VAALCO Achieves Record Production, Unveils 4Q Drilling Plans
VAALCO Energy reported a net loss attributable to VAALCO of $1.7 million or ($0.03) per diluted share for the second quarter of 2009 compared to net income of $13.0 million or $0.22 per diluted share for the comparable period in 2008. Second quarter 2009 revenues were $32.1 million compared to $55.4 million in the second quarter of 2008.
Second quarter 2009 results reflect 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 second quarter of last year. In addition, during the quarter, the Company incurred the remaining $12 million of costs associated with the previously announced unsuccessful exploration wells.
"We are pleased to have achieved record daily average production during the second quarter of 24,000 gross barrels of oil per day. This milestone is a testament to the operating expertise of our team, and we applaud their efforts," said Robert Gerry, Chairman and CEO. "As we look ahead, we are optimistic about VAALCO's continued success. The dry hole costs that impacted our first half results have been fully incurred, and we expect improved performance over the remainder of the year, despite the lower commodity prices.
"Further, in addition to our previously announced plans for two exploratory wells offshore Angola and an exploration well in Southeast Etame, we are today announcing plans for new wells beginning later this year," Mr. Gerry continued. "We believe that these prospects, together with the leads in our existing onshore Gabon concession and the opportunities afforded by VAALCO's strong capital position, provide a solid foundation for reserve growth and value creation."
Exploration and Development Update
During the second quarter of 2009, VAALCO announced the successful completion of its second horizontal development well in the Ebouri field, the EEBOM-3H well, in the Etame Marin block offshore Gabon. First oil production occurred on April 8, 2009, and a new production record of 24,993 barrels of oil per day (bopd) from the Etame Marin block was set two days later. With this well, VAALCO currently has eight producing wells offshore Gabon -- four in the Etame field, two in the Ebouri field, and one each in the Avouma and South Tchibala fields.
The Company today announced an update to its exploration and development program:
- The Company previously announced plans for an exploration well in Southeast Etame (ETSEM-1 well), and today announced plans to drill this well in the fourth quarter of 2009.
- VAALCO also announced plans for two new development wells -- one to be drilled from a well slot on the Ebouri platform (EEBOM-4H well) and a sub-surface completion well (ET-7H well) in the Etame field. Drilling is expected to begin as early as the fourth quarter of 2009 dependent on whether one or two jack-up drilling rigs will be contracted for in the overall drilling program.
- The Company expects to workover its EEBOM-3H development well to replace non-working electric submersible pumps.
- The Company is budgeting for a second exploration well in the Etame Marin concession, which will be drilled in 2010.
- VAALCO expects that the combination of the two new development wells and the workover of the Ebouri well will provide for more than adequate production capacity to fully utilize the processing capacities of the floating production, storage and offloading ("FPSO") facility. The approximate oil processing capacity of the FPSO is approximately 25,000 bopd.
- As previously announced, VAALCO has a production sharing contract for a 40% working interest in Block 5 offshore Angola. The Company is currently analyzing approximately 1,700 square kilometers of seismic data. Two well locations have been approved by the government of Angola, and the Company now expects the first of two planned exploration wells to be drilled in the first half of 2010.
Financial Results Discussion
During the second quarter of 2009, the Company sold approximately 544,000 net barrels of oil equivalent at an average price of $59.10 per barrel, compared to 464,000 net barrels of oil equivalent at an average price of $119.18 in the second quarter of 2008. The Company reported operating income of $6.6 million in the second quarter of 2009 compared to operating income of $40.7 million in the second quarter of 2008.
In June 2009, a realignment agreement was signed with a joint venture partner that originally did not participate in an appraisal well and one of the development wells in the Ebouri field, offshore Gabon. Pursuant to the agreement, the partner paid for its proportional share of the capital expenditures for the wells, thereby reducing the Company's capital expenditures in the second quarter of 2009 by $5.7 million. In addition, the Company benefits from its share of a risk premium being paid by the partner. In the second quarter of 2009, the Company received a $2.0 million risk premium payment, and this was recorded as other operating income. The remaining $4.5 million of proceeds that are owed to the Company are expected to be received and recognized as income in the third quarter of 2009.
Capital expenditures (excluding dry holes) of $2.4 million during the second quarter of 2009, primarily for a development well in the Ebouri field, were more than offset by the aforementioned payment by the joint venture partner.
Total production expenses of $4.5 million for the 2009 second quarter were flat over the prior year quarter, despite the increase in sales volumes. The Company matches production expenses with crude oil sales. Any production expenses associated with unsold crude oil inventory are capitalized.
Exploration expense was $13.5 million in the 2009 second quarter reflecting the four unsuccessful exploration wells and compares to $1.3 million of costs in the comparable period in 2008.
Income tax expenses for the second quarter of 2009 were $7.3 million compared to $26.5 million in the 2008 second 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.
Share Repurchase Activity
On June 24, 2009, the Company announced that its Board of Directors had authorized the repurchase of up to $10 million of the Company's common stock. During the quarter ended June 30, 2009, the Company repurchased 146,354 shares at an average price of $4.15 per share. To date, the Company has repurchased 1.5 million shares at an average price of $4.14 per share for a total of approximately $6.2 million under this program.
- VAALCO Agrees to Acquire Sojitz's Stake in Etame Marin Permit Off Gabon (Aug 02)
- VAALCO Updates on Operations at Etame Marin Block Offshore Gabon (Oct 13)
- First Oil Flows from the North Tchibala Field Offshore Gabon (Sep 17)