VAALCO Energy, Inc. Announces Second Quarter 2023 Results

~Strong Production in All Operating Areas Leads to 7% Increase in Full Year Production Guidance and Increased Drilling Efficiencies in Egypt and Canada Contribute to $10 million Reduction in 2023 Capital Expenditure Guidance~

HOUSTON, Aug. 09, 2023 (GLOBE NEWSWIRE) -- VAALCO Energy, Inc. (: EGY, LSE: EGY) ("VAALCO" or the "Company") today reported operational and financial results for the second quarter of 2023.

Second Quarter 2023 Highlights and Key Items:

• Paid second quarter 2023 cash dividend of $0.0625 per share of common stock and announced quarterly cash dividend of $0.0625 per share of common stock ($0.25 annualized) to be paid on September 22, 2023, an increase of 92% compared to 2022;
• Returned $14.9 million to shareholders by purchasing 3.8 million shares since inception of share buy back in November 2022 through August 4, 2023;
• Increased average daily production by 7% to 19,676 net revenue interest (“NRI”)(1) barrels of oil equivalent per day (“BOEPD”), or 24,863 working interest (“WI”)(2) BOEPD compared to the first quarter of 2023;
  • Record production levels achieved in Egypt and Canada drove production above the high-end of guidance;
• Sold 1,803,000 barrels of oil equivalent (“BOE”) in Q2, an increase of 47% and above the high end of guidance due to increased production and sales in Gabon, Egypt and Canada;
  • Expect Q3 2023 NRI sales to be between 1,700,000 and 1,900,000 BOE;
• Reported Q2 2023 net income of $6.8 million ($0.06 per diluted share) and Adjusted Net Income(3)of $11.9 million ($0.11 per diluted share);
• Grew Adjusted EBITDAX(3)by 37% to $65.3 million compared to Q1 2023 and funded $27.1 million in capital expenditures from cash on hand and cash from operations during the second quarter of 2023;
• Raised full year 2023 production guidance and reduced full year capital expenditure guidance;
  • Increased the full year production guidance midpoint for every operating area;
  • Total Company production guidance midpoint is up 7% with an updated range of 17,300 to 19,000 NRI BOEPD, or 22,400 to 24,800 WI BOEPD;
  • Announced a $10 million reduction in estimated full year 2023 capital expenditures, now expected to be in the range of $65 to $75 million;
• Decreased production expense per BOE, excluding workover costs and stock compensation, by 19% compared to the first quarter of 2023; and
• Reported cash and cash equivalents of $46.2 million, generated $77.6 million in cash flow from operating activities and reported Adjusted Working Capital(3) of $55.7 million at June 30, 2023.

George Maxwell, VAALCO’s Chief Executive Officer commented, “Since the combination with TransGlobe, we have focused on returning cash to shareholders, generating meaningful cash flow, maintaining and growing our strong production base, evaluating a larger portfolio of opportunities across multiple countries and continuing to drill our prospects. We have delivered on all of these accounts and continue to build size and scale for the future.”

“Thus far in 2023, we have paid two increased quarterly dividends, returning $0.125 per share to shareholders or $13.5 million. Additionally, we have repurchased $14.9 million in share buybacks through August 4, 2023. Our production grew by 7% to nearly 20,000 net BOEPD or nearly 25,000 WI BOEPD. We are very pleased with the results of our 2023 drilling program in both Egypt and Canada that led to us exceeding our second quarter 2023 production guidance. Both Canada and Egypt have reached record production levels in 2023 and our production and sales in Gabon have remained very strong. This solid production growth has allowed us to generate $113 million in Adjusted EBITDAX thus far in 2023, an increase of 20% over the same period last year, despite significantly lower realized commodity pricing. The strong performance of our 2023 capital program in Egypt and Canada, coupled with the strong operational uptime in Gabon has driven production much higher than our original forecasts. As a result, we are raising our full year production guidance across all three operating areas and for the total Company by 7% at the midpoint. We are also lowering our full year capex guidance. When paired with increased production, this should lead to meaningful cash flow generation in the second half of 2023.”

“Our commitment to operational excellence has made VAALCO financially stronger, with more reserves and production, than at any other point in our history. We continue to have no bank debt and a substantial cash flow position that will allow us to fund future capex across our portfolio, while also evaluating additional opportunities. We will continue to focus on capturing synergies, operating efficiently and maximizing our operational cash flow. We are excited about the future, our development project in Equatorial Guinea, our next drilling campaign in Gabon and the numerous opportunities in Egypt and Canada. The diversity and strength of our assets provides meaningful optionality in the future and supports our ability to continue to return value to shareholders.”

Operational Update

Egypt

In December 2022, VAALCO spudded the Arta77 HC well targeting the Nukhul reservoir. The lateral was successfully drilled through reservoir encountering laterally 1,363 meters of good oil and gas shows. Historically, the wells drilled in Egypt were vertical wells. The Arta77 HC was the first horizontal well drilled under the new merged concession agreement and the Company plans to study the results, drilling technique and completions methods to enhance potential productivity of the next horizontal well. In addition to drilling capital, VAALCO has also spent capital and expense dollars on upgrading facilities, to improve well performance as well as to meet its environmental social and governance (“ESG”) standards.

After completing the Arta77 HC well in January 2023, VAALCO has drilled twelve vertical wells in the first half of 2023, including an injector well and one exploration well. Through operational and drilling efficiencies, VAALCO has drilled wells faster and cheaper than previously forecasted. To date, this has resulted in all drilling targets for 2023 being drilled and record production levels in 2023 in the merged concession. In the third quarter of 2023, the Company has drilled two vertical wells and plans to frac four wells. VAALCO is evaluating the results of the wells drilled over the past year to better understand the potential for additional future drilling.

Canada

VAALCO drilled and completed two wells in the first quarter of 2023, consisting of a 1.5-mile lateral and a 3-mile lateral, which were also required for land retention purposes. Both wells were drilled and completed safely and cost effectively without incident. The wells were tied in and equipped in April and early May with overall cycle times that were significantly less than historical cycle times. The wells began flowing in May and in early July the pump and rods were run on both wells. Both wells production rates are exceeding expectations, and the Company is currently evaluating future drilling campaigns, with the intent of moving exclusively to 2.5 mile and 3-mile laterals to improve economics. As seen in Egypt, this has resulted in record production levels. Additionally, VAALCO is conducting a review of completions intensity for potential future well completions and facility and pad optimization which should improve production cycle times in the future.

Gabon

VAALCO completed its 2021/2022 drilling campaign in the fourth quarter of 2022. The Company is currently evaluating locations and planning for its next drilling campaign. More details will be made available in the second half of 2023. 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 VAALCO to continue to economically produce from the Etame field and led to an extension of the economic field life. In 2023, the Company will continue to focus on operational excellence, including production uptime and enhancement, to minimize decline until the next drilling campaign. Gabon production performance in the first half of 2023 has been strong and slightly ahead of plan which was driven by improved operational uptime at Etame. The cost savings from the new FSO have crystalized as planned but are being offset by increased diesel costs and inflationary (marine vessel supply rates, transportation, and contractors) and industry supply chain pressures. VAALCO is powering the FSO with diesel because the SEENT gas line that normally would have supplied feed gas has been temporarily shut-in.

Equatorial Guinea

VAALCO owns a working interest in Block P offshore Equatorial Guinea, where there are previously-discovered but undeveloped resources as well as additional exploration potential. In March 2023, VAALCO held productive meetings with the Ministry of Mines and Hydrocarbons (“MMH”) and its partners in Houston. During these meetings, VAALCO finalized multiple substantive documents, for Block P which includes the Venus development relating to the PSC. The Joint Operating Agreement has outstanding signatures and VAALCO will be able to accelerate the project forward following approval by all stakeholders. The Company has an approved Plan of Development with Equatorial Guinea, and will continue working with all stakeholders to move it toward Final Investment Decision (“FID”).

Environmental, Social and Governance

As part of the Company’s commitment to environmental stewardship, social awareness and good corporate governance, VAALCO published its annual ESG report in April 2023. The report covers VAALCO’s ESG initiatives and related key performance indicators and is available on VAALCO’s web site, www.vaalco.com, under the “Sustainability” tab. During 2022, the Company completed a materiality study, led by its ESG Engineer with input from key personnel across the organization with responsibility for engaging with its key stakeholder groups. Working with an external consultancy, VAALCO created an ESG materiality framework against which it plotted material topics informed by the Global Reporting Initiative and Sustainability Accounting Standards Board. Each of these were assessed based upon the perceived level of risk to the business and the level of management control in place.

Financial Update –Second Quarter of 2023

Reported net income of $6.8 million ($0.06 per diluted share) for the second quarter of 2023 which was up compared with net income of $3.5 million ($0.03 per diluted share) in the first quarter of 2023 and down compared to $15.1 million ($0.25 per diluted share) in the second quarter of 2022. The increase in earnings compared to the first quarter of 2023 is mainly due to higher sales volumes partially offset by higher production expenses and higher DD&A expense. The decrease in earnings compared to the second quarter of 2022 is due to higher production expense and higher DD&A expense partially offset by lower income taxes and lower realized losses on derivatives.

Adjusted EBITDAX totaled $65.3 million in the second quarter of 2023, a 37% increase from $47.8 million in the first quarter of 2023, primarily due to higher sales volumes, partially offset by higher production expense and DD&A costs and lower commodity prices. The 7% increase in second quarter 2023 Adjusted EBITDAX compared with $60.9 million generated in the same period in 2022, is primarily due to higher revenue resulting from the TransGlobe transaction and lower realized losses on derivatives.