EGY - VAALCO Energy Inc. Announces Fourth Quarter and Full Year 2023 Financial and Operating Results | Benzinga

HOUSTON, March 13, 2024 (GLOBE NEWSWIRE) -- VAALCO Energy, Inc. (NYSE:EGY, LSE: EGY)) ("VAALCO" or the "Company") today reported operational and financial results for the fourth quarter and full year of 2023. The Company also provided 2024 operational and financial guidance for the first quarter and full year of 2024.

2023 Full Year Highlights: 

• Reported full year ("FY") 2023 net income of $60.4 million ($0.56 per diluted share) and net cash from operating activities of $223.6 million;
• Generated record Adjusted EBITDAX⁽¹⁾ of $280.4 million and $119.7 million of Free Cash Flow ("FCF")⁽¹⁾ in FY 2023;
• Returned $50.3 million or 42% of FCF to shareholders in 2023 through dividends and buybacks;
• Raised production in 2023 by 83% year-over-year to 18,710 net revenue interest ("NRI")⁽²⁾ barrels of oil equivalent per day ("BOEPD"), at the higher end of the Company's increased guidance;
  
  • FY 2023 working interest ("WI")⁽³⁾ production of 23,946 BOEPD was at the top of the increased guidance range;
• Increased year-end 2023 SEC proved reserves by 3% to 28.6 million barrels of oil equivalent ("MMBOE");
• Integrated a major acquisition and invested over $70 million in a capital program focused on Egypt and Canada; and 
• Increased cash at December 31, 2023 to $121 million, all while remaining bank debt free.

Fourth Quarter 2023 Highlights:

• Reported Q4 2023 net income of $44.0 million ($0.41 per diluted share);
  
• Generated record Adjusted EBITDAX(1) of $95.9 million;
  
• Produced 18,065 NRI BOEPD (23,330 WI BOEPD); and
  
• Sold 21,674 BOEPD in Q4 2023, at the high end of guidance.

2024 Key Items and Outlook:

• Announced accretive all cash acquisition with sales and purchase agreement ("SPA") to acquire Svenska Petroleum Exploration AB ("Svenska");
  
  
  • Currently producing approximately 4,500 BOEPD (99% oil);
    
  • Includes estimated 1P WI CPR reserves4 as of October 1, 2023, of 13.0 MMBOE (99% oil) and total 2P WI CPR4 reserves at October 1, 2023, of 21.7 million MMBOE (97% oil);
    
• Planning a 2024 capital budget of $70 to $90 million; and
  
• Target to return over $25 million of FCF to shareholders.

George Maxwell, VAALCO's Chief Executive Officer commented, "In 2023, we delivered record financial results, successfully integrated a major acquisition and continued to return a meaningful amount of value to our shareholders through dividends and share buybacks. Sales and production volumes nearly doubled, we grew our cash position at year-end by nearly $84 million and we generated record Adjusted EBITDAX of $280 million. This allowed us to fully fund, with cash on hand, the return of over $50 million to shareholders through our dividend and buyback programs and over $70 million in a capital program focused on Egypt and Canada, all while remaining bank debt free which demonstrates the strong financial position of the Company today. Our 2023 proved reserves saw 3% growth year-over-year, despite a year of record production across our asset portfolio and significant decreases in SEC pricing. We were able to more than replace our 2023 production through strong positive revisions that more than offset production and reserve reductions due to lower SEC pricing."

"In early 2024, we announced our intent to utilize a portion of this strong cash position to add to our diversified portfolio of high performing assets in line with our strategic vision. With our all-cash deal to buy Svenska, which provides us with a new country entry and strong production and reserves from a proven producing asset as well as a significant organic upside opportunity, we are enhancing VAALCO's ability to generate sustainable cash flow and continue to return cash to our shareholders for many years to come. The acquisition is expected to close in Q2 2024 and is highly accretive on key metrics to our shareholder base and provides another strong asset to support future growth."

"Our ability to execute on our strategic vision has led to unprecedented growth in production, reserves and cash flow, all while extending our runway for future opportunities. We are in the strongest position in VAALCO's history and are entering 2024 with more reserves, production and future potential. We are adding to that position through the Svenska acquisition, and we remain focused on prioritizing our organic and inorganic growth opportunities as we continue to build a balanced business of scale that is capable of maximizing value for our shareholders. We are excited about the future and believe that 2024 could be another record-breaking year for VAALCO."

Operational Update 

Egypt

In Egypt, VAALCO continued to use the EDC-64 rig in the Eastern Desert drilling campaign. The Company continued drilling the EA-55 development well in the fourth quarter which was the last well of the 2023 campaign. Through operational efficiencies, VAALCO drilled an average of two wells per month with the EDC-64 rig, nearly twice as fast as in 2022 and, VAALCO drilled 18 wells in 2023, while also completing the Arta-77Hz well at the beginning of 2023. The 2023 firm and contingent work program was drilled faster and cheaper compared to budget, adding to its economic returns.

A summary of the Egyptian drilling campaign's impact during 2023 is presented below:

Canada

VAALCO drilled and completed two wells in the first quarter of 2023, consisting of a 1.5-mile lateral and a 3-mile lateral, which were also required for land retention purposes. Both wells were drilled and completed safely and cost effectively without incident. The wells were tied in and equipped in April and early May with overall cycle times that were significantly less than historical cycle times. The wells began flowing in May and naturally flowed through June. In early July, the pump and rods were run on both wells. The production rates from both wells exceeded expectations, and the Company is monitoring their long-term performance while evaluating future drilling campaigns, with the intent of moving exclusively to 2.5 mile and 3-mile laterals to improve economics. This resulted in record production levels reported for Canada in 2023.

A summary of the Canada drilling campaign's impact during 2023 is presented below:

Gabon

VAALCO completed its 2021/2022 drilling campaign in the fourth quarter of 2022. The Company is currently evaluating locations and planning for its next drilling campaign. Gabon production performance in the year ended December 31, 2023 has been strong and ahead of plan driven by improved operational uptime at Etame. The cost savings from the new Floating, Storage and Offloading vessel ("FSO") have been captured, as planned, but are being offset by increased marine costs as a consequence of inflationary (marine vessel supply rates, transportation, and contractors) and industry supply chain pressures as well as higher diesel costs due to the feed gas line being suspended due to a leak. The gas line was successfully fixed in October 2023 and the FSO is now utilizing gas rather than diesel.

Year-End 2023 Reserves

VAALCO's SEC proved reserves at December 31, 2023 increased by 3% to 28.6 MMBOE from 27.9 MMBOE at year-end 2022. Year-end 2023 reserves included 22.5 MMBOE in proved developed reserves and 6.2 MMBOE in proved undeveloped reserves. The Company's SEC reserves were engineered by its third-party independent reserve consultant, Netherland, Sewell & Associates, Inc., ("NSAI") who has provided annual independent estimates of VAALCO's year-end SEC reserves for over 15 years and evaluates VAALCO's Gabonese and Egyptian reserves, and GLJ Ltd. ("GLJ"), who evaluates VAALCO's Canadian reserves. In 2023, the Company added 5.6 MMBOE due to positive revisions and 1.9 MMBOE of SEC proved reserves through extensions and additions, primarily in Canada with additional PUD locations. These additions were partially offset by 6.8 MMBOE of full year 2023 production. VAALCO had a reserve replacement ratio of 110% compared to the 6.8 MMBOE of production in 2023.

The standardized measure of VAALCO's SEC proved reserves, utilizing SEC pricing decreased to $341.9 million at December 31, 2023 from $624.5 million at December 31, 2022. This was primarily driven by a decrease in year over year SEC prices which was utilized for the calculation and can be found in the Company's Annual Report on Form 10-K disclosure, which is expected to be filed with the SEC by March 15, 2024.

At year-end 2023, NSAI provided the 2P WI CPR estimates of proven and probable reserves which were 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, 2023 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. Management's year-end 2023 2P WI CPR estimate of reserves is 77.3 MMBOE to VAALCO's WI, an increase of 1% from 76.4 MMBO at December 31, 2022. The present value discounted at 10% ("PV-10") of VAALCO's 2P WI CPR reserves at year-end 2023, utilizing management timing assumptions and escalated pricing and cost assumptions, is $630.9 million, down 34% from $814.8 million at December 31, 2022. The PV-10 decrease is driven primarily by pricing and cost inflation.

See "Supplemental Non-GAAP Financial Measures" below concerning 2P WI CPR reserves and 2P PV-10.

Financial Update –Fourth Quarter of 2023

Reported net income of $44.0 million ($0.41 per diluted share) for the fourth quarter of 2023 which was up significantly compared with net income of $6.1 million ($0.06 per diluted share) in the third quarter of 2023 and $17.8 million ($0.17 per diluted share) in the fourth quarter of 2022. The increase in earnings compared to the third quarter of 2023 is mainly due to increased sales revenue due to increased volumes and improved realized pricing due to geographic sales mix, lower credit losses due to reversal of credit loss allowances on the settlement of debts in Gabon and decreased depreciation, depletion and amortization ("DD&A") expense partially offset by higher income tax expense on the increased operating profit. Similarly, the increase in earnings compared to the fourth quarter of 2022 is primarily due to higher sales revenue due to increased volumes, lower credit losses due to reversal of credit loss allowances and decreased DD&A expense partially offset by higher income tax expense. 

Adjusted EBITDAX totaled $95.9 million in the fourth quarter of 2023, a 34% increase from $71.4 million in the third quarter of 2023, primarily due to higher revenues driven by higher sales and improved realized commodity pricing. The increase in fourth quarter 2023 Adjusted EBITDAX to $95.9 million compared with $49.8 million generated in the same period in 2022, is primarily due to increased revenue as a result of the TransGlobe transaction and lower credit losses due to reversal of a credit loss allowance.

VAALCO had a net revenue increase of $32.9 million or 28% as the total NRI sales volumes of 1,994,000 BOE was higher than Q3 2023 and rose 45% compared to 1,371,000 BOE for Q4 2022. Q4 2023 sales were at the top end of VAALCO's guidance. 

Q4 2023 realized pricing (net of royalties) was up 17% compared to Q3 2023 and up 5% compared to Q4 2022.

Total production expense (excluding offshore workovers and stock compensation) of $46.3million in Q4 2023 was higher compared to Q3 2023 and the same period in 2022. The increase in Q4 2023 expense compared to Q3 2023 was driven primarily by higher costs related to higher sales volumes. The increase in Q4 2023 compared to the Q4 2022 was primarily driven by increased expense associated with higher sales and costs associated with the TransGlobe combination as well as higher costs associated with boats, diesel and other direct operating costs. VAALCO has seen inflationary and industry supply chain pressure on personnel and contractor costs.

There was no offshore workover expense in Q4 2023 or Q3 2023. There was a 100% decrease in offshore workover expense in Q4 2023 compared to Q4 2022.

Q4 2023 production expense per BOE, excluding offshore workover costs, remained low at $23.27 per BOE which was 5% higher than Q3 2023 and down 22% compared to Q4 2022 due to higher sales, lower costs in Etame associated with the FSO conversion and lower per BOE costs from the Egyptian and Canadian assets.

DD&A expense for the Q4 2023, was $20.3 million which was lower than $32.5 million in Q3 2023 and lower than $26.3 million in Q4 2022. The decrease in Q4 2023 DD&A expense, compared to Q3 2023 and to Q4 2022 is due to year-end depletion adjustments, primarily in Egypt, that were made in Q4 upon the completion of the 2023 competent persons report.

Q4 2023 included a $0.7 million expense related to an appraisal well in Egypt that was abandoned during Q4 2023 and subsequently expensed to Exploration Expense.

General and administrative ("G&A") expense, excluding stock-based compensation, increased to $6.1 million in Q4 2023 from $5.2 million in Q3 2023 and a negative $0.3 million in Q4 2022. The increase in general and administrative expenses is primarily due to higher professional service fees, salaries and wages, and accounting and legal fees. The Company incurred one-time reorganization costs in 2023 as it integrated the TransGlobe assets and eliminated duplicate administrative costs. Q4 2023 G&A was within the Company's guidance. The Company has made meaningful reductions to absolute G&A costs when compared with the combined TransGlobe and VAALCO combined G&A costs for 2022. 

Non-cash stock-based compensation expense was $0.9 million for Q4 2023 compared to Q3 2023 of $1.0 million and Q4 2022 of negative $0.1 million.

Other income (expense), net, was an expense of $0.8 million for Q4 2023, compared to an income of $2.5 million during Q4 2022 and an income of $0.2 million for Q3 2023. Other income (expense), net, normally consists of foreign currency gains and losses. For Q4 2022, included in other (expense) income was a $10.8 million bargain purchase gain on the TransGlobe acquisition offset by $7.0 million of transaction costs associated with the business combination with TransGlobe. For the full year ended December 31, 2022, acquisition transaction costs were $14.6 million.

Q4 2023 income tax expense was an expense of $37.6 million and is comprised of current tax expense of $41.1 million and deferred tax benefit of $3.5 million. Q3 2023 income tax expense was an expense of $25.8 million. This was comprised of $26.8 million of current tax expense and a deferred tax benefit of $0.9 million. Q4 2022 income tax expense was an expense of $7.0 million. This was comprised of $5.3 million of deferred tax expense and a current tax expense of $1.7 million. For all periods, VAALCO's overall effective tax rate was impacted by non-deductible items associated with derivative losses and corporate expenses. Foreign income taxes for Gabon are settled by the government taking their oil in-kind.

Financial Update – Full Year 2023

The Company reported net income for the twelve months ended December 31, 2023 of $60.4 million, which compares to $51.9 million for the same period of 2022. The increase in net income for the twelve months ended December 31, 2023 compared to the same period in 2022 was primarily due to increased sales volumes partially offset by higher production costs, higher DD&A and lower oil prices.

Both production and sales volumes for full year 2023 were up 83% to 6.8 MMBOE compared to 3.7 MMBOE production for the prior year. The increase was driven by production from the TransGlobe assets, as well as new wells from the 2021/2022 drilling campaign in Gabon. Crude oil sales are a function of the number and size of crude oil liftings in each quarter and do not always coincide with volumes produced in any given period.

The average realized crude oil price for the twelve months of 2023 was $65.83 per barrel, representing a decrease of 30% from $94.77 realized in the twelve months of 2022. This decrease in crude oil price reflects the softening in commodity pricing over the past year, as well as the incorporation of the TransGlobe assets which include Canadian and Egyptian crude, natural gas, and NGLs that have lower realized pricing than Gabon.

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