VAALCO Energy Announces Third Quarter 2012 Results

HOUSTON, Nov. 8, 2012 /PRNewswire/ -- VAALCO Energy, Inc. (NYSE: EGY) today reported that third quarter 2012 revenues were $37.6 million compared to $37.4 million in the third quarter of 2011.  Net income attributable to VAALCO was $106,000 or $0.00 per diluted share for the third quarter of 2012, after incurring a non-cash impairment of $7.6 million for a write-down of VAALCO's investment in the Granite Wash.  Net income attributable to VAALCO was $2.4 million or $0.04 per diluted share for the comparable period in 2011. 

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Robert Gerry, Chairman and CEO, commented: "VAALCO is now engaged in a number of exploration and development projects that we believe will add substantial value for the benefit of our shareholders.  Over the ensuing months, we anticipate drilling high potential exploration wells in three countries in West Africa, while also adding additional development wells to our portfolio in Gabon."

Exploration and Development Update

The Company provided the following update on its exploration and development program:

Offshore Equatorial Guinea

As previously announced, on November 1, 2012 the Company acquired a 31% non-operated working interest in Block P, located offshore Equatorial Guinea, at a cost of $10.0 million.  Two exploration wells are expected to be drilled on this block in 2013.

Gabon

VAALCO has contracted for a drilling rig to commence work on its multi-well program offshore Gabon, planned to begin in the fourth quarter of 2012, starting with drilling a development well in Avouma, workovers on the Avouma and Ebouri platforms to replace electrical submersible pumps and drilling an exploration well in the Ebouri field.  A decision to drill an additional exploration well during the drilling campaign will be made following the processing of recently acquired 3-D seismic data. 

The Company and its partners are proceeding with plans to build two new platforms offshore Gabon, one to be located in the Etame field and the other in the Southeast Etame / North Tchibala area.  These platforms will provide the capacity to drill multiple wells in the Etame field, Southeast Etame discovery area, and the North Tchibala field.  Platform fabrication work is expected to commence in the first quarter of 2013 with installation of the platforms expected to occur in 2014.

As previously announced, in the third quarter, the Company shut-in two of its three producing wells in the Ebouri field, offshore Gabon, after detecting the presence of hydrogen sulfide (H2S) on the Ebouri platform.  The Company continues to maintain production offshore Gabon at approximately 19,000 barrels per day, including from one well in the Ebouri field.  Investigations are underway to ascertain the root cause of the H2S and develop a plan to produce the remaining reserves in a timely manner.  It appears that additional capital investment will be required to produce the impacted reserves which may include re-working the wells with upgraded metallurgy including wellhead replacements and installing H2S processing equipment on the platform. 

In October 2012, drilling of the N'Gongui 2 well on the Mutamba Iroru block, onshore Gabon  commenced resulting in a hydrocarbon discovery.  Sidetracks to appraise the discovery commenced in late October 2012.

Angola

As previously announced, a partner has been identified to acquire the available 40% working interest in Block 5, offshore Angola, and the party has been submitted to the Angolan government for approval.  In November 2012, the government advised the Company that it has entered into negotiations with the potential partner.  Once a new partner has been named, the consortium expects to proceed with the drilling of a pre-salt exploratory well. 

United States

The Company's second well in the Poplar Dome field, EPU-133, was spudded in June 2012, and was hydraulically fractured.  This well is being considered for installation of electrical submersible pumps ("ESPs") in an effort to establish production during the fourth quarter of 2012.  Using ESPs to obtain production has been successfully utilized on other wells in this area.  The Company plans to drill the third obligation well during the fourth quarter of 2012.  Previously, a vertical exploration well, EPU-120, was completed in June 2012 and has been temporarily suspended to retest certain formations or to convert the well into a horizontal producing well.    

During the third quarter of 2012, the Company drilled two wells, Bolke 7-01H and Bolke 11-01H, in the Salt Lake Field located in Sheridan County, Montana.  Hydraulic fracturing on the Bolke 7-01H well began in November 2012.  Following the installation of electrical submersible pumps, the Bolke 11-01H is undergoing a 30 day test to determine commerciality.  The results of this test are expected in the fourth quarter of 2012. 

In September 2012, the Company acquired a 100% working interest in approximately 10,000 acres in Harding County, South Dakota.  The primary objective for this property is the Red River formation.  Pursuant to the terms of the acquisition, VAALCO is obligated to drill and complete a well, or reenter and complete an existing well within twelve months of the acquisition date.  The Company expects to drill the initial well on the property in the fourth quarter of 2012.

Third Quarter 2012 Financial Results Discussion

Total Revenues

Total oil and natural gas revenues were $37.6 million for the three months ended September 30, 2012 compared to $37.4 million for the same period of 2011.

Oil Revenues

Gabon

Crude oil revenues for the three months ended September 30, 2012 were $37.0 million, as compared to revenues of $36.4 million for the same period 2011.  In the three months ended September 30, 2012, the Company sold approximately 342,000 net barrels of oil from three liftings at an average price of $107.94/Bbl, while in the three months ended September 30, 2011 it sold approximately 322,000 net barrels of oil equivalent from two liftings at an average price of $113.09/Bbl. 

United States

Condensate sales from the Granite Wash formation wells, located in Hemphill County, Texas for the three months ended September 30, 2012 were $178,000, resulting from the sale of approximately 2,000 net barrels of oil condensate at an average price of $77.48/Bbl.  For the same period in 2011, condensate sales from the Granite Wash formation wells were $146,000, resulting from the sale of approximately 2,000 net barrels of oil condensate at an average price of $74.63/Bbl.

Natural Gas Revenues

United States

Natural gas revenues including revenues from natural gas liquids for the three months ended September 30, 2012 were $0.5 million compared to $0.8 million for the comparable period in 2011.  Natural gas sales were 147 MMcf at an average price of $3.32/Mcf for the three months ended September 30, 2012.  For the same period of 2011, natural gas sales were 137 MMcf at an average price of $5.62/Mcf.

Capital Expenditures

Capital expenditures were $20.6 million for the third quarter and $44.1 million for the nine months of 2012, primarily associated with the Company's drilling campaign in the United States, its platform modification costs and advance purchases for the upcoming drilling program offshore Gabon, and its onshore Gabon drilling program.  For the fourth quarter of 2012, the Company anticipates its share of capital expenditures will approximate $32.0 million for the acquisition of a block in Equatorial Guinea, completion of wells underway in Montana, new wells in Montana and South Dakota, completion of the onshore Gabon well, offshore infrastructure projects in Gabon and the initial drilling costs of a multi-well program scheduled to begin late in the fourth quarter offshore Gabon.

Operating Costs and Expenses

Total production expenses for the three months ended September 30, 2012 were $5.9 million compared to $4.5 million for the three months ended September 30, 2011. The increase in year-over year production expense is mainly due to a retroactive FPSO cost associated with a contract extension and revision, and higher production costs as a result of lower expenses capitalized associated with unsold crude oil inventory, which was partially offset by a lower Domestic Market Obligation ("DMO") charge payable to the Republic of Gabon.

Exploration expense was $0.7 million for the three months ended September 30, 2012 compared to $1.3 million for the comparable period in 2011.

During the three months ended September 30, 2012 the Company recorded an impairment loss of $7.6 million to write down its investment in the Granite Wash formation of North Texas to its fair value of $7.7 million.

Income tax expense amounted to $14.2 million and $17.1 million for the three months ended September 30, 2012 and 2011, respectively.  In the three months ended September 30, 2012 and 2011, the income taxes were all paid in Gabon.  Income tax expense was lower than in the same period of 2011 due to a lower percentage of oil allocated as "profit oil" versus "cost oil" in Gabon.

Balance Sheet

On September 30, 2012, the Company had unrestricted cash of $136.3 million and no debt.  The Company expects its cash balances plus cash from operations will be more than sufficient to fund the Company's remaining 2012 capital expenditure budget and potential growth investments.

Conference Call

As previously announced, the Company will hold a conference call to discuss its third quarter 2012 results on Friday, November 9, 2012 at 10:00 a.m. Central Time (11:00 a.m. Eastern Time).  Interested parties may participate by dialing 1 (800) 288-3976.  International parties may dial 1 (612) 332-0636.  The confirmation code is 268383.  This call will also be webcast on VAALCO's website at www.vaalco.com.

An audio replay will be available beginning approximately one hour after the end of the conference call through December 9, 2012 on the Company's website and by dialing 1 (800) 475-6701.  International parties may dial 1 (320) 365-3844.  The confirmation code is 268383.

Summary financial results for the quarter are tabulated below.

Other financial results:

Basic and diluted share information:

Forward-Looking Statements

This document includes "forward-looking statements" as defined by the U.S. securities laws. Forward-looking statements are those concerning VAALCO's plans, expectations, and objectives for future drilling, completion and other operations and activities. All statements included in this document that address activities, events or developments that VAALCO expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include future production rates, expected capital expenditures, prospect evaluations, drilling timing, license expiration concerns, completion and production timetables, and costs to complete wells. These statements are based on assumptions made by VAALCO based on its experience,  perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond VAALCO's control. These risks include, but are not limited to, inflation, lack of availability of goods, services and capital, environmental risks, drilling risks, foreign operational risks and regulatory changes. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. These risks are further described in VAALCO's annual report on Form 10-K for the year ended December 31, 2011, on Part II, Item 1A of Form 10-Q for the quarter ended March 31, 2012 and other reports filed with the SEC which can be reviewed at http://www.sec.gov, or which can be received by contacting VAALCO at 4600 Post Oak Place, Suite 309, Houston, Texas 77027, (713) 623-0801.

About VAALCO

VAALCO Energy, Inc. is a Houston based independent energy company principally engaged in the acquisition, exploration, development and production of crude oil. VAALCO's strategy is to increase reserves and production through the exploration and exploitation of oil and natural gas properties with high emphasis on international opportunities. The Company's properties and exploration acreage are located primarily in Gabon and Angola, West Africa and the United States.

SOURCE VAALCO Energy, Inc.