What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-03-15 compared with 2023-04-06 · 331 added, 484 removed, 207 unchanged (80% of the section changed)

Market for Registrant ’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange and London Stock Exchange under the symbol “EGY”.

As of March 31, 2023, based upon information received from our transfer agent and brokers and nominees, there were approximately 80 holders of record of VAALCO common stock.

This number does not include beneficial or other owners for whom common stock may be held in “street”

On November 3, 2021, we announced that our board of directors adopted a quarterly cash dividend policy of an expected $0.0325 per common share per quarter commencing in the first quarter of 2022.

Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange and London Stock Exchange under the symbol “EGY”.

As of February 29, 2024, based upon information received from our transfer agent and brokers and nominees, there were approximately 78 holders of record of VAALCO common stock.

This number does not include beneficial or other owners for whom common stock may be held in “street” names.

On February 14, 2023, we announced that our board of directors adopted a quarterly cash dividend policy of an expected $0.0625 per common share per quarter commencing in the first quarter of 2023 and continued throughout the year.

The following table is a schedule of our dividends paid during 2023:

2 unchanged sentences

March 31, 2023

February 18, 2022

March 24, 2023

June 23, 2023

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Aggregate per share amount paid in 2023

In connection with the acquisition of TransGlobe, we announced our intention, following consummation of the acquisition, to have an annualized dividend target of $0.25 per share beginning in the first quarter of 2023, with payments to be made quarterly.

In the first quarter of 2023, we announced that our board of directors increased the quarterly cash dividend to $0.0625 per common share.

On February 14, 2023, our board of directors declared a quarterly cash dividend of $0.0625 per common share, which was payable on March 31, 2023 to stockholders of record at the close of business on March 24, 2023. 

In connection with the RBL facility, we are required to provide a cash flow projection prior to any distribution, share buyback, or stock repurchase. As long as a group liquidity test is above the required ratio outlined in the RBL facility agreement, and no event of default exists, we may make distributions, buyback shares, or repurchase stock without further approval. In the event the liquidity test is not met, an approval or waiver would need to be obtained from Glencore in order to make distributions, buyback shares, or repurchase stock. For the year ended December 31, 2022, no specific approval or waivers were required to make distributions or repurchase stock.

In connection with the RBL facility, we are required to provide a cash flow projection prior to any distribution, share buyback, or stock repurchase.

As long as a group liquidity test is above the required ratio outlined in the RBL facility agreement, and no event of default exists, we may make distributions, buyback shares, or repurchase stock without further approval.

In the event the liquidity test is not met, an approval or waiver would need to be obtained from Glencore in order to make distributions, buyback shares, or repurchase stock.

For the year ended December 31, 2023, no specific approval or waivers were required to make distributions or repurchase stock.

To the extent we have adequate cash on hand and cash flows from operations, we will consider paying additional cash dividends on a quarterly basis;

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Securities Authorized for Issuance Under Equity Compensation Plans

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ”

for discussion of shares of common stock that may be issued under our compensation plans.

See “ Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ” for discussion of shares of common stock that may be issued under our compensation plans.

Performance Graph

The following graph compares the annual percentage change in our cumulative total stockholder return on common shares with the cumulative total return of the S&P 500 Index and the SPDR S&P Oil & Gas Exploration and Production Index.

The graph assumes $100 was invested on December 29, 2017 in our common stock and in each index, and that all dividends, if any, are reinvested.

The graph assumes $100 was invested on December 29, 2018 in our common stock and in each index, and that all dividends, if any, are reinvested.

Stockholder returns over the indicated period may not be indicative of future stockholder returns.

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Issuer Repurchases of Common Stock

On November 18, 2022, we announced that VAALCO had entered into the 10b5-1 Plan in order to effectuate, share buybacks in an aggregate amount of up to $30 million, which commenced on November 17, 2022 and ends no later than August 16, 2024.

The 10b5-1 Plan provides for share buybacks through open market purchases in compliance with Rule 10b-18 under the Exchange Act.

Payment for shares repurchased under the share buyback program will be funded using VAALCO’s cash on hand and cash flow from operations. 

The below table shows the repurchases of our equity securities related to share repurchase program during the fourth quarter of the fiscal year ended December 31, 2022:

The Company has implemented a Rule 10b5-1 trading plan (the “10b5-1 Plan”) to facilitate share purchases through open market purchases, privately negotiated transactions, or otherwise under the Securities Exchange Act of 1934.

The 10b5-1 Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over a maximum period of up to 20 months.

Payment for shares repurchased under the share buyback program will be funded using the Company's cash on hand and cash flow from operations.

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

Total Number of Shares Purchased

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Maximum Amount that May Yet Be Used to Purchase Shares Under the Program

October 1, 2023 - October 31, 2023

November 1, 2023 - November 30, 2023

December 1, 2023 - December 31, 2023

The following table shows the repurchases of our equity securities related to our share repurchase program after December 31, 2022 through March 31, 2023:

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

Total Number of Shares Purchased

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March 1, 2023 - March 31, 2023

We continue to purchase shares under the 10b5-1 Plan for share repurchases from and including April 2023. 

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

The following management ’

s discussion and analysis describes the principal factors affecting our capital resources, liquidity, and results operations.

This management ’

s discussion and analysis should be read in conjunction with the accompanying Financial Statements and related notes, information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this Annual Report.

April 1, 2023 - April 30, 2023

May 1, 2023 - May 31, 2023

June 1, 2023 - June 30, 2023

July 1, 2023 - July 31, 2023

August 1, 2023 - August 31, 2023

September 1, 2023 - September 30, 2023

October 1, 2023 - October 31, 2023

November 1, 2023 - November 30, 2023

December 1, 2023 - December 31, 2023

The following table shows the repurchases of our equity securities related to our share repurchase program after December 31, 2023 through March 8, 2024:

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Programs

Maximum Amount that May Yet Be Used to Purchase Shares Under the Program

January 1, 2024 - January 31, 2024

February 1, 2024 - February 29, 2024

March 1, 2024 - March 08, 2024

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

The following management ’ s discussion and analysis describes the principal factors affecting our capital resources, liquidity, and results operations.

This management ’ s discussion and analysis should be read in conjunction with the accompanying Financial Statements and related notes, information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results, which are included in various parts of this Annual Report.

For discussion related to changes in financial condition and results of operations for 2022 as compared with 2021, refer to Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K, which was filed with the SEC on March 11, 2022.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, which was filed with the SEC on April 6, 2023.

Certain statements in our discussion below are forward-looking statements.

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We caution that a number of factors could cause actual results to differ materially from those implied or expressed by the forward-looking statements.

Please see “

Cautionary Statement Regarding Forward-Looking Statements ”

Risk Factors ”

for further details about these statements.

VAALCO is a Houston, Texas based independent energy company engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs.

As operator, we have production operations and conduct exploration activities in Gabon, West Africa, Egypt and Canada.

We also have opportunities to participate in development and exploration activities in Equatorial Guinea, West Africa.

For further discussion of our four operating segments see “

Business –

Segment and Geographical Information –

Gabon Segment ”, " Egypt Segment", 

" Canada Segment", 

Equatorial Guinea Segment ”" .

As discussed further in Note 4 to the Financial Statements, we have discontinued operations associated with our activities in Angola, West Africa and Yemen.

Our primary source of revenue historically has been from the Etame PSC related to the Etame Marin block located offshore Gabon in West Africa. The Etame Marin block covers an area of approximately 46,200 gross acres located 20 miles offshore in water depths of approximately 250 feet.

Please see “ Cautionary Statement Regarding Forward-Looking Statements ” and “ Item 1A.

Risk Factors ” for further details about these statements.

We are 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.

For further discussion of our four operating segments see “ Item 1.

Business – Segment and Geographical Information – “ Gabon Segment ”, " Egypt Segment", " Canada Segment", and “ Equatorial Guinea Segment ”" .

We own a working interest in, and are the operator of, the Etame PSC related to the Etame Marin block located offshore Gabon in West Africa.

The Etame Marin block covers an area of approximately 46,200 gross acres located 20 miles offshore in water depths of approximately 250 feet.

Currently, our working interest in the Etame Marin block is 58.8%, and we are designated as the operator on behalf of the Etame Consortium.

The block is subject to a 7.5% back-in carried interest by the government of Gabon, which they have assigned to a third party.

Our working interest will decrease to 57.2% in June 2026 when the back-in carried interest increases to 10%.

We are also a member of a consortium with BW Energy and Panoro Energy (the “BWE Consortium”).

Our working interest will decrease to 57.2% in June 2026 when the back-in carried interest increases to 10%.

We are also a member of a consortium with BW Energy and Panoro Energy (the “BWE Consortium”).

The BWE Consortium has been provisionally awarded two blocks in the 12th Offshore Licensing Round in Gabon.

The award is subject to concluding the terms of PSCs with the Gabonese government.

Negotiations to finalize the commercial terms were held in 2023, however, they were halted late in the year due to the presidential elections.

The next step is concluding the terms of PSCs with the Gabonese government.

The negotiations were kick started again at the request of the Gabonese Government in early February 2024, where the consortium and the government came to an agreement on the fiscal terms on February 9, 2024.

The next step is concluding the terms of the PSC with the Gabonese government.

BW Energy will be the operator with a 37.5% working interest, with VAALCO (37.5% working interest) and Panoro Energy (25% working interest) as non-operating joint owners.

The two blocks, G12-13 and H12-13 are adjacent to our Etame PSC as well as BW Energy and Panoro’s Dussafu PSC offshore Southern Gabon and cover an area of 2,989 square kilometers and 1,929 square kilometers, respectively.

On October 13, 2022, VAALCO and VAALCO Energy Canada ULC (“AcquireCo”), an indirect wholly-owned subsidiary, completed the previously announced business combination involving TransGlobe Energy Corporation (“TransGlobe”), whereby AcquireCo acquired all of the issued and outstanding TransGlobe common shares pursuant to a plan of arrangement (the “Arrangement”) and TransGlobe became a direct wholly-owned subsidiary of AcquireCo and an indirect wholly-owned subsidiary of VAALCO in accordance with the terms of an arrangement agreement entered into by VAALCO, AcquireCo and TransGlobe on July 13, 2022 (the “Arrangement Agreement”).

Prior to the Arrangement, TransGlobe was a cash flow-focused oil and gas exploration and development company whose activities were concentrated in Egypt and Canada.

The post-Arrangement company (the “Combined Company”) is an African-focused operator with a diverse portfolio of assets in Gabon, Egypt, Equatorial Guinea and Canada.

As a result of the Arrangement with TransGlobe in 2022, we own a 100% working interest in PSCs covering two regions:

the Eastern Desert, which contains the West Gharib, West Bakr and North West Gharib merged concessions (45,067 acres) and the Western Desert which contains the South Ghazalat concession (7,340 acres).

We also acquired TransGlobe’s production and working interests in Cardium light oil and Mannville liquids-rich gas assets located in Harmattan, Canada (47,400 gross acers developed).

See Note 4 to the consolidated financial statements for further discussion regarding the Arrangement.

RECENT DEVELOPMENTS

Share Buyback Program

On November 1, 2022, VAALCO announced that its board of directors formally ratified and approved the share buyback program that was announced on August 8, 2022 in conjunction with our business combination with TransGlobe.

The board of directors also directed management to implement the 10b5-1 Plan to facilitate share purchases through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Exchange Act.

The 10b5-1 Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over 20 months.

Payment for shares repurchased under the share buyback program will be funded using cash on hand and cash flow from operations. 

The actual timing number and value of shares repurchased under the share buyback program will depend on a number of factors, including constraints specified in the Plan, VAALCO's stock price, general business and market conditions, and alternative investment opportunities.

Under the Plan, our third-party broker, subject to SEC regulations regarding certain price, market, volume and timing constraints, has authority to purchase VAALCO common stock in accordance with the terms of the Plan.

TransGlobe Arrangement

On October 13, 2022, VAALCO and AcquireCo completed the previously announced business combination with TransGlobe whereby AcquireCo acquired all of the issued and outstanding TransGlobe common shares pursuant to the Arrangement and TransGlobe became a direct wholly-owned subsidiary of AcquireCo and an indirect wholly-owned subsidiary of VAALCO, pursuant to the Arrangement Agreement.

Additionally, prior to the effective time of the Arrangement, TransGlobe repaid outstanding obligations and liabilities owned under TransGlobe’s credit facility with ATB Financial, representing approximately C$4.1 million. On December 19, 2022, TransGlobe, as an indirect wholly-owned subsidiary of VAALCO, voluntarily delivered a notice of termination to ATB Financial relating to the ATB Facility.

As of December 31, 2022, no amounts were drawn on the revolving loan facility. On January 5, 2023, the ATB Facility was formally closed. 

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

Entry into a Facility Agreement

On May 16, 2022, VAALCO Gabon (Etame), Inc.

(the “Borrower”), a wholly owned subsidiary of VAALCO, entered into a facility agreement (the “Facility Agreement”) by and among VAALCO, VAALCO Gabon and, together with VAALCO, the “Guarantors”), Glencore Energy UK Ltd., as mandated lead arranger, technical bank and facility agent (“Glencore”), the Law Debenture Trust Corporation P.L.C., as security agent, and the other financial institutions named therein (the “Lenders”), providing for a senior secured reserve-based revolving credit facility (the “Facility”) in an aggregate maximum principal amount of up to $50.0 million.

Subject to certain conditions, the Borrower may agree with any Lender or other bank or financial institution to increase the total commitments available under the Facility by an aggregate amount not to exceed $50.0 million (any such increase, an “Additional Commitment”).

Beginning October 1, 2023 and thereafter on April 1 and October 1 of each year during the term of the Facility, the Initial Total Commitment, as increased by any Additional Commitment, will be reduced by $6.25 million.

See “—

Capital Resources and Liquidity –

RBL Facility Agreement ”

for more information regarding the Facility.

Marine Construction Agreement for Subsea Reconfiguration

On March 17, 2022, VAALCO Gabon, a wholly owned subsidiary of VAALCO, entered into the Marine Construction Agreement with DOF Subsea, to support the subsea reconfiguration in connection with the replacement of the then-existing FPSO vessel with a FSO vessel at the Etame Marin field offshore Gabon.

Pursuant to the Marine Construction Agreement, DOF Subsea agreed to, among other things, provide all personnel, crew and equipment necessary to assist in the reconfiguration of the Etame field subsea infrastructure to accommodate all field production to the flow to the FSO, which conversion included (i) assistance with retrieval of over 5,000 meters of new flexible pipelines from a manufacturing facility in the United Kingdom, transporting the pipelines to Gabon and installing the pipelines in the Etame field, (ii) performing the retrieval and relocation of existing in-field flowlines and umbilicals to accommodate the reconfigured field development plan and (iii) assistance in the connection of new risers to the FSO.

Pursuant to the Marine Construction Agreement, DOF Subsea provided an offshore construction vessel to facilitate the performance of the Services.

In October 2022, we completed the FSO installation and field reconfiguration at Etame field.

Recent Operational Updates

NYSE Noncompliance Notice

On April 3, 2023, the Company was notified by the New York Stock Exchange (the “NYSE”) that it was not in compliance with the NYSE’s continued listing requirements under the timely filing criteria established in Section 802.01E of the NYSE Listed Company Manual as a result of its failure to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

By filing this report, the Company believes it has remedied its non-compliance.

Gabon Operations Update

VAALCO completed its 2021/2022 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 late in 2024.

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 will continue to focus on operational excellence, including production uptime and enhancement in 2024 to minimize decline until the next drilling campaign.

At the end of December 2023, all wells were online from the end of 2022 as the gas lift compression system was successfully commissioned.

This gas lift compression system increased the production and the reliability of two subsea wells, positively impacting our volumes for the year ended December 31, 2023.

Gas lift compression and subsea wells remained online with a high level of reliability through the year ended December 31, 2023.

The focus during the beginning of 2023 was continued production optimization of the new flow line configurations at the Etame Facility, as all production transits through the Etame platform for final processing before being pumped to the FSO.

Since the field reconfiguration in 2022, a better understanding of the field’s operating parameters, through the new central processing facility (CPF) on Etame, has resulted in a more efficient and cost effective flow assurance program.

Continued optimization and understanding of the post reconfiguration process dynamics of the Etame platform, have maintained a very high uptime availability of Etame Facility and in turn the complete Etame field during the second quarter.

Combining this with individual well and facility chemical injection optimization and facility pipeline pigging adjustments both on frequency of pigging and flow path targeting, has increased production through decrease in pipeline internal buildup and resulting drop in pipeline back pressure, this in turn has provided more stable operations resulting in lower downtime.

Through the fourth quarter of 2023, this continues to be a focus with positive results in production rates and uptime.

Preventative maintenance activities remained at levels prior to the field reconfiguration, as the focus was on steady state operation following project completion.

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.

Major planned maintenance was carried out on Etame Power generation turbines.

Charter Agreement for the Floating Storage and Offloading Unit in Gabon

In August of 2021, we and our co-venturers at Etame approved the FSO Agreements with World Carrier to replace the existing FPSO with an FSO.

The FSO Agreements required a prepayment of $2 million gross ($1.2 million net to VAALCO) in 2021 and $5 million gross ($3.2 million net to VAALCO) in 2022 of which $6 million will be recovered against future rentals.

The FSO Agreements required a prepayment of $2 million gross ($1.2 million net to VAALCO) in 2021 and $5 million gross ($3.2 million net to VAALCO) in 2022 of which $6 million will be recovered against future rentals.

On October 19, 2022, the replacement of the existing FPSO was completed and we signed the final acceptance certificate, at which time control of the FSO vessel transferred to us.

The new FSO has been named “Teli”

(renamed from “Cap Diamant”) and is on site and accepting oil at the Etame Marin block.

The new FSO has been named “Teli” (renamed from “Cap Diamant”) and is on site and accepting oil at the Etame Marin block.

Total field conversion expenses were $122 million gross ($77 million net to VAALCO).

The FPSO charter we were party to prior to the FSO installation was set to expire in September 2022, but on September 9, 2022 we signed an addendum to the FPSO contract which extended the use of the FPSO through October 4, 2022, and ratified certain decommissioning and demobilization items associated with exiting the contract.

Pursuant to the addendum, VAALCO Gabon agreed to pay the charterer day rate of $150,000 from August 20, 2022 through October 4, 2022 and other demobilization fees totaling $15.3 million on a gross basis ($8.9 million net to VAALCO).

2021/2022 Drilling Campaign

In conjunction with the 2021/2022 drilling program, that began in December 2021, we executed a contract with Borr Jack-Up XIV Inc., an affiliate of Borr Drilling Limited, to drill a minimum of three wells with options to drill additional wells.

In December 2021, we spudded the Etame 8H-ST, the first well of the 2021/2022 drilling program.

In February 2022 we completed the drilling of the Etame 8H-ST well and moved the drilling rig to the Avouma platform to drill the Avouma 3H-ST development well, which targeted the Gamba reservoir. The Etame 8H-ST demonstrated an initial flow rate of approximately 5,000 gross barrels of oil per day BOPD, 2,560 BOPD net to VAALCO’s 58.8% working interest in 2022.

The 8H-ST was shut in due to Hydrogen sulfide that arose during the drilling process, but a side track was performed to rectify this and resume production.

In April 2022, the Avouma 3H-ST well was completed and brought online with an initial production rate of approximately 3,100 gross BOPD, 1,589 BOPD net to VAALCO’s 58.8% working interest in 2022.

In July 2022 we completed the South Tchibala 1HB-ST well on the Avouma platform, targeting the Gamba reservoir and also testing the Dentale formation. The section of the Gamba sand encountered was not economically viable to complete in this wellbore.

However, we did discover two potential zones, the Dentale D1 and Dentale D9 zones for development.

The well was completed in the Dentale D1 formation and brought online in July with an initial production rate of approximately 293-390 gross BOPD, 150-200 BOPD net to VAALCO’s 58.8% working interest in 2022. The Dentale D9 well is temporarily shut-in, however; we plan to evaluate and recomplete the D9 zone during the next drilling campaign. 

Following the completion of the South Tchibala 1HB-ST well, the rig was mobilized to the Southeast Etame North Tchibala Platform to drill the North Tchibala 2H-ST (“ETBNM 2H-ST”) well, targeting the Dentale formation, which is productive in this area of the Etame license.

This mobilization was delayed by two weeks due to weather and the rig began operations on the well in late July.

After setting up the equipment and completing operations to re-enter the well, VAALCO began drilling the North Tchibala 2H-ST well on August 8, 2022.

The North Tchibala 2H-ST well was brought online in early November and flowed at a low, controlled rate to allow for cleanup and to minimize negative impact to the completion. Through end of January 2023, the well flowed, with temporary interruptions for operational activity and shut-ins for pressure build up analysis. During this time, the well produced approximately 18,500 gross barrels of oil, or about 250 gross bopd and recovered about 36% of injected completion fluid.

Cleanup is continuing and pressure transient analysis indicates that both completed zones may be contributing. The well is naturally flowing with no water production and stable reservoir pressure indicating minimal depletion.

Following the drilling campaign, we utilized the rig to perform a workover on the North Tchibala 1H (“ETBNM 1H”) well due to a safety valve in the well that required replacement. With the rig already on site it was easier and more economic to utilize the rig to complete the workover following the completion of the North Tchibala 2H-ST well.

The final well operation performed by the rig was another workover, the Southeast Etame 4-H (“ETSEM-4H”) well, which restored production to between 1,000 and 1,500 gross BOPD upon completion, following the well going offline in early September as a result of an upper ESP failure and we were unable to restart the upper ESP or the lower ESP to restore production.

Utilizing the rig for the workovers has optimized the total cost of the 2021/2022 drilling campaign at Etame.

After the execution of the workovers the drilling rig was released on November 17, 2022.

We estimate the cost of the current 2021/2022 drilling program with four wells and two workovers to be $180 million, or $114 million, net to VAALCO’s participating interest.

For 2022, we incurred approximately $148 million, or about $94 million net to VAALCO’s participating interest.

Acquisition of Additional Working Interest at Etame Marin Block

In November 2020, we signed a SPA to acquire Sasol’s 27.8% working interest in the Etame Marin block offshore Gabon.

On February 25, 2021, we completed the acquisition of Sasol’s 27.8% working interest in the Etame Marin block offshore Gabon pursuant to the SPA.

The effective date of the transaction was July 1, 2020.

Prior to the Sasol Acquisition, we owned and operated a 31.1% working interest in Etame.

The Sasol Acquisition increased our working interest to 58.8%.

As a result of the Sasol Acquisition, the net portion of production and costs relating to our Etame operations increased from 31.1% to 58.8%.

Reserves, production and financial results for the interests acquired have been included in our results for periods after February 25, 2021.

All assets and liabilities associated with Sasol’s interest in Etame Marin block, including crude oil, natural gas and NGLs properties, asset retirement obligations and working capital items were recorded at their fair value.

As a result of comparing the purchase price to the fair value of the assets acquired and liabilities assumed, a $7.7 million bargain purchase gain was recognized.

A bargain purchase gain of $5.2 million is included in “

Other (expense) income, net ”

under “

Other income (expense) ”

in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2021.

An income tax benefit of $2.5 million, related to the bargain purchase gain, is also included in the consolidated statements of operations and comprehensive income (loss).

The reason for the bargain purchase gain is mainly due to the lower crude oil price outlook used when the SPA was signed, November 17, 2020, and the higher oil price outlook on February 25, 2021, when the fair value of the reserves associated with the Sasol Acquisition were determined.

Under the terms of the SPA, a contingent payment of $5.0 million was payable to Sasol should the average Dated Brent price over a consecutive 90-day period from July 1, 2020 to June 30, 2022 exceed $60.00 per barrel.

Included in the purchase consideration was the fair value, at closing, of the contingent payment due to Sasol.

The conditions related to the contingent payment were met and on April 29, 2021, we paid the $5.0 million contingent amount to Sasol in accordance with the terms of the SPA.

The actual impact of the Sasol Acquisition for the year ended December 31, 2022 and 2021 was an increase to “C rude oil, natural gas and NGLs sales ”

in the consolidated statements of operations and other comprehensive income (loss) of $144.8 million and $84.6 million, respectively, and a $14.6 million and $29.3 million increase to “

Net income ”, respectively, in the consolidated statements of operations and other comprehensive income (loss).

Egypt Operations Update

We continued to use the EDC-64 rig in its Eastern Desert drilling campaign.

During the quarter, we drilled and cased two development wells and drilled two exploration wells. A third development well, the Arta-77Hz, as discussed below, was brought online in the first quarter of 2023. 

The M-17 well was drilled to a total depth of 1,900 meters targeting Asl reservoirs in the M Field.

The well was fully logged and evaluated.

The Asl-A reservoir has an internally estimated 11.5 meters of net oil pay, 12.2 m of net oil pay in the Asl-B reservoir and 1.1 m of net oil pay in the Asl-D reservoir. The Asl-A reservoir was perforated and put on production with a current rate of 348 BOPD at a 42% water cut (heavy crude, field estimate) (Initial production over 30 days was 406 BOPD at a 23% water cut).

The NWG-2INJ-1A well was drilled to a total depth of 1,318 meters targeting the Nukhul reservoir.

Initially intended as a water injector, the well encountered strong oil and gas shows in the Nukhul.

The well was fully logged and evaluated with an internally estimated 6.4 meters of net oil pay in the Nukhul.

This well was put on production with a current rate of 122 BOPD (heavy crude, field estimate) at 40% water cut.

Two exploration wells were drilled in the north of the Petrobakr concession. Both wells targeted the Red Bed reservoir trend that successfully produces at the NWG-38 Field in this area. NWG-44A was drilled to a depth of 1,737 meters and NWG-46X was drilled to a depth of 1,463 meters.

Both wells encountered minor oil and gas shows in the Red Bed formation, however the zone was tight. Both wells were plugged and abandoned as they were dry. 

Late in the fourth quarter of 2022, we initiated the Arta horizontal pilot program in the Arta Field by successfully drilling the Arta-77Hz well targeting the Nukhul reservoir. The well was drilled to a total depth of 2,409 meters MD (1,182 meters TVD). The lateral was successfully drilled through the Nukhul reservoir encountering 1,363 meters of reservoir with good oil and gas shows. Subsequent to the quarter, the well was completed through the lateral section with a 14-stage cemented frac sleeve liner.

The well was multi-stage stimulated and put on production in the first quarter of 2023.

The SGZ-6X well remains shut-in. We continue to evaluate our strategic options.

Pursuant to the addendum, VAALCO Gabon agreed to pay the charterer day rate of $150,000 from August 20, 2022 through October 4, 2022 and other demobilization fees totaling $15.3 million on a gross basis ($8.9 million net to VAALCO).

The demobilization of the FPSO was carried out from October 5, 2022 through to November 19, 2023.

This included the cleaning and removal of waste from the Cargo and Slop Tanks.

In the fourth quarter of 2023, the joint operating group in Gabon reached a settlement agreement with Tinworth to release the joint operating group from any further obligation pertaining to the former FPSO.

The signed agreement, dated December 12, 2023, called for the group to pay an additional $8 million gross ($4.7 million net to VAALCO) to Tinworth in exchange for the release.

The payment was made on December 22, 2023.

Based on this and the prior expense incurred earlier in the year, VAALCO reported $7.5 million in FPSO Demobilization costs on the income statement for the year ended December 31, 2023.

The sail date on the FPSO was November 19, 2023.

VAALCO continued to use the EDC-64 rig in the Eastern Desert drilling campaign.

We continue to drill an average of two wells per month with the EDC-64 rig and we drilled 18 wells in year 2023.

The SGZ-6X well remains shut-in.

We continue to evaluate our strategic options.

There was no production from South Ghazalat due to the SGZ-6X remaining shut-in.

There is a planned workover for this well in 2024 to resume production.

Canada Operations Update

In Canada, TransGlobe planned a seven horizontal Cardium reservoir wells (four 2-mile, and three 1-mile) drilling campaign in the South Harmattan area during 2022.

Four of those wells were brought on production in the third quarter prior to the acquisition agreement and one well was brought on production in the fourth quarter of 2022 and the remaining two wells were brought on production during the first quarter of 2023.

The 4-10-29-3W5 well drilled in July 2022 and was completed and brought on production in late December 2022.

As of the first quarter of 2023, the well is currently producing at a field estimated rate of 100 BOPD. The 4-18-29-3W5 and 4-24-29-4W5 wells were completed in the fourth quarter of 2022 and brought on production in the first quarter of 2023.

The 2023 drilling campaign commenced in January 2023 with the drilling of 12-12-30-4W5, spud on January 28, 2023.

The well was drilled to a total depth of 6,713 meters.

The second well of the program, 16-30-29-3W5, spud on February 22, 2023, and is currently being drilled.

CAPITAL RESOURCES AND LIQUIDITY 

Our cash flows for the years ended December 31, 2022 and 2021 are as follows:

Year Ended December 31,

A summary of the Egyptian drilling campaign's impact during 2023 is presented below:

VAALCO Egypt 2023 Wells

Penetrated Pay Zones

Completion Zone

Perforation Interval (ft)

IP-30 Rate (BOPD)

Hydraulic Frac

Asl-A, B, D, E and F

Asl-B1 and B2

HE-5 Injector

Asl-B1 and B2

Hydraulic Frac

Temporarily Abandoned

Asl-A, B, D and E

Asl-D, E, F and G

Asl-A, B and D

Nukhul and Redbed

Nukhul, Thebes and Redbed

Plugged & Abandoned

Hydraulic Frac

Early in 2023, two wells, the 04-10-29-03W5 and the 04-19-29-3W5, were tied in.

Both wells are now online and producing.

The 2023 drilling campaign commenced in January 2023 with the drilling of 12-12-30-4W5, spudded on January 28, 2023.

The well was drilled to a total depth of 22,024 feet.

The second well of the program, 16-30-29-3W5, was spudded on February 22, 2023, and drilled to a total depth of 14,446 feet.

The two wells were completed between late March and early April and tied in and equipped in April and early May.

12-12-30-4W5 was put online in late April, and 16-30-29-3W5 was put online in early May with cycle times that were significantly less than historical cycle times.

The wells free flowed in the months of May and June.

In early July, the pump and rods were run on both wells.

Both wells continue to produce and both wells continued to exceed expectations during the fourth quarter of 2023.

A summary of the Canada drilling campaign's impact during 2023 is presented below:

VAALCO Canada 2023 Wells

Penetrated Pay Zones

Completion Zone

Perforation Interval (ft)

IP-30 Rate (BOPD)

Upper Bioturbated Cardium

118 Stg x 15T Hydraulic Fracture Treatment

Upper Bioturbated Cardium

55 Stg x 15T Hydraulic Fracture Treatment

CAPITAL RESOURCES AND LIQUIDITY

Our cash flows for the years ended December 31, 2023 and 2022 are as follows:

Twelve Months Ended December 31,

Increase (Decrease) in 2023 over 2022

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Net change in operating assets and liabilities

Net cash provided by continuing operating activities

Net cash provided by (used in) continuing operating activities

Net cash used in discontinued operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) in financing activities

Effects of exchange rate changes on cash

Net change in cash, cash equivalents and restricted cash

The $65.0 million increase in net cash provided by our operating activities before changes in operating assets and liabilities for the year ended December 31, 2022 compared to the same period of 2021 was due to higher pricing, more production and the increased number of producing wells partially offset by negative changes due to higher realized losses on derivatives. The net increase in changes provided by operating assets and liabilities of $13.7 million for the year ended December 31, 2022 compared to the same period of 2021 was primarily related to increases in accounts payable partially offset by changes in prepayments and other assets and crude oil inventory and other changes.

The $84.1 million increase in net cash used in investing activities during the twelve months ended December 31, 2022 was due to increases in cash capital spending in 2022 for items to related to the 2021/2022 drilling campaign and the Etame field reconfiguration of $146.4 million, $13.5 million of cash used in the Egypt and Canadian operations for property and equipment partially offset by $36.7 million of cash acquired in the TransGlobe acquisition.

For the twelve months ended December 31, 2021, net cash used in investing activities was due to cash of $22.5 million used in the purchase of Sasol’s interest in the Etame Block and $16.6 million for property and equipment on a cash basis.

Net cash used in financing activities during the year ended December 31, 2022 included $9.4 million dividends paid to common shareholders, $3.8 million for treasury stock purchases made under our stock repurchase plan or as a result of tax withholding on options exercised and vested restricted stock as discussed in Note 17 to our consolidated financial statements, $2.1 million in deferred financing costs and $3.0 million related to principal finance lease payments, partially offset by $0.3 million in proceeds from options exercised. For the year ended December 31, 2021, net cash used in financing activities included $1.4 million for treasury stock as a result of tax withholding on options exercised and vested restricted stock as discussed in Note 17 to our consolidated financial statements, partially offset by $1.3 million in proceeds from options exercised. 

The $54.9 million increase in net cash provided by our operating activities before changes in operating assets and liabilities for the year ended December 31, 2023 compared to the same period of 2022 was due to higher pricing, more production and the increased number of producing wells.

The net increase in changes provided by operating assets and liabilities of $39.8 million for the year ended December 31, 2023 compared to the same period of 2022 was primarily related to decreases in accounts with joint venture owners, other receivables and foreign income taxes receivable partially offset by changes in accounts payable and accrued liabilities.

The $26.0 million increase in net cash used in investing activities during the year ended December 31, 2023 was due to decreases in cash capital spending in 2023.

In 2022 we incurred significant capital for the 2021/2022 Etame drilling campaign and the Etame field reconfiguration.

In 2023 capital spending for the drilling program in Egypt and Canada was less due to the lower per well costs for onshore wells is than Etame’s offshore wells and there were no costs associated with field reconfiguration in 2023.

Net cash used in financing activities during the year ended December 31, 2023 included $26.8 million dividends paid to common shareholders, $23.6 million for treasury stock purchases made under our stock repurchase plan, or as a result of tax withholding on options exercised and vested restricted stock as discussed in Note 17 to our consolidated financial statements, and $7.2 million related to principal finance lease payments partially offset by $0.7 million in proceeds from options exercised.

Capital Expenditures

In February 2020, we fully complied with the capital and other commitments associated with the 2018 PSC Extension.

During 2022, we had accrual basis expenditures attributable to continuing operations of $434.4 million, that includes $162.4 million for Gabon, $168.0 million for Egypt, $103.3 million for Canada and $0.7 million for the corporate offices, compared to $79.2 million for 2021.

During 2023, we had accrual basis expenditures attributable to continuing operations of $72.6 million, that includes $17.0 million for Gabon, $37.9 million for Egypt, $16.8 million for Canada and $1.0 million for the corporate offices, compared to $434.4 million for 2022.

Capital expenditures in 2023 were attributable to expenditures primarily related to the payments for the 2023 drilling campaigns in Egypt and Canada.

The 2022 capital expenditures include TransGlobe assets acquired for stock.

The difference between capital expenditures and the property and equipment expenditures reported in the consolidated statements of cash flows is attributable to changes in accruals for costs incurred but not yet invoiced or paid on the report dates.

Capital expenditures in 2022 were attributable to expenditures related to the 2021/2022 drilling program, the Etame field reconfiguration and drilling activity in Egypt and Canada.

Capital expenditures in 2021 were attributable to expenditures related to the 2021/2022 drilling program and the Sasol acquisition.

See table below in “

Capital Resources, Liquidity and Cash Requirements ”

for further information.

Capital expenditures in 2022 were attributable to expenditures related to the 2021/2022 drilling program, the Etame field reconfiguration and drilling activity in Egypt and Canada.

Regulatory and Joint Interest Audits

We are subject to periodic routine audits by various government agencies in Gabon, 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.

See Note 12 to the Consolidated Financial Statements for further discussion.

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.

See Note 12 to the Consolidated Financial Statements for further discussion.

Commodity Price Hedging

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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 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 consolidated statements of operations and other comprehensive income (loss).

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We do not anticipate any substantial changes in our hedging policy.

The following are the hedges outstanding at December 31, 2022:

Settlement Period

Type of Contract

Average Monthly Volumes

Weighted Average Put Price

Weighted Average Call Price

January 2023 to March 2023

The following additional hedges were entered into in 2023:

Settlement Period

Type of Contract

Average Monthly Volumes

Weighted Average Put Price

Weighted Average Call Price

April 2023 to June 2023

July 2023 to September 2023

At December 31, 2022, we had unrestricted cash of $37.2 million.

Please see Item 15, Note 10 Derivatives and Fair Value in our Consolidated Finance Statements for more information on the related hedges.

At December 31, 2023 and 2022, we had unrestricted cash of $121.0 mill ion and $37.2 million, respectively.

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.

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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.

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.

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.

In the period of October 14 through December 31, 2022, all sales in Egypt were to EGPC. Sales to EGPC are normally settled two to four weeks from delivery. 

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.

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.

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.

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. 

Settlement of accounts receivable in Canada occur on the 25th of the following month after production. 

Capital Resources, Liquidity and Cash Requirements 

Historically, 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 the Etame Marin block.

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.

Capital Resources, Liquidity and Cash Requirements

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 the Etame Marin block.

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.

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.

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 for other similar transactions depends on operating and economic conditions, some of which are beyond our control.

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Merged Concession Agreement

On January 19, 2022, legacy subsidiaries of TransGlobe executed the Merged Concession Agreement with EGPC to update and merge TransGlobe’s three Egyptian concessions in West Bakr, West Gharib and NW Gharib (the “Merged Concession”).

The modernization payments under the Merged Concession Agreement total $65.0 million and are payable over six years from the Merged Concession Effective Date.

Under the Merged Concession Agreement, we will be required to pay an additional $10.0 million on February 1 for each of the next three years.

In addition, we have committed to spending a minimum of $50.0 million over each five-year period for the 15 years of the primary term (totaling $150.0 million).

Our ability to make scheduled payments arising from the Merged Concession Agreement will depend on our financial condition and operating performance, which is subject to then prevailing economic, industry and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control.

For information on the Merged Concession Agreement, see Note 12 to the Consolidated Financial Statements.

RBL Facility Agreement and Available Credit

On May 16, 2022, VAALCO Gabon (Etame), Inc.

entered into Facility Agreement by and among VAALCO, VAALCO Gabon, Glencore, the Law Debenture Trust Corporation P.L.C.

and the Lenders, providing for a senior secured reserve-based revolving credit facility in an aggregate maximum principal amount of up to $50.0 million (the “Initial Total Commitment”).

In addition, subject to certain conditions, the Borrower may agree with any Lender or other bank or financial institution to increase the total commitments available under the Facility by an aggregate amount not to exceed $50.0 million.

The Facility provides for determination of the borrowing base asset based on our proved producing reserves and a portion of our proved undeveloped reserves.

The borrowing base is determined and re-determined by the Lenders on March 31 and September 30 of each year. Based on the redetermination performed during the year, there was no change in the borrowing base. 

The Borrower’s obligations under the Facility Agreement are guaranteed by Guarantors and secured by interests, rights, activities, assets, entitlements, and development in the Etame Marin Permit (Block G64-160) Field and any other assets which are approved by the Majority Lenders (as defined in the Facility Agreement). 

Each loan under the Facility will bear interest at a rate equal to LIBOR plus a margin (the “Applicable Margin”) of (i) 6.00% until the third anniversary of the Facility Agreement or (ii) 6.25% from the third anniversary of the Facility Agreement until the Final Maturity Date (defined below).

Pursuant to the Facility Agreement, we shall pay to Glencore for the account of each Lender a quarterly commitment fee equal to (i) 35% per annum of the Applicable Margin on the daily amount by which the lower of the total commitments and the borrowing base amount exceeds the amount of all outstanding utilizations under the Facility, plus (ii) 20% per annum of the Applicable Margin on the daily amount by which the total commitments exceed the borrowing base amount.

The Borrower is also required to pay customary arrangement and security agent fees.

The Facility Agreement contains certain debt covenants, including that, as of the last day of each calendar quarter, (i) the ratio of Consolidated Total Net Debt to EBITDAX (as each term is defined in the Facility Agreement) for the trailing 12 months shall not exceed 3.0x and (ii) consolidated cash and cash equivalents shall not be lower than $10.0 million.

As of December 31, 2022, our borrowing base was $50.0 million.

The amount we are able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the Facility Agreement.

We were in compliance with all debt covenants at December 31, 2022.

As of December 31, 2022, we had no outstanding borrowings under the facility. With regard to the requirement that we deliver our fiscal year 2022 annual financial statements to Glencore within 90 days of the end of each fiscal year, we have requested and received an extension until April 17, 2023.

The Facility will mature on the earlier of (i) the fifth anniversary of the date on which all conditions precedent to the first utilization of the Facility have been satisfied and (ii) the Reserve Tail Date (as defined in the Facility Agreement) (the “Final Maturity Date”).

In connection with the Arrangement with TransGlobe in October 2022, prior to the effective time of the Arrangement, TransGlobe repaid in full all outstanding obligations and liabilities owed under TransGlobe’s credit facility with ATB Financial, representing approximately C$4.1 million. On December 19, 2022, TransGlobe, as an indirect wholly-owned subsidiary of VAALCO, voluntarily delivered a notice of termination to ATB Financial relating to the ATB Facility.

As of December 31, 2022, no amounts were drawn on the revolving loan facility. On January 5, 2023, the ATB Facility was formally closed. Termination of the ATB Facility did not affect our $50.0 million senior secured reserve-based revolving credit facility with Glencore.

For information on our RBL Facility Agreement and Available Credit, see Note 13 to the Consolidated Financial Statements.

Cash Requirements

Our material cash requirements generally consist of finance leases, operating leases, purchase obligations, capital projects and 3D seismic processing, the Sasol Acquisition, the TransGlobe acquisition transaction costs, dividend payments, funding of our share buyback program, merged concession agreement, future lease payments and abandonment funding, each of which is discussed in further detail below.

Sasol Acquisition –

As a result of completing the Sasol Acquisition on February 25, 2021, our obligations with respect to development activities in the Etame have increased based on the increase in our working interest in the Etame from 31.1 % at December 31, 2020, to 58.8%.

As a result of the Sasol Acquisition, the net portion of production and costs relating to our Etame operations increased from 31.1% to 58.8%.

Reserves, production and financial results for the interests acquired in the Sasol Acquisition have been included in VAALCO’s results for periods after February 25, 2021.

We expect that part of this increase will be offset by an increase in our operating cash flows based on our increased portion of the Etame production.

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.

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

Potential 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.

Pursuant to the terms and subject to the conditions of the Share Purchase Agreement, we will acquire 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 will also acquire 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 will be 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 a portion of VAALCO’s cash-on-hand.

We estimate that cash due from VAALCO at closing will be in the range of approximately $30 to $40 million.

The acquisition is expected to close in the second quarter of 2024, with timing dependent upon receipt of all necessary regulatory approvals.

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.

In November 2021, a new abandonment study was done and the estimate used for this purpose is approximately $81.3 million ($47.8 million, net to VAALCO) on an undiscounted basis.

In November 2021, a new abandonment study was done and the estimate used for this purpose is approximately $81.3 million ($47.8 million, net to VAALCO) on an undiscounted basis.

The new abandonment estimate has been presented to the Gabonese Directorate of Hydrocarbons as required by the PSC.

Through December 31, 2022, $35.0 million ($20.6 million, net to VAALCO) on an undiscounted basis has been funded.

In the first quarter of 2023, the Directorate of Hydrocarbons in Gabon approved a $26.6 million ($15.6 million, net to VAALCO) abandonment funding payment associated with the FPSO retirement.

The Company received payment of $15.6 million in March 2023.

No activity was noted in the abandonment funding account during the remaining three quarters of the year.

At December 31, 2023, the balance of the abandonment fund w as $10.7 million ($ 6.3 millio n, 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 consolidated balance sheets.

This cash funding is reflected under “Other noncurrent assets” in the “Abandonment funding” line item of the consolidated balance sheets.

Future changes to the anticipated abandonment cost estimate could change the asset retirement obligation and the amount of future abandonment funding payments.

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 helicopters, warehouse and storage facilities, equipment and financing lease agreements for the FSO and generators 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.

For further information see Note 14 to our consolidated financial statements. 

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.

In advance of the Minister of Petroleum and Mineral Resources of the Arab Republic of Egypt (the “Minister”) executing the Merged Concession Agreement, TransGlobe paid the first modernization payment of $15.0 million and signature bonus of $1.0 million as part of the conditions precedent to the official signing ceremony on January 19, 2022.

On February 1, 2022, TransGlobe paid the second modernization payment of $10.0 million.

In accordance with the Merged Concession, we agreed to substitute the 2023 payment and issue a $10.0 million credit against receivables owed from EGPC. We will make three further annual equalization payments of $10.0 million each beginning February 1, 2024, until February 1, 2026.

We also have minimum financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on February 1, 2020 (the "Merged Concession Effective Date").

As of December 31, 2022, the $50 million of financial work commitments had been delivered to EGPC.

FSO Agreements –

On August 31, 2021, we and our Etame co-venturers approved the Bareboat Contract and Operating Agreement with World Carrier to replace the existing FPSO with a FSO unit at the Etame Marin block offshore Gabon.

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 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.

For further information see Note 14 to our consolidated financial statements.

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.

In advance of the Minister of Petroleum and Mineral Resources of the Arab Republic of Egypt (the “Minister”) executing the Merged Concession Agreement, TransGlobe paid the first modernization payment of $15.0 million and signature bonus of $1.0 million as part of the conditions precedent to the official signing ceremony on January 19, 2022.

On February 1, 2022, TransGlobe paid the second modernization payment of $10.0 million.

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.

We also have minimum financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on February 1, 2020 (the "Merged Concession Effective Date").

As of December 31, 2023, the $50 million of financial work commitments had been delivered to EGPC.

FSO Agreements – On August 31, 2021, we and our Etame co-venturers approved the Bareboat Contract and Operating Agreement with World Carrier to replace the existing FPSO with an FSO unit at the Etame Marin block offshore Gabon.

Pursuant to the Bareboat Charter, World Carrier will provide use of the Teli vessel to VAALCO Gabon for an initial eight-year term, subject to optional two successive one-year extensions.

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As consideration for the performance by World Carrier of the Operator Services, VAALCO Gabon agreed to pay a daily operating fee (to be paid monthly) beginning on the date of issuance of the Fit to Receive Certificate (as defined in the Operating Agreement) until the end of the term, with such term being the same as the term in the Bareboat Charter.

The FSO Agreements required a prepayment of $2 million gross ($1.2 million net to VAALCO) in 2021 and $5 million gross ($3.2 million net) in 2022 of which $6 million will be recovered against future rentals.

In addition, VAALCO Gabon agreed to pay a daily hire rate at certain rates specified therein, with such hire rate being based on the year within the term.

In connection with the implementation of the FSO, we were required to incur certain Etame field configuration expenses in order to facilitate the FSO.

Total field conversion expenses were $122 million gross ($77 million net to VAALCO).

The FPSO charter we were party to prior to the FSO installation was set to expire in September 2022, but on September 9, 2022, we signed an addendum to the FPSO contract which extended the use of the FPSO through October 4, 2022, and ratified certain decommissioning and demobilization items associated with exiting the contract.

On October 19, 2022, we issued final acceptance certificate of the FSO. On December 4, 2022, the first lifting from the FSO was successfully completed at the same time the final remaining volumes from the FPSO were removed.

BWE Consortium –

On October 11, 2021, we announced our entry into a consortium with BW Energy and Panoro Energy and that the BWE Consortium has been provisionally awarded two blocks in the 12th Offshore Licensing Round in Gabon.

The award is subject to concluding the terms of the PSC with the Gabonese government.

On October 19, 2022, we issued final acceptance certificate of the FSO.

On December 4, 2022, the first lifting from the FSO was successfully completed at the same time the final remaining volumes from the FPSO were removed.

BWE Consortium – On October 11, 2021, we announced our entry into a consortium with BW Energy and Panoro Energy and that the BWE Consortium has been provisionally awarded two blocks in the 12th Offshore Licensing Round in Gabon.

Negotiations to finalize the commercial terms were held in 2023, however they were halted late in the year due to the presidential elections.

The next step is concluding the terms of the PSC with the Gabonese government.

BW Energy will be the operator with a 37.5% working interest.

We will have a 37.5% working interest and Panoro Energy will have a 25% working interest as non-operating joint owners.

The two blocks, G12-13 and H12-13, are adjacent to our Etame PSC, as well as BW Energy and Panoro’s Dussafu PSC offshore Southern Gabon, and cover an area of 2,989 square kilometers and 1,929 square kilometers, respectively.

The two blocks will be held by the BWE Consortium and the PSCs over the blocks will have two exploration periods totaling eight years which may be extended by an additional two more years.

During the first exploration period, the joint owners intend to reprocess existing seismic and carry out a 3-D seismic campaign on these two blocks and have also committed to drilling exploration wells on both blocks.

In the event the BWE Consortium elects to enter the second exploration period, the BWE Consortium will be committed to drilling at least another one exploration well on each of the awarded blocks.

Drilling Program –

We commenced the 2021/2022 drilling campaign in December 2021 with the drilling of the Etame 8H-ST development well.

In February 2022 we completed the drilling of the Etame 8H-ST well and moved the drilling rig to the Avouma platform to drill the Avouma 3H-ST development well, which targeted the Gamba reservoir.

The initial flow rate of the ETAME 8H-ST well was 5,000 BOPD, 2,560 BOPD net to VAALCO’s 58.8% working interest in 2022. The 8H-ST was shut in due to Hydrogen sulfide that arose during the drilling process, but a side track was performed to rectify this and resume production.

In April 2022, the Avouma 3H-ST well was completed and brought online with an initial production rate of approximately 3,100 gross BOPD, 1,589 BOPD net to VAALCO’s 58.8% working interest in 2022. 

In July 2022 we completed the South Tchibala 1HB-ST well on the Avouma platform, targeting the Gamba reservoir and also testing the Dentale formation.

The section of the Gamba sand encountered was not economically viable to complete in this wellbore.

However, we did discover two potential zones, the Dentale D1 and Dentale D9 zones for development.

Following the completion of the South Tchibala 1HB-ST well, the rig was mobilized to the Southeast Etame North Tchibala Platform to drill the North Tchibala 2H-ST well, targeting the Dentale formation, which is productive in this area of the Etame license.

This mobilization was delayed by two weeks due to weather and the rig began operations on the well in late July.

After setting up the equipment and completing operations to re-enter the well, VAALCO began drilling the North Tchibala 2H-ST well on August 8, 2022.

The North Tchibala 2H-ST well was brought online in early November and flowed at a low, controlled rate to allow for cleanup and to minimize negative impact to the completion. Through end of January, the well flowed, with temporary interruptions for operational activity and shut-ins for pressure build up analysis. During this time, the well produced approximately 18,500 gross barrels of oil, or about 250 gross BOPD and recovered about 36% of injected completion fluid.

We recently utilized the rig to perform a workover on the North Tchibala 1H well due to a safety valve in the well that required replacement. With the rig already on site it was easier and more economic to utilize the rig to complete the workover following the completion of the North Tchibala 2H-ST well.

The final well operation planned for the rig was another workover, the South East Etame 4-H well, which restored production to 1,000 and 1,500 gross BOPD upon completion.

This well went offline in early September as a result of an upper ESP failure and we were unable to restart the upper ESP or the lower ESP to restore production.

Utilizing the rig for the workovers has optimized the total cost of the 2021/2022 drilling campaign at Etame.

After the execution of the workovers the drilling rig was released on November 17, 2022.

We estimate the cost of the current 2021/2022 drilling program with four wells and two workovers to be $180 million, or $114 million, net to VAALCO’s participating interest.

For 2022, we incurred approximately $148 million, or about $94 million net to VAALCO’s participating interest.

TransGlobe Acquisition –

On October 13, 2022, the Company and AcquireCo completed the business combination with TransGlobe.

At the effective time of the Arrangement and pursuant to the Arrangement Agreement, each common share of TransGlobe issued and outstanding immediately prior to the effective time of the Arrangement was converted into the right to receive 0.6727 of a share of VAALCO common stock.

The total number of VAALCO shares issued to TransGlobe’s shareholders was approximately 49.3 million.

In addition, we incurred $14.6 million of transaction costs associated with the acquisition agreement. 

Dividend Policy – On February 14, 2023, we announced that our board of directors adopted of a quarterly cash dividend policy of an expected $0.0625 per common share per quarter, commencing in the first quarter of 2023. Payment of future dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including current financial condition, the tax impact of repatriating cash, operating results and current and anticipated cash needs.

The two blocks, held by the BWE Consortium and the PSCs over the blocks, are currently under negotiation with the Gabonese government.

Dividend Policy – On February 14, 2023, we announced that our board of directors adopted of a quarterly cash dividend policy of an expected $0.0625 per common share per quarter, which commenced in the first quarter of 2023 and continued throughout the year.

Payment of future dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including current financial condition, the tax impact of repatriating cash, operating results and current and anticipated cash needs.

Share Buyback Program – On November 1, 2022, we announced that our board of directors formally ratified and approved the share buyback program that was announced on August 8, 2022 in conjunction with our business combination with TransGlobe. The board of directors also directed management to implement the 10b5-1 Plan to facilitate share purchases through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Exchange Act. The 10b5-1 Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over 20 months. Payment for shares repurchased under the share buyback program will be funded using our cash on hand and cash flow from operations.

As of December 31, 2022, approximately $27.0 million remained available for repurchase under current authorizations. 

Share Buyback Program – On November 1, 2022, the Company announced that the Company’s board of directors formally ratified and approved a share buyback program.

The board of directors also directed management to implement a Rule 10b5-1 trading plan (the “10b5-1 Plan”) to facilitate share purchases through open market purchases, privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934.

The 10b5-1 Plan provides for an aggregate purchase of currently outstanding common stock up to $30 million over a maximum period of up to 20 months.

Payment for shares repurchased under the share buyback program will be funded using the Company's cash on hand and cash flow from operations.

As of December 31, 2023, approximately $5.5 million remained available for repurchase under current authorizations.

Trends and Uncertainties

COVID-19 Pandemic –

While crude oil prices have recently been at the highest levels seen in recent years, the continued spread of COVID-19, including vaccine-resistant strains, or deterioration in crude oil, natural gas and NGLs prices could result in additional adverse impacts on our results of operations, cash flows and financial position, including asset impairments.

The health of our employees, contractors and vendors, and our ability to meet staffing needs in our operations and certain critical functions cannot be predicted and is vital to our operations.

We are unable to predict the extent of the impact that the continuing spread of COVID-19 may have on our ability to continue to conduct our operations.

Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets as well as other unanticipated consequences remain unknown.

In addition, we cannot predict the impact that COVID-19 will have on our customers, vendors and contractors;

however, any material effect on these parties could adversely impact our business.

The situation surrounding COVID-19 remains fluid and unpredictable, and we are actively managing our response and assessing potential impacts to our financial position and operating results, as well as any adverse developments that could impact our business.

War with Ukraine and Other Market Forces –

The outbreak of armed conflict between Russia and Ukraine in February 2022 and the subsequent sanctions imposed on the Russian Federation has, and may continue to have, a destabilizing effect on the European continent and the global oil and natural gas markets.

Geopolitical Conflict and Other Market Forces – The outbreak of armed conflict between Russia and Ukraine in February 2022 and the subsequent sanctions imposed on the Russian Federation has, and may continue to have, a destabilizing effect on the European continent and the global oil and natural gas markets.

The ongoing conflict has caused, and could continue to intensify, volatility in oil and natural gas prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time.

Further, the slowdown in the Chinese economy is negatively impacting the global market and the global supply chain problems may have a material adverse impact on our financial results and business operations, including our timing and ability to complete future drilling campaigns and other efforts required to advance the development of our crude oil, natural gas and NGLs properties.

For example, shortly after the outbreak of the conflict through the year ended December 31, 2022 and on-going into 2023, we noticed that the lead times associated with obtaining materials to support our operations and drilling activities has lengthened, leading to delays and, in most cases, prices for materials have increased.

Management believes the ongoing war between Russia and Ukraine and its related impact on the global economy are causing supply chain issues and energy concerns in parts of the global economy.

For example, shortly after the outbreak of the conflict through the year ended December 31, 2023 and on-going into 2024, we noticed that the lead times associated with obtaining materials to support our operations and drilling activities has lengthened, leading to delays and, in most cases, prices for materials have increased.

Management believes the ongoing war between Russia and Ukraine, the Houthis attacks on maritime vessels in the Red Sea region, conflicts in the Middle East and the related impact on the global economy are causing supply chain issues and energy concerns in parts of the global economy.

In addition, increased inflation, higher interest rates and current turmoil in certain governments are impacting the global supply chain market.

Commodity Prices –

Historically, the markets for oil, natural gas and NGLs have been volatile.

Commodity Prices – Historically, the markets for oil, natural gas and NGLs have been volatile.

Oil, natural gas and NGLs prices are subject to wide fluctuations in supply and demand.

Our cash flows from operations may be adversely impacted by volatility in crude oil prices, a decrease in demand for crude oil and future production cuts by OPEC+.

In July 2021, OPEC+ agreed to increase production beginning in August 2021 to phase out a portion of the prior production cuts by September 2022.

However, as a result of the recent decline in oil prices, on October 5, 2022, OPEC+ announced plans to reduce overall oil production by 2 MMBbls per day starting November 2022.

To date, we have not received any mandate to reduce our current oil production from the Etame Marin block as a result of the OPEC+ initiative.

Brent crude prices were approximately $82.82 per barrel as of December 31, 2022. 

ESG and Climate Change Effects –

ESG matters continue to attract considerable public and scientific attention.

In particular, we expect continued regulatory attention on climate change issues and emissions of GHGs, including methane (a primary component of natural gas) and carbon dioxide (a byproduct of crude oil, natural gas and NGLs combustion).

This increased attention to climate change and environmental conservation may result in demand shifts away from crude oil, natural gas and NGLs products to alternative forms of energy, higher regulatory and compliance costs, additional governmental investigations and private litigation against us.

Our cash flows from operations may be adversely impacted by volatility in crude oil and natural gas prices, a decrease in demand for crude oil, natural gas or NGLs and future production cuts by OPEC+.

However, the Company has not received any mandate to reduce its current oil production from the Etame Marin block as a result of the OPEC+ initiatives.

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 conservation 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.

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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 investors’

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 practices by monitoring our adherence to ESG standards, including the reduction of our carbon footprint and measurement of GHG emissions.

ESG is important to us, and we are in the process of developing a multi-year plan to establish and document our ESG base currently and developing a systematic plan to monitor and improve matters related to ESG and climate change going forward.

Additional ESG regulation will result in additional expenses and may result in less revenue due to the cost of compliance. 

VAALCO recognizes climate change as a risk to the business and industry.

It also recognizes the potential for the business to decarbonize its operations, reduce operating costs, and deliver more sustainably produced oil and gas products, whilst serving its developing host nation that still require improved energy access and supply, and the economic benefits the industry generates, directly and indirectly.

The Company acknowledges the requirement to share information with stakeholders regarding its response to climate-related risks and opportunities.

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 will be included within the 2022 ESG Report (rather than in this Annual Report on Form 10-K or in the annual report which will be 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 2022 ESG Report will be made available on the Company's website.

In summary the Company considers itself consistent with both the Governance and Strategy pillars and the recommendations therein.

It does not consider itself consistent 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 2023. For further detail see the table below.

Describe the Board’s oversight of climate-related risks and opportunities

The Board is actively engaged in understanding the climate-related risks relevant to the business.

The Board supported the establishment of the decarbonization program and receives regular updates on progress.

At each Board meeting, the ESG manager reports emissions performance and progress within decarbonization program.

Management receives periodic updates from the ESG Engineer and Buchanan ESG relating to climate-related matters.

The formalized management of climate-related matters, and specifically VAALCO’s efforts to manage its emissions profile, is delivered through its decarbonization working group and steering group, for identification of emissions reduction projects and subsequent approval respectively.

Describe management’s role in assessing and managing climate-related risks and opportunities.

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 practices 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.

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.

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.

For further detail see the table below.

Describe the Board’s oversight of climate-related risks and opportunities

The Board is actively engaged in understanding the climate-related risks relevant to the business.

Board supported establishment of decarbonization program and receives regular updates on progress.

At each board meeting, the Director of Global Sustainability & Regulatory Reporting reports emissions performance and progress within decarbonization program.

Management receives periodic updates from the ESG Engineer and outside consultants relating to climate-related matters.

The formalized management of climate-related matters, and specifically the Company's efforts to management its emissions profile, is delivered through its decarbonization working group and steering group, for identification of emissions reduction projects and subsequent approval respectively.

Describe management’s role in assessing and managing climate-related risks and opportunities.

The Company considers its approach to governance consistent with the recommendations.

Describe the climate-related risks and opportunities the organization has identified over the short, medium and long term.

The Company has identified transitional and physical risks and opportunities identified over the short (<2 years), medium (2 to 10 years) and long term (>10 years) within its ESG Report 2022.

Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.

The Company has identified transitional and physical risks and opportunities identified over the short (<2 years), medium (2 to 10 years) and long term (>10 years) within its Sustainability Report.

Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.

The Company has indicated the potential impact of these risks and associated mitigations.

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This also includes its diligence through M&A activity.

Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario

This year, the business conducted scenario analysis using the IEA’s Net Zero Emissions (NZE), Announced Pledges Scenario (APS) and Stated Policies Scenario (STEPS), the details and findings for which are enclosed in the ESG Report.

Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario

The Company considers its approach to Strategy consistent with the recommendations.

Risk Management

Describe the organization’s processes for identifying and assessing climate-related risks.

The Company has a defined risk management process for identifying and assessing risk, which incorporates climate-related risks.

Detail to this process can be found within the ESG Report.

Describe the organization’s processes for managing climate-related risks.

Detail to this process can be found within the Sustainability Report and this Annual Report on Form 10-K.

Describe the organization’s processes for managing climate-related risks.

Whilst in development through the Decarbonization Program, the company considers its processes for managing climate-related risk to be inconsistent with the recommendations.

Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.

During 2023, the Company will conduct a review of its risk management processes, particularly in view of its enlarged portfolio.

Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.

During 2024, the Company will continue to conduct a review of its risk management processes, particularly in view of its enlarged portfolio.

Metrics and Targets

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The Company reports its scope 1 and 2 emissions but has not yet set any targets.

In 2024, the Company expects to set and communicate its short-, mid-, and long-range emission targets.

Disclose Scope 1, Scope 2 and, if appropriate Scope 3 greenhouse gas (GHG) emissions and the related risks.

The Company considers its approach to metrics and targets inconsistent with the recommendations and, through its decarbonization program, is seeking to set interim reduction targets for its GHG emissions.

The Company considers its approach to metrics and targets for all aspects of its sustainability effort inconsistent with the recommendations and, through its decarbonization program, is seeking to set targets for its GHG emissions and other material topics in its sustainability efforts going forward.

Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets

We seek to mitigate the impact of volatility in crude oil prices through hedging. 

The following are the hedges outstanding at December 31, 2022:

Settlement Period

Type of Contract

Average Monthly Volumes

Weighted Average Put Price

Weighted Average Call Price

January 2023 to March 2023

The following are the additional hedges entered into in 2023:

Settlement Period

Type of Contract

Average Monthly Volumes

Weighted Average Put Price

Weighted Average Call Price

April 2023 to June 2023

July 2023 to September 2023

RESULTS OF OPERATIONS

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

We reported net income for the year ended December 31, 2022 of $51.9 million, compared to a net income of $81.8 million for the year ended December 31, 2021.

The year-over-year decrease in earnings was mainly due to increases in depreciation, depletion and amortization expense, production expenses and changes in taxes from a benefit in 2021 to an expense in 2022. Further discussion of results by significant line item follows.

Year Ended December 31,

We reported net income for the year ended December 31, 2023 of $60.4 m illion, compared to a net income of $51.9 million for the year ended December 31, 2022.

The year-over-year increase in earnings was mainly due to increases in sales volume partially offset by increased depreciation, depletion and amortization expense, production expenses and income taxes.

Further discussion of results by significant line item follows.

Twelve Months Ended December 31,

Increase/(Decrease)

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Production expense

FPSO demobilization

FPSO demobilization and other costs

Exploration expense

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General and administrative expense

Bad debt expense

Credit (recovery) losses and other

Total operating costs and expenses

Other operating (expense) income, net

Other operating income (expense), net

Operating income

The revenue changes between the years ended December 31, 2022 and 2021 identified as related to changes in price or volume are shown in the table below:

The revenue changes between the years ended December 31, 2023 and 2022 identified as related to changes in price or volume are shown in the table below:

(in thousands)

Change in revenue from Gabon

Net revenue from Egypt

Net revenue from Canada

Total net revenue

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The table below shows net production, sales volumes and realized prices for both years.

Year Ended December 31,

Twelve Months Ended December 31,

Net crude oil, natural gas and NGLs production (MBoe)

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Energy Information Administration website.

Crude oil, natural gas and NGL revenues increased $155.3 million, or approximately 78.0%, during the year ended December 31, 2022 compared to the same period of 2021.

The total barrels lifted in Gabon for the year ended December 31, 2022 was more than the barrels lifted during the same period in 2021, mainly due to 2021/2022 drilling campaign partially offset by natural declines in production.

In addition, the per barrel price received during 2022 was $32.43 higher than the price received in 2021.

Crude oil, natural gas and NGLs net revenues increased $100.7 million, or approximately 28%, during the year ended December 31, 2023 compared to the same period of 2022.

This is due primarily to TransGlobe being included in revenues for only part of the fourth quarter of 2022.

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.

We made 11 liftings in Gabon during both years ended December 31, 2022, and December 31, 2021, respectively.

Our share of crude oil inventory, excluding royalty barrels, was approximately 76,274 and 75,680 barrels at December 31, 2022 and 2021, respectively.

Crude oil, natural gas and NGLs sales also increased due to the TransGlobe acquisition on October 13, 2022 with sales from both Egypt and Canada being recorded from the acquisition date through December 31.

2022 and contributing $47.6 million of revenue in 2022. 

Production expenses increased $31.4 million, or approximately 38.7%, in the year ended December 31, 2022 compared to the same period of 2021. $17.5 million of the increase is attributable to our Gabon operations with higher marine fuel and personnel costs as a result of inflation increases.

In addition, we incurred $13.9 million of production expense related to our Egypt and Canadian operations from the date of the acquisition through December 31, 2022.

On a per barrel NRI basis, production expense, excluding workover expense and stock compensation expense, for the year ended December 31, 2022, increased to $29.33 per barrel from $26.77 per barrel for the year ended December 31, 2021, primarily as a result of higher marine, fuel and personnel costs.

While we have not experienced any significant operational disruptions associated with the current worldwide COVID-19 pandemic, we have incurred approximately $1.8 million of COVID-19 related costs, net to VAALCO, for the year ended December 31, 2022.

For the same period in 2021, we incurred $2.9 million, net to VAALCO, higher costs related to the proactive measures taken in response to the pandemic.

FPSO demobilization costs for the year ended December 31, 2022 were $8.9 million.

The Company’s Gabon segment contributed $260.3 million of revenue to the Company’s total revenue during the year ended December 31, 2023.

This compares to the $306.8 million of revenue contributed by the Segment during the year ended December 31, 2022.

The total barrels lifted in Gabon for the year ended December 31, 2023 was less than the barrels lifted during the same period in 2022, mainly due to the timing of liftings.

In addition, the Gabon per barrel price received during the year ended December 31, 2023 was $22.90 less than the price received in 2022.

Our share of crude oil inventory, excluding royalty barrels, was approximately 68,766 and 76,274 barrels at December 31, 2023 and 2022, respectively.

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 year ended December 31, 2023, the oil sold in Egypt was to a combination of Mercuria Energy and EGPC.

The Company’s Egypt segment contributed $161.0 million of revenue to the Company’s total revenue for the year ended December 31, 2023.

This compares to the $37.8 million of revenue contributed by the Segment during the year ended December 31, 2022.

The increase in revenues is due to the Company acquiring its Egypt segment in the fourth quarter of 2022.

At December 31, 2023, the Company’s Egypt segment had zero barrels in oil inventory.

Crude oil sales in Canada are normally sold through pipelines to a third party.

The Company’s Canadian segment contributed $34.4 million of revenue to the Company’s total revenue for the year ended December 31, 2023.

This compares to the $9.8 million of revenue contributed by the Segment during the year ended December 31, 2022.

The increase is due to the Company acquiring its Canadian segment in the fourth quarter of 2022.

Production expenses increased $40.5 million , or approximately 36%, in the year ended December 31, 2023 compared to the same period of 2022.

The increase in production expense was primarily driven by increased production and costs associated with the TransGlobe combination as well as higher Gabon costs due to the completed 2021/2022 drilling campaign.

During 2023, an unplanned maintenance issue resulted in our Gabon SENT gas line being down for a period of the year which resulted in increased diesel costs as the FSO required to be fueled by diesel rather than feed gas resulting in higher fuel costs.

VAALCO has also continued to see inflationary pressure on marine support vessels, our personnel and contractor costs.

On a per barrel basis, production expense, excluding workover expense and stock compensation expense, for the year ended December 31, 2023 decreased to $17.66 per barrel from $29.33 per barrel for the year ended December 31, 2022, primarily as a result of higher sales volumes.

For the twelve months ended December 31, 2023, we have not experienced any material operational disruptions associated with the COVID-19 pandemic.

For same period in 2022, we incurred $1.8 million, net to VAALCO, higher costs related to the proactive measures taken in response to the pandemic.

FPSO demobilization costs decreased $1.4 million, or approximately 16% , to $7.5 million in the year ended December 31, 2023 compared to the same period of 2022.

In 2023, it was determined that there was additional normally occurring radioactive material (NORMs) waste than anticipated connected to the FPSO from the Contractors' usage.

As such, VAALCO and JOA partners incurred an additional $7.5 million (net to VAALCO) in decommissioning fees, which was reported as a separate line item on the income statement.

These costs were incurred to retire the FPSO as we transitioned the Etame block to the FSO.

No similar expenses were incurred during the same period in 2021.

Exploration expenses decreased $1.3 million or approximately 83.7%, in the year ended December 31, 2022 compared to the same period of 2021. The decrease is due to incurring minimal amounts for seismic processing costs for the year ended December 31, 2022 compared to the same period in 2021 when we were processing the seismic data acquired in 2020.

Depreciation, depletion and amortization increased $27.1 million, or approximately 128.6%, in the year ended December 31, 2022 compared to the same period of 2021.

$13.7 million of the change is attributable to our Gabon operations while $13.4 million of the change is due to the depletions associated with the TransGlobe acquisition from the date of acquisition, October 13, 2022, through December 31, 2022. The higher depletion associated with the Gabon operations is due to higher depletable costs associated with the 2021/2022 drilling campaign.

General and administrative expenses decreased $4.7 million, or approximately 31.8% in the year ended December 31, 2022 compared to $14.8 million in the same period of 2021.

The decrease in expense was primarily related to lower corporate salary and wages, lower legal fees, lower compensation related to liability awards and higher allocations of corporate expenses in 2022 (collectively $10.2 million) partially offset by higher audit and professional fees, higher stock based compensation related to equity awards and higher professional fees and other fees (collectively $5.2 million).

In addition, we incurred $0.4 million of general and administrative expenses associated with the TransGlobe acquisition from the acquisition date, October 13, 2022, through December 31, 2022

Bad debt (recovery) expense and other reflected bad debt expense associated with the VAT allowance for the year ended December 31, 2022.

Bad debt expense increased $2.2 million, or approximately 252.2% in the year ended December 31, 2022 compared to the same period of 2021 as a result of increased spending as a result of the 2021/2022 drilling campaign partially offset by $0.5 million, net to VAALCO, in VAT payments received.

Other operating income (expense), net increased $0.5 million, or approximately 108.6%, in the year ended December 31, 2022 compared to the same period of 2021. For the year ended December 31, 2021 other operating income (expense) is primarily comprised of the difference between the fair value of the contingent consideration paid to Sasol in April 2021 of $5.0 million, and the fair value of the contingent consideration on the closing date of the Sasol Acquisition of $4.6 million. 

Derivative instruments gain (loss), net is attributable to our commodity instruments as discussed in Note 10 to the consolidated financial statements.

Derivative losses increased $15.0 million to a loss of $37.8 million loss for the year ended December 31, 2022 from a loss of $22.8 million for the year ended December 31, 2021. We used swaps to hedge our production through the third quarter of 2022 and then transitioned to costless collars beginning in the fourth quarter of 2022.

Every quarter in 2021 and continuing through the third quarter of 2022 Dated Brent crude oil prices increased.

Since VAALCO owes the counterparty for any Dated Brent price over the initial per barrel value, we continued to incur losses associated our commodity swap derivatives. Our current commodity derivative instruments cover a portion of our production through June 2023.

Interest (expense) income, net increased $2.0 million to an expense of $2.0 million for the year ended December 31, 2022 from expense of $0.0 million during the same period in 2021.

Net interest expense for the year ended December 31, 2022, includes commitment fees incurred on the Facility, amortization of debt issue costs related to the VAALCO RBL Facility and interest associated with our finance leases partially offset by interest income.

Other (expense) income, net decreased $11.5 million to expense of $8.0 million for the year ended December 31, 2022 from income of $3.5 million for the year ended December 31, 2021. Other (expense) income, net normally consists of foreign currency losses as discussed in Note 2 to the consolidated financial statements.

However, for the year ended December 31, 2022, other (expense) income, net, also included $14.6 million of transaction costs associated with the Arrangement with TransGlobe, $2.7 million of foreign exchange losses associated with the TransGlobe activity from October 13, through December 31, 2022 partially offset by a bargain purchase gain of $10.8 million associated with the acquisition of TransGlobe.

Other (expense) income, net, was primarily attributable to $5.2 million for the bargain purchase gain offset by $1.0 million for an acquisition success fee and foreign currency losses for the year ended December 31, 2021.

Income tax expense (benefit) for the year ended December 31, 2022 was an expense of $71.4 million.

This is comprised of $26.6 million of current tax provision and a deferred tax provision of $44.8 million.

Income tax expense for the year ended December 31, 2021 was a benefit of $22.1 million.

This is comprised of $42.4 million of deferred tax benefit and a current tax provision of $20.3 million.

The current tax provision in both periods is primarily attributable to our operations in Gabon, Egypt and Canada and is higher in 2022 than income tax for the comparable 2021 period as a result of higher revenues.

Exploration expen se s increased $1.7 mi llion or approximately 662%, in the year ended December 31, 2023 compared to the same period of 2022 due primarily to the abandonment of the Egyptian East Arta - 54 appraisal well and the abandonment of the NWG-5C1 appraisal well.

In 2022, exploration expense was not material to our results.

Depreciation, depletion and amortization increased $67.2 million, or approximately 139%, in the year ended December 31, 2023 compared to the same period of 2022.

The increase in depreciation, depletion and amortization expense is due to higher depletable costs associated with the FSO, the field reconfiguration capital costs at Etame and fair value of the acquired TransGlobe assets.

In addition, capital expenditures on new wells were brought online in 2023 for both Egypt and Canada, which also increased depreciation, depletion and amortization expense.

General and administrative expenses increased $13.8 million, or approximately 137% in the year ended December 31, 2023 compared to $10.1 million in the same period of 2022.

The increase in general and administrative expenses is primarily due to professional fees, accounting and legal services, and salaries and wages.

Credit loss and other allowances - Credit loss and other expense decreased $8.0 million, or approximately 259% in the year ended December 31, 2023 compared to the same period of 2022 We adopted Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”) on January 1, 2023.

In connection with the adoption of ASU 2016-13, we established an opening balance sheet adjustment related to a receivable from a state sponsored oil refinery where we delivered oil pursuant to the domestic market needs obligation under the Etame PSC.

During the year ended December 31, 2023, the decrease in credit loss and other allowances was primarily due to two credit loss and other allowance reversals in 2023.

First, the Sogara receivable credit loss and other allowance was reversed for $3.1 million and second, the TVA receivable credit loss and other allowance was reversed for $7.6 million.

These reversals were offset by a credit loss and other allowance adjustment in Egypt of $5.2 million.

Other operating income (expense), net had no significant change from the prior year.

Derivative instruments gain (loss), net is attributable to our commodity instruments as discussed in Note 10 to the consolidated financial statements.

Derivative losses decreased $38.0 million to a gain of $0.2 million for the year ended December 31, 2023 from a loss of $37.8 million for the year ended December 31, 2022.

Derivative gains (losses) for the year ended December 31, 2023, 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 year ended December 31, 2022.

The same increase in price occurred, but to a lesser extent, in 2023.

During 2022, we changed our approach and the type of derivative instruments from swaps to costless collars.

Our derivative instruments currently cover a portion of our production through June 2024.

Interest (expense) income, net increased $4.4 million to an expense of $6.5 million for the year ended December 31, 2023 from expense of $2.0 million during the same period in 2022.

The increase of net interest expense for the year ended December 31, 2023, primarily results from our finance lease relating to the FSO but also includes commitments fees incurred on the Facility, amortization of debt issue costs related to the Facility and interest associated with our other finance leases partially offset by interest income.

Other (expense) income, net decreased $5.8 million to an expense of $2.3 million for the year ended December 31, 2023 from an expense of $8.0 million for the year ended December 31, 2022.

Other (expense) income, net normally consists of foreign currency losses as discussed in Note 2 to the consolidated financial statements.

However, for the year ended December 31, 2022, other (expense) income, net, also included $14.6 million of transaction costs associated with the Arrangement with TransGlobe, $2.7 million of foreign exchange losses associated with the TransGlobe activity from October 13, through December 31, 2022 partially offset by a bargain purchase gain of $9.7 million associated with the acquisition of TransGlobe.

Income tax expense (benefit) f or the year ended December 31, 2023 was an expense of $89.7 million.

This is comprised of $92.6 million of current tax provision and a deferred tax benefit of $2.9 million.

Income tax expense for the year ended December 31, 2022 was an expense of $71.4 million.

This is comprised of $26.6 million of current tax provision and a deferred tax provision of $44.8 million.

The current tax provision in both periods is primarily attributable to our operations in Gabon, Egypt and Canada.

The income tax expense is higher in 2023 than income tax for the comparable 2022 period as a result of higher revenues.

See Note 8 to the Consolidated Financial Statements for further discussion.

Income (loss) from discontinued operations, net of tax for the year ended December 31, 2022 was attributable to our Angola and Yemen segments as discussed further in Note 4 to the Financial Statements.

For the year ended December 31, 2021, loss from discontinued operations was attributable to our Angola segment.

The loss from discontinued operations for the year ended and December 31, 2022 and December 31, 2021, respectively, was related to Angola and Yemen administration costs.

CRITICAL ACCOUNTING ESTIMATES

The preparation of Financial Statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the Financial Statements and the reported amounts of revenues and expenses during the respective reporting periods.

Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and (2) the impact of the estimates and assumptions on financial condition or operating performance is material.

Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and (2) the impact of the estimates and assumptions on financial condition or operating performance is material.

Actual results could differ from the estimates and assumptions used.

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Factors considered include earnings generated in previous periods, forecasted earnings, the expiration period of carryovers, and overall economic conditions of the industry.

As of December 31, 2022, we had deferred tax assets of $99.6 million primarily attributable to Canada, Gabon and U.S.

basis differences in fixed assets, foreign tax credit carryforwards, and U.S.

and foreign net operating loss carryforwards.

A valuation allowance of $47.6 million has been established against the deferred tax assets as of December 31, 2022, as management has concluded that it was more-likely-than-not that only some portion of the deferred tax assets would be realized.

As of December 31, 2023, we had deferred tax assets of $120.9 million primarily attributable to Canada, Gabon and U.S.

basis differences in fixed assets, foreign tax credit carryforwards, and foreign net operating loss carryforwards.

A valuation allowance of $83.9 million has been established against the deferred tax assets as of December 31, 2023, as management has concluded that it was more-likely-than-not that only some portion of the deferred tax assets would be realized.

In future periods, we may determine that it is more-likely-than-not that all or some portion of the deferred tax assets will be realized, and in such period all or a portion of this valuation allowance may be reversed as the evidence warrants.

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Should our expectations change regarding the expected future tax consequences, we may be required to record additional deferred taxes that could have a material effect on our consolidated financial position and results of operations.

For further discussion, see Note 8 to the Consolidated Financial Statements.

Oil and Gas Accounting Reserves Determination  

For further discussion, see Note 8 to the Consolidated Financial Statements.

Oil and Gas Accounting Reserves Determination

The successful efforts method of accounting depends on the estimated reserves we believe are recoverable from our crude oil, natural gas and NGLs reserves.

The process of estimating reserves is complex.

It requires significant judgments and decisions based on available geological, geophysical, engineering and economic data. 

To estimate the economically recoverable crude oil, natural gas and NGLs reserves and related future net cash flows, we incorporate many factors and assumptions including:

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We believe our assumptions are reasonable based on the information available to us at the time we prepare our estimates.

However, these estimates may change substantially going forward as additional data from development activities and production performance becomes available and as economic conditions impacting crude oil, natural gas and NGLs prices and costs change. 

Management is responsible for estimating the quantities of proved crude oil, natural gas and NGLs reserves and for preparing related disclosures.

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as prescribed by the Society of Petroleum Engineers.

Reserve estimates are independently evaluated at least annually by our independent qualified reserves engineers, NSAI for Gabon and Equatorial Guinea, while GLJ evaluates our Egyptian and Canadian reserves. 

Our board of directors has established the Technical and Reserves (“T&R”) Committee with the authority, responsibility and primary purpose of assisting the board of directors in its oversight responsibilities relating to evaluating and reporting on oil and gas reserves.

The T&R Committee, to the extent it deems necessary or appropriate, will oversee (i) annual review of oil and gas reserves, (ii) procedures for evaluating and reporting oil and gas producing activities, and (iii) compliance with applicable regulatory and securities laws relating to the preparation and disclosure of information with respect to oil and gas reserves and shall consult with the Audit Committee on such matters relating to oil and gas reserves which impact our financial statements.

Reserve estimates are independently evaluated at least annually by our independent qualified reserves engineers, NSAI for Gabon and Egypt, while GLJ evaluates our Canadian reserves.

Equatorial Guinea will receive a Management Case Report.

Our Board of Directors has established the Technical and Reserves (“T&R”) Committee with the authority, responsibility and primary purpose of assisting the board of directors in its oversight responsibilities relating to evaluating and reporting on oil and gas reserves.

The T&R Committee, to the extent it deems necessary or appropriate, will oversee (i) annual review of oil and gas reserves, (ii) procedures for evaluating and reporting oil and gas producing activities, and (iii) compliance with applicable regulatory and securities laws relating to the preparation and disclosure of information with respect to oil and gas reserves and shall consult with the Audit Committee on such matters relating to oil and gas reserves which impact our financial statements.

Our senior executives and reserve engineers oversee the preparation of our crude oil, natural gas and NGLs reserves and related disclosures by our appointed independent reserve engineers.

The T&R Committee and senior executives meet with the reserve engineers periodically to review the reserves process and results, and to confirm that the independent reserve engineers have had access to sufficient information, including the nature and satisfactory resolution of any material differences of opinion between us and the independent reserve engineers.

The T&R Committee and senior executives meet with the reserve engineers periodically to review the reserves process and results, and to confirm that the independent reserve engineers have had access to sufficient information, including the nature and satisfactory resolution of any material differences of opinion between us and the independent reserve engineers.

Reserves estimates are critical to many of our accounting estimates, including:

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Proved developed reserves estimates are used to determine rates that are applied to each unit-of-production in calculating our depletion expense;

assessing, when necessary, our crude oil, natural gas and NGLs assets for impairment using undiscounted future cash flows based on management’s estimates.

If impairment is indicated, discounted values will be used to determine the fair value of the assets.

The critical estimates used to assess impairment, including the impact of changes in reserves estimates, are discussed below.

Exhibits and Financial Statement Schedules –

Supplemental Information on crude oil, natural gas and NGLs Producing Activities (unaudited).

See “ Item 15.

Exhibits and Financial Statement Schedules – Supplemental Information on crude oil, natural gas and NGLs Producing Activities (unaudited).

Impairment of crude oil, natural gas and NGLs producing properties

We review the crude oil, natural gas and NGLs producing properties for impairment quarterly or whenever events or changes in circumstances indicate that the carrying amount of such properties may not be recoverable.

When a crude oil, natural gas and NGLs property’s undiscounted estimated future net cash flows are not sufficient to recover its carrying amount, an impairment charge is recorded to reduce the carrying amount of the asset to its fair value.

Our assessment involves a high degree of estimation uncertainty as it requires us to make assumptions and apply judgment to estimate undiscounted future net cash flows related to proved reserves.

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The fair value of the asset is measured using a discounted cash flow model relying primarily on Level 3 inputs to estimate the undiscounted future net cash flows.

The undiscounted estimated future net cash flows used in the impairment evaluations at each quarter end are based upon the most recently prepared independent reserve engineers’

report adjusted to use forecasted prices from the forward strip price curves near each quarter end and adjusted as necessary for drilling and production results.

The undiscounted estimated future net cash flows used in the impairment evaluations at each quarter end are based upon the most recently prepared independent reserve engineers’ report adjusted to use forecasted prices from the forward strip price curves near each quarter end and adjusted as necessary for drilling and production results.

For further discussion, see Note 9 to the Consolidated Financial Statements.

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Unproved property costs consist mainly of acquisition costs related to undeveloped acreage in the Etame Marin block in Gabon and to Block P in Equatorial Guinea.

In connection with the TransGlobe acquisition as discussed under Note 4 to the Consolidated Financial Statements, reserves in Egypt and Canada were also attributed to undeveloped properties and leasehold costs. 

Business Combinations

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We estimate the fair values of the acquired assets and assumed liabilities as of the date of the acquisition, and our estimates are subject to adjustment through completion, which is in each case within one year of the acquisition date, based on our ongoing assessments of the fair values of property and equipment, intangible assets, other assets and liabilities and our evaluation of tax positions and contingencies.

See Note 4 to the Consolidated Financial Statements under “Acquisitions and dispositions”

for further discussion.

NEW ACCOUNTING STANDARDS

ACCOUNTING STANDARDS

See Note 3 to the Consolidated Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk, including the effects of adverse changes in foreign exchange rates and commodity prices as described below.

Foreign Exchange Rate Risk

Our results of operations and financial condition are affected by currency exchange rates.

While crude oil sales are denominated in U.S.

dollars, portions of our costs in Gabon are denominated in the local currency (the Central African CFA Franc, or XAF), and our VAT receivable as well as certain liabilities in Gabon are also denominated in XAF.

A weakening U.S.

dollar will have the effect of increasing costs while a strengthening U.S.

dollar will have the effect of reducing costs.

For our VAT receivable in Gabon, a strengthening U.S.

dollar will have the effect of decreasing the value of this receivable resulting in foreign exchange losses, and vice versa.

The Gabon local currency is tied to the Euro.

The exchange rate between the Euro and the U.S.

dollar has historically fluctuated in response to international political conditions, general economic conditions and other factors beyond our control.

As of December 31, 2022, we had net monetary assets of $20.4 million (XAF 12,491.50 million) denominated in XAF.

A 10% weakening of the CFA relative to the U.S.

dollar would have a $1.8 million reduction in the value of these net assets.

For the year ended December 31, 2022, we had expenditures of approximately $39.0 million denominated in XAF.

Related to our Canadian operations, our currency exchange risk relates primarily to certain cash and cash equivalents, accounts receivable, lease obligations and accounts payable and accrued liabilities denominated in Canadian dollars.

We estimate that a 10% increase in the value of the Canadian dollar against the US dollar would decrease net earnings for the year ended December 31, 2022 by approximately $0.9 million. Conversely, a 10% decrease in the value of the Canadian dollar against the US dollar would increase net earnings for the year ended December 31, 2022 by approximately $0.9 million.

We are also exposed to foreign currency exchange risk on cash balances denominated in Egyptian pounds.

Some collections of accounts receivable from the Egyptian Government are received in Egyptian pounds, and while we are generally able to use the Egyptian pounds received on accounts payable denominated in Egyptian pounds, there remains foreign currency exchange risk exposure on Egyptian pound cash balances.

Using month-end cash balances converted at month-end foreign exchange rates at December 31, 2022, we estimate that a 10% increase in the value of the Egyptian pound against the US dollar would increase net earnings for the year ended December 31, 2022 by approximately $0.5 million. Conversely, a 10% decrease in the value of the Egyptian pound against the US dollar would decrease net earnings for the year ended December 31, 2022 by approximately $0.5 million.

We do not utilize derivative instruments to manage foreign exchange risk. 

We maintain nominal balances of British Pounds Sterling to pay in-country costs incurred in operating our London office.

Foreign exchange risk on these funds is not considered material.

Commodity Price Risk

Our major market risk exposure continues to be the prices received for our crude oil, natural gas and NGLs production.

Sales prices are primarily driven by the prevailing market prices applicable to our production.

Market prices for crude oil, natural gas and NGLs have been volatile and unpredictable in recent years, and this volatility may continue.

Sustained low crude oil, natural gas and NGLs prices or a resumption of the decreases in crude oil, natural gas and NGLs prices could have a material adverse effect on our financial condition, the carrying value of our proved reserves, our undeveloped leasehold interests and our ability to borrow funds and to obtain additional capital on attractive terms.

If crude oil sales were to remain constant at the most recent annual sales volumes of 3,677 MBoe, a $5 per Bbl decrease in crude oil price would be expected to cause a $18.4 million decrease per year in revenues and operating income (loss) and a $16.5 million decrease per year in net income (loss).

As of December 31, 2022, we had unexpired derivative instruments outstanding covering approximately 304 MBbls of production through March 2023.

In February 2023, we added costless collars covering 286 MBbls covering a portion of our production from April 2023 through June 2023.

During the years ended December 31, 2022 and 2021, we had derivative instruments outstanding.

These instruments were intended to be an economic hedge against declines in crude oil prices;

however, they were not designated as hedges for accounting purposes.

Management’s Discussion and Analysis of Financial Condition and Results of Operation s –

Derivative instruments and hedging activities ”

Interest Rate Risk

At both December 31, 2022 and on the filing date of this Annual Report, we had a zero balance on our Facility.

Loans under the Facility will bear interest at a rate equal to LIBOR plus the Applicable Margin of (i) 6.00% until the third anniversary of the Facility Agreement or (ii) 6.25% from the third anniversary of the Facility Agreement until the Final Maturity Date.

Any increases in these interest rates can have an adverse impact on our results of operations and cash flows.

For additional information on the Facility Agreements terms and conditions, see “

Management’s Discussion and Analysis of Financial Condition and Results of Operations –

Capital Resources and Liquidity—RBL Facility Agreement and Available Credit ”

Consolidated Financial Statements and Supplementary Data

The information required here begins on page F-1 as described in “

Exhibits and Financial Statement Schedules —

Index to Consolidated Financial Information ”.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity