VAALCO Energy, Inc. (NYSE: EGY, LSE: EGY) today reported
operational and financial results for the third quarter 2019.
Third quarter 2019 and recent
operational and financial highlights include:
- Commenced the 2019/2020 drilling campaign at Etame in
September with the first appraisal wellbore, the Etame 9P,
successfully encountering oil in both the Gamba and Dentale
reservoirs in mid-October;
- Produced an average of 3,081 barrels of oil per day
(“BOPD”), net, within the Company’s guidance range;
- Successfully resumed production following completion of
the planned full-field annual maintenance shutdown at Etame in
August on schedule and on budget;
- Estimates that its year-end 2019 exit production rate
will be 3,800 to 4,100 BOPD, net, assuming the Etame 9H development
well that is currently drilling is completed and placed online in
December;
- Reported a net loss of $3.9 million ($0.07 per diluted
share) and Adjusted Net Loss of $0.6 million ($0.01 per
share);
- Reported Adjusted EBITDAX of $4.5 million and Working
Capital from Continuing Operations, excluding lease liabilities and
discontinued operations, of $29.0 million;
- Completed dual listing on London Stock Exchange (“LSE”)
on September 26, 2019;
- Repurchased 1,189,679 shares under the common stock
repurchase program during the quarter.
Cary Bounds, VAALCO’s Chief Executive
Officer commented: “We continue to deliver value to our
shareholders by executing on our strategy and producing strong
operational results that will further enhance our financial
position. We are excited by the early results from our
2019/2020 drilling program. The Etame 9P appraisal wellbore
encountered good-quality Dentale oil sands and a
thicker-than-expected Gamba oil column that could indicate higher
oil recovery from the Etame field. In addition, the
successful Etame 9P is the first of many opportunities that we have
identified that we believe have the potential to create substantial
value. During the third quarter, we also successfully
completed our periodic full-field maintenance shutdown at Etame and
restored production to pre-shutdown levels with no safety or
environmental incidents and extended the FPSO contract for another
year through September 2021. These material and positive
operational results have positioned VAALCO to deliver material
organic growth through development drilling.
“From a financial perspective, while we
generated Adjusted EBITDAX of $4.5 million, we did report a net
loss in the third quarter. This loss was driven primarily by
a $4.8 million non-cash deferred tax charge. In addition, the
quarterly results were impacted by our planned full-field
maintenance shutdown at Etame which resulted in lower sales volumes
and somewhat higher operating expenses.
“On September 26th, VAALCO began trading on the
LSE. Our listing on the LSE will complement our existing
listing on the NYSE and provides another strategic platform to
support our goals for growth. Additionally, we continue to
return value to our shareholders through our share repurchase
program, which underscores our confidence in the strength of our
balance sheet, quality of our assets and our ongoing ability to
generate free cash flow.
“Our management team and the Board have worked
hard for the past several years to strengthen VAALCO financially
and operationally. We have built a strong cash position which
allows us to execute our share repurchase program and continue to
fully fund the ongoing 2019-2020 drilling program at Etame from
cash on hand and cash from operations. We are entering 2020 in a
position of strength with positive momentum from our drilling
results and remain wholly focused on delivering sustainable and
profitable growth that will add meaningful value for our
shareholders.”
Financial Update
The net loss of $3.9 million ($0.07 per diluted
share) in the third quarter of 2019 was impacted by a non-cash
expense of $5.1 million ($0.09 per diluted share) related to
deferred income tax, which included a $4.8 million charge to
increase the valuation allowance on deferred tax assets. This
was partially offset by a non-cash benefit of $1.8 million ($0.03
per diluted share) related to unrealized gains on crude oil
swaps. Adjusting for the net impact of these items totaling
$3.3 million, third quarter Adjusted Net Loss was $0.6 million
($0.01 per diluted share). The third quarter 2019 net loss
was similarly impacted by lower revenues, reflecting both lower
production volumes and lower prices, as well as a $1.2 million
($0.02 per diluted share) non-cash expense for stock options,
restricted stock and stock appreciation rights (“SARs”). In
the third quarter of 2018, net income was $78.6 million ($1.28 per
diluted share), which included a $66.2 million ($1.08 per diluted
share) non-cash deferred tax benefit recognized in part as a result
of anticipated benefits associated with the PSC Extension, and a
further $3.3 million ($0.05 per diluted share) non-cash benefit
from the deferral of asset retirement obligations. In the second
quarter of 2019, the Company reported a net loss of $1.0 million
($0.01 per diluted share) which included a $4.4 million ($0.07 per
diluted share) charge related to the resolution of a legacy issue
related to Etame joint venture owners’ audit findings for the
periods from 2007 to 2016.
Adjusted EBITDAX totaled $4.5 million in the
third quarter of 2019 compared with $16.0 million for the same
period of 2018 and with $12.9 million in the second quarter of
2019. The average realized price for crude oil in the third
quarter of 2019 was $61.26 per barrel, a decrease of 19% from
$75.40 per barrel in the third quarter of 2018 and down 11% from
$68.62 per barrel in the second quarter of 2019. Sales
volumes decreased 15% to 279,000 barrels in the third quarter of
2019 from 329,000 barrels in the third quarter of 2018 and 22% from
357,000 barrels sold in the second quarter of 2019. Third
quarter 2019 sales volumes were impacted by lower production
volumes during the quarter, which was the result of the planned
full-field maintenance shutdown that occurred in August 2019, as
well as the impact from wells currently shut-in, as further
discussed below.
Adjusted EBITDAX, Adjusted Net Income (Loss) and
Working Capital from Continuing Operations are non-GAAP financial
measures and are described and reconciled to the closest GAAP
measure in the attached table under “Non-GAAP Financial
Measures.”
Operational Update
Gabon
Average net oil production in the third quarter
of 2019 was 3,081 BOPD. In the third quarter of 2018, average
net production was 4,120 BOPD and in the second quarter of 2019 it
was 3,664 BOPD. Production declined from the second quarter
of 2019 due to the impact of the planned full field shut-down for
maintenance (approximately 250 BOPD, net to VAALCO), the loss of
net production from the Etame 10H, Etame 4H and N. Tchibala 2H
wells that are temporarily shut-in (approximately 240 BOPD, net to
VAALCO) as discussed further below, and the balance due to natural
decline.
VAALCO and its joint owners are currently
executing the 2019/2020 development drilling program which will
fulfill commitments under the PSC extension. In mid-October,
the Company announced that the Etame 9P appraisal wellbore, the
first well in the 2019/2020 program which targeted the Dentale
formation at the Etame field offshore Gabon, was successfully
drilled to a total depth of 10,260 feet. The well encountered at
least 45 feet of good-quality Dentale oil sands with 27% porosity
and 3,000 md of permeability. VAALCO now estimates gross
recoverable oil resources of 3.9 to 14.9 million barrels of oil
(MMBO) present in subcropping Dentale reservoirs, compared with
predrill estimates of 4.6 MMBO. The well also found an oil column
in the Gamba reservoir that is at least 45 feet thick with no
oil-water contact. This oil column is thicker than predrill
expectations and may result in higher ultimate oil recovery from
the Etame field, including the Etame 9H and Etame 11H development
wells. The Company did not encounter H2S in either the Gamba or
Dentale reservoirs.
After reaching total depth in the Etame 9P
appraisal wellbore, the drillpipe became stuck. VAALCO was
able to cut and pull the majority of the drillpipe but was unable
to recover a portion of the drillpipe and bottom hole assembly at
the bottom of the wellbore. The Etame 9P appraisal wellbore was
successfully plugged back to a shallower depth, and the Company is
currently drilling the Etame 9H development well as expected. The
Etame 9P appraisal wellbore fulfills the commitment for one of the
two appraisal wellbores agreed to under the Company’s PSC Extension
and the Etame 9H development well will fulfill the Company’s
commitment for one of the two development wells agreed to under the
Company’s PSC Extension. If successful, the Etame 9H would
result in additional production coming online in
December.
Following completion of the Etame 9H well that
is currently being drilled, VAALCO plans to drill the Etame 11H
development well, the Southeast Etame 4P appraisal wellbore and
possibly a third development well (which is subject to approval by
the joint venture owners and the government of Gabon.) The
Company expects to complete the 2019/2020 drilling program in the
first half of 2020.
In early September 2019, the Electric
Submersible Pump (“ESP”) failed in the Etame 10H well after
operating for 4.5 years. Prior to the ESP failure, the well was
producing approximately 200 BOPD, net to VAALCO. The Company
is considering options to replace the ESP, including the
utilization of the Vantage drilling rig to perform a
workover. During the second quarter of 2019, the Etame 4H
well produced an average of approximately 350 BOPD gross (95 BOPD,
net to VAALCO); however, in July 2019, this well stopped
producing. In addition, the Company performed an acid
simulation on the N. Tchibala 2H well in July. Subsequent to
this work, the well would not flow naturally, and VAALCO was unable
to restore production. The Company is considering performing
additional work after the completion of the 2019/2020 drilling
program to attempt to restore production to the N. Tchibala 2H
well. During the second quarter of 2019, this well produced
an average of approximately 420 BOPD gross (113 BOPD, net to
VAALCO).
During August 2019, VAALCO completed its planned
full field 2019 maintenance shutdown for the Etame Marin FPSO and
four platforms. The entire work scope was completed
successfully with no adverse environmental or safety
incidents. The field was shut-in for approximately nine days
during the shutdown and then returned to pre-shutdown production
levels.
Taking into consideration the combination of the
Etame 9H horizontal development well which is planned to be brought
online in December and the impact of deferred production from the
wells that are not producing, the Company expects average
production for the fourth quarter of 2019 to be between 3,100 BOPD
and 3,500 BOPD, net to VAALCO.
VAALCO has exercised an election to extend the
lease contract for the FPSO Petróleo Nautipa at Etame through
September 2021, with an additional one-year option to run through
September 2022.
Equatorial Guinea
VAALCO has a 31% working interest in Block P
offshore Equatorial Guinea. VAALCO is currently awaiting the
Equatorial Guinea Ministry of Mines and Hydrocarbons (“EG MMH”) to
approve its appointment as operator of Block P. Compania
Nacional de Petroleos de Guinea Equatorial (“GEPetrol”) is the
state-owned oil company and one of the joint venture owners in
Block P. GEPetrol has fulfilled the requirement to introduce
a new joint venture owner, who will acquire GEPetrol’s
participating interest, to the EG MMH by March 28, 2019. Upon
EG MMH approving the new joint venture owner, the Contractor group
has one year to drill an exploration well. VAALCO intends to
seek a partner on a promoted basis that will cover all or
substantially all of the cost to drill an exploration well.
If the joint venture owners fail to drill an exploration well,
VAALCO would lose its interest in the license, and the associated
costs would become impaired. As of September 30, 2019, the
Company had $10.0 million recorded for the book value of the
undeveloped leasehold costs associated with the Block P
license. VAALCO and its joint venture owners are evaluating
the timing and budgeting for development and exploration activities
under a development and production area in the block, including the
approval of a development and production plan.
Other Growth Opportunities
VAALCO continues to actively pursue strategic,
value-accretive mergers and acquisitions of similar properties to
diversify its portfolio of producing assets. The Company is not
currently engaged in any formal discussions but continues to
evaluate potential opportunities.
2019 - Third Quarter Financial
Results
Total oil sales for the third quarter of 2019
were $17.6 million, compared to $25.3 million in the third quarter
of 2018 and $25.2 million in the second quarter of 2019.
During the third quarter of 2019, VAALCO sold approximately 279,000
net barrels of oil at an average price of $61.26 compared to
approximately 329,000 net barrels at an average price of $75.40 per
barrel during the third quarter of 2018. During the second
quarter of 2019, the Company sold approximately 357,000 net barrels
of oil at an average price of $68.62 per barrel.
On May 6, 2019, the Company entered into
commodity swap agreements at a Dated Brent weighted average price
of $66.70 per barrel for the period from and including July 2019
through June 2020 for a quantity of 500,000 barrels. These
swaps settle on a monthly basis. As of September 30, 2019,
there were swaps outstanding for 394,735 barrels for the period
from and including October 2019 through June 2020.
Costs and Expenses
Total production expense, excluding workovers,
was $9.5 million, or $34.01 per barrel of oil sales, in the third
quarter of 2019, compared to $7.5 million, or $22.93 per barrel of
oil sales, in the third quarter of 2018, and $9.8 million, or
$27.45 per barrel of oil sales in the second quarter of 2019.
The cost per barrel was higher in the third quarter of 2019 as
compared to the second quarter of 2019 as a result of lower
production volumes; however, overall costs decreased from the
second quarter and the cost per barrel was within guidance.
Depreciation, depletion and amortization
(“DD&A”) expense was $1.5 million, or $5.41 per barrel of oil
sales in the three months ended September 30, 2019 compared to $1.1
million, or $3.43 per barrel of oil sales in the comparable period
in 2018, and $1.9 million, or $5.35 per barrel of oil sales in the
second quarter of 2019. DD&A per barrel increased from
2018 due to the increase in depletable costs associated with the
PSC bonus payment paid in 2018.
General and administrative (“G&A”) expense
excluding non-cash stock compensation for the third quarter of 2019
was $3.6 million, or $12.86 per barrel of oil sales, as compared to
$1.8 million, or $5.59 per barrel of oil sales in the third quarter
2018 and $2.8 million, or $7.93 per barrel of oil sales in the
second quarter of 2019. G&A expense includes $1.2 million, $1.0
million and $(0.1) million of stock-based compensation expense
(benefit) for the quarters ended September 30, 2019 and 2018 and
June 30, 2019, respectively. Stock-based compensation expense
related to SARs was a charge of $1.0 million expense during the
three months ended September 30, 2019 as compared to $0.7 million
credit in the second quarter 2019. Because the Company’s SARs
are cash settled, these awards are adjusted to fair value each
period, and as a result of the increase in VAALCO’s stock price in
the third quarter 2019 ($2.03 per share at September 30, 2019
compared to $1.67 per share at June 30, 2019), the amount of
expense increased resulting in a expense for the third quarter of
2019.
Income tax expense for the three months ended
September 30, 2019 was $7.7 million. This is comprised of $5.1
million of deferred tax expense and a current tax provision of $2.6
million. The deferred income tax expense for the three months
ended September 30, 2019 included a $4.8 million charge to increase
the valuation allowances on U.S. deferred tax assets due to a
decrease in future estimated taxable earnings primarily as result
of lower crude oil prices.
For the three months ended September 30, 2018,
the Company had a current provision of $4.0 million and a $66.2
million deferred tax benefit. The decrease in the current
provision between the third quarter of 2019 and the third quarter
of 2018 is primarily attributable to Gabon income taxes which were
impacted by a decrease in revenues. With respect to deferred
income tax, for periods prior to the three months ended September
30, 2018, the Company had full valuation allowances on its net
deferred tax assets, and deferred income tax was zero. The
deferred tax benefit of $66.2 million in the third quarter 2018
related to the recognition of deferred tax assets and the reversal
of valuation allowances on the other deferred tax assets as a
result of the PSC extension.
Capital Investments/Balance
Sheet
During the three months ended September 30,
2019, VAALCO invested approximately $2.2 million in capital
expenditures on a cash basis and $6.1 million on an accrual basis,
primarily for the 2019/2020 drilling program and to a lesser degree
for equipment and other. The Company continues to expect that
its capital expenditures for calendar year 2019 will be in the
range of $20 to $25 million. However, the total cost of the
2019/2020 drilling program is now estimated to be approximately
$3.0 to $5.0 million higher than the original $25 to $30 million
estimate due to additional rig and service costs associated with
the Etame 9P well. VAALCO currently expects any capital
expenditures made during 2019 and 2020 related to the planned
drilling program to be funded by cash on hand and cash flow from
operations.
At the end of the third quarter, VAALCO had
Working Capital from Continuing Operations excluding lease
liabilities of $29.0 million, and an unrestricted cash balance of
$57.2 million. The unrestricted cash balance included $11.8 million
of cash attributable to non-operating joint venture owner
advances.
Common Stock Repurchase
Plan
On June 20, 2019, VAALCO announced that its
Board of Directors had authorized a stock repurchase program.
The share buyback program does not obligate the Company to acquire
any specific number of shares in any period, and may be expanded,
extended, or discontinued at any time. Payment for shares
repurchased under the program are funded using the Company's cash
on hand. Since inception of the program through November 5, 2019,
the Company has purchased 1,606,719 shares at an average price
of $1.80 for $2.9 million.
Dual Listing on the LSE
On September 26, 2019, VAALCO’s common shares
began trading on the LSE Main Market while maintaining its existing
listing on the New York Stock Exchange. The Company believes
that the additional listing on the LSE will better position the
Company alongside its international peer group, including peers
that are focused on West Africa.
Conference Call
As previously announced, the Company will hold a
conference call to discuss its third quarter financial and
operating results November 7, 2019, at 9:00 a.m. Central Time
(10:00 a.m. Eastern Time and 3:00 pm London Time). Interested
parties may participate by dialing (877) 270-2148. Parties in
the United Kingdom may participate toll-free by dialing 08082389064
and other international parties may dial (412) 902-6510.
Participants should request to be joined to the “VAALCO Energy
Third Quarter 2019 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 31.1% working interest in the Etame Marin
Block, located offshore Gabon, which to date has produced over 110
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 / Chris
Judd / 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 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, our
2019-2020 drilling program, our activities in Equatorial Guinea,
expected sources of future capital funding and future liquidity,
the share repurchase program, our ability to restore production in
non-producing wells, future operating losses, future changes in oil
and natural gas prices, future strategic alternatives, capital
expenditures, future drilling plans, prospect evaluations,
negotiations with governments and third parties, timing of the
settlement of Gabon income taxes, expectations regarding processing
facilities, production, sales and financial projections and reserve
growth. 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, oil and gas price
volatility, inflation, general economic conditions, 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.
These and other risks are further described in
VAALCO's annual report on Form 10-K for the year ended December 31,
2018, quarterly reports on Form 10-Q and other reports filed with
the SEC which can be reviewed at http://www.sec.gov, or which can
be received by contacting VAALCO at 9800 Richmond Avenue, Suite
700, Houston, Texas 77042, (713) 623-0801. 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.
References to thickness of oil pay or of a
formation where evidence of hydrocarbons have been encountered is
not necessarily an indicator that hydrocarbons will be recoverable
in commercial quantities or in any estimated volume. Well test
results should be considered as preliminary and not necessarily
indicative of long-term performance or of ultimate recovery. Well
log interpretations indicating oil accumulations are not
necessarily indicative of future production or ultimate recovery.
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.
Supplemental Reserves
Disclosure
This press release contains oil and gas metrics
which do not have standardized meanings or standard methods of
calculation as classified by the SEC and therefore such measures
may not be comparable to similar measures used by other companies.
Such metrics have been included herein to provide readers with
additional measures to evaluate the Company’s performance; however,
such measures are not reliable indicators of the future performance
of the Company and future performance may not compare to the
performance in previous periods.
VAALCO ENERGY, INC AND SUBSIDIARIESConsolidated Balance Sheets
(Unaudited)(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 |
|
December 31, 2018 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
57,227 |
|
|
$ |
33,360 |
|
Restricted cash |
|
769 |
|
|
|
804 |
|
Receivables: |
|
|
|
|
|
Trade |
|
7,503 |
|
|
|
11,907 |
|
Accounts with joint venture owners, net of allowance of $0.5
million for both periods presented |
|
113 |
|
|
|
949 |
|
Other |
|
1,160 |
|
|
|
1,398 |
|
Crude oil inventory |
|
775 |
|
|
|
785 |
|
Prepayments and other |
|
6,996 |
|
|
|
6,301 |
|
Current assets - discontinued operations |
|
— |
|
|
|
3,290 |
|
Total current assets |
|
74,543 |
|
|
|
58,794 |
|
Oil and natural gas properties
and equipment - successful efforts method: |
|
|
|
|
|
Wells, platforms and other production facilities |
|
409,995 |
|
|
|
409,487 |
|
Work-in-progress |
|
5,303 |
|
|
|
519 |
|
Undeveloped acreage |
|
23,771 |
|
|
|
23,771 |
|
Equipment and other |
|
12,523 |
|
|
|
9,552 |
|
|
|
451,592 |
|
|
|
443,329 |
|
Accumulated depreciation,
depletion, amortization and impairment |
|
(394,975 |
) |
|
|
(390,605 |
) |
Net oil and natural gas properties, equipment and other |
|
56,617 |
|
|
|
52,724 |
|
Other noncurrent assets: |
|
|
|
|
|
Restricted cash |
|
924 |
|
|
|
920 |
|
Value added tax and other receivables, net of allowance of $1.3
million and $2.0 million, respectively |
|
3,035 |
|
|
|
2,226 |
|
Right of use operating lease assets |
|
36,852 |
|
|
|
— |
|
Deferred tax assets |
|
25,903 |
|
|
|
40,077 |
|
Abandonment funding |
|
11,112 |
|
|
|
11,571 |
|
Total assets |
$ |
208,986 |
|
|
$ |
166,312 |
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
6,658 |
|
|
$ |
8,083 |
|
Accounts with joint venture owners |
|
11,828 |
|
|
|
304 |
|
Accrued liabilities and other |
|
23,886 |
|
|
|
14,138 |
|
Operating lease liabilities - current portion |
|
12,432 |
|
|
|
— |
|
Foreign taxes payable |
|
3,211 |
|
|
|
3,274 |
|
Current liabilities - discontinued operations |
|
326 |
|
|
|
15,245 |
|
Total current liabilities |
|
58,341 |
|
|
|
41,044 |
|
Asset retirement
obligations |
|
15,709 |
|
|
|
14,816 |
|
Operating lease liabilities -
net of current portion |
|
24,397 |
|
|
|
— |
|
Other long term
liabilities |
|
652 |
|
|
|
625 |
|
Total liabilities |
|
99,099 |
|
|
|
56,485 |
|
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,
67,478,897 and 67,167,994 shares issued, 58,593,068 and 59,595,742
shares outstanding, respectively |
|
6,748 |
|
|
|
6,717 |
|
Additional paid-in capital |
|
73,263 |
|
|
|
72,358 |
|
Less treasury stock, 8,885,829 and 7,572,251 shares, respectively,
at cost |
|
(39,943 |
) |
|
|
(37,827 |
) |
Retained earnings |
|
69,819 |
|
|
|
68,579 |
|
Total shareholders' equity |
|
109,887 |
|
|
|
109,827 |
|
Total liabilities and shareholders' equity |
$ |
208,986 |
|
|
$ |
166,312 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESConsolidated Statements of
Operations (Unaudited)(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, 2019 |
|
September 30, 2018 |
|
June 30, 2019 |
Revenues: |
|
|
|
|
|
|
|
|
|
Oil and natural gas sales |
|
$ |
17,603 |
|
|
$ |
25,266 |
|
|
$ |
25,230 |
|
Operating costs and
expenses: |
|
|
|
|
|
|
|
|
|
Production expense |
|
|
9,836 |
|
|
|
7,481 |
|
|
|
9,819 |
|
Depreciation, depletion and amortization |
|
|
1,509 |
|
|
|
1,130 |
|
|
|
1,909 |
|
Gain on revision of asset retirement obligations |
|
|
— |
|
|
|
(3,325 |
) |
|
|
— |
|
General and administrative expense |
|
|
4,738 |
|
|
|
2,811 |
|
|
|
2,728 |
|
Bad debt (recovery) expense |
|
|
54 |
|
|
|
(157 |
) |
|
|
5 |
|
Total operating costs and expenses |
|
|
16,137 |
|
|
|
7,940 |
|
|
|
14,461 |
|
Other operating income (expense), net |
|
|
35 |
|
|
|
(6 |
) |
|
|
(4,399 |
) |
Operating income |
|
|
1,501 |
|
|
|
17,320 |
|
|
|
6,370 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
Derivative instruments gain (loss), net |
|
|
2,267 |
|
|
|
(1,026 |
) |
|
|
1,911 |
|
Interest income (expense), net |
|
|
193 |
|
|
|
111 |
|
|
|
201 |
|
Other, net |
|
|
(138 |
) |
|
|
(3 |
) |
|
|
(145 |
) |
Total other income (expense), net |
|
|
2,322 |
|
|
|
(918 |
) |
|
|
1,967 |
|
Income from continuing
operations before income taxes |
|
|
3,823 |
|
|
|
16,402 |
|
|
|
8,337 |
|
Income tax expense
(benefit) |
|
|
7,681 |
|
|
|
(62,224 |
) |
|
|
9,208 |
|
Income (loss) from continuing
operations |
|
|
(3,858 |
) |
|
|
78,626 |
|
|
|
(871 |
) |
Income (loss) from
discontinued operations, net of tax |
|
|
(61 |
) |
|
|
(21 |
) |
|
|
(162 |
) |
Net income (loss) |
|
$ |
(3,919 |
) |
|
$ |
78,605 |
|
|
$ |
(1,033 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(0.07 |
) |
|
$ |
1.31 |
|
|
$ |
(0.01 |
) |
Income (loss) from discontinued operations, net of tax |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
Net income (loss) per share |
|
$ |
(0.07 |
) |
|
$ |
1.31 |
|
|
$ |
(0.01 |
) |
Basic weighted average shares outstanding |
|
|
58,953 |
|
|
|
59,481 |
|
|
|
59,801 |
|
Diluted net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(0.07 |
) |
|
$ |
1.28 |
|
|
$ |
(0.01 |
) |
Income (loss) from discontinued operations, net of tax |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
Net income (loss) per share |
|
$ |
(0.07 |
) |
|
$ |
1.28 |
|
|
$ |
(0.01 |
) |
Diluted weighted average shares outstanding |
|
|
58,953 |
|
|
|
60,818 |
|
|
|
59,801 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESConsolidated Statements of
Cash Flows (Unaudited)(in thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2019 |
|
|
2018 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
Net income |
|
$ |
1,549 |
|
|
$ |
87,808 |
|
Adjustments to reconcile net
income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
(Income) loss from discontinued operations |
|
|
(5,448 |
) |
|
|
416 |
|
Depreciation, depletion and amortization |
|
|
4,971 |
|
|
|
3,289 |
|
Gain on revision of asset retirement obligations |
|
|
— |
|
|
|
(3,325 |
) |
Other amortization |
|
|
181 |
|
|
|
357 |
|
Deferred taxes |
|
|
12,725 |
|
|
|
(66,191 |
) |
Unrealized foreign exchange (gain) loss |
|
|
(46 |
) |
|
|
819 |
|
Stock-based compensation |
|
|
2,770 |
|
|
|
3,729 |
|
Cash settlements paid on exercised stock appreciation rights |
|
|
(261 |
) |
|
|
(82 |
) |
Derivatives instruments (gain) loss |
|
|
(2,266 |
) |
|
|
2,036 |
|
Cash settlements received on matured derivative contracts, net |
|
|
2,056 |
|
|
|
28 |
|
Bad debt (recovery) expense |
|
|
30 |
|
|
|
(68 |
) |
Other operating (income) loss, net |
|
|
37 |
|
|
|
(332 |
) |
Operational expenses associated with equipment and other |
|
|
(62 |
) |
|
|
1,695 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
Trade receivables |
|
|
4,404 |
|
|
|
3,556 |
|
Accounts with joint venture owners |
|
|
12,354 |
|
|
|
7,961 |
|
Other receivables |
|
|
219 |
|
|
|
(313 |
) |
Crude oil inventory |
|
|
10 |
|
|
|
1,031 |
|
Prepayments and other |
|
|
(1,979 |
) |
|
|
(13 |
) |
Value added tax and other receivables |
|
|
664 |
|
|
|
(658 |
) |
Deferred tax assets |
|
|
— |
|
|
|
(1,356 |
) |
Accounts payable |
|
|
(2,154 |
) |
|
|
(4,314 |
) |
Foreign taxes payable |
|
|
(122 |
) |
|
|
1,775 |
|
Accrued liabilities and other |
|
|
4,092 |
|
|
|
(850 |
) |
Net cash provided by continuing operating activities |
|
|
33,724 |
|
|
|
36,998 |
|
Net cash used in discontinued operating activities |
|
|
(4,673 |
) |
|
|
(958 |
) |
Net cash provided by operating activities |
|
|
29,051 |
|
|
|
36,040 |
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
Property and equipment expenditures |
|
|
(3,382 |
) |
|
|
(13,205 |
) |
Net cash used in continuing investing activities |
|
|
(3,382 |
) |
|
|
(13,205 |
) |
Net cash used in discontinued investing activities |
|
|
— |
|
|
|
— |
|
Net cash used in investing activities |
|
|
(3,382 |
) |
|
|
(13,205 |
) |
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
Proceeds from the issuances of common stock |
|
|
133 |
|
|
|
533 |
|
Treasury shares |
|
|
(2,425 |
) |
|
|
(22 |
) |
Debt repayment |
|
|
— |
|
|
|
(9,166 |
) |
Net cash used in continuing
financing activities |
|
|
(2,292 |
) |
|
|
(8,655 |
) |
Net cash used in discontinued
financing activities |
|
|
— |
|
|
|
— |
|
Net cash used in financing
activities |
|
|
(2,292 |
) |
|
|
(8,655 |
) |
NET CHANGE IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH |
|
|
23,377 |
|
|
|
14,180 |
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
46,655 |
|
|
|
32,286 |
|
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT END OF PERIOD |
|
$ |
70,032 |
|
|
$ |
46,466 |
|
VAALCO ENERGY, INC AND SUBSIDIARIESSelected Financial and
Operating Statistics(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, 2019 |
|
September 30, 2018 |
|
June 30, 2019 |
NET SALES DATA: |
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
279 |
|
|
329 |
|
|
357 |
Average daily sales volumes (bbls/day) |
|
|
3,033 |
|
|
3,576 |
|
|
3,923 |
NET PRODUCTION DATA |
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
283 |
|
|
379 |
|
|
333 |
Average daily production volumes (bbls/day) |
|
|
3,081 |
|
|
4,120 |
|
|
3,664 |
|
|
|
|
|
|
|
|
|
|
AVERAGE SALES PRICES: |
|
|
|
|
|
|
|
|
|
Oil ($/Bbl) |
|
$ |
61.26 |
|
$ |
75.40 |
|
$ |
68.62 |
COSTS AND EXPENSES (PER BOPD
OF SALES): |
|
|
|
|
|
|
|
|
|
Production expense |
|
$ |
35.25 |
|
$ |
22.74 |
|
$ |
27.50 |
Production expense, excluding workovers* |
|
|
34.01 |
|
|
22.93 |
|
|
27.45 |
Depreciation, depletion and amortization |
|
|
5.41 |
|
|
3.43 |
|
|
5.35 |
General and administrative expense** |
|
|
16.98 |
|
|
8.54 |
|
|
7.64 |
Property and equipment
expenditures, cash basis (in thousands) |
|
$ |
2,219 |
|
$ |
12,229 |
|
$ |
375 |
*Workover costs excluded from the three months ended September
30, 2019 and 2018 and June 30, 2019 are $0.3 million, $ (0.1)
million and $21 thousand, respectively.**General and administrative
expenses include $4.12, $2.96 and $(0.29) barrel of oil of sales of
stock-based compensation expense in the three months ended
September 30, 2019, and 2018 and June 30, 2019, 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 (expense) 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 (Loss) to
evaluate operating and financial performance and believes the
measure is useful to investors because it eliminates the impact of
certain noncash 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.
Management uses Working Capital from Continuing
Operations 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 lease liabilities. Under the
new leasing standard, 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 EBITDAX and Adjusted Net Income (Loss)
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 (Loss) 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 (Loss) 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
(Loss) 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 (Loss),
Adjusted EBITDAX and Working Capital from Continuing
Operations.
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 |
|
September 30, 2019 |
|
September 30, 2018 |
|
June 30, 2019 |
Net income (loss) |
|
$ |
(3,919 |
) |
|
$ |
78,605 |
|
|
$ |
(1,033 |
) |
Adjustment for discrete
items: |
|
|
|
|
|
|
|
|
|
Discontinued operations, net of tax |
|
|
61 |
|
|
|
21 |
|
|
|
162 |
|
Unrealized derivative instruments (gain) loss |
|
|
(1,774 |
) |
|
|
1,065 |
|
|
|
(1,479 |
) |
Gain on revision of asset retirement obligations |
|
|
— |
|
|
|
(3,325 |
) |
|
|
— |
|
Other operating (income) expense, net |
|
|
(35 |
) |
|
|
6 |
|
|
|
4,399 |
|
Deferred income tax expense (benefit) |
|
|
5,058 |
|
|
|
(66,191 |
) |
|
|
5,925 |
|
Adjusted Net Income
(Loss) |
|
$ |
(609 |
) |
|
$ |
10,181 |
|
|
$ |
7,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
Reconciliation of Net
Income (Loss) to Adjusted EBITDAX |
|
September 30, 2019 |
|
September 30, 2018 |
|
June 30, 2019 |
Net income (loss) |
|
$ |
(3,919 |
) |
|
$ |
78,605 |
|
|
$ |
(1,033 |
) |
Add back: |
|
|
|
|
|
|
|
|
|
Impact of discontinued operations |
|
|
61 |
|
|
|
21 |
|
|
|
162 |
|
Interest expense (income), net |
|
|
(193 |
) |
|
|
(111 |
) |
|
|
(201 |
) |
Income tax expense (benefit) |
|
|
7,681 |
|
|
|
(62,224 |
) |
|
|
9,208 |
|
Depreciation, depletion and amortization |
|
|
1,509 |
|
|
|
1,130 |
|
|
|
1,909 |
|
Non-cash or unusual
items: |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
1,150 |
|
|
|
973 |
|
|
|
(103 |
) |
Unrealized derivative instruments (gain) loss |
|
|
(1,774 |
) |
|
|
1,065 |
|
|
|
(1,479 |
) |
Other operating (income) expense, net |
|
|
(35 |
) |
|
|
6 |
|
|
|
4,399 |
|
Gain on revision of asset retirement obligations |
|
|
— |
|
|
|
(3,325 |
) |
|
|
— |
|
Bad debt recovery and other |
|
|
54 |
|
|
|
(157 |
) |
|
|
5 |
|
Adjusted EBITDAX |
|
$ |
4,534 |
|
|
$ |
15,983 |
|
|
$ |
12,867 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Changes in Working Capital from Continuing Operations |
|
September 30, 2019 |
|
June 30, 2019 |
|
Change |
Current assets |
|
$ |
74,543 |
|
|
$ |
69,914 |
|
|
$ |
4,629 |
|
Current liabilities |
|
|
(58,341 |
) |
|
|
(47,136 |
) |
|
|
(11,205 |
) |
Operating lease liabilities -
current portion |
|
|
12,432 |
|
|
|
10,500 |
|
|
|
1,932 |
|
Current liabilities -
discontinued operations |
|
|
326 |
|
|
|
4,847 |
|
|
|
(4,521 |
) |
Working Capital From
Continuing Operations |
|
$ |
28,960 |
|
|
$ |
38,125 |
|
|
$ |
(9,165 |
) |
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