VAALCO ENERGY INC /DE/

Previous wording

The following management’s discussion and analysis describes the principal factors affecting our capital resources, liquidity, and results operations. This management’s discussion and analysis should be read in conjunction with the accompanying Financial Statements and related notes, information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this Annual Report. For discussion related to changes in financial condition and results of operations for 2022 as compared with 2021, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, which was filed with the SEC on April 6, 2023. Certain statements in our discussion below are forward-looking statements. These forward-looking statements involve risks and uncertainties. We caution that a number of factors could cause actual results to differ materially from those implied or expressed by the**forward-looking statements. Please see“Cautionary Statement Regarding Forward-Looking Statements”* and*“Item 1A. Risk Factors”* for further details about these statements.*

Current wording

The following management’s discussion and analysis describes the principal factors affecting our capital resources, liquidity, and results of operations. This management’s discussion and analysis should be read in conjunction with the accompanying Financial Statements and related notes, information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this Annual Report. For discussion related to changes in financial condition and results of operations for 2023 as compared with 2022, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K, which was filed with the SEC on March 15, 2024. Certain statements in our discussion below are forward-looking statements. These forward-looking statements involve risks and uncertainties. We caution that a number of factors could cause actual results to differ materially from those implied or expressed by the forward-looking statements. Please see“Cautionary Statement Regarding Forward-Looking Statements” and“Item 1A. Risk Factors” for further details about these statements.

Previous wording

We are a Houston, Texas-based, African-focused independent energy company with strong production and reserve portfolio of assets in Gabon, Egypt, Equatorial Guinea and Canada, currently engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs. For further discussion of our four operating segments see “Item 1. Business–* Segment and Geographical Information*–* *“Gabon Segment”, "Egypt Segment","Canada Segment",and “Equatorial Guinea Segment”".

Current wording

We are an independent energy company headquartered in Houston, Texas engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs. We have a diversified African-focused asset portfolio in Gabon, Egypt, Cote d'Ivoire, Equatorial Guinea and Nigeria, as well as producing properties in Canada. For further discussion of our five operating segments see“Item 1. Business– Segment and Geographical Information.”

Previous wording

Potential Acquisition - On February 29, 2024, we entered into a Share Purchase Agreement to purchase all of the issued shares in the capital of Svenska for $66.5 million in cash, subject to adjustment as described in the Share Purchase Agreement. Pursuant to the terms and subject to the conditions of the Share Purchase Agreement, we will acquire Svenska’s primary asset: a 27.39% non-operated working interest in the deepwater producing Baobab field in Block CI-40, offshore Cote d’Ivoire in West Africa. We will also acquire a 21.05% non-operated working interest in OML 145, a non-producing discovery located offshore of Nigeria that is not expected to be developed at this time. The purchase price will be funded by a combination of a dividend of cash on Svenska’s balance sheet to the seller immediately prior to the consummation of the acquisition and a portion of VAALCO’s cash-on-hand. We estimate that cash due from VAALCO at closing will be in the range of approximately $30 to $40 million. The acquisition is expected to close in the second quarter of 2024, with timing dependent upon receipt of all necessary regulatory approvals.

Current wording

On April 30, 2024, we completed the acquisition of Svenska Petroleum Exploration Aktiebolag, a company incorporated in Sweden whereby we acquired all of the issued shares in the capital of Svenska and Svenska became a direct, wholly-owned subsidiary of the Company (“Svenska Acquisition”) for a net adjusted purchase price of $40.2 million. The purchase price was funded with the Company's cash on hand. As a result of the Svenska Acquisition, we acquired Svenska’s primary asset: a 27.39% non-operated working interest in the deepwater producing Baobab field in Block CI-40, offshore Cote d’Ivoire in West Africa. We also acquired a 21.05% non-operated working interest in OML 145, a non-producing discovery located offshore of Nigeria that is not expected to be developed at this time.

Previous wording

We reported net income for the year ended December 31, 2023 of $60.4 million, compared to a net income of $51.9 million for the year ended December 31, 2022. The year-over-year increase in earnings was mainly due to increases in sales volume partially offset by increased depreciation, depletion and amortization expense, production expenses and income taxes. Further discussion of results by significant line item follows.

Current wording

We reported net income for the year ended December 31, 2024 of $58.5 million compared to a net income of $60.4 million for the year ended December 31, 2023. The year-over-year decrease in net income was due to higher depreciation, depletion and amortization expense, production expenses and credit losses during the year, partially offset by the increase in revenues and a bargain purchase gain related to the Svenska acquisition. Further discussion of results by significant line item follows.

Previous wording

(1) The price in the table above excludes revenues attributed to carried interests.

Current wording

(1)The Other in the table above includes revenues attributed to carried interests.

Previous wording

Crude oil sales in Gabon are a function of the number and size of crude oil liftings in each year and thus crude oil sales do not always coincide with volumes produced in any given year. The Company’s Gabon segment contributed $260.3 million of revenue to the Company’s total revenue during the year ended December 31, 2023. This compares to the $306.8 million of revenue contributed by the Segment during the year ended December 31, 2022. The total barrels lifted in Gabon for the year ended December 31, 2023 was less than the barrels lifted during the same period in 2022, mainly due to the timing of liftings. In addition, the Gabon per barrel price received during the year ended December 31, 2023 was $22.90 less than the price received in 2022. Our share of crude oil inventory, excluding royalty barrels, was approximately 68,766 and 76,274 barrels at December 31, 2023 and 2022, respectively.

Current wording

Crude oil sales in Gabon are a function of the number and size of crude oil liftings in each year and thus crude oil sales do not always coincide with volumes produced in any given year. The Company’s Gabon segment contributed $206.0 million of revenue to the Company’s total revenue during the year ended December 31, 2024. This compares to the $260.3 million of revenue contributed by the segment during the year ended December 31, 2023. The decrease in revenues is primarily due to lower sales volume in Gabon. The total sales volume in Gabon for the year ended December 31, 2024 was 2,584 MBbls or 612 MBbls lower than the sales volumes of 3,196 MBbls in the same period in 2023. Further, we had a decrease in the Gabon average realized price per barrel received during the year ended December 31, 2024 of $78.81 per barrel (Bbl) compared to the price received in 2023 of $79.80 per Bbl. Our share of crude oil inventory, excluding royalty barrels, was approximately 267,754 barrels and 68,766 barrels at December 31, 2024 and 2023, respectively.

Previous wording

Crude oil sales in Egypt are either sold to a third party via a cargo lifting or sold directly to the government, EGPC. During the year ended December 31, 2023, the oil sold in Egypt was to a combination of Mercuria Energy and EGPC. The Company’s Egypt segment contributed $161.0 million of revenue to the Company’s total revenue for the year ended December 31, 2023. This compares to the $37.8 million of revenue contributed by the Segment during the year ended December 31, 2022. The increase in revenues is due to the Company acquiring its Egypt segment in the fourth quarter of 2022. At December 31, 2023, the Company’s Egypt segment had zero barrels in oil inventory.

Current wording

Crude oil sales in Egypt are either sold to a third party via a cargo lifting or sold directly to the government, EGPC. The Company’s Egypt segment contributed $146.0 million of revenue to the Company’s total revenue for the year ended December 31, 2024. This compares to the $161.0 million of revenue contributed by the segment during the year ended December 31, 2023. The decrease in revenues was primarily due to the decrease in sales volumes during the year ended December 31, 2024 to 2,585 MBbls compared to 2,771 MBbls during the same period in 2023. The average realized price received in Egypt was $56.47 per Bbl during the year ended December 31, 2024, which was also lower compared to the $58.11 per barrel received in 2023. At December 31, 2024, the Company’s Egypt segment had zero barrels in oil inventory.

Previous wording

Crude oil sales in Canada are normally sold through pipelines to a third party. The Company’s Canadian segment contributed $34.4 million of revenue to the Company’s total revenue for the year ended December 31, 2023. This compares to the $9.8 million of revenue contributed by the Segment during the year ended December 31, 2022. The increase is due to the Company acquiring its Canadian segment in the fourth quarter of 2022.

Current wording

Crude oil sales in Canada are normally sold through pipelines to a third party. The Company’s Canadian segment contributed $32.0 million of revenue to the Company’s total revenue for the year ended December 31, 2024. This compares to the $33.7 million of revenue contributed by the Canada Segment during the year ended December 31, 2023. The decrease in revenues is due to the lower average realized sales price received during the year ended December 31, 2024 of $36.77 per MBoe or a decrease of $1.79 per Boe from the $38.92 per Boe received during the same period in 2023. The decrease in the average realized price was offset by the increase in sales volumes during the same period. In Canada, the total sales volumes for the year ended December 31, 2024 was 870 MBoe or 5 MBoe higher than the 865 MBoe sold during the year ended December 31, 2023.

Previous wording

FPSO demobilization costsdecreased $1.4 million, or approximately 16%, to $7.5 million in the year ended December 31, 2023 compared to the same period of 2022. In 2023, it was determined that there was additional normally occurring radioactive material (NORMs) waste than anticipated connected to the FPSO from the Contractors' usage. As such, VAALCO and JOA partners incurred an additional $7.5 million (net to VAALCO) in decommissioning fees, which was reported as a separate line item on the income statement. These costs were incurred to retire the FPSO as we transitioned the Etame block to the FSO.

Current wording

FPSO demobilization costs decreased $7.5 million, or 100%, to zero in the year ended December 31, 2024 compared to the same period of 2023. In 2023, it was determined that there was additional normally occurring radioactive material (NORMs) waste than anticipated connected to the FPSO from the Contractors' usage. As such, VAALCO and JOA partners incurred an additional $7.5 million (net to VAALCO) in decommissioning fees, which was reported as a separate line item on the income statement. These costs were incurred to retire the FPSO as we transitioned the Etame block to the FSO.

Previous wording

Exploration expensesincreased $1.7 million or approximately 662%, in the year ended December 31, 2023 compared to the same period of 2022 due primarily to the abandonment of the Egyptian East Arta - 54 appraisal well and the abandonment of the NWG-5C1 appraisal well. In 2022, exploration expense was not material to our results.

Current wording

Exploration expenses decreased$1.9 million, or approximately 98%, in the year ended December 31, 2024 compared to the same period of 2023 due primarily to the abandonment of the Egyptian East Arta - 54 appraisal well and the abandonment of the NWG-5C1 appraisal well in 2023.

Previous wording

Depreciation, depletion and amortization increased $67.2 million, or approximately 139%, in the year ended December 31, 2023 compared to the same period of 2022. The increase in depreciation, depletion and amortization expense is due to higher depletable costs associated with the FSO, the field reconfiguration capital costs at Etame and fair value of the acquired TransGlobe assets. In addition, capital expenditures on new wells were brought online in 2023 for both Egypt and Canada, which also increased depreciation, depletion and amortization expense.

Current wording

Depreciation, depletion and amortization increased $27.7 million, or approximately 24%, in the year ended December 31, 2024 compared to the same period of 2023. The increase in depreciation, depletion and amortization expense is due primarily to the addition of Cote d'Ivoire related to the Svenska Acquisition partially offset by lower depletable costs in Gabon, Egypt, and Canada.

Previous wording

General and administrative expenses increased $13.8 million, or approximately 137% in the year ended December 31, 2023 compared to $10.1 million in the same period of 2022. The increase in general and administrative expenses is primarily due to professional fees, accounting and legal services, and salaries and wages.

Current wording

General and administrative expenses increased $5.8 million, or approximately 25%, in the year ended December 31, 2024 compared to the same period of 2023. The increase in general and administrative expenses is primarily due to professional fees, accounting and legal services, and salaries and wages.

Previous wording

Credit loss and other allowances - Credit loss and other expense decreased $8.0 million, or approximately 259% in the year ended December 31, 2023 compared to the same period of 2022 We adopted Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”) on January 1, 2023. In connection with the adoption of ASU 2016-13, we established an opening balance sheet adjustment related to a receivable from a state sponsored oil refinery where we delivered oil pursuant to the domestic market needs obligation under the Etame PSC. During the year ended December 31, 2023, the decrease in credit loss and other allowances was primarily due to two credit loss and other allowance reversals in 2023. First, the Sogara receivable credit loss and other allowance was reversed for $3.1 million and second, the TVA receivable credit loss and other allowance was reversed for $7.6 million. These reversals were offset by a credit loss and other allowance adjustment in Egypt of $5.2 million.

Current wording

Credit loss and other allowances - Credit loss and other expense increased $11.2 million, or approximately 228%, in the year ended December 31, 2024 compared to the same period of 2023. The increase in credit losses and other for the year ended December 31, 2024, is primarily attributable to the receivables with EGPC regarding the settlement of these receivables owed to the Company. During the year ended December 31, 2023, the decrease in credit loss and other allowances was primarily due to two credit loss and other allowance reversals in 2023. These two reversals were partially offset by a credit loss and other allowance adjustment in Egypt.

Previous wording

Derivative instruments gain (loss), net is attributable to our commodity instruments as discussed in Note 10 to the consolidated financial statements. Derivative losses decreased $38.0 million toa gain of$0.2 million for the year ended December 31, 2023 from a loss of $37.8 million for the year ended December 31, 2022. Derivative gains (losses) for the year ended December 31, 2023, are a result of the increase in the price of Dated Brent crude oil over the initial strike price per barrel of the option over the year ended December 31, 2022. The same increase in price occurred, but to a lesser extent, in 2023. During 2022, we changed our approach and the type of derivative instruments from swaps to costless collars. Our derivative instruments currently cover a portion of our production through June 2024.

Current wording

Derivative instruments gain (loss), net is attributable to our commodity instruments as discussed in Part IV, Item 15., Note 10. Derivatives and Fair Value to the Consolidated Financial Statements. During the years ended December 31, 2024 and 2023, we recognized net realized losses of $0.5 million and $0.1 million, respectively, and unrealized losses of $0.2 million and an unrealized gain of $0.4 million, respectively, or a total net derivative losses of $0.7 million and net derivative gain of $0.2 million, respectively. Derivative losses for 2024 are a result of the increase in the price of Dated Brent crude oil over the initial strike price per barrel of the option over the year ended December 31, 2024. Our derivative instruments currently cover a portion of our production through September 2025.

Previous wording

Interest (expense) income, net increased $4.4 million to an expense of $6.5 million for the year ended December 31, 2023 from expense of $2.0 million during the same period in 2022. The increase of net interest expense for the year ended December 31, 2023, primarily results from our finance lease relating to the FSO but also includes commitments fees incurred on the Facility, amortization of debt issue costs related to the Facility and interest associated with our other finance leases partially offset by interest income.

Current wording

Interest (expense) income, net decreased $2.7 million to an expense of $3.7 million for the year ended December 31, 2024 from an expense of $6.5 million during the same period in 2023. The decrease of net interest expense for the year ended December 31, 2024 primarily results from a decrease in our amortization of debt issue costs and commitment fees incurred on the RBL Facility partially offset by interest income.

Previous wording

Other (expense) income, netdecreased $5.8 million to an expense of $2.3 million for the year ended December 31, 2023 from an expense of $8.0 million for the year ended December 31, 2022. Other (expense) income, net normally consists of foreign currency losses as discussed in Note 2 to the consolidated financial statements. However, for the year ended December 31, 2022, other (expense) income, net, also included $14.6 million of transaction costs associated with the Arrangement with TransGlobe, $2.7 million of foreign exchange losses associated with the TransGlobe activity from October 13, through December 31, 2022 partially offset by a bargain purchase gain of $9.7 million associated with the acquisition of TransGlobe.

Current wording

Other (expense) income, netincreased $4.9 million to an expense of $5.8 million for the year ended December 31, 2024 from an expense of $0.9 million for the year ended December 31, 2023. Other (expense) income, net normally consists of foreign currency losses as discussed in Part IV, Item 15., Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements. However, for the year ended December 31, 2024, other (expense) income, net, also included $3.9 million of transaction costs associated with the Svenska Acquisition.

Previous wording

Income tax expense (benefit) for the year ended December 31, 2023 was an expense of $89.7 million. This is comprised of $92.6 million of current tax provision and a deferred tax benefit of $2.9 million. Income tax expense for the year ended December 31, 2022 was an expense of $71.4 million. This is comprised of $26.6 million of current tax provision and a deferred tax provision of $44.8 million. The current tax provision in both periods is primarily attributable to our operations in Gabon, Egypt and Canada. The income tax expense is higher in 2023 than income tax for the comparable 2022 period as a result of higher revenues. See Note 8 to the Consolidated Financial Statements for further discussion.

Current wording

Income tax expense (benefit) for the year ended December 31, 2024 was an expense of $81.3 million. This is comprised of $98.9 million of current tax expense and a deferred tax benefit of $17.6 million. Income tax expense for the year ended December 31, 2023 was an expense of $89.7 million. This was comprised of $92.6 million of current tax expense and a deferred tax benefit of $2.9 million. The current tax expense in both periods is primarily attributable to our operations in Gabon, Egypt, Canada and Cote d'Ivoire. The income tax expense is higher in 2024 than income tax for the comparable 2023 period as a result of higher revenues. See Part IV, Item 15., Note 8. Income Taxes to the Consolidated Financial Statements for further discussion.

Previous wording

During 2023, we had accrual basis expenditures attributable to continuing operations of $72.6 million, that includes $17.0 million for Gabon, $37.9 million for Egypt, $16.8 million for Canada and $1.0 million for the corporate offices, compared to $434.4 million for 2022. Capital expenditures in 2023 were attributable to expenditures primarily related to the payments for the 2023 drilling campaigns in Egypt and Canada. The 2022 capital expenditures include TransGlobe assets acquired for stock. The difference between capital expenditures and the property and equipment expenditures reported in the consolidated statements of cash flows is attributable to changes in accruals for costs incurred but not yet invoiced or paid on the report dates. Capital expenditures in 2022 were attributable to expenditures related to the 2021/2022 drilling program, the Etame field reconfiguration and drilling activity in Egypt and Canada.

Current wording

During 2024, we had accrual basis expenditures attributable to operations of $109.4 million, that includes $22.6 million for Gabon, $11.4 million for Egypt, $25.8 million for Canada, $44.4 million for Cote d'Ivoire, $0.6 million for Equatorial Guinea and $4.6 million for the corporate offices, compared to $72.6 million for 2023. Capital expenditures in 2024 were attributable to expenditures primarily related to the new wells drilled as part of the drilling campaign in Canada, the workover and drilling program in Egypt and the expenditures associated with the preparation of the FPSO dry dock project in Cote d'Ivoire. Capital expenditures in 2023 were primarily related to the payments for the 2023 drilling campaigns in Egypt and Canada.

Previous wording

Please see Item 15, Note 10 Derivatives and Fair Value in our Consolidated Finance Statements for more information on the related hedges.

Current wording

Please see Part IV, Item 15., Note 10. Derivatives and Fair Value in our Consolidated Financial Statements for more information on the related hedges.

Previous wording

At December 31, 2023 and 2022, we had unrestricted cash of $121.0 million and $37.2 million, respectively. We invest cash not required for immediate operational and capital expenditure needs in short-term money market instruments primarily with financial institutions where we determine our credit exposure is negligible. As operator of the Etame Marin block in Gabon, we enter into project-related activities on behalf of our working interest joint venture owners. We generally obtain advances from joint venture owners prior to significant funding commitments. Our cash on hand will be utilized, along with cash generated from operations, to fund our operations.

Current wording

At December 31, 2024 and 2023, we had unrestricted cash of $82.6 million and$121.0 million, respectively, which as of certain dates, exceeded Federal Deposit Insurance Corporation insurance limits. We invest cash not required for immediate operational and capital expenditure needs in short-term money market instruments primarily with financial institutions where we determine our credit exposure is negligible. As operator of the Etame Marin block in Gabon, we enter into project-related activities on behalf of our working interest joint venture owners. We generally obtain advances from joint venture owners prior to significant funding commitments. Our cash on hand will be utilized, along with cash generated from operations, to fund our operations.

Previous wording

Based on current expectations, we believe we have sufficient liquidity through our existing cash balances and cash flow from operations, including the addition of our Egypt and Canada segments, to support our current cash requirements, including the FSO charter, drilling programs, as well as transaction expenses and capital and operational costs associated with our business segments' operations. However, our ability to generate sufficient cash flow from operations or fund any potential future acquisitions, consortiums, joint ventures or pay dividends for other similar transactions depends on operating and economic conditions, some of which are beyond our control. If additional capital is needed, we may not be able to obtain debt or equity financing on terms favorable to us, or at all. We are continuing to evaluate all uses of cash, including opportunistic acquisitions, and whether to pursue growth opportunities and whether such growth opportunities, additional sources of liquidity, including equity and/or debt financings, are appropriate to fund any such growth opportunities.

Current wording

Based on current expectations, we believe we have sufficient liquidity through our existing cash balances, cash flow from operations and our 2025 RBL Facility to support our current cash requirements during the next 12 months and beyond, including the FSO charter, drilling programs, as well as transaction expenses and capital and operational costs associated with our business segments' operations. However, our ability to generate sufficient cash flow from operations or fund any potential future acquisitions, consortiums, joint ventures or pay dividends for other similar transactions depends on operating and economic conditions, some of which are beyond our control. If additional capital is needed, we may not be able to obtain debt or equity financing on terms favorable to us, or at all. We are continuing to evaluate all uses of cash, including opportunistic acquisitions, and whether to pursue growth opportunities and whether such growth opportunities, additional sources of liquidity, including equity and/or debt financings, are appropriate to fund any such growth opportunities.

Previous wording

For information on the Merged Concession Agreement, see Note 12 to the Consolidated Financial Statements.

Current wording

For information on the Merged Concession Agreement, see Part IV, Item 15., Note 12. Commitments and Contingencies to the Consolidated Financial Statements.

Previous wording

For information on our RBL Facility Agreement and Available Credit, see Note 13 to the Consolidated Financial Statements.

Current wording

For information on our RBL Facility Agreement and Available Credit, see Part IV, Item 15., Note 13. Debt to the Consolidated Financial Statements. For information on our 2025 Facility Agreement and Available Credit, see Part IV, Item 15., Note 13. Debt and Note 20. Subsequent Events to the Consolidated Financial Statements.

Previous wording

Our material cash requirements generally consist of finance leases, operating leases, purchase obligations, capital projects and 3D seismic processing, the TransGlobe acquisition transaction costs, dividend payments, funding of our share buyback program, merged concession agreement, future lease payments and abandonment funding, each of which is discussed in further detail below.

Current wording

Our material cash requirements generally consist of the FPSO refurbishment, finance and operating leases, capital projects, dividend payments, Merged Concession Agreement and abandonment funding, each of which is discussed in further detail below.

Previous wording

Abandonment Funding - Under the terms of the Etame PSC, we have a cash funding arrangement for the eventual abandonment of all offshore wells, platforms and facilities on the Etame Marin block. As a result of the PSC Extension, annual funding payments are spread over the periods from 2018 through 2028, under the applicable abandonment study. The amounts paid will be reimbursed through the Cost Account and are non-refundable. In November 2021, a new abandonment study was done and the estimate used for this purpose is approximately $81.3 million ($47.8 million, net to VAALCO) on an undiscounted basis. The new abandonment estimate has been presented to the Gabonese Directorate of Hydrocarbons as required by the PSC. In the first quarter of 2023, the Directorate of Hydrocarbons in Gabon approved a $26.6 million ($15.6 million, net to VAALCO) abandonment funding payment associated with the FPSO retirement. The Company received payment of $15.6 million in March 2023. No activity was noted in the abandonment funding account during the remaining three quarters of the year. At December 31, 2023, the balance of the abandonment fund was $10.7 million ($6.3 million, net to VAALCO) on an undiscounted basis. The annual payments will be adjusted based on revisions in the abandonment estimate. This cash funding is reflected under “Other noncurrent assets” in the “Abandonment funding” line item of the consolidated balance sheets. Future changes to the anticipated abandonment cost estimate could change the asset retirement obligation and the amount of future abandonment funding payments.

Current wording

Abandonment Funding - Under the terms of the Etame PSC, we have a cash funding arrangement for the eventual abandonment of all offshore wells, platforms and facilities on the Etame Marin block. As a result of the PSC Extension, annual funding payments are spread over the periods from 2018 through 2028, under the applicable abandonment study. The amounts paid will be reimbursed through the Cost Account and are non-refundable. In August 2023, a new abandonment study was completed and such study estimated abandonment costs of approximately $77.9 million ($45.9 million, net to VAALCO) on an undiscounted basis. The new abandonment estimate was presented to the Gabonese Directorate of Hydrocarbons as required by the PSC. In the first quarter of 2023, the Directorate of Hydrocarbons in Gabon approved a $26.6 million ($15.6 million, net to VAALCO) abandonment funding payment associated with the FPSO retirement. The Company received payment of $15.6 million in March 2023. No additional activity was noted in the abandonment funding account during the remainder of 2023 and in 2024. At December 31, 2024, the balance of the abandonment fund was $10.7 million ($6.3 million, net to VAALCO) on an undiscounted basis. The annual payments will be adjusted based on revisions in the abandonment estimate. This cash funding is reflected under “Other noncurrent assets” in the “Abandonment funding” line item of the consolidated balance sheets. The Company is working with the Directorate of Hydrocarbons in Gabon to establish a payment schedule to resume funding of the abandonment fund. Future changes to the anticipated abandonment cost estimate could change the asset retirement obligation and the amount of future abandonment funding payments.

Previous wording

*Leases -*We are a party to several operating and financing lease arrangements, including operating leases for the corporate office, a drilling rig, rental of marine vessels and helicopter, warehouse and storage facilities, equipment and financing lease agreements for the FSO, a marine vessel, generators and turbines used in the operations of the Etame Marin block and for equipment, offices and vehicles used in the operations of Canada and Egypt. The annual costs of these leases are significant to us. For further information see Note 14 to our consolidated financial statements.

Current wording

Leases -We are a party to several operating and financing lease arrangements, including operating leases, which may include corporate offices, drilling rigs, rental of marine vessels and helicopter, warehouse and storage facilities, equipment and financing lease agreements for the FSO, and equipment and vehicles used in operations. The annual costs of these leases are significant to us. For further information see Part IV, Item 15., Note 14. Leases to our Consolidated Financial Statements.

Previous wording

Merged Concession Agreement - On January 20, 2022, prior to the consummation of the Arrangement, TransGlobe announced a fully executed Merged Concession Agreement with EGPC that merged the three existing Eastern Desert concessions with a 15-year primary term and improved economics. In advance of the Minister of Petroleum and Mineral Resources of the Arab Republic of Egypt (the “Minister”) executing the Merged Concession Agreement, TransGlobe paid the first modernization payment of $15.0 million and signature bonus of $1.0 million as part of the conditions precedent to the official signing ceremony on January 19, 2022. On February 1, 2022, TransGlobe paid the second modernization payment of $10.0 million. In accordance with the Merged Concession Agreement, we agreed to substitute the 2023 and 2024 payments and issue two $10.0 million credits against receivables owed from EGPC. We will make two further annual equalization payments of $10.0 million each beginning February 1, 2025 until February 1, 2026. We also have minimum financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on February 1, 2020 (the "Merged Concession Effective Date"). As of December 31, 2023, the $50 million of financial work commitments had been delivered to EGPC.

Current wording

Merged Concession Agreement - On January 20, 2022, prior to the consummation of the TransGlobe Acquisition, TransGlobe announced a fully executed Merged Concession Agreement with EGPC that merged the three existing Eastern Desert concessions with a 15-year primary term and improved economics. In advance of the Minister of Petroleum and Mineral Resources of the Arab Republic of Egypt (the “Minister”) executing the Merged Concession Agreement, TransGlobe paid the first modernization payment of $15.0 million and signing bonus of $1.0 million as part of the conditions precedent to the official signing ceremony on January 19, 2022. On February 1, 2022, TransGlobe paid the second modernization payment of $10.0 million. In accordance with the Merged Concession Agreement, we agreed to substitute the 2023, 2024 and 2025 payments and issue three $10.0 million credits against receivables owed from EGPC. We plan to make the final annual equalization payment of $10.0 million on or before February 1, 2026. We also have minimum financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on February 1, 2020 (the “Merged Concession Effective Date”). As of December 31, 2024, the $50.0 million of financial work commitments had been delivered to EGPC.

Previous wording

FSO Agreements– On August 31, 2021, we and our Etame co-venturers approved the Bareboat Contract and Operating Agreement with World Carrier to replace the existing FPSO with an FSO unit at the Etame Marin block offshore Gabon. Pursuant to the Bareboat Charter, World Carrier will provide use of theTeli vessel to VAALCO Gabon for an initial eight-year term, subject to optional two successive one-year extensions. Pursuant to the Operating Agreement, VAALCO Gabon agreed to engage World Carrier for the purposes of maintaining and operating the FSO on its behalf in accordance with the specifications therein and to provide other services to VAALCO Gabon in connection with the operation and maintenance of the FSO. As consideration for the performance by World Carrier of the Operator Services, VAALCO Gabon agreed to pay a daily operating fee (to be paid monthly) beginning on the date of issuance of the Fit to Receive Certificate (as defined in the Operating Agreement) until the end of the term, with such term being the same as the term in the Bareboat Charter. On October 19, 2022, we issued final acceptance certificate of the FSO. On December 4, 2022, the first lifting from the FSO was successfully completed at the same time the final remaining volumes from the FPSO were removed.

Current wording

FSO Agreements– On August 31, 2021, we and our Etame co-venturers approved the Bareboat Contract and Operating Agreement (the “Bareboat Charter”) with World Carrier to replace the existing FPSO with an FSO unit at the Etame Marin block offshore Gabon. Pursuant to the Bareboat Charter, World Carrier will provide use of the Teli vessel to VAALCO Gabon for an initial eight-year term, subject to optional two successive one-year extensions. Pursuant to the Bareboat Charter, VAALCO Gabon agreed to engage World Carrier for the purposes of maintaining and operating the FSO on its behalf in accordance with the specifications therein and to provide other services to VAALCO Gabon in connection with the operation and maintenance of the FSO. As consideration for the performance by World Carrier of the Operator

Previous wording

BWE Consortium – On October 11, 2021, we announced our entry into a consortium with BW Energy and Panoro Energy and that the BWE Consortium has been provisionally awarded two blocks in the 12th Offshore Licensing Round in Gabon. Negotiations to finalize the commercial terms were held in 2023, however they were halted late in the year due to the presidential elections. The negotiations were kick started again at the request of the Gabonese Government in early February 2024, where the consortium and the government came to an agreement on the fiscal terms on February 9, 2024. The next step is concluding the terms of the PSC with the Gabonese government. BW Energy will be the operator with a 37.5% working interest. We will have a 37.5% working interest and Panoro Energy will have a 25% working interest as non-operating joint owners. The two blocks, G12-13 and H12-13, are adjacent to our Etame PSC, as well as BW Energy and Panoro’s Dussafu PSC offshore Southern Gabon, and cover an area of 2,989 square kilometers and 1,929 square kilometers, respectively. The two blocks, held by the BWE Consortium and the PSCs over the blocks, are currently under negotiation with the Gabonese government.

Current wording

BWE Consortium – We are a member of the BWE Consortium with BW Energy and Panoro Energy, which was awarded the two blocks in the 12th Offshore Licensing Round in Gabon. The BWE Consortium and the Gabonese government came to an agreement on the commercial terms in February 2024. All parties to the BWE Consortium signed the PSC with the Gabonese Government during the fourth quarter of 2024. Pursuant to the terms of the PSC, BW Energy will be the operator with a 37.5% working interest, and VAALCO will have a 37.5% working interest and Panoro Energy will have a 25% working interest as non-operating joint owners. The two blocks, Niosi Marin Block (previously G12-13) and the Guduma Marin Block (previously H12-13), are adjacent to our Etame PSC as well as BW Energy and Panoro’s Dussafu PSC offshore Southern Gabon and cover an area of 2,989 square kilometers and 1,929 square kilometers, respectively. The two blocks, held by the BWE Consortium and the PSCs over the blocks, are currently under negotiation with the Gabonese government.

Previous wording

Dividend Policy – On February 14, 2023, we announced that our board of directors adopted of a quarterly cash dividend policy of an expected $0.0625 per common share per quarter, which commenced in the first quarter of 2023 and continued throughout the year. Payment of future dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including current financial condition, the tax impact of repatriating cash, operating results and current and anticipated cash needs.

Current wording

Dividend Policy – On February 14, 2023, we announced that our Board of Directors adopted a quarterly cash dividend policy of an expected $0.0625 per common share per quarter, which commenced in the first quarter of 2023 and continued throughout 2024. Payment of future dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including current financial condition, the tax impact of repatriating cash, operating results and current and anticipated cash needs.

Previous wording

Geopolitical Conflict and Other Market Forces – The outbreak of armed conflict between Russia and Ukraine in February 2022 and the subsequent sanctions imposed on the Russian Federation has, and may continue to have, a destabilizing effect on the European continent and the global oil and natural gas markets. The ongoing conflict has caused, and could continue to intensify, volatility in oil and natural gas prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time.

Current wording

Geopolitical Conflict and Other Market Forces – Global conflicts, including Russia’s invasion of Ukraine, conflicts in the Middle East, and heightened tensions in the Pacific region, have significantly elevated global geopolitical tensions and security concerns. Economic sanctions, export controls, and other trade restrictions, for instance those that the U.S. Government and other nations implemented against Russia in light of its invasion of Ukraine or those relating to the conflict in the Middle East, could directly and indirectly continue to have, a destabilizing effect on the European continent and the global oil and natural gas markets. The extended war between Russia and Ukraine and increasing hostilities in the Middle East, could continue to intensify and may cause prolonged uncertainty and volatility in commodity prices. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time. In addition, increased inflation, higher interest rates and current turmoil in certain governments are impacting the global supply chain market.

Previous wording

Commodity Prices– Historically, the markets for oil, natural gas and NGLs have been volatile. Oil, natural gas and NGLs prices are subject to wide fluctuations in supply and demand. Our cash flows from operations may be adversely impacted by volatility in crude oil and natural gas prices, a decrease in demand for crude oil, natural gas or NGLs and future production cuts by OPEC+. However, the Company has not received any mandate to reduce its current oil production from the Etame Marin block as a result of the OPEC+ initiatives.

Current wording

Commodity Prices– Historically, the markets for oil, natural gas and NGLs have been volatile. Oil, natural gas and NGLs prices are subject to wide fluctuations in supply and demand. Our cash flows from operations may be adversely impacted by volatility in crude oil and natural gas prices, a decrease in demand for crude oil, natural gas or NGLs and future production cuts by OPEC+.

Previous wording

ESG and Climate Change Effects – Sustainability matters continue to attract considerable public, regulatory and scientific attention. In particular, we expect continued required reporting attention on climate change issues and emissions of greenhouse gases (“GHG”), including methane (a primary component of natural gas) and carbon dioxide (a byproduct of crude oil and natural gas combustion) and freshwater use. This increased attention to climate change and environmental conservation coupled with stepped up government incentives around renewable energy sources may result in demand shifts away from crude oil and natural gas products, higher regulatory and compliance costs, additional governmental investigations and private litigation against us. For example, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources. In addition, institutional investors, proxy advisory firms and other industry participants continue to focus on ESG matters, including climate change. We expect that this heightened focus will continue to drive ESG efforts across our industry and influence investment and voting decisions, which for some investors may lead to less favorable sentiment towards carbon assets and diversion of investment to other industries. Consistent with the increased attention on ESG matters and climate change, we have prioritized and are committed to responsible environmental practices by monitoring our adherence to ESG reporting requirements, including establishing and communicating short and long-term goals and targets, furthering the reduction of our carbon footprint and measurement of GHG emissions. Sustainability remains an important topic to us, and we are in the process of developing a multi-year plan to establish and document our progress in achieving goals we set for ourselves across all areas of sustainability. Our plans will enable us to monitor and improve matters related to ESG and climate change going forward.

Current wording

For example, in March 2024, the SEC adopted final rules under SEC Release No. 33-11275: The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires registrants to provide certain climate-related information in their registration statements and annual reports. The rules require information about a registrant’s climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. These requirements are effective for the Company in various fiscal years, starting with its fiscal year beginning November 1, 2026. On April 4, 2024, the SEC determined to voluntarily stay the final rules pending certain legal challenges. The Company believes that the impact of these final rules on its consolidated financial statements and disclosures are not material. This increased attention to climate change and environmental conservation coupled with stepped up government incentives around renewable energy sources may result in demand shifts away from crude oil and natural gas products, higher regulatory and compliance costs, additional governmental investigations and private litigation against us. For example, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources. In addition, institutional investors, proxy advisory firms and other industry participants continue to focus on ESG matters, including climate change. We expect that this heightened focus will continue to drive ESG efforts across our industry and influence investment and voting decisions, which for some investors may lead to less favorable sentiment towards carbon assets and diversion of investment to other industries. Consistent with the increased attention on ESG matters and climate change, we have prioritized and are committed to responsible environmental practices by monitoring our adherence to ESG reporting requirements, including establishing and communicating short and long-term goals and targets, furthering the reduction of our carbon footprint and measurement of GHG emissions. Sustainability remains an important topic to us, and we are in the process of developing a multi-year plan to establish and document our progress in achieving goals we set for ourselves across all areas of sustainability. Our plans will enable us to monitor and improve matters related to ESG and climate change going forward.

Previous wording

For the past three years the Company has matured its reporting in line with the recommendations of the Task force on Climate-related Financial Disclosures (“TCFD”), which is recognized as the global standard in climate-related reporting. The full TCFD report was included within the 2023 ESG Report (rather than in this Annual Report on Form 10-K or in the annual report which was published in connection with the annual meeting), as the ESG Report details with environmental, social and governance matters which the TCFD report forms an important part of the 2023 Sustainability Report is available on the Company's website.

Current wording

For the past four years the Company has matured its reporting in line with the recommendations of the Task force on Climate-related Financial Disclosures (“TCFD”), which is recognized as the global standard in climate-related reporting. The full TCFD report was included within the 2023 Sustainability Report (rather than in this Annual Report on Form 10-K or in the annual report which was published in connection with the annual meeting), as the 2023 Sustainability Report details environmental, social and governance matters which the TCFD report forms an important part. The 2023 Sustainability Report is available on the Company's website, which is not incorporated by reference hereto.

Previous wording

The $54.9 million increase in net cash provided by our operating activities before changes in operating assets and liabilities for the year ended December 31, 2023 compared to the same period of 2022 was due to higher pricing, more production and the increased number of producing wells. The net increase in changes provided by operating assets and liabilities of $39.8 million for the year ended December 31, 2023 compared to the same period of 2022 was primarily related to decreases in accounts with joint venture owners, other receivables and foreign income taxes receivable partially offset by changes in accounts payable and accrued liabilities.

Current wording

The $109.9 million decrease in net cash provided by operating activities during the year ended December 31, 2024 compared to the year ended December 31, 2023, was driven primarily by changes in operating assets and liabilities during the period. The net decrease in changes provided by operating assets and liabilities of $111.5 million for the year ended December 31, 2024 compared to the same period of 2023 was related to a decrease in cash provided by trade receivable, Accounts with joint venture owners, net and Egypt receivables and other, net (collectively $86.1 million). In addition, cash used by operating assets and liabilities increased due to a decrease in the accrued liabilities and other balances of $27.0 million. Partially offsetting these changes was an increase in cash provided on a decrease in cash used in Accounts Payable of $14.9 million.

Previous wording

The $26.0 million increase in net cash used in investing activities during the year ended December 31, 2023 was due to decreases in cash capital spending in 2023. In 2022 we incurred significant capital for the 2021/2022 Etame drilling campaign and the Etame field reconfiguration. In 2023 capital spending for the drilling program in Egypt and Canada was less due to the lower per well costs for onshore wells is than Etame’s offshore wells and there were no costs associated with field reconfiguration in 2023.

Current wording

The $4.9 million increase in net cash used in investing activities during the year ended December 31, 2024 was due to the increase in cash capital spending in 2024. In 2023 we incurred significant capital for the 2021/2022 Etame drilling campaign and the Etame field reconfiguration. In 2024 capital spending was primarily attributable to the costs associated with the recompletion and drilling program. In addition, VAALCO used $40.2 million in cash for the acquisition of

Previous wording

Net cash used in financing activities during the year ended December 31, 2023 included $26.8 million dividends paid to common shareholders, $23.6 million for treasury stock purchases made under our stock repurchase plan, or as a result of tax withholding on options exercised and vested restricted stock as discussed in Note 17 to our consolidated financial statements, and $7.2 million related to principal finance lease payments partially offset by $0.7 million in proceeds from options exercised.

Current wording

Net cash used in financing activities during the year ended December 31, 2024 included $26.2 million for dividend distributions, $6.8 million for treasury stock repurchases made under our stock repurchase plan or as a result of tax withholding on options exercised and on vested restricted stock, and $10.5 million of principal payments on our finance leases partially offset by $0.4 million in proceeds from options exercised. For the twelve months ended December 31, 2023, cash used in financing activities included $26.8 million for dividend distributions, $23.6 million for treasury stock repurchased under our stock repurchase plan, and $7.2 million of principal payments on our finance leases partially offset by $0.7 million in proceeds from options exercised.

Previous wording

We are subject to periodic routine audits by various government agencies, including audits of our petroleum Cost Account, customs, taxes and other operational matters, as well as audits by other members of the contractor group under our joint operating agreements. See Note 12 to the Consolidated Financial Statements for further discussion.

Current wording

We are subject to periodic routine audits by various government agencies, including audits of our petroleum Cost Account, customs, taxes and other operational matters, as well as audits by other members of the contractor group under our joint operating agreements. See Part IV, Item 15., Note 12. Commitment and Contingencies to the Consolidated Financial Statements for further discussion.

Previous wording

The preparation of Financial Statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Financial Statements and the reported amounts of revenues and expenses during the respective reporting periods. Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and (2) the impact of the estimates and assumptions on financial condition or operating performance is material. Actual results could differ from the estimates and assumptions used. Further, in some cases, GAAP allows more than one alternative accounting method for reporting. In those cases, our reported results of operations would be different should we employ an alternative accounting method. See Note 2 to the Consolidated Financial Statements for our accounting policy elections.

Current wording

The preparation of Financial Statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Financial Statements and the reported amounts of revenues and expenses during the respective reporting periods. Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and (2) the impact of the estimates and assumptions on financial condition or operating performance is material. Actual results could differ from the estimates and assumptions used. Further, in some cases, GAAP allows more than one alternative accounting method for reporting. In those cases, our reported results of operations would be different should we employ an alternative accounting method. See Part IV, Item 15., Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements for our accounting policy elections.

Previous wording

Judgment is required in determining whether deferred tax assets will be realized in full or in part. Management assesses the available positive and negative evidence to estimate if existing deferred tax assets will be utilized. When it is estimated to be more-likely-than-not that all or some portion of the deferred tax assets will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are estimated to not be realizable. Factors considered include earnings generated in previous periods, forecasted earnings, the expiration period of carryovers, and overall economic conditions of the industry. As of December 31, 2023, we had deferred tax assets of $120.9 million primarily attributable to Canada, Gabon and U.S. basis differences in fixed assets, foreign tax credit carryforwards, and foreign net operating loss carryforwards. A valuation allowance of $83.9 million has been established against the deferred tax assets as of December 31, 2023, as management has concluded that it was more-likely-than-not that only some portion of the deferred tax assets would be realized. In future periods, we may determine that it is more-likely-than-not that all or some portion of the deferred tax assets will be realized, and in such period all or a portion of this valuation allowance may be reversed as the evidence warrants.

Current wording

Judgment is required in determining whether deferred tax assets will be realized in full or in part. Management assesses the available positive and negative evidence to estimate if existing deferred tax assets will be utilized. When it is estimated to be more-likely-than-not that all or some portion of the deferred tax assets will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are estimated to not be realizable. Factors considered include earnings generated in previous periods, forecasted earnings, the expiration period of carryovers, and overall economic conditions of the industry. As of December 31, 2024, we had deferred tax assets of $266.5 million primarily attributable to Canada, Gabon and U.S. basis differences in fixed assets, foreign tax credit carryforwards, and foreign net operating loss carryforwards. A valuation allowance of $173.1 million has been established against the deferred tax assets as of December 31, 2024, as management has concluded that it was more-likely-than-not that only some portion of the deferred tax assets would be realized. In future periods, we may determine that it is more-likely-than-not that all or some portion of the deferred tax assets will be realized, and in such period all or a portion of this valuation allowance may be reversed as the evidence warrants.