VAALCO Energy(US:EGY)2024-11-12 22:18PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The statements show increased assets and net income, reflecting the recent Svenska acquisition Condensed Consolidated Balance Sheets Total assets grew to $937.9 million, driven by oil properties, while liabilities and equity also increased | Account | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total current assets | $236,799 | $228,141 | | Crude oil, natural gas and NGLs properties and equipment, net | $531,589 | $459,786 | | Total assets | $937,903 | $823,216 | | Total current liabilities | $176,247 | $127,475 | | Total liabilities | $436,871 | $344,434 | | Total shareholders' equity | $501,032 | $478,782 | Condensed Consolidated Statements of Operations and Comprehensive Income Net income surged for Q3 and the nine-month period, boosted by higher revenues and a bargain purchase gain | Metric | Q3 2024 (in thousands) | Q3 2023 (in thousands) | Nine Months 2024 (in thousands) | Nine Months 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $140,334 | $116,269 | $357,267 | $305,912 | | Operating income | $44,083 | $35,548 | $97,989 | $77,718 | | Bargain purchase gain | - | - | $19,898 | ($1,412) | | Net income | $10,990 | $6,141 | $46,827 | $16,363 | | Diluted EPS | $0.10 | $0.06 | $0.45 | $0.15 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity grew to $501.0 million, driven by net income partially offset by dividends and buybacks - Key changes in shareholders' equity for the nine months ended Sep 30, 2024 include: net income of $46.8 million, dividend distributions of $19.6 million, and treasury stock purchases of $6.8 million1216 Condensed Consolidated Statements of Cash Flows Operating cash flow decreased due to working capital changes, while investing and financing activities used cash | Cash Flow Activity | Nine Months 2024 (in thousands) | Nine Months 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $69,185 | $171,811 | | Net cash used in investing activities | ($61,118) | ($77,365) | | Net cash used in financing activities | ($32,264) | ($42,382) | | Net change in cash | ($24,201) | $51,743 | | Cash at end of period | $104,977 | $111,519 | Notes to Condensed Consolidated Financial Statements (unaudited) Notes detail the Svenska acquisition, segment revenues, credit facility, and key financial commitments - On April 30, 2024, the Company acquired Svenska Petroleum for a net purchase price of $40.2 million, funded with cash-on-hand, resulting in a bargain purchase gain of $19.9 million323336 | Segment | Revenue Q3 2024 (in thousands) | Revenue 9M 2024 (in thousands) | | :--- | :--- | :--- | | Gabon | $47,608 | $158,786 | | Egypt | $34,544 | $106,986 | | Canada | $8,387 | $24,460 | | Cote d'Ivoire | $49,795 | $67,035 | - The company has a senior secured reserve-based revolving credit facility (RBL Facility) for up to $50.0 million, with $37.5 million available and no outstanding borrowings as of September 30, 2024676869 - The company completed its share buyback program on March 12, 2024, purchasing 6,797,711 shares at an average price of $4.41 per share64 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses strong revenue and income growth driven by acquisitions, alongside operational updates and liquidity Recent Developments and Operational Updates The company declared a quarterly dividend and provided updates on drilling and workover programs across its assets - The Board of Directors declared a quarterly cash dividend of $0.0625 per common share, payable on December 20, 202486 - Operational highlights include: - Gabon: Planning for the next drilling campaign to begin in early 202588 - Egypt: A workover rig is in place to slow decline, with a new drilling program expected to start in late November 202490 - Canada: The 2024 four-well drilling campaign is complete, and all wells were producing as of September 30, 202496 - Cote d'Ivoire: The operator is advancing the FPSO dry dock project, which remains on target for 202599 Capital Resources and Liquidity The company maintains strong liquidity with significant cash reserves, no debt, and sufficient operating cash flow - As of September 30, 2024, the company had $89.1 million in unrestricted cash and no outstanding debt11967 - For the nine months ended September 30, 2024, net cash from operating activities decreased by $102.6 million year-over-year, primarily due to changes in operating assets and liabilities110 - Material cash requirements include annual $10.0 million modernization payments to EGPC in Egypt through February 2026 and ongoing funding for asset abandonment in Gabon127128131 Results of Operations Revenue and net income increased significantly, driven by the Cote d'Ivoire acquisition offsetting other declines | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $140.3M | $116.3M | +21% | | Net Income | $11.0M | $6.1M | +80% | | Net Sales Volume (MBoe) | 2,134 | 1,812 | +322 | | Metric | 9M 2024 | 9M 2023 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $357.3M | $305.9M | +17% | | Net Income | $46.8M | $16.4M | +185% | | Net Sales Volume (MBoe) | 5,388 | 4,839 | +549 | - The Cote d'Ivoire segment, acquired in 2024, was a primary driver of revenue growth, contributing $49.8 million in Q3 and $67.0 million in the first nine months of the year154169 - Production expenses for the nine months ended September 30, 2024 increased by $20.1 million (19%) year-over-year, due to the addition of Cote d'Ivoire, new withholding tax regulations in Gabon, and general inflationary pressures170 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risks are commodity price volatility, foreign exchange rates, and counterparty risk - The company's main market risk is the price of crude oil, natural gas, and NGLs; a hypothetical $5 per barrel decrease in crude oil price is estimated to reduce quarterly revenues by $10.7 million188192 - The company is exposed to foreign currency risk; a 10% weakening of the Central African CFA Franc (XAF) relative to the USD would reduce the value of net monetary assets by $3.2 million182 - To manage commodity price volatility, the company had derivative instruments covering approximately 710 MBbls of production through March 2025, with additional contracts added post-quarter-end198199 CONTROLS AND PROCEDURES Management concluded that disclosure controls were effective, noting changes related to the Svenska acquisition - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2024201 - Following the Svenska Acquisition on April 30, 2024, new processes and internal controls were implemented; this acquisition will be excluded from the year-end assessment of internal control over financial reporting202 PART II. OTHER INFORMATION LEGAL PROCEEDINGS The company is not subject to any material legal proceedings - Management states that there are no material legal proceedings against the company203 RISK FACTORS Key risks include acquisition discouragement provisions, non-operated assets, and Cote d'Ivoire PSC uncertainty - The company highlights several key risks: - Acquisition Discouragement: Provisions in agreements could make a third-party acquisition more difficult or expensive206 - Non-Operated Assets: Limited control over assets not operated by the company207 - Cote d'Ivoire PSC Extension: No assurance that the Block CI-40 PSC will be extended beyond its April 2028 expiration209 - FPSO Maintenance: The FPSO in Côte d'Ivoire is scheduled for maintenance in January 2025, which will halt production and revenues from that block until its expected return in 2026211 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities were reported during the quarter - No unregistered sales of equity securities occurred during the third quarter of 2024212 OTHER INFORMATION No directors or officers modified Rule 10b5-1 trading arrangements during the quarter - No company directors or officers modified any Rule 10b5-1 trading arrangements during the three months ended September 30, 2024213 EXHIBITS This section lists exhibits filed with the report, including required officer certifications and XBRL documents