VAALCO Energy, Inc. Announces Preliminary Unaudited Fourth Quarter and Full Year 2022 Results and Provides 2023 Guidance
VAALCO Energy reported a significant increase in its year-end 2022 SEC proved reserves by 149% to 27.9 MMBOE, with a PV-10 value surging 529% to $624 million. The company anticipates a net income of $49 to $55 million for FY 2022. Key highlights include a 92% increase in quarterly cash dividends and a 47% rise in average daily production. The successful completion of the TransGlobe Energy business combination is expected to enhance future growth. VAALCO's operational updates reflect strong production figures alongside strategic advancements in Gabon and Equatorial Guinea, projecting continued success in a favorable commodity environment.
- Year-end 2022 SEC proved reserves increased by 149% to 27.9 MMBOE.
- PV-10 value of proved reserves up 529% to $624 million.
- Quarterly cash dividend increased by 92% to $0.0625 per share.
- Full year 2022 average daily production rose by 47% to 10,217 NRI BOEPD.
- Anticipated net income for FY 2022 between $49 to $55 million.
- Expected full year 2022 net income down from $81.8 million in 2021.
- Increased total production expenses to $107.9 million due to inflationary pressures.
Increased Year-End 2022 Sec Proved Reserves by
HOUSTON, March 31, 2023 (GLOBE NEWSWIRE) -- VAALCO Energy, Inc. (NYSE: EGY, LSE: EGY) ("VAALCO" or the "Company") today reported operational and selected preliminary unaudited financial results for the fourth quarter and full year of 2022. On October 13, 2022, VAALCO completed the business combination with TransGlobe Energy, Inc. (“TransGlobe”); as a result, VAALCO’s fourth quarter and full year preliminary 2022 results include the combined assets from the closing day through the end of 2022.
The financial data presented in this press release for the fourth quarter and year ended December 31, 2022 is preliminary and subject to change in connection with the completion and audit of VAALCO’s financial statements for the year ended December 31, 2022. VAALCO is unable to file its Annual Report on Form 10-K within the prescribed time period, without unreasonable effort and expense. Management continues to work as expeditiously as possible to complete the Form 10-K and believes that it will be in a position to file the report with the SEC and conduct an investor conference call on Thursday, April 6, 2023.
Highlights and Key Items:
- Closed the strategic and transformational business combination with TransGlobe on October 13, 2022;
- Increased quarterly cash dividend by
92% to$0.06 25 per share of common stock for the first quarter of 2023 ($0.25 annualized), from$0.03 25 per share ($0.13 annualized) in 2022; - Returned additional
$7.5 million to shareholders through share buybacks from initiation of program in November 2022 through March 31, 2023; - Increased full year (“FY”) 2022 average daily production by
47% to 10,217 net revenue interest (“NRI”)(2) barrels of oil equivalent per day (“BOEPD”), or 12,177 working interest (“WI”)(2) BOEPD;
● Sold 3,677,000 barrels of oil equivalent in 2022; - Delivered fourth quarter 2022 production of 14,390 NRI BOEPD, or 18,262 WI BOEPD;
● Sold 1,371,000 barrels of oil equivalent in fourth quarter of 2022; - Expects to report FY 2022 net income of between
$49 and$55 million;
● Expects to record fourth quarter 2022 net income of$15 t o$21 million ; - Expects to generate record Adjusted EBITDAX(1) of
$186.6 million in FY 2022 and$49.8 million of Adjusted EBITDAX in the fourth quarter of 2022; - Funded
$159.9 million in cash capital expenditures during 2022 with cash on hand and cash from operations; - Increased year-end 2022 SEC proved reserves by
149% to 27.9 million barrels of oil equivalent (“MMBOE”) with the standardized measure value up529% to$624.5 million ; - Grew year-end management 2P CPR WI (4) reserves, which also includes Equatorial Guinea, by
292% to 76.4 MMBOE with 2P WI CPR PV-10(4) value up344% to$815 million , using management assumptions for future commodity pricing; - Finalized multiple substantive documents with our partners and the Ministry of Mines & Hydrocarbons in Equatorial Guinea for Block P which includes the Venus development; and
- Announced 2023 operational and financial guidance including capital expenditure range of
$70 t o$90 million for full year 2023.
| (1 | ) | Adjusted EBITDAX is a Non-GAAP financial measure and is described and reconciled to the closest GAAP measure in the attached table under “Non-GAAP Financial Measures.” |
| (2 | ) | All NRI production rates are VAALCO's working interest volumes less royalty volumes, where applicable. |
| (3 | ) | All WI production rates and volumes are VAALCO’s working interest volumes. |
| (4 | ) | See “Supplemental Non-GAAP Financial Measures” below concerning 2P CPR WI reserves and 2P CPR WI PV-10. |
George Maxwell, VAALCO’s Chief Executive Officer commented, “In 2022, we transformed VAALCO into a diversified, multi-country company focused on sustainable growth and returning value to shareholders. We delivered record financial results, completed a major acquisition and successfully executed multiple high-impact operational projects. Production volumes grew
“This past year, 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. We are focused on generating meaningful cash flow to fund our increased stockholder dividends, share buybacks, capital expenditures and potential additional acquisitions. We have achieved the first tranche of synergies related to the acquisition. We now have a streamlined management team and Board and have captured the savings from delisting TGA and eliminating other related duplicative public company costs. We continue to rationalize our operational and G&A costs in 2023 as we look to attain additional synergies beyond what we originally anticipated.
“In Gabon, we are very pleased to have successfully delivered a highly complex, full field reconfiguration, maintenance turnaround and upgraded FSO installation. This project was completed in October 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
“In March 2023, we held productive meetings with the MMH and our partners in Houston. During these meetings we finalized multiple substantive documents for Block P which includes the Venus development, relating to the Production Sharing Contract. We are working on concluding remaining documents and expect to update the market in the second quarter of 2023. We anticipate a strong, efficient and economic development of this exciting discovery with first oil projected for 2026. We believe that there are clear strategic benefits in further diversifying the revenue generation and country focus of our portfolio. VAALCO has a proven operating track record for a development of this kind and we look forward to demonstrating these capabilities as we progress the Venus discovery into production and further demonstrates the meaningful value of our asset base.
“We are clearly well-positioned for continued success in this current commodity price environment, with no net debt and strong free cash flow generation. We have made significant progress integrating the TransGlobe team and assets into our strategic vision. 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. The impact from the combination is reflected in VAALCO’s fourth quarter 2022 results following the closing on October 13, 2022.
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.
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 North Tchibala 2H-ST well is naturally flowing with no produced water at about 250 gross barrels of oil per day (“BOPD”) and stable reservoir pressure indicating minimal depletion. In the fourth quarter of 2022, the Company performed two workovers, the North Tchibala 1-H well due to a safety valve in the well that required replacement and the South East Etame 4H Well, which restored production of about 1,350 gross BOPD. This well went offline 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.
The Company estimates the cost of the 2021/2022 drilling program with four wells and two workovers to be
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 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 2022 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 FPSO agreement, the new FSO is expected to reduce storage and offloading costs. Additionally, we have increased the effective capacity for storage by over
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. In March 2023, VAALCO held productive meetings with the MMH and its partners in Houston. During these meetings VAALCO finalized multiple substantive documents for Block P which includes the Venus development, relating to the Production Sharing Contract. The Company is working on concluding remaining documents and expect to update the market in the second quarter of 2023. VAALCO anticipates a strong, efficient and economic development of this exciting discovery with first oil projected for 2026. The Company believes that there are clear strategic benefits in further diversifying the revenue generation and country focus of its portfolio. VAALCO has a proven operating track record for a development of this kind, and it looks forward to demonstrating these capabilities as the Company progresses the Venus discovery into production and further demonstrates the meaningful value of our asset base.
Egypt
In Egypt, as of December 31, 2022, VAALCO’s interests are spread across two regions: the Eastern Desert, which contains the West Gharib, West Bakr and Northwest Gharib merged concessions, and the Western Desert, which contains the South Ghazalat concession. The Eastern Desert merged concession is approximately 45,067 acres and the Western Desert, South Ghazalat concession, is approximately 7,340 acres. VAALCO is the operator and has a
Canada
In Harmattan, Canada, VAALCO owns production and working interests in certain facilities in the Cardium light oil and Mannville liquids-rich gas assets. Harmattan is located approximately 80 kilometers north of Calgary, Alberta. This property produces oil and associated natural gas from the Cardium and Viking zones and liquids-rich natural gas from zones in the Lower Mannville and Rock Creek formations at vertical depths of 1,200 to 2,600 meters. The Harmattan property covers 46,100 gross acres of developed land and 29,300 gross acres of undeveloped land. VAALCO also owns a
Year-End 2022 Reserves
VAALCO’s SEC NRI proved reserves at December 31, 2022 increased by
The standardized measure of VAALCO’s SEC proved reserves, utilizing SEC pricing increased to
| MMBOE | |||
| Proved SEC Reserves at December 31, 2021 | 11.2 | ||
| 2022 Production | (3.9 | ) | |
| Revisions of Previous Estimates | 2.0 | ||
| Purchases | 18.6 | ||
| Proved SEC Reserves at December 31, 2022 | 27.9 | ||
At year-end 2022, NSAI and GLJ provided the 2P WI CPR estimate of proven and probable reserves which was prepared in accordance with the definitions and guidelines set forth in the 2018 Petroleum Resources Management Systems approved by the Society of Petroleum Engineers as of December 31, 2022 using VAALCO’s management assumptions for future commodity pricing and costs shown below under “Supplemental Non-GAAP Financial Measures - 2P WI CPR Reserves”. The 2P WI CPR reserves attributable to VAALCO’s ownership are reported on a WI basis prior to deductions for government royalties. The year-end 2022 2P WI CPR estimate of reserves is 76.4 MMBOE to VAALCO’s WI, an increase of
See “Supplemental Non-GAAP Financial Measures” below concerning 2P WI CPR reserves and 2P PV-10.
Financial Update – Fourth Quarter of 2022
VAALCO expects to report net income of between
VAALCO expects to report adjusted EBITDAX of
| Revenue and Sales | Q4 2022 | Q4 2021 | % Change Q4 2022 vs. Q4 2021 | Q3 2022 | % Change Q4 2022 vs. Q3 2022 | |||||||||||||
| Production (NRI BOEPD) | 14,390 | 7,554 | 90 | % | 9,157 | 57 | % | |||||||||||
| Sales (NRI BOE) | 1,371,000 | 709,000 | 93 | % | 731,000 | 88 | % | |||||||||||
| Realized commodity price ($/BOE) | $ | 70.43 | $ | 77.31 | (9 | )% | $ | 103.61 | (32 | )% | ||||||||
| Commodity (Per BOE including realized commodity derivatives) | $ | 70.24 | $ | 66.3 | 6 | % | $ | 91.13 | (23 | )% | ||||||||
| Total commodity sales ($MM) | $ | 96.6 | $ | 56.4 | 71 | % | $ | 78.1 | 24 | % | ||||||||
VAALCO had total sales volumes of 1,371,000 BOE compared to 731,000 BOE in the third quarter of 2022 and 709,000 BOE for the same period in 2021. Fourth quarter of 2022 realized pricing (including the effects of derivative contracts) was down
| Costs and Expenses | Q4 2022 | Q4 2021 | % Change Q4 2022 vs. Q4 2021 | Q3 2022 | % Change Q4 2022 vs. Q3 2022 | |||||||||||||
| Production expense, excluding workovers and stock comp ($MM) | $ | 40.8 | $ | 19.0 | 115 | % | $ | 23.2 | 76 | % | ||||||||
| Production expense, excluding workovers ($/BOE) | $ | 29.8 | $ | 26.8 | 11 | % | $ | 31.8 | (6 | )% | ||||||||
| Workover expense ($MM) | $ | 4.7 | $ | 4.5 | 5 | % | $ | - | 100 | % | ||||||||
| Depreciation, depletion and amortization ($MM) | $ | 26.3 | $ | 4.1 | 542 | % | $ | 9.0 | 192 | % | ||||||||
| Depreciation, depletion and amortization ($/BOE) | $ | 19.2 | $ | 5.8 | 229 | % | $ | 12.3 | 57 | % | ||||||||
| General and administrative expense, excluding stock-based compensation ($MM) | $ | (0.3 | ) | $ | 2.2 | (114 | )% | $ | 2.0 | (115 | )% | |||||||
| General and administrative expense, excluding stock-based compensation ($/BOE) | $ | (0.2 | ) | $ | 3.1 | (107 | )% | $ | 2.7 | (108 | )% | |||||||
| Stock-based compensation expense ($MM) | $ | (0.1 | ) | $ | 0.4 | (132 | )% | $ | - | 100 | % | |||||||
Total production expense, excluding workovers and stock compensation, increased in the fourth quarter of 2022 compared to the same period in 2021 and compared to the third quarter of 2022. The increase was primarily driven by increased production and costs associated with the TransGlobe combination as well as higher costs caused by inflationary pressures associated with boats, diesel, personnel and costs stemming from the additional operational activities related to the annual field-wide maintenance program, the FSO conversion and field reconfiguration at Etame.
The fourth quarter of 2022 had
Production expense per BOE, excluding workover costs and stock compensation, was lower than the third quarter of 2022 due to more sales barrels during the fourth quarter of 2022. Production expense per BOE, excluding workover costs and stock compensation, was higher than the fourth quarter of 2021 due to the increased sales and increased costs associated with the FSO conversion and field reconfiguration.
In the line item, FPSO demobilization, VAALCO incurred
Depreciation, depletion and amortization (“DD&A”) expense for the three months ended December 31, 2022 increased to
General and administrative (“G&A”) expense, excluding stock-based compensation, decreased for the three months ended December 31, 2022 to (
Non-cash stock-based compensation expense was (
Financial Update - Full Year 2022
VAALCO expects to report net income for the full year 2022 of between
Production increased by
For the full year 2022, total production expense, excluding workovers, increased to
For the full year 2022, G&A, excluding stock-based compensation, was
Capital Investments/Balance Sheet
For the fourth quarter of 2022, net capital expenditures totaled
At the end of the fourth quarter of 2022, VAALCO had an unrestricted cash balance of
In mid-2022, VAALCO announced entry into a new credit agreement, effective May 16, 2022, for a new five-year Reserve Based Lending (“RBL”) facility with Glencore Energy UK Ltd. (“Glencore”) that includes an initial commitment of
In conjunction with the TransGlobe merger, VAALCO assumed an existing revolving loan facility with Alberta Treasury Branches (“ATB”) and on January 5, 2023 the facility was exited.
Cash Dividend Policy and Share Buyback Authorization
VAALCO paid a quarterly cash dividend of
| Dividend Payment Date | Amount per common share | Record Date | |||
| March 18, 2022 | $ | 0.0325 | February 18, 2022 | ||
| June 24, 2022 | $ | 0.0325 | May 25, 2022 | ||
| September 23, 2022 | $ | 0.0325 | August 25, 2022 | ||
| December 22, 2022 | $ | 0.0325 | November 22, 2022 | ||
| Aggregate per share amount paid in 2022 | $ | 0.1300 | |||
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
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.
Since inception of the buyback program in November through March 31, 2023, VAALCO has repurchased
Hedging
The Company continued to opportunistically hedge a portion of its expected production in 2022 to lock in strong cash flow generation to assist in funding its capital program and dividend.
On October 26, 2022, VAALCO entered into additional derivative contracts for the first quarter of 2023:
| 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 | |||||||||
The following additional hedges were entered into in 2023:
| Settlement Period | Type of Contract | Index | Average Monthly Volumes | Weighted Average Put Price | Weighted Average Call Price | |||||||||||
| (Bbls) | (per Bbl) | (per Bbl) | ||||||||||||||
| April 2023 to June 2023 | Collars | Dated Brent | 95,500 | $ | 65.00 | $ | 100.00 | |||||||||
2023 Guidance:
| FY 2023 | Gabon | Egypt | Canada | ||
| Production (BOEPD) | WI | 20,400 – 24,400 | 8,500 – 10,300 | 9,700 – 11,500 | 2,200 – 2,600 |
| Production (BOEPD) | NRI | 15,300 – 18,600 | 7,400 – 9,000 | 6,000 – 7,300 | 1,900 – 2,300 |
| Sales Volume (BOEPD) | WI | 20,400 – 24,400 | 8,500 – 10,300 | 9,700 – 11,500 | 2,200 – 2,600 |
| Sales Volume (BOEPD) | NRI | 15,300 – 18,600 | 7,400 – 9,000 | 6,000 – 7,300 | 1,900 – 2,300 |
| Production Expense (millions) | WI & NRI | ||||
| Production Expense per BOE | WI | ||||
| Production Expense per BOE | NRI | ||||
| Offshore Workovers (millions) | WI & NRI | ||||
| Cash G&A (millions) | WI & NRI | ||||
| CAPEX (millions) | WI & NRI |
| Q1 2023 | Gabon | Egypt | Canada | ||
| Production (BOEPD) | WI | 22,500 – 23,800 | 10,000 – 10,500 | 9,900 – 10,500 | 2,600 – 2,800 |
| Production (BOEPD) | NRI | 17,300 – 18,600 | 8,700 – 9,100 | 6,400 – 7,100 | 2,200 – 2,400 |
| Sales Volume (BOEPD) | WI | 17,500 – 18,600 | 5,700 – 6,100 | 9,200 – 9,700 | 2,600 – 2,800 |
| Sales Volume (BOEPD) | NRI | 12,900 – 14,100 | 4,900 – 5,300 | 5,800 – 6,400 | 2,200 – 2,400 |
| Production Expense (millions) | WI & NRI | ||||
| Production Expense per BOE | WI | ||||
| Production Expense per BOE | NRI | ||||
| Offshore Workovers (millions) | WI & NRI | ||||
| Cash G&A (millions) | WI & NRI | ||||
| CAPEX (millions) | WI & NRI |
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.
Supplemental Information
VAALCO has posted a fourth quarter and Full Year 2022 Preliminary Supplemental Information investor deck on its web site, www.vaalco.com, under the Investor Relations tab, with additional information and analysis.
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) statements regarding VAALCO’s expectations with respect to financial conditions and results for the fourth quarter and year ended December 31, 2022; (ii) VAALCO’s ability to file, and the timing of any such filing, of its Annual Report for the year ended December 31, 2022; (iii) VAALCO’s ability to realize the anticipated benefits and synergies expected from acquisition of TransGlobe; (iv) estimates of future drilling, production, sales and costs of acquiring crude oil and natural gas; (v) estimates of future cost reductions, synergies, savings and efficiencies; (vi) expectations regarding VAALCO’s ability to effectively integrate assets and properties it acquired as a result of the acquisition of TransGlobe into its operations; (vii) the amount and timing of stock repurchases, if any, under the VAALCO’s stock buyback program and VAALCO’s ability to enhance stockholder value through such plan; (viii) expectations regarding future exploration and the development, growth and potential of VAALCO’s operations, project pipeline and investments, and schedule and anticipated benefits to be derived therefrom; (ix) expectations regarding future acquisitions, investments or divestitures; (x) expectations of future dividends and returns to stockholders; (xi) expectations of future balance sheet strength; (x) 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: the risk that the completion and audit of VAALCO’s financial statements may take longer to complete than expected; the risk that errors are identified, which may be material, in the Company’s financial results, or impacts the timing of Company filings; risks relating to any unforeseen liabilities of VAALCO; the tax treatment of the business combination 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 Egypt PSCs, 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, VAALCO’s Quarterly Reports on Form 10-Q filed with the SEC on August 10, 2022 and November 8, 2022 and in VAALCO’s Definitive Proxy Statement on Schedule 14A filed with the SEC on August 30, 2022.
Dividends beyond the first quarter of 2023 have not yet been approved or declared by the Board. The declaration and payment of future dividends and the terms of share buybacks remains at the discretion of the Board and will be determined based on VAALCO’s financial results, balance sheet strength, cash and liquidity requirements, future prospects, crude oil and natural gas prices, and other factors deemed relevant by the Board. The Board reserves all powers related to the declaration and payment of dividends and the terms of share buybacks. Consequently, in determining the dividend to be declared and paid on VAALCO common stock or the terms of share buybacks, the Board may revise or terminate the payment level or buyback terms at any time without prior notice.
Financial Information is Preliminary and Unaudited; Certain Material Weaknesses
The financial data presented in this press release for fourth quarter and year ended December 31, 2022 is preliminary and subject to change in connection with the completion and audit of VAALCO’s financial statements for the year ended December 31, 2022. VAALCO is unable to file its Annual Report on Form 10-K within the prescribed time period, without unreasonable effort and expense. Management continues to work as expeditiously as possible to complete the Form 10-K and believes that it will be in a position to file the report with the SEC and conduct an investor conference call on Thursday, April 6, 2023.
In connection with the completion of VAALCO’s financial statements, VAALCO’s management has identified certain material weaknesses in its internal control over financial reporting in the areas of (i) accounting for leases, (ii) accounting for complex areas, specifically, business combinations, (iii) consolidation reporting related to recently acquired business operations, and (iv) accounting for income taxes. Accordingly, VAALCO’s preliminary financial information included in this press release may be subject to change based on the outcome of the completion of the accounting review required in the context of the completion of the audit of VAALCO’s financial statements.
However, after giving consideration to these material weaknesses, and the additional analyses and other procedures that management has performed as of the date of this press release with a view to ensuring that the year end 2022 preliminary unaudited financial information included in this press release has been prepared in accordance with U.S. GAAP, as of the date of this press release, VAALCO’s management believes that such financial information will not be subject to material change.
Investors should not place undue reliance on these preliminary, estimated numbers.
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.
Supplemental Non-GAAP Financial Measures
This press release contains crude oil and natural 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.
PV-10 Value and Probable Reserves
PV-10 is a non-GAAP financial measure and represents the period-end present value of estimated future cash inflows from VAALCO’s reserves, less future development and production costs, discounted at
VAALCO has provided summations of its PV-10 for its proved and probable reserves on a 2P WI CPR basis in this press release. The SEC strictly prohibits companies from aggregating proved, probable and possible reserves in filings with the SEC due to the different levels of certainty associated with each reserve category. GAAP does not provide a measure of estimated future net cash flows for reserves other than proved reserves and accordingly it is not practicable to reconcile the PV-10 value of 2P WI CPR reserves to a GAAP measure, such as the standardized measure. Investors should be cautioned that estimates of PV-10 of probable reserves, as well as the underlying volumetric estimates, are inherently more uncertain of being recovered and realized than comparable measures for proved reserves. Further, because estimates of probable reserve volumes have not been adjusted for risk due to this uncertainty of recovery, their summation may be of limited use. Nonetheless, VAALCO believes that PV-10 estimates for probable reserves present useful information for investors about the future net cash flows of its reserves in the absence of a comparable GAAP measure such as standardized measure.
2P WI CPR Reserves
2P WI CPR reserves represent proved plus probable estimates as reported by NSAI and GLJ and prepared in accordance with the definitions and guidelines set forth in the 2018 Petroleum Resources Management Systems approved by the Society of Petroleum Engineers as of December 31, 2021 using escalated crude oil price and cost assumptions made by VAALCO’s management. The SEC definitions of proved and probable reserves are different from the definitions contained in the 2018 Petroleum Resources Management Systems approved by the Society of Petroleum Engineers as of December 31, 2021. As a result, 2P WI CPR reserves may not be comparable to United States standards. The SEC requires United States oil and gas reporting companies, in their filings with the SEC, to disclose only proved reserves after the deduction of royalties and production due to others but permits the optional disclosure of probable and possible reserves in accordance with SEC definitions.
2P WI CPR reserves and the PV-10 value for 2P WI CPR reserves, as calculated herein, may differ from the SEC definitions of proved and probable reserves because:
- Pricing for SEC is the average closing price on the first trading day of each month for the prior year which is then held flat in the future, while the 2P WI CPR pricing is based on management pricing assumptions for future Brent oil pricing for 2023 of
$80.00 and$70.00 in 2024, escalated2% per year thereafter and for Equatorial Guinea, given the expectation of first oil beginning in 2026, Brent oil pricing of$74.27 was assumed for 2026, escalated2% per year thereafter; - Lease operating expenses are not escalated in the SEC case, while for the 2P WI CPR reserves case they are escalated at
2% annually beginning on January 1, 2023.
Management uses 2P WI CPR reserves as a measurement of operating performance because it assists management in strategic planning, budgeting and economic evaluations and in comparing the operating performance of the Company to other companies. Management believes that the presentation of 2P WI CPR reserves is useful to its international investors, particularly those that invest in companies trading on the London Stock Exchange, in order to better compare the Company’s reserve information to other London Stock Exchange-traded companies that report similar measures. VAALCO also believes that this information enhances its investors’ and securities analysts’ understanding of its business. However, 2P WI CPR reserves should not be used as a substitute for proved reserves calculated in accordance with the definitions prescribed by the SEC. In evaluating VAALCO’s business, investors should rely on the Company’s SEC proved reserves and consider 2P WI CPR reserves only supplementally.
VAALCO ENERGY, INC AND SUBSIDIARIES
Preliminary Selected Financial Data from Consolidated Statements of Operations (Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||||||||||||||
| December 31, 2022 | December 31, 2021 | September 30, 2022 | 2022 | 2021 | ||||||||||||||||
| (in thousands except per share amounts) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Crude oil, natural gas and natural gas liquids sales | $ | 96,588 | $ | 56,379 | $ | 78,097 | $ | 354,326 | $ | 199,075 | ||||||||||
| Operating costs and expenses: | ||||||||||||||||||||
| Production expense | 45,514 | 23,495 | 23,312 | 112,661 | 81,255 | |||||||||||||||
| FPSO demobilization | — | — | 8,867 | 8,867 | - | |||||||||||||||
| Exploration expense | 8 | 293 | 56 | 258 | 1,579 | |||||||||||||||
| Depreciation, depletion and amortization | 26,316 | 4,132 | 8,963 | 48,143 | 21,060 | |||||||||||||||
| General and administrative expense | (430 | ) | 2,545 | 1,979 | 10,077 | 14,766 | ||||||||||||||
| Bad debt expense and other | 999 | 61 | 1,020 | 3,082 | 875 | |||||||||||||||
| Total operating costs and expenses | 72,407 | 30,526 | 44,197 | 183,088 | 119,535 | |||||||||||||||
| Other operating income (expense), net | 43 | - | - | 38 | (440 | ) | ||||||||||||||
| Operating income (loss) | $ | 24,224 | $ | 25,853 | $ | 33,900 | $ | 171,276 | $ | 79,100 | ||||||||||
VAALCO ENERGY, INC AND SUBSIDIARIES
Preliminary Consolidated Statements of Cash Flows (Unaudited)
| Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| (in thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (1) (2) | $ | 49,390 – 54,890 | $ | 81,836 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Loss from discontinued operations, net of tax | 72 | 98 | ||||||
| Depreciation, depletion and amortization | 48,143 | 21,060 | ||||||
| Bargain purchase gain (1) | (9,819 – 13,319 | ) | (7,651 | ) | ||||
| Deferred taxes (2) | 44,305 – 46,305 | (39,978 | ) | |||||
| Unrealized foreign exchange (gain) loss | (1,043 | ) | (291 | ) | ||||
| Stock-based compensation | 2,200 | 2,459 | ||||||
| Cash settlements paid on exercised stock appreciation rights | (827 | ) | (3,271 | ) | ||||
| Derivative instruments (gain) loss, net | 37,812 | 22,826 | ||||||
| Cash settlements received (paid) on matured derivative contracts, net | (42,935 | ) | (18,020 | ) | ||||
| Cash settlements paid on asset retirement obligations | (6,577 | ) | — | |||||
| Bad debt expense and other | 3,082 | 875 | ||||||
| Other operating loss, net | (38 | ) | 440 | |||||
| Operational expenses associated with equipment and other | 2,052 | 2,415 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Trade receivables | 18,385 | (11,308 | ) | |||||
| Accounts with joint venture owners | (18,929 | ) | 1,594 | |||||
| Other receivables | (9,290 | ) | (9,736 | ) | ||||
| Crude oil inventory | (1,742 | ) | 5,022 | |||||
| Prepayments and other | (4,387 | ) | 1,617 | |||||
| Value added tax and other receivables | (5,193 | ) | (1,593 | ) | ||||
| Other long-term assets | (2,730 | ) | (1,176 | ) | ||||
| Accounts payable | 23,920 | (922 | ) | |||||
| Foreign income taxes receivable/payable | (5,897 | ) | 2,268 | |||||
| Accrued liabilities and other | 6,964 | 1,645 | ||||||
| Net cash provided by continuing operating activities | 128,918 | 50,209 | ||||||
| Net cash used in discontinued operating activities | (72 | ) | (92 | ) | ||||
| Net cash provided by operating activities | 128,846 | 50,117 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Property and equipment expenditures | (159,897 | ) | (16,558 | ) | ||||
| Cash acquired from TransGlobe acquisition | 36,686 | — | ||||||
| Acquisition of crude oil and natural gas properties | — | (22,505 | ) | |||||
| Net cash used in continuing investing activities | (123,211 | ) | (39,063 | ) | ||||
| Net cash used in discontinued investing activities | — | — | ||||||
| Net cash used in investing activities | (123,211 | ) | (39,063 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the issuances of common stock | 312 | 1,369 | ||||||
| Dividend distribution | (9,354 | ) | — | |||||
| Treasury shares | (3,805 | ) | (1,426 | ) | ||||
| Deferred financing costs | (2,069 | ) | — | |||||
| Payments of finance lease | (3,039 | ) | — | |||||
| Net cash used in continuing financing activities | (17,955 | ) | (57 | ) | ||||
| Net cash used in discontinued financing activities | — | — | ||||||
| Net cash used in financing activities | (17,955 | ) | (57 | ) | ||||
| Effects of exchange rate changes on cash | (218 | ) | — | |||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (12,538 | ) | 10,997 | |||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 72,314 | 61,317 | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 59,776 | $ | 72,314 | ||||
| (1 | ) | The Company is in the process of finalizing its deferred income tax calculation and the impact on its consolidated financial statements, including the deferred tax impacts associated with the TransGlobe business combination. The Company currently estimates any impact from deferred income tax adjustments will affect the bargain purchase gain from ( |
| (2 | ) | For purposes of the preliminary consolidated cash flow statement for the year ended December 31, 2022, the Company has used a net income amount of |
VAALCO ENERGY, INC AND SUBSIDIARIES
Selected Financial and Operating Statistics (Unaudited)
| Three Months Ended | Year Ended December 31, | |||||||||||||||||||
| December 31, 2022 | December 31, 2021 | September 30, 2022 | 2022 | 2021 | ||||||||||||||||
| NRI SALES DATA | ||||||||||||||||||||
| Crude oil, natural gas and natural gas liquids sales (MBOE) | 1,371 | 709 | 731 | 3,677 | 2,711 | |||||||||||||||
| WI PRODUCTION DATA | ||||||||||||||||||||
| Etame Crude oil (MBbl) | 650 | 799 | 968 | 3,415 | 3,188 | |||||||||||||||
| Egypt Crude oil (MBbl) | 818 | — | — | 818 | — | |||||||||||||||
| Canada Crude oil, natural gas and natural gas liquids sales (MBOE) | 211 | — | — | 211 | — | |||||||||||||||
| Total Crude oil, natural gas and natural gas liquids sales (MBOE) | 1,680 | 799 | 968 | 4,445 | 3,188 | |||||||||||||||
| Average daily production volumes (BOEPD) | 18,262 | 8,685 | 10,525 | 12,177 | 8,734 | |||||||||||||||
| NRI PRODUCTION DATA | ||||||||||||||||||||
| Etame Crude oil (MBbl) | 566 | 695 | 842 | 2,971 | 2,599 | |||||||||||||||
| Egypt Crude oil (MBbl) | 547 | — | — | 547 | — | |||||||||||||||
| Canada Crude oil, natural gas and natural gas liquids sales (MBOE) | 211 | — | — | 211 | — | |||||||||||||||
| Total Crude oil, natural gas and natural gas liquids sales (MBOE) | 1,324 | 695 | 842 | 3,729 | 2,599 | |||||||||||||||
| Average daily production volumes (BOEPD) | 14,390 | 7,554 | 9,157 | 10,217 | 7,119 | |||||||||||||||
| AVERAGE SALES PRICES: | ||||||||||||||||||||
| Crude oil, natural gas and natural gas liquids sales (per BOE) | $ | 70.43 | $ | 77.31 | $ | 103.61 | $ | 94.77 | $ | 70.66 | ||||||||||
| Crude oil, natural gas and natural gas liquids sales (Per BOE including realized commodity derivatives) | $ | 70.24 | $ | 66.26 | $ | 91.13 | $ | 83.10 | $ | 64.01 | ||||||||||
| COSTS AND EXPENSES (Per BOE of sales): | ||||||||||||||||||||
| Production expense | $ | 33.19 | $ | 33.14 | $ | 31.89 | $ | 30.64 | $ | 29.97 | ||||||||||
| Production expense, excluding workovers and stock compensation* | 29.73 | 26.82 | 31.79 | 29.33 | 26.77 | |||||||||||||||
| Depreciation, depletion and amortization | 19.19 | 5.83 | 12.26 | 13.09 | 7.77 | |||||||||||||||
| General and administrative expense** | (0.31 | ) | 3.59 | 2.71 | 2.74 | 5.45 | ||||||||||||||
| Property and equipment expenditures, cash basis (in thousands) | $ | 56,044 | $ | 8,099 | $ | 43,575 | $ | 159,897 | $ | 16,558 | ||||||||||
| * | Workover costs excluded from the three months ended December 31, 2022 and 2021 and September 30, 2022 are |
| ** | General and administrative expenses include |
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, impairment of proved crude oil and natural gas properties, non-cash and other items including stock compensation expense, gain on the Sasol Acquisition and unrealized commodity derivative loss.
Adjusted EBITDAX has 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 should not be considered as a substitute 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 excludes 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 may not be comparable to similarly titled measures used by other companies.
The tables below reconcile the most directly comparable GAAP financial measure to Adjusted EBITDAX.
VAALCO ENERGY, INC AND SUBSIDIARIES
Preliminary Reconciliations of Non-GAAP Financial Measures
(Unaudited)
(in thousands)
| Three Months Ended | Year Ended December 31, | |||||||||||||||||||
| Reconciliation of Net Income to Adjusted EBITDAX | December 31, 2022 | December 31, 2021 | September 30, 2022 | 2022 | 2021 | |||||||||||||||
| Net income (1)(2) | $ | 15,254 – 20,754 | $ | 34,362 | $ | 6,868 | $ | 49,390 – 54,890 | $ | 81,836 | ||||||||||
| Add back: | ||||||||||||||||||||
| Impact of discontinued operations | 14 | 26 | 26 | 72 | 98 | |||||||||||||||
| Interest expense (income), net | 1,679 | (1 | ) | 234 | 2,034 | (10 | ) | |||||||||||||
| Income tax expense (benefit) (1)(2) | 6, 453 – 8,453 | (10,884 | ) | 22,843 | 70,920 – 72,920 | (22,156 | ) | |||||||||||||
| Depreciation, depletion and amortization | 26,316 | 4,132 | 8,963 | 48,143 | 21,060 | |||||||||||||||
| Exploration expense | 8 | 293 | 56 | 258 | 1,579 | |||||||||||||||
| FPSO demobilization | — | — | 8,867 | 8,867 | — | |||||||||||||||
| Impairment of proved crude oil and natural gas properties | — | — | — | — | — | |||||||||||||||
| Non-cash or unusual items: | ||||||||||||||||||||
| Stock-based compensation | (100 | ) | 361 | 36 | 2,200 | 2,459 | ||||||||||||||
| Unrealized derivative instruments loss (gain) | 38 | (6,075 | ) | (12,902 | ) | (5,123 | ) | 4,806 | ||||||||||||
| Gain on Acquisition, net (1)(2) | (9,819 – 13,319 | ) | 302 | — | (9,819 – 13,319 | ) | (5,189 | ) | ||||||||||||
| Arrangement Costs | 7,006 | — | 6,424 | 14,630 | — | |||||||||||||||
| Other operating (income) expense, net | (43 | ) | — | — | (38 | ) | 440 | |||||||||||||
| Gain on revision of asset retirement obligations | — | — | — | — | — | |||||||||||||||
| Bad debt expense and other | 999 | 61 | 1,020 | 3,082 | 875 | |||||||||||||||
| Adjusted EBITDAX | $ | 49,807 | $ | 22,577 | $ | 42,435 | $ | 186,618 | $ | 85,798 | ||||||||||
| (1 | ) | The Company is in the process of finalizing its deferred income tax calculation and the impact on its consolidated financial statements, including the deferred tax impacts associated with the TransGlobe business combination. The Company currently estimates any impact from deferred income tax adjustments will affect the bargain purchase gain from ( |
| (2 | ) | For purposes of the preliminary Adjusted EBITDAX reconciliation for the quarter and year ended December 31, 2022, the Company has used a net income amount of |
FAQ
What are VAALCO Energy's proved reserves for 2022 under the ticker symbol EGY?
How much did VAALCO Energy's PV-10 value rise in 2022?
What was the expected net income for VAALCO Energy in FY 2022?
What is the increase in VAALCO Energy's quarterly cash dividend for 2023?
How did VAALCO Energy's average daily production change in 2022?
