta Treasury Branches ("ATB") and on January
5, 2023 the facility was exited.
7
Cash Dividend Policy and Share Buyback Authorization
VAALCO paid a quarterly cash dividend of $0.0325 per share of common stock for
the fourth quarter of 2022 on December 22, 2022. On February 14, 2023, the
Company announced its next quarterly cash dividend of $0.0625 per share of
common stock for the first quarter of 2023 ($0.25 annualized), which was paid
on March 31, 2023 to stockholders of record at the close of business on March
24, 2023. As previously announced in 2022, VAALCO increased its dividend 92%
beginning with the first quarter of 2023. Future declarations of quarterly
dividends and the establishment of future record and payment dates are subject
to approval by the Board of Directors.
Dividend Payment Date Amount per common share Record Date
March 18, 2022 $ 0.0325 February 18, 2022
June 24, 2022 $ 0.0325 May 25, 2022
September 23, 2022 $ 0.0325 August 25, 2022
December 22, 2022 $ 0.0325 November 22, 2022
Aggregate per share amount paid in 2022 $ 0.1300
On November 1, 2022, VAALCO announced that its newly expanded Board of
Directors formally ratified and approved the share buyback program that was
announced on August 8, 2022 in conjunction with the pending business
combination with TransGlobe. The Board also directed management to implement
a Rule 10b5-1 trading 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 plan provides for
an aggregate purchase of currently outstanding common stock up to $30
million. Payment for shares repurchased under the program will be funded
using the Company's cash on hand and cash flow from operations.
The actual timing, number and value of shares repurchased under the share
buyback program will depend on a number of factors, including constraints
specified in any Rule 10b5-1 trading plans, price, general business and market
conditions, and alternative investment opportunities. Under such a trading
plan, the Company's third-party broker, subject to Securities and Exchange
Commission 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. The share buyback program does not
obligate the Company to acquire any specific number of shares in any period,
and may be expanded, extended, modified or discontinued at any time.
Since inception of the buyback program in November through March 31, 2023,
VAALCO has repurchased $7.5 million in shares.
Hedging
The Company continued to opportunistically hedge a portion of its expected
production in 2022 to lock in strong cash flow generation to assist in funding
its capital program and dividend.
On October 26, 2022, VAALCO entered into additional derivative contracts for
the first quarter of 2023:
Settlement Period Type of Contract Index Average Monthly Volumes Weighted Average Put Price Weighted Average Call Price
(Bbls) (per Bbl) (per Bbl)
January 2023 to March 2023 Collars Dated Brent 101,000 $ 65.00 $ 120.00
The following additional hedges were entered into in 2023:
Settlement Period Type of Contract Index Average Monthly Volumes Weighted Average Put Price Weighted Average Call Price
(Bbls) (per Bbl) (per Bbl)
April 2023 to June 2023 Collars Dated Brent 95,500 $ 65.00 $ 100.00
July 2023 to September 2023 Collars Dated Brent 95,500 $ 65.00 $ 96.00
8
2023 Guidance:
FY 2023 Gabon Egypt Canada
Production (BOEPD) WI 20,400 - 24,400 8,500 - 10,300 9,700 - 11,500 2,200 - 2,600
Production (BOEPD) NRI 15,300 - 18,600 7,400 - 9,000 6,000 - 7,300 1,900 - 2,300
Sales Volume (BOEPD) WI 20,400 - 24,400 8,500 - 10,300 9,700 - 11,500 2,200 - 2,600
Sales Volume (BOEPD) NRI 15,300 - 18,600 7,400 - 9,000 6,000 - 7,300 1,900 - 2,300
Production Expense (millions) WI & NRI $135.5 - $157.0
Production Expense per BOE WI $16.00 - $20.00
Production Expense per BOE NRI $21.00 - $27.00
Offshore Workovers (millions) WI & NRI $1 - $10
Cash G&A (millions) WI & NRI $15.0 - $20.0
CAPEX (millions) WI & NRI $70 - $90
Q1 2023 Gabon Egypt Canada
Production (BOEPD) WI 22,500 - 23,800 10,000 - 10,500 9,900 - 10,500 2,600 - 2,800
Production (BOEPD) NRI 17,300 - 18,600 8,700 - 9,100 6,400 - 7,100 2,200 - 2,400
Sales Volume (BOEPD) WI 17,500 - 18,600 5,700 - 6,100 9,200 - 9,700 2,600 - 2,800
Sales Volume (BOEPD) NRI 12,900 - 14,100 4,900 - 5,300 5,800 - 6,400 2,200 - 2,400
Production Expense (millions) WI & NRI $28.0 - $34.0
Production Expense per BOE WI $17.50 - $21.00
Production Expense per BOE NRI $23.00 - $28.50
Offshore Workovers (millions) WI & NRI $0 - $1
Cash G&A (millions) WI & NRI $3.5 - $5.5
CAPEX (millions) WI & NRI $25 - $35
9
Conference Call
As previously announced, the Company will hold a conference call to discuss
its fourth quarter and full year 2022 financial and operating results today,
Thursday, April 6, 2023, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time
and 4:00 p.m. London Time). Interested parties may participate by dialing
(833) 685-0907. Parties in the United Kingdom may participate toll-free by
dialing 08082389064 and other international parties may dial (412) 317-5741.
Participants should request to be joined to the "VAALCO Energy Fourth Quarter
and Full Year 2022 Conference Call." This call will also be webcast on
VAALCO's website at www.vaalco.com. An archived audio replay will be available
on VAALCO's website. An updated investor deck has been posted today to
VAALCO's website in the "Investor Relations" section, under "Presentations."
About VAALCO
VAALCO, founded in 1985 and incorporated under the laws of Delaware, is a
Houston, USA based, independent energy company with production, development
and exploration assets in Africa and Canada.
Following its business combination with TransGlobe in October 2022, VAALCO
owns a diverse portfolio of operated production, development and exploration
assets across Gabon, Egypt, Equatorial Guinea and Canada.
For Further Information
VAALCO Energy, Inc. (General and Investor Enquiries) +00 1 713 623 0801
Website: www.vaalco.com
Al Petrie Advisors (US Investor Relations) +00 1 713 543 3422
Al Petrie / Chris Delange
Buchanan (UK Financial PR) +44 (0) 207 466 5000
Ben Romney / Jon Krinks VAALCO@buchanan.uk.com
10
Forward Looking Statements
This press release 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, which are
intended to be covered by the safe harbors created by those laws and other
applicable laws and "forward-looking information" within the meaning of
applicable Canadian securities laws. Where a forward-looking statement
expresses or implies an expectation or belief as to future events or results,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis. All statements other than statements of historical fact may
be forward-looking statements. The words "anticipate," "believe," "estimate,"
"expect," "intend," "forecast," "outlook," "aim," "target," "will," "could,"
"should," "may," "likely," "plan" and "probably" or similar words may identify
forward-looking statements, but the absence of these words does not mean that
a statement is not forward-looking. Forward-looking statements in this press
release include, but are not limited to, statements relating to (i) VAALCO's
ability to realize the anticipated benefits and synergies expected from the
acquisition of TransGlobe; (ii) estimates of future drilling, production,
sales and costs of acquiring crude oil and natural gas; (iii) estimates of
future cost reductions, synergies, savings and efficiencies; (iv) expectations
regarding VAALCO's ability to effectively integrate assets and properties it
acquired as a result of the acquisition of TransGlobe into its operations;
(vii) the amount and timing of stock repurchases, if any, under the VAALCO's
stock buyback program and VAALCO's ability to enhance stockholder value
through such plan; (v) expectations regarding future exploration and the
development, growth and potential of VAALCO's operations, project pipeline and
investments, and schedule and anticipated benefits to be derived therefrom;
(vi) expectations regarding future acquisitions, investments or divestitures;
(vii) expectations of future dividends and returns to stockholders; (viii)
expectations of future balance sheet strength; (ix) expectations of the
continued listing of VAALCO's common stock on the NYSE and LSE; and (x)
VAALCO's ability to finalize documents and effectively execute the POD for the
Venus development in Block P.
Such forward-looking statements are subject to risks, uncertainties and other
factors, which could cause actual results to differ materially from future
results expressed, projected or implied by the forward-looking statements.
These risks and uncertainties include, but are not limited to: risks relating
to any unforeseen liabilities of VAALCO or TransGlobe; declines in oil or
natural gas prices; the level of success in exploration, development and
production activities; adverse weather conditions that may negatively impact
development or production activities; the right of host governments in
countries where we operate to expropriate property and terminate contracts
(including the Egypt PSCs, the Etame PSC and the Block P PSC) for reasons of
public interest, subject to reasonable compensation, determinable by the
respective government in its discretion; the final terms of the agreements
pertaining to Block P in Equatorial Guinea, which remain under
negotiation; the timing and costs of exploration and development
expenditures; inaccuracies of reserve estimates or assumptions underlying
them; revisions to reserve estimates as a result of changes in commodity
prices; impacts to financial statements as a result of impairment write-downs;
the ability to generate cash flows that, along with cash on hand, will be
sufficient to support operations and cash requirements; the ability to attract
capital or obtain debt financing arrangements; currency exchange rates and
regulations; actions by joint venture co-owners; hedging decisions, including
whether or not to enter into derivative financial instruments; international,
federal and state initiatives relating to the regulation of hydraulic
fracturing; failure of asses to yield oil or gas in commercially viable
quantities; uninsured or underinsured losses resulting from oil and gas
operations; inability to access oil and gas markets due to market conditions
or operational impediments; the impact and costs of compliance with laws and
regulations governing oil and gas operations; the ability to replace oil and
natural gas reserves; any loss of senior management or technical personnel;
competition in the oil and gas industry; the risk that the business
combination with TransGlobe may not increase VAALCO's relevance to investors
in the international E&P industry, increase capital market access through
scale and diversification or provide liquidity benefits for stockholders; and
other risks described under the caption "Risk Factors" in VAALCO's
2022 Annual Report on Form 10-K, expected to be filed with the SEC on April
6, 2023.
Dividends beyond the first quarter of 2023 have not yet been approved or
declared by the Board. The declaration and payment of future dividends and the
terms of share buybacks remains at the discretion of the Board and will be
determined based on VAALCO's financial results, balance sheet strength, cash
and liquidity requirements, future prospects, crude oil and natural gas
prices, and other factors deemed relevant by the Board. The Board reserves all
powers related to the declaration and payment of dividends and the terms of
share buybacks. Consequently, in determining the dividend to be declared and
paid on VAALCO common stock or the terms of share buybacks, the Board may
revise or terminate the payment level or buyback terms at any time without
prior notice.
Inside Information
This announcement contains inside information as defined in Regulation (EU)
No. 596/2014 on market abuse which is part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018 ("MAR") and is made in accordance with
the Company's obligations under article 17 of MAR. The person responsible for
arranging the release of this announcement on behalf of VAALCO is Matthew
Powers, Corporate Secretary of VAALCO.
Supplemental Non-GAAP Financial Measures
This press release contains crude oil and natural gas metrics which do not
have standardized meanings or standard methods of calculation as classified by
the SEC and therefore such measures may not be comparable to similar measures
used by other companies. Such metrics have been included herein to provide
readers with additional measures to evaluate the Company's performance;
however, such measures are not reliable indicators of the future performance
of the Company and future performance may not compare to the performance in
previous periods.
11
PV-10 Value and Probable Reserves
PV-10 is a non-GAAP financial measure and represents the period-end present
value of estimated future cash inflows from VAALCO's reserves, less future
development and production costs, discounted at 10% per annum to reflect
timing of future cash flows. PV-10 values for 2P WI CPR reserves have been
calculated using VAALCO's management assumptions for timing, escalated crude
oil price and cost in the case of 2P WI CPR reserves. PV-10 generally differs
from standardized measure, the most directly comparable GAAP financial
measure, because it generally does not include the effects of income taxes;
however, VAALCO's PV-10 does include the effect of income taxes. PV-10 is a
widely used measure within the industry and is commonly used by securities
analysts, banks and credit rating agencies to evaluate the estimated future
net cash flows from proved reserves on a comparative basis across companies or
specific properties. VAALCO's PV-10 includes the effect of income
taxes. Neither PV-10 nor the standardized measure purports to represent the
fair value of the Company's crude oil and natural gas reserves.
VAALCO has provided summations of its PV-10 for its proved and probable
reserves on a 2P WI CPR basis in this press release. The SEC strictly
prohibits companies from aggregating proved, probable and possible reserves in
filings with the SEC due to the different levels of certainty associated with
each reserve category. GAAP does not provide a measure of estimated future net
cash flows for reserves other than proved reserves and accordingly it is not
practicable to reconcile the PV-10 value of 2P WI CPR reserves to a GAAP
measure, such as the standardized measure. Investors should be cautioned that
estimates of PV-10 of probable reserves, as well as the underlying volumetric
estimates, are inherently more uncertain of being recovered and realized than
comparable measures for proved reserves. Further, because estimates of
probable reserve volumes have not been adjusted for risk due to this
uncertainty of recovery, their summation may be of limited use. Nonetheless,
VAALCO believes that PV-10 estimates for probable reserves present useful
information for investors about the future net cash flows of its reserves in
the absence of a comparable GAAP measure such as standardized measure.
2P WI CPR Reserves
2P WI CPR reserves represent proved plus probable estimates as reported by
NSAI and GLJ and prepared in accordance with the definitions and guidelines
set forth in the 2018 Petroleum Resources Management Systems approved by the
Society of Petroleum Engineers as of December 31, 2021 using escalated crude
oil price and cost assumptions made by VAALCO's management. The SEC
definitions of proved and probable reserves are different from the definitions
contained in the 2018 Petroleum Resources Management Systems approved by the
Society of Petroleum Engineers as of December 31, 2021. As a result, 2P WI CPR
reserves may not be comparable to United States standards. The SEC requires
United States oil and gas reporting companies, in their filings with the SEC,
to disclose only proved reserves after the deduction of royalties and
production due to others but permits the optional disclosure of probable and
possible reserves in accordance with SEC definitions.
2P WI CPR reserves and the PV-10 value for 2P WI CPR reserves, as calculated
herein, may differ from the SEC definitions of proved and probable reserves
because:
● Pricing for SEC is the average closing price on the first trading day of each
month for the prior year which is then held flat in the future, while the 2P
WI CPR pricing is based on management pricing assumptions for future Brent oil
pricing for 2023 of $80.00 and $70.00 in 2024, escalated 2% per year
thereafter and for Equatorial Guinea, given the expectation of first oil
beginning in 2026, Brent oil pricing of $74.27 was assumed for 2026, escalated
2% per year thereafter;
● Lease operating expenses are not escalated in the SEC case, while for the 2P
WI CPR reserves case they are escalated at 2% annually beginning on January 1,
2023.
Management uses 2P WI CPR reserves as a measurement of operating performance
because it assists management in strategic planning, budgeting and economic
evaluations and in comparing the operating performance of the Company to other
companies. Management believes that the presentation of 2P WI CPR reserves is
useful to its international investors, particularly those that invest in
companies trading on the London Stock Exchange, in order to better compare the
Company's reserve information to other London Stock Exchange-traded companies
that report similar measures. VAALCO also believes that this information
enhances its investors' and securities analysts' understanding of its
business. However, 2P WI CPR reserves should not be used as a substitute for
proved reserves calculated in accordance with the definitions prescribed by
the SEC. In evaluating VAALCO's business, investors should rely on the
Company's SEC proved reserves and consider 2P WI CPR reserves only
supplementally.
12
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
As of December 31, 2022 As of December 31, 2021
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 37,205 $ 48,675
Restricted cash 222 79
Receivables:
Trade, net 52,147 22,464
Accounts with joint venture owners, net of allowance of $0.0 million in both 15,830 345
periods presented
Foreign income taxes receivable 2,769 -
Other, net 68,519 9,977
Crude oil inventory 3,335 1,593
Prepayments and other 20,070 5,156
Total current assets 200,097 88,289
Crude oil and natural gas properties, equipment and other - successful efforts 495,272 94,324
method, net
Other noncurrent assets:
Restricted cash 1,763 1,752
Value added tax and other receivables, net of allowance of $8.7 million and 7,150 5,536
$5.7 million, respectively
Right of use operating lease assets 2,777 10,227
Right of use finance lease assets 90,698 -
Deferred tax assets 35,432 39,978
Abandonment funding 20,586 21,808
Other long-term assets 1,866 1,176
Total assets $ 855,641 $ 263,090
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,886 $ 18,797
Accounts with joint venture owners - 3,233
Accrued liabilities and other 91,392 49,444
Operating lease liabilities - current portion 2,314 9,642
Finance lease liabilities - current portion 7,811 -
Foreign income taxes payable - 3,128
Current liabilities - discontinued operations 687 13
Total current liabilities 162,090 84,257
Asset retirement obligations 41,695 33,949
Operating lease liabilities - net of current portion 686 587
Finance lease liabilities - net of current portion 78,248 -
Deferred tax liabilities 81,223 -
Other long-term liabilities 25,594 -
Total liabilities 389,536 118,793
Commitments and contingencies
Shareholders' equity:
Preferred stock, $25 par value; 500,000 shares authorized, none issued - -
Common stock, $0.10 par value; 160,000,000 and 100,000,000 shares authorized, 11,948 6,956
119,482,680 and 69,562,774 shares issued, 107,852,857 and 58,623,451 shares
outstanding, respectively
Additional paid-in capital 353,606 76,700
Accumulated other comprehensive income 1,179 -
Less treasury stock, 11,629,823 and 10,939,323 shares, respectively, at cost (47,652 ) (43,847 )
Retained earnings 147,024 104,488
Total shareholders' equity 466,105 144,297
Total liabilities and shareholders' equity $ 855,641 $ 263,090
13
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Year Ended December 31,
December 31, 2022 December 31, 2021 September 30, 2022 2022 2021
(in thousands except per share amounts)
Revenues:
Crude oil, natural gas and natural gas liquids sales $ 96,588 $ 56,379 $ 78,097 $ 354,326 $ 199,075
Operating costs and expenses:
Production expense 45,514 23,495 23,312 112,661 81,255
FPSO demobilization - - 8,867 8,867 -
Exploration expense 8 293 56 258 1,579
Depreciation, depletion and amortization 26,316 4,132 8,963 48,143 21,060
General and administrative expense (430 ) 2,545 1,979 10,077 14,766
Bad debt expense and other 999 61 1,020 3,082 875
Total operating costs and expenses 72,407 30,526 44,197 183,088 119,535
Other operating income (expense), net 43 - - 38 (440 )
Operating income (loss) 24,224 25,853 33,900 171,276 79,100
Other income (expense):
Derivative instruments gain (loss), net (290 ) (1,756 ) 3,778 (37,812 ) (22,826 )
Interest income (expense), net (1,679 ) 1 (234 ) (2,034 ) 10
Other income (expense), net 2,466 (594 ) (7,707 ) (8,048 ) 3,494
Total other income (expense), net 497 (2,349 ) (4,163 ) (47,894 ) (19,322 )
Income (loss) from continuing operations before income taxes 24,721 23,504 29,737 123,382 59,778
Income tax expense (benefit) 6,953 (10,884 ) 22,843 71,420 (22,156 )
Income (loss) from continuing operations 17,768 34,388 6,894 51,962 81,934
Loss from discontinued operations, net of tax (14 ) (26 ) (26 ) (72 ) (98 )
Net income (loss) $ 17,754 $ 34,362 $ 6,868 $ 51,890 $ 81,836
Basic net income (loss) per share:
Income (loss) from continuing operations $ 0.17 $ 0.58 $ 0.12 $ 0.74 $ 1.38
Loss from discontinued operations, net of tax - - - - -
Net income (loss) per share $ 0.17 $ 0.58 $ 0.12 $ 0.74 $ 1.38
Basic weighted average shares outstanding 101,227 58,613 59,068 69,568 58,230
Diluted net income (loss) per share:
Income (loss) from continuing operations $ 0.17 $ 0.58 $ 0.11 $ 0.73 $ 1.37
Loss from discontinued operations, net of tax - - - - -
Net income (loss) per share $ 0.17 $ 0.58 $ 0.11 $ 0.73 $ 1.37
Diluted weighted average shares outstanding 101,578 59,002 59,450 69,982 58,755
14
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Year Ended December 31,
2022 2021
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,890 $ 81,836
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss from discontinued operations, net of tax 72 98
Depreciation, depletion and amortization 48,143 21,060
Bargain purchase gain (10,819 ) (7,651 )
Deferred taxes 44,805 (39,978 )
Unrealized foreign exchange (gain) loss (1,043 ) (291 )
Stock-based compensation 2,200 2,459
Cash settlements paid on exercised stock appreciation rights (827 ) (3,271 )
Derivative instruments (gain) loss, net 37,812 22,826
Cash settlements received (paid) on matured derivative contracts, net (42,935 ) (18,020 )
Cash settlements paid on asset retirement obligations (6,577 ) -
Bad debt expense and other 3,082 875
Other operating loss, net (38 ) 440
Operational expenses associated with equipment and other 2,052 2,415
Change in operating assets and liabilities:
Trade receivables 18,385 (11,308 )
Accounts with joint venture owners (18,929 ) 1,594
Other receivables (9,290 ) (9,736 )
Crude oil inventory (1,742 ) 5,022
Prepayments and other (4,387 ) 1,617
Value added tax and other receivables (5,193 ) (1,593 )
Other long-term assets (2,730 ) (1,176 )
Accounts payable 23,920 (922 )
Foreign income taxes receivable/payable (5,897 ) 2,268
Accrued liabilities and other 6,964 1,645
Net cash provided by continuing operating activities 128,918 50,209
Net cash used in discontinued operating activities (72 ) (92 )
Net cash provided by operating activities 128,846 50,117
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (159,897 ) (16,558 )
Cash acquired from TransGlobe acquisition 36,686 -
Acquisition of crude oil and natural gas properties - (22,505 )
Net cash used in continuing investing activities (123,211 ) (39,063 )
Net cash used in discontinued investing activities - -
Net cash used in investing activities (123,211 ) (39,063 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuances of common stock 312 1,369
Dividend distribution (9,354 ) -
Treasury shares (3,805 ) (1,426 )
Deferred financing costs (2,069 ) -
Payments of finance lease (3,039 ) -
Net cash used in continuing financing activities (17,955 ) (57 )
Net cash used in discontinued financing activities - -
Net cash used in financing activities (17,955 ) (57 )
Effects of exchange rate changes on cash (218 ) -
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (12,538 ) 10,997
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 72,314 61,317
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 59,776 $ 72,314
15
VAALCO ENERGY, INC AND SUBSIDIARIES
Selected Financial and Operating Statistics (Unaudited)
Three Months Ended Year Ended December 31,
December 31, 2022 December 31, 2021 September 30, 2022 2022 2021
NRI SALES DATA
Crude oil, natural gas and natural gas liquids sales (MBOE) 1,371 709 731 3,677 2,711
WI PRODUCTION DATA
Etame Crude oil (MBbl) 650 799 968 3,415 3,188
Egypt Crude oil (MBbl) 818 - - 818 -
Canada Crude oil, natural gas and natural gas liquids sales (MBOE) 211 - - 211 -
Total Crude oil, natural gas and natural gas liquids sales (MBOE) 1,680 799 968 4,445 3,188
Average daily production volumes (BOEPD) 18,262 8,685 10,525 12,177 8,734
NRI PRODUCTION DATA
Etame Crude oil (MBbl) 566 695 842 2,971 2,599
Egypt Crude oil (MBbl) 547 - - 547 -
Canada Crude oil, natural gas and natural gas liquids sales (MBOE) 211 - - 211 -
Total Crude oil, natural gas and natural gas liquids sales (MBOE) 1,324 695 842 3,729 2,599
Average daily production volumes (BOEPD) 14,390 7,554 9,157 10,217 7,119
AVERAGE SALES PRICES:
Crude oil, natural gas and natural gas liquids sales (per BOE) $ 70.43 $ 77.31 $ 103.61 $ 94.77 $ 70.66
Crude oil, natural gas and natural gas liquids sales (Per BOE including $ 70.24 $ 66.26 $ 91.13 $ 83.10 $ 64.01
realized commodity derivatives)
COSTS AND EXPENSES (Per BOE of sales):
Production expense $ 33.19 $ 33.14 $ 31.89 $ 30.64 $ 29.97
Production expense, excluding workovers and stock compensation* 29.73 26.82 31.79 29.33 26.77
Depreciation, depletion and amortization 19.19 5.83 12.26 13.09 7.77
General and administrative expense** (0.31 ) 3.59 2.71 2.74 5.45
Property and equipment expenditures, cash basis (in thousands) $ 56,044 $ 8,099 $ 43,575 $ 159,897 $ 16,558
* Workover costs excluded from the three months ended December 31, 2022 and
2021 and September 30, 2022 are $4.7 million, $4.5 million and $0.0
million, respectively. Workover costs excluded from the year ended December
31, 2022 and 2021 are $4.7 million and $8.7 million, respectively.
** General and administrative expenses include $(0.09), $0.51 and $(0.03) per
BOE of sales of stock-based compensation expense in the three months
ended December 31, 2022, and 2021 and September 30, 2022, respectively.
General and administrative expenses include $0.57 and $0.91 per BOE of sales
of stock-based compensation expense for the years ended December 31, 2022,
and 2021, respectively.
16
NON-GAAP FINANCIAL MEASURES
Management uses Adjusted Net Income to evaluate operating and financial
performance and believes the measure is useful to investors because it
eliminates the impact of certain non-cash and/or other items that management
does not consider to be indicative of the Company's performance from period to
period. Management also believes this non-GAAP measure is useful to investors
to evaluate and compare the Company's operating and financial performance
across periods, as well as facilitating comparisons to others in the Company's
industry. Adjusted Net Income is a non-GAAP financial measure and as used
herein represents net income before discontinued operations, impairment of
proved crude oil and natural gas properties, deferred income tax expense,
unrealized commodity derivative loss, gain on the Sasol Acquisition and
non-cash and other items.
Adjusted EBITDAX is a supplemental non-GAAP financial measure used by VAALCO's
management and by external users of the Company's financial statements, such
as industry analysts, lenders, rating agencies, investors and others who
follow the industry, as an indicator of the Company's ability to internally
fund exploration and development activities and to service or incur additional
debt. Adjusted EBITDAX is a non-GAAP financial measure and as used herein
represents net income before discontinued operations, interest income net,
income tax expense, depletion, depreciation and amortization, exploration
expense, impairment of proved crude oil and natural gas properties, non-cash
and other items including stock compensation expense, gain on the Sasol
Acquisition and unrealized commodity derivative loss.
Management uses Adjusted Working Capital as a measurement tool to assess the
working capital position of the Company's continuing operations excluding
leasing obligations because it eliminates the impact of discontinued
operations as well as the impact of lease liabilities. Under the lease
accounting standards, lease liabilities related to assets used in joint
operations include both the Company's share of expenditures as well as the
share of lease expenditures which its non-operator joint venture owners' will
be obligated to pay under joint operating agreements. Adjusted Working Capital
is a non-GAAP financial measure and as used herein represents working capital
excluding working capital attributable to discontinued operations and current
liabilities associated with lease obligations.
Adjusted EBITDAX and Adjusted Net Income have significant limitations,
including that they do not reflect the Company's cash requirements for capital
expenditures, contractual commitments, working capital or debt service.
Adjusted EBITDAX, Adjusted Net Income and Adjusted Working Capital should not
be considered as substitutes for net income (loss), operating income (loss),
cash flows from operating activities or any other measure of financial
performance or liquidity presented in accordance with GAAP. Adjusted EBITDAX
and Adjusted Net Income exclude some, but not all, items that affect net
income (loss) and operating income (loss) and these measures may vary among
other companies. Therefore, the Company's Adjusted EBITDAX, Adjusted Net
Income and Adjusted Working Capital may not be comparable to similarly titled
measures used by other companies.
17
The tables below reconcile the most directly comparable GAAP financial
measures to Adjusted Net Income, Adjusted EBITDAX and Adjusted Working
Capital.
VAALCO ENERGY, INC AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures
(Unaudited)
(in thousands)
Three Months Ended Year Ended December 31,
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) December 31, 2022 December 31, 2021 September 30, 2022 2022 2021
Net income (loss) $ 17,754 $ 34,362 $ 6,868 $ 51,890 $ 81,836
Adjustment for discrete items:
Discontinued operations, net of tax 14 26 26 72 98
Impairment of proved crude oil and natural gas properties - - - - -
Unrealized derivative instruments loss (gain) 38 (6,075 ) (12,902 ) (5,123 ) 4,806
Gain on Acquisitions, net (10,817 ) 302 - (10,817 ) (5,189 )
Arrangement Costs 7,006 - 6,424 14,630 -
FPSO demobilization - - 8,867 8,867 -
Deferred income tax expense (benefit) 5,266 (16,067 ) 24,008 44,805 (42,438 )
Other operating (income) expense, net (43 ) - - (38 ) 440
Adjusted Net Income (Loss) $ 19,218 $ 12,548 $ 33,291 $ 104,286 $ 39,553
Diluted Adjusted Net Income (Loss) per Share $ 0.19 $ 0.21 $ 0.56 $ 1.49 $ 0.67
Diluted weighted average shares outstanding (1) 101,578 59,002 59,450 69,982 58,755
(1) No adjustments to weighted average shares outstanding
18
VAALCO ENERGY, INC AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures
(Unaudited)
(in thousands)
Three Months Ended Year Ended December 31,
Reconciliation of Net Income to Adjusted EBITDAX December 31, 2022 December 31, 2021 September 30, 2022 2022 2021
Net income $ 17,754 $ 34,362 $ 6,868 $ 51,890 $ 81,836
Add back:
Impact of discontinued operations 14 26 26 72 98
Interest expense (income), net 1,679 (1 ) 234 2,034 (10 )
Income tax expense (benefit) 6,953 (10,884 ) 22,843 71,420 (22,156 )
Depreciation, depletion and amortization 26,316 4,132 8,963 48,143 21,060
Exploration expense 8 293 56 258 1,579
FPSO demobilization - - 8,867 8,867 -
Non-cash or unusual items:
Stock-based compensation (100 ) 361 36 2,200 2,459
Unrealized derivative instruments loss (gain) 38 (6,075 ) (12,902 ) (5,123 ) 4,806
Gain on Acquisition, net (10,817 ) 302 - (10,817 ) (5,189 )
Arrangement Costs 7,006 - 6,424 14,630 -
Other operating (income) expense, net (43 ) - - (38 ) 440
Bad debt expense and other 999 61 1,020 3,082 875
Adjusted EBITDAX $ 49,807 $ 22,577 $ 42,435 $ 186,618 $ 85,798
Reconciliation of Working Capital to Adjusted Working Capital As of December 31, 2022 As of December 31, 2021 Change
Current assets $ 200,097 $ 88,289 $ 111,808
Current liabilities (162,090 ) (84,257 ) (77,833 )
Working capital 38,007 4,032 33,975
Add: lease liabilities - current portion 10,125 9,642 483
Add: current liabilities - discontinued operations 687 13 674
Adjusted Working Capital $ 48,819 $ 13,687 $ 35,132
19
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