VAALCO Posts 3Q Results, Plans 'Aggressive' Drilling Program



VAALCO Energy has reported net income attributable to VAALCO of $4.2 million or $0.07 per diluted share for the third quarter of 2009 compared to net income attributable to VAALCO of $22.3 million or $0.38 per diluted share for the comparable period in 2008. Third quarter 2009 revenues were $29.3 million compared to $55.5 million in the third quarter of 2008. Third quarter 2009 results primarily reflect the overall decline in crude oil prices from the year-ago period.

"We anticipate commencing an aggressive drilling program before year-end that we expect to add considerable reserves in both Gabon and Angola," said Robert Gerry, Chairman and CEO. "VAALCO's strong balance sheet positions us to execute these prospects, while also exploring additional opportunities for growth."

Exploration and Development Update

The Company provided the following update on its exploration and development program.

Gabon:

VAALCO has a jackup drilling rig, The Sapphire Driller, under contract. The rig is presently undergoing inspection by the owner and will then be transported from the Ivory Coast to offshore Gabon. Depending on the availability of the rig as well as parts needed for a planned workover, as discussed below, VAALCO plans to use the rig to drill the following prospects:

  • In December 2009, the Company expects to workover its Ebouri development well (EEBOM-3H) to replace non-working electric submersible pumps. Once the rig is in place over the existing platform, the workover should be completed within a couple of weeks and is expected to result in increased production.
  • Once the workover is completed, VAALCO intends to move the jack-up rig to a well slot on the Ebouri platform to drill an additional development well (EEBOM-4H).
  • Following EEBOM-4H, the Company plans to drill its previously announced exploration well in Southeast Etame (ETSEM-1).
  • Next, the Company plans to drill its previously announced development well (ET-7H), a sub-surface completion well in the Etame field. Subject to the timely progression of the Company's drilling program offshore Gabon, the Company expects to begin drilling the ET-7H well in the first half of 2010.

The Company is in advanced discussions with its partners regarding further wells offshore Gabon. For 2010, VAALCO has budgeted for two additional exploration wells in the Etame Marin concession. Depending on agreements with the Company's partners and the continued availability of the Sapphire Driller jackup rig, one or both of these wells may be drilled in succession following completion of the drilling program explained above.

Angola:

As previously announced, VAALCO has a production sharing contract for a 40% working interest in Block 5 offshore Angola. The Company has acquired approximately 1,700 square kilometers of seismic data over a portion of the Block 5 and has been interpreting the seismic data for two well locations. Assuming consortium agreement on the well objectives and rig availability, the Company expects these two exploration wells to be drilled in the second half of 2010.

Financial Results Discussion

During the third quarter of 2009, the Company sold approximately 436,000 net barrels of oil equivalent at an average price of $67.07 per barrel compared to 517,000 barrels of oil equivalent at an average price of $107.48 per barrel in the third quarter of 2008. The Company reported operating income of $19.6 million in the third quarter of 2009 compared to operating income of $41.8 million in the third quarter of 2008.

VAALCO increased crude oil production to an average of 23,300 barrels of oil per day (bopd) in the three months ended September 30, 2009 compared to approximately 20,800 bopd in the three months ended September 30, 2008.

Total production expenses of $5.7 million for the 2009 third quarter compared to $5.9 million in the prior year quarter. The slight decline in the 2009 third quarter expense was due to higher unsold crude oil inventory offset by higher floating production, storage and offloading (FPSO) costs. The Company matches production expenses with crude oil sales. Any production expenses associated with unsold crude oil inventory are capitalized.

Exploration expense was $0.9 million in the third quarter of 2009 compared to $0.3 million of costs in the comparable period in 2008, primarily due to additional costs on the previously announced unsuccessful exploration wells in onshore Gabon and the British North Sea.

Income tax expenses for the third quarter of 2009 were $13.3 million compared to $17.4 million in the 2008 third quarter. The decline in income taxes reflects lower oil prices and crude oil sales volumes, which decreased taxable revenues.

Credit Facility Termination

In June 2005, VAALCO executed a loan agreement with the International Finance Corporation (IFC) for a $30.0 million revolving credit facility secured by the assets of the Company’s Gabon subsidiary which owns the Company's interest in the Etame Marin block. Due to limited use, the credit facility was not extended with the IFC, and the outstanding loan balance of $5.0 million plus interest was repaid in mid-October 2009. VAALCO does not believe that it is necessary to replace the facility at this time.

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 September 30, 2009, the Company repurchased 1,556,764 shares at an average price of $4.24 per share totaling $6.6 million. Total repurchases under this program as of November 9, 2009, are 1,703,118 shares at an average price of $4.23 totaling $7.2 million.
 


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