VAALCO Energy(EGY) - 2024 Q1 - Quarterly Results

Executive Summary & Highlights Q1 2024 Key Highlights VAALCO Energy achieved strong operational and financial results in Q1 2024, completed the Svenska Petroleum Exploration AB acquisition, and continued returning cash to shareholders - Completed the all-cash acquisition of Svenska Petroleum Exploration AB for a net purchase price of $40.2 million, strategically expanding West African operations with production assets and future development opportunities in Côte d'Ivoire[3][4] - VAALCO has repurchased approximately $30 million in stock since the buyback program's inception, paying $6.5 million in dividends and completing $5.5 million in stock repurchases this quarter[3][4] Net Income and Adjusted EBITDAX Overview | Metric | Amount (MM USD) | | :------------------- | :-------------- | | Net Income | 7.7 | | Adjusted Net Income | 6.5 | | Adjusted EBITDAX | 61.7 | | Cash Capital Expenditures | 16.7 | | Unrestricted Cash | 113.3 | Production and Sales Overview | Metric | Value | | :------------------- | :----- | | NRI BOEPD Production | 16,848 | | WI BOEPD Production | 21,807 | | NRI BOE Sales | 1,490,000 | | NRI BOEPD Sales | 16,373 | - Declared a quarterly cash dividend of $0.0625 per common share, payable on June 21, 2024[4] CEO Commentary CEO George Maxwell highlighted strong Q1 2024 operational and financial performance, with sales near the high end and costs below the low end of guidance, emphasizing the accretive Svenska acquisition and updated guidance - The company achieved robust earnings and Adjusted EBITDAX with sales near the high end and costs below the low end of guidance, combined with a strong pricing environment[5] - Completed the Equatorial Guinea agreement and is progressing Front-End Engineering Design (FEED) studies, expected to lead to a Final Investment Decision (FID) for the Venus development plan[5] - The Svenska acquisition was completed ahead of schedule for a net purchase price of $40.2 million, considered highly accretive to the shareholder base, providing another strong asset for future growth and shareholder value return[5] - Updated full-year 2024 and Q2 guidance to reflect the positive impact of the Svenska acquisition on production and per-barrel operating costs, anticipating higher profitability and greater Adjusted EBITDAX[5] Operational Review Egypt Operations VAALCO focused on enhancing Egyptian production in Q1 2024 through planned workover operations and OGS-10 rig interventions, completing several recompletions and fracturing the EA-55 well - In Q1 2024, VAALCO focused on increasing Egyptian production through planned workover operations and OGS-10 rig interventions[6] - Completed the K-81 recompletion, and the EA-55 well was fractured and brought online in January 2024[6] Q1 2024 Egypt Workover Well Impact | Well | Completion Date | Type | Completion Zone | Perforated Interval (feet) | IP-30 Production (Bbl/day) | | :----- | :------- | :----- | :------- | :---------- | :-------------- | | K-81 | Jan 1, 2024 | Recompletion | Asl-D | 13.1 | 154 | | EA-55 | Jan 10, 2024 | Fracture & Completion | Redbed | Hydraulic Fracture | 143 | | H-22 | Feb 7, 2024 | Recompletion | Yusr-A | 9.8 | 82 | | K-65_ST1 | Feb 14, 2024 | Recompletion | Asl-D | 13.1 | 43* | | K-85 | Mar 16, 2024 | Recompletion | Asl-D | 13.1 | 420 | | K-84 | Mar 21, 2024 | Recompletion | Asl-G | 16.4 | In Progress | Canada Operations Canadian drilling activities commenced in January 2024, with four wells drilled, each featuring 2.75-mile laterals, and first production anticipated in May after March completion - Canadian 2024 drilling activities commenced in January, with four wells drilled, each including 2.75-mile laterals[9] - Drilling was completed on March 24, with completion operations starting in late March and finishing in April, anticipating first production in May 2024[9] Gabon Operations VAALCO is planning the next drilling campaign for Etame in late 2024 to 2025, maintaining high uptime and stable operations through optimized flowline configurations and chemical injection - VAALCO is identifying and planning locations for the next drilling campaign at Etame, anticipated in late 2024 to 2025[11] - The company continues to optimize Etame facility flowline configurations and chemical injection, achieving high uptime and stable operations in Q1 2024, positively impacting productivity and uptime[12] Financial Performance Net Income and Adjusted EBITDAX VAALCO reported Q1 2024 net income of $7.7 million, a decrease from Q4 2023 but an increase from Q1 2023, with Adjusted EBITDAX of $61.7 million showing similar trends Net Income Comparison | Period | Net Income (MM USD) | | :----------------- | :----- | | Q1 2024 | 7.7 | | Q4 2023 | 44.0 | | Q1 2023 | 3.4 | - The sequential decrease in net income was primarily due to lower sales revenue, increased depreciation, depletion, and amortization (DD&A) expense, and higher transaction costs and credit losses, partially offset by reduced production expenses and lower income tax[13] - The year-over-year increase in net income was primarily due to higher sales revenue from increased volumes, partially offset by higher production expenses, transaction costs, DD&A expense, derivative losses, and income tax[13] Adjusted EBITDAX Comparison | Period | Adjusted EBITDAX (MM USD) | | :----------------- | :------------ | | Q1 2024 | 61.7 | | Q4 2023 | 95.9 | | Q1 2023 | 47.8 | - The sequential decrease in Adjusted EBITDAX was primarily due to lower sales and commodity prices[15] - The year-over-year increase in Adjusted EBITDAX was primarily due to higher revenue from increased sales[15] Sales and Net Revenue VAALCO's Q1 2024 net revenue decreased 33% sequentially to $100.2 million due to volumes and commodity prices, but increased 25% year-over-year, with Q2 NRI sales volumes projected to rise from the Svenska acquisition Sales and Net Revenue Overview | Metric | Q1 2024 (K USD) | Q4 2023 (K USD) | | :------------------- | :------------- | :------------- | | Oil Sales | 132,133 | 184,917 | | NGL Sales | 1,977 | 2,019 | | Natural Gas Sales | 820 | 818 | | Total Sales | 134,931 | 187,754 | | Cost of Sales and Incidental Interests | 920 | 1,009 | | Royalties and Taxes | (35,696) | (39,609) | | Net Revenue | 100,155 | 149,154 | Key Sales Metrics Comparison | Metric | Q1 2024 | Q1 2023 | YoY Change (%) | Q4 2023 | QoQ Change (%) | | :----------------------- | :------------- | :------------- | :----------- | :------------- | :----------- | | Production (NRI BOEPD) | 16,848 | 18,306 | (8)% | 18,065 | (7)% | | Sales (NRI BOE) | 1,490,000 | 1,224,000 | 22% | 1,994,000 | (25)% | | Realized Commodity Price (USD/BOE) | 66.43 | 65.68 | 1% | 73.96 | (10)% | | Gross Commodity Sales (MM USD) | 100.2 | 80.4 | 25% | 149.2 | (33)% | - Q1 2024 NRI sales volumes were 1,490,000 BOE, at the higher end of VAALCO's guidance[16] - The company anticipates Q2 2024 NRI sales volumes to be between 18,100 and 20,000 BOEPD, reflecting the inclusion of Svenska volumes in May and June[16] Costs and Expenses VAALCO's Q1 2024 total production expenses (excluding offshore workovers and stock-based compensation) were $32.1 million, down sequentially but up slightly year-over-year, with increased DD&A and G&A expenses Costs and Expenses Overview | Metric | Q1 2024 (MM USD) | Q1 2023 (MM USD) | YoY Change (%) | Q4 2023 (MM USD) | QoQ Change (%) | | :------------------------------------------------- | :------------- | :------------- | :----------- | :------------- | :----------- | | Production Expenses (excl. offshore workovers & stock-based comp) | 32.1 | 29.3 | 10% | 46.3 | (31)% | | Production Expenses (excl. offshore workovers) (USD/BOE) | 21.58 | 23.90 | (10)% | 23.27 | (7)% | | Depreciation, Depletion, and Amortization (DD&A) (MM USD) | 25.8 | 24.4 | 6% | 20.3 | 27% | | Depreciation, Depletion, and Amortization (DD&A) (USD/BOE) | 17.3 | 19.90 | (13)% | 10.20 | 70% | | General and Administrative (G&A) Expenses (excl. stock-based comp) (MM USD) | 5.9 | 4.6 | 27% | 6.1 | (4)% | | Current Income Tax Expense (MM USD) | 25.7 | 12.3 | 109% | 14.3 | 80% | - Q1 2024 production expenses decreased sequentially due to lower volumes and costs, but increased year-over-year due to higher volumes and increased vessel, diesel, and operating costs[18] - Q1 2024 DD&A expenses increased primarily due to higher depletable costs in Gabon, Egypt, and Canada[20] - Q1 2024 G&A expenses increased year-over-year primarily due to higher professional services, salaries, and accounting and legal fees[21] - Q1 2024 income tax expense was $22.2 million, impacted by non-deductible items like Svenska transaction costs and changes in the mark-to-market value of Gabon's state tax barrels at quarter-end[23] Capital Investments and Balance Sheet VAALCO's Q1 2024 net capital expenditures were $16.6 million (cash basis), primarily for development drilling in Egypt and Canada, with an unrestricted cash balance of $113.3 million and working capital of $86.5 million as of March 31 - Net capital expenditures (cash basis) totaled $16.6 million in Q1 2024, primarily for development drilling programs in Egypt and Canada[24] Balance Sheet Key Metrics | Metric | As of March 31, 2024 (K USD) | As of Dec 31, 2023 (K USD) | | :------------------- | :----------------- | :----------------- | | Cash and Cash Equivalents | 113,321 | 121,001 | | Total Current Assets | 217,744 | 228,141 | | Total Current Liabilities | 131,204 | 127,475 | | Working Capital | 86,540 | 100,666 | | Adjusted Working Capital | 98,980 | 113,814 | Shareholder Returns & Strategic Initiatives Cash Dividend Policy and Share Buyback VAALCO paid a quarterly cash dividend of $0.0625 per share in Q1 2024 and declared the same for Q2, completing its $30 million stock repurchase program by March 12, 2024 - VAALCO paid a quarterly cash dividend of $0.0625 per share in Q1 2024 and declared the same amount for Q2 (annualized $0.25)[26] - The $30 million stock repurchase program was completed on March 12, 2024, repurchasing 6,797,711 shares at an average price of $4.41 per share[27] Svenska Acquisition VAALCO completed the Svenska acquisition on April 30, 2024, for a net purchase price of $40.2 million, gaining a 27.39% non-operated interest in Côte d'Ivoire's CI-40 license, including the Baobab field with significant reserves and future development plans - VAALCO completed the acquisition of Svenska on April 30, 2024, for a net purchase price of $40.2 million[28] - Svenska's primary asset is a 27.39% non-operated interest (30.43% paying interest) in the CI-40 license in Côte d'Ivoire, including the Baobab field[29] Baobab Field Reserves (as of Oct 1, 2023) | Metric | Value | | :----------------- | :---------- | | Current WI BOEPD Production | Approx. 5,000 | | 1P WI CPR Reserves | 13.0 MMBOE (99% Oil) | | 2P WI CPR Reserves | 21.7 MMBOE (97% Oil) | - The Baobab field plans FPSO maintenance and upgrades in early 2025, with production expected to resume in 2026, alongside a development drilling program to exploit incremental reserves[30] - Svenska also holds a 21.05% working interest in the Uge discovery within Nigeria's OML 145 concession, with no current drilling or development plans[31] Hedging Strategy VAALCO continues to hedge a portion of its future production to secure strong cash flows for capital expenditures and shareholder returns, holding Dated Brent crude oil collar option contracts through Q3 2024 - The company continues to hedge a portion of its anticipated future production to lock in strong cash flows, supporting capital and shareholder return programs[32] Hedging Contracts as of Q1 2024 End | Settlement Period | Contract Type | Index | Monthly Average Volume (barrels) | Average Put Price (USD/barrel) | Average Call Price (USD/barrel) | | :------------------- | :------- | :---------- | :------------------ | :------------------- | :------------------- | | April - June 2024 | Collar Option | Dated Brent | 65,000 | 65.00 | 100.00 | | July - September 2024 | Collar Option | Dated Brent | 80,000 | 65.00 | 92.00 | Outlook and Guidance 2024 Full Year Guidance VAALCO updated its 2024 full-year guidance to reflect the Svenska acquisition, projecting WI production of 23,600-26,500 BOEPD and NRI production of 18,900-21,400 BOEPD, along with key financial metrics - The company has updated its 2024 full-year guidance to reflect the impact of the Svenska acquisition, completed in April[34] 2024 Full Year Guidance | Metric | Range | | :----------------------- | :----------------- | | Production (BOEPD) WI | 23,600 - 26,500 | | Production (BOEPD) NRI | 18,900 - 21,400 | | Sales (BOEPD) WI | 24,300 - 27,200 | | Sales (BOEPD) NRI | 19,200 - 21,800 | | Production Expenses (MM USD) WI & NRI | 162.0 - 174.5 | | Production Expenses (USD/BOE) WI | 16.00 - 19.00 | | Production Expenses (USD/BOE) NRI | 21.00 - 24.00 | | Offshore Workovers (MM USD) WI & NRI | 1 - 10 | | Cash G&A (MM USD) WI & NRI | 20.0 - 28.0 | | Capital Expenditures (MM USD) WI & NRI | 115 - 140 | | DD&A (USD/BOE) NRI | 20.00 - 22.00 | Q2 2024 Guidance VAALCO issued Q2 2024 guidance, forecasting WI production of 23,800-27,000 BOEPD and NRI production of 19,000-21,800 BOEPD, along with detailed financial metrics for expenses and capital 2024 Q2 Guidance | Metric | Range | | :----------------------- | :----------------- | | Production (BOEPD) WI | 23,800 - 27,000 | | Production (BOEPD) NRI | 19,000 - 21,800 | | Sales (BOEPD) WI | 22,800 - 25,400 | | Sales (BOEPD) NRI | 18,100 - 20,000 | | Production Expenses (MM USD) WI & NRI | 35.5 - 45.5 | | Production Expenses (USD/BOE) WI | 11.50 - 16.50 | | Production Expenses (USD/BOE) NRI | 15.00 - 20.00 | | Offshore Workovers (MM USD) WI & NRI | 0 - 0 | | Cash G&A (MM USD) WI & NRI | 5.0 - 7.0 | | Capital Expenditures (MM USD) WI & NRI | 30 - 50 | | DD&A (USD/BOE) NRI | 20.00 - 22.00 | Additional Information Conference Call & Investor Resources VAALCO will host a conference call on May 8, 2024, to discuss Q1 2024 financial and operational results, with an investor presentation available beforehand - The company will host a conference call on May 8, 2024, to discuss Q1 2024 financial and operational results[37] - The 'Q1 2024 Supplemental Information' investor presentation will be available on VAALCO's website prior to the conference call[38] About VAALCO Founded in 1985, VAALCO is an independent energy company based in Houston, Texas, with a diversified portfolio of production, development, and exploration assets across multiple African countries and Canada - VAALCO, founded in 1985, is an independent energy company headquartered in Houston, Texas[39] - The company holds a diversified portfolio of production, development, and exploration assets in Gabon, Egypt, Côte d'Ivoire, Equatorial Guinea, and Canada[39] Forward-Looking Statements This press release contains forward-looking statements regarding future events and results, subject to risks and uncertainties that could cause actual outcomes to differ materially, including acquisition integration and FPSO maintenance - Forward-looking statements involve estimates of future drilling, production, sales, and costs, as well as expectations for acquired asset integration, future exploration and development, dividends, and stock repurchases[43] - These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from forward-looking statements, including unforeseen liabilities related to VAALCO, cash flow generation capabilities, and the timing and cost of Baobab field FPSO maintenance[44] - Dividends beyond Q2 2024 have not been approved or declared by the Board, and future dividend declarations and payments will be determined by the Board based on financial performance, balance sheet strength, and cash and liquidity needs[45] Oil and Natural Gas Reserves & Advisories Crude oil and natural gas metrics in this release do not conform to SEC definitions and may not be comparable to other companies, with WI CPR reserves differing from SEC-defined reserves primarily in pricing and operating expense assumptions - Crude oil and natural gas metrics in this press release do not conform to SEC standardized definitions or calculation methods and may not be comparable to similar metrics used by other companies[47] - WI CPR reserves (1P and 2P) differ from SEC-defined proved and probable reserves, primarily in pricing assumptions (SEC uses average closing price on the first trading day of each month for the prior year, WI CPR uses future Brent crude oil price forecasts) and operating expense escalation (SEC generally does not escalate, WI CPR escalates 2% annually)[48][49][51] - Investors should rely on VAALCO's SEC-proved reserves when evaluating the company's business and consider 1P and 2P WI CPR reserves as supplementary information[49] - Investors are cautioned that the barrel of oil equivalent (BOE) conversion ratio (6 MCF: 1 Bbl) is based on an energy equivalent conversion method and does not represent value equivalency at the wellhead, thus may not fully reflect value[50] Non-GAAP Financial Measures VAALCO uses non-GAAP financial measures like Adjusted Net Income, Adjusted EBITDAX, Adjusted Working Capital, and Free Cash Flow to assess performance, finding them useful for investors by excluding non-cash or non-recurring items, but they are not GAAP substitutes - Adjusted Net Income is used to evaluate operational and financial performance, helping investors assess and compare company performance by excluding certain non-cash and/or other non-recurring items deemed not indicative of cyclical performance by management[57] - Adjusted EBITDAX serves as a supplementary non-GAAP metric to measure the company's ability to internally fund exploration and development activities and service or incur additional debt[58] - Adjusted Working Capital is used to assess the company's ongoing working capital position, excluding the impact of lease obligations[59] - Free Cash Flow is used to evaluate financial performance and determine the total amount available for returning cash to shareholders over a specific period[60] - All non-GAAP financial measures have limitations and should not be considered substitutes for net income (loss), operating income (loss), cash flow from operating activities, or any other financial performance or liquidity measure under GAAP[61][62] Non-GAAP Financial Measures Reconciliation | Metric | Q1 2024 (K USD) | Q1 2023 (K USD) | Q4 2023 (K USD) | | :----------------------- | :------------- | :------------- | :------------- | | Net Income | 7,686 | 3,470 | 43,991 | | Adjusted Net Income | 6,547 | 7,286 | 38,994 | | Adjusted EBITDAX | 61,744 | 47,841 | 95,881 | | Working Capital | 86,540 | N/A | 100,666 | | Adjusted Working Capital | 98,980 | N/A | 113,814 | | Free Cash Flow | 2,516 | N/A | N/A | Financial Statements (Unaudited) Consolidated Balance Sheets As of March 31, 2024, VAALCO's consolidated balance sheet reported total assets of $809.1 million, total liabilities of $336.6 million, and total stockholders' equity of $472.6 million, with slight changes from December 31, 2023 Consolidated Balance Sheets Overview | Metric | As of March 31, 2024 (K USD) | As of Dec 31, 2023 (K USD) | | :----------------------- | :----------------- | :----------------- | | Cash and Cash Equivalents | 113,321 | 121,001 | | Total Current Assets | 217,744 | 228,141 | | Oil and Gas and NGLs Properties and Equipment, Net | 457,419 | 459,786 | | Total Assets | 809,147 | 823,216 | | Total Current Liabilities | 131,204 | 127,475 | | Asset Retirement Obligations | 47,644 | 47,343 | | Deferred Tax Liability | 71,228 | 73,581 | | Total Liabilities | 336,557 | 344,434 | | Total Stockholders' Equity | 472,590 | 478,782 | Consolidated Statements of Operations VAALCO's Q1 2024 consolidated statements of operations showed crude oil, natural gas, and NGL sales of $100.2 million, net income of $7.7 million, and diluted earnings per share of $0.07, both revenue and net income decreasing from Q4 2023 Consolidated Statements of Operations Overview | Metric | March 31, 2024 (K USD) | March 31, 2023 (K USD) | Dec 31, 2023 (K USD) | | :----------------------- | :------------- | :------------- | :------------- | | Crude Oil, Natural Gas and NGL Sales | 100,155 | 80,403 | 149,154 | | Production Expenses | 32,089 | 28,200 | 46,397 | | Depreciation, Depletion, and Amortization | 25,824 | 24,417 | 20,344 | | General and Administrative Expenses | 6,710 | 5,224 | 7,005 | | Operating Income | 32,193 | 21,619 | 80,939 | | Income Tax Expense | 22,238 | 14,771 | 37,574 | | Net Income | 7,686 | 3,470 | 43,991 | | Diluted Net Income Per Share | 0.07 | 0.03 | 0.41 | Consolidated Statements of Cash Flows In Q1 2024, VAALCO reported net cash provided by operating activities of $21.8 million, net cash used in investing activities of $16.6 million, and net cash used in financing activities of $14.5 million, with total cash, cash equivalents, and restricted cash at $119.7 million Consolidated Statements of Cash Flows Overview | Metric | March 31, 2024 (K USD) | March 31, 2023 (K USD) | | :----------------------- | :------------- | :------------- | | Net Cash Provided by Operating Activities | 21,832 | 42,006 | | Net Cash Used in Investing Activities | (16,618) | (27,700) | | Net Cash Used in Financing Activities | (14,455) | (13,539) | | Effect of Exchange Rate Changes | (208) | (309) | | Net Change in Cash, Cash Equivalents, and Restricted Cash | (9,449) | 458 | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 119,729 | 60,234 | Selected Financial and Operating Statistics In Q1 2024, VAALCO's NRI sales volume was 1,490 MBOE, with total WI production of 1,984 MBOE, average daily production (BOEPD) of 21,807 WI and 16,848 NRI, and an average NRI sales price of $66.43/BOE Selected Financial and Operating Statistics Overview | Metric | March 31, 2024 | March 31, 2023 | Dec 31, 2023 | | :------------------------------------------------- | :------------- | :------------- | :------------- | | NRI Sales Volume (MBOE) | 1,490 | 1,224 | 1,994 | | Total WI Production (MBOE) | 1,984 | 2,084 | 2,146 | | Average Daily Production (BOEPD) WI | 21,807 | 23,152 | 23,330 | | Average Daily Production (BOEPD) NRI | 16,848 | 18,306 | 18,065 | | Average Sales Price (USD/BOE) NRI Basis | 66.43 | 65.68 | 73.96 | | Production Expenses (USD/BOE) NRI Sales | 21.54 | 23.04 | 23.27 | | Depreciation, Depletion, and Amortization (USD/BOE) | 17.33 | 19.95 | 10.20 | | Cash Basis Property and Equipment Expenditures (K USD) | 16,618 | 27,700 | 42,391 |