VAALCO Energy reported net income attributable to VAALCO of $6.0 million, or $0.11 per diluted share, for the first quarter of 2010 compared to a net loss of $12.6 million, or ($0.22) per diluted share, for the comparable period in 2009. First quarter 2010 revenues were $30.0 million compared to $21.3 million in the first quarter of 2009.
First quarter 2010 results reflect significantly higher crude prices when compared to the first quarter of 2009. First quarter 2009 results also included costs for unsuccessful exploration wells that were not incurred in the 2010 quarter.
"We are pleased with the profitability VAALCO delivered in the first quarter and the positive start on our 2010 drilling program," said Robert Gerry, Chairman and CEO of VAALCO. "Initial production has begun on our new Ebouri 4H development well, and we expect Ebouri 3H to be back on production shortly following completion of the scheduled workover, which is proceeding as planned. Our balance sheet also remains strong, providing the financial support needed to continue advancing our exploration and development activities. We look forward to reporting on further progress in proving-up reserves and building value for our shareholders as the year progresses."
Exploration and Development Activities
The Company expects its cash balances plus cash from continuing operations will be more than sufficient to fund the Company's 2010 capital expenditure budget projection of $25.0 million to $40.0 million for its exploration and development programs in Gabon and Angola.
As previously announced, the contracted rig "Sapphire Driller" is on location at the Ebouri Platform offshore Gabon and commenced the drilling of four wells on March 10, 2010. These wells, in order of expected activity, are:
The Company's subsidiary VAALCO Gabon Etame, Inc. operates and owns a 28.07% net interest in the Etame Field. Other field partners are Addax Petroleum Etame Inc. (31.36%), Sasol Petroleum Etame Limited (27.75%), Sojitz Etame Limited (2.98%), PetroEnergy Resources Corp. (2.34%) and Tullow Oil Gabon SA (7.5%).
VAALCO is continuing discussions with its partners regarding further wells offshore Gabon. As previously announced, 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 jack-up rig, one of these wells may be drilled following completion of the drilling program described above.
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 identified drilling objectives. Plans to drill two explorations wells have been delayed due to a non-performing partner. In early 2010, the Company began the process of acquiring the interest of the non-performing partner and is working with the government of Angola regarding a time extension for the drilling of the commitment wells. These discussions are continuing. If the Company is successful in obtaining the extension, VAALCO expects the drilling to take place in the first half of 2011.
2010 First Quarter Financial Results Discussion
During the first quarter of 2010, the Company sold approximately 403,200 net barrels of oil equivalent at an average price of $74.33 per barrel compared to 503,700 net barrels of oil equivalent at an average price of $42.15 per barrel in the first quarter of 2009. The decrease in year-over-year production volumes primarily reflects reduced production from the Ebouri 3H well due to two malfunctioning electrical submersible pumps. As discussed above, the well is currently undergoing a workover to replace the pumps and is expected to resume production of 3,000 to 4,000 gross barrels of oil per day by mid-May.
Operating income was $17.9 million in the first quarter of 2010 compared to an operating loss of $10.5 million in the first quarter of 2009.
Capital expenditures for the 2010 first quarter were $3.2 million compared to $18.6 million in the same 2009 period. The 2010 first quarter capital expenditures were primarily associated with two wells in the Etame Marin block, the Ebouri 4H well and the Etame 7H well.
Production expenses were $4.9 million in the first quarter of 2010 compared to $5.7 million in the first quarter of 2009. The decrease in year-over-year expenses was primarily due to lower sales volumes.
Exploration expense was $1.0 million in the first quarter of 2010 compared to $20.5 million of costs in the comparable period in 2009. The change was primarily due to unsuccessful exploration well costs incurred in the year ago period.
Income tax expense for the first quarter of 2010 was $10.8 million compared to $2.4 million in the 2009 first quarter. The increase in income taxes reflects higher oil prices and a higher percentage of oil production allocated as "profit oil" vs. "cost oil."
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