Note 4 - Segment Information

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

4. SEGMENT INFORMATION 

The Company’s operations are based in Gabon and the Company has an undeveloped block in Equatorial Guinea. Each of the Company’s two reportable operating segments is organized and managed based upon geographic location. The Company’s Chief Executive Officer, who is the chief operating decision maker, and management review and evaluate the operation of each geographic segment separately, primarily based on operating income (loss). The operations of all segments include exploration for and production of hydrocarbons where commercial reserves have been found and developed. Revenues are based on the location of hydrocarbon production. Corporate and other is primarily corporate and operations support costs that are not allocated to the reportable operating segments.

Segment activity of continuing operations for the three and nine months ended September 30, 2022 and 2021 as well as long-lived assets and segment assets at September 30, 2022 and December 31, 2021 are as follows:

	Three Months Ended September 30, 2022
(in thousands)	Gabon			Equatorial Guinea			Corporate and Other			Total
Revenues:
Crude oil and natural gas sales	$	78,097		$	—		$	—		$	78,097
Operating costs and expenses:
Production expense		22,828			484			—			23,312
FPSO demobilization		8,867			—			—			8,867
Exploration expense		56			—			—			56
Depreciation, depletion and amortization		8,940			—			23			8,963
General and administrative expense		915			120			944			1,979
Bad debt expense and other		681			339			—			1,020
Total operating costs and expenses		42,287			943			967			44,197
Other operating expense, net		—			—			—			—
Operating income		35,810			(943	)		(967	)		33,900
Other income (expense):
Derivative instruments loss, net		—			—			3,778			3,778
Interest (expense) income, net		(351	)		—			117			(234	)
Other (expense) income, net		(1,305	)		1			(6,403	)		(7,707	)
Total other expense, net		(1,656	)		1			(2,508	)		(4,163	)
Income from continuing operations before income taxes		34,154			(942	)		(3,475	)		29,737
Income tax (benefit) expense		25,415			—			(2,572	)		22,843
Income from continuing operations		8,739			(942	)		(903	)		6,894
Loss from discontinued operations, net of tax		—			—			(26	)		(26	)
Net income	$	8,739		$	(942	)	$	(929	)	$	6,868
Consolidated capital expenditures	$	51,610		$	—		$	53		$	51,663

	Nine Months Ended September 30, 2022
(in thousands)	Gabon			Equatorial Guinea			Corporate and Other			Total
Revenues:
Crude oil and natural gas sales	$	257,738		$	—		$	—		$	257,738
Operating costs and expenses:
Production expense		66,269			878			—			67,147
FPSO demobilization		8,867			—			—			8,867
Exploration expense		250			—			—			250
Depreciation, depletion and amortization		21,766			—			61			21,827
General and administrative expense		2,073			329			8,105			10,507
Bad debt expense and other		1,744			339			—			2,083
Total operating costs and expenses		100,969			1,546			8,166			110,681
Other operating expense, net		(5	)		—			—			(5	)
Operating income		156,764			(1,546	)		(8,166	)		147,052
Other income (expense):
Derivative instruments loss, net		—			—			(37,522	)		(37,522	)
Interest (expense) income, net		(515	)		—			160			(355	)
Other (expense) income, net		(2,799	)		(1	)		(7,714	)		(10,514	)
Total other expense, net		(3,314	)		(1	)		(45,076	)		(48,391	)
Income from continuing operations before income taxes		153,450			(1,547	)		(53,242	)		98,661
Income tax (benefit) expense		74,671			1			(10,205	)		64,467
Income from continuing operations		78,779			(1,548	)		(43,037	)		34,194
Loss from discontinued operations, net of tax		—			—			(58	)		(58	)
Net income	$	78,779		$	(1,548	)	$	(43,095	)	$	34,136
Consolidated capital expenditures	$	121,492		$	—		$	120		$	121,612

	Three Months Ended September 30, 2021
(in thousands)	Gabon			Equatorial Guinea			Corporate and Other			Total
Revenues:
Crude oil and natural gas sales	$	55,899		$	—		$	—		$	55,899
Operating costs and expenses:
Production expense		24,967			229			12			25,208
Exploration expense		479			—			—			479
Depreciation, depletion and amortization		6,953			—			17			6,970
General and administrative expense		394			42			2,504			2,940
Bad debt expense and other		318			—			—			318
Total operating costs and expenses		33,111			271			2,533			35,915
Other operating expense, net		46			—			—			46
Operating income		22,834			(271	)		(2,533	)		20,030
Other income (expense):
Derivative instruments loss, net		—			—			(5,147	)		(5,147	)
Interest (expense) income, net		—			—			3			3
Other (expense) income, net		(318	)		(1	)		(9	)		(328	)
Total other expense, net		(318	)		(1	)		(5,153	)		(5,472	)
Income from continuing operations before income taxes		22,516			(272	)		(7,686	)		14,558
Income tax (benefit) expense		839			—			(18,022	)		(17,183	)
Income from continuing operations		21,677			(272	)		10,336			31,741
Loss from discontinued operations, net of tax		—			—			(20	)		(20	)
Net income	$	21,677		$	(272	)	$	10,316		$	31,721
Consolidated capital expenditures (1)	$	6,696		$	—		$	—		$	6,696

(1)    Excludes assets acquired in the Sasol acquisition.

	Nine Months Ended September 30, 2021
(in thousands)	Gabon			Equatorial Guinea			Corporate and Other			Total
Revenues:
Crude oil and natural gas sales	$	142,696		$	—		$	—		$	142,696
Operating costs and expenses:
Production expense		57,478			261			21			57,760
Exploration expense		1,286			—			—			1,286
Depreciation, depletion and amortization		16,860			—			68			16,928
General and administrative expense		885			244			11,092			12,221
Bad debt expense and other		814			—			—			814
Total operating costs and expenses		77,323			505			11,181			89,009
Other operating expense, net		(87	)		—			(353	)		(440	)
Operating income		65,286			(505	)		(11,534	)		53,247
Other income (expense):
Derivative instruments loss, net		—			—			(21,070	)		(21,070	)
Interest (expense) income, net		—			—			9			9
Other (expense) income, net		6,854			(2	)		(2,764	)		4,088
Total other expense, net		6,854			(2	)		(23,825	)		(16,973	)
Income from continuing operations before income taxes		72,140			(507	)		(35,359	)		36,274
Income tax (benefit) expense		10,318			1			(21,591	)		(11,272	)
Income from continuing operations		61,822			(508	)		(13,768	)		47,546
Loss from discontinued operations, net of tax		—			—			(72	)		(72	)
Net income	$	61,822		$	(508	)	$	(13,840	)	$	47,474
Consolidated capital expenditures (1)	$	10,993		$	—		$	—		$	10,993

(1)    Excludes assets acquired in the Sasol acquisition.

(in thousands)	Gabon		Equatorial Guinea		Corporate and Other		Total
Long-lived assets from continuing operations:
As of September 30, 2022	$	184,484	$	10,000	$	227	$	194,711
As of December 31, 2021	$	84,156	$	10,000	$	168	$	94,324

(in thousands)	Gabon		Equatorial Guinea		Corporate and Other		Total
Total assets from continuing operations:
As of September 30, 2022	$	313,746	$	10,689	$	70,338	$	394,773
As of December 31, 2021	$	201,748	$	10,548	$	50,794	$	263,090

Information about the Company’s most significant customers

The Company currently sells crude oil production from Gabon under term crude oil sales and purchase agreements (“COSPAs”) or crude oil sales and marketing agreements ("COSMA or COSMAs") with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors. The Company was previously party to a COSPA with ExxonMobil Sales and Supply LLC (“Exxon”) that covered sales from February 2020 through July 2022 with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors. This COSPA has been terminated.

As discussed further in Note 11, on May 16, 2022, VAALCO Gabon (Etame), Inc. (the “Borrower”) entered into a facility agreement (the “Facility Agreement”) by and among the Company, VAALCO Gabon, SA (“VAALCO Gabon”), Glencore Energy UK Ltd., as mandated lead arranger, technical bank and facility agent (“Glencore”), the Law Debenture Trust Corporation P.L.C., as security agent, and the other financial institutions named therein (the “Lenders”), providing for a senior secured reserve-based revolving credit facility (the “Facility”) in an initial aggregate maximum principal amount available of up to $50.0 million. In connection with the entry into the Facility Agreement, the Company entered into a COSMA with Glencore pursuant to which the Company agreed to make Glencore the exclusive offtaker and marketer of all of the crude oil produced from the Etame G4-160 Block, offshore Gabon during the period from August 1, 2022 until the Final Maturity Date of the Facility (as defined in the Facility Agreement). Pursuant to the COSMA, Glencore agreed to buy and market the Company’s crude oil with pricing based upon an average of Dated Brent in the month of lifting, adjusted for location and market factors.

During the three and nine months ended September 30, 2022 and 2021, revenues from sales of crude oil to Exxon were 100% of the Company’s total revenues from customers for the period of January 2021 through  July 2022 and revenues from sales of crude oil to Glencore were 100% of the Company’s total revenues from customers for the period of August through September 2022.