TIDMEGY
RNS Number : 6347V
Vaalco Energy Inc
11 August 2022
VAALCO ENERGY, INC. ANNOUNCES
SECOND QUARTER 2022 RESULTS
REPORTS NET INCOME OF $15.1 MILLION, OR $0.25 PER DILUTED
SHARE,
ADJUSTED NET INCOME OF $30.7 MILLION, OR $0.52 PER DILUTED SHARE
AND
ADJUSTED EBITDAX INCREASES TO $60.8 MILLION, UP 81% FROM FIRST
QUARTER 2022
HOUSTON - August 11, 2022 - VAALCO Energy, Inc. (NYSE: EGY, LSE:
EGY) today reported operational and financial results for the
second quarter of 2022.
Highlights and Recent Key Items:
-- Reported strong Q2 2022 net income of $15.1 million ($0.25 per diluted share) and Adjusted
Net Income (1) of $30.7 million ($0.52 per diluted share);
-- Increased Adjusted EBITDAX (1) by 81% quarter-over-quarter to $60.8 million in Q2 2022 a
record high for VAALCO driven by strong pricing and increased sales volumes;
-- Increased Q2 2022 average daily production by 14% to 9,211 net revenue interest ( "NRI")
(2) barrels of crude oil per day ( "BOPD"), or 10,587 working interest ("WI") (3) BOPD, compared
to Q1 2022;
o Sold record quarterly high 958,000 barrels of oil in Q2 2022;
-- Announced plans to exercise extension option on currently contracted drilling rig and add
two additional wells to current 2021/22 drilling program for a total of six wells:
o Currently drilling the ETBNM 2H-ST on the Southeast Etame North Tchibala ( "SEENT") platform,
the fourth development well in the 2021/2022 program;
-- Funded $37.1 million cash capital expenditures during Q2 2022 with cash on hand and cash
from operations;
-- Maintained a strong balance sheet with no debt and an unrestricted cash balance of $53.1
million, not including the proceeds from the May and June liftings of $70.3 million, which
were received in July and August 2022;
-- Replacement of existing Floating Production, Storage and Offloading unit ( "FPSO") proceeds
on schedule and new Floating Storage and Offloading ("FSO") vessel is scheduled to arrive
offshore Gabon on August 12 (th) ;
-- Submitted a plan of development ( "POD") to the Ministry of Mines and Hydrocarbons ("MMH")
in Equatorial Guinea for the Venus development in Block P on July 15, 2022 in which VAALCO,
if approved, will hold an 80% WI;
-- Announced quarterly cash dividend payment of $0.0325 per common share to be paid on September
23, 2022, the third dividend approved to be paid in 2022; and
-- Announced strategic and accretive combination with TransGlobe creating a diversified African-focused
E&P company focused on supporting shareholder returns and sustainable growth.
(1) 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."
(2) All NRI production rates and volumes are VAALCO 's 58.8% WI from and after February 25, 2021,
less 13% royalty volumes.
(3) All WI production rates and volumes are VAALCO 's 58.8% WI from and after February 25, 2021.
George Maxwell, VAALCO's Chief Executive Officer commented, "We
had a very strong second quarter, delivering record sales volumes,
benefiting from the improved commodity price environment, and
generating significant cash flow. The combination of these positive
factors is allowing us to continue to execute on our accretive
growth strategy, fully fund our capital commitments and firmly
place VAALCO in a financially stronger position. We delivered
record Adjusted EBITDAX and net sales volumes while continuing to
generate meaningful cash to pay for our growth and returns to our
shareholders. Enhancing our production, reducing our costs and
extending the economic life at Etame is a driving force for
VAALCO's continued success."
"The FSO is arriving at Etame this week and we are progressing
our full field reconfiguration and FPSO to FSO conversion as
planned in the third quarter of 2022. We expect to realize
substantial and sustainable operating costs savings from this
project that will begin in the fourth quarter and carry on through
the remainder of the decade. In July, we submitted a POD in
Equatorial Guinea for the Venus development in Block P to the EG
MMH. We look forward to receiving approval of our POD in which we
will hold an 80% working interest in the Venus development as a
result of our joint venture owner opting to not participate. We are
continuing to move forward with our discovery at Block P which is
expected to add meaningful reserves and another strong operational
asset to the portfolio. As you can see, we are poised for continued
success in this strong commodity price environment, with no debt
and strong free cash flow generation. We will remain firmly focused
on delivering meaningful shareholder returns while we continue to
progress our strategic objective of accretive growth."
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 and had an initial production ("IP")
rate of approximately 5,000 gross BOPD, but was choked back to
about 4,200 BOPD for reservoir management purposes. 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 with an IP rate of approximately 3,100 gross
BOPD. This is 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 first 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. The additional Dentale D9 (15 meters net hydrocarbons)
interval can be tested and completed in the future and has an
estimated original oil in place range of 4 to 15 MMBO.
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 ETBSM 2H-ST well, targeting the Dentale
formation, which is productive in other areas in the Etame license.
This mobilization was delayed by two weeks due to weather and the
rig began operations on the well in late July. After setting up the
equipment and completing operations to re-enter the well, VAALCO
began drilling the ETBSM 2H-ST well on August 8 (th) . The Company
exercised its options to extend the contract for the rig. As a
result, the Company plans to add two additional wells to the
program, the Ebouri 4H development well targeting the Gamba
formation and a Northeast Avouma well that is a near-field
exploration well also targeting the Gamba formation and if
successful is expected to be tied into the Avouma platform at a
later date. VAALCO now estimates the total cost of the 2021/2022
drilling campaign at Etame to be between $174.0 million and $213.0
million gross, or between $111.0 million and $135.0 million net to
VAALCO's 63.6% participating interest.
FSO Conversion and Field Reconfiguration
In August 2021, VAALCO and its co-venturers at Etame approved
the Bareboat Contract and Operating Agreement (collectively, the
"FSO Agreements") with World Carrier Offshore Services Corp to
replace the existing FPSO with an FSO at the Etame Marin block
offshore Gabon for up to eight years with additional option periods
available. The current FPSO contract expires in September 2022.
VAALCO is currently working 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. VAALCO currently believes that all of the associated
engineering, long-lead equipment and significant contracts are
proceeding in-line with the anticipated timelines and expected
delivery schedules for the deployment of the FSO in the third
quarter of 2022. Field reconfiguration began in March 2022, as
planned. The Teli, a double-hull crude tanker built in 2001 that
was re-engineered into a FSO, left the shipyard in early July 2022
following completion of sea trials and is arriving in Gabon this
week.
Modifications to the Etame platform to support the full field
reconfiguration are also on schedule. VAALCO recently completed the
first of several short facility outages to allow for flare system
upgrades and the installation of tie-in points for the process
equipment. All major deck components arrived in Gabon and
additional major components are in transit. Installation of all
equipment began in July and will continue through August, with
final hookup and commissioning expected to occur in the third
quarter, once the Teli is moored on location.
Preparation for the subsea reconfiguration is also underway with
the first portion of the Bourbon/ RANA dive program which began in
mid-July. The DOF Skandi Constructor vessel arrived in Gabon and
will commence reconfiguration of the existing lines and
installation of the new lines.
Compared to the current FPSO agreement, the new FSO is expected
to significantly reduce storage and offloading costs by almost 50%,
increase effective capacity for storage by over 50%, and lead to an
extension of the economic field life, resulting in a corresponding
increase in recovery and reserves at Etame. The energy industry is
experiencing inflationary pressures related to goods and services
particularly impacting fuel prices, services and equipment prices,
availability of equipment and global logistic cost increase and
delays. These factors coupled with additional engineering
requirements for the FSO conversion and field reconfiguration have
increased current total field level capital conversion estimates to
$55 to $70 million gross ($35 to $45 million net to VAALCO). 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.
Consortium Provisionally Awarded Two Offshore Blocks in
Gabon
The consortium of VAALCO, BW Energy and Panoro Energy (the "BWE
Consortium") has been provisionally awarded two blocks in the 12th
Offshore Licensing Round in Gabon. The award is subject to
finalizing the terms of the production sharing contracts ("PSC")
with the Gabonese government. BW Energy will be the operator with a
37.5% working interest, with VAALCO (37.5% working interest) and
Panoro Energy (25% working interest) as non-operating joint owners.
The two blocks, G12-13 and H12-13, are adjacent to VAALCO's Etame
PSC as well as BW Energy and Panoro's Dussafu PSC offshore Southern
Gabon, and cover an area of 2,989 square kilometers and 1,929
square kilometers, respectively. Both Etame and Dussafu have been
highly successful exploration, development and production projects
undertaken by the BWE Consortium members over the past 20 years
with approximately 250 million barrels discovered to date.
The two blocks will be held by the BWE Consortium and the PSCs
will provide for two exploration periods totaling eight years which
may be extended by two additional years. During the first
exploration period, the joint owners intend to reprocess existing
seismic and carry out a 3-D seismic campaign and have also
committed to drilling one exploration well on each of the two
blocks. In the event the consortium elects to enter the second
exploration period, the BWE Consortium will be committed to
drilling at least one exploration well on each of the awarded
blocks.
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. VAALCO has
completed a feasibility study of a standalone production
development opportunity of the Venus discovery on Block P. On July
15, 2022, VAALCO, on behalf of itself and Guinea Ecuatorial de
Petroleós ("GEPetrol"), submitted to the EG MMH a plan of
development for the Venus development in Block P. The other Block P
joint venture owner, Atlas Petroleum International Limited, opted
not to participate in the plan of development. As a result, VAALCO
will hold an 80% working interest in the Venus development in Block
P and GEPetrol will hold a 20% carried interest. The Block P PSC
provides for a development and production period of 25 years from
the date of approval of the POD. VAALCO expects to add new 2P
reserves once the development plan is approved.
TransGlobe Combination
On July 14, 2022, VAALCO announced that they have entered into a
definitive arrangement agreement (the "Arrangement Agreement")
pursuant to which VAALCO will acquire all of the outstanding common
shares of TransGlobe in a stock-for-stock strategic business
combination transaction valued at $307 million (the "Transaction").
Under the terms of the Arrangement Agreement, VAALCO will acquire
each TransGlobe share for 0.6727 of a VAALCO share of common stock,
which represents a 24.9% premium per TransGlobe common share based
on the companies' respective 30-day volume weighted average share
prices as of market close on July 13, 2022. The Transaction will
result in VAALCO stockholders owning approximately 54.5% and
TransGlobe shareholders owning approximately 45.5% of the Combined
Company.
Financial Update - Second Quarter of 2022
Net income of $15.1 million ($0.25 per diluted share) for the
second quarter of 2022 was up 24% compared with net income of $12.2
million ($0.20 per diluted share) in the first quarter of 2022 and
up 157% compared to $5.9 million ($0.10 per diluted share) in the
second quarter of 2021. The second quarter of 2022 reflected
stronger revenue compared with both prior periods driven primarily
by higher realized pricing and sales volumes.
Adjusted Net Income for the second quarter of 2022 increased
significantly to $30.7 million ($0.52 per diluted share) from
Adjusted Net Income of $21.1 million ($0.36 per diluted share) in
the first quarter of 2022, and Adjusted Net Income for the second
quarter of 2021 of $8.4 million ($0.14 per diluted share). The
increase for both periods was primarily driven by improved realized
pricing and increased sales partially offset by higher production
costs, higher realized losses on derivatives and higher current
income tax expense.
Adjusted EBITDAX totaled a record $60.8 million in the second
quarter of 2022, an increase of 81% compared with $33.5 million in
the first quarter of 2022 and nearly three times the $21.9 million
generated in the same period in 2021. Adjusted EBITDAX for the
second quarter of 2022 was higher compared to the prior periods
primarily due to improved realized prices and sales volumes
partially offset by higher production costs and higher realized
losses on derivatives.
% Change Q2 % Change Q2
2022 vs. Q2 2022 vs. Q1
Revenue and Sales Q2 2022 Q2 2021 2021 Q1 2022 2022
-------- -------- --------------- -------- ---------------
Production (NRI
BOPD) 9,211 8,018 15% 8,051 14.4%
Sales (NRI BO) 958,000 642,000 49% 616,000 55.5%
Realized crude oil
price ($/BO) $ 113.38 $ 69.61 63% $ 109.65 3%
Crude oil (Per Bbl
including realized
commodity
derivatives) $ 91.39 $ 62.93 45% $ 89.36 2%
Total crude oil
sales ($MM) $ 111.0 $ 47.0 136% $ 68.7 62%
VAALCO had four liftings in the second quarter of 2022, which
resulted in total sales volumes of 958,000 barrels compared to
616,000 barrels in the first quarter of 2022 and 642,000 barrels
for the same period in 2021. Second quarter of 2022 realized
pricing rose 3% compared to the first quarter of 2022 and 63%
compared to the second quarter of 2021.
Costs and % Change Q2 2022 % Change Q2 2022
Expenses Q2 2022 Q2 2021 vs. Q2 2021 Q1 2022 vs. Q1 2022
--------- --------- ---------------- --------- -----------------
Production
expense,
excluding
workovers ($MM) $ 25.5 $ 16.1 59% $ 18.4 38%
Production
expense,
excluding
workovers ($/BO) $ 26.58 $ 25.02 6% $ 29.83 (11)%
Workover expense
($MM) $ - $ 0.4 -% $ - -%
Depreciation,
depletion and
amortization
($MM) $ 8.2 $ 5.8 41% $ 4.7 75%
Depreciation,
depletion and
amortization
($/BO) $ 8.55 $ 9.05 (6)% $ 7.59 13%
General and
administrative
expense,
excluding
stock-based
compensation
($MM) $ 2.7 $ 4.2 (36)% $ 3.6 (25)%
General and
administrative
expense,
excluding
stock-based
compensation
($/BO) $ 2.81 $ 6.57 (57)% $ 5.80 (52)%
Stock-based
compensation
expense ($MM) $ 0.8 $ 0.5 60% $ 1.4 100%
Current income tax
expense ($MM) $ 20.4 $ 6.1 234% $ 5.7 258%
Deferred income
tax expense
(benefit) ($MM) $ 25.9 $ (3.3) (885)% $ (10.3) (351)%
Total production expense, excluding workovers, increased in the
second quarter of 2022 compared to the first quarter of 2022 and
the same period in 2021. The increase was primarily driven by
higher costs associated with boats, personnel, chemicals and costs
associated with increased sales volumes. Production expense for the
second quarter of 2022 included approximately $0.5 million in
additional costs related to proactive employee-related measures
taken in response to the ongoing COVID-19 pandemic. There were no
workover expenses in the first or second quarters of 2022.
Production expense per barrel was lower than the first quarter of
2022 due to greater sales volumes, but slightly above the same
quarter in 2021 due to the increased costs driven in part by price
inflation.
Depreciation, depletion and amortization ("DD&A") expense in
the second quarter of 2022 was higher compared to the prior periods
presented due to higher depletable costs associated with the
2021/2022 drilling campaign.
General and administrative ("G&A") expense, excluding
stock-based compensation, in the second quarter of 2022 was lower
than both the first quarter of 2022 and the second quarter of 2021
primarily because of lower wages and reduction in severance costs
of key personnel which occurred in second quarter 2021.
Non-cash stock-based compensation expense for the second quarter
of 2022 was $0.8 million and was comprised of non-SARs related
expense of $0.6 million and SARs related expense of $0.2 million.
For the first quarter of 2022, stock-based compensation was $1.4
million and for the second quarter of 2021, stock-based
compensation expense was $0.5 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 June 30, 2022 was an expense of $46.3
million. This is comprised of $25.9 million of deferred tax expense
and a current tax expense of $20.4 million. Income tax expense for
the three months ended June 30, 2021 was $2.8 million, comprised of
$3.3 million of deferred tax benefit and a current tax expense of
$6.1 million. For both the three months ended June 30, 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.
Financial Update - First Six Months of 2022
Production for the first six months of 2022 was higher by 31% at
1,563 MBbls net crude oil compared to 1,196 MBbls net crude oil
production in the first six months of 2021. The increase was driven
by production from new wells from the 2021/2022 drilling campaign
and by the additional production associated with the Sasol
Acquisition completed in February 2021. The first half of 2022 saw
sales volume increase 25% to 1,574 MBbls net crude oil compared to
1,261 MBbls for the first half of 2021. Crude oil sales are a
function of the number and size of crude oil liftings in each
quarter and do not always coincide with volumes produced in any
given period.
The average realized crude oil price for the first six months of
2022 was $111.92 per barrel, representing an increase of 71% from
$65.54 realized in the first six months of 2021. This sharp
increase in crude oil price reflects the strong recovery in 2022
following downward pressure resulting from the COVID pandemic as
well as supply and demand imbalances that occurred in 2020 and into
2021.
The Company reported net income for the six months ended June
30, 2022 of $27.3 million, which compares to $15.8 million for the
same period of 2021. The meaningful increase in operating results
for the six months ended June 30, 2022 compared to the same period
in 2021 was primarily due to increased sales volumes and higher oil
prices in the first half of 2022 partially offset by higher
production costs, higher DD&A, higher losses on derivatives and
higher tax expense.
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 June 2022. The report covers
VAALCO's ESG initiatives and related key performance indicators for
the three-year period 2019 through 2021. In the preparation of the
qualitative and quantitative information and data, the Company
continued to consult the Sustainability Accounting Standards
Board's ("SASB") Oil and Gas Exploration and Production
Sustainability Accounting Standard, and this year took a more
meaningful dive into the recommendations of the Task Force on
Climate-related Financial Disclosures ("TCFD"). VAALCO remains
focused on showing progress and improvement in its environmental,
social and governance metrics.
Response to COVID-19 Pandemic
VAALCO remains fully committed to the health and safety of all
its employees and contractors. The Company continues to take
proactive steps to manage any disruption in its business caused by
COVID-19 and to protect the health and safety of its employees. As
of August 9, 2022, VAALCO has experienced no material impact on its
Gabon facilities directly associated with COVID-19; however, the
Company has incurred higher costs related to proactive measures
taken in response to the pandemic. These costs were approximately
$0.5 million during the second quarter of 2022.
Capital Investments/Balance Sheet
For the second quarter of 2022, net capital expenditures totaled
$37.1 million on a cash basis and $38.1 million on an accrual
basis. These expenditures were primarily related to costs
associated with the 2021/2022 drilling program as well as the FSO
conversion and field reconfiguration investments. In the first
quarter of 2022, VAALCO invested $23.1 million on a cash basis and
$31.8 million on an accrual basis.
At the end of the second quarter of 2022, VAALCO had an
unrestricted cash balance of $53.1 million. This does not include
the proceeds from the May and June lifting of $70.3 million, which
were received in July and August 2022. Working capital at June 30,
2022 was ($8.0) million compared with ($21.3) million at March 31,
2022, while Adjusted Working Capital (1) at June 30, 2022 totaled
($4.6) million, compared with ($14.5) million at March 31,
2022.
Cash Dividend Policy
VAALCO paid a quarterly cash dividend of $0.0325 per share of
common stock for the second quarter of 2022 on June 24, 2022. On
August 5, 2022, the Company announced its next quarterly cash
dividend of $0.0325 per share of common stock for the third quarter
of 2022 ($0.13 annualized), to be paid on September 23, 2022 to
stockholders of record at the close of business on August 24, 2022.
Future declarations of quarterly dividends and the establishment of
future record and payment dates are subject to approval by the
Board of Directors.
Hedging
The Company has 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 July 25, 2022, the Company entered into a costless commodity
collar arrangement for a quantity of 326,000 barrels with a
weighted average put price of $70 per barrel and a weighted average
call price of $122 per barrel.
At June 30, 2022, the unexpired commodity swaps were for an
underlying quantity of 375,000 barrels and had a fair value of
$12.5 million and is reflected in "Accrued liabilities and other"
line of the condensed consolidated balance sheet.
See the following table for the unexpired barrels for the third
and fourth quarters of 2022.
Weighted
Average Weighted Weighted Average
Monthly Average Average Call
Settlement Period Type of Contract Index Volumes Price Put Price Price
--------------------- ---------------- ------------ -------- ----------- --------- ---------
(Bbls) (per Bbl) (per Bbl) (per Bbl)
July 2022 to September
2022 Swaps Dated Brent 125,000 $ 76.53 - -
October 2022 to
December 2022 Collars Dated Brent 109,000 - $ 70.00 $ 122.00
Guidance
Third quarter 2022 production guidance is expected to be 8,000
to 8,700 NRI BOPD, which is temporarily impacted by the FPSO to FSO
changeover and full field turnaround. Third quarter 2022 sales
guidance is 6,100 to 8,600 NRI BOPD, which takes into account
potentially two or three liftings in the quarter. Following the
completion of the FPSO to FSO changeover and full field turnaround,
as well as expected success from the new wells, the Company expects
the 2022 exit rate for December to be between 10,500 and 11,500 net
BOPD.
Third quarter 2022 production expense, excluding workovers, is
expected to be $30.00 to $33.00 per barrel of oil sales, which is
higher due to FPSO to FSO changeover and full field turnaround.
Workover expense for the third quarter 2022 is expected to be
between $0 and $3.0 million. Cash G&A expense for the third
quarter is expected to be between $2.0 and $3.0 million. Capital
expense for the third quarter 2022 is expected to be between $40.0
and $50.0 million.
For the full year 2022, VAALCO recently updated its guidance
range for production and sales to be 9,000 to 9,500 NRI BOPD or
10,350 to 10,900 WI BOPD. Production expense, excluding workovers
increased primarily due to inflationary impacts and higher expected
costs associated with the decommissioning of the FPSO and is
expected to range from $82 to $90 million or $24.00 to $28.00 per
barrel of oil. Workover expense is expected to be $2.0 to $6.0
million and Cash G&A $9.5 to $11.5 million.
For the full year 2022, the Company has updated its total
capital expenditures to be between $130 and $150 million net to
VAALCO, which reflects the addition of two new wells and increased
costs associated with the FSO conversion and full field
reconfiguration. VAALCO expects to fund its 2022 capital
expenditures fully from cash on hand and cash flow from operations.
All the Company's guidance metrics are in the Q2 2022 Supplemental
Information presentation that will be posted to its website
tomorrow morning prior to the conference call.
Transaction costs associated with the proposed combination with
TransGlobe will be included in "Other income (expense)" on the
income statement and an estimate for the transaction will be
detailed in the upcoming proxy.
Conference Call
As previously announced, the Company will hold a conference call
to discuss its second quarter 2022 financial and operating results
on Thursday, August 11, 2022, at 9:00 a.m. Central Time (10:00 a.m.
Eastern Time and 3:00 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 Second Quarter 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.
About VAALCO
VAALCO, founded in 1985, is a Houston, USA based, independent
energy company with production, development and exploration assets
in the West African region.
The Company is an established operator within the region,
holding a 63.6% participating interest in the Etame Marin Block,
located offshore Gabon, which to date has produced over 126 million
barrels of crude oil and of which the Company is the operator.
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/ Chris Judd 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) the Transaction and its
expected timing and closing; (ii) estimates of future drilling,
production and sales of crude oil and natural gas; (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 may
acquire as a result of the Transaction into its operations; (v)
expectations regarding future exploration and the development,
growth and potential of VAALCO's and TransGlobe's operations,
project pipeline and investments, and schedule and anticipated
benefits to be derived therefrom; (vi) expectations regarding
future investments or divestitures; (vii) expectations of future
dividends and returns to stockholders; (viii) expectations of
future balance sheet strength; (ix) expectations of future equity
and enterprise value; (x) VAALCO's ability to effectively and
timely demobilize the FPSO and deploy the FSO unit; (xi)
expectations of the continued listing of VAALCO's common stock on
the NYSE and LSE; (xii) expectations of future plans, priorities
and focus and benefits of the Transaction; and (xiii) VAALCO's
environmental, social and governance related focus and commitments,
and the anticipated benefits derived therefrom. Forward-looking
statements regarding the percentage share of the Combined Company
that are expected to be owned by existing VAALCO stockholders and
TransGlobe shareholders have been calculated based on each
company's vested outstanding shares as of the date of the
Arrangement Agreement.
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: the ability to
obtain stockholder, shareholder, court and regulatory approvals, if
any, of the Transaction; the ability to complete the Transaction on
anticipated terms and timetable; the possibility that various
closing conditions for the transaction may not be satisfied or
waived; risks relating to any unforeseen liabilities of VAALCO or
TransGlobe; the tax treatment of the Transaction 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; transition to the new FSO could result in
additional costs, interruption in production and delayed sales to
customers, potentially materially; 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 Transaction 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 stakeholders; and
other risks described under the caption "Risk Factors" in VAALCO's
2021 Annual Report on Form 10-K filed with the SEC on March 11,
2022.
Certain Assumptions Relating to Forward Looking Statements
Forward-looking statements or information are based on a number
of factors and assumptions which have been used to develop such
statements and information, but which may prove to be incorrect.
Although VAALCO believes the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking statements because
VAALCO can give no assurance that such expectations will prove to
be correct. Many factors could cause actual results to differ
materially from those expressed or implied in any forward-looking
statements contained herein.
In addition to other factors and assumptions which may be
identified in this document, assumptions have been made regarding,
among other things, anticipated production volumes; the timing of
receipt of regulatory and shareholder approvals for the
arrangement; the ability of the combined business to realize the
anticipated benefits of the arrangement; ability to effectively
integrate assets and property as a result of the arrangement;
ability to obtain qualified staff and equipment in a timely and
cost-efficient manner; regulatory framework governing royalties,
taxes and environmental matters in the jurisdictions in which
TransGlobe and VAALCO conducts and the combined business will
conduct its business; future capital expenditures; future sources
of funding for capital programs; current commodity prices and
royalty regimes; future exchange rates; the price of oil; the
impact of increasing competition; conditions in general economic
and financial markets; availability of drilling and related
equipment; effects of regulation by governmental agencies; future
operating costs; uninterrupted access to areas of operation and
infrastructure; recoverability of reserves and future production
rates; the combined business will have sufficient cash flow, debt
and equity sources or other financial resources required to fund
its capital and operating expenditures and requirements as needed;
results of operations will be consistent with expectations; current
or, where applicable, proposed industry conditions, laws and
regulations will continue in effect; the estimates of reserves and
resource volumes and the assumptions related thereto are accurate
in all material respects; and other matters.
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 Michael Silver,
Corporate Secretary of VAALCO.
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
As of June 30, 2022 December 31, 2021
--------------------- -------------------
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 53,062 $ 48,675
Restricted cash 216 79
Receivables:
Trade, net 70,274 22,464
Accounts with joint venture owners, net of allowance of $0.0
million in both periods presented 692 345
Other, net 10,699 9,977
Crude oil inventory 13,867 1,593
Prepayments and other 8,064 5,156
--- ---------------- --- --------------
Total current assets 156,874 88,289
--- ---------------- --- --------------
Crude oil and natural gas properties, equipment and other -
successful efforts method, net 151,718 94,324
Other noncurrent assets:
Restricted cash 1,752 1,752
Value added tax and other receivables, net of allowance of $6.4
million and $5.7 million,
respectively 5,723 5,536
Right of use operating lease assets 3,435 10,227
Right of use finance lease assets 1,713 -
Deferred tax assets 24,447 39,978
Abandonment funding 20,091 21,808
Other long-term assets 3,811 1,176
--- ---------------- --- --------------
Total assets $ 369,564 $ 263,090
=== ================ === ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,151 $ 18,797
Accounts with joint venture owners 13,863 3,233
Accrued liabilities and other 99,220 49,444
Operating lease liabilities - current portion 3,123 9,642
Finance lease liabilities - current portion 326 -
Foreign income taxes payable 29,221 3,128
Current liabilities - discontinued operations 7 13
--- ---------------- --- --------------
Total current liabilities 164,911 84,257
--- ---------------- --- --------------
Asset retirement obligations 34,809 33,949
Operating lease liabilities - net of current portion 332 587
Finance lease liabilities - net of current portion 1,331 -
Other long-term liabilities - -
--- ---------------- --- --------------
Total liabilities 201,383 118,793
--- ---------------- --- --------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $25 par value; 500,000 shares authorized, none
issued - -
Common stock, $0.10 par value; 100,000,000 shares authorized,
70,125,626 and 69,562,774 shares
issued, 59,068,105 and 58,623,451 shares outstanding,
respectively 7,013 6,956
Additional paid-in capital 77,919 76,700
Less treasury stock, 11,057,521 and 10,939,323 shares,
respectively, at cost (44,635) (43,847)
Retained earnings 127,884 104,488
--- ---------------- --- --------------
Total shareholders' equity 168,181 144,297
--- ---------------- --- --------------
Total liabilities and shareholders' equity $ 369,564 $ 263,090
=== ================ === ==============
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended June 30,
--------------------------------------------- --------------------------
March 31,
June 30, 2022 June 30, 2021 2022 2022 2021
------------- ------------- ------------- ------------- ----------
(in thousands except per share amounts)
Revenues:
Crude oil and
natural gas
sales $ 110,985 $ 47,023 $ 68,656 $ 179,641 $ 86,797
Operating costs
and expenses:
Production
expense 25,475 16,419 18,360 43,835 32,552
Exploration
expense 67 665 127 194 807
Depreciation,
depletion and
amortization 8,191 5,810 4,673 12,864 9,958
General and
administrative
expense 3,534 4,734 4,994 8,528 9,281
Bad debt expense
and other 571 395 492 1,063 496
--------- --------- --------- --------- ---------
Total operating
costs and
expenses 37,838 28,023 28,646 66,484 53,094
Other operating
expense, net - (126) (5) (5) (486)
--------- --------- --------- --------- ---------
Operating income 73,147 18,874 40,005 113,152 33,217
--------- --------- --------- --------- ---------
Other income
(expense):
Derivative
instruments
loss, net (9,542) (9,969) (31,758) (41,300) (15,923)
Interest
(expense)
income, net (118) 1 (3) (121) 6
Other (expense)
income, net (2,111) (164) (696) (2,807) 4,416
--------- --------- --------- --------- ---------
Total other
expense, net (11,771) (10,132) (32,457) (44,228) (11,501)
--------- --------- --------- --------- ---------
Income from
continuing
operations before
income taxes 61,376 8,742 7,548 68,924 21,716
Income tax expense
(benefit) 46,252 2,825 (4,628) 41,624 5,911
--------- --------- --------- --------- ---------
Income from
continuing
operations 15,124 5,917 12,176 27,300 15,805
--------- --------- --------- --------- ---------
Loss from
discontinued
operations, net of
tax (20) (33) (12) (32) (52)
--------- --------- --------- --------- ---------
Net income $ 15,104 $ 5,884 $ 12,164 $ 27,268 $ 15,753
========= ========= ========= ========= =========
Basic net income
per share:
Income from
continuing
operations $ 0.25 $ 0.10 $ 0.21 $ 0.46 $ 0.27
Loss from
discontinued
operations, net
of tax - - - - -
--------- --------- --------- --------- ---------
Net income per
share $ 0.25 $ 0.10 $ 0.21 $ 0.46 $ 0.27
--------- --------- --------- --------- ---------
Basic weighted
average shares
outstanding 58,925 58,072 58,702 58,814 57,855
--------- --------- --------- --------- ---------
Diluted net income
per share:
Income from
continuing
operations $ 0.25 $ 0.10 $ 0.20 $ 0.45 $ 0.27
Loss from
discontinued
operations, net
of tax - - - - -
--------- --------- --------- --------- ---------
Net income
per share $ 0.25 $ 0.10 $ 0.20 $ 0.45 $ 0.27
--------- --------- --------- --------- ---------
Diluted weighted
average shares
outstanding 59,361 58,574 59,179 59,278 58,527
--------- --------- --------- --------- ---------
VAALCO ENERGY, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
-----------------------------
2022 2021
--------------- -----------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,268 $ 15,753
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss from discontinued operations, net of tax 32 52
Depreciation, depletion and amortization 12,864 9,958
Bargain purchase gain - (7,651)
Deferred taxes 15,531 (1,511)
Unrealized foreign exchange loss (gain) 360 (308)
Stock-based compensation 2,264 2,073
Cash settlements paid on exercised stock appreciation rights (805) (2,933)
Derivative instruments loss, net 41,300 15,923
Cash settlements paid on matured derivative contracts, net (33,559) (6,003)
Bad debt expense and other 1,063 496
Other operating expense, net 5 486
Operational expenses associated with equipment and other 718 521
Cash advance for other long-term assets (1,072) -
Change in operating assets and liabilities:
Trade receivables (47,810) (17,645)
Accounts with joint venture owners 10,283 642
Other receivables (943) (131)
Crude oil inventory (12,274) 3,508
Prepayments and other 1,570 (8,622)
Value added tax and other receivables (2,249) (500)
Accounts payable (857) (10,597)
Foreign income taxes receivable/payable 26,093 11,673
Accrued liabilities and other 29,263 8,028
----------- ----------
Net cash provided by continuing operating activities 69,045 13,212
----------- ----------
Net cash used in discontinued operating activities (38) (52)
----------- ----------
Net cash provided by operating activities 69,007 13,160
=========== ==========
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (60,278) (4,301)
Acquisition of crude oil and natural gas properties - (22,505)
----------- ----------
Net cash used in continuing investing activities (60,278) (26,806)
----------- ----------
Net cash used in discontinued investing activities - -
----------- ----------
Net cash used in investing activities (60,278) (26,806)
=========== ==========
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuances of common stock 257 1,053
Dividend distribution (3,872) -
Treasury shares (788) (1,168)
Deferred financing costs (1,451) -
Payments of finance lease (68) -
----------- ----------
Net cash used in continuing financing activities (5,922) (115)
----------- ----------
Net cash used in discontinued financing activities - -
----------- ----------
Net cash used in financing activities (5,922) (115)
----------- ----------
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 2,807 (13,761)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 72,314 61,317
----------- ----------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT OF PERIOD $ 75,121 $ 47,556
=========== ==========
VAALCO ENERGY, INC AND SUBSIDIARIES
Selected Financial and Operating Statistics
(Unaudited)
Three Months Ended Six Months Ended June 30,
------------------------------------------- ----------------------------
March 31,
June 30, 2022 June 30, 2021 2022 2022 2021
------------- -------------- ------------ ------------- -------------
NRI SALES DATA
Crude oil (MBbls) 958 642 616 1,574 1,261
NRI PRODUCTION DATA
Crude oil (MBbls) 838 730 725 1,563 1,196
Average daily
production volumes
(BOPD) 9,211 8,018 8,051 8,634 6,607
AVERAGE SALES PRICES:
Crude oil (Per Bbl) $ 113.38 $ 69.61 $ 109.65 $ 111.92 $ 65.54
Crude oil (Per Bbl
including realized
commodity
derivatives) $ 91.39 $ 62.93 $ 89.36 $ 90.60 $ 60.78
COSTS AND EXPENSES
(Per Bbl of sales):
Production expense $ 26.59 $ 25.57 $ 29.81 $ 27.85 $ 25.81
Production expense,
excluding
workovers* 26.58 25.02 29.83 27.85 25.52
Depreciation,
depletion and
amortization 8.55 9.05 7.59 8.17 7.90
General and
administrative
expense** 3.69 7.37 8.11 5.42 7.36
Property and
equipment
expenditures, cash
basis (in
thousands) $ 37,130 $ 3,103 $ 14,689 $ 60,278 $ 4,301
*Workover costs excluded from the three months ended June 30,
2022 and 2021 and March 31, 2022 are $0.0 million, $0.4 million and
$0.0 million, respectively.
**General and administrative expenses include $0.88, $0.80 and
$2.31 per barrel of oil related to stock-based compensation expense
in the three months ended June 30, 2022, and 2021 and March 31,
2022, respectively.
NON-GAAP FINANCIAL MEASURES
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, non-cash and other items
including stock compensation expense and unrealized commodity
derivative loss.
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, deferred
income tax expense, unrealized commodity derivative loss and
non-cash and other items.
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 and Adjusted Net
Income 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 and Adjusted Net Income 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 Six Months Ended June 30,
--------------------------------------------- ------------------------------
Reconciliation of
Net Income to
Adjusted Net March 31,
Income June 30, 2022 June 30, 2021 2022 2022 2021
------------- ------------- ------------- -------------- --------------
Net income $ 15,104 $ 5,884 $ 12,164 $ 27,268 $ 15,753
Adjustment for
discrete items:
Discontinued
operations,
net of tax 20 33 12 32 52
Unrealized
derivative
instruments
loss (gain) (11,517) 5,676 19,258 7,741 9,920
Gain on Sasol
Acquisition,
net - - - - (5,491)
Arrangement
costs 1,199 - - 1,199 -
Deferred
income tax
(benefit)
expense 25,850 (3,323) (10,319) 15,531 (3,672)
Other
operating
expense, net - 126 5 5 486
--------- --------- --------- ---------- ----------
Adjusted Net
Income $ 30,656 $ 8,396 $ 21,120 $ 51,776 $ 17,048
========= ========= ========= ========== ==========
Diluted Adjusted
Net Income per
Share $ 0.52 $ 0.14 $ 0.36 $ 0.87 $ 0.29
--------- --------- --------- ---------- ----------
Diluted weighted
average shares
outstanding (1) 59,361 58,574 59,179 59,278 58,527
--------- --------- --------- ---------- ----------
(1) No adjustments to weighted average shares outstanding
Three Months Ended Six Months Ended June 30,
--------------------------------------------- -----------------------------
Reconciliation of
Net Income to March 31,
Adjusted EBITDAX June 30, 2022 June 30, 2021 2022 2022 2021
------------- ------------- ------------- ------------- --------------
Net income $ 15,104 $ 5,884 $ 12,164 $ 27,268 $ 15,753
Add back:
Impact of
discontinued
operations 20 33 12 32 52
Interest
expense
(income), net 118 (1) 3 121 (6)
Income tax
expense
(benefit) 46,252 2,825 (4,628) 41,624 5,911
Depreciation,
depletion and
amortization 8,191 5,810 4,673 12,864 9,958
Exploration
expense 67 665 127 194 807
Non-cash or
unusual items:
Stock-based
compensation 842 514 1,422 2,264 2,073
Unrealized
derivative
instruments
loss (gain) (11,517) 5,676 19,258 7,741 9,920
Gain on Sasol
Acquisition,
net - - - - (5,491)
Arrangement
costs 1,199 - - 1,199 -
Other operating
expense, net - 126 5 5 486
Bad debt
expense and
other 571 395 492 1,063 496
--------- --------- --------- --------- ----------
Adjusted EBITDAX $ 60,847 $ 21,927 $ 33,528 $ 94,375 $ 39,959
========= ========= ========= ========= ==========
VAALCO ENERGY, INC AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures
(Unaudited)
(in thousands)
Reconciliation of Working Capital to Adjusted
Working Capital As of June 30, 2022 December 31, 2021 Change
---------------------- ------------------- --------
Current assets $ 156,874 $ 88,289 $ 68,585
Current liabilities (164,911) (84,257) (80,654)
---------------- --- -------------- -------
Working capital (8,037) 4,032 (12,069)
Add: lease liabilities - current portion 3,449 9,642 (6,193)
Add: current liabilities - discontinued operations 7 13 (6)
---------------- --- -------------- -------
Adjusted Working Capital $ (4,581) $ 13,687 $(18,268)
=== ================ === ============== =======
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