VAALCO Energy Reports 3Q05 Earnings

VAALCO Energy, Inc. (Amex: EGY) reports net income of $11.9 million or $0.20 per diluted share for the third quarter of 2005. This compared to net income of $9.2 million or $0.16 per diluted share for the comparable period in 2004. The higher earnings were attributable to higher crude oil prices, partially mitigated by higher income taxes paid in 2005. The Company sold 453,000 net barrels at an average price of $58.75 per barrel during the third quarter of 2005 compared to 447,000 barrels at an average price of $40.77 per barrel in the third quarter of 2004.

For the nine months ended September 30, 2005, the Company earned $24.2 million or $0.41 per diluted share compared to $18.3 million or $0.32 per diluted share in the nine months ended September 30, 2004. The increase in income was due to higher crude oil sales of approximately 1,311,000 barrels of oil equivalent in the nine months ended September 30, 2005 compared to 1,051,000 barrels of oil equivalent in the nine months ended September 30, 2004. Crude oil prices were also higher averaging $50.58 per barrel of oil equivalent and $36.15 in the nine months ended September 30, 2005 and 2004, respectively.

Discretionary cash flow, a non-GAAP financial measure of the amount of cash generated that can be used for working capital, debt service or future investments, was $14.8 million and $31.6 million for the three months and nine months ended September 30, 2005.

Robert L. Gerry, III, Chairman and CEO, stated, "Third quarter 2005 earnings reflect the steady performance of the Etame Field. With the addition of the Etame 6H well during the third quarter, production rates from the field have stabilized at over 18,000 barrels of oil per day.

"Construction for the Avouma Field Development has returned to normal following the recent hurricanes. We expect to complete platform construction in April of 2006, and have committed to a drilling rig commencing in September 2006 to drill the two Avouma development wells after the platform is installed. First production is anticipated late in 2006.

"We continue to make progress with our seismic processing and interpretation over the Ebouri discovery, and will finalize a development plan for the field in the next several months. The seismic also covers a new exploration prospect which we hope will indicate a new wildcat location."


     Abbreviated financial results:

                                  Three Months Ended     Nine months Ended
                                     September 30,          September 30,
    (Unaudited-in thousands
     of dollars)                   2005        2004      2005         2004
    Revenues                      26,240      18,253    65,983       38,021
    Operating costs and expenses   4,743       4,732    16,238       10,937
    Operating Income (Loss)       21,497      13,521    49,745       27,084

    Other Income (Expense)           171         (21)      475         (123)
    Income tax expense            (8,306)     (2,974)  (23,089)      (6,254)
    Loss from discontinued
     operations                      (25)       (164)      (16)        (141)
    Minority Interest in
     earnings of subsidiaries     (1,434)     (1,121)   (2,952)      (2,217)

    Net Income                    11,903       9,241    24,163       18,349

    Basic Income per
     Common Share                  $0.21       $0.30     $0.48        $0.74

    Diluted Income per
     Common Share                  $0.20       $0.16     $0.41        $0.32

         Discretionary Cash Flow
         Unaudited - (thousands of dollars)

                                     Three Months Ended     Nine months Ended
                                     September 30, 2005     September 30, 2005

         Net Income                        11,903                  24,163
         Depletion, depreciation
          and amortization                  1,428                   4,335
         Other non-cash charges:
           Minority interest                1,434                   2,952
           Amortization of capitalized
            debt issuance costs                40                     119
             Discretionary cash flow       14,805                  31,569


    Summary Statistics

                                  Three Months Ended     Nine months Ended
                                     September 30,          September 30,
    (Unaudited)                   2005        2004      2005         2004
    Net oil and gas sales (MBOE)    453         447     1,311        1,051
    Average price ($/bbl)        $58.75      $40.77    $50.58       $36.15
    Production costs ($/bbl)      $6.63       $6.38     $6.42        $6.64
    Depletion costs ($/bbl)       $3.15       $3.45     $3.31        $3.11
    General and administrative
     costs ($/bbl)                $0.39       $0.57     $0.69        $0.44
    Debt/Proved reserves ($/BOE)    ---         ---     $0.26        $0.49
    Capital Expenditures
     ($thousands)                   ---         ---    11,683       12,525
    Debt/Capitalization ($/$)       ---         ---     $0.02        $0.05
    Cash and cash equivalents
     ($thousands)                   ---         ---    45,321       27,574
    Working capital ($thousands)    ---         ---    41,583       23,180
    Total long term debt
     ($thousands)                   ---         ---       500        1,500

Discretionary cash flow measures the amount of cash generated by the Company that can be used as working capital, to reduce debt, or for future investment activities. Discretionary cash flow is presented because management believes it is a useful adjunct to net cash flow provided by operating activities under accounting principles generally accepted in the United States (GAAP). The measure is widely used by investors and professional research analysts in the valuation, comparison, rating and investment recommendations of companies within the oil and gas exploration and production industry. Discretionary cash flow can be reconciled to net cash provided by operating activities in the Statement of Consolidated Cash Flows filed with the SEC as follows:


     Unaudited - (thousands of dollars)

                                  Three Months Ended     Nine months Ended
                                  September 30, 2005     September 30, 2005
    Discretionary Cash Flow             14,805                 31,569
      Working Capital Changes,
       net of non-cash                   2,813                    671
      Exploration expense                  133                  2,451
    Net cash provided by
     operating activities               17,751                 34,691


     Basic and diluted shares consist of the following:

                              Three months ended         Nine months ended
                            Sept. 30,    Sept. 30,    Sept. 30,     Sept. 30,
    Item                       2005         2004         2005          2004
    Basic weighted average
     common stock issued
     and outstanding       56,557,989   31,149,276    50,052,368   24,730,309
    Preferred stock
     convertible to
     common stock                 ---   18,533,505     5,104,040   24,489,352
    Dilutive warrants             ---    5,947,434     1,308,771    5,842,577
    Dilutive options        1,791,958    3,038,532     1,806,498    2,097,109
       Total diluted
        shares             58,349,947   58,668,747    58,271,677   57,159,347

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Brent Crude Oil : $59.02/BBL 3.79%
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