REG - Vaalco Energy Inc - FIRST QUARTER 2023 RESULTS
10/05/2023 07:00
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RNS Number : 9191Y Vaalco Energy Inc 10 May 2023
VAALCO ENERGY, INC. ANNOUNCES
FIRST QUARTER 2023 RESULTS
HOUSTON - May 10, 2023 - VAALCO Energy, Inc. (NYSE: EGY, LSE: EGY)
("VAALCO" or the "Company") today reported operational and financial results
for the first quarter of 2023.
First Quarter 2023 Highlights and Key Items:
● Paid first quarter 2023 cash dividend of $0.0625 per share of common stock and
announced quarterly cash dividend of $0.0625 per share of common stock ($0.25
annualized) to be paid on June 23, 2023, an increase of 92% compared to 2022;
● Returned $10.5 million to shareholders by purchasing 2.2 million shares since
inception of share buy back in November 2022 through May 9, 2023;
● Increased average daily production by 27% to 18,306 net revenue interest
("NRI")(1) barrels of oil equivalent per day ("BOEPD"), or 23,152 working
interest ("WI")(2) BOEPD compared to the fourth quarter of 2022;
● Reported Q1 2023 net income of $3.5 million ($0.03 per diluted share) and
Adjusted Net Income(3) of $7.3 million ($0.07 per diluted share);
● Sold 1,224,000 barrels of oil equivalent in Q1 2023,
which were impacted by timing of liftings;
● Expect Q2 2023 NRI sales to be between 1,420,000 and
1,570,000 barrels of oil equivalent;
● Generated Adjusted EBITDAX(3) of $47.8 million and funded $27.7 million in
cash capital expenditures from cash on hand and cash from operations during
the first quarter 2023;
● Increased cash and cash equivalents to $52.1 million, generated $42.0 million
in cash flow from operating activities and reported Adjusted Working
Capital(1) of $40.2 million at March 31, 2023; and
● Finalized multiple substantive documents with VAALCO's partners and the
Ministry of Mines & Hydrocarbons ("MMH") in Equatorial Guinea for Block P
which includes the Venus development.
(1) All NRI production rates are VAALCO's working interest volumes less royalty
volumes, where applicable
(2) All WI production rates and volumes are VAALCO's working interest volumes
(3) Adjusted EBITDAX, Adjusted Net Income and Adjusted Working Capital are
Non-GAAP financial measures and are described and reconciled to the closest
GAAP measure in the attached table under "Non-GAAP Financial Measures."
George Maxwell, VAALCO's Chief Executive Officer commented, "In October 2022,
we completed the transformational combination with TransGlobe Energy
Corporation that has grown VAALCO into a diversified, multi-country company
focused on sustainable growth and returning value to shareholders. The first
quarter of 2023 is the first full quarter of reporting as a combined company.
We delivered strong daily production growth of 27% compared to Q4 2022, and
generated significant cash flow and Adjusted EBITDAX, despite lower sales due
to timing of liftings and lower commodity pricing. Remaining committed to
returning value to shareholders, we increased our quarterly dividend by 92% to
$0.0625 per share and have paid the first quarter dividend and announced the
second quarter dividend. In addition, we have returned $10.5 million in share
buy backs through May 9th. We are well positioned and financially stronger
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 significant 2P WI CPR reserves across four countries and heavily
weighted to oil. We have no bank debt, a growing cash flow position and
meaningful upside opportunities that we are evaluating for future organic
growth. We have built a company of size and scale that is capable of
supporting sustainable shareholder returns."
"Following our meetings with the MMH and our partners in March regarding our
development plans for Equatorial Guinea, we continue to work towards the
finalization of documents between the partners, having completed the
production sharing contract ("PSC") documentation with the MMH. We are now
moving forward with the project, subject to finalization of JOA documentation,
with a more detailed review of the drilling and topsides development of the
Venus project with the objective of reducing the overall project costs in
conjunction with our partners. Following a detailed peer review, we are
considering options where the drilling of all three wells (two producers and
one water injector) are drilled as a single campaign which will reduce the
overall drilling costs through lower mobilization costs. We are also building
detailed options for the production and evacuation facilities throughout the
second and third quarters of 2023. Planned activity includes a detailed seabed
survey to identify the prime location for the development facilities. We are
excited about the future in Equatorial Guinea as we begin to develop the vast
resource potential at Block P."
Operational Update
Egypt
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. Historically, the wells
drilled in Egypt were vertical wells and VAALCO is planning to continue to
drill between 15 and 20 vertical wells in Egypt in 2023. The Arta77 HC was the
first horizontal well drilled under the new merged concession agreement and
the Company plans to study the results, drilling technique and completions
methods to enhance potential productivity of the next horizontal well, which
VAALCO plans to drill in the second half of 2023. In addition to drilling
capital, VAALCO has also spent capital and expense dollars on upgrading
facilities, to improve well performance as well as to meet its environmental
social and governance ("ESG") standards.
After completing the Arta77 HC well in January 2023, VAALCO drilled five
vertical development wells in the first quarter. One well required a frac
stimulation and the other four wells added over 700 BOPD at the end of the
first quarter. These wells continue to perform very well with May production
from them at nearly 1,100 BOPD. In the second quarter of 2023, the Company
plans to drill another six vertical wells.
Canada
VAALCO drilled and completed two wells in the first quarter of 2023,
consisting of a 1.5-mile lateral and a 3-mile lateral, which were also
required for land retention purposes. Both wells were drilled and completed
safely and cost effectively without incident. Facility tie in work is underway
with production expected in early May. The Company is currently evaluating
future drilling campaigns, with the intent of moving exclusively to 3-mile
laterals in order to improve economics. Additionally, VAALCO is conducting a
review of completions intensity for potential future well completions and
facility and pad optimization which should improve production cycle times in
the future.
Gabon
VAALCO completed its 2021/2022 drilling campaign in the fourth quarter of
2022. The Company is currently evaluating locations and planning for its next
drilling campaign. More details will be made available in the second half of
2023. 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 lower cost FSO solution
that increases the storage capacity for VAALCO to continue to economically
produce from the Etame field and led to an extension of the economic field
life. In 2023, the Company will continue to focus on operational excellence,
including production uptime and enhancement, to minimize decline until the
next drilling campaign. Gabon production performance in the first quarter has
been strong and slightly ahead of plan. The cost savings from the new FSO have
already begun to be realized but were partly offset by inflationary and
industry supply chain pressures and temporarily higher diesel costs.
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 PSC. 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 our asset base. With the PSC amendments
approved, VAALCO and its partners have retained not only the Venus
development area but have also retained the entire Block P acreage for
further exploitation.
Environmental, Social and Governance
As part of the Company's commitment to environmental stewardship, social
awareness and good corporate governance, VAALCO published its annual ESG
report in April 2023. The report covers VAALCO's ESG initiatives and related
key performance indicators and is available on VAALCO's web site,
www.vaalco.com, under the "Sustainability" tab. During 2022, the Company
completed a materiality study, led by its ESG Engineer with input from key
personnel across the organization with responsibility for engaging with its
key stakeholder groups. Working with an external consultancy, VAALCO created
an ESG materiality framework against which it plotted material topics informed
by the Global Reporting Initiative and Sustainability Accounting Standards
Board. Each of these was assessed based upon the perceived level of risk to
the business and the level of management control in place.
Financial Update -First Quarter of 2023
Reported net income of $3.5 million ($0.03 per diluted share) for the first
quarter of 2023 which was down compared with net income of $17.8 million
($0.17 per diluted share) in the fourth quarter of 2022 and down compared to
$12.2 million ($0.20 per diluted share) in the first quarter of 2022. The
decrease in earnings compared to the fourth quarter of 2022 is mainly due to
higher other income (expense) costs and higher income taxes. During the fourth
quarter of 2022 VAALCO recorded a bargain purchase gain of $10.8 million that
was partially offset by $7.0 million of transaction costs. During the first
quarter of 2023, the Company recorded a measurement period adjustment related
to the acquisition reducing the original bargain purchase gain by $1.4
million. The decrease in earnings compared to the first quarter of 2022 is due
to higher production expense, DD&A expense and higher taxes, partially
offset by higher revenue and lower losses on derivatives.
Adjusted EBITDAX totaled $47.8 million in the first quarter of 2023, a small
decrease from $49.8 million in the fourth quarter of 2022 and a 43% increase
from the $33.5 million generated in the same period in 2022. The increase in
first quarter 2023 Adjusted EBITDAX compared to the first quarter of 2022 is
primarily due to higher revenue resulting from the TransGlobe transaction and
lower realized losses on derivatives.
Revenue and Sales Q1 2023 Q1 2022 % Change Q1 2023 vs. Q1 2022 Q4 2022 % Change Q1 2023 vs. Q4 2022
Production (NRI BOEPD) 18,306 8,051 127 % 14,390 27 %
Sales (NRI BOE) 1,224,000 616,000 99 % 1,371,000 (11 )%
Realized commodity price ($/BOE) $ 65.68 $ 109.65 (40 )% $ 70.43 (7 )%
Commodity (Per BOE including realized commodity derivatives) $ 65.63 $ 91.16 (28 )% $ 70.24 (7 )%
Total commodity sales ($MM) $ 80.4 $ 68.7 17 % $ 96.6 (17 )%
VAALCO had total NRI sales volumes of 1,224,000 BOE compared to 1,371,000 BOE
in the fourth quarter of 2022 and 616,000 BOE for the same period in 2022. A
lifting in Gabon originally planned for March 2023 was delayed until April
which resulted in lower NRI sales volumes of 13,600 BOEPD during the first
quarter of 2023, compared with 14,900 BOEPD in the fourth quarter of 2022. The
Company expects second quarter NRI sales to be between 15,600 and 17,300 BOEPD
which includes the impacts of the delayed liftings.
First quarter of 2023 realized pricing (including the effects of derivative
contracts) was down 7% compared to the fourth quarter of 2022 and decreased
28% compared to the first quarter of 2022.
Costs and Expenses Q1 2023 Q1 2022 % Change Q1 2023 vs. Q1 2022 Q4 2022 % Change Q1 2023 vs. Q4 2022
Production expense, excluding offshore workovers and stock comp ($MM) $ 29.3 $ 18.4 59 % $ 40.8 (28 )%
Production expense, excluding offshore workovers ($/BOE) $ 23.9 $ 29.83 (20 )% $ 29.80 (20 )%
Offshore workover expense ($MM) $ (1.1 ) $ - - % $ 4.7 (123 )%
Depreciation, depletion and amortization ($MM) $ 24.4 $ 4.7 420 % $ 26.3 (7 )%
Depreciation, depletion and amortization ($/BOE) $ 19.9 $ 7.59 163 % $ 19.20 4 %
General and administrative expense, excluding stock-based compensation ($MM) $ 4.6 $ 3.6 27 % $ (0.3 ) (1,629 )%
General and administrative expense, excluding stock-based compensation ($/BOE) $ 3.7 $ 5.80 (35 )% $ (0.2 ) (1,973 )%
Stock-based compensation expense ($MM) $ 0.6 $ 1.4 (57 )% $ (0.1 ) (700 )%
Current income tax expense (benefit) ($MM) $ 12.3 $ 5.7 116 % $ 1.7 624 %
Deferred income tax expense (benefit) ($MM) $ 2.5 $ (10.3 ) (124 )% $ 5.3 (53 )%
Total production expense (excluding offshore workovers and stock compensation)
of $29.3 million was at the low end of the Company's guidance range. These
costs decreased in the first quarter of 2023 compared to the fourth quarter of
2022 and increased compared to the same period in 2022. The decrease in first
quarter 2023 expense compared to the fourth quarter of 2022 was driven
primarily by lower costs related to the completion of the FSO conversion and
field reconfiguration, and lower expense associated with lower sales volumes.
The increase in the first quarter of 2023 compared to the first quarter of
2022 was primarily driven by increased production and costs associated with
the TransGlobe combination as well as higher costs associated with boats,
diesel and operating costs. VAALCO has seen inflationary and industry supply
chain pressure on personnel and contractor costs.
The first quarter of 2023 had a negative $1.1 million in offshore workover
expenses with reversal of accruals on completion and tie out of the workover
AFE's. While there were no offshore workover expenses in the first quarter of
2022, the fourth quarter of 2022 incurred $4.7 million in offshore workover
expenses.
Production expense per barrel of oil equivalent, excluding workover costs and
stock compensation, was lower than the first and fourth quarters of 2022 due
to lower costs in Etame associated with the FSO conversion and lower per BOE
costs from the Egyptian and Canadian assets.
Depreciation, depletion and amortization ("DD&A") expense for the three
months ended March 31, 2023 was $24.4 million which was lower than the fourth
quarter of 2022 of $26.3 million and higher than the $4.7 million in the first
quarter of 2022. The increase in DD&A expense, compared to the first
quarter of 2022, 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, increased for the three months ended March 31, 2023 to
$4.6 million from $(0.3) million in the fourth quarter of 2022 and $3.6
million for the same period in the prior year. The fourth quarter of 2022
benefitted from the large increase in operational projects during that period
involving a majority of corporate resources, which realized a high percentage
of costs charged to projects. First quarter 2023 G&A was within the
Company's guidance, the Company has made meaningful progress toward reducing
absolute G&A costs when compared against the combined TransGlobe and
VAALCO first quarter of 2022 costs.
Non-cash stock-based compensation expense was $0.6 million for the first
quarter of 2023 compared to $1.4 million during the same period in 2022.
Non-cash stock-based compensation expense for the fourth quarter of 2022 was
immaterial.
Other income (expense), net, was an expense of $1.1 million for the three
months ended March 31, 2023 compared to an expense of $0.7 million during the
same period in 2022 and was 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. For the three months ended
March 31, 2023, other income (expense), net included a $1.4 million expense
associated with a measurement period adjustment associated with the TransGlobe
acquisition. 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 TransGlobe
transaction costs.
Foreign income taxes for Gabon and Egypt are settled by the government taking
their oil in-kind. Income tax expense for the three months ended March 31,
2023 was an expense of $14.8 million and is comprised of current tax expense
of $12.3 million and deferred tax provision of $2.5 million. Income tax
expense for the three months ended December 31, 2022 was an expense of
$7.0 million. This was 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 March 31, 2022 was a benefit of $4.6 million. This was comprised
of $10.3 million of deferred tax benefit and a current tax provision of $5.7
million. For all periods, VAALCO's overall effective tax rate was impacted by
non-deductible items associated with derivative losses and corporate expenses.
Capital Investments/Balance Sheet
For the first quarter of 2023, net capital expenditures totaled $27.7 million
on a cash basis and $25.4 million on an accrual basis. These expenditures
were primarily related to costs associated with the development drilling
programs in Egypt and Canada.
At the end of the first quarter of 2023, VAALCO had an unrestricted cash
balance of $52.1 million. Working capital at March 31, 2023 was $30.5
million compared with $38.0 million at December 31, 2022, while Adjusted
Working Capital at March 31, 2023 totaled $40.2 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 Consolidated Total Net Debt to
EBITDAX (each term as defined in the RBL facility) for the trailing twelve
months of less than three times and requires VAALCO to maintain a minimum
consolidated cash and cash equivalents 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 transaction, VAALCO assumed an existing
revolving loan facility with Alberta Treasury Branches and on January 5, 2023
the facility was exited.
Cash Dividend Policy and Share Buyback Authorization
VAALCO paid a quarterly cash dividend of $0.0625 per share of common stock for
the first quarter of 2023 on March 31, 2023. On May 9, 2023, the Company
announced its next quarterly cash dividend of $0.0625 per share of common
stock for the second quarter of 2023 ($0.25 annualized), to be paid on June
23, 2023 to stockholders of record at the close of business on May 24, 2023.
VAALCO increased its dividend 92% beginning with the first quarter of 2023
compared to the quarterly dividends paid in 2022. Future declarations of
quarterly dividends and the establishment of future record and payment dates
are subject to approval by the VAALCO Board of Directors (the "Board").
On November 1, 2022, VAALCO announced that its newly expanded Board 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, has 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 2022 through May 9, 2023,
VAALCO has repurchased $10.5 million in shares.
Hedging
The Company continued to opportunistically hedge a portion of its expected
production in 2023 to lock in strong cash flow generation to assist in funding
its capital program and dividend.
The following additional hedges were entered into in 2023 for periods after
the first quarter:
Settlement Period Type of Contract Index Average Monthly Volumes Weighted Average Put Price Weighted Average Call Price
(Bbls) (per Bbl) (per Bbl)
April 2023 - June 2023 Collars Dated Brent 95,500 $ 65.00 $ 100.00
Settlement Period Type of Contract Index Average Monthly Volumes Weighted Average Put Price Weighted Average Call Price
(Bbls) (per Bbl) (per Bbl)
July 2023 - September 2023 Collars Dated Brent 95,000 $ 65.00 $ 96.00
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
Q2 2023 Gabon Egypt Canada
Production (BOEPD) WI 22,600 - 24,600 9,500 - 10,300 10,600 - 11,600 2,500 - 2,700
Production (BOEPD) NRI 17,300 - 19,000 8,300 - 9,000 6,900 - 7,700 2,100 - 2,300
Sales Volume (BOEPD) WI 21,200 - 23,300 11,900 - 13,200 6.800 - 7.400 2,500 - 2,700
Sales Volume (BOEPD) NRI 15,600 - 17,300 10,400 - 11,500 3,100 - 3,500 2,100 - 2,300
Production Expense (millions) WI & NRI $32.5 - $39.0
Production Expense per BOE WI $15.50 - $20.50
Production Expense per BOE NRI $22.00 - $29.00
Offshore Workovers (millions) WI & NRI $0 - $1
Cash G&A (millions) WI & NRI $3.5 - $5.5
CAPEX (millions) WI & NRI $18 - $28
Conference Call
As previously announced, the Company will hold a conference call to discuss
its first quarter 2023 financial and operating results tomorrow, Wednesday May
10, 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 First Quarter 2023 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.
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
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, natural gas and natural gas liquids;
(iii) estimates of future cost reductions, synergies, including pre-tax
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; (v) the amount and
timing of stock buybacks, if any, under VAALCO's stock buyback program and
VAALCO's ability to enhance stockholder value through such plan; (vi)
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; (vii) expectations
regarding future acquisitions, investments or divestitures; (viii)
expectations of future dividends, buybacks and other potential returns to
stockholders; (ix) expectations of future balance sheet strength; (x)
expectations of future equity and enterprise value; (xi) expectations of the
continued listing of VAALCO's common stock on the NYSE and LSE and (xii)
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; the tax treatment of
the business combination with TransGlobe in the United States and Canada;
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 Etame production sharing contract 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 assets 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 filed with the SEC on April 6, 2023, VAALCO's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2023, expected to be filed
on May 10, 2023 and in VAALCO's Definitive Proxy Statement on Schedule 14A
filed with the SEC on April 23, 2023.
Dividends beyond the second quarter of 2023 have not yet been approved or
declared by the Board of Directors for VAALCO. 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. "Yields" with respect to dividends and the buyback
program in this release are forecasts of total cash to be paid for shares in
the buyback program, plus total cash to be paid in the form of dividends, and
are extrapolations based on the number of shares of Common Stock issued and
outstanding as of April 28, 2023, which was 107,014,245, and the share price
as of such date.
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.
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
As of March 31, 2023 As of December 31, 2022
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 52,119 $ 37,205
Restricted cash 76 222
Receivables:
Trade, net 30,795 52,147
Accounts with joint venture owners, net of allowance for credit losses of $0.3 25 15,830
million in both periods presented
Foreign income taxes receivable - 2,769
Other, net of allowance for credit losses of $3.5 and $0.0 million, 67,157 68,519
respectively
Crude oil inventory 11,778 3,335
Prepayments and other 17,424 20,070
Total current assets 179,374 200,097
Crude oil and natural gas properties, equipment and other - successful efforts 499,953 495,272
method, net
Other noncurrent assets:
Restricted cash 1,771 1,763
Value added tax and other receivables, net of allowance of $9.0 million and 8,026 7,150
$8.4 million, respectively
Right of use operating lease assets 2,211 2,777
Right of use finance lease assets 91,198 90,698
Deferred tax assets 33,430 35,432
Abandonment funding 6,268 20,586
Other long-term assets 1,752 1,866
Total assets $ 823,983 $ 855,641
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,982 $ 59,886
Accounts with joint venture owners 3,098 -
Accrued liabilities and other 80,707 91,392
Operating lease liabilities - current portion 2,040 2,314
Finance lease liabilities - current portion 6,907 7,811
Foreign income taxes payable 5,424 -
Current liabilities - discontinued operations 673 687
Total current liabilities 148,831 162,090
Asset retirement obligations 42,327 41,695
Operating lease liabilities - net of current portion 367 686
Finance lease liabilities - net of current portion 80,470 78,248
Deferred tax liabilities 79,854 81,223
Other long-term liabilities 16,959 25,594
Total liabilities 368,808 389,536
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 shares authorized, 120,116,106 and 12,012 11,948
119,482,680 shares issued, 107,318,214 and 107,852,857 shares outstanding,
respectively
Additional paid-in capital 354,499 353,606
Accumulated other comprehensive income 1,054 1,179
Less treasury stock, 12,797,892 and 11,629,823 shares, respectively, at cost (53,029 ) (47,652 )
Retained earnings 140,639 147,024
Total shareholders' equity 455,175 466,105
Total liabilities and shareholders' equity $ 823,983 $ 855,641
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31, 2023 March 31, 2022 December 31, 2022
(in thousands except per share amounts)
Revenues:
Crude oil, natural gas and natural gas liquids sales $ 80,403 $ 68,656 $ 96,588
Operating costs and expenses:
Production expense 28,200 18,360 45,514
Exploration expense 8 127 8
Depreciation, depletion and amortization 24,417 4,673 26,316
General and administrative expense 5,224 4,994 (430 )
Credit losses and other 935 492 999
Total operating costs and expenses 58,784 28,646 72,407
Other operating expense, net - (5 ) 43
Operating income 21,619 40,005 24,224
Other income (expense):
Derivative instruments gain (loss), net 21 (31,758 ) (290 )
Interest expense, net (2,246 ) (3 ) (1,679 )
Other income (expense), net (1,140 ) (696 ) 2,466
Total other income (expense), net (3,365 ) (32,457 ) 497
Income from continuing operations before income taxes 18,254 7,548 24,721
Income tax expense (benefit) 14,771 (4,628 ) 6,953
Income from continuing operations 3,483 12,176 17,768
Loss from discontinued operations, net of tax (13 ) (12 ) (14 )
Net income $ 3,470 $ 12,164 $ 17,754
Other comprehensive income (loss)
Currency translation adjustments (125 ) - 1,179
Comprehensive income $ 3,345 $ 12,164 $ 18,933
Basic net income (loss) per share:
Income (loss) from continuing operations $ 0.03 $ 0.21 $ 0.17
Loss from discontinued operations, net of tax - - -
Net income (loss) per share $ 0.03 $ 0.21 $ 0.17
Basic weighted average shares outstanding 107,387 58,702 101,227
Diluted net income (loss) per share:
Income (loss) from continuing operations $ 0.03 $ 0.20 $ 0.17
Loss from discontinued operations, net of tax - - -
Net income (loss) per share $ 0.03 $ 0.20 $ 0.17
Diluted weighted average shares outstanding 108,752 59,179 101,578
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
2023 2022
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,470 $ 12,164
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss from discontinued operations, net of tax 13 12
Depreciation, depletion and amortization 24,417 4,673
Bargain purchase gain 1,412 -
Deferred taxes 2,471 (10,318 )
Unrealized foreign exchange loss 512 116
Stock-based compensation 649 1,422
Cash settlements paid on exercised stock appreciation rights (233 ) (205 )
Derivative instruments (gain) loss, net (21 ) 31,758
Cash settlements paid on matured derivative contracts, net (59 ) (12,500 )
Cash settlements paid on asset retirement obligations (123 ) -
Credit losses and other 935 492
Other operating loss, net - 5
Operational expenses associated with equipment and other (640 ) 240
Change in operating assets and liabilities:
Trade receivables 21,357 (22,152 )
Accounts with joint venture owners 18,911 (6,652 )
Other receivables (2,309 ) (1,723 )
Crude oil inventory (8,443 ) (3,041 )
Prepayments and other 983 (876 )
Value added tax and other receivables (1,361 ) (1,076 )
Other long-term assets 1,051 (1,452 )
Accounts payable (6,739 ) (10,132 )
Foreign income taxes receivable/payable 8,193 5,691
Deferred tax liability (3,250 ) -
Accrued liabilities and other (19,177 ) 12,814
Net cash provided by (used in) continuing operating activities 42,019 (740 )
Net cash used in discontinued operating activities (13 ) (18 )
Net cash provided by (used in) operating activities 42,006 (758 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (27,700 ) (23,148 )
Net cash used in continuing investing activities (27,700 ) (23,148 )
Net cash used in discontinued investing activities - -
Net cash used in investing activities (27,700 ) (23,148 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuances of common stock 274 198
Dividend distribution (6,735 ) (1,929 )
Treasury shares (5,377 ) (387 )
Payments of finance lease (1,701 ) -
Net cash used in continuing financing activities (13,539 ) (2,118 )
Net cash used in discontinued financing activities - -
Net cash used in financing activities (13,539 ) (2,118 )
Effects of exchange rate changes on cash (309 ) -
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 458 (26,024 )
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 59,776 72,314
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 60,234 $ 46,290
VAALCO ENERGY, INC AND SUBSIDIARIES
Selected Financial and Operating Statistics
(Unaudited)
Three Months Ended
March 31, 2023 March 31, 2022 December 31, 2022
NRI SALES DATA
Crude oil, natural gas and natural gas liquids sales (MBOE) 1,224 616 1,371
WI PRODUCTION DATA
Etame Crude oil (MBbl) 942 833 650
Egypt Crude oil (MBbl) 903 - 818
Canada Crude oil, natural gas and natural gas liquids sales (MBOE) 239 - 211
Total Crude oil, natural gas and natural gas liquids sales (MBOE) 2,084 833 1,680
Average daily production volumes (BOEPD) 23,152 9,256 18,262
NRI PRODUCTION DATA
Etame Crude oil (MBbl) 820 725 566
Egypt Crude oil (MBbl) 616 - 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) 1,647 725 1,324
Average daily production volumes (BOEPD) 18,306 8,051 14,390
AVERAGE SALES PRICES:
Crude oil, natural gas and natural gas liquids sales (per BOE) $ 65.68 $ 109.65 $ 70.43
Crude oil, natural gas and natural gas liquids sales (Per BOE including $ 65.63 $ 91.16 $ 70.24
realized commodity derivatives)
COSTS AND EXPENSES (Per BOE of sales):
Production expense $ 23.04 $ 29.81 $ 33.19
Production expense, excluding offshore workovers and stock compensation* 23.91 29.83 29.73
Depreciation, depletion and amortization 19.95 7.59 19.19
General and administrative expense** 4.27 8.11 -0.31
Property and equipment expenditures, cash basis (in thousands) $ 27,700 $ 14,689 $ 56,044
*Offshore workover costs excluded from the three months ended March 31, 2023
and 2022 and December 31, 2022 are $(1.1) million, $0.0 million and
$4.7 million, respectively.
*Stock compensation associated with production expense excluded from the three
months ended March 31, 2023 and 2022 and December 31, 2022 are not material.
**General and administrative expenses include $0.52, $0.59 and $(0.09) per
barrel of oil related to stock-based compensation expense in the three
months ended March 31, 2023 and 2022 and December 31, 2022, respectively.
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 transition 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.
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
Reconciliation of Net Income to Adjusted Net Income March 31, 2023 March 31, 2022 December 31, 2022
Net income $ 3,470 $ 12,164 $ 17,754
Adjustment for discrete items:
Discontinued operations, net of tax 13 12 14
Unrealized derivative instruments loss (gain) (80 ) 19,258 38
(Gain) /adjustment of acquisition price, net 1,412 - (10,817 )
Arrangement Costs - - 7,006
Deferred income tax expense (benefit) 2,471 (10,319 ) 5,266
Other operating (income) expense, net - 5 (43 )
Adjusted Net Income $ 7,286 $ 21,120 $ 19,218
Diluted Adjusted Net Income per Share $ 0.07 $ 0.36 $ 0.19
Diluted weighted average shares outstanding (1) 108,752 59,179 101,578
(1) No adjustments to weighted average shares outstanding
Three Months Ended
Reconciliation of Net Income to Adjusted EBITDAX March 31, 2023 March 31, 2022 December 31, 2022
Net income $ 3,470 $ 12,164 $ 17,754
Add back:
Impact of discontinued operations 13 12 14
Interest expense (income), net 2,246 3 1,679
Income tax expense (benefit) 14,771 (4,628 ) 6,953
Depreciation, depletion and amortization 24,417 4,673 26,316
Exploration expense 8 127 8
Non-cash or unusual items:
Stock-based compensation 649 1,422 (100 )
Unrealized derivative instruments loss (gain) (80 ) 19,258 38
(Gain) /adjustment of acquisition price, net 1,412 - (10,817 )
Arrangement Costs - - 7,006
Other operating (income) expense, net - 5 (43 )
Credit losses and other 935 492 999
Adjusted EBITDAX $ 47,841 $ 33,528 $ 49,807
VAALCO ENERGY, INC AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures
(Unaudited)
(in thousands)
Reconciliation of Working Capital to Adjusted Working Capital As of March 31, 2023 As of December 31, 2022 Change
Current assets $ 179,374 $ 200,097 $ (20,723 )
Current liabilities (148,831 ) (162,090 ) 13,259
Working capital 30,543 38,007 (7,464 )
Add: lease liabilities - current portion 8,947 10,125 (1,178 )
Add: current liabilities - discontinued operations 673 687 (14 )
Adjusted Working Capital $ 40,163 $ 48,819 $ (8,656 )
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