VAALCO ENERGY INC DE

1. ORGANIZATION

VAALCO Energy, Inc. (together with its consolidated subsidiaries “we”, “us”, “our”, “VAALCO” or the “Company”) is a Houston, Texas-based independent energy company engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs properties. As operator, the Company has production operations and conducts exploration activities in Gabon and Canada and hold interests intwo production sharing contracts ("PSCs") in Egypt. The Company has opportunities to participate in development and exploration activities in Equatorial Guinea, West Africa.

On* October 13, 2022,*the Company completed the business combination involving TransGlobe Energy Corporation (“TransGlobe”),

As of* December 31, 2023*, the Company’s consolidated subsidiaries were VAALCO Gabon (Etame), Inc., VAALCO Production (Gabon), Inc., VAALCO Gabon S.A., VAALCO Angola (Kwanza), Inc., VAALCO Energy (EG), Inc., VAALCO Energy Mauritius (EG) Limited, VAALCO Energy, Inc. (UK Branch), VAALCO Energy (USA), Inc, VAALCO Energy (International), LLC, VAALCO Energy (Holdings), LLC, VAALCO International Management, LLC, TransGlobe Energy Corporation, TransGlobe Energy UK Ltd, TransGlobe Petroleum International Inc., TransGlobe Holdings Yemen Inc., TransGlobe West Bakr Inc., TransGlobe West Gharib Inc., TransGlobe Energy Marketing Inc., TransGlobe NW Gharib Inc. and TransGlobe S Ghazalat Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation – The accompanying consolidated financial statements (“Financial Statements”) include the accounts of VAALCO and its wholly owned subsidiaries. Investments in unincorporated joint ventures and undivided interests in certain operating and non-operating assets are consolidated on a pro rata basis. All intercompany transactions within the consolidated group have been eliminated in consolidation.

Use of estimates – The preparation of the Financial Statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”) requires 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. The Financial Statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

Estimates of crude oil, natural gas and NGLs reserves used to estimate depletion expense and impairment charges require significant judgments and are generally less precise than other estimates made in connection with financial disclosures. Due to inherent uncertainties and the limited nature of data, estimates are imprecise and subject to change over time as additional information becomes available.

Cash and cash equivalents – Cash and cash equivalents includes deposits and funds invested in highly liquid instruments with original maturities ofthree months or less at the date of purchase. The Company maintains its cash accounts in financial institutions that are insured by the Federal Deposit Insurance Corporation. From time to time, cash balances* mayexceed the insured amounts, however, the Company hasnot* experienced any losses in such accounts and doesnot believe it is exposed to any significant credit risks associated with cash and cash equivalents.

Restricted cash and abandonment funding – Restricted cash includes cash that is contractually restricted. Restricted cash is classified as a current or non-current asset based on its designated purpose and estimated timing of usage. Current amounts in restricted cash at* December 31, 2023and2022* each include an escrow amount representing bank guarantees for customs clearance in Gabon. For Canada, approximately $0.1 million has been set aside as of* December 31, 2023related to property taxes. Long-term amounts at December 31, 2023and2022* include a charter payment escrow for the FPSO offshore Gabon as discussed in Note12.

On* January 22, 2024VAALCO received notice that the final compensation payment was made for the charter payment escrow for the FPSO, which released VAALCO and its partners of any further obligation to restrict this cash amount. The remaining cash in the account is to be distributed to VAALCO and the joint operating partners. As of December 31, 2023,*VAALCO's share of this restricted cash amount was $1.8 million.

In thefirst quarter of2023, 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.The remaining balance of the abandonment fund was unchanged during the remainder of2023.*

The Company invests restricted and excess cash in readily redeemable money market funds. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the amounts shown in the consolidated statements of cash flows.

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Accounts with joint venture owners, net – Accounts with joint venture owners represent the excess of charges billed over cash calls paid by the joint venture owners for exploration, development and production expenditures made by the Company as an operator. Joint owner receivables are secured through cash calls and other mechanisms for collection under the terms of the joint operating agreements. For credit loss and other allowances associated with accounts with joint venture owners, see allowance for credit loss and other below.

Trade, net– The Company’s trade accounts receivable results from sales of crude oil, natural gas and NGLs. For credit losses associated with accounts with trade receivables, see allowance for credit losses and other below.

Egypt receivables and other, net– On* January 19, 2022,TransGlobe’s West Gharib, West Bakr and North West Gharib (collectively the “Eastern Desert”) concessions were merged into the Merged Concession Agreement with the Egyptian General Petroleum Corporation ("EGPC"). The Merged Concession includes improved cost recovery and production sharing terms scaled to oil prices with a new 15-year development term and a 5-year extension option. Upon execution of the Merged Concession, there was an effective date adjustment owed to the Company for the difference between historic and Merged Concession Agreement commercial terms applied against Eastern Desert production from the Merged Concession Effective Date, February 1, 2020.The cumulative amount of the effective date adjustment was estimated at $67.5 million and was recorded as part of the TransGlobe arrangement. During thefourth* quarter of2022, the Company received $17.2 million. At* December 31, 2023,*the remaining $45.6, net of credit loss ($4.6 million) million was recorded on the consolidated balance sheet in current receivables in the "Egypt receivables and other, net" line item.

For credit losses associated with Egypt receivables and other, net, see allowance for credit losses and other below.

Value added tax and other receivables, net – The Company incurs receivables from the government of Gabon for reimbursable Value-Added Tax (“VAT”).

As of* December 31, 2023,the outstanding VAT receivable balance was approximately $1.6 million, net to VAALCO. As of December 31, 2022,*the outstanding VAT receivable balance, excluding the allowance, was approximately $21.8 million ($13.9 million, net to VAALCO). The receivable amount, net of allowances, is reported as a non-current asset in the “Value added tax and other receivables” line item in the condensed consolidated balance sheets. Because both the VAT receivable and the related allowances are denominated in XAF, the exchange rate revaluation of these balances into U.S. dollars at the end of each reporting period also has an impact on the Company’s results of operations. Such foreign currency gains (losses) are reported separately in the “Other expense, net” line item of the consolidated statements of operations and comprehensive income. For the allowance associated with VAT, see allowance for credit losses and other below.

Allowance for credit losses and other – On** January 1, 2023,** the Company adopted Accounting Standards Update2016*-13, Financial Instruments—Credit Losses (“ASU 2016-13”). ASU2016*-13 requires an entity to measure credit losses of certain financial assets, including trade receivables, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. All other amounts previously disclosed as allowances for bad debt were transferred to allowances for credit loss and other.

The Company estimates the current expected credit loss and other allowances based primarily using either an aging analysis or discounted cash flow methodology that incorporates consideration of current and future conditions that could impact its counterparties’ credit quality and liquidity. Uncollectible receivables are written off when a settlement is reached for an amount that is less than the outstanding historical balance or when the Company has determined that the balance willnot be collected.

The Company has identified the following types of financial assets that are within the scope of ASU*2016*-13:

As a result of adopting ASU2016-13 on* January 1, 2023,the Company recognized a $3.1 million cumulative effect adjustment within retained earnings. During the year ended December 31, 2023,the Company reversed $12.4 million of credit loss and other allowances due to recoveries from VAT and the Sogara refinery. The Company recognized $7.5 million in credit loss and other allowances mainly due to amounts owed from EGPC. As of December 31, 2023,** the Company has established a credit loss and other allowance for the full $0.8 million receivable fromone* of the non-operating partners in Block P offshore Equatorial Guinea.

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The following table provides an analysis of the change in the aggregate credit loss and other allowances:

Crude oil inventory – Crude oil inventories are carried at the lower of cost or net realizable value. In Gabon, inventories represent the Company's share of crude oil produced and stored on the FSO at* December 31, 2023and the FPSO at December 31, 2022,but unsold at the end of each period. In Egypt, inventory consists of the Company's entitlement crude oil barrelsnot* yet sold.

Prepayments and other – Included in “Prepayments and other” line item of the Company’s* December 31, 2023* and2022 consolidated balance sheet are the following assets:

Crude oil, natural gas and NGLs properties, equipment and other – The Company uses the successful efforts method of accounting for crude oil, natural gas and NGLs producing activities.

•Capitalization – Costs of successful wells, development dry holes and leases containing productive reserves are capitalized and amortized on a unit-of-production basis over the life of the related reserves. Other exploration costs, including dry exploration well costs, geological and geophysical expenses applicable to undeveloped leaseholds, leasehold expiration costs and delay rentals, are expensed as incurred. The costs of exploratory wells are initially capitalized pending a determination of whether proved reserves have been found. At the completion of drilling activities, the costs of exploratory wells remain capitalized if a determination is made that proved reserves have been found. Ifno proved reserves have been found, the costs of exploratory wells are charged to expense. In some cases, a determination of proved reserves cannot be made at the completion of drilling, requiring additional testing and evaluation of the wells. Cost incurred for exploratory wells that find reserves that cannot yet be classified as proved are capitalized if (a) the well has found a sufficient quantity of reserves to justify its completion as a producing well and (b) sufficient progress in assessing the reserves and the economic and operating viability of the project has been made. The status of suspended well costs is monitored continuously and reviewed quarterly. Due to the capital-intensive nature and the geographical characteristics of certain projects, it* may*take an extended period of time to evaluate the future potential of an exploration project and the economics associated with making a determination of its commercial viability. Costs of seismic studies that are utilized in development drilling within an area of proved reserves are capitalized as development costs.

•Capitalized equipment spare parts –*** ***Capitalized equipment inventory represents the costs incurred in purchasing and bringing the inventory to its present location and condition and is based on purchase costs calculated on weighted average cost basis, including transportation costs. Capitalized equipment inventory is classified as long term when the Company expects to utilize the inventory beyond the normal operating cycle.

•Depreciation, depletion and amortization – Depletion of wells, platforms, and other production facilities are calculated on a block basis under the unit-of-production method based upon estimates of total proved developed reserves. Depletion of leasehold acquisition costs are provided on a block basis under the unit-of-production method based upon estimates of total proved reserves. Support equipment (other than equipment inventory) and leasehold improvements related to crude oil, natural gas and NGLs producing activities, as well as property, plant and equipment unrelated to crude oil, natural gas and NGLs producing activities, are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which are typicallyfive years for office and miscellaneous equipment andfive toseven years for leasehold improvements.

•Unproved Property Cost– Significant unproved properties are assessed individually for impairment and when events or circumstances indicate that the carrying value of property* may**not* be recovered a valuation allowance is provided if an impairment is indicated. The unproved property costs arenot subject to depreciation, depletion and amortization, until they are classified as proved properties.

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•Impairment** – The Company reviews the crude oil, natural gas and NGLs properties and equipment, net for impairment on a block basis whenever events or changes in circumstances indicate that the carrying amount of such properties may*not* be recoverable. If the sum of the expected undiscounted future cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment charge is recorded based on the fair value of the asset. This* mayoccur if the block contains lower than anticipated reserves or periods of sustained declines in commodity prices. The fair value measurement used in the impairment test is generally calculated with a discounted cash flow model using several Level3* inputs that are based upon estimates, the most significant of which is the estimate of net proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the Company’s control. Reserve engineering is a subjective process of estimating underground accumulations of crude oil, natural gas and NGLs that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of crude oil, natural gas and NGLs that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures and future crude oil, natural gas and NGLs sales prices* may*all differ from those assumed in these estimates.

Capitalized equipment inventory is reviewed regularly for obsolescence.

When undeveloped crude oil, natural gas and NGLs leases are deemed to be impaired, exploration expense is charged. Unproved property costs consist of acquisition costs related to unproved property costs in the Etame Marin block in Gabon, Canada, Egypt and in Block P in Equatorial Guinea.

Lease commitments– At inception, contracts are reviewed to determine whether an agreement contains a lease as defined under Accounting Standards Codification (“ASC”)842, Leases. If a lease is identified within the contract, a determination is made whether the lease qualifies as an operating or financing lease. Regardless of the type of lease, the initial measurement of the lease results in recording a right of use (“ROU”) asset and a lease liability at the present value of the future lease payments.

Asset retirement obligations (“ARO”) – The Company has legal obligations to remove tangible equipment and restore land or seabed at the end of crude oil, natural gas and NGLs production operations. The removal and restoration obligations are primarily associated with plugging and abandoning wells, removing and disposing of all or a portion of onshore or offshore crude oil, natural gas and NGLs platforms, and capping pipelines. Estimating the future restoration and removal costs requires management to make estimates and judgments. Asset removal technologies and costs are constantly changing, as are regulatory, political, environmental, safety, and public relations considerations.

A liability for ARO is recognized in the period in which the legal obligations are incurred if a reasonable estimate of fair value can be made. The ARO liability reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with crude oil, natural gas and NGLs properties and equipment, net. The Company uses current retirement costs to estimate the expected cash outflows for retirement obligations. Inherent in the present value calculation are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit-adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. Initial recording of the ARO liability is offset by the corresponding capitalization of asset retirement cost recorded to crude oil, natural gas and NGLs properties and equipment, net. To the extent these or other assumptions change after initial recognition of the liability, the fair value estimate is revised and the recognized liability adjusted, with a corresponding adjustment made to the related capitalized asset retirement cost or through a charged to earnings, as appropriate. Depreciation of capitalized asset retirement costs and accretion of asset retirement obligations are recorded over time. Depreciation is generally determined on a units-of-production basis for crude oil, natural gas and NGLs properties and equipment, net production facilities, while accretion escalates over the lives of the assets to reach the expected settlement value. Where there is a downward revision to the ARO that exceeds the net book value of the related asset, the corresponding adjustment is limited to the amount of the net book value of the asset and the remaining amount is recognized as a gain.

Revenue recognition– The Company's revenues are derived from contracts with customers. Royalties are considered to be part of the price of the sale transaction and are therefore presented as a reduction to revenues. Revenues associated with the sale of crude oil, natural gas and NGLs are measured based on the consideration specified in contracts with customers.

Revenues from contracts with customers are recognized when the Company satisfies a performance obligation by transferring a good or service to a customer. A good or service is transferred when the customer obtains control of the good or service. The transfer of control of oil, natural gas and NGLs usually coincides with title passing to the customer and the customer taking physical possession. VAALCO mainly satisfies its performance obligations at a point in time and the amounts of revenues recognized relating to performance obligations satisfied over time arenot significant. Sales and delivery costs associated with certain sales are netted against revenue in accordance with the Company’s policy regarding classification of these type of expenses. The Company has utilized the practical expedient in ASC Topic606-10-50-14(a), which states that the Company isnot required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.

Revenues associated with the sales of the Company’s crude oil, natural gas, condensates and natural gas liquids ("NGLs") are recognized by reference to actual volumes sold and quoted market prices in active markets for crude oil, natural gas, condensates and NGLs, adjusted according to specific terms and conditions as applicable per the sales contracts. Revenue is measured at the fair value of the consideration received or receivable.

Major maintenance activities– Costs for major maintenance are expensed in the period incurred and can include the costs of workovers of existing wells, contractor repair services, materials and supplies, equipment rentals and labor costs.

Stock-based compensation – The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The grant date fair value for options or stock appreciation rights (“SARs”) is estimated using either the Black-Scholes or Monte Carlo method depending on the complexity of the terms of the awards granted. The SARs fair value is estimated at the grant date and remeasured at each subsequent reporting date until exercised, forfeited or cancelled.

Black-Scholes and Monte Carlo models employ assumptions, based on management’s best estimates at the time of grant, which impact the calculation of fair value and ultimately, the amount of expense that is recognized over the life of the stock options or SAR award. These models use the following inputs: (i) the quoted market price of the Company’s common stock on the valuation date, (ii) the maximum stock price appreciation that an employee* may*receive, (iii) the expected term that is based on the contractual term, (iv) the expected volatility that is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the option or SAR award, (v) the expected dividend yield that is based on the anticipated dividend payments and (vi) the risk-free interest rate that is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the option or SAR award.

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For restricted stock awards, the grant date fair value is determined using the market value of the common stock on the date of grant.

The stock-based compensation expense for equity awards is recognized over the period that services are provided. For awards considered liabilities under US GAAP, awards are measured at fair value on the grant date and remeasured at fair value until the award is settled.

Foreign currency transactions – The U.S. dollar is the functional currency of the Company’s foreign operating subsidiaries except for Canada. When the Company’s subsidiaries' functional currency is the US dollar, gains and losses on foreign currency transactions are included in income. When the Company’s subsidiaries functional currency is the local currency,not the US dollar, the cumulative effects of translating the balance sheet accounts from the functional currency into the U.S. dollar at current exchange rates are included in accumulated other comprehensive income (loss). The Company recognized losses on foreign currency transactions of $0.9 million in2023, $4.2 million in2022 and $0.7 million in2021.

Income taxes – The tax provision is based on expected taxable income, statutory rates and tax planning opportunities available to the Company in the various jurisdictions in which the Company operates. The determination and evaluation of the annual tax provision and tax positions involves the interpretation of the tax laws in the various jurisdictions in which the Company operates and requires significant judgment and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations, agreements and tax treaties or the level of operations or profitability in each jurisdiction would impact the tax liability in any given year. The Company also operates in foreign jurisdictions where the tax laws relating to the crude oil, natural gas and NGLs industry are open to interpretation, which could potentially result in tax authorities asserting additional tax liabilities. While the income tax provision (benefit) is based on the best information available at the time, a number of years* may*elapse before the ultimate tax liabilities in the various jurisdictions are determined. The Company also records as income tax expense the increase or decrease in the value of the government’s allocation of profit oil, which is due to changes in value from the time the allocation is originally produced to the time the allocation is actually lifted.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their tax basis. Deferred tax assets are recognized when it is more likely thannot that they will be realized. We periodically assess our deferred tax assets and reduce such assets by a valuation allowance if we deem it is more likely thannot that some portion or all of the deferred tax assets willnot be realized. 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, and when it is estimated to be more-likely-than-not that all or some portion of specific deferred tax assets, such as net operating loss carry forwards or foreign tax credit carryovers, willnot be realized. A valuation allowance must be established for the amount of the deferred tax assets that are estimated tonot be realizable. Factors considered are earnings generated in previous periods, forecasted earnings and the expiration period of carryovers.

Derivative instruments and hedging activities – The Company enters into crude oil hedging arrangements from time to time in an effort to mitigate the effects of commodity price volatility and enhance the predictability of cash flows relating to the marketing of a portion of our crude oil production. While these instruments mitigate the cash flow risk of future decreases in commodity prices, they* may*also curtail benefits from future increases in commodity prices.

The Company records balances resulting from commodity risk management activities in the consolidated balance sheets as either assets or liabilities measured at fair value. The Company has electednot to offset fair value amounts of qualifying derivatives under a master netting arrangement and associated fair value amounts for cash collateral receivables and payables. Gains and losses from the change in fair value of derivative instruments and cash settlements on commodity derivatives are presented in the “Derivative instruments gain (loss), net” line item located within the “Other income (expense)” section of the consolidated statements of operations and comprehensive income (loss).

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Fair value – Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. Thethree input levels of the fair-value hierarchy are as follows:

Level1 – Inputs are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the measurement date.

Level2 – Inputs are observable market-based inputs or unobservable inputs that are corroborated by market data.

Level3 – Inputs are unobservable inputs that arenot corroborated by market data and* may*be used with internally developed methodologies that result in management’s best estimate of fair value.

Nonrecurring Fair Value Measurements– The Company applies fair value measurements to its nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements or remeasurements of impairment of crude oil, natural gas and NGLs properties and equipment, net, asset retirement assets and liabilities and assets acquired and liabilities assumed in a business combination. VAALCO uses market-observable prices for assets when comparable transactions can be identified that are similar to the asset being valued. When VAALCO is required to measure fair value and there isnot a market-observable price for the asset or for a similar asset then the cost or income approach is used depending on the quality of information available to support management’s assumptions. The cost approach is based on management’s best estimate of the current asset replacement cost. The income approach is based on management’s best assumptions regarding expectations of future net cash flows. The expected cash flows are discounted using a commensurate risk-adjusted discount rate. Such evaluations involve significant judgment, and the results are based on expected future events or conditions such as sales prices, estimates of future oil and gas production or throughput, development and operating costs and the timing thereof, economic and regulatory climates and other factors, most of which are often are often outside of management's control. However, assumptions used to reflect a market participant's view of long term prices, costs and other factors and are consistent with assumptions used in VAALCO's business plans and investment decisions.

Fair value of financial instruments – The Company determines the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs.

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Earnings per Share– Basic earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of diluted common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities consist of unvested restricted stock awards and stock options using the treasury method. Under the treasury method, the amount of unrecognized compensation expense related to unvested stock-based compensation grants or the proceeds that would be received if the stock options were exercised are assumed to be used to repurchase shares at the average market price. When a loss exists, all potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share.

3. NEW ACCOUNTING STANDARDS

Adopted

In* June 2016,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASU”)No. 2016-13, Financial Instruments– Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments*(“ASU2016-13”) related to the calculation of credit losses on financial instruments. All financial instrumentsnot accounted for at fair value are impacted, including the Company’s trade and joint venture owners’ receivables. Allowances are to be measured using a current expected credit loss (“CECL”) model as of the reporting date that is based on historical experience, current conditions and reasonable and supportable forecasts. This* is significantly different from the current model that increases the allowance when losses are probable. ASU2016*-13 is effective for Securities and Exchange Commission filers, excluding smaller reporting companies, for fiscal years beginning after* December 15, 2019,including interim periods within those fiscal years. The Company was required to adopt the new standard for the fiscal years beginning after December 15, 2022,including interim periods within those fiscal years. The Company adopted ASU2016*-13 (“ASC326”) on* January 1, 2023using the modified-retrospective approach. The modified-retrospective approach consists of applying the amendments in ASU2016*-13 through a cumulative-effect adjustment, if required, to retained earnings as of the beginning of thefirst reporting period in which the guidance is effective. The Company’s current method and timing of recognizing credit loss and other allowances are in accordance with ASC326 and is consistent with the previous method of recognizing credit loss and other allowances, except forone receivable, which now utilizes the Discounted Cash Flow method for computing its Expected Credit Loss (“ECL”). The Company recorded an ECL allowance of $3.1 million as an opening balance adjustment to retained earnings at* January 1, 2023.*

In* March 2020,the FASB issued ASU2020*-04, “Reference Rate Reform (Topic848),” which provides for applying U.S. GAAP to debt contracts, receivables, leases, derivatives, and other contracts impacted by reference rate reform and other transactions affected by the cessation of the LIBOR. The expiration date of ASU2020-04 was* December 31, 2022.In December 2022,the FASB issued ASU2022*-06, “Reference Rate Reform (Topic848): Deferral of the Sunset Date of Topic848, to extend the expiration date of Topic848 through* December 31, 2024.On October 3, 2023,the Company adopted the provisions of ASU2022*-06, “Reference Rate Reform Topic848. The adoption of the standard didnot have a material impact to the company.

Not Yet Adopted

In* December 2023,FASB issued new guidance to improve Income Tax disclosures to provide information to assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The rules become effective for annual periods beginning after December 15, 2024.*The standard modifies required income tax disclosures. VAALCO is currently evaluating the impact of adopting this guidance on the consolidated financial statements.

In* November 2023,FASB issued new guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The rules become effective for the fiscal years beginning after December 15, 2023.*The standard requires additional disclosures about operating segments. VAALCO is currently evaluating the impact of adopting this guidance on the consolidated financial statements.

In* August 2023,FASB issued new guidance to provide specific guidance on how a joint venture, upon formation, should recognize and initially measure assets contributed and liabilities assumed. The rules become effective prospectively for all joint venture formations occurring on or after January 1, 2025.*VAALCO is currently assessing the impact of this guidance.

4. ACQUISITIONS AND DISPOSITIONS

Acquisition of TransGlobe Energy Corporation

On* October 13, 2022,the Company and AcquireCo completed the previously announced business combination with TransGlobe whereby AcquireCo acquired all of the issued and outstanding common shares of TransGlobe and TransGlobe became a direct wholly owned subsidiary of AcquireCo and an indirect wholly owned subsidiary of the Company pursuant to an Arrangement agreement entered into by the Company, AcquireCo and TransGlobe on July 13, 2022.*

At the effective time of the Arrangement and pursuant to the Arrangement Agreement, each common share of TransGlobe issued and outstanding immediately prior to the effective time of the Arrangement (the “TransGlobe common shares”) was converted into the right to receive 0.6727 (the “exchange ratio”) of a share of VAALCO common stock, par value $0.10 per share. The total number of VAALCO shares issued to TransGlobe’s shareholders was approximately 49.3 million. The Arrangement resulted in VAALCO stockholders owning approximately 54.5%, and TransGlobe shareholders owning approximately 45.5% of the Combined Company, calculated based on vested outstanding shares of each company as of the date of the Arrangement Agreement. The Combined Company results of operations of VAALCO and TransGlobe for the period of* October 14, 2022to December 31,2022 are included in the Company’s consolidated results for the period ending December 31, 2022.*

Prior to the Arrangement, TransGlobe was an oil and gas exploration and development company whose activities were concentrated in Egypt and Canada. The Combined Company is an African-focused operator with a portfolio of assets in Gabon, Egypt, Equatorial Guinea and Canada. The transaction qualified as a business combination under ASC805, Business Combinations and the Company is the accounting acquiror.

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During thefirst quarter of2023, a measurement period adjustment was recorded impacting the deferred tax liability and bargain purchase gain. The purchase accounting for the business combination was completed by* September 30, 2023.During the year ended December 31, 2023,the deferred tax liability in Egypt was increased by $1.4 million, respectively, as of the date of the acquisition. This resulted in a decrease to the bargain purchase gain of a corresponding $1.4 million for the year ended December 31, 2023,*and is reflected in VAALCO's consolidated statements of operations in the line, “Other expense, net.”

The following table shows the2023 adjustment as if the adjustment was made on the date of acquisition:.

All assets and liabilities associated with TransGlobe, including crude oil, natural gas and NGLs properties, asset retirement obligations and working capital items, were recorded at their fair value. The Company used estimated future crude oil prices as of the closing date,* October 13, 2022,to apply to the estimated reserve quantities acquired and market participant assumptions to the estimated future operating and development costs to arrive at the estimates of future net revenues. The future net revenues were discounted using a weighted average cost of capital to determine the fair value at closing. The valuations to derive the purchase price included the use of both proved and unproved categories of reserves, expectation for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates, and specific risk adjustment factors based on reserve category discount rates. The purchase price allocation was finalized in thethird* quarter of2023. A bargain purchase gain of $10.8 million was recognized based on the difference in the fair value of assets and liabilities assumed and the purchase price and is included in the “Other income (expense), net” in the consolidated statements of operations and comprehensive income.

For thetwelve months ended* December 31, 2022,*included in the line item "Other income (expense), net" is $14.6 million of transactions costs associated with the Arrangement with TransGlobe.

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The unaudited pro forma results presented below have been prepared to give the effect to the TransGlobe Acquisition discussed above on the Company’s results of operations for the years ended* December 31, 2022and2021,* as if the Arrangement had been consummated on* January 1, 2021.The unaudited pro forma results donot* purport to represent what the Company’s actual results of operations would have been if the TransGlobe arrangement had been completed on such date or to project the Company’s results of operations for any future date or period.

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5. SEGMENT INFORMATION

The Company’s operations are based in Gabon, Egypt, Canada and Equatorial Guinea. Each of the reportable operating segments are organized and managed based upon geographic location. The Company’s Chief Executive Officer, who is the chief operating decision maker evaluates the operation of each geographic segment separately primarily based on Operating income (loss). The operations of all segments include exploration for and production of hydrocarbons where commercial reserves have been found and developed. Revenues are based on the location of hydrocarbon production. Corporate and other is primarily corporate and operations support costs that arenot allocated to the reportable operating segments.No transactions occurred between segments.

Segment activity of continuing operations for the years ended* December 31, 2023,2022 and2021 and long-lived assets and segment assets at December 31, 2023and2022* are as follows:

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(1) Includes assets acquired in the TransGlobe acquisition.

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6. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated using the average number of shares of common stock outstanding during each period. For the calculation of diluted shares, the Company assumes that restricted stock is outstanding on the date of vesting, and the Company assumes the issuance of shares from the exercise of stock options using the treasury stock method.

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A reconciliation of reported net income (loss) to net income (loss) used in calculating EPS as well as a reconciliation from basic to diluted shares follows:

7. REVENUE

Revenues from contracts with customers are generated from sales in Gabon pursuant to crude oil sales and purchase agreements (“COSPAs”) or crude oil sales and marketing agreements ("COSMA or COSMAs"). Except for internal costs, which are expensed as incurred, there areno upfront costs associated with obtaining a new COSPA or COSMA.

Customer sales generally occur on a monthly basis when the customer’s tanker arrives at the FPSO or FSO and the crude oil is delivered to the tanker through a connection. There is a single performance obligation (delivering crude oil to the delivery point, i.e. the connection to the customer’s crude oil tanker) that gives rise to revenue recognition at the point in time when the performance obligation event takes place. This is referred to as a “lifting”. Liftings can takeone totwo days to complete.

The Company accounts for sales based on the Company’s working interest, less royalties. Imbalances are valued based on the actual sales proceeds. Historically as operator, the volumes sold* may*be more or less than the volumes that the Company is entitled based on the ownership interest in the property, and the Company would recognize a liability if the volumes sold exceeded the Company’s ownership interest.

For each lifting completed under a COSPA or COSMA, payment is made by the customer in U.S. dollars by electronic transfer30 days after the date of the bill of lading. For each lifting of crude oil, pricing is based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors.

In addition to revenues from customer contracts, the Company has other revenues related to contractual provisions under the Etame Marin block PSC. The Etame PSC isnot a customer contract, and therefore the associated revenues arenot within the scope of ASC606. The terms of the Etame PSC includes provisions for payments to the government of Gabon for: royalties based on 13% of production at the published price and a shared portion of “Profit Oil” determined based on daily production rates, as well as a gross carried working interest of 7.5% (increasing to 10% beginning* June**20,* 2026) for all costs. For both royalties and Profit Oil, the Etame PSC provides that the government of Gabon* may*settle these obligations in-kind, i.e. taking crude oil barrels, rather than with cash payments.

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To date, the government of Gabon hasnot elected to take its royalties in-kind, and this obligation is settled through a monthly cash payment. Payments for royalties are reflected as a reduction in revenues from customers.

With respect to the government’s share of Profit Oil, the Etame PSC provides that corporate income tax is satisfied through the payment of Profit Oil. In the consolidated statements of operations and comprehensive income (loss), the government’s share of revenues from Profit Oil is reported in revenues with a corresponding amount reflected in the current provision for income tax expense. The amount associated with the Profit Oil under the terms of the Etame PSC is reflected as revenue with an offsetting amount reported in current income tax expense. Payments of the income tax expense are reported in the period that the government takes its Profit Oil in-kind,i.e. the period in which it lifts the crude oil. In2023, an in-kind payment of $32.8 million was made with the* November 2023lifting. The Company has a $18.9 million foreign income tax payable as of December 31, 2023*. In the prior year, an in-kind payment of $26.3 million was made with the* December 2022lifting. With this lifting, the government lifted more oil in-kind than what was owed to it in foreign taxes. Therefore, as of December 31, 2022*, the foreign income taxes receivable attributable to this obligation was $2.8 million.

Certain amounts associated with the carried interest in the Etame Marin block are reported as revenues. In this carried interest arrangement, the carrying parties, which include the Company and other working interest owners, are obligated to fund all of the working interest costs that would otherwise be the obligation of the carried party. The carrying parties recoup these funds from the carried interest party’s revenues.

The following table presents revenues in Gabon from contracts with customers as well as revenues associated with the obligations under the ‎Etame PSC:

Revenues from sales in Egypt are generally made through direct sales to EGPC or through contracts with customers pursuant to crude oil sales and purchase agreements (“COSPAs”) or crude oil sales and marketing agreements ("COSMA or COSMAs"). EGPC and the Company each own a 50% interest, respectively, in the operating company which is a party to the Merged Concession Agreement. EGPC and the Company each also own a 50% interest, respectively, in the operating company that is a party to the South Ghazalat concession agreement.

Customer sales generally occur on daily when sales are directly to EGPC or haphazardly production is sold through a cargo lifting. Regardless of the type of sales, there is a single performance obligation (delivering crude oil to the delivery point) that gives rise to revenue recognition at the point in time when the performance obligation event takes place.

For reporting purposes, the Company records EGPC’s share of production as royalties which are netted against revenue, whether EGPC’s share of production arises from EGPC’s share of profit oil or excess cost oil which is discussed below.

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With respect to Egyptian income taxes, which are the Company’s liability under the terms of the Merged Concession Agreement, these taxes are paid by EGPC on behalf of the Company out of EGPC’s share of production entitlement. The income taxes paid to the Arab Republic of Egypt on behalf of the Company are recognized as crude oil revenue and income tax expense for reporting purposes.

EGPC owns the storage and export facilities where the Company's production is delivered and the Company requires EGPC cooperation and approval to schedule liftings. Once liftings occur, the Company has a30-day collection cycle on liftings as a result of direct marketing to international purchasers. Depending on the Company's assessment of the credit of crude oil cargo buyers, they* maybe required to post irrevocable letters of credit to support the sales prior to the cargo liftings. Direct sales to EGPC are normally settledtwo* tofour weeks from delivery.

In some instances, the Company will borrow or loan production volumes in order to achieve a required amount of crude oil for cargo sales. In these instances, the Company can be in an overlift or underlift position. Regardless of being in an over lift or underlift position, sales are based on the Company’s working interest, less royalties. Imbalances are valued based on the actual sales proceeds and the Company will record a payable, if in an overlift position, or a receivable, if in an underlift position, based on the fair value of the consideration received or receivable.

The following table presents revenues in Egypt from contracts with customers:

Customer sales generally occur on a daily basis when crude oil, natural gas, condensate or NGL’s are sold, normally via pipeline, to a delivery point. Regardless of the type of sales, there is a single performance obligation (delivering crude oil, natural gas, condensate or NGL’s to the delivery point) that gives rise to revenue recognition at the point in time when the performance obligation event takes place. VAALCO pays royalties to the Alberta provincial government and other mineral rights owners in accordance with the established royalty regime. For reporting purposes, the Company records revenues net of royalties.

Settlement of accounts receivable in Canada occur on the25th of the following month following production.

The following table presents revenues in Canada from contracts with customers:

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Information about the Company’s most significant customers -

The Company currently sells crude oil production from Gabon under a COSPA or COSMA with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors.

On* May 16, 2022,the Company entered into a COSMA with Glencore pursuant to which the Company agreed to make Glencore the exclusive offtaker and marketer of all of the crude oil produced from the EtameG4*-160 Block, offshore Gabon during the period from* August 1, 2022until the final maturity date of the Facility (as defined in the Facility Agreement) which is May 15, 2027*unless early terminated. Pursuant to the COSMA, Glencore agreed to buy and market the Company’s crude oil with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors.

The Company entered an COSPA and amendments with ExxonMobil that covered sales from* February 2020through July* 2022 with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors.

For the year ended* December 31, 2023,*the Company hadone customer that comprised 100% of its sales for Gabon. In Egypt, two customers made up 62% and 38%, respectively. In Canada, three customers made up approximately 52%,37% and 7% of revenue.

8. INCOME TAXES

VAALCO and its domestic subsidiaries file a consolidated U.S. income tax return. Certain foreign subsidiaries also file tax returns in their respective local jurisdictions that include Canada, Egypt, Equatorial Guinea and Gabon.

Income taxes attributable to continuing operations for the years ended* December 31, 2023and December 31, 2022are attributable to foreign taxes payable in Gabon and Egypt, whereas for the year ended December 31, 2021*the income taxes are attributable to foreign taxes payable in Gabon as well as income taxes in the U.S.

Provision for income taxes related to income (loss) from continuing operations consists of the following:

As of* December 31, 2023,the Company had total deferred tax assets of $120.9 million primarily attributable to Canada, Gabon and the U.S. whereas for December 31, 2022deferred tax assets were $99.6 million primarily attributable to Canada, Gabon and the U.S. In both years, the income taxes related to basis differences in fixed assets, foreign tax credit carryforwards, as well as foreign net operating loss carryforwards and in the December**31,2022,* period U.S. net operating loss carryforward as well. In assessing the realizability of the deferred tax assets, the Company considers all available positive and negative evidence by jurisdiction and makes a determination whether it is more likely thannot that some or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future income in periods in which the deferred tax assets can be utilized. Numerous judgments and assumptions are inherent in this assessment, including the determination of future taxable income, future operating conditions, particularly as related to prevailing crude oil prices.

As of* December 31, 2023,the Company determined that it is more likely thannot* that it wouldnot be able to utilize its deferred tax assets in Canada and in Egypt for its South Ghazalat concession, nor its Foreign Tax Credit carryforwards in the U.S. As of* December 31, 2022,the Company determined that it is more likely thannot* that it wouldnot be able to utilize its deferred tax assets in Canada and in Egypt for its South Ghazalat concession, and that it is more likely thannot that it wouldnot be able to utilize a portion of its deferred tax assets in the U.S. On the basis of these evaluations, a valuation allowance of $83.9 million and $47.6 million were recorded as of* December 31, 2023and2022,* respectively. Valuation allowances reduce the deferred tax assets to the amount that is more likely thannot to be realized.

The primary differences between the financial statement and tax bases of assets and liabilities resulted in deferred tax assets associated with continuing operations at* December 31, 2023and2022* are as follows:

(1) This line includes ROU lease asset.

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Foreign net operating losses (“NOLs”) are subject to varying expiration periods depending on the jurisdiction. The NOLs for the Gabon subsidiaries are included in the respective subsidiaries’ cost oil accounts, which will be offset against future taxable revenues and donot expire. U.S. federal NOLs incurred after2017 donot expire. The ability to utilize NOLs and other tax attributes could be subject to a limitation if the Company were to undergo an ownership change as defined in Section382 of the Tax Code. Foreign tax credits will expire between the years2024 and2032. The Company doesnot anticipate utilization of the foreign tax credits prior to expiration and has recorded a full valuation allowance on these deferred tax assets.

The Company has NOL’s,(in'000s*)* in the following jurisdictions as of* December 31, 2023:*

The Company recognizes the financial statement benefit of a tax position only after determining that they are more likely thannot to sustain the position following an audit. The Company believes that its income tax positions and deductions will be sustained on audit, and thereforeno reserves for uncertain tax positions have been established. Accordingly, no interest or penalties have been accrued as of* December 31, 2023and2022*. The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Income (loss) from continuing operations before income taxes is attributable as follows:

The reconciliation of income tax expense (benefit) attributable to income (loss) from continuing operations to income tax on income (loss) from continuing operations at the U.S. statutory rate is as follows:

For the years ended* December 31, 2023,*2022 and2021, the Company is subject to foreign and U.S. federal taxes only, withno allocations made to state and local taxes. The following table summarizes the tax years that remain subject to examination by major tax jurisdictions.

With respect to the earnings of VAALCO's Canadian foreign subsidiary, the Company doesnot intend to repatriate funds and will indefinitely reinvest these foreign earnings. Determining the amount of the unrecorded deferred tax liability related to temporary differences at this time isnot practicable. If circumstances change and it becomes apparent that some or all the undistributed earnings of our Canadian subsidiary will be remitted in the foreseeable future, the Company shall accrue as an expense of the current period income taxes attributable to that remittance.

With respect to the earnings of VAALCO's Egyptian foreign subsidiaries, the earnings are available for repatriation, but the corresponding incremental tax expense on any remittances isnot expected to be material.

On* August 16, 2022,legislation commonly known as the Inflation Reduction Act was signed into law. Among other things, the Inflation Reduction Act includes a1%* excise tax on corporate stock repurchases (applicable to repurchases after* December 31, 2022)as well as a new minimum tax based on book income. The Company has determined that the Inflation Reduction Act didnot* have a material impact on its effective tax rate in* December 31, 2023and2022.*

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9. CRUDE OIL, NATURAL GAS AND NGLs PROBERTIES AND EQUIPMENT, NET

The Company’s crude oil, natural gas and NGLs properties and equipment, net is comprised of the following:

There wereno triggering events in the years ended* December 31, 2023* and2022 that would cause the Company to believe the value of crude oil, natural gas and NGLs properties and equipment, net should be impaired. Factors considered included higher forward price curves for thefourth quarter of2023 and capital expenditures in the period related to its future reserves in Gabon, Egypt and Canada.

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Unproved property costs

See the table below for the list of unproved property costs at* December 31, 2023and December 31, 2022,*respectively:

Capitalized equipment spare parts

Capitalized equipment is reviewed regularly for obsolescence. During the years ended* December**31,* 2023, 2022 and2021, adjustments for inventory obsolescence werenot material.

Exploration expense

During2023, two appraisal wells, both in Egypt, were abandoned and also expensed to Exploration Expense. The impact resulted in $2.0 million of expense during the year ended* December**31,* 2023.

10. DERIVATIVES AND FAIR VALUE

Commodity swaps** **

Outstanding derivative contracts at* December 31, 2023*are as follows:

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The following table sets forth the gain (loss) on derivative instruments on the Company’s consolidated statements of operations and comprehensive income (loss):

11. ASSET RETIREMENT OBLIGATIONS

The following table summarizes the changes in the Company’s asset retirement obligations ("ARO's"):

Accretion is recorded in the line item “Depreciation, depletion and amortization” on the consolidated statements of operations and comprehensive income (loss).

In connection with the TransGlobe Arrangement in* October 2022,*the Company added$6.1 million of ARO for the future abandonment and reclamation costs of the Canadian assets. The Egypt concessions haveno ARO.

12. COMMITMENTS AND CONTINGENCIES

Abandonment funding

Gabon

Under the terms of the Etame PSC, the Company has 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 life of the Etame Marin Block, 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 which estimated abandonment costs of approximately $77.9 million ($45.9 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. At December 31, 2023*, $10.7 million ($6.3 million, net to VAALCO) on an undiscounted basis has been funded. 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.

In thefirst quarter of2023, 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 occurred in the abandonment funding account during the remainder of2023. The Company is working with the Directorate of Hydrocarbons in Gabon to establish a payment schedule to resume funding of the abandonment fund in compliance with the Etame PSC.

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FPSO charter

As operator of the Etame Marin block, the Company chartered a floating production storage and offtake vessel ("FPSO"), from Tinworth for use in its operations. In thefourth quarter of2023, the Company reached a settlement agreement with Tinworth to release the Company from any further obligation relating to the FPSO. The signed settlement agreement required the Company and other non-operators to pay an additional $8.0 million gross ($4.7 million net to VAALCO) to Tinworth in exchange for the release. The Company had previously accrued $4.9 million of the $8.0 million in2022. The Company recorded an additional $3.2 million ($1.8 million net to VAALCO) in the income statement under the line item FPSO demobilization and other costs. The $8.0 million payment was made on* December 22, 2023.*

In connection with the above settlement, on* January 22, 2024,certain funds held in escrow as part of the FPSO agreements were released to the Company and its non-operating partners. As of December 31, 2023,*VAALCO's share of this restricted cash amount was $1.8 million.

Regulatory and Joint Interest Audits and Related Matters

The Company is subject to periodic audits by various government agencies in Gabon, including audits by the government of Gabon and other members of the Company's joint operating agreements.

Merged Concession Agreement

The Company is a party to the Merged Concession Agreement with the Egyptian General Petroleum Corporation (“EGPC”). In accordance with the Merged Concession Agreement, we are required to make $10.0 million annual modernization payments through* February 1, 2026.The$10.0 million modernization payment due February 1, 2024,*was offset against receivables owed to the Company from EGPC. On the consolidated balance sheet, $9.9 million of the modernization payment liability was recorded in the line item "Accrued liabilities and other" and $17.7 million was recorded in "Other long-term liabilities".

The Company also has minimum financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on* February 1, 2020for a total of $150 million over the15* year license contract term. Through* December 31, 2023,the Company's financial work commitments have exceeded thefive*-year minimum*$50* million threshold and any excess carries forward to offset against subsequentfive-year commitments.

The amounts that will be paid for such outstanding off-balance sheet financial work commitments as of* December 31, 2023are $10.0 million in2024,* $10.0 million in2025, $10.0 million2026, $10.0 million in2027, $10.0 million in2028 and $70.0 million in2029 and thereafter.

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Domestic Market Needs Obligation

Under Article35 of the Etame PSC, the Company can be required to contribute to meeting the domestic market needs of Gabon by delivering to the Government, or another entity designated by the Government, an amount of its crude oil proportional to the Company’s share of production to the total production in Gabon over the year.

Potential Business Combination

On* February**29,* 2024, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) to purchase all of the issued shares in the capital of Svenska Petroleum Exploration Aktiebolag, a company incorporated in Sweden (“Svenska”) for $66.5 million in cash (the “Purchase Price”), subject to adjustment as described in the Share Purchase Agreement. There can beno assurance that the proposed arrangement will be completed.

13. DEBT

As of* December 31, 2023and2022*, the Company hadno outstanding debt.

RBL Facility

On* May 16, 2022,the Company entered into an agreement with Glencore, and other lenders, to provide a senior secured reserve-based revolving credit facility for a maximum principal amount of up to $50.0 million. Beginning October 1, 2023and thereafter on April 1and October 1of each year during the term of the RBL Facility, the $50 million initial commitment, will be reduced by $6.3 million. At December 31, 2023,*the amount available to be drawn under the facility was $43.8 million.

The Facility provides for determination of the borrowing base asset based on the Company’s proved producing reserves in Gabon and a portion of the Company's proved undeveloped reserves in Gabon. The borrowing base is re-determined by the Glencore and other lenders on* March 31and September 30*of each year.

The RBL Facility originally bore an interest at a rate equal to LIBOR plus a margin (the “Applicable Margin”) of (i)6.00% until thethird anniversary of the Facility Agreement or (ii)6.25% from thethird anniversary of the Facility Agreement until the Final Maturity Date (defined below). On* October 3, 2023*the Company signed an Amended and Restated Facility Agreement to replace the LIBOR component, in the original Facility Agreement, with a SOFR plus credit adjustment spread rate. The SOFR plus credit adjustment spread rate is intended to approximate the LIBOR component in the original Facility Agreement and the LIBOR component was replaced due to LIBOR being discontinued as a global reference rate.

Pursuant to the RBL Facility agreement, the Company shall pay to Glencore for the account of each Lender a quarterly commitment fee equal to (i)35% per annum of the Applicable Margin on the daily amount by which the lower of the total commitments and the borrowing base amount exceeds the amount of all outstanding utilizations under the Facility, plus (ii)20% per annum of the Applicable Margin on the daily amount by which the total commitments exceed the borrowing base amount. The Company is also required to pay customary arrangement and security agent fees.

The RBL Facility agreement contains certain debt covenants, including that, as of the last day of each calendar quarter, (i) the ratio of Consolidated Total Net Debt to EBITDAX (as each term is defined in the RBL Facility agreement) for the trailing12 months shallnot exceed 3.0x and (ii) consolidated cash and cash equivalents shallnot be lower than $10.0 million at any time. The amount the Company can borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the RBL Facility agreement. Regarding the requirement, the Company must deliver its annual financial statements to Glencore within90 days of the end of each fiscal year. At* December 31, 2023,*the Company was in compliance with all other debt covenants and hadno outstanding borrowings under the facility.

The RBL Facility will mature on the earlier of (i) thefifth anniversary of the date on which all conditions precedent to thefirst utilization of the RBL Facility have been satisfied and (ii) the Reserve Tail Date (as defined in the RBL Facility agreement).

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14. LEASES

Under the leasing standard that became effective* January**1,* 2019, there aretwo types of leases: finance and operating. Regardless of the type of lease, the initial measurement of the lease results in recording a ROU asset and a lease liability at the present value of the future lease payments.

Practical Expedients

The Company elected to use all the practical expedients, effectively carrying over its previous identification and classification of leases that existed as of* January 1,2019. Additionally, a lessee mayelectnot* to recognize ROU assets and liabilities arising from short-term leases provided there isno purchase option the entity is likely to exercise. The Company has elected this short-term lease exemption.

Operating leases

The Company is currently a party to several operating lease agreements for the corporate office, rental of marine vessels and transportation equipment and a drilling rig used in the Company’s Egyptian operations. The duration for these agreements ranges from 5 to 15 months. In some cases, the lease contracts require the Company to make payments both for the use of the asset itself and for operations and maintenance services. Only the payments for the use of the asset related to the lease component are included in the calculation of ROU assets and lease liabilities. Payments for the operations and maintenance services are considered non-lease components and arenot included in calculating the ROU assets and lease liabilities. For leases on ROU assets used in joint operations, generally the operator reflects the full amount of the lease component, including the amount that will be funded by the non-operators. As operator for the Etame Marin block, the ROU asset recorded for marine vessels, and certain equipment used in the joint operations includes the gross amount of the lease components.

The marine vessels and certain equipment leases include provisions for variable lease payments, under which the Company is required to make additional payments based on the level of production or the number of days or hours the asset is deployed, or the number of persons onboard the vessel. Because the Company doesnot know the extent that the Company will be required to make such payments, they are excluded from the calculation of ROU assets and lease liabilities.

Financing leases

The Company is currently a party to several financing lease agreements for the FSO and generators and marine vessels used in the operations of the Etame Marin block. The duration for these agreements ranges from 25 to 105 months. In some cases, the lease contracts require the Company to make payments both for the use of the asset itself and for operations and maintenance services. Only the payments for the use of the asset related to the lease component are included in the calculation of ROU assets and lease liabilities. Payments for the operations and maintenance services are considered non-lease components and arenot included in calculating the ROU assets and lease liabilities.

All leases

For all leases that contain an option to extend the initial lease term, the Company has evaluated whether it is reasonably certain that the Company will extend the lease beyond the initial lease term. When the Company believes it is reasonably certain it will utilize these leased assets beyond the initial lease term, those payments have been included in the calculation of the ROU assets and liabilities. The discount rate used to calculate ROU assets and lease liabilities represents the Company’s incremental borrowing rate. The Company determined this by considering the term and economic environment of each lease, and estimating the resulting interest rate the Company would incur to borrow the lease payments.

For the years ended* December 31, 2023and2022*, the components of the lease costs and supplemental information was as follows:

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The table below describes the presentation of the total lease cost on the Company’s consolidated statements of operations and other comprehensive income (loss). As discussed above, the Company’s joint venture owners are required to reimburse the Company for their share of certain expenses, including certain lease costs.

The following table describes the future maturities of the Company’s operating and financing lease liabilities at* December 31, 2023*:

Under the joint operating agreements, other joint venture owners are obligated to fund $49.7 million of the $121.1 million in future lease liabilities as of* December 31, 2023*.*** ***

15. ACCRUED LIABILITIES AND OTHER

Accrued liabilities and other balances were comprised of the following:

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16. SHAREHOLDERS’** EQUITY**

Dividend Policy

In thefirst quarter of2023, the Company announced that the Company's board of directors increased the cash dividend to $0.0625 per common share. The following table is a schedule of dividends paid during2023:

Preferred stock– Authorized preferred stock consists of 500,000 shares with a par value of $25 per share. No shares of preferred stock were issued and outstanding as of* December 31, 2023* or2022.

Treasury stock

On* November 1, 2022,the Company announced that the Company’s board of directors formally ratified and approved a share buyback program. The board of directors also directed management to implement a Rule10b5*-1 trading plan (the*“10b5*-1 Plan”) to facilitate share purchases through open market purchases, privately negotiated transactions, or otherwise in compliance with Rule10b-18 under the Securities Exchange Act of1934. The10b5-1 Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over a maximum period of 20 months. Payment for shares repurchased under the share buyback program will be funded using the Company's cash on hand and cash flow from operations.

The below table shows the repurchases of equity securities related to the share repurchase program during the fiscal year ended* December 31, 2023*:

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17. STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS

The Company’s stock-based compensation has been granted under several stock incentive and long-term incentive plans. The plans authorize the Compensation Committee of the Company’s Board of Directors to issue various types of incentive compensation. The Company had previously issued stock options and restricted shares under the2014 Long-Term Incentive Plan (“2014 Plan”) and stock appreciation rights under the2016 Stock Appreciation Rights Plan. On* June 25, 2020,the Company’s stockholders approved the2020* Long-Term Incentive Plan (as amended, the*“2020* Plan”) under which 5,500,000 shares are authorized for grants. In* June 2021,the Company’s stockholders approved an amendment to the2020* Plan pursuant to which an additional 3,750,000 shares were authorized for issuance pursuant to awards under the2020 Plan. At* December 31, 2023*,1,808,989 shares were available for future grants.

For each stock option granted, the number of authorized shares under the2020 Plan will be reduced on aone-for-one basis. For each restricted share granted, the number of shares authorized under the2020 Plan will be reduced by twice the number of restricted shares. The Company hasno set policy for sourcing shares for option grants. Historically the shares issued under option grants have been new shares.

As referenced in the table below, the Company records compensation expense related to stock-based compensation as general and administrative expense associated with the issuance of stock options, restricted stock and stock appreciation rights. During the years ended* December 31, 2023,2022 and2021, the Company settled in cash $0.4 million, $0.8 million and $3.3 million, respectively, for SARs. During the years ended December 31, 2023,*2022 and2021, the Company received in cash $0.7 million, $0.3 million and $1.4 million, respectively from stock option exercises.

Stock options and performance shares

Stock options have an exercise price that* may**not* be less than the fair market value of the underlying shares on the date of grant. In general, stock options granted to participants will become exercisable over a period determined by the Compensation Committee of the Company’s Board of Directors that is generally athree-year period, vesting inthree equal parts on the anniversaries from the date of grant, and* may*contain performance hurdles.

In* June 2023,the Company granted options to certain employees of the Company that are considered performance stock options to purchase an aggregate of 334,753 shares at an exercise price of $4.19 per share and a life often years. For each performance stock option award, one-third of the underlying shares vest on the later of thefirst anniversary of the grant date and the date on which the Company’s stock price, determined using a30*-day average, exceeds $4.82 per share; performance stock options with respect toone-third of the underlying shares vest on the later of thesecond anniversary of the grant date and the date on which the Company’s stock price, determined using a30-day average, exceeds $5.54 per share; and performance stock options with respect to the remainingone-third of the underlying shares vest on the later of thethird anniversary of the grant date and the date on which the Company’s stock price, determined using a30-day average, exceeds $6.37 per share. These awards are option awards that contain a market condition. Compensation cost for such awards is recognized ratably over the derived service period and compensation cost related to awards with a market condition willnot be reversed if the Company doesnot believe it is probable that such performance criteria will be met or if the service provider (employee or otherwise) fails to meet such performance criteria.

During the year ended* December 31, 2023,*2022 and2021 the weighted average assumptions shown below were used to calculate the weighted average grant date fair value of performance stock options grants under the Monte Carlo model.

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Performance stock options activity associated with the Monte Carlo model for the year ended* December 31, 2023* is provided below:

The intrinsic value of a performance stock option awards is the amount that the current market value of the underlying stock exceeds the exercise price of the award. The intrinsic performance stock option awards exercised in2023 was $0.5 million.

As of* December 31, 2023,*unrecognized compensation cost related to outstanding performance stock option awards was $0.8 million, which is expected to be recognized over a weighted average period of 2.0 years.

During the year ended* December 31, 2023,*5,959 shares were added to treasury as a result of tax withholding on performance stock option awards exercised.

Regular stock options (stock options without a performance condition) activity associated with the Black-Scholes model for the year ended* December 31, 2023* is provided below:

The intrinsic value of a stock option is the amount that the current market value of the underlying stock exceeds the exercise price of the option. The intrinsic value of stock options exercised in2023,2022 and2021 was $0.6 million, $1.2 million, and $1.6 million, respectively.

There wasno unrecognized stock compensation cost as of* December 31, 2023* and* December 31, 2022,*respectively.

Restricted shares

Restricted stock granted to employees will vest over a period determined by the Compensation Committee that is generally athree-year period, vesting inthree equal parts on the anniversaries following the date of the grant. Restricted stock granted to directors will vest on the earlier of (i) thefirst anniversary of the date of grant and (ii) thefirst annual meeting of stockholders following the date of grant (butnot less thanfifty (50) weeks following the date of grant).

The following is the activity for the Company's restricted stock for the year ended* December 31, 2023*:

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The total fair value of vested restricted stock awards during2023,2022 and2021 was $1.5 million, $2.4 million, and $1.8 million, respectively. The weighted average grant date fair value per share of restricted stock awards, which vested during2023,2022 and2021, was $3.92, $2.25 and $1.28, respectively.

As of* December 31, 2023*, unrecognized compensation cost related to restricted stock totaled $2.4 million and is expected to be recognized over a weighted average period of 1.5 year.

In connection with the Arrangement with TransGlobe and pursuant to the Arrangement Agreement, at the effective time of the Arrangement, certain awards previously issued to TransGlobe’s key employees and board members who continued their relationship as employees or board members of VAALCO following the Arrangement, will continue to be governed by the applicable TransGlobe plan, provided that each such applicable plan has been amended to provide that VAALCO common stock shall be issuable in lieu of cash or TransGlobe common stock with respect to TransGlobe’s deferred share units (“DSU”s), performance share units (“PSU”s) and restricted stock units (“RSU”s), in each case, based on the exchange ratio in the Arrangement. For the PSUs that will remain outstanding following the effective time of the Arrangement as described in the immediately preceding sentence, the applicable vesting percentage was determined by the TransGlobe board of directors to be 200% for PSUs granted in2020 and2021; and 64.4% for PSUs granted in2022.

On the effective date of the Arrangement,* October 13, 2022,the combined fair value of the DSUs, PSU's and RSU's liability from TransGlobe was $6.0 million. On December 16, 2022,the Compensation Committee determined that the awards would be settled in shares from the2020* Plan, thereby converting all the awards from cash-settled liability awards to equity awards. On the date of this conversion, the awards were revalued based on VAALCO’s share price, and the Company recognized a gain of $0.6 million in its consolidated statements of operations and comprehensive income (loss).

RSUs were issued to directors, officers and employees of TransGlobe in the ordinary course of business prior to the Arrangement. Each RSU vests annually over athree-year period. On* December 16, 2022,Compensation Committee determined that the awards would be settled in shares from the2020* Plan, thereby converting all the awards to equity awards instead of cash-settled liability awards.

RSU activity for thetwelve months ended* December 31, 2023*is presented in the table below:

The total fair value of vested RSU awards during2023 was $1.2 million. The weighted average grant date fair value per share of RSU, which vested during2023, was $4.27.

As of* December 31, 2023,*unrecognized compensation cost related to RSU’s totaled $0.7 million and is expected to be recognized over a weighted average period of 1.1 years.

During the year ended* December 31, 2023,*173,738 shares were added to treasury as a result of tax withholding on the vesting of RSU’s.

PSUs are similar to RSUs except that they originally contained a performance factor affecting the vesting percentage. For the PSUs that remained outstanding following the effective time of the Arrangement, the applicable vesting percentage was determined by the TransGlobe board of directors to be200% for PSUs granted in2020 and2021; and64.4% for PSUs granted in2022. All PSUs granted vest on thethird anniversary of their grant date. On* December 16, 2022,the Compensation Committee determined that the awards would be settled in shares from the2020* Plan, thereby converting all the awards to equity awards instead of cash-settled liability awards.

PSU activity for thetwelve months ended* December 31, 2023*is presented in the table below:

As of* December 31, 2023,*unrecognized compensation cost related to PSU’s totaled $0.1 million and is expected to be recognized over a weighted average period of 0.7 years.

During thetwelve months ended* December 31, 2023,*156,616 shares were added to treasury as a result of tax withholding on the vesting of PSU’s.

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DSUs are similar to RSUs, except that they become fully vested on the date of grant and are only issued to directors of the Company. Distributions under the DSU plan donot occur until the retirement of the DSU holder from the Company's Board of Directors. On* December 16, 2022,the Compensation Committee determined that the awards would be settled in shares from the2020* Plan, thereby converting all the awards to equity awards instead of cash-settled liability awards. At* June 30, 2023,approximately 101,313 DSUs are vested butnot* converted. During thesecond quarter of2023, 358,563 DSUs were converted to shares of common stock of the company following the departure of Mr. David Cook and Mr. Timothy Marchant from the board of directors, of which 65,582 shares were forfeited back to VAALCO to satisfy applicable tax withholding obligations.

Stock appreciation rights (“SARs”)

SARs* maybe granted under the VAALCO Energy, Inc.2016 Stock Appreciation Rights Plan and the2020* Plan. A SAR is the right to receive a cash amount equal to the spread with respect to a share of common stock upon the exercise of the SAR. The spread is the difference between the SAR exercise price per share specified in the SAR award (that* may**not* be less than the fair market value of the Company’s common stock on the date of grant) and the fair market value per share of the Company’s common stock on the date of exercise of the SAR. SARs granted to participants will become exercisable over a period determined by the Compensation Committee of the Company’s Board of Directors. In addition, SARs will become exercisable upon a change in control, unless provided otherwise by the Compensation Committee of the Company’s Board of Directors.

During the years ended* December 31, 2023and2022*, the Company didnot grant SARs to employees or directors. SAR activity for the year ended* December 31, 2023* is provided below:

The intrinsic value of a SAR is the amount that the current market value of the underlying stock exceeds the exercise price of the award. The intrinsic value of SARs exercised in2023, 2022 and2021 was $0.4 million, $0.8 million, and 0.8 million respectively.

SARs considered liabilities under US GAAP and the awards are measured at fair value on the grant date and remeasured at fair value until the award is settled. On* February 28, 2024,*all remaining SAR awards were exercised.

Other Benefit Plans

The Company has adopted forms of change in control agreements for its named executive officers and certain other officers of the Company as well as a severance plan for its Houston-based non-executive employees in order to provide severance benefits in connection with a change in control. Upon a termination of a participant’s employment by the Company without cause or a resignation by the participant for good reasonthree months prior to a change in control orsix months following a change in control, executives and officers with change in control agreements and participants in the severance plan will be entitled to receive 100% and 50%, respectively, of the participant’s base salary and continued participation in the Company’s group health plans for the participant and his or her eligible spouse and other dependents forsix months. In addition, certain named executive officers will receive 75% of their target bonus. Some of the named executive officers are also entitled to severance payments under their employment agreements.

18. RELATED PARTY TRANSACTIONS

VAALCO has entered into various agreements with related parties. The Company paid approximately $0.2 million to these related parties for each of the years ended* December 31, 2023and2022,* respectively. The amounts in both2023 and2022 were primarily for contract engineering services paid to an entity owned and controlled by a related party of an officer of the Company.

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19. OTHER COMPREHENSIVE INCOME

At* December 31, 2023,*the Company’s accumulated other comprehensive income was $2.9 million. All of the Company’s other comprehensive income arises from the currency translation of TransGlobe Energy Corporation to USD.

The components of accumulated other comprehensive income are as follows: