VAALCO Energy reported a net loss of $12.6 million or ($0.22) per diluted share for the first quarter of 2009 compared to net income of $1.8 million or $0.03 per diluted share for the comparable period in 2008. First quarter 2009 revenues were $21.3 million compared to $42.2 million in the first quarter of 2008.
First quarter 2009 results primarily reflect the costs associated with the previously announced unsuccessful exploration wells and the overall decline in crude oil prices, which resulted in average selling prices for the Company's product that were approximately half of what they were in the first quarter last year.
Robert Gerry, Chairman and CEO, said, "We are naturally disappointed with our first quarter performance, given the results of our exploration program. However, we believe that the opportunities we are currently reviewing, such as moving forward with seismic processing for prospects in Angola, have the potential to add meaningful reserves for the benefit of our shareholders. In addition, we successfully brought on line two new development wells in Ebouri and achieved a new production record for the Etame Marin block in April. With these wells, we expect 2009 production levels to be up approximately 11% over last year."
As previously announced, VAALCO plans to drill two exploratory wells offshore Angola for late 2009 and 2010, and a prospect in Southeast Etame, the timing of which will depend on consortium negotiations. In addition, the Company is currently in discussions with its partners regarding a new development well in the Etame Marin block, which it has currently budgeted to begin in 2009.
Financial Results Discussion
During the first quarter of 2009, the Company sold approximately 503,700 net barrels of oil equivalent at an average price of $42.15 per barrel, compared to 446,000 net barrels at an average price of $94.44 per barrel in the first quarter of 2008. The Company incurred an operating loss of $10.5 million in the first quarter of 2009 compared to operating income of $24.1 million in the first quarter of 2008.
Capital expenditures for the 2009 first quarter were $18.6 million consisting primarily of property and equipment additions, primarily associated with the platform and drilling of the three wells in the Ebouri field (an appraisal well plus two development wells).
Production expenses for the 2009 first quarter were $5.7 million compared to $4.4 million in the first quarter of 2008. The increase reflects the new production from Ebouri as well as higher FPSO costs and related transport and support costs.
Exploration expense of $20.5 million in the 2009 first quarter reflects four unsuccessful exploration wells and compares to $6.7 million of costs in the comparable period in 2008.
Income taxes for the first quarter of 2009 were $2.4 million compared to $21.4 million in the 2008 first quarter. The decline in income taxes reflects the lower oil revenues as commodity prices declined as well as a higher percentage of oil production allocated as cost oil versus profit oil.
Discretionary Cash Flow
Discretionary cash flow (a non-GAAP financial measure) shows 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.
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