VAALCO ENERGY INC DE

Previous wording

The information contained in this Quarterly Report and the information set forth under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”), identifies additional factors that could cause our results or performance to differ materially from those we express in forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this Quarterly Report and the 2023 Form 10-K, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. When you consider our forward-looking statements, you should keep in mind these risk factors and the other cautionary statements in this Quarterly Report.

Current wording

The information contained in this Quarterly Report and the information set forth under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”) and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (the “Q1 2024 Form 10-Q”), identifies additional factors that could cause our results or performance to differ materially from those we express in forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this Quarterly Report, the Q1 2024 Form 10-Q and the 2023 Form 10-K, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. When you consider our forward-looking statements, you should keep in mind these risk factors and the other cautionary statements in this Quarterly Report.

Previous wording

VAALCO is 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.

Current wording

VAALCO is a Houston, Texas-based, African-focused independent energy company with strong production and reserve portfolio of assets in Gabon, Egypt, Equatorial Guinea, Canada and Cote d'Ivoire, currently engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs.

Previous wording

On February 26, 2024, VAALCO issued a press release announcing its quarterly cash dividend of $0.0625 per share of common stock for the first quarter of 2024 ($0.25 annualized), which was paid March 28, 2024 to stockholders of record at the close of business on March 8, 2024.

Current wording

On May 7, 2024, VAALCO issued a press release announcing its quarterly cash dividend of $0.0625 per share of common stock for the second quarter of 2024 ($0.25 annualized), which was paid June 21, 2024 to stockholders of record at the close of business on May 17, 2024.

Previous wording

We have dedicated significant efforts to optimize the new flow line configurations through the Etame Facility. These efforts to maintain high uptime availability of the Etame Facility and, in turn, the entire Etame field, during the first quarter of 2024. Combining this with focus on individual well and facility chemical injection optimization and facility pipeline pigging adjustments both on frequency of pigging as well as flow path targeting, has increased production through decrease in pipeline internal buildup and resulting drop in pipeline back pressure. This has provided more stable operations resulting in lower downtime. Through the end of 2023 and the first quarter of 2024, this continues to be a focus with positive results in production rates and uptime.

Current wording

We have dedicated significant efforts to optimize the new flow line configurations through the Etame Facility. These efforts to maintain high uptime availability of the Etame Facility and, in turn, the entire Etame field, during the first half of 2024. Combining this with focus on individual well optimization as well as facility chemical injection optimization and facility pipeline pigging adjustments both on frequency of pigging as well as flow path targeting, has increased production through decrease in pipeline internal buildup and resulting drop in pipeline back pressure. This has provided more stable operations resulting in lower downtime. Through the end of 2023 and the first half of 2024, this continues to be a focus with positive results in production rates and uptime.

Previous wording

Preventative maintenance activities on facilities and facility equipment remained at scheduled levels. Equipment reliability and availability remain at high levels. The actual percentages of corrective maintenance performed versus preventative maintenance performed remain well within VAALCO and industry best practice standards.

Current wording

Preventative maintenance activities on facilities and facility equipment remained at scheduled levels. Planned maintenance shutdown activities and piping external corrosion repairs and were carried out on Avouma platform. Equipment reliability and availability remain at high levels. The actual percentages of corrective maintenance performed versus preventative maintenance performed remain well within VAALCO and industry best practice standards.

Previous wording

We have deferred 2024 drilling to work up a robust drilling program which is expected to commence in late 2024. We are in the process of contracting a second workover rig to supplement the current workover rig, which will allow us to substantially slow any decline until the 2024/25 drilling program starts.

Current wording

We have deferred 2024 drilling to work up a robust drilling program which is expected to commence in September 2024. We currently have a workover rig in place which will allow us to slow any decline until the 2024/25 drilling program starts.

Previous wording

We completed the K-81 recompletion at the start of the first quarter which was a carry-over from our 2023 drilling activity. The EA-55 well, drilled in October 2023, was completed and put online in January 2024. Three workover recompletions have been performed on H-22, K-65-ST1 and K-85. Both H-22 and K-65 ST1 had sanding issues and may need sand screens fitted to achieve peak production; whereas K-85 has come on with very strong production. The OGS-10 workover rig is currently working on the fourth workover well K-84. With the low cost of workover under $0.2 million the well economics are proving to be very good.

Current wording

We completed the K-81 recompletion at the start of the first quarter which was a carry-over from our 2023 drilling activity. The EA-55 well, drilled in October 2023, was completed and put online in January 2024. Eight workover recompletions have been performed on H-22, K-65-ST1, K-85, K-84, K-74, K-77, K-84 and K-80. Both wells H-22, K-65 ST1 had sanding issues and may need sand screens fitted to achieve peak production; whereas K-85 and K-80 have come on with very strong production. Well K-84 was initially tested on Asl-G, however no notable enhancement was observed, hence the layer was temporarily isolated for further study and the well was recompleted to Asl-D to achieve peak production from the well. The well was recently recompleted and showed significant improvement in the rate.

Previous wording

The 2024 drilling campaign commenced in January 2024 with the drilling of 9-12-30-4W5, was spud on January 17, 2024. Our four planned wells in the north of the license have since been drilled. The first well was drilled to a total depth of 22,732 feet. The second well of the program, 10-12-30-4W5, was spud on February 9, 2024, and drilled to a total depth of 21,736 feet. The third well on the program, 11-12-30-4W5 was spud on February 23, 2024, and drilled to a total depth of 21,624 feet. The fourth well on the program was spud on March 9, 2024 and drilled to a total depth of 20,669 feet. The drilling rig was released on March 24, 2024. Completion of the wells was initiated in late March, and will be completed in April, followed by equipping and tie-in, with first production forecast to be in May 2024.

Current wording

The 2024 drilling campaign commenced in January 2024 with the drilling of 9-12-30-4W5, which was spud on January 17, 2024. Our four planned wells in the north of the license have since been drilled. The first well was drilled to a total depth of 22,732 feet. The second well of the program, 10-12-30-4W5, was spud on February 9, 2024, and drilled to a total depth of 21,736 feet. The third well on the program, 11-12-30-4W5 was spud on February 23, 2024, and drilled to a total depth of 21,624 feet. The fourth well on the program 1-18-30-3W5 was spud on March 9, 2024, and drilled to a total depth of 20,669 feet. The drilling rig was released on March 24, 2024. Completion of the wells was initiated in late March, and were completed in April, and were equipped and tied-in in April and early May followed by well start-up. As of June 30, 2024, all four wells were producing.

Previous wording

We operate the Etame Marin Block on behalf of a consortium of companies. As of March 31, 2024, production operations in the Etame Marin block included fifteen platform wells, plus two subsea wells tied back by pipelines to deliver crude oil and associated natural gas through a riser system to allow for delivery and processing at the Etame platform. From the Etame platform, the crude oil is pumped through a riser system to the FSO where it is stored and ultimately offloaded. The leased FSO is anchored to the seabed on the block. The Etame field currently has a combined total of seventeen producing wells. During the three months ended March 31, 2024 and 2023, production from the block was 1,437 million barrels ("MBbls") (735 MBbls, net) and 1,603 MBbls (820 MBbls, net), respectively, as discussed below in “Results of Operations”.

Current wording

We operate the Etame Marin Block on behalf of a consortium of companies. As of June 30, 2024, production operations in the Etame Marin block included fifteen platform wells, plus two subsea wells tied back by pipelines to deliver crude oil and associated natural gas through a riser system to allow for delivery and processing at the Etame platform. From the Etame platform, the crude oil is pumped through a riser system to the FSO where it is stored and ultimately offloaded. The leased FSO is anchored to the seabed on the block. The Etame field currently has a combined total of seventeen producing wells. During the three months ended June 30, 2024 and 2023, production from the block was 1,324 million barrels ("MBbls") (677 MBbls, net) and 1,588 MBbls (812 MBbls, net), respectively, as discussed below in “Results of Operations”. The larger decrease in production decline from the first quarter to the second quarter is largely due to the maintenance shutdown and piping corrosion repairs completed on the Avouma platform.

Previous wording

In Egypt, our interests are spread across two regions: the Eastern Desert, which contains the West Gharib, West Bakr and North West Gharib merged concessions, and the Western Desert, which contains the South Ghazalat concession. Both of our Egyptian blocks are production sharing contracts ("PSC") among the Egyptian General Petroleum Corporation (“EGPC”), the Egyptian government and us. We have an equal ownership interest, with EGPC owning the other portion, in the joint venture that has a 100% working interest in both PSCs. During the three months ended March 31, 2024 and 2023, production from the Eastern Desert was 950 MBbls (641 MBbls, net) and 903 MBbls (616 MBbls, net), respectively, as discussed below in “Results of Operations.”

Current wording

In Egypt, our interests are spread across two regions: the Eastern Desert, which contains the West Gharib, West Bakr and North West Gharib merged concessions, and the Western Desert, which contains the South Ghazalat concession. Both of our Egyptian blocks are production sharing contracts ("PSC") among the Egyptian General Petroleum Corporation (“EGPC”), the Egyptian government and us. We have an equal ownership interest, with EGPC owning the other portion, in the joint venture that has a 100% working interest in both PSCs. During the three months ended June 30, 2024 and 2023, production from the Eastern Desert was 953 MBbls (643 MBbls, net) and 1,054 MBbls (726 MBbls, net), respectively. Production from the Eastern Desert of 953 MBbls (643 MBbls, net) for the three months ended June 30, 2024 represents an increase in the production from the Eastern Desert which had production of 950 MBbls (641 MBbls, net) for the three months ended March 31, 2024.

Previous wording

In Harmattan, Canada, we own production and working interests in the Cardium light oil and Mannville liquids-rich gas assets. This property produces oil and associated natural gas from the Cardium zone and liquids-rich natural gas from zones in the Lower Mannville and Rock Creek formations at vertical depths of 2,000 to 2,600 meters. All gas is delivered to a third party non-operated gas plant for processing. During the three months ended March 31, 2024 and 2023, production from our Canadian assets was 215 MBoe to our working interest (180 MBoe, net) and 239 MBoe (211 MBoe, net), respectively, as discussed below in "Results of Operations".

Current wording

In Harmattan, Canada, we own production and working interests in the Cardium light oil and Mannville liquids-rich gas assets. This property produces oil and associated natural gas from the Cardium zone and liquids-rich natural gas from zones in the Lower Mannville and Rock Creek formations at vertical depths of 2,000 to 2,600 meters. All gas is delivered to a third party non-operated gas plant for processing. During the three months ended June 30, 2024 and 2023, production from our Canadian assets was 277 MBoe to our working interest (232 MBoe, net) and 275 MBoe (253 MBoe, net), respectively, as discussed below in "Results of Operations". During the six months ended June 30, 2024 and 2023, production from our Canadian assets was 492 MBoe to our working interest (429 MBoe, net) and 514 MBoe (464 MBoe, net), respectively.

Previous wording

As of March 31, 2024, we had $10.0 million recorded for the book value of the undeveloped leasehold costs associated with the Block P license. In February of 2023, we acquired an additional 14.1% participating interest, increasing VAALCO’s participating interest in the Block to 60.0%. This increase of 14.1% participating interest increases our future payment to GEPetrol to $6.8 million at first commercial production of the Block. In March 2023, Atlas voted to participate in the Venus Development. Amendment 5 of the PSC was approved by all parties in March 2023 with this updated participating interest, and execution of the Venus development plan has been initiated. VAALCO, as operator, is in the process of working through the project charter and timing of key milestones. In March 2024, all partners signed the final documents, and the Government of Equatorial Guinea has approved the Joint Operating Agreement (“JOA”) related to the previously approved Venus-Block P plan of development.

Current wording

As of June 30, 2024, we had $10.0 million recorded for the book value of the undeveloped leasehold costs associated with the Block P license. In February of 2023, we acquired an additional 14.1% participating interest, increasing VAALCO’s participating interest in the Block to 60.0%. This increase of 14.1% participating interest increases our future payment to GEPetrol to $6.8 million at first commercial production of the Block. In March 2023, Atlas voted to participate in the Venus Development. Amendment 5 of the PSC was approved by all parties in March 2023 with this updated participating interest, and execution of the Venus development plan has been initiated. VAALCO, as operator, is in the process of working through the project charter and timing of key milestones.

Previous wording

Our cash flows for the three months ended March 31, 2024 and 2023 are as follows:

Current wording

Our cash flows for the six months ended June 30, 2024 and 2023 are as follows:

Previous wording

The $20.2 million decrease in net cash provided by operating activities during the three months ended March 31, 2024 compared to the three months ended March 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 $21.2 million for the three months ended March 31, 2024 compared to the same period of 2023 was related to a decrease in trade receivable and receivables accounts with joint venture owners (collectively $41.0 million). Partially offsetting these changes were increases in cash provided on changes in Egypt receivables and other, net and crude oil inventory, as well as a decrease in cash used on foreign income taxes payable (collectively positive $22.4 million).

Current wording

The $56.2 million decrease in net cash provided by operating activities during the six months ended June 30, 2024 compared to the six months ended June 30, 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 $55.2 million for the six months ended June 30, 2024 compared to the same period of 2023 was related to a decrease in cash provided by trade receivable and receivables accounts with joint venture owners (collectively $41.2 million). In addition, cash used by operating assets and liabilities increased due to decreases in the foreign income taxes payable balance that was reduced with proceeds generated from the lifting of crude oil for the Gabon Oil Company as well as a decrease in the accrued liabilities other balances (collectively $42.0 million). Partially offsetting these changes were increases in cash provided on changes in Crude oil inventory and Accounts payable (collectively positive $27.3 million).

Previous wording

The $11.1 million decrease in net cash used in investing activities during the three months ended March 31, 2024 was due to capital spending costs associated with the development drilling programs in Egypt and Canada not exceeding prior year expenditures along with reduced current year expenditures for Gabon. For the three months ended March 31, 2023, cash used in investing activities was due to the Etame field reconfiguration and other items to support the 2021/2022 drilling campaign.

Current wording

The $6.1 million decrease in net cash used in investing activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, was due to capital spending costs associated with the development drilling programs in Egypt and Canada not exceeding prior year expenditures along with reduced current year expenditures for Gabon. In addition, VAALCO used $40.2 million in cash for the acquisition of Svenska which is offset by the cash received from Svenska in the amount of $40.6 million. See footnote 3 for further discussion of the acquisition. For the six months ended June 30, 2023, cash used in investing activities was due to the Etame field reconfiguration and other items to support the 2021/2022 drilling campaign.

Previous wording

Net cash used in financing activities during the three months ended March 31, 2024 included $6.5 million for dividend distributions, $6.4 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 $2.1 million of principal payments on our finance leases partially offset by $0.5 million in proceeds from options exercised. For the three months ended March 31, 2023, cash used in financing activities included $6.7 million for dividend distributions, $5.4 million for treasury stock repurchased under our stock repurchase plan, and $1.7 million of principal payments on our finance leases partially offset by $0.3 million in proceeds from options exercised.

Current wording

Net cash used in financing activities during the six months ended June 30, 2024 included $13.0 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 $4.2 million of principal payments on our finance leases partially offset by $0.5 million in proceeds from options exercised. For the six months ended June 30, 2023, cash used in financing activities included $13.5 million for dividend distributions, $11.4 million for treasury stock repurchased under our stock repurchase plan, and $3.4 million of principal payments on our finance leases partially offset by $0.4 million in proceeds from options exercised.

Previous wording

For the three months ended March 31, 2024 we had accrual basis capital expenditures of $24.0 million compared to $25.4 million accrual basis capital expenditures for the same period in 2023. For the three months ended March 31, 2024, our cash spending primarily related to the new wells drilled as part of the drilling campaign in Canada. During the same period in 2023, our cash spending primarily related to the payments for the 2023 drilling campaigns in both Egypt and Canada.

Current wording

For the six months ended June 30, 2024 we had accrual basis capital expenditures of $46.5 million compared to $41.9 million accrual basis capital expenditures for the same period in 2023. For the six months ended June 30, 2024, our cash spending primarily related to the Svenska acquisition as well as new wells drilled as part of the drilling campaign in Egypt and Canada. During the same period in 2023, our cash spending primarily related to the payments for the 2023 drilling campaigns in both Egypt and Canada.

Previous wording

The price we receive for our crude oil significantly influences our revenue, profitability, liquidity, access to capital and prospects for future growth. Crude oil commodities and, therefore their prices can be subject to wide fluctuations in response to relatively minor changes in supply and demand. We believe these prices will likely continue to be volatile in the future.

Current wording

The price we receive for our crude oil significantly influences our revenue, profitability, liquidity, access to capital and prospects for future growth. Crude oil and gas commodities and, therefore their prices can be subject to wide fluctuations in response to relatively minor changes in supply and demand. We believe these prices will likely continue to be volatile in the future.

Previous wording

Due to the inherent volatility in crude oil prices, we use commodity derivative instruments such as swaps to hedge price risk associated with a portion of our anticipated crude oil production. These instruments allow us to reduce, but not eliminate, the potential effects of variability in cash flow from operations due to fluctuations in commodity prices. The instruments provide only partial protection against declines in crude oil prices and may limit our potential gains from future increases in prices. None of these instruments are used for trading purposes. We do not speculate on commodity prices but rather attempt to hedge physical production by individual hydrocarbon product in order to protect returns. The counterparty to our derivative swap transactions was a major oil company’s trading subsidiary, and our costless collars are with Glencore. We have not designated any of our derivative contracts as fair value or cash flow hedges. The changes in fair value of the contracts are included in the unaudited condensed consolidated statements of operations and other comprehensive income (loss). We record such derivative instruments as assets or liabilities in the unaudited condensed consolidated balance sheet.

Current wording

Due to the inherent volatility in crude oil prices, we use commodity derivative instruments such as swaps to hedge price risk associated with a portion of our anticipated crude oil and gas production. These instruments allow us to reduce, but not eliminate, the potential effects of variability in cash flow from operations due to fluctuations in commodity prices. The instruments provide only partial protection against declines in crude oil and gas prices and may limit our potential gains from future increases in prices. None of these instruments are used for trading purposes. We do not speculate on commodity prices but rather attempt to hedge physical production by individual hydrocarbon product in order to protect returns. The counterparty to our derivative swap transactions was a major oil company’s trading subsidiary, and our costless collars are with Glencore. We have not designated any of our derivative contracts as fair value or cash flow hedges. The changes in fair value of the contracts are included in the unaudited condensed consolidated statements of operations and other comprehensive income (loss). We record such derivative instruments as assets or liabilities in the unaudited condensed consolidated balance sheet.

Previous wording

At March 31, 2024, we had unrestricted cash of $113.3 million. 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

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

We currently sell our crude oil production from Gabon under a crude oil sales and marketing agreement ("COSMA") with Glencore. Under the COSMA all oil produced from the Etame G4-160 Block offshore Gabon from August 2022 through the final maturity date of the Facility, expected to be May 15, 2027, will be bought and marketed by Glencore, with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors. Sales with Glencore are normally settled 30 days from the delivery date.

Current wording

We currently sell our crude oil production from Gabon under a crude oil sales and marketing agreement ("COSMA") with Glencore. Under the COSMA, all oil produced from the Etame G4-160 Block offshore Gabon from August 2022 through the final maturity date of the RBL Facility, expected to be May 15, 2027, will be bought and marketed by Glencore, with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors. Sales with Glencore are normally settled 30 days from the delivery date.

Previous wording

Our primary source of liquidity has been cash flows from operations and our primary use of cash has been to fund capital expenditures for development activities in Gabon, Egypt and Canada. We continually monitor the availability of capital resources, including equity and debt financings that could be utilized to meet our future financial obligations, planned capital expenditure activities and liquidity requirements including those to fund opportunistic acquisitions. Our future success in growing proved reserves, production and balancing the long-term development of our assets with a focus on generating attractive corporate-level returns will be highly dependent on the capital resources available to us.

Current wording

Our primary source of liquidity has been cash flows from operations and our primary use of cash has been to fund capital expenditures for development activities in each of our operating segments and, in the second quarter, the acquisition of Svenska. We continually monitor the availability of capital resources, including equity and debt financings that could be utilized to meet our future financial obligations, planned capital expenditure activities and liquidity requirements including those to fund opportunistic acquisitions. Our future success in growing proved reserves, production and balancing the long-term development of our assets with a focus on generating attractive corporate-level returns will be highly dependent on the capital resources available to us.

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 or 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 and cash flow from operations 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 or 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

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

Previous wording

Completed 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. The acquisition closed on April 30, 2024 after certain necessary regulatory approvals were obtained. Pursuant to the Share Purchase Agreement, 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. The purchase price was 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 $40.2 million of VAALCO’s cash-on-hand.

Current wording

Completed 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. The acquisition closed on April 30, 2024 after certain necessary regulatory approvals were obtained. Pursuant to the Share Purchase Agreement, 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. The purchase price was funded with $40.2 million of VAALCO’s cash-on-hand.

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. As part of the agreement, the Company is required to make annual modernization payments of $10.0 million per year through February 2026. 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.

Current wording

Merged Concession Agreement - On January 20, 2022, the Merged Concession Agreement was executed with EGPC that merged the three existing Eastern Desert concessions with a 15-year primary term and improved economics. As part of the agreement, the Company is required to make annual modernization payments of $10.0 million per year through February 2026. 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 on February 1, 2025 and February 1, 2026.

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 stewardship 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 stewardship 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

ESG and Climate Change Effects – Sustainability matters continue to attract considerable public, political, 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 stewardship coupled with increasing 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 the oil and gas industry, including VAALCO. 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, voluntary efforts to reduce routine flaring, 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 stewardship 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 targets to reduce emissions and document our progress in achieving goals we set for ourselves. 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 three years, the Company has refined 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 Company's 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.

Previous wording

In summary the Company considers itself aligned with both the Governance and Strategy pillars and the recommendations therein. It does not consider itself aligned with Risk Management nor Metrics and Targets, but has made meaningful progress against certain of the underlying recommendations and provides statements of intent to address these recommendations during 2024.

Current wording

The Company considers itself aligned with both the TCFD's Governance and Strategy pillars and the recommendations therein. It does not consider itself aligned with Risk Management nor Metrics and Targets but has made meaningful progress against certain of the underlying recommendations and provides statements of intent to address these recommendations during 2024, including communicating its short-, mid- and long-range goals for emission reductions, beginning with its operated assets.

Previous wording

Net income for the three months ended March 31, 2024 was $ 7.7 million compared to net income of $ 3.5 million for the same period of 2023. See discussion below for changes in revenue and expense.

Current wording

Net income for the three months ended June 30, 2024 was $ 28.2 million compared to net income of $ 6.8 million for the same period of 2023. See discussion below for changes in revenue and expense.

Previous wording

Crude oil, natural gas and NGL revenuesincreased $19.8 million, or approximately 24.6%, to $ 100.2 million during the three months ended March 31, 2024 from $ 80.4 million for the same period in the prior year. The revenue increase is attributable to higher volumes sold in Gabon, Egypt and Canada segments partially offset by lower realized sales prices compared to the prior period.

Current wording

Crude oil, natural gas and NGLs revenuesincreased $7.5 million, or approximately 7%, to $ 116.8 million during the three months ended June 30, 2024 from $ 109.2 million for the same period in the prior year. The revenue increase is attributable to higher volumes sold in Gabon, Egypt and Canada segments partially offset by lower realized sales prices compared to the prior period. In addition, revenue was recognized within the Cote d'Ivoire segment during the three months ended June 30, 2024, that were not present in the prior period.

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 $ 57.5 million of revenue to the Company’s total revenue during the three months ended March 31, 2024. This compares to the $ 36.7 million of revenue contributed by the Gabon segment during the three months ended March 31, 2023. The total barrels lifted in Gabon for the three months ended March 31, 2024 was higher when compared to lifting in the 2023 period. This was compounded by the Gabon per barrel price received during the three months ended March 31, 2024 which was $3.49 more than the price received in 2023. Our share of crude oil inventory, excluding royalty barrels, was approximately 111,871 barrels and 408,543 barrels at March 31, 2024 and 2023, 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 $ 53.7 million of revenue to the Company’s total revenue during the three months ended June 30, 2024. This compares to the $ 77.9 million of revenue contributed by the Gabon segment during the three months ended June 30, 2023. The total barrels lifted in Gabon for the three months ended June 30, 2024 was higher when compared to lifting in the 2023 period. This was compounded by the Gabon per barrel price received during the three months ended June 30, 2024 which was $3.08 more than the price received in 2023. Our share of crude oil inventory, excluding royalty barrels, was approximately 129,803 barrels and 227,556 barrels at June 30, 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 three months ended March 31, 2024, the oil sold in Egypt was through direct sales to EGPC. The Company’s Egypt segment contributed $37.0 million of revenue to the Company’s total revenue for the quarter. At March 31, 2024, the Company’s Egypt segment had no 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. During the three months ended June 30, 2024, the oil sold in Egypt was through direct sales to EGPC. The Company’s Egypt segment contributed $35.5 million of revenue to the Company’s total revenue for the quarter. At June 30, 2024, the Company’s Egypt segment had no 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 $ 5.7 million of revenue to the Company’s total revenue for the quarter.

Current wording

Crude oil sales in Canada are normally sold through pipelines to a third party. The Company’s Canadian segment contributed $ 10.4 million of revenue to the Company’s total revenue for the quarter.

Previous wording

Production expenses increased $3.9 million, or approximately 13.7%, for the three months ended March 31, 2024 to $32.1 million from $28.2 million for the same period in the prior year. The increase in production expense was primarily driven by higher operating costs. VAALCO has seen inflationary pressure on personnel and contractor costs. In February 2024, the Government in Gabon enacted a new Finance Act which has resulted in an increase to withholding taxes on foreign supplied goods and services. On a per barrel basis, production expense, excluding workover expense and stock compensation expense, for the three months ended March 31, 2024 decreased to $15.71 per barrel from $23.91 per barrel for the three months ended March 31, 2023 primarily as a result of higher sales volumes for the current period.

Current wording

Production expenses increased $13.8 million, or approximately 36%, for the three months ended June 30, 2024 to $52.4 million from $38.6 million for the same period in the prior year. The increase in production expense was primarily driven by the crude oil inventory acquired in the acquisition of Svenska that was recorded at fair value upon acquisition and lower of cost or market in subsequent periods. In addition, VAALCO has seen inflationary pressure on personnel and contractor costs. In February 2024, the government in Gabon enacted a new Finance Act which has resulted in an increase to withholding taxes on foreign supplied goods and services. On a per barrel basis, production expense, excluding workover expense and stock compensation expense, for the three months ended June 30, 2024 increased to $29.68 per barrel for the prior year from $21.51 per barrel primarily as a result of higher production volumes for the current period.

Previous wording

Depreciation, depletion and amortization costs increased $1.4 million, or approximately 5.7% for the three months ended March 31, 2024 to $25.8 million from $24.4 million for the same period in the prior year. The increase in depreciation, depletion and amortization expense is due to higher depletable costs in Gabon, Egypt, and Canada.

Current wording

Depreciation, depletion and amortization costs decreased $4.9 million, or approximately 13% for the three months ended June 30, 2024 to $33.1 million from $38.0 million for the same period in the prior year. The decrease in depreciation, depletion and amortization expense is due to lower depletable costs in Gabon, Egypt, and Canada partially offset by the addition of Cote d'Ivoire related to the Svenska acquisition.

Previous wording

General and administrative expensesincreased* *$ 1.5 million, or 28.8% for the three months ended March 31, 2024 to $ 6.7 million from $ 5.2 million for the same period in the prior year. The increase in general and administrative expenses is primarily professional service fees, salaries and wages, and accounting and legal fees.

Current wording

General and administrative expensesincreased* * $2.2 million, or 41% for the three months ended June 30, 2024 to $7.6 million from $5.4 million for the same period in the prior year. The increase in general and administrative expenses is primarily professional service fees, salaries and wages, and accounting and legal fees.

Previous wording

Interest expense, netwas $0.9 million for the three months ended March 31, 2024 compared to an expense of $2.2 million during the same period in 2023. The decrease of net interest expense for the three months ended March 31, 2024, primarily results from a decrease in our amortization of debt issue costs and commitment fees incurred on the Facility partially offset by interest income.

Current wording

Interest expense, netwas $1.1 million for the three months ended June 30, 2024 compared to an expense of $1.7 million during the same period in 2023. The decrease of net interest expense for the three months ended June 30, 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) incomedecreased by $0.7 million to an expense of $0.5 million for thethree months ended March 31, 2024 from a $1.2 million expense for the three months ended March 31, 2023. Other (expense) income, net normally consists of foreign currency gains and losses . However, during the three months ended March 31, 2023 there was a $1.4 million expense from a transition period adjustment of the bargain purchase gain related to the Arrangement of transactions costs associated with the TransGlobe acquisition.

Current wording

Other income (expense), netincreased* *by $1.4 million to an expense of $2.0 million for thethree months ended June 30, 2024 from a $0.5 million expense for the three months ended June 30, 2023. Other income (expense) income, net normally consists of foreign currency gains and losses . However, during the three months ended June 30, 2024 there was a $1.7 million expense for transactions costs associated with the Svenska acquisition.

Previous wording

Derivative instruments gain (loss), netis attributable to our swaps and collars as discussed in Note 8 to the Financial Statements. Derivative loss increasedby $0.8 million to a loss of $0.8 million for the three months ended March 31, 2024 from no gain or loss during the same period in the prior year. Derivative losses for the three months ended March 31, 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 three months ended March 31, 2024. Our derivative instruments currently cover a portion of our production through September 2024.

Current wording

Derivative instruments gain (loss), netis attributable to our swaps and collars as discussed in Note 8 to the Financial Statements. Derivative loss increasedby $0.6 million to a loss of $0.6 million for the six months ended June 30, 2024 from no gain or loss during the same period in the prior year. Derivative losses for the six months ended June 30, 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 six months ended June 30, 2024. Our derivative instruments currently cover a portion of our production through March 2025.