VAALCO Energy, Inc. (NYSE: EGY, LSE: EGY) today reported
operational and financial results for the first quarter of 2021.
Highlights and Recent Key
Items:
- Reported strong Q1 2021 net
income of $9.9 million ($0.17 per diluted share) and Adjusted Net
Income(1)
of $8.7 million ($0.15 per diluted share);
- Generated Adjusted
EBITDAX(1)
of $18.0 million, more than five times compared to the
fourth quarter of 2020;
- Sold 619,000 barrels of oil
in Q1 2021, an increase of 113% over the fourth quarter of
2020;
- Produced 5,180 net revenue
interest
(“NRI”)(2)
barrels of crude oil per day (“BOPD”), or 5,954 working
interest
(“WI”)(3)
BOPD in Q1 2021, up 11% from the fourth quarter of
2020;
- Closed the transformational
acquisition of Sasol’s working interest in the Etame field offshore
Gabon (the “Sasol Acquisition”) on February 25, 2021;
- Announced the signing of a
non-binding Letter of Intent (“LOI”) for a new Floating Storage and
Offloading unit (“FSO”) with Omni Offshore Terminals Pte
Ltd (“Omni”) at the Etame
field;
- Proposal could reduce VAALCO’s operating costs by 15%
to 25% when compared to the current FPSO contract during the term
of the proposed agreement;
- Entered into crude oil
commodity swap agreements for a total of 672,533 barrels at a Dated
Brent weighted average price of $66.51 per barrel for the period of
May 2021 through October 2021;
- VAALCO believes that it has locked in sufficient cash
flow to fund its capital commitments related to the upcoming
drilling campaign and potential FSO conversion costs;
and
- Maintained a strong balance
sheet with no debt and a cash balance of $19.3 million, including
$1.7 million in joint venture owner advances as of March 31,
2021.
(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, “This was a strong quarter operationally and financially
for VAALCO that provides a strong platform for the Company as we
build momentum towards another potentially transformational
drilling campaign at Etame. As we announced in February 2021, we
are very excited to have closed the Sasol Acquisition which nearly
doubles our net production and reserves with minimal increase in
G&A expense. The increase to our production and sales were
included in our results after closing and will be fully evident for
an entire period beginning in the second quarter of 2021. With the
macro price environment stabilizing and strong sales in 2021’s
first quarter, we generated more than five times the Adjusted
EBITDAX we reported in the fourth quarter of 2020, indicating the
financial strength that the Company will be capable of going
forward. In April we signed a non-binding LOI with Omni for a FSO
to service our Etame operations once the current FPSO contract
expires in 2022. This development approach could allow us to
enhance our operations, reduce costs, improve net-backs and secure
our ability to maintain production growth and maximize value at
Etame for the next decade. The FSO could lower our total Company
operating costs by 15% to 25% compared to the current FPSO, which
will add to our margins and ability to generate free cash flow in
uncertain pricing environments. We will continue working to
finalize an agreement with Omni that will be mutually beneficial
for all parties. This week we opportunistically added more hedges
at a very attractive $66.51 per barrel, which means that we have
further mitigated downside pricing risk and will have 70% of our
production hedged through October 2021. We believe that with these
additional hedges, our capital commitments over the next 12 months
will be fully funded through our cash flow and cash on hand.”
“Over the past several years, our management
team and our outstanding employees have executed on VAALCO’s
strategy of accretive growth and free cash flow generation through
cost effectively maintaining core production. These successes have
placed VAALCO in a very enviable position, with no debt, strong
free cash flow generation, significant organic growth opportunities
and the ability to actively search for accretive acquisitions. We
are forecasting that we will continue to generate strong free cash
flow and solidify our cash position ahead of our next Etame
drilling campaign later this year. Interpretation of the new
seismic is underway to optimize and de-risk our drilling locations
and potentially identify new drilling locations. We are planning to
drill up to four wells in the upcoming drilling campaign, which we
expect could increase gross field production by 7,000 to 8,000 BOPD
when the drilling program is completed as planned in 2022. We are
firmly focused on maximizing shareholder returns while we continue
to progress our strategic objectives of accretive growth in a
strengthening pricing environment.”
Operational
Update
Gabon
Acquisition of Sasol’s Interest at
Etame
In November 2020, VAALCO signed a sale and
purchase agreement (“SPA”) to acquire Sasol Gabon S.A.’s
(“Sasol’s”) 27.8% working interest in the Etame Marin block
offshore Gabon, and on February 25, 2021, the Company
completed the acquisition. The effective date of the transaction
was July 1, 2020. The Sasol Acquisition increased VAALCO’s
working interest to 58.8%, almost doubling the Company’s total
production and reserves. Reserves, production and financial results
for the interests acquired have been included in the Company’s
results for periods after February 25, 2021. Based on
management’s internal estimates, the Company estimates that
approximately 2.7 MMBO of proved NRI reserves and 9.1 MMBO of 2P
CPR WI reserves were acquired.
All assets and liabilities associated
with Sasol’s interest in the Etame Marin block were
recorded at their fair value, based on various assumptions made by
the Company. As a result of comparing the purchase price to the
fair value of the assets acquired and liabilities assumed, a $7.7
million bargain purchase gain was recognized. A bargain purchase
gain of $5.5 million is included in “Other, net” under “Other
income (expense)” in the condensed consolidated statements of
operations. An income tax benefit of $2.2 million due to the
bargain purchase gain is also included in the condensed
consolidated statements of operations. The reason for the bargain
purchase gain is mainly due to the lower crude oil price outlook
used when the SPA was signed, November 17, 2020, and the higher oil
price outlook on February 25, 2021, when the fair value of the
reserves associated with the acquisition were
determined. The actual impact of the Sasol Acquisition
was an increase to “Total revenues” in the condensed consolidated
statement of operations of $9.4 million for the
three months ended March 31, 2021, and a $1.2
million increase to “Net income” in the condensed
consolidated statement of operations for the three months ended
March 31, 2021.
Under the terms of the SPA, a contingent payment
of $5.0 million is payable to Sasol should the average Dated
Brent price over a consecutive 90-day period from July 1, 2020
to June 30, 2022 exceed $60.00 per barrel. Included in the
purchase consideration was the fair value, at closing, of the
contingent payment due to Sasol. As of March 31, 2021, VAALCO
estimated the liability associated with this payment to be $5.0
million and recorded the difference between the initial fair value
of $4.6 million and the $5.0 million fair value at March 31, 2021
as additional expense included in “Other operating expense, net”
under “Operating income (loss)” in the condensed consolidated
statements of operations. On April 29, 2021, the conditions related
to the contingent payment were met and VAALCO paid the $5.0 million
contingent amount to Sasol in accordance with the terms of the
SPA.
Letter of Intent for FSO at
Etame
VAALCO signed a non-binding LOI with Omni to
provide and operate a FSO unit at VAALCO’s Etame Marin field
offshore Gabon for up to 11 years upon the expiration of the
current FPSO contract with BW Offshore in September 2022. The
Company has studied a variety of alternatives regarding the
expiration of the contract on its current FPSO and the proposed
development approach utilizing an FSO and processing on existing
platforms aligns with VAALCO’s ongoing strategy to reduce operating
costs and extend field life. This is particularly attractive due to
the potential for meaningful ongoing operating cost reductions over
its term compared with the current FPSO arrangement and other
options analyzed.
VAALCO’s initial forecasts indicate that a
capital investment of $40 million - $50 million gross
($25 million - $32 million net to VAALCO) could lead to annual
operating expense savings of $15 million - $20 million gross ($9
million - $12 million net to VAALCO) over the life of the new
agreement, resulting in a fast payback of its invested capital and
enhancing margins. These savings are achieved due to a more
simplified processing system that avoids duplication of processing
on the platforms and again on the FSO. This change is expected to
reduce or eliminate the need for most ongoing life extension costs.
Additionally, given the current commodity price environment and the
recently added commodity hedges, VAALCO believes that the potential
capital costs for the FSO conversion and the upcoming planned
2021/2022 drilling campaign can be funded with cash from operations
and cash on hand.
Seismic and 2021/2022 Drilling
Campaign
In December 2020, VAALCO completed the
acquisition of approximately 1,000 square kilometers of new
dual-azimuth proprietary 3-D seismic data over the entire Etame
Marin block. The Company expects the seismic data to enhance
sub-surface imaging by merging legacy data with newly acquired
seismic allowing for the first continuous 3-D seismic over the
entire block. The processing of the seismic data began in January
2021, and VAALCO expects all the data to be fully processed and
analyzed by the fourth quarter of 2021. The seismic data will be
used to optimize drilling locations for the 2021/2022 drilling
campaign, as well as to de-risk future drilling locations and
potentially identify new drilling locations. The Company plans to
commence the next drilling campaign at Etame in late 2021 or early
2022 with two development wells and two appraisal wells at an
estimated cost of $115.0 million to $125.0 million gross,
or $73.0 million to $79.0 million, net to VAALCO’s 63.6%
participating interest.
Equatorial Guinea
VAALCO had a 43% WI in Block P offshore
Equatorial Guinea. On August 27, 2020, the amendment to the
production sharing contract to ratify the Company’s increased
working interest and appointment as operator was approved by the
Ministry of Mines and Hydrocabons (“EG MMH”). On April 12, 2021,
the majority of non-defaulting parties assigned the defaulting
party’s interest to the non-defaulting parties. As a result,
VAALCO’s working interest will increase to 45.9% once the EG MMH
approves a new amendment to the production sharing contract. As of
March 31, 2021, the Company had $10.0 million recorded for the book
value of the undeveloped leasehold costs associated with the Block
P license.
Financial Update – First Quarter of
2021
Net income of $9.9 million ($0.17 per diluted
share) for the first quarter of 2021 compared favorably with a net
loss of $3.6 million ($0.06 per diluted share) in the fourth
quarter of 2020 and a $52.8 million loss ($0.91 per diluted share)
in the first quarter of 2020. The first quarter of 2021 reflected
stronger revenue due to three liftings in the quarter and higher
realized pricing. First quarter 2021 earnings also included a $7.7
million bargain purchase gain related to the Sasol Acquisition,
offset by a $6.0 million loss on derivative instruments, of which
$4.2 million was an unrealized loss.
Net loss for the fourth quarter of 2020 included
the impact from $3.6 million in exploration expense related to
the Etame seismic program during the quarter and a charge of
approximately $2.2 million for stock-based compensation
expense. The lifting scheduled for December 2020 was delayed to
January 2021 which reduced sales volumes and revenues while
increasing capitalized crude oil inventory costs for the fourth
quarter of 2020. This delayed the lifting for approximately 155 MBO
NRI barrels from the fourth quarter of 2020 until the first quarter
of 2021. The net loss in the first quarter of 2020 was primarily
impacted by the impairment of proved properties of $30.6 million
and deferred income tax expense of $35.6 million offset by
unrealized gains on derivatives of $6.6 million.
Adjusted Net Income for the first quarter of 2021 increased to $8.7
million ($0.15 per diluted share) from an Adjusted Net Loss of $5.6
million or ($0.10 per diluted share) in the fourth quarter of 2020
primarily as a result of increased sales and realized pricing.
Adjusted Net Income for the first quarter of 2020 was $6.9 million
($0.12 per diluted share).
Adjusted EBITDAX totaled $18.0 million in the
first quarter of 2021 compared with $3.5 million in the fourth
quarter of 2020 and $6.0 million in the same period of 2020.
Adjusted EBITDAX for the first quarter of 2021 was higher than both
prior periods primarily due to increased sales volumes and improved
realized prices.
Revenue and Sales |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
Q1 2021 |
|
Q1 2020 |
|
% Change Q12021 vs. Q1 2020 |
|
Q4 2020 |
|
% Change Q12021 vs. Q4 2020 |
Production (NRI BOPD) |
|
|
5,180 |
|
|
|
4,944 |
|
|
|
5 |
% |
|
|
4,662 |
|
|
|
11 |
% |
Sales (NRI BO) |
|
|
619,000 |
|
|
|
294,000 |
|
|
|
111 |
% |
|
|
290,000 |
|
|
|
113 |
% |
Realized crude oil price
($/BO) |
|
$ |
61.31 |
|
|
$ |
59.54 |
|
|
|
3 |
% |
|
$ |
42.07 |
|
|
|
46 |
% |
Total crude oil sales
($MM) |
|
$ |
39.8 |
|
|
$ |
18.4 |
|
|
|
116 |
% |
|
$ |
12.6 |
|
|
|
216 |
% |
VAALCO had three liftings in the first quarter
of 2021, which resulted in total sales volumes of 619,000 barrels
compared to 290,000 barrels in the fourth quarter of 2020 and
294,000 barrels for the same period in 2020. During both the first
and fourth quarter of 2020 VAALCO had two liftings. The increase in
volumes in the first quarter of 2021 is primarily due to the
additional lifting and additional interest following the closing of
the Sasol Acquisition. First quarter of 2021 realized pricing rose
46% compared to the fourth quarter of 2020 and 3% compared to the
first quarter of 2020. Following the sharply lower prices realized
due to the COVID-19 pandemic and OPEC-related pricing issues in
March 2020, pricing has recovered and in the first quarter of 2021
this recovery increased to pre-pandemic pricing levels.
Costs and Expenses |
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|
|
Q1 2021 |
|
Q1 2020 |
|
% Change Q12021 vs. Q1 2020 |
|
Q4 2020 |
|
% Change Q12021 vs. Q4 2020 |
Production expense, excluding workovers ($MM) |
|
$ |
16.1 |
|
|
$ |
6.9 |
|
|
|
134 |
|
% |
|
$ |
6.6 |
|
|
|
145 |
|
% |
Production expense, excluding
workovers ($/BO) |
|
$ |
26.02 |
|
|
$ |
23.39 |
|
|
|
11 |
|
% |
|
$ |
22.66 |
|
|
|
15 |
|
% |
Workover expense ($MM) |
|
$ |
— |
|
|
$ |
2.8 |
|
|
|
(100 |
) |
% |
|
$ |
(0.1 |
) |
|
|
(100 |
) |
% |
Depreciation, depletion and
amortization ($MM) |
|
$ |
4.1 |
|
|
$ |
3.1 |
|
|
|
32 |
|
% |
|
$ |
1.3 |
|
|
|
215 |
|
% |
Depreciation, depletion and
amortization ($/BO) |
|
$ |
6.70 |
|
|
$ |
10.55 |
|
|
|
(37 |
) |
% |
|
$ |
4.37 |
|
|
|
54 |
|
% |
General and administrative
expense, excluding stock-based compensation ($MM) |
|
$ |
3.0 |
|
|
$ |
3.4 |
|
|
|
(12 |
) |
% |
|
$ |
2.5 |
|
|
|
20 |
|
% |
General and administrative
expense, excluding stock-based compensation ($/BO) |
|
$ |
4.83 |
|
|
$ |
11.30 |
|
|
|
(57 |
) |
% |
|
$ |
8.73 |
|
|
|
(45 |
) |
% |
Stock-based compensation
expense (benefit) ($MM) |
|
$ |
1.6 |
|
|
$ |
(2.6 |
) |
|
|
(162 |
) |
% |
|
$ |
2.2 |
|
|
|
(27 |
) |
% |
Current income tax expense
(benefit) ($MM) |
|
$ |
3.4 |
|
|
$ |
(2.1 |
) |
|
|
(262 |
) |
% |
|
$ |
2.0 |
|
|
|
70 |
|
% |
Deferred income tax expense
(benefit) ($MM) |
|
$ |
(0.3 |
) |
|
$ |
35.6 |
|
|
|
(101 |
) |
% |
|
$ |
(2.8 |
) |
|
|
(89 |
) |
% |
Total production expense, excluding workovers,
increased compared to the same period in 2020 and fourth quarter
2020 primarily due to higher sales and an increase in working
interest associated with the Sasol Acquisition. The per-unit
production expense, excluding workovers, increased in the first
quarter of 2021 as compared to the prior periods as a result of
crude oil inventory and FPSO charter costs. Production expense for
the first quarter of 2021 included approximately $0.6 million in
additional costs related to proactive employee-related measures
taken in response to the pandemic. Depreciation,
depletion and amortization (“DD&A”) expense in the first
quarter of 2021 on a per NRI barrel of crude oil sales basis was
higher compared to the prior periods presented due to higher
depletable costs associated with the Sasol Acquisition. The
per-unit DD&A rate in the first quarter of 2021 was higher than
the rate in the fourth quarter of 2020 due to purchase price
accounting of the Sasol Acquisition increasing the overall DD&A
rate. The per-unit DD&A rate in the first quarter of 2021 was
lower than the rate in the first quarter of 2020 as the first
quarter of 2020 had additional costs associated with the Etame 11H
well, South East Etame 4P appraisal wellbore and South East Etame
4H well.
General and administrative (“G&A”) expense,
excluding stock-based compensation, in the first quarter of 2021
was lower than in the first quarter of 2020, but higher than the
fourth quarter of 2020. The increase compared to the prior quarter
was as a result of increased employer taxes and 401(k)
contributions due to larger employee contributions, increased
salaries, increased legal fees associated with M&A and
severance activity and higher accounting and audit related fees.
Non-cash stock-based compensation expense was impacted by the
change in the SARs liability as a result of changes in the
Company’s stock price during the quarter. For the first quarter of
2021 the stock-based compensation expense related to SARs was an
expense of $1.2 million compared to benefit of
$2.7 million for the first quarter of 2020. For the fourth
quarter of 2020 there was expense of $1.9 million related to
SARs.
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 March 31, 2021 was $3.1
million. This is comprised of $(0.3) million of deferred tax
benefit and a current tax expense of $3.4 million. Income tax
expense for the three months ended March 31, 2020 included $35.6
million of deferred tax expense and a current tax benefit of $(2.1)
million. The deferred income tax expense for the three months ended
March 31, 2020 included a $46.9 million charge to increase the
valuation allowances on U.S. and Gabonese deferred tax assets
offset by an $11.8 million deferred tax benefit. For both the three
months ended March 31, 2021 and 2020, VAALCO’s overall effective
tax rate was impacted by non-deductible items associated with
operations and deducting foreign taxes rather than crediting them
for United States tax purposes. For the fourth quarter of 2020,
income tax was a benefit of $0.8 million, and included a
$2.8 million deferred tax benefit.
Response to COVID-19
Pandemic
VAALCO remains fully committed to the health and
safety of all its employees and contractors. In response to the
COVID-19 pandemic, VAALCO has taken the following measures:
- Put into place social distancing measures at VAALCO’s work
sites;
- Actively screening and monitoring employees and contractors
that come onto the Company’s Gabon facilities including testing and
quarantine periods with onsite medical supervision; and
- Engaging in regular Company-wide COVID-19 updates to keep
employees informed of key developments.
VAALCO expects to continue 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
May 12, 2021, VAALCO has experienced no material impact on its
Gabon operations 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
$0.6 million during the first quarter of 2021.
Capital Investments/Balance
Sheet
For the first quarter of 2021, net capital
expenditures, excluding acquisitions, totaled $1.2 million on a
cash basis and $2.5 million on an accrual basis. These expenditures
were primarily related to equipment and enhancements as well as
early costs associated with the next drilling program. VAALCO also
invested $17.9 million in acquisitions of crude oil and natural gas
properties in net cash in the first quarter of 2021 related to the
Sasol interest purchase.
At the end of the first quarter of 2021, VAALCO
had an unrestricted cash balance of $19.3 million. The unrestricted
cash balance includes $1.7 million of cash attributable to
non-operating joint venture owner advances. Working capital at
March 31, 2021 was $(15.8) million compared with $11.4 million at
December 31, 2020, while Adjusted Working Capital at March 31, 2021
totaled $(2.7) million, compared with $24.3 million at December 31,
2020.
Hedging
On January 22, 2021, the Company entered
into commodity swaps at a Dated Brent weighted average of $53.10
per barrel for the period from and including February 2021 through
January 2022 for a quantity of 709,262 barrels. At March 31, 2021,
the unexpired commodity swaps were for an underlying quantity of
550,523 barrels and had a fair value asset liability of $4.2
million reflected in “Accrued liabilities and other” line of the
consolidated balance sheet.
On May 6, 2021, the Company entered into
commodity swaps at a Dated Brent weighted average of $66.51 per
barrel for the period from and including May 2021 through October
2021 for a quantity of 672,533 barrels. The Company is hedging a
majority of its 2021 production volumes to protect cash flows which
are expected to be used to fund the 2021/2022 drilling program of
up to four wells and the potential FSO unit capital upgrade costs
if an agreement is executed. In total, VAALCO now has 70% of its
production hedged through October 2021 at a Dated Brent weighted
average price of $62.27 per barrel.
Guidance
Second quarter 2021 production guidance is
expected to be 7,600 to 8,200 BOPD, which represents a 53% increase
at the midpoint compared to the first quarter of 2021. Production
expense, excluding workovers, is expected to be $24.50 to $27.00
which represents a slight decrease at the midpoint compared to the
first quarter of 2021. While VAALCO reaffirms full year 2021
guidance for production and capital, the Company has seen
improvements in production expense due to implementing cost
containment efforts and forecasts that many of these savings will
continue throughout 2021. With that in mind, VAALCO is reducing the
midpoint of production expense, excluding workovers, by $2 million
to an updated range of $69 million to $73 million. This translates
to a reduction in the expected production expense, excluding
workovers, per BO to $24.50 to $27.75.
Conference Call
As previously announced, the Company will hold a
conference call to discuss its first quarter financial and
operating results on Thursday May 13, 2021, 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 First Quarter 2021 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 58.8% working interest in the Etame Marin
Block, located offshore Gabon, which to date has produced over 120
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 / James
Husband |
VAALCO@buchanan.uk.com |
Forward Looking Statements
This document includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. All statements, other than statements of
historical facts, included in this document that address
activities, events, plans, expectations, objectives or developments
that VAALCO expects, believes or anticipates will or may occur in
the future are forward-looking statements. These statements may
include statements related to the impact of the COVID-19 pandemic,
including the sharp decline in the global demand for and resulting
global oversupply of crude oil and the resulting steep decline in
oil prices, production quotas imposed by Gabon, disruptions in
global supply chains, quarantines of VAALCO’s workforce or
workforce reductions and other matters related to the pandemic,
well results, wells anticipated to be drilled and placed on
production, future levels of drilling and operational activity and
associated expectations, the implementation of the Company’s
business plans and strategy, prospect evaluations, prospective
resources and reserve growth, VAALCO’s 2021/2022 drilling campaign,
its activities in Equatorial Guinea, expected sources of and
potential difficulties in obtaining future capital funding and
future liquidity, its ability to restore production in
non-producing wells, future operating losses, future changes in
crude oil and natural gas prices, future strategic alternatives,
future acquisitions, capital expenditures, future drilling plans,
prospect evaluations, interpretation of seismic data and costs
thereof, negotiations with governments and third parties, timing of
the settlement of Gabon income taxes, and expectations regarding
processing facilities, production, sales and financial projections.
These statements are based on assumptions made by VAALCO based on
its experience and perception of historical trends, current
conditions, expected future developments and other factors it
believes are appropriate in the circumstances. Such statements are
subject to a number of assumptions, risks and uncertainties, many
of which are beyond VAALCO’s control. These risks include, but are
not limited to, crude oil and natural gas price volatility, the
impact of production quotas imposed by Gabon in response to
production cuts agreed to as a member of OPEC, inflation, general
economic conditions, the outbreak of COVID-19, the Company’s
success in discovering, developing and producing reserves,
production and sales differences due to timing of liftings,
decisions by future lenders, the risks associated with liquidity,
lack of availability of goods, services and capital, environmental
risks, drilling risks, foreign regulatory and operational risks,
and regulatory changes.
Investors are cautioned that forward-looking
statements are not guarantees of future performance and that actual
results or developments may differ materially from those projected
in the forward-looking statements. VAALCO disclaims any intention
or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise.
Inside Information
This announcement contains inside information as defined in
Regulation (EU) No. 596/2014 on market abuse (“MAR”) and is made in
accordance with the Company’s obligations under article 17 of
MAR.
VAALCO ENERGY, INC AND SUBSIDIARIESCondensed Consolidated
Balance Sheets (Unaudited)
|
|
As ofMarch 31, 2021 |
|
As ofDecember 31, 2020 |
|
|
|
ASSETS |
|
(in thousands) |
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
19,251 |
|
|
$ |
47,853 |
|
Restricted cash |
|
|
82 |
|
|
|
86 |
|
Receivables: |
|
|
|
|
|
|
Trade |
|
|
23,803 |
|
|
|
— |
|
Accounts with joint venture owners, net of allowance of $0.0
million in both periods presented |
|
|
152 |
|
|
|
3,587 |
|
Other |
|
|
29 |
|
|
|
4,331 |
|
Crude oil inventory |
|
|
820 |
|
|
|
3,906 |
|
Prepayments and other |
|
|
5,175 |
|
|
|
4,215 |
|
Total current assets |
|
|
49,312 |
|
|
|
63,978 |
|
|
|
|
|
|
|
|
Crude oil and natural gas
properties, equipment and other - successful efforts method,
net |
|
|
78,192 |
|
|
|
37,036 |
|
Other noncurrent assets: |
|
|
|
|
|
|
Restricted cash |
|
|
1,752 |
|
|
|
925 |
|
Value added tax and other receivables, net of allowance of $5.1
million and $2.3 million, respectively |
|
|
5,565 |
|
|
|
4,271 |
|
Right of use operating lease assets |
|
|
19,454 |
|
|
|
22,569 |
|
Abandonment funding |
|
|
22,862 |
|
|
|
12,453 |
|
Total assets |
|
$ |
177,137 |
|
|
$ |
141,232 |
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
10,121 |
|
|
$ |
16,690 |
|
Accounts with joint venture owners |
|
|
1,721 |
|
|
|
4,945 |
|
Accrued liabilities and other |
|
|
33,777 |
|
|
|
17,184 |
|
Operating lease liabilities - current portion |
|
|
13,088 |
|
|
|
12,890 |
|
Foreign income taxes payable |
|
|
6,384 |
|
|
|
860 |
|
Current liabilities - discontinued operations |
|
|
13 |
|
|
|
7 |
|
Total current liabilities |
|
|
65,104 |
|
|
|
52,576 |
|
Asset retirement
obligations |
|
|
32,196 |
|
|
|
17,334 |
|
Operating lease liabilities -
net of current portion |
|
|
6,361 |
|
|
|
9,671 |
|
Deferred tax liabilities |
|
|
1,809 |
|
|
|
— |
|
Other long-term
liabilities |
|
|
73 |
|
|
|
193 |
|
Total liabilities |
|
|
105,543 |
|
|
|
79,774 |
|
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,
68,328,224 and 67,897,530 shares issued, 57,806,504 and 57,531,154
shares outstanding, respectively |
|
|
6,833 |
|
|
|
6,790 |
|
Additional paid-in capital |
|
|
75,064 |
|
|
|
74,437 |
|
Less treasury stock, 10,521,720 and 10,366,376 shares,
respectively, at cost |
|
|
(42,824 |
) |
|
|
(42,421 |
) |
Retained earnings |
|
|
32,521 |
|
|
|
22,652 |
|
Total shareholders' equity |
|
|
71,594 |
|
|
|
61,458 |
|
Total liabilities and shareholders' equity |
|
$ |
177,137 |
|
|
$ |
141,232 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESCondensed Consolidated
Statements of Operations (Unaudited)
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, 2021 |
|
March 31, 2020 |
|
December 31, 2020 |
|
|
|
|
|
(in thousands except per share amounts) |
Revenues: |
|
|
|
|
|
|
|
|
|
Crude oil and natural gas sales |
|
$ |
39,774 |
|
|
$ |
18,389 |
|
|
$ |
12,557 |
|
Operating costs and
expenses: |
|
|
|
|
|
|
|
|
|
Production expense |
|
|
16,133 |
|
|
|
9,749 |
|
|
|
6,456 |
|
Exploration expense |
|
|
142 |
|
|
|
— |
|
|
|
3,572 |
|
Depreciation, depletion and amortization |
|
|
4,148 |
|
|
|
3,103 |
|
|
|
1,266 |
|
Impairment of proved crude oil and natural gas properties |
|
|
— |
|
|
|
30,625 |
|
|
|
— |
|
General and administrative expense |
|
|
4,547 |
|
|
|
754 |
|
|
|
4,744 |
|
Bad debt expense and other |
|
|
101 |
|
|
|
810 |
|
|
|
25 |
|
Total operating costs and expenses |
|
|
25,071 |
|
|
|
45,041 |
|
|
|
16,063 |
|
Other operating expense, net |
|
|
(360 |
) |
|
|
(31 |
) |
|
|
(786 |
) |
Operating income (loss) |
|
|
14,343 |
|
|
|
(26,683 |
) |
|
|
(4,292 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
Derivative instruments gain (loss), net |
|
|
(5,954 |
) |
|
|
7,339 |
|
|
|
(6 |
) |
Interest income, net |
|
|
5 |
|
|
|
116 |
|
|
|
5 |
|
Other, net |
|
|
4,580 |
|
|
|
(31 |
) |
|
|
(34 |
) |
Total other income (expense), net |
|
|
(1,369 |
) |
|
|
7,424 |
|
|
|
(35 |
) |
Income (loss) from continuing
operations before income taxes |
|
|
12,974 |
|
|
|
(19,259 |
) |
|
|
(4,327 |
) |
Income tax expense
(benefit) |
|
|
3,086 |
|
|
|
33,478 |
|
|
|
(789 |
) |
Income (loss) from continuing
operations |
|
|
9,888 |
|
|
|
(52,737 |
) |
|
|
(3,538 |
) |
Loss from discontinued
operations, net of tax |
|
|
(19 |
) |
|
|
(63 |
) |
|
|
(57 |
) |
Net income (loss) |
|
$ |
9,869 |
|
|
$ |
(52,800 |
) |
|
$ |
(3,595 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.17 |
|
|
$ |
(0.91 |
) |
|
$ |
(0.06 |
) |
Income (loss) from discontinued operations, net of tax |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
Net income (loss) per share |
|
$ |
0.17 |
|
|
$ |
(0.91 |
) |
|
$ |
(0.06 |
) |
Basic weighted average shares outstanding |
|
|
57,493 |
|
|
|
57,975 |
|
|
|
57,493 |
|
Diluted net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.17 |
|
|
$ |
(0.91 |
) |
|
$ |
(0.06 |
) |
Income (loss) from discontinued operations, net of tax |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
Net income (loss) per share |
|
$ |
0.17 |
|
|
$ |
(0.91 |
) |
|
$ |
(0.06 |
) |
Diluted weighted average shares outstanding |
|
|
57,493 |
|
|
|
57,975 |
|
|
|
57,493 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESCondensed Consolidated
Statements of Cash Flows (Unaudited)
|
|
Three Months Ended March 31, |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
(in thousands) |
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,869 |
|
|
$ |
(52,800 |
) |
Adjustments to reconcile net
income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
Loss from discontinued operations |
|
|
19 |
|
|
|
63 |
|
Depreciation, depletion and amortization |
|
|
4,148 |
|
|
|
3,103 |
|
Bargain purchase gain |
|
|
(7,651 |
) |
|
|
— |
|
Impairment of proved crude oil and natural gas properties |
|
|
— |
|
|
|
30,625 |
|
Other amortization |
|
|
— |
|
|
|
60 |
|
Deferred taxes |
|
|
1,809 |
|
|
|
35,638 |
|
Unrealized foreign exchange gain |
|
|
(400 |
) |
|
|
(22 |
) |
Stock-based compensation |
|
|
1,559 |
|
|
|
(2,569 |
) |
Cash settlements paid on exercised stock appreciation rights |
|
|
(852 |
) |
|
|
— |
|
Derivative instruments (gain) loss, net |
|
|
5,954 |
|
|
|
(7,339 |
) |
Cash settlements received (paid) on matured derivative contracts,
net |
|
|
(1,710 |
) |
|
|
718 |
|
Bad debt expense and other |
|
|
101 |
|
|
|
810 |
|
Other operating loss, net |
|
|
360 |
|
|
|
31 |
|
Operational expenses associated with equipment and other |
|
|
247 |
|
|
|
578 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
Trade receivables |
|
|
(12,647 |
) |
|
|
14,335 |
|
Accounts with joint venture owners |
|
|
275 |
|
|
|
13,812 |
|
Other receivables |
|
|
(53 |
) |
|
|
(755 |
) |
Crude oil inventory |
|
|
5,795 |
|
|
|
(2,793 |
) |
Prepayments and other |
|
|
(3,240 |
) |
|
|
(993 |
) |
Value added tax and other receivables |
|
|
(149 |
) |
|
|
(370 |
) |
Accounts payable |
|
|
(6,627 |
) |
|
|
(1,130 |
) |
Foreign income taxes receivable/payable |
|
|
5,524 |
|
|
|
(1,284 |
) |
Accrued liabilities and other |
|
|
(576 |
) |
|
|
(2,073 |
) |
Net cash provided by continuing operating activities |
|
|
1,755 |
|
|
|
27,645 |
|
Net cash used in discontinued operating activities |
|
|
(13 |
) |
|
|
(18 |
) |
Net cash provided by operating activities |
|
|
1,742 |
|
|
|
27,627 |
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
Property and equipment expenditures |
|
|
(1,198 |
) |
|
|
(11,980 |
) |
Acquisition of crude oil and natural gas properties |
|
|
(17,858 |
) |
|
|
— |
|
Net cash used in continuing investing activities |
|
|
(19,056 |
) |
|
|
(11,980 |
) |
Net cash used in discontinued investing activities |
|
|
— |
|
|
|
— |
|
Net cash used in investing activities |
|
|
(19,056 |
) |
|
|
(11,980 |
) |
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
Proceeds from the issuances of common stock |
|
|
347 |
|
|
|
— |
|
Treasury shares |
|
|
(403 |
) |
|
|
(652 |
) |
Net cash used in continuing
financing activities |
|
|
(56 |
) |
|
|
(652 |
) |
Net cash used in discontinued
financing activities |
|
|
— |
|
|
|
— |
|
Net cash used in financing
activities |
|
|
(56 |
) |
|
|
(652 |
) |
NET CHANGE IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH |
|
|
(17,370 |
) |
|
|
14,995 |
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
61,317 |
|
|
|
59,124 |
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT END OF PERIOD |
|
$ |
43,947 |
|
|
$ |
74,119 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESSelected Financial and
Operating Statistics(Unaudited)
|
|
Three Months Ended |
|
|
March 31, 2021 |
|
March 31, 2020 |
|
December 31, 2020 |
NRI SALES DATA |
|
|
|
|
|
|
|
|
|
|
Crude oil (MBbls) |
|
|
619 |
|
|
|
294 |
|
|
|
290 |
|
NRI PRODUCTION DATA |
|
|
|
|
|
|
|
|
|
|
Crude oil (MBbls) |
|
|
466 |
|
|
|
450 |
|
|
|
429 |
|
Average daily production volumes (BOPD) |
|
|
5,180 |
|
|
|
4,944 |
|
|
|
4,662 |
|
REALIZED DERIVATIVE
INSTRUMENTS GAIN (LOSS) |
|
|
|
|
|
|
|
|
|
|
Realized derivative instruments gain (loss), net, in thousands |
|
$ |
(1,710 |
) |
|
$ |
718 |
|
|
$ |
— |
|
Realized derivative instruments gain (loss), net (Per Bbls) |
|
|
(2.76 |
) |
|
|
2.44 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE SALES PRICES: |
|
|
|
|
|
|
|
|
|
|
Crude oil (Per Bbls) |
|
$ |
61.31 |
|
|
$ |
59.54 |
|
|
$ |
42.07 |
|
COSTS AND EXPENSES (Per Bbl of
sales): |
|
|
|
|
|
|
|
|
|
|
Production expense |
|
$ |
26.06 |
|
|
$ |
33.16 |
|
|
$ |
22.26 |
|
Production expense, excluding workovers* |
|
|
26.02 |
|
|
|
23.39 |
|
|
|
22.66 |
|
Depreciation, depletion and amortization |
|
|
6.70 |
|
|
|
10.55 |
|
|
|
4.37 |
|
General and administrative expense** |
|
|
7.35 |
|
|
|
2.56 |
|
|
|
16.36 |
|
Property and equipment expenditures, cash basis (in thousands) |
|
$ |
1,198 |
|
|
$ |
11,980 |
|
|
$ |
(2,309 |
) |
*Workover costs excluded from the three months ended March 31,
2021 and 2020 and December 31, 2020 are $0.0 million, $2.8 million
and $(0.1) million, respectively.**General and administrative
expenses include $2.52, $(8.74) and $7.62 per barrel of oil of
sales of stock-based compensation expense in the three months ended
March 31, 2021, and 2020 and December 31, 2020, 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 SUBSIDIARIESReconciliations of Non-GAAP
Financial Measures(Unaudited)(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Reconciliation of Net
Income (Loss) to Adjusted Net Income (Loss) |
|
March 31, 2021 |
|
March 31, 2020 |
|
December 31, 2020 |
Net income (loss) |
|
$ |
9,869 |
|
|
$ |
(52,800 |
) |
|
$ |
(3,595 |
) |
Adjustment for discrete
items: |
|
|
|
|
|
|
|
|
|
Discontinued operations, net of tax |
|
|
19 |
|
|
|
63 |
|
|
|
57 |
|
Impairment of proved crude oil and natural gas properties |
|
|
— |
|
|
|
30,625 |
|
|
|
— |
|
Unrealized derivative instruments (gain) loss |
|
|
4,244 |
|
|
|
(6,621 |
) |
|
|
6 |
|
Gain on Sasol Acquisition, net |
|
|
(5,491 |
) |
|
|
— |
|
|
|
— |
|
Deferred income tax expense (benefit) |
|
|
(349 |
) |
|
|
35,638 |
|
|
|
(2,813 |
) |
Other operating expense, net |
|
|
360 |
|
|
|
31 |
|
|
|
786 |
|
Adjusted Net Income
(Loss) |
|
$ |
8,652 |
|
|
$ |
6,936 |
|
|
$ |
(5,559 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted Adjusted Net Income
(Loss) per Share |
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
(0.10 |
) |
Diluted weighted average
shares outstanding (1) |
|
|
57,493 |
|
|
|
57,975 |
|
|
|
57,493 |
|
(1) No adjustments to weighted average shares outstanding
|
|
Three Months Ended |
Reconciliation of Net
Income (Loss) to Adjusted EBITDAX |
|
March 31, 2021 |
|
March 31, 2020 |
|
December 31, 2020 |
Net income (loss) |
|
$ |
9,869 |
|
|
$ |
(52,800 |
) |
|
$ |
(3,595 |
) |
Add back: |
|
|
|
|
|
|
|
|
|
Impact of discontinued operations |
|
|
19 |
|
|
|
63 |
|
|
|
57 |
|
Interest income, net |
|
|
(5 |
) |
|
|
(116 |
) |
|
|
(5 |
) |
Income tax expense (benefit) |
|
|
3,086 |
|
|
|
33,478 |
|
|
|
(789 |
) |
Depreciation, depletion and amortization |
|
|
4,148 |
|
|
|
3,103 |
|
|
|
1,266 |
|
Exploration expense |
|
|
142 |
|
|
|
— |
|
|
|
3,572 |
|
Impairment of proved crude oil and natural gas properties |
|
|
— |
|
|
|
30,625 |
|
|
|
— |
|
Non-cash or unusual
items: |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
1,559 |
|
|
|
(2,569 |
) |
|
|
2,211 |
|
Unrealized derivative instruments (gain) loss |
|
|
4,244 |
|
|
|
(6,621 |
) |
|
|
6 |
|
Gain on Sasol Acquisition, net |
|
|
(5,491 |
) |
|
|
— |
|
|
|
— |
|
Other operating expense, net |
|
|
360 |
|
|
|
31 |
|
|
|
786 |
|
Bad debt expense and other |
|
|
101 |
|
|
|
810 |
|
|
|
25 |
|
Adjusted EBITDAX |
|
$ |
18,032 |
|
|
$ |
6,004 |
|
|
$ |
3,534 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESReconciliations of Non-GAAP
Financial Measures(Unaudited)(in thousands)
Reconciliation of
Working Capital to Adjusted Working Capital |
|
As ofMarch 31, 2021 |
|
As ofDecember 31, 2020 |
|
Change |
Current assets |
|
$ |
49,312 |
|
|
$ |
63,978 |
|
|
$ |
(14,666 |
) |
Current liabilities |
|
|
(65,104 |
) |
|
|
(52,576 |
) |
|
|
(12,528 |
) |
Working
capital |
|
|
(15,792 |
) |
|
|
11,402 |
|
|
|
(27,194 |
) |
Add: operating lease
liabilities - current portion |
|
|
13,088 |
|
|
|
12,890 |
|
|
|
198 |
|
Add: current liabilities -
discontinued operations |
|
|
13 |
|
|
|
7 |
|
|
|
6 |
|
Adjusted Working
Capital |
|
$ |
(2,691 |
) |
|
$ |
24,299 |
|
|
$ |
(26,990 |
) |
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