VAALCO ENERGY INC DE

Previous wording

ITEM 2. MANAGEMENT**’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbors created by those laws. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included in this Quarterly Report that address activities, events or developments that we expect or anticipate may occur in the future, including without limitation, statements regarding our financial position, operating performance and results, reserve quantities and net present values, market prices, business strategy, derivative activities, the amount and nature of capital expenditures, payment of dividends and plans and objectives of management for future operations are forward-looking statements. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “forecast,” “outlook,” “aim,” “target,” “will,” “could,” “should,” “may,” “likely,” “plan,” and “probably” or the negative of such terms or similar expressions, we are making forward-looking statements. Many risks and uncertainties that could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements include, but are not limited to:

Current wording

This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and may also include forward-looking information within the meaning defined under applicable Canadian securities laws (collectively, "forward-looking statements"), which are intended to be covered by the safe harbors created by those laws. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included in this Quarterly Report that address activities, events or developments that we expect or anticipate may occur in the future, including without limitation, statements regarding our financial position, operating performance and results, reserve quantities and net present values, market prices, business strategy, derivative activities, the amount and nature of capital expenditures, payment of dividends and plans and objectives of management for future operations are forward-looking statements. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “forecast,” “outlook,” “aim,” “target,” “will,” “could,” “should,” “may,” “likely,” “plan” and “probably” or the negative of such terms or similar expressions, we are making forward-looking statements. Many risks and uncertainties that could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements include, but are not limited to:

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”) 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.

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”) and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 (the “Q2 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, the Q2 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, Canada and Cote d'Ivoire, 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, Nigeria and Cote d'Ivoire, currently engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs.

Previous 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.

Current wording

On August 6, 2024, VAALCO issued a press release announcing its quarterly cash dividend of $0.0625 per share of common stock for the third quarter of 2024 ($0.25 annualized), which was paid on September 20, 2024 to stockholders of record at the close of business on August 23, 2024. On November 11, 2024, the Company's board of directors declared a quarterly cash dividend of $0.0625 per common share to be paid on December 20, 2024 to stockholders of record at the close of business on November 22, 2024.

Previous wording

VAALCO completed its last drilling campaign in the fourth quarter of 2022. We are currently evaluating locations and planning for the next drilling campaign at Etame that is expected to occur early in 2025. In October 2022, VAALCO successfully completed its transition to a Floating Storage and Offloading vessel (“FSO”) and related field reconfiguration processes. This project provides a low cost FSO solution that increases the storage capacity for the Etame block and improved operational performance. The Company continues to focus on operational excellence, production uptime and enhancement in 2024 to minimize decline until the next drilling campaign.

Current wording

VAALCO completed its last drilling campaign in the fourth quarter of 2022. We are currently evaluating locations and planning for the next drilling campaign at Etame that is expected to occur early in 2025. In October 2022, VAALCO successfully completed its transition to a Floating Storage and Offloading vessel (“FSO”) and related field reconfiguration processes. This project provides a lower cost FSO solution that increases the storage capacity for the Etame block and improves operational performance. The Company continues to focus on operational excellence, production uptime and enhancement in 2024 to minimize decline until the next drilling campaign.

Previous 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.

Current wording

Preventative maintenance activities on facilities and facility equipment remained at scheduled levels. Planned maintenance shutdown activities and piping external corrosion repairs were carried out on Avouma platform. Equipment reliability and availability remain at high levels.

Previous 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.

Current wording

We have deferred 2024 drilling to work up a robust drilling program which is expected to commenced in late November 2024. We currently have a workover rig in place which has allowed us to slow decline during 2024.

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. 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.

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. The planned workover program for 2024 was completed for 12 wells as shown in the table below. Both wells H-22 and 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, 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.

Current wording

The 2024 drilling campaign commenced in January 2024 and our four planned wells in the north of the license have since been drilled. Completion of the wells was initiated in late March 2024, and were completed in April 2024. The wells were equipped and tied-in in April 2024 and early May 2024 followed by well start-up. As of September 30, 2024, all four wells were producing. A summary of the 2024 drilling campaign in Canada is presented below:

Previous wording

Work with Modec, the operator of the FPSO, on the FPSO dry dock project (off station 2025), which remains pre sanction continued through the second quarter of 2024. This included the execution of a letter of intent with Modec on April 4, 2024, which covered the key contracts to be executed, including vessel purchase, EPC and O&M amendments. Selection of the disconnect and reconnect contractor, and support for the revised yard bid from Dubai dry docks among other activities.

Current wording

As VAALCO has a non-operated position, the operator continues to work with Modec International, Inc. (“Modec”), the operator of the floating production storage and offloading vessel (the “FPSO”), on the FPSO dry dock project (off station 2025) throughout the third quarter of 2024. Negotiations with key vendors have matured for the critical path activities for the dry dock project which remains on target for 2025. This includes selection of the disconnect and reconnect contractor, and support for the revised yard bid from Dubai dry docks among other activities.

Previous 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.

Current wording

We operate the Etame Marin Block on behalf of a consortium of companies. As of September 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. During the three months ended September 30, 2024 and 2023, production from the block was 1,377 million barrels ("MBbls") (696 MBbls, net) and 1,506 MBbls (761 MBbls, net), respectively, as discussed below in "Results of Operations". During the nine months ended September 30, 2024 and 2023, production from our Etame assets was 4,138 MBbls (2,108 MBbls, net) and 4,740 MBbls (2,425 MBbls, net), respectively.

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 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.

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 September 30, 2024 and 2023, production from the Eastern Desert was 965 MBbls (657 MBbls, net) and 1,076 MBbls (732 MBbls, net), respectively, as discussed below in “Results of Operations”. The third quarter 2024 saw a slight increase in the production from the Eastern Desert compared to the second quarter 2024 which had production of 953 MBbls (643 MBbls, net). During the nine months ended September 30, 2024 and 2023, production from our Eastern Desert assets was 2,867 MBbls (1,941 MBbls, net) and 3,032 MBbls (2,074 MBbls, net), respectively.

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 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.

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 September 30, 2024 and 2023, production from our Canadian assets was 269 MBoe (229 MBoe, net) and 261 MBoe (210 MBoe, net), respectively, as discussed below in “Results of Operations”. During the nine months ended September 30, 2024 and 2023, production from our Canadian assets was 761 MBoe (658 MBoe, net) and 775 MBoe (672 MBoe, net), respectively.

Previous 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.

Current wording

As of September 30, 2024, we have $10.0 million of 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 (the “Venus POD”), the Venus Development was initiated.

Previous wording

The 2024 amended budget was approved by all partners on May 10, 2024, and then approval was requested from the Ministry of Mines and Hydrocarbons. At the end of the 30-day waiting period, the budget was deemed to be approved, and the corresponding Authorization for Expenditures (AFE) was sent to partners. It was unanimously approved by June 18, 2024, and the implementation of the FEED phase was initiated.

Current wording

The 2024 amended budget was approved by all partners on May 10, 2024, and then approval was requested from the Ministry of Mines and Hydrocarbons. At the end of the 30-day waiting period, the budget was deemed to be approved, and the corresponding Authorization for Expenditures was sent to all partners. It was unanimously approved on June 18, 2024, and the implementation of the FEED phase was initiated. The project is on schedule and focuses on key areas of drilling evaluations, facilities design, market inquiries and metocean review. The ultimate objective is to obtain an FID determination by the end of the first quarter of 2025.

Previous wording

CI-40 Baobab field was discovered in 2001 and is located in the western half of the CI-40 license, 30km offshore Côte d’Ivoire. VAALCO holds a 27.4% non-operated WI interest (30.4% paying interest) in CI-40. The license is operated by Canadian Natural Resources.

Current wording

CI-40 Baobab field was discovered in 2001 and is located in the western half of the CI-40 license, 30km offshore Côte d’Ivoire. VAALCO holds a 27.4% non-operated working interest (30.4% paying interest) in CI-40. The license is operated by Canadian Natural Resources.

Previous wording

The field has been developed with 24 subsea production wells and 5 water injector wells tied back to a leased FPSO operated by Modec. Second quarter production was stable with three water injectors and nine production wells online. Gross average daily production for the second quarter 2024 was 15.9 MBOPD, net WI VAALCO 4.4 MBOPD.

Current wording

The field has been developed with 24 subsea production wells and 5 water injector wells tied back to a leased FPSO operated by Modec. Third quarter production was stable with three water injectors and nine production wells online. Gross production for the third quarter 2024 was 1,489 MBoe (415 MBoe, net).

Previous wording

Due to extensive class work requirements and the necessity to change out the relevant turret bearing, the FPSO is planned to go to dry dock in 2025, returning to the field 2026.

Current wording

The FPSO is planned to go to dry dock in 2025 to undergo maintenance and is expected to return to service in 2026.

Previous wording

The PSC license has initial term until April 11, 2028 with a ten-year extension option until April 2038.

Current wording

The PSC license has an initial term until April 11, 2028 with a ten-year extension option until April 2038.

Previous wording

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

Current wording

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

Previous 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).

Current wording

The $102.6 million decrease in net cash provided by operating activities during the nine months ended September 30, 2024 compared to the nine months ended September 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 $119.8 million for the nine months ended September 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 $88.6 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 $43.1 million). Partially offsetting these changes were increases in cash provided by changes in crude oil inventory of $18.1 million.

Previous 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.

Current wording

The $16.2 million decrease in net cash used in investing activities during the nine months ended September 30, 2024 compared to the nine months ended September 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 Svenska Acquisition which is offset by the cash received from Svenska in the amount of $40.6 million. See Note 3 to the unaudited condensed consolidated financial statements for further discussion of the acquisition. For the nine months ended September 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 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.

Current wording

Net cash used in financing activities during the nine months ended September 30, 2024 included $19.6 million for dividend distributions, $6.8 million for treasury stock repurchases made under our stock repurchase plan and as a result of tax withholding on options exercised and on vested restricted stock, and $6.3 million of principal payments on our finance leases partially offset by $0.4 million in proceeds from options exercised. For the nine months ended September 30, 2023, cash used in financing activities included $20.2 million for dividend distributions, $17.5 million for treasury stock repurchased under our stock repurchase plan, and $5.2 million of principal payments on our finance leases partially offset by $0.6 million in proceeds from options exercised.

Previous 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.

Current wording

For the nine months ended September 30, 2024, we had accrual basis capital expenditures of $73.1 million compared to $63.3 million accrual basis capital expenditures for the same period in 2023. For the nine months ended September 30, 2024, our cash spending primarily related to the new wells drilled as part of the drilling campaign in Canada as well as expenditures associated with the preparation of the FPSO dry dock project in Cote d'Ivoire. 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

We are subject to periodic routine audits by various government agencies, including audits of our petroleum Cost Account, customs, taxes and other operational matters, as well as audits by other members of the contractor group under our joint operating agreements.

Current wording

We are subject to periodic routine audits by various government agencies, including audits of our petroleum cost account (the “Cost Account”), customs, taxes and other operational matters, as well as audits by other members of the contractor group under our joint operating agreements.

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 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.

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 natural 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 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.

Current wording

Due to the inherent volatility in crude oil prices, we use commodity derivative instruments such as swaps, costless collars and put options 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. We record such derivative instruments as assets or liabilities in the unaudited condensed consolidated balance sheets.

Previous 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.

Current wording

At September 30, 2024, we had unrestricted cash of $89.1 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.

Previous wording

Revenues associated with the sales of our crude oil in Egypt are recognized by reference to actual volumes sold and quoted market prices in active markets for Dated Brent, 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. For reporting purposes, we record the EGPC’s share of production as royalties which are netted against revenue. With respect to taxes in Egypt, our income taxes under the terms of the Merged Concession Agreement are the liability of TransGlobe Petroleum International ("TGPI"), a wholly-owned indirect subsidiary of VAALCO. TGPI's income taxes are paid by EGPC on behalf of TGPI out of EGPC’s production entitlement. The income taxes paid to the Arab Republic of Egypt on behalf of TGPI are recognized as oil and gas sales revenue and income tax expense for reporting purposes. Terms of settlement for sales to EGPC are within 30 days from the delivery date.

Current wording

Revenues associated with the sales of our crude oil in Egypt are recognized by reference to actual volumes sold and quoted market prices in active markets for Dated Brent, adjusted according to specific terms and conditions as applicable per the sales contracts. For reporting purposes, we record the EGPC’s share of production as royalties which are netted against revenue. With respect to taxes in Egypt, our income taxes under the terms of the Merged Concession Agreement are the liability of TransGlobe Petroleum International ("TGPI"), a wholly-owned indirect subsidiary of VAALCO. TGPI's income taxes are paid by EGPC on behalf of TGPI out of EGPC’s production entitlement. The income taxes paid to the Arab Republic of Egypt on behalf of TGPI are recognized as oil and gas sales revenue and income tax expense for reporting purposes. Terms of settlement for sales to EGPC are within 30 days from the delivery date.

Previous wording

Revenues from the sale of crude oil, natural gas, condensate and NGLs in Canada are recognized by reference to actual volumes delivered at contracted delivery points and prices. Prices are determined by reference to quoted market prices in active markets for crude oil, natural gas, condensate, and NGLs based on product, each adjusted according to specific terms and conditions applicable per the sales contracts. Revenues are recognized net of royalties and transportation costs. Revenues are measured at the fair value of the consideration received or receivable. Settlement of accounts receivable in Canada occur on the 25th of the following month after production.

Current wording

Revenues from the sale of crude oil, natural gas, condensate and NGLs in Canada are recognized by reference to actual volumes delivered at contracted delivery points and prices. Prices are determined by reference to quoted market prices in active markets for crude oil, natural gas, condensate, and NGLs based on product, each adjusted according to specific terms and conditions applicable per the sales contracts. Revenues are recognized net of royalties and transportation costs. Settlement of accounts receivable in Canada occur on the 25th of the following month after production.

Previous wording

Revenues associated with the sales of our crude oil in Cote d’Ivoire are recognized by reference to actual volumes sold and prices in active markets that are quoted against world crude benchmarks, e.g. Brent and 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. Settlement of accounts receivable in Cote d’Ivoire is typically 30 days after bill of lading, commercial invoice and original certificates of quantity, quality and origin is received and accepted by the trader.

Current wording

Revenues associated with the sales of our crude oil in Cote d’Ivoire are recognized by reference to actual volumes sold and prices in active markets that are quoted against world crude benchmarks, e.g. Brent and adjusted according to specific terms and conditions as applicable per the sales contracts. The payment terms include settlement of accounts receivable in Cote d’Ivoire is typically 30 days after bill of lading, commercial invoice and original certificates of quantity, quality and origin are received and accepted by the customer.

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 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.

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 earlier in the year 2024, the Svenska Acquisition. 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 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, cash flow from operations as well as the ability to extend our RBL Facility to support our current cash requirements during the next 12 months and beyond, including the FSO charter in Gabon and 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 or acceptable to us, or at all. We are continuing to evaluate all uses of cash, including opportunistic acquisitions, and whether to pursue growth opportunities and whether such growth opportunities, additional sources of liquidity, including equity and/or debt financings, are appropriate to fund any such growth opportunities.

Previous wording

For information on the Merged Concession Agreement, see Note 10 to the Condensed Consolidated Financial Statements.

Current wording

For information on the Merged Concession Agreement, see Note 10 to the unaudited condensed consolidated financial statements.

Previous wording

For information on our RBL Facility agreement and available credit, see Note 11 to the Condensed Consolidated Financial Statements.

Current wording

For information on our RBL Facility agreement and available credit, see Note 11 to the unaudited condensed consolidated financial statements.

Previous 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.

Current wording

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

Previous wording

Abandonment Funding - Under the terms of the Etame PSC, we have a cash funding arrangement for the eventual abandonment of all offshore wells, platforms and facilities on the Etame Marin block. As a result of the PSC Extension, annual funding payments are spread over the periods from 2018 through 2028, under the applicable abandonment study. The amounts paid will be reimbursed through the Cost Account and are non-refundable. At June 30, 2024, the balance of the abandonment fund was $10.7 million ($6.3 million, net to VAALCO) on an undiscounted basis. The annual payments will be adjusted based on revisions in the abandonment estimate. This cash funding is reflected under “Other noncurrent assets” in the “Abandonment funding” line item of the unaudited condensed consolidated balance sheets. Future changes to the anticipated abandonment cost estimate could change the asset retirement obligation and the amount of future abandonment funding payments.

Current wording

Etame PSC, annual funding payments are spread over the periods from 2018 through 2028, under the applicable abandonment study. The amounts paid will be reimbursed through the Cost Account and are non-refundable. At September 30, 2024, the balance of the abandonment fund was $10.7 million ($6.3 million, net to VAALCO) on an undiscounted basis. The annual payments will be adjusted based on revisions in the abandonment estimate. This cash funding is reflected under “Other noncurrent assets” in the “Abandonment funding” line item of the unaudited condensed 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.

Previous wording

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

Current wording

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

Previous 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.

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 an annual modernization payment of $10.0 million per year to EGPC 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 modernization payments of $10.0 million on February 1, 2025 and February 1, 2026. For information on the Merged Concession Agreement, see Note 10 to the unaudited condensed consolidated financial statements.