VAALCO Energy, Inc. (NYSE: EGY, LSE: EGY) ("VAALCO" or the
"Company") today reported operational and financial results
for the third quarter of 2022. On October 13, 2022,
VAALCO completed the business combination with TransGlobe Energy,
Inc. (“TransGlobe”); as a result, the impact from the combination
is not included in VAALCO’s third quarter 2022 results but will be
reported in the fourth quarter 2022 results.
Third Quarter Highlights and Key
Items:
- Reported Q3 2022 net income of
$6.9 million ($0.11 per diluted share) and Adjusted Net
Income(1) of
$33.3 million ($0.56 per diluted
share);
- Generated Adjusted
EBITDAX(1) of
$42.4 million in Q3 2022 and $136.8 million of
Adjusted
EBITDAX(1) in
the first nine months of 2022;
- Maintained solid Q3 2022 average daily production
of 9,157 net revenue interest
(“NRI”)(2) barrels
of crude oil per day (“BOPD”), or
10,525 working interest
(“WI”)
(3) BOPD, which was
above the high end of quarterly guidance;
- Sold 731,000 barrels of oil in
Q3 2022;
- Funded $43.6 million in cash
capital expenditures during Q3 2022 with cash on hand and cash
from operations;
- Increased unrestricted cash balance to $69.3
million and maintained a strong balance sheet with no
debt;
- Received approval for plan of development
(“POD”) from the Ministry of Mines
and Hydrocarbons (“MMH”) in
Equatorial Guinea for the Venus development in Block P;
and
- Paid third quarterly cash dividend of $0.0325 per
common share, on September 23, 2022.
Subsequent Highlights:
- Closed the strategic and transformational business
combination with TransGlobe on October 13, 2022;
- Announced successful completion of the Floating,
Storage and Offloading vessel (“FSO”) installation
and field reconfiguration project at Etame;
- Completed the annual field-wide maintenance turnaround
concurrently with the FSO and field reconfiguration;
- Announced quarterly cash dividend payment of $0.0325
per common share to be paid on December 22, 2022, the fourth
dividend approved to be paid in 2022; and
- Ratified and approved a share buyback program for an
aggregate purchase of currently outstanding common stock up to $30
million.
|
(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, “In the third quarter, we delivered production
volumes above our guidance range, had solid sales volumes and
sustained higher pricing. These factors all contributed to
generating significant cash flow and Adjusted EBITDAX which have
allowed 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 generated meaningful cash to pay
for our growth and fund our dividend, allowing us to return value
to our shareholders.
“In September and October, we had numerous
operational and financial accomplishments. On October 13, we
completed the transformational combination with TransGlobe which
has built a business of scale with a stronger balance sheet and a
more diversified baseline of production that will underpin VAALCO’s
future opportunities for success. VAALCO now has production from
three producing asset areas, which we expect will allow us to
generate meaningful cash flow to fund increased stockholder
dividends, share buybacks and potential supplemental stockholder
returns at a rate that would not have been achievable by either
VAALCO or TransGlobe on a standalone basis.
“In Gabon, we are very pleased to have
successfully delivered a highly complex, full field
reconfiguration, maintenance turnaround and upgraded FSO
installation, in October. This project was completed despite a
difficult global supply chain environment and is a testament to the
dedication of our workforce and partners who helped complete the
project, underlining VAALCO’s status as a quality operator. The new
FSO provides us with additional flexibility and has an effective
capacity for storage that is 50% larger than our relinquished FPSO.
It also reduces our expected storage and offloading costs by 50%
which we believe will lead to an extension of the economic field
life, resulting in a corresponding increase in recovery and
reserves at Etame.
“In September, we received approval of the
POD for the Venus development at Block P. We are diligently
negotiating final documents amongst all parties for approval by the
Ministry of Mines and Hydrocarbons, and look forward to proceeding
with our plans to operate, develop and begin producing in
Equatorial Guinea over the next few years. We anticipate a
strong, efficient and highly economic development of this exciting
discovery. We believe the addition of another asset to
our portfolio with significant 2P WI CPR will be a very positive
step for VAALCO and further demonstrates the meaningful value of
our asset base.
“As you can see, we are poised for continued
success in this strong commodity price environment, with no net
debt and strong free cash flow generation. We will work hard to
integrate the TransGlobe team and assets into our strategic vision,
which remains unchanged. We are firmly focused on delivering
meaningful shareholder returns while continuing to progress our
objective of accretive growth.”
TransGlobe Combination
On July 14, 2022, VAALCO announced that it had
entered into a definitive arrangement agreement pursuant to which
VAALCO would acquire all of the outstanding common shares of
TransGlobe in a stock-for-stock strategic business combination.
Following shareholder approval by both companies, on October 13,
2022, VAALCO closed the strategic combination with TransGlobe
Energy. The combined Company is trading on the NYSE and LSE under
the ticker symbol EGY. The combined Company is a leading
African-focused operator with a strong production and reserve base,
a diverse portfolio of assets in Gabon, Egypt, Equatorial Guinea
and Canada, and significant future growth potential. In conjunction
with the closing, VAALCO welcomed three new directors to the Board,
expanding the Board of Directors to seven members. The impact from
the combination is not included in VAALCO’s third quarter 2022
results and the results of the combined companies will be reported
in the fourth quarter 2022 results.
Operational
Update
Gabon
2021/2022 Drilling Campaign
VAALCO began its 2021/2022 drilling campaign in
December 2021 with the drilling of the Etame 8H-ST development
well. The well came online in February 2022. VAALCO moved the
contracted jack-up rig to the Avouma platform to drill the Avouma
3H-ST development well. The well was completed and brought online
in April 2022 and was another successful development well
targeting the Gamba reservoir.
The third well drilled and completed was the
South Tchibala 1HB-ST, which discovered two potential Dentale
producing zones, the Dentale D1 sand and the Dentale D9. The second
completion was in the shallower D1 which included a hydraulic
fracture treatment to increase both the production flow rate and
recovery from the D1 interval. 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 million barrels of oil ("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 North Tchibala 2H-ST well,
targeting the Dentale formation. The well is currently in the
process of cleaning up as operational activities on and around the
platform delayed the ability to flow the well soon after it
completed drilling. As previously disclosed, the Company
exercised its option to extend the contract for the rig for two
additional well operations after the North Tchibala 2H-ST. It
recently utilized the rig to perform a workover on the North
Tchibala 1-H well due to a safety valve in the well that
required replacement. With the rig already on site it was
easier and more economic to utilize the rig to complete the
workover following the completion of the North Tchibala 2H-ST well.
The final well operation planned for the rig is another workover,
the ETSEM-4H, which is expected to restore production between 1,000
and 1,500 gross BOPD upon completion. This well went offline
in early September because of an upper electrical submersible pump
("ESP") failure and VAALCO was unable to restart the upper ESP or
the lower ESP to restore production. Utilizing the rig for the
workovers instead of new wells that were previously planned has
reduced the total cost of the 2021/2022 drilling campaign at
Etame.
The Company estimates the range of capital costs
for the 2021/2022 drilling program with four wells and 2 workovers
to be between $165 million to $202 million gross, or between $104
million to $128 million, net to VAALCO’s participating interest
with about 80% of that total spend occurring in 2022 and 20%
previously recorded in 2021.
FSO Conversion and Field
Reconfiguration
In August 2021, VAALCO and its co-venturers at
Etame approved the Bareboat Contract and Operating Agreement with
World Carrier Offshore Services Corp to replace the existing FPSO
with an FSO at the Etame Marin block offshore Gabon for
up to eight years with additional option periods available. The
FPSO contract was set to expire in September 2022, however, on
September 9, 2022, VAALCO signed an addendum to the FPSO contract
which extended the use of the FPSO through October 4, 2022, and
ratified certain decommissioning and demobilization items
associated with exiting the contract. VAALCO worked closely
with the FPSO charterer regarding timing for commencing shutdown of
production, schedule for decommissioning and associated costs to
ensure a smooth transition to the FSO. The Teli, a double-hull
crude tanker built in 2001, was re-engineered into a FSO for use in
the field.
VAALCO announced in October that all
related FSO and field reconfiguration processes were completed.
First oil flowed into the Teli FSO and the Company completed the
annual field-wide maintenance turnaround concurrently with the FSO
and field reconfiguration. Compared to the 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
conversion estimates are $70 to $86 million gross ($45 to $55
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
In October 2021, the consortium of VAALCO, BW
Energy and Panoro Energy (the “BWE Consortium”) was 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 second 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 third 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 completed a feasibility study of a standalone
production development opportunity of the Venus discovery on Block
P and submitted it to the EG MMH. In September 2022, the EG
MMH approved the submitted plan of development. Final documents to
effect the plan of development are subject to EG MMH approval and
are under negotiations among all parties.
Financial Update
–Third Quarter of 2022
Net income of $6.9 million ($0.11 per diluted
share) for the third quarter of 2022 was down compared with net
income of $15.1 million ($0.25 per diluted share) in the second
quarter of 2022 and down compared to $31.7 million ($0.53 per
diluted share) in the third quarter of 2021. The decline in
earnings was primarily due to lower sales volumes due to the FSO
installation and field reconfiguration, higher transaction costs
associated with TransGlobe merger and incremental charges
associated with the retirement of the FPSO. In addition, third
quarter 2021 earnings included a $22.7 million non-cash deferred
tax benefit, partially offset by a $5.1 million loss on derivative
instruments, of which $1.0 million was an unrealized loss.
Adjusted Net Income for the third quarter of
2022 increased to $33.3 million ($0.56 per diluted share)
from Adjusted Net Income of $30.7 million ($0.52 per diluted
share) in the second quarter of 2022, and increased compared with
Adjusted Net Income for the third quarter of 2021 of $10.0 million
($0.17 per diluted share). The increase in adjusted net income
compared to the second quarter of 2022 is due to lower derivative
losses, lower current tax expense and lower production
expense, partially offset by lower sales volumes. The increase
in adjusted net income compared to the third quarter of 2021 is due
to higher revenues and lower current taxes partially offset by
higher realized losses on derivatives.
Adjusted EBITDAX totaled $42.4 million in
the third quarter of 2022, a decrease from the record quarterly
Adjusted EBITDAX generated in the second quarter of 2022 of $60.8
million but nearly double the $23.3 million generated in the same
period in 2021. The decrease in Adjusted EBITDAX compared to the
second quarter of 2022 is due to lower sales volumes partially
offset by lower realized losses on derivatives. The increase in
Adjusted EBITDAX compared to the third quarter of 2021 is due to
higher revenues resulting from higher oil prices and lower workover
costs partially offset by higher realized losses on
derivatives.
Revenue and Sales |
Q3 2022 |
|
|
Q3 2021 |
|
|
% Change Q3 2022 vs. Q3 2021 |
|
|
Q2 2022 |
|
|
% Change Q3 2022 vs. Q2 2022 |
|
Production (NRI BOPD) |
|
9,157 |
|
|
|
7,694 |
|
|
|
19 |
% |
|
|
9,211 |
|
|
|
(0.6 |
)% |
Sales (NRI BO) |
|
731,000 |
|
|
|
741,000 |
|
|
|
(1 |
)% |
|
|
958,000 |
|
|
|
(23.7 |
)% |
Realized crude oil price
($/BO) |
$ |
103.61 |
|
|
$ |
73.02 |
|
|
|
42 |
% |
|
$ |
113.38 |
|
|
|
(9 |
)% |
Crude oil (Per Bbl including
realized commodity derivatives) |
$ |
91.13 |
|
|
$ |
67.37 |
|
|
|
35 |
% |
|
$ |
91.39 |
|
|
|
(0 |
)% |
Total crude oil sales
($MM) |
$ |
78.1 |
|
|
$ |
55.9 |
|
|
|
40 |
% |
|
$ |
111.0 |
|
|
|
(30 |
)% |
VAALCO had three liftings in the third quarter
of 2022, which resulted in total sales volumes of 731,000 barrels
compared to 958,000 barrels in the second quarter of 2022 and
741,000 barrels for the same period in 2021. Third quarter of 2022
realized pricing (including the effects of derivative contracts)
remained flat compared to the second quarter of 2022 and increased
35% compared to the third quarter of 2021.
Costs and Expenses |
Q3 2022 |
|
|
Q3 2021 |
|
|
% Change Q3 2022 vs. Q3 2021 |
|
|
Q2 2022 |
|
|
% Change Q3 2022 vs. Q2 2022 |
|
Production expense, excluding workovers and stock compensation
($MM) |
$ |
23.2 |
|
|
$ |
21.4 |
|
|
|
9 |
% |
|
$ |
25.5 |
|
|
|
(9 |
)% |
Production expense, excluding
workovers and stock compensation ($/BO) |
$ |
31.79 |
|
|
$ |
28.85 |
|
|
|
10 |
% |
|
$ |
26.58 |
|
|
|
20 |
% |
Workover expense ($MM) |
$ |
— |
|
|
$ |
3.8 |
|
|
|
(100 |
)% |
|
$ |
— |
|
|
|
- |
% |
Depreciation, depletion and
amortization ($MM) |
$ |
9.0 |
|
|
$ |
7.0 |
|
|
|
29 |
% |
|
$ |
8.2 |
|
|
|
10 |
% |
Depreciation, depletion and
amortization ($/BO) |
$ |
12.26 |
|
|
$ |
9.41 |
|
|
|
30 |
% |
|
$ |
8.55 |
|
|
|
43 |
% |
General and administrative
expense, excluding stock-based compensation ($MM) |
$ |
2.0 |
|
|
$ |
2.9 |
|
|
|
(31 |
)% |
|
$ |
2.7 |
|
|
|
(26 |
)% |
General and administrative
expense, excluding stock-based compensation ($/BO) |
$ |
2.74 |
|
|
$ |
3.93 |
|
|
|
(30 |
)% |
|
$ |
2.81 |
|
|
|
(2 |
)% |
Stock-based compensation
expense ($MM) |
$ |
- |
|
|
$ |
- |
|
|
|
- |
% |
|
$ |
0.8 |
|
|
|
(100 |
)% |
Current income tax expense
($MM) |
$ |
(1.2 |
) |
|
$ |
5.5 |
|
|
|
(122 |
)% |
|
$ |
20.4 |
|
|
|
(106 |
)% |
Deferred income tax expense
(benefit) ($MM) |
$ |
24.0 |
|
|
$ |
(22.7 |
) |
|
|
(206 |
)% |
|
$ |
25.9 |
|
|
|
(7 |
)% |
Total production expense, excluding workovers
and stock compensation, increased in the third quarter of 2022
compared to the same period in 2021 and decreased compared to the
second quarter of 2022. The increase in the third quarter of 2022
compared to the third quarter of 2021 was primarily driven by
higher costs caused by inflationary pressures associated with
boats, diesel, personnel and costs associated with the additional
operational activities related to the annual field-wide maintenance
program, the FSO conversion and field reconfiguration, partially
offset by lower crude oil inventory charges.
The decrease in the third quarter of 2022
compared to the second quarter of 2022 was due to a lower crude oil
inventory adjustment partially offset by higher costs associated
with boats, personnel and costs associated with the additional
operational activities and the FSO conversion and field
reconfiguration. There were no workover expenses in the second or
third quarters of 2022.
Production expense per barrel, excluding
workover costs and stock compensation, was higher than the second
quarter of 2022 due to more sales barrels during the second quarter
of 2022. Production expense per barrel, excluding workover costs
and stock compensation, was higher than the third quarter of 2021
due to the increased costs associated with the FSO conversion and
field reconfiguration partially offset by more crude oil inventory
barrels at the end of the third quarter of 2022 than at the
end of the third quarter of 2021.
FPSO demobilization costs for the three months
ended September 30, 2022 increased to $8.9 million. These costs
were incurred to retire the FPSO as VAALCO transitions the block to
the FSO. There were no similar expenses incurred in the third
quarter of 2021.
Depreciation, depletion and amortization
(“DD&A”) expense for the three months ended September 30, 2022
increased to $9.0 million which was higher than the second quarter
of 2022 of $8.2 million and higher than the $7.0 million in the
third quarter of 2021. The increase in depreciation, depletion and
amortization expense, compared to both periods, is due to higher
depletable costs associated with the 2021/2022 drilling
campaign.
General and administrative (“G&A”) expense,
excluding stock-based compensation, decreased for the
three months ended September 30, 2022 to
$2.0 million from $2.7 million in the second quarter of 2022
and $2.9 million for the same period in prior year. The
decrease in general and administrative expense is primarily driven
by higher corporate overhead allocation for the three months ended
September 30, 2022 and reflects the increased project work invoiced
to the PSC from the corporate office in the third quarter
of 2022.
Non-cash stock-based compensation expense was
not material for the third quarter of 2022 or 2021. Non-cash
stock-based compensation expense for the second quarter of 2022 was
$0.8 million.
Other (expense) income, net was an expense
of $7.7 million for the three months ended September 30, 2022.
Other (expense) income, net normally consists of foreign
currency losses reflecting the continued US$ currency strength
against most currencies and in particular the Euro and CFA.
However, for the three months ended September 30, 2022, other
(expense) income, net included $6.4 million of
transaction costs associated with the business combination
with TransGlobe. For the nine months ended September 30,
2022, transaction costs were $7.6 million.
Foreign income taxes are attributable to Gabon
and are settled by the government taking their oil in-kind. Income
tax expense for the three months ended September 30, 2022 was an
expense of $22.8 million. This is comprised of $24.0 million of
deferred tax expense and a current tax benefit of $1.2
million. Income tax expense for the three months ended
September 30, 2021 was a benefit of $17.2 million, comprised of
$22.7 million of deferred tax benefit and a current tax expense of
$5.5 million. For both the three months ended September 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.
Update on the 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 November 8, 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 $0.2 million during the third quarter
of 2022.
Capital Investments/Balance Sheet
For the third quarter of 2022, net capital
expenditures totaled $43.6 million on a cash basis and $51.7
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 nine months of 2022, VAALCO invested $103.9 million on
a cash basis and $121.6 million on an accrual basis.
At the end of the third quarter of 2022, VAALCO
had an unrestricted cash balance of $69.3 million. This does not
include the proceeds from the September lifting of $16.8
million which were received in October 2022. Working
capital at September 30, 2022 was a deficit of $19.7 million
compared with a deficit of $8.0 million at June 30, 2022, while
Adjusted Working Capital(1) at September 30, 2022 totaled a deficit
of $18.2 million.
Cash Dividend Policy and Share Buyback
Authorization
VAALCO paid a quarterly cash dividend of $0.0325
per share of common stock for the third quarter of 2022 on
September 23, 2022. On October 31, 2022, the Company announced its
next quarterly cash dividend of $0.0325 per share of common stock
for the fourth quarter of 2022 ($0.13 annualized), to be paid on
December 22, 2022 to stockholders of record at the close of
business on November 22, 2022. Future declarations of quarterly
dividends and the establishment of future record and payment dates
are subject to approval by the Board of Directors.
On November 1, 2022, VAALCO announced that its
newly expanded Board of Directors formally ratified and approved
the share buyback program that was announced on August 8, 2022 in
conjunction with the pending business combination with
TransGlobe. The Board also directed management to implement a
Rule 10b5-1 trading plan to facilitate share purchases through open
market purchases, privately negotiated transactions, or otherwise
in compliance with Rule 10b-18 under the Securities Exchange Act of
1934. The plan provides for an aggregate purchase of
currently outstanding common stock up to $30 million. Payment
for shares repurchased under the program will be funded using the
Company's cash on hand and cash flow from operations.
The actual timing, number and value of shares
repurchased under the share buyback program will depend on a number
of factors, including constraints specified in any Rule 10b5-1
trading plans, price, general business and market conditions, and
alternative investment opportunities. Under such a trading plan,
the Company’s third-party broker, subject to Securities and
Exchange Commission regulations regarding certain price, market,
volume and timing constraints, would have authority to purchase the
Company’s common stock in accordance with the terms of the
plan. The share buyback program does not obligate the Company
to acquire any specific number of shares in any period, and may be
expanded, extended, modified or discontinued at any time.
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.
At September 30, 2022, there were no remaining
unexpired commodity swaps.
See the following table for the unexpired
derivative contracts for the third quarter of 2022.
Settlement Period |
Type of Contract |
Index |
|
Average Monthly Volumes |
|
Weighted Average Put Price |
|
Weighted Average Call Price |
|
|
|
|
(Bbls) |
|
(per Bbl) |
|
(per Bbl) |
October 2022 to December 2022 |
Collars |
Dated Brent |
|
109,000 |
|
$ |
70.00 |
|
$ |
122.00 |
On October 26, VAALCO entered into additional derivative
contracts for the first quarter of 2022. The details are in the
chart below:
Settlement Period |
Type of Contract |
Index |
|
Average Monthly Volumes |
|
Weighted Average Put Price |
|
Weighted Average Call Price |
|
|
|
|
(Bbls) |
|
(per Bbl) |
|
(per Bbl) |
January 2023 to March 2023 |
Collars |
Dated Brent |
|
101,000 |
|
$ |
65.00 |
|
$ |
120.00 |
Conference Call
As previously announced, the Company will hold a
conference call to discuss its third quarter 2022 financial and
operating results on Wednesday, November 9, 2022, at 10:00 a.m.
Central Time (11:00 a.m. Eastern Time and 4:00 p.m. London Time).
Interested parties may participate by dialing (833) 685-0907.
Parties in the United Kingdom may participate toll-free by dialing
08082389064 and other international parties may dial (412)
317-5741. Participants should request to be joined to the “VAALCO
Energy Third 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 and incorporated under
the laws of Delaware, is a Houston, USA based, independent energy
company with production, development and exploration assets in
Africa and Canada.
Following its business combination with
TransGlobe in October 2022, VAALCO owns a diverse portfolio of
operated production, development and exploration assets across
Gabon, Egypt, Equatorial Guinea and Canada.
For Further Information |
|
|
|
VAALCO Energy, Inc.
(General and Investor Enquiries) |
+00 1 713 623 0801 |
Website: |
www.vaalco.com |
|
|
|
|
Al Petrie Advisors (US
Investor Relations) |
+00 1 713 543 3422 |
Al Petrie / Chris Delange |
|
|
|
Buchanan (UK Financial
PR) |
+44 (0) 207 466 5000 |
Ben Romney / Jon Krinks |
VAALCO@buchanan.uk.com |
Forward Looking Statements
This press release includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended (the “Securities Act”) and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to
be covered by the safe harbors created by those laws and other
applicable laws and “forward-looking information” within the
meaning of applicable Canadian securities laws. Where a
forward-looking statement expresses or implies an expectation or
belief as to future events or results, such expectation or belief
is expressed in good faith and believed to have a reasonable basis.
All statements other than statements of historical fact may be
forward-looking statements. The words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “forecast,” “outlook,” “aim,”
“target,” “will,” “could,” “should,” “may,” “likely,” “plan” and
“probably” or similar words may identify forward-looking
statements, but the absence of these words does not mean that a
statement is not forward-looking. Forward-looking statements in
this press release include, but are not limited to, statements
relating to (i) the Arrangement and VAALCO’s ability to realize the
anticipated benefits and synergies expected from the Arrangement;
(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 acquired as a result of the
Arrangement into its operations; (v) the amount and timing of stock
repurchases, if any, under the Company’s Stock Buyback Program and
VAALCO’s ability to enhance stockholder value through such plan;
(vi) expectations regarding future exploration and the development,
growth and potential of the combined company’s operations, project
pipeline and investments, and schedule and anticipated benefits to
be derived therefrom; (vii) expectations regarding future
investments or divestitures; (viii) expectations of future
dividends and returns to stockholders; (ix) expectations of future
balance sheet strength; (x) expectations of future equity and
enterprise value; (xi) expectations of the continued listing of
VAALCO’s common stock on the NYSE and LSE and (xii) VAALCO’s
ability to finalize documents and effectively execute the POD for
the Venus development in Block P.
Such forward-looking statements are subject to
risks, uncertainties and other factors, which could cause actual
results to differ materially from future results expressed,
projected or implied by the forward-looking statements. These risks
and uncertainties include, but are not limited to: risks relating
to any unforeseen liabilities of VAALCO or TransGlobe; the tax
treatment of the Arrangement in the United States and Canada;
declines in oil or natural gas prices; the level of success in
exploration, development and production activities; adverse weather
conditions that may negatively impact development or production
activities; the right of host governments in countries where
we operate to expropriate property and terminate contracts
(including the Etame PSC and the Block P PSC) for reasons of public
interest, subject to reasonable compensation, determinable by the
respective government in its discretion; 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 Arrangement may not
increase VAALCO’s relevance to investors in the international
E&P industry, increase capital market access through scale and
diversification or provide liquidity benefits for stockholders; and
other risks described under the caption “Risk Factors” in VAALCO’s
2021 Annual Report on Form 10-K filed with the SEC on March 11,
2022 and in VAALCO’s Definitive Proxy Statement on Schedule 14A
filed with the SEC on August 30, 2022.
Inside Information
This announcement contains inside information as
defined in Regulation (EU) No. 596/2014 on market abuse which is
part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 (“MAR”) and is made in accordance with the
Company’s obligations under article 17 of MAR. The person
responsible for arranging the release of this announcement on
behalf of VAALCO is Matthew Powers, Corporate Secretary of
VAALCO.
VAALCO ENERGY, INC AND SUBSIDIARIESConsolidated Balance Sheets
(Unaudited)
|
As of September 30, 2022 |
|
|
December 31, 2021 |
|
ASSETS |
(in thousands) |
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
69,289 |
|
|
$ |
48,675 |
|
Restricted cash |
|
203 |
|
|
|
79 |
|
Receivables: |
|
|
|
|
|
|
|
Trade, net |
|
16,781 |
|
|
|
22,464 |
|
Accounts with joint venture owners, net of allowance of $0.0
million in both periods presented |
|
7,931 |
|
|
|
345 |
|
Other, net |
|
12,190 |
|
|
|
9,977 |
|
Crude oil inventory |
|
4,254 |
|
|
|
1,593 |
|
Prepayments and other |
|
12,616 |
|
|
|
5,156 |
|
Total current assets |
|
123,264 |
|
|
|
88,289 |
|
|
|
|
|
|
|
|
|
Crude oil and natural gas
properties, equipment and other - successful efforts method,
net |
|
194,711 |
|
|
|
94,324 |
|
Other noncurrent assets: |
|
|
|
|
|
|
|
Restricted cash |
|
1,755 |
|
|
|
1,752 |
|
Value added tax and other receivables, net of allowance of $6.7
million and $5.7 million, respectively |
|
5,846 |
|
|
|
5,536 |
|
Right of use operating lease assets |
|
1,705 |
|
|
|
10,227 |
|
Right of use finance lease assets |
|
1,630 |
|
|
|
— |
|
Deferred tax assets |
|
41,495 |
|
|
|
39,978 |
|
Abandonment funding |
|
18,838 |
|
|
|
21,808 |
|
Other long-term assets |
|
5,529 |
|
|
|
1,176 |
|
Total assets |
$ |
394,773 |
|
|
$ |
263,090 |
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
$ |
30,276 |
|
|
$ |
18,797 |
|
Accounts with joint venture owners |
|
— |
|
|
|
3,233 |
|
Accrued liabilities and other |
|
83,148 |
|
|
|
49,444 |
|
Operating lease liabilities - current portion |
|
1,200 |
|
|
|
9,642 |
|
Finance lease liabilities - current portion |
|
317 |
|
|
|
— |
|
Foreign income taxes payable |
|
28,056 |
|
|
|
3,128 |
|
Current liabilities - discontinued operations |
|
14 |
|
|
|
13 |
|
Total current liabilities |
|
143,011 |
|
|
|
84,257 |
|
Asset retirement
obligations |
|
35,247 |
|
|
|
33,949 |
|
Operating lease liabilities -
net of current portion |
|
521 |
|
|
|
587 |
|
Finance lease liabilities -
net of current portion |
|
1,251 |
|
|
|
— |
|
Deferred tax liabilities |
|
41,057 |
|
|
|
— |
|
Total liabilities |
|
221,087 |
|
|
|
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 |
|
78,500 |
|
|
|
76,700 |
|
Less treasury stock, 11,057,521 and 10,939,323 shares,
respectively, at cost |
|
(44,635 |
) |
|
|
(43,847 |
) |
Retained earnings |
|
132,808 |
|
|
|
104,488 |
|
Total shareholders' equity |
|
173,686 |
|
|
|
144,297 |
|
Total liabilities and shareholders' equity |
$ |
394,773 |
|
|
$ |
263,090 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESConsolidated Statements of
Operations (Unaudited)
|
Three Months Ended |
|
|
Nine Months Ended September 30, |
|
|
September 30, 2022 |
|
|
September 30, 2021 |
|
|
June 30, 2022 |
|
|
2022 |
|
|
2021 |
|
|
(in thousands except per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil and natural gas sales |
$ |
78,097 |
|
|
$ |
55,899 |
|
|
$ |
110,985 |
|
|
$ |
257,738 |
|
|
$ |
142,696 |
|
Operating costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production expense |
|
23,312 |
|
|
|
25,208 |
|
|
|
25,475 |
|
|
|
67,147 |
|
|
|
57,760 |
|
FPSO demobilization |
|
8,867 |
|
|
|
— |
|
|
|
— |
|
|
|
8,867 |
|
|
|
- |
|
Exploration expense |
|
56 |
|
|
|
479 |
|
|
|
67 |
|
|
|
250 |
|
|
|
1,286 |
|
Depreciation, depletion and amortization |
|
8,963 |
|
|
|
6,970 |
|
|
|
8,191 |
|
|
|
21,827 |
|
|
|
16,928 |
|
General and administrative expense |
|
1,979 |
|
|
|
2,940 |
|
|
|
3,534 |
|
|
|
10,507 |
|
|
|
12,221 |
|
Bad debt expense and other |
|
1,020 |
|
|
|
318 |
|
|
|
571 |
|
|
|
2,083 |
|
|
|
814 |
|
Total operating costs and expenses |
|
44,197 |
|
|
|
35,915 |
|
|
|
37,838 |
|
|
|
110,681 |
|
|
|
89,009 |
|
Other operating (expense) income, net |
|
— |
|
|
|
46 |
|
|
|
- |
|
|
|
(5 |
) |
|
|
(440 |
) |
Operating income |
|
33,900 |
|
|
|
20,030 |
|
|
|
73,147 |
|
|
|
147,052 |
|
|
|
53,247 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments gain (loss), net |
|
3,778 |
|
|
|
(5,147 |
) |
|
|
(9,542 |
) |
|
|
(37,522 |
) |
|
|
(21,070 |
) |
Interest (expense) income, net |
|
(234 |
) |
|
|
3 |
|
|
|
(118 |
) |
|
|
(355 |
) |
|
|
9 |
|
Other (expense) income, net |
|
(7,707 |
) |
|
|
(328 |
) |
|
|
(2,111 |
) |
|
|
(10,514 |
) |
|
|
4,088 |
|
Total other expense, net |
|
(4,163 |
) |
|
|
(5,472 |
) |
|
|
(11,771 |
) |
|
|
(48,391 |
) |
|
|
(16,973 |
) |
Income from continuing
operations before income taxes |
|
29,737 |
|
|
|
14,558 |
|
|
|
61,376 |
|
|
|
98,661 |
|
|
|
36,274 |
|
Income tax expense
(benefit) |
|
22,843 |
|
|
|
(17,183 |
) |
|
|
46,252 |
|
|
|
64,467 |
|
|
|
(11,272 |
) |
Income from continuing
operations |
|
6,894 |
|
|
|
31,741 |
|
|
|
15,124 |
|
|
|
34,194 |
|
|
|
47,546 |
|
Loss from discontinued
operations, net of tax |
|
(26 |
) |
|
|
(20 |
) |
|
|
(20 |
) |
|
|
(58 |
) |
|
|
(72 |
) |
Net income |
$ |
6,868 |
|
|
$ |
31,721 |
|
|
$ |
15,104 |
|
|
$ |
34,136 |
|
|
$ |
47,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.12 |
|
|
$ |
0.53 |
|
|
$ |
0.25 |
|
|
$ |
0.57 |
|
|
$ |
0.81 |
|
Loss from discontinued operations, net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income per share |
$ |
0.12 |
|
|
$ |
0.53 |
|
|
$ |
0.25 |
|
|
$ |
0.57 |
|
|
$ |
0.81 |
|
Basic weighted average shares
outstanding |
|
59,068 |
|
|
|
58,586 |
|
|
|
58,925 |
|
|
|
58,900 |
|
|
|
58,102 |
|
Diluted net income per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.11 |
|
|
$ |
0.53 |
|
|
$ |
0.25 |
|
|
$ |
0.57 |
|
|
$ |
0.80 |
|
Loss from discontinued operations, net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income per share |
$ |
0.11 |
|
|
$ |
0.53 |
|
|
$ |
0.25 |
|
|
$ |
0.57 |
|
|
$ |
0.80 |
|
Diluted weighted average
shares outstanding |
|
59,450 |
|
|
|
58,916 |
|
|
|
59,361 |
|
|
|
59,335 |
|
|
|
58,654 |
|
VAALCO ENERGY, INC AND SUBSIDIARIES Consolidated Statements
of Cash Flows (Unaudited)
|
Nine Months Ended September 30, |
|
|
2022 |
|
|
2021 |
|
|
(in thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net income |
$ |
34,136 |
|
|
$ |
47,474 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
58 |
|
|
|
72 |
|
Depreciation, depletion and amortization |
|
21,827 |
|
|
|
16,928 |
|
Bargain purchase gain |
|
- |
|
|
|
(7,651 |
) |
Deferred taxes |
|
39,540 |
|
|
|
(24,211 |
) |
Unrealized foreign exchange loss (gain) |
|
914 |
|
|
|
(342 |
) |
Stock-based compensation |
|
2,300 |
|
|
|
2,098 |
|
Cash settlements paid on exercised stock appreciation rights |
|
(805 |
) |
|
|
(3,051 |
) |
Derivative instruments loss, net |
|
37,522 |
|
|
|
21,070 |
|
Cash settlements paid on matured derivative contracts, net |
|
(42,683 |
) |
|
|
(10,189 |
) |
Bad debt expense and other |
|
2,083 |
|
|
|
814 |
|
Other operating expense, net |
|
5 |
|
|
|
440 |
|
Operational expenses associated with equipment and other |
|
953 |
|
|
|
835 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
Trade receivables |
|
5,683 |
|
|
|
11,156 |
|
Accounts with joint venture owners |
|
(11,118 |
) |
|
|
(19 |
) |
Other receivables |
|
(2,904 |
) |
|
|
94 |
|
Crude oil inventory |
|
(2,661 |
) |
|
|
4,059 |
|
Prepayments and other |
|
(1,120 |
) |
|
|
1,081 |
|
Value added tax and other receivables |
|
(5,371 |
) |
|
|
(1,339 |
) |
Other noncurrent assets |
|
(2,842 |
) |
|
|
(1,176 |
) |
Accounts payable |
|
4,129 |
|
|
|
(9,686 |
) |
Foreign income taxes receivable/payable |
|
24,928 |
|
|
|
(2,916 |
) |
Accrued liabilities and other |
|
25,182 |
|
|
|
1,252 |
|
Net cash provided by continuing operating activities |
|
129,756 |
|
|
|
46,793 |
|
Net cash used in discontinued operating activities |
|
(57 |
) |
|
|
(72 |
) |
Net cash provided by operating activities |
|
129,699 |
|
|
|
46,721 |
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
Property and equipment expenditures |
|
(103,853 |
) |
|
|
(8,459 |
) |
Acquisition of crude oil and natural gas properties |
|
— |
|
|
|
(22,505 |
) |
Net cash used in continuing investing activities |
|
(103,853 |
) |
|
|
(30,964 |
) |
Net cash used in discontinued investing activities |
|
— |
|
|
|
— |
|
Net cash used in investing activities |
|
(103,853 |
) |
|
|
(30,964 |
) |
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
Proceeds from the issuances of common stock |
|
257 |
|
|
|
1,305 |
|
Dividend distribution |
|
(5,816 |
) |
|
|
— |
|
Treasury shares |
|
(788 |
) |
|
|
(1,426 |
) |
Deferred financing costs |
|
(1,535 |
) |
|
|
— |
|
Payments of finance lease |
|
(193 |
) |
|
|
— |
|
Net cash used in continuing financing activities |
|
(8,075 |
) |
|
|
(121 |
) |
Net cash used in discontinued financing activities |
|
— |
|
|
|
— |
|
Net cash used in financing activities |
|
(8,075 |
) |
|
|
(121 |
) |
NET CHANGE IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH |
|
17,771 |
|
|
|
15,636 |
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT BEGINNING OF PERIOD |
|
72,314 |
|
|
|
61,317 |
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT END OF PERIOD |
$ |
90,085 |
|
|
$ |
76,953 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESSelected Financial and
Operating Statistics(Unaudited)
|
Three Months Ended |
|
|
Nine Months Ended September 30, |
|
|
September 30, 2022 |
|
|
September 30, 2021 |
|
|
June 30, 2022 |
|
|
2022 |
|
|
2021 |
|
NRI SALES DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (MBbls) |
|
731 |
|
|
|
741 |
|
|
|
958 |
|
|
|
2,305 |
|
|
|
2,002 |
|
NRI PRODUCTION DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (MBbls) |
|
842 |
|
|
|
708 |
|
|
|
838 |
|
|
|
2,405 |
|
|
|
1,904 |
|
Average daily production volumes (BOPD) |
|
9,157 |
|
|
|
7,694 |
|
|
|
9,211 |
|
|
|
8,810 |
|
|
|
6,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE SALES PRICES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (Per Bbl) |
$ |
103.61 |
|
|
$ |
73.02 |
|
|
$ |
113.38 |
|
|
$ |
109.28 |
|
|
$ |
68.31 |
|
Crude oil (Per Bbl including realized commodity derivatives) |
$ |
91.13 |
|
|
$ |
67.37 |
|
|
$ |
91.39 |
|
|
$ |
90.76 |
|
|
$ |
63.22 |
|
COSTS AND EXPENSES (Per Bbl of
sales): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production expense |
$ |
31.89 |
|
|
$ |
34.02 |
|
|
$ |
26.59 |
|
|
$ |
29.13 |
|
|
$ |
28.85 |
|
Production expense, excluding workovers and stock
compensation* |
|
31.79 |
|
|
|
28.85 |
|
|
|
26.58 |
|
|
|
29.10 |
|
|
|
26.75 |
|
Depreciation, depletion and amortization |
|
12.26 |
|
|
|
9.41 |
|
|
|
8.55 |
|
|
|
9.47 |
|
|
|
8.46 |
|
General and administrative expense** |
|
2.71 |
|
|
|
3.97 |
|
|
|
3.69 |
|
|
|
4.56 |
|
|
|
6.10 |
|
Property and equipment expenditures, cash basis (in thousands) |
$ |
43,575 |
|
|
$ |
4,158 |
|
|
$ |
37,130 |
|
|
$ |
103,853 |
|
|
$ |
8,459 |
|
*Workover costs excluded from the three months ended September
30, 2022 and 2021 and June 30, 2022 are $0.0 million, $3.8 million
and $0.0 million, respectively.*Stock compensation associated with
production expense are excluded from the three months ended
September 30, 2022 and 2021 and June 30, 2022 are $0.1 million,
$0.0 million and $0.0 million, respectively.**General and
administrative expenses include ($0.03), $0.03 and $0.88 per
barrel of oil related to stock-based compensation expense
in the three months ended September 30, 2022, and 2021 and June 30,
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 SUBSIDIARIESReconciliations of Non-GAAP
Financial Measures(Unaudited)(in thousands)
|
Three Months Ended |
|
|
Nine Months Ended September 30, |
|
Reconciliation of Net
Income to Adjusted Net Income |
September 30, 2022 |
|
|
September 30, 2021 |
|
|
June 30, 2022 |
|
|
2022 |
|
|
2021 |
|
Net income |
$ |
6,868 |
|
|
$ |
31,721 |
|
|
$ |
15,104 |
|
|
$ |
34,136 |
|
|
$ |
47,474 |
|
Adjustment for discrete
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of tax |
|
26 |
|
|
|
20 |
|
|
|
20 |
|
|
|
58 |
|
|
|
72 |
|
Unrealized derivative instruments loss (gain) |
|
(12,902 |
) |
|
|
961 |
|
|
|
(11,517 |
) |
|
|
(5,161 |
) |
|
|
10,881 |
|
Gain on Sasol Acquisition, net |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,491 |
) |
Arrangement costs |
|
6,424 |
|
|
|
— |
|
|
|
1,199 |
|
|
|
7,624 |
|
|
|
— |
|
FPSO demobilization |
|
8,867 |
|
|
|
— |
|
|
|
— |
|
|
|
8,867 |
|
|
|
— |
|
Deferred income tax (benefit) expense |
|
24,008 |
|
|
|
(22,699 |
) |
|
|
25,850 |
|
|
|
39,539 |
|
|
|
(26,371 |
) |
Other operating expense, net |
|
— |
|
|
|
(46 |
) |
|
|
— |
|
|
|
5 |
|
|
|
440 |
|
Adjusted Net Income |
$ |
33,291 |
|
|
$ |
9,957 |
|
|
$ |
30,656 |
|
|
$ |
85,068 |
|
|
$ |
27,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Adjusted Net Income
per Share |
$ |
0.56 |
|
|
$ |
0.17 |
|
|
$ |
0.52 |
|
|
$ |
1.43 |
|
|
$ |
0.46 |
|
Diluted weighted average
shares outstanding (1) |
|
59,450 |
|
|
|
58,916 |
|
|
|
59,361 |
|
|
|
59,335 |
|
|
|
58,654 |
|
(1) No adjustments to weighted average shares outstanding
|
Three Months Ended |
|
|
Nine Months Ended September 30, |
|
Reconciliation of Net
Income to Adjusted EBITDAX |
September 30, 2022 |
|
|
September 30, 2021 |
|
|
June 30, 2022 |
|
|
2022 |
|
|
2021 |
|
Net income |
$ |
6,868 |
|
|
$ |
31,721 |
|
|
$ |
15,104 |
|
|
$ |
34,136 |
|
|
$ |
47,474 |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of discontinued operations |
|
26 |
|
|
|
20 |
|
|
|
20 |
|
|
|
58 |
|
|
|
72 |
|
Interest expense (income), net |
|
234 |
|
|
|
(3 |
) |
|
|
118 |
|
|
|
355 |
|
|
|
(9 |
) |
Income tax expense (benefit) |
|
22,843 |
|
|
|
(17,183 |
) |
|
|
46,252 |
|
|
|
64,467 |
|
|
|
(11,272 |
) |
Depreciation, depletion and amortization |
|
8,963 |
|
|
|
6,970 |
|
|
|
8,191 |
|
|
|
21,827 |
|
|
|
16,928 |
|
Exploration expense |
|
56 |
|
|
|
479 |
|
|
|
67 |
|
|
|
250 |
|
|
|
1,286 |
|
FPSO demobilization |
|
8,867 |
|
|
|
— |
|
|
|
— |
|
|
|
8,867 |
|
|
|
— |
|
Non-cash or unusual
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
36 |
|
|
|
25 |
|
|
|
842 |
|
|
|
2,300 |
|
|
|
2,098 |
|
Unrealized derivative instruments loss (gain) |
|
(12,902 |
) |
|
|
961 |
|
|
|
(11,517 |
) |
|
|
(5,161 |
) |
|
|
10,881 |
|
Gain on Sasol Acquisition, net |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,491 |
) |
Arrangement costs |
|
6,424 |
|
|
|
— |
|
|
|
1,199 |
|
|
|
7,624 |
|
|
|
— |
|
Other operating expense (income), net |
|
— |
|
|
|
(46 |
) |
|
|
— |
|
|
|
5 |
|
|
|
440 |
|
Bad debt expense and other |
|
1,020 |
|
|
|
318 |
|
|
|
571 |
|
|
|
2,083 |
|
|
|
814 |
|
Adjusted EBITDAX |
$ |
42,435 |
|
|
$ |
23,262 |
|
|
$ |
60,847 |
|
|
$ |
136,811 |
|
|
$ |
63,221 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESReconciliations of Non-GAAP
Financial Measures(Unaudited)(in thousands)
Reconciliation of
Working Capital to Adjusted Working Capital |
As of September 30, 2022 |
|
|
December 31, 2021 |
|
|
Change |
|
Current assets |
$ |
123,264 |
|
|
$ |
88,289 |
|
|
$ |
34,975 |
|
Current liabilities |
|
(143,011 |
) |
|
|
(84,257 |
) |
|
|
(58,754 |
) |
Working
capital |
|
(19,747 |
) |
|
|
4,032 |
|
|
|
(23,779 |
) |
Add: lease liabilities - current portion |
|
1,517 |
|
|
|
9,642 |
|
|
|
(8,125 |
) |
Add: current liabilities - discontinued operations |
|
14 |
|
|
|
13 |
|
|
|
1 |
|
Adjusted Working
Capital |
$ |
(18,216 |
) |
|
$ |
13,687 |
|
|
$ |
(31,903 |
) |
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