UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB/A
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER 0-20928
-----------------------
VAALCO ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 76-0274813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 POST OAK PLACE
SUITE 309
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713) 623-0801
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X].
As of May 12, 1997, there were outstanding 8,865,469 shares of Common
Stock, $.10 par value per share, of the registrant.
<PAGE>
VAALCO ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
March 31, 1997 (unaudited)-as restated and December 31, 1996.......3
Statements of Consolidated Operations (unaudited)
Three months ended March 31, 1997-as restated and 1996..............4
Statements of Consolidated Cash Flows (unaudited)
Three months ended March 31, 1997-as restated and 1996..............5
Notes to Consolidated Financial Statements.............................6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................8
PART II. OTHER INFORMATION...........................................12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VAALCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
(AS RESTATED
SEE NOTE 5)
ASSETS
CURRENT ASSETS:
Cash and equivalents ................................. $ 1,739 $ 1,055
Advances - related party ............................. -- 1,916
Marketable securities - related party ................ -- 777
Receivables:
Trade .............................................. 298 103
Accounts with partners ............................. 186 190
Other .............................................. 1,029 1,177
Materials and supplies ............................... 393 387
Prepaid expenses and other ........................... 46 9
-------- --------
Total current assets ............................... 3,691 5,614
-------- --------
PROPERTY AND EQUIPMENT-SUCCESSFUL EFFORTS METHOD
Wells, platforms and other production facilities ..... 46,770 46,866
Undeveloped acreage .................................. 826 808
Equipment and other .................................. 427 342
-------- --------
48,023 48,016
Accumulated depreciation, depletion and amortization ... (46,417) (46,383)
-------- --------
Net property and equipment ......................... 1,606 1,633
-------- --------
OTHER ASSETS:
Other long-term assets ............................... 133 119
Funds in escrow ...................................... 370 370
-------- --------
TOTAL .................................................. $ 5,800 $ 7,736
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ..................................... $ 1,669 $ 1,862
Accrued liabilities .................................. 1,150 1,280
Current portion of debt obligations .................. 373 3,918
-------- --------
Total current liabilities .......................... 3,192 7,060
-------- --------
FUTURE ABANDONMENT COSTS ............................... 4,942 4,942
OTHER LONG TERM LIABILITIES ............................ -- 1,000
-------- --------
Total liabilities .................................... 8,134 13,002
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $25 par value, 10%
cumulative dividend. 500,000 authorized
shares; 90,000 shares issued and outstanding ....... 2,250 2,250
Common stock, $.10 par value, 15,000,000
authorized shares; 8,870,864 shares issued of
which 5,395 are in the treasury .................... 887 887
Additional paid-in capital ........................... 11,262 11,401
Accumulated deficit .................................. (16,720) (19,707)
Net unrealized loss on non-current marketable securities -- (84)
Less treasury stock, at cost ......................... (13) (13)
-------- --------
Total stockholders' deficit ........................ (2,334) (5,266)
-------- --------
TOTAL .................................................. $ 5,800 $ 7,736
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
---------------------------
1997 1996
----------- -----------
(AS RESTATED
SEE NOTE 5)
REVENUES:
Oil and gas sales ............................ $ 442 $ 1,871
Gain on sale of assets ....................... 3,331 --
----------- -----------
Total revenues ............................. 3,773 1,871
----------- -----------
OPERATING COSTS AND EXPENSES:
Production expenses .......................... 262 1,222
Exploration costs ............................ 45 76
Depreciation, depletion and amortization ..... 34 595
General and administrative expenses .......... 517 544
----------- -----------
Total operating costs ...................... 858 2,437
----------- -----------
OPERATING INCOME (LOSS) ........................ 2,915 (566)
OTHER INCOME (EXPENSES):
Interest income .............................. 2 49
Interest expense and financing charges ....... (97) (80)
Other, net ................................... 84 (36)
----------- -----------
Total other expense ........................ (11) (67)
----------- -----------
NET INCOME (LOSS) .............................. 2,904 (633)
Preferred dividends ............................ (56) (56)
----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................. $ 2,848 $ (689)
=========== ===========
INCOME (LOSS) PER COMMON SHARE ................ $ 0.32 $ (0.08)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING .................................. 8,865,469 8,865,469
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
----------- -----------
(AS RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES: SEE NOTE 5)
Net income (loss) .............................. $ 2,904 $ (633)
Adjustments to reconcile net income (loss) to net
Cash used in operating activities:
Depreciation, depletion and amortization ... 34 595
Exploration costs .......................... 46 76
Gain on sale of assets ..................... (3,331) --
Change in assets and liabilities that provided
(used) cash:
Accounts with partners ..................... (284) (408)
Trade receivables .......................... (195) (72)
Other receivables .......................... 147 (156)
Crude oil inventory ........................ -- 951
Prepaid expenses and other ................. (38) 14
Accounts payable ........................... 352 (394)
Accrued liabilities ........................ (315) (155)
Other (net) ................................ (53) 89
----------- -----------
Net cash used in operating activities .... (733) (93)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration costs .............................. (46) (76)
Additions to property and equipment ............ (87) (151)
Proceeds from sale of assets ................... 4,672 --
Other (net) .................................... -- (4)
----------- -----------
Net cash provided by (used in) in investing
activities ........................... 4,539 (231)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt obligations .................... (4,545) --
Advances from related parties (net) ............ 1,423 2
----------- -----------
Net cash (used in) provided by financing
activities ........................... (3,122) 2
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS ............. 684 (322)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD .... 1,055 701
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD .......... $ 1,739 $ 379
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Depletion costs previously capitalized in
crude oil inventory .................. $ -- $ 533
Net cash paid for interest and financing
charges .............................. $ 142 $ --
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
VAALCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of VAALCO Energy, Inc. and
Subsidiaries (collectively, "VAALCO" or the "Company"), included herein
are unaudited, but include all adjustments which the Company deems
necessary for a fair presentation of its financial position and results of
operations for the interim period. Such results are not necessarily
indicative of results to be expected for the full year. The Balance Sheet
at December 31, 1996 has been taken from the audited financial statements
at that date. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended December 31, 1996.
2. CURRENT DEVELOPMENTS
During the First Quarter of 1997, the Company completed the restructuring
of its international assets. Certain marketable securities held by the
Company in Alcorn Petroleum and Minerals Corporation, a publicly listed
Philippines company were sold for a gain of $0.7 million. Proceeds of $3.4
million were used to retire debt. In addition, the Company sold the
balance of its assets in India, consisting of a 4% net profit interest in
the PY-3 Field, and a 20 percent working interest in the Gulf of Cambay
Block CB-OS/1. The assets, were sold to Hardy Oil & Gas (U.K.) Ltd. for a
gain of $2.5 million.
In the Philippines, the Company announced a farmout in the fourth quarter
of 1996 which will result in a $7 million 3-D seismic survey program over
acreage held by the Company. Seismic acquisition commenced in February
1997.
In Gabon, the Company completed the documentation associated with the
previously announced letter of intent with Western Atlas Afrique, Ltd. for
acquisition of seismic and drilling of a well on the Etame Contract. The
formal participation agreement for the farm-in was executed on April 4,
1997.
Details of both the Philippines and the Gabon farm-ins can be found in
"Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
3. DEBT OBLIGATIONS
The Company was guarantor of a note issued by its Philippines subsidiaries
to borrow $6 million in 1993. At year end 1996, the note had a balance of
$3.3 million principal plus $0.2 million accrued interest. In February
1997, in connection with the sale of the marketable securities of Alcorn
Petroleum and Minerals Corporation, the Company repaid $3.4 million of the
total $3.5 million owed. The balance was paid in April 1997.
6
<PAGE>
In December 1996, the Company issued $0.6 million in debt associated with
the acquisition of certain properties in the Gulf of Mexico. The loan is
secured by an assignment of a revenue interests ranging from 45% to 65% in
certain properties. The loan is recourse only to the assigned revenue
interests, and is not guaranteed by the Company. The balance on the note
at March 31, 1997 was $0.4 million.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share".
SFAS 128 establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. This statement simplifies the standards for
computing EPS previously found in Accounting Principles Board Opinion No.
15, "Earnings Per Share," and makes them comparable to international EPS
standards. This statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. This statement requires restatement of all
prior-period EPS data presented. Considering the guidelines as prescribed
by SFAS 128, management believes that the adoption of this statement will
not have a material effect on EPS and thus pro forma EPS, as suggested for
all interim and annual periods prior to required adoption, have been
omitted.
5. RESTATEMENT
Subsequent to the issuance of the financial statements, the Company's
management determined that a receivable payment was inadvertantly recorded
to revenues net of operating expense. The accompanying financial
statements have been modified accordingly. This results in a restatement
of the Company's accounts receivable, revenues and operating expenses.
A summary of the effects of the adjustments follows:
(In thousands of dollars except per share amounts)
AS PREVIOUSLY
REPORTED AS ADJUSTED
----------- -----------
As of March 31, 1997
Other receivables ..................... $ 1,387 $ 1,029
Accumulated deficit ................... (16,362) (16,720)
For the three months ended
March 31, 1997
Oil and gas sales ................... 895 442
Production expenses ................. 357 262
Net income (loss) ................... 3,262 2,904
Net income (loss) attributable to
Common stockholders ............... 3,206 2,848
Income per common share ............. 0.36 0.32
7
<PAGE>
VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company's primary source of capital resources has been
from its production operations in the Philippines, assets sales and the issuance
of debt. The Company currently produces the Nido and Matinloc fields in the
Philippines at approximately 870 BOPD.
Through a diversification program undertaken by management, the Company
has acquired producing assets in the Gulf of Mexico of the United States and
interests in two blocks in Gabon. The Company has also accumulated approximately
1,603 acres in the Wilcox trend of Goliad County, Texas.
In order to execute the diversification program, the Company has, among
other activities, been actively seeking farmout partners to progress the
development of its prospects. In this regard, the Company has successfully
entered into farmout agreements in one of its Gabon blocks and in its
Philippines blocks in exchange for partially carried work programs. For the
domestic acquisition program, the Company will, in the near-term, rely on the
private placement of equity and issuance of debt to raise capital for these
acquisitions. A more detailed description of the Company's activities is
described below.
United States
In December 1996, the Company issued $618,000 in debt associated with the
acquisition of certain properties in the Gulf of Mexico. The loan is secured by
an assignment of revenue interests in certain of the properties. The loan is
recourse only to the assigned revenue interests, and is not guaranteed by the
Company. The balance of the note of March 31, 1997 was $373,000. The Gulf of
Mexico properties consist of interests in seven offshore fields in ten lease
blocks. Four of the platforms in three of the fields, High Island blocks A-313,
A-314 and A-280, are being operated by VAALCO. The balance of the package
consists of non-operated interests in the West Cameron, Vermilion and Ship Shoal
areas of the Gulf of Mexico. No significant capital expenditures are anticipated
in 1997 for these properties.
In October 1994, the Company acquired a working interest in approximately
1,200 acres in Goliad County, Texas, in exchange for cash and warrants to
purchase shares of the Company's Common Stock, $.10 par value per share (the
"Common Stock"). The warrants have a term of three years and will consist of the
right to purchase 200,000 shares of Common Stock at an exercise price of $2.50
per share and 200,000 shares of Common Stock at an exercise price of $5.00 per
share, subject to the terms and conditions of the acquisition agreement. A
working interest in an additional 403 acres was acquired during 1996. The
Company has an average 76% net revenue interest in the acreage and plans to
analyze this property in 1997 for viability. The three year lease has no
drilling obligation requirements. Capital expenditures for 1997 will depend upon
the outcome of analysis currently being done on the area.
8
<PAGE>
Gabon
In July 1995, the Company acquired two blocks offshore Gabon, the Equata
block and the Etame block. Both blocks contain previous discoveries that the
Company is currently evaluating to determine their commercial viability. The
Company and its partners have an obligation to the Government of Gabon to obtain
approximately 1,500 line kilometers of seismic data and to drill one well on the
Etame block during the three-year term of the license. In November 1996, the
Company entered into a letter of intent with a Western Atlas Afrique, Ltd. a
subsidiary of Western Atlas which will perform the required seismic surveys and
pay a disproportionate 80% of the cost, up to $4.7 million, of the estimated
$5.8 million (dry hole cost) commitment well to earn a 65% interest in the
concession. The Company and its partners will be responsible for 20% of the cost
(35% over $4.7 million) of the commitment well. VAALCO's share of the dry hole
cost of the commitment well is estimated to be $0.7 million.
Philippines
In October 1996, VAALCO and the other Service Contract No. 14 and Service
Contract No. 6 consortium members entered into a farm-out agreement wherein the
farmee, an Australian company, is required to shoot a $7 million 3-D seismic
program over the service contracts during early 1997. The Australian farmee
company will earn a 35% interest in the blocks for performing the work. In
addition, the Australian company has the option to drill two wells, one on each
Service Contract, to earn up to an additional 25% interest in each Service
Contract. Seismic acquisition under the farm out agreement commenced in February
1997. No significant capital expenditures are anticipated in 1997 for the
Philippines operations.
Issuance of Recourse Debt
The Company, as guarantor, entered into a Credit Agreement (the "Credit
Agreement") on June 23, 1993 for its Philippine subsidiaries to borrow $6
million, at an interest rate of LIBOR plus 2%, from a European institutional
lender. The subsidiaries drew down $6 million against the facility in the third
quarter of 1993. Proceeds were utilized for further development of the West
Linapacan "A" Field. At year end 1996, the balance on the note stood at $3.3
million plus $0.2 million accrued interest. In February 1997, the Company sold
additional pledged securities and with the proceeds paid $3.4 million of the
$3.5 million balance due on the note. The remainder of the note was fully paid
in April 1997.
Other Activities
In March 1997, the Company sold its Gulf of Cambay concession, in India
and its 4% net profits interest in the CY-OS/2 concession, also in India, to
Hardy Oil & Gas (UK) Limited for $2.5 million. The Company applied $1.0 million
of the proceeds from the sale to complete repayment of the non-recourse loan
made to the Company by Hardy in 1996. With the completion of this sale, the
Company sold all remaining interest in India.
The Company continues to seek financing to fund the development of
existing properties and to acquire additional assets. The Company will rely on
the issuance of equity and debt
9
<PAGE>
securities, assets sales and cash flow from operations to provide the required
capital for funding future operations. While there can be no assurance the
Company will be successful in raising new financing, management believes the
prospects the Company has in hand will enable it to attract sufficient capital
to fund required oil and gas activities.
Cash Flows
Net cash used in operating activities for the three months ended March 31,
1997 was $0.7 million, as compared to $0.1 million for the same period in 1996.
The change was primarily due to changes in current assets and reductions of
accounts payable.
Net cash provided by investing activities for the three months ended March
31, 1997 was $4.5 million, as compared to net cash used in investing activities
of $0.2 million for the same period in 1996. The 1997 amount reflects cash
received from the sale of marketable securities and the Company's interest in
India.
Net cash used in financing activities for the three months ended March 31,
1997 was $3.1 million, as compared to net cash provided by financing activities
of $0.2 million for the same period in 1996. The 1997 amount reflects the
payment of the Company's long term debt.
Item 2 of this document includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although the Company
believes the expectations reflected in such forward looking statements are based
upon reasonable assumptions, the Company can give no assurance these
expectations will be achieved. Important factors which could cause actual
results to differ materially from the Company's expectations include general
economic, business and market conditions, the volatility of the price of oil and
gas, competition, development and operating costs and the factors that are
disclosed in conjunction with the forward looking statements included herein.
10
<PAGE>
RESULTS OF OPERATIONS
Amounts stated hereunder have been rounded to the nearest $100,000,
however, percentage changes have been calculated using actual amounts.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUES
Total crude oil sales for the three months ended March 31, 1997 were $0.4
million, a decrease of $1.5 million, or 76%, as compared to $1.9 million for
1996. The 1996 revenues relate to the Company's oil production in the
Philippines, which continues to decline. The 1997 revenues include revenues
relating to the Philippines, as well as gas revenues relating to the Company's
Gulf of Mexico operations.
Gain on sale of assets for the three months ended March 31, 1997 was $3.3
million. The gain resulted from in March 1997, the Company sold its Gulf of
Cambay concession and its 4% net profits interest in the CY-OS/2 concession,
both in India, to Hardy Oil & Gas (UK) Limited for $2.5 million. With the
completion of this sale, the Company sold all remaining interest that it had in
India. The Company recognized a gain on sale of assets of $2.5 million in the
first quarter of 1997 as a result of this transaction. Also in February 1997 the
Company sold marketable securities recognizing a gain of $.7 million.
EXPENSES
Production expenses for the three months ended March 31, 1997 were $0.3 million,
a decrease of $0.9 million, or 79%, as compared to $1.2 million for the same
period in 1996. The decrease is primarily due to declining production in the
Philippines, offset by production costs incurred in the first quarter of 1997
relating to the Gulf of Mexico properties.
Depletion for 1997 relates to the Gulf of Mexico properties and no depletion
expense was recorded in the first quarter of 1997 for the Philippine properties,
as property was fully depleted. The 1996 amount reflects $0.6 million in
depletion for the Philippine operations.
NET INCOME (LOSS)
Net income attributable to common stockholders for the three months ended March
31, 1997 was $2.8 million as compared to a net loss attributable to common
stockholders of $0.7 million for the same period in 1996. The 1997 amount is
primarily due to the recognition of a gain resulting from the sale of the
Company's interests in India.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K None.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
VAALCO ENERGY, INC.
(Registrant)
By /s/W. RUSSELL SCHEIRMAN
W. RUSSELL SCHEIRMAN, PRESIDENT,
CHIEF FINANCIAL OFFICER AND DIRECTOR
Dated March 2, 1998
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,739,000
<SECURITIES> 0
<RECEIVABLES> 1,952,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,691,000
<PP&E> 48,023,000
<DEPRECIATION> (46,417,000)
<TOTAL-ASSETS> 5,800,000
<CURRENT-LIABILITIES> 3,192,000
<BONDS> 0
0
2,250,000
<COMMON> 887,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,800,000
<SALES> 442,000
<TOTAL-REVENUES> 3,773,000
<CGS> 307,000
<TOTAL-COSTS> 858,000
<OTHER-EXPENSES> (11,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (97,000)
<INCOME-PRETAX> 2,848,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,848,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,848,000
<EPS-PRIMARY> .32
<EPS-DILUTED> 0
</TABLE>
