VAALCO Energy(US:EGY)2024-05-08 21:08PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Unaudited Q1 2024 financial statements reflect increased net income, a slight decrease in total assets, and reduced operating cash flow Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $113,321 | $121,001 | | Total current assets | $217,744 | $228,141 | | Crude oil, natural gas and NGLs properties and equipment, net | $457,419 | $459,786 | | Total assets | $809,147 | $823,216 | | Liabilities & Equity | | | | Total current liabilities | $131,204 | $127,475 | | Total liabilities | $336,557 | $344,434 | | Total shareholders' equity | $472,590 | $478,782 | | Total liabilities and shareholders' equity | $809,147 | $823,216 | Condensed Consolidated Statements of Operations and Comprehensive Income Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Crude oil, natural gas and NGLs sales | $100,155 | $80,403 | | Total operating costs and expenses | $67,796 | $58,784 | | Operating income | $32,193 | $21,619 | | Net income | $7,686 | $3,470 | | Diluted net income per share | $0.07 | $0.03 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | 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) | | Net change in cash, cash equivalents and restricted cash | ($9,449) | $458 | Notes to Condensed Consolidated Financial Statements Key notes detail a pending acquisition, segment performance, revenue breakdown, derivative instruments, and commitments, highlighting the Svenska acquisition and the company's debt-free status - On February 29, 2024, the Company agreed to acquire Svenska Petroleum Exploration for $66,500 thousand in cash, with the acquisition closing on April 30, 2024, for a net purchase price of $40,200 thousand, funded by cash-on-hand and a dividend from Svenska28 Segment Operating Income (in thousands) - Q1 2024 | Segment | Revenues | Operating Income | | :--- | :--- | :--- | | Gabon | $57,504 | $26,520 | | Egypt | $36,961 | $14,023 | | Canada | $5,690 | ($598) | | Equatorial Guinea | $0 | ($481) | | Corporate and Other | $0 | ($7,271) | | Total | $100,155 | $32,193 | - The company utilizes costless collar derivative contracts to hedge a portion of its crude oil production, with contracts in place through September 2024 for volumes up to 80,000 Bbls per month as of March 31, 202442 - The share buyback program, authorizing up to $30,000 thousand in repurchases, was completed on March 12, 2024, with a total of 6,797,711 shares purchased at an average price of $4.41 per share under the program46 - As of March 31, 2024, the company had no outstanding debt, and the available borrowing capacity under its senior secured reserve-based revolving credit facility (RBL Facility) was $43,800 thousand5253 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights increased Q1 2024 revenue and operating income, ongoing drilling programs, the post-quarter Svenska acquisition, and a strong liquidity position Recent Developments and Operational Updates - A quarterly cash dividend of $0.0625 per share was paid on March 28, 202474 - Gabon: Planning for the next drilling campaign is underway for early 2025, with current focus on operational excellence and production uptime to minimize decline76 - Egypt: The 2024 drilling program is deferred to late 2024, with a second workover rig being contracted to slow production decline, and several recompletions and workovers performed in Q1 20248182 - Canada: The 2024 drilling campaign commenced in January, with four planned wells drilled by the end of March, and first production from these wells expected in May 202484 Capital Resources and Liquidity - Net cash from operating activities decreased by $20,174 thousand year-over-year to $21,832 thousand, primarily due to unfavorable changes in operating assets and liabilities91 - Accrual basis capital expenditures were $24,000 thousand in Q1 2024, slightly down from $25,400 thousand in Q1 2023, with spending primarily related to the drilling campaign in Canada94 - As of March 31, 2024, the company had $113,321 thousand in unrestricted cash and no outstanding debt9952 - The acquisition of Svenska, which closed on April 30, 2024, was funded with $40,200 thousand of VAALCO's cash-on-hand and a pre-closing dividend from Svenska109 Results of Operations Q1 2024 vs Q1 2023 Operational and Financial Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Production (MBoe) | 1,533 | 1,647 | | Net Sales (MBoe) | 1,490 | 1,224 | | Average Realized Price ($/Boe) | $66.43 | $65.68 | | Revenue (in thousands) | $100,155 | $80,403 | | Production Expense (in thousands) | $32,089 | $28,200 | | Net Income (in thousands) | $7,686 | $3,470 | - The $19,752 thousand increase in revenue was primarily driven by a significant increase in sales volume ($17,500 thousand impact), partially offset by slightly lower realized prices126128 - Production expenses increased by $3,889 thousand (13.7%) due to higher operating costs, inflationary pressures, and increased withholding taxes in Gabon135 - General and administrative expenses increased by $1,500 thousand (28.8%) mainly due to higher professional service fees, salaries, and legal fees138 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity prices and foreign exchange rates, primarily crude oil price volatility, and uses derivatives to mitigate commodity risk - Commodity Price Risk: A $5 per Bbl decrease in crude oil price is estimated to cause a $7,500 thousand decrease in quarterly revenues and a $5,800 thousand decrease in net income, based on Q1 2024 sales volumes153 - Foreign Exchange Risk: The company has exposure to the Central African CFA Franc (XAF), Canadian Dollar (CAD), and Egyptian Pound (EGP), where a 10% weakening of the CFA against the USD would reduce the value of net monetary assets by $600 thousand147 - As of March 31, 2024, the company had derivative instruments covering approximately 435,000 barrels of production through September 2024 to mitigate price volatility157 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024159 - No changes in internal control over financial reporting occurred during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, these controls161 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course litigation and regulatory proceedings, none of which are considered material to the business - Management states that none of the claims and litigation the company is currently involved in are material to its business162 Item 1A. Risk Factors New and updated risk factors primarily relate to non-operated assets, including limited control, operator dependence, PSC extension uncertainties, and a scheduled FPSO maintenance shutdown in 2025 - The company has limited control over assets it does not operate, which could adversely affect business, operations, or financial condition165 - There is no assurance that the Block CI-40 Petroleum Production Sharing Contract in Côte d'Ivoire will be extended beyond its April 2028 expiration166 - The floating, production, storage and offloading vessel (FPSO) in Côte d'Ivoire is scheduled for maintenance in January 2025, which will halt production and revenue from the block until it returns to service, expected in 2026167 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's share buyback program, authorizing up to $30,000 thousand in repurchases, was completed on March 12, 2024, with 1,267,603 shares repurchased in Q1 2024 Share Repurchases - Q1 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2024 | 446,366 | $4.48 | | Feb 1 - Feb 29, 2024 | 474,100 | $4.22 | | Mar 1 - Mar 12, 2024 | 347,137 | $4.33 | | Total | 1,267,603 | | - The share buyback program was completed on March 12, 2024170 Item 5. Other Information No company directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No directors or officers modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024172 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Svenska Share Purchase Agreement, executive employment agreements, and Sarbanes-Oxley certifications