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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

________________________________

(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 1-32167

________________________________

VAALCO Energy, Inc.

(Exact name of registrant as specified in its charter)

________________________________

Delaware

 

76-0274813

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

9800 Richmond Avenue

Suite 700

Houston, Texas

 

77042

(Address of principal executive offices)

 

(Zip code)

(713) 623-0801

(Registrant’s telephone number, including area code)

________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock

EGY

New York Stock Exchange

Common Stock

EGY

London Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

x

¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).        Yes  ¨    No   x

As of July 31, 2020, there were outstanding 57,456,139 shares of common stock, $0.10 par value per share, of the registrant.  

VAALCO ENERGY, INC. AND SUBSIDIARIES

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Condensed Consolidated Balance Sheets

June 30, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Operations

Three and Six Months Ended June 30, 2020 and 2019

4

Condensed Consolidated Statements of Shareholders’ Equity

Three and Six Months Ended June 30, 2020 and 2019

5

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2020 and 2019

6

Notes to Condensed Consolidated Financial Statements

8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

28

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

38

ITEM 4. CONTROLS AND PROCEDURES

39

PART II. OTHER INFORMATION

39

ITEM 1. LEGAL PROCEEDINGS

39

ITEM 1A. RISK FACTORS

39

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

42

ITEM 6. EXHIBITS

43

Unless the context otherwise indicates, references to “VAALCO,” “the Company”, “we,” “our,” or “us” in this Form 10-Q are references to VAALCO Energy, Inc., including its wholly-owned subsidiaries.


PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

June 30, 2020

December 31, 2019

ASSETS

(in thousands)

Current assets:

Cash and cash equivalents

$

44,841

$

45,917

Restricted cash

1,090

911

Receivables:

Trade

9,521

14,335

Accounts with joint venture owners, net of allowance of $0.0 million and $0.5 million, respectively

134

2,714

Other

2,350

1,517

Crude oil inventory

853

1,072

Prepayments and other

3,445

3,292

Total current assets

62,234

69,758

Crude oil and natural gas properties and equipment - successful efforts method:

Wells, platforms and other production facilities

442,665

422,651

Work-in-progress

7,378

Undeveloped acreage

21,476

23,771

Equipment and other

10,184

11,157

474,325

464,957

Accumulated depreciation, depletion, amortization and impairment

(432,977)

(396,699)

Net crude oil and natural gas properties, equipment and other

41,348

68,258

Other noncurrent assets:

Restricted cash

925

925

Value added tax and other receivables, net of allowance of $1.9 million and $1.0 million, respectively

3,812

3,683

Right of use operating lease assets

27,918

33,383

Deferred tax assets

24,159

Abandonment funding

11,420

11,371

Total assets

$

147,657

$

211,537

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

9,250

$

15,897

Accounts with joint venture owners

9,259

Accrued liabilities and other

16,299

29,773

Operating lease liabilities - current portion

12,274

11,990

Foreign taxes payable

3,368

5,740

Current liabilities - discontinued operations

48

350

Total current liabilities

50,498

63,750

Asset retirement obligations

16,643

15,844

Operating lease liabilities - net of current portion

15,631

21,371

Deferred tax liabilities

8,098

Other long term liabilities

56

852

Total liabilities

90,926

101,817

Commitments and contingencies (Note 10)

 

 

Shareholders’ equity:

Preferred stock, $25 par value; 500,000 shares authorized, none issued

Common stock, $0.10 par value; 100,000,000 shares authorized, 67,819,242 and 67,673,787 shares issued, 57,456,139 and 58,024,571 shares outstanding, respectively

6,782

6,767

Additional paid-in capital

73,739

73,549

Less treasury stock, 10,363,103 and 9,649,216 shares, respectively, at cost

(42,419)

(41,429)

Retained earnings

18,629

70,833

Total shareholders' equity

56,731

109,720

Total liabilities and shareholders' equity

$

147,657

$

211,537

See notes to condensed consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

(in thousands, except per share amounts)

Revenues:

Crude oil and natural gas sales

$

17,974

$

25,230

$

36,363

$

44,995

Operating costs and expenses:

Production expense

12,126

9,819

21,875

18,038

Depreciation, depletion and amortization

2,801

1,909

5,904

3,462

Impairment of proved crude oil and natural gas properties

30,625

General and administrative expense

3,019

2,728

3,773

7,167

Bad debt (recovery) expense and other

179

5

989

(24)

Total operating costs and expenses

18,125

14,461

63,166

28,643

Other operating expense, net

(815)

(4,399)

(846)

(4,436)

Operating income (loss)

(966)

6,370

(27,649)

11,916

Other income (expense):

Derivative instruments gain (loss), net

(756)

1,911

6,583

(1)

Interest income, net

11

201

127

388

Other, net

47

(145)

16

(383)

Total other income (expense), net

(698)

1,967

6,726

4

Income (loss) from continuing operations before income taxes

(1,664)

8,337

(20,923)

11,920

Income tax expense (benefit)

(2,249)

9,208

31,229

11,961

Income (loss) from continuing operations

585

(871)

(52,152)

(41)

Income (loss) from discontinued operations, net of tax

11

(162)

(52)

5,509

Net income (loss)

$

596

$

(1,033)

$

(52,204)

$

5,468

Basic net income (loss) per share:

Income (loss) from continuing operations

$

0.01

$

(0.01)

$

(0.90)

$

0.00

Income (loss) from discontinued operations, net of tax

0.00

0.00

0.00

0.09

Net income (loss) per share

$

0.01

$

(0.01)

$

(0.90)

$

0.09

Basic weighted average shares outstanding

57,456

59,801

57,716

59,716

Diluted net income (loss) per share:

Income (loss) from continuing operations

$

0.01

$

(0.01)

$

(0.90)

$

0.00

Income (loss) from discontinued operations, net of tax

0.00

0.00

0.00

0.09

Net income (loss) per share

$

0.01

$

(0.01)

$

(0.90)

$

0.09

Diluted weighted average shares outstanding

57,594

59,801

57,716

59,716

See notes to condensed consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

Common Shares Issued

Treasury Shares

Common Stock

Additional Paid-In Capital

Treasury Stock

Retained Earnings

Total

(in thousands)

Balance at January 1, 2020

67,674

(9,649)

$

6,767

$

73,549

$

(41,429)

$

70,833

$

109,720

Shares issued - stock-based compensation

125

13

(13)

Stock-based compensation expense

145

145

Treasury stock

(517)

(652)

(652)

Net loss

(52,800)

(52,800)

Balance at March 31, 2020

67,799

(10,166)

6,780

73,681

(42,081)

18,033

56,413

Shares issued - stock-based compensation

20

2

(2)

Stock-based compensation expense

60

60

Treasury stock

(197)

(338)

(338)

Net income

596

596

Balance at June 30, 2020

67,819

(10,363)

$

6,782

$

73,739

$

(42,419)

$

18,629

$

56,731

Common Shares Issued

Treasury Shares

Common Stock

Additional Paid-In Capital

Treasury Stock

Retained Earnings

Total

(in thousands)

Balance at January 1, 2019

67,168

(7,572)

$

6,717

$

72,358

$

(37,827)

$

68,579

$

109,827

Shares issued - stock-based compensation

160

16

31

47

Stock-based compensation expense

28

28

Treasury stock

(45)

(105)

(105)

Net income

6,501

6,501

Balance at March 31, 2019

67,328

(7,617)

6,733

72,417

(37,932)

75,080

116,298

Shares issued - stock-based compensation

124

12

48

60

Stock-based compensation expense

594

594

Treasury stock

(79)

62

(309)

(247)

Net loss

(1,033)

(1,033)

Balance at June 30, 2019

67,452

(7,696)

$

6,745

$

73,059

$

(37,870)

$

73,738

$

115,672

See notes to condensed consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended June 30,

2020

2019

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

(52,204)

$

5,468

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

(Income) loss from discontinued operations

52

(5,509)

Depreciation, depletion and amortization

5,904

3,462

Impairment of proved crude oil and natural gas properties

30,625

Other amortization

121

121

Deferred taxes

32,271

7,667

Unrealized foreign exchange (gain ) loss

(19)

21

Stock-based compensation

(1,849)

1,620

Cash settlements paid on exercised stock appreciation rights

(261)

Derivatives instruments (gain) loss

(6,583)

1

Cash settlements received on matured derivative contracts, net

7,216

1,563

Bad debt (recovery) expense and other

989

(24)

Other operating loss, net

46

37

Operational expenses associated with equipment and other

1,077

(60)

Change in operating assets and liabilities:

Trade receivables

4,814

(1,921)

Accounts with joint venture owners

11,783

4,291

Other receivables

(857)

158

Crude oil inventory

219

232

Prepayments and other

(779)

(1,175)

Value added tax and other receivables

(695)

718

Accounts payable

(5,819)

(730)

Foreign taxes payable

(2,386)

(2,865)

Accrued liabilities and other

(3,333)

3,858

Net cash provided by continuing operating activities

20,593

16,672

Net cash used in discontinued operating activities

(354)

(91)

Net cash provided by operating activities

20,239

16,581

CASH FLOWS FROM INVESTING ACTIVITIES:

Property and equipment expenditures

(20,097)

(1,163)

Net cash used in continuing investing activities

(20,097)

(1,163)

Net cash used in discontinued investing activities

Net cash used in investing activities

(20,097)

(1,163)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the issuances of common stock

107

Treasury shares

(990)

(352)

Net cash used in continuing financing activities

(990)

(245)

Net cash used in discontinued financing activities

Net cash used in financing activities

(990)

(245)

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

(848)

15,173

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

59,124

46,655

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

58,276

$

61,828

See notes to condensed consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES (Unaudited)

Six Months Ended June 30,

2020

2019

(in thousands)

Supplemental disclosure of cash flow information:

Interest expense paid in cash

$

$

Income taxes paid in cash

$

$

Income taxes paid in-kind with crude oil

$

1,855

$

7,347

Supplemental disclosure of non-cash investing and financing activities:

Property and equipment additions incurred but not paid at end of period

$

3,932

$

3,378

Recognition of right-of-use operating lease assets and liabilities

$

565

$

38,934

Asset retirement obligations

$

359

$

See notes to condensed consolidated financial statements.


VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.  ORGANIZATION AND ACCOUNTING POLICIES

VAALCO Energy, Inc. (together with its consolidated subsidiaries “we”, “us”, “our”, “VAALCO,” or the “Company”) is a Houston, Texas based independent energy company engaged in the acquisition, exploration, development and production of crude oil. As operator, the Company has production operations and conducts exploration activities in Gabon, West Africa. The Company also has opportunities to participate in development and exploration activities in Equatorial Guinea, West Africa. As discussed further in Note 3 below, the Company has discontinued operations associated with activities in Angola, West Africa.

VAALCO’s consolidated subsidiaries are VAALCO Gabon (Etame), Inc., VAALCO Production (Gabon), Inc., VAALCO Gabon S.A., VAALCO Angola (Kwanza), Inc., VAALCO Energy (EG), Inc., VAALCO Energy Mauritius (EG) Limited and VAALCO Energy (USA), Inc.