Note 4 - Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

4. ACQUISITIONS AND DISPOSITIONS

Acquisition of TransGlobe Energy Corporation

On October 13, 2022, the Company and AcquireCo completed the previously announced business combination with TransGlobe whereby AcquireCo acquired all of the issued and outstanding common shares of TransGlobe and TransGlobe became a direct wholly owned subsidiary of AcquireCo and an indirect wholly owned subsidiary of the Company pursuant to an Arrangement agreement entered into by the Company, AcquireCo and TransGlobe on July 13, 2022.

At the effective time of the Arrangement and pursuant to the Arrangement Agreement, each common share of TransGlobe issued and outstanding immediately prior to the effective time of the Arrangement (the “TransGlobe common shares”) was converted into the right to receive 0.6727 (the “exchange ratio”) of a share of VAALCO common stock, par value $0.10 per share. The total number of VAALCO shares issued to TransGlobe’s shareholders was approximately 49.3 million. The Arrangement resulted in VAALCO stockholders owning approximately 54.5%, and TransGlobe shareholders owning approximately 45.5% of the Combined Company, calculated based on vested outstanding shares of each company as of the date of the Arrangement Agreement. The Combined Company results of operations of VAALCO and TransGlobe for the period of October 14, 2022 to December 31, 2022 are included in the Company’s consolidated results for the period ending December 31, 2022.

Prior to the Arrangement, TransGlobe was an oil and gas exploration and development company whose activities were concentrated in Egypt and Canada. The Combined Company is an African-focused operator with a portfolio of assets in Gabon, Egypt, Equatorial Guinea and Canada. The transaction qualified as a business combination under ASC 805, Business Combinations and the Company is the accounting acquiror.

During the first quarter of 2023, a measurement period adjustment was recorded impacting the deferred tax liability and bargain purchase gain. The purchase accounting for the business combination was completed by September 30, 2023. During the year ended  December 31, 2023, the deferred tax liability in Egypt was increased by $1.4 million, respectively, as of the date of the acquisition. This resulted in a decrease to the bargain purchase gain of a corresponding $1.4 million for the year ended  December 31, 2023, and is reflected in VAALCO's consolidated statements of operations in the line, “Other expense, net.” 

The following table shows the 2023 adjustment as if the adjustment was made on the date of acquisition:.

	October 13, 2022		Measurement Period Adjustment		October 13, 2022 (As Adjusted)
	(in thousands)
Purchase Consideration
Common stock issued to TransGlobe shareholders	$	274,145	$	—	$	274,145

	October 13, 2022			Measurement Period Adjustment			October 13, 2022
	(in thousands)
Assets acquired:
Cash	$	36,686		$	—		$	36,686
Wells, platforms and other production facilities		243,669			—			243,669
Equipment and other		2,099			—			2,099
Undeveloped acreage		30,216			—			30,216
Accounts receivable - trade		48,068			—			48,068
Accounts receivable - other		50,275			—			50,275
Accounts with joint venture owners		68			—			68
Right of use operating leases		1,609			—			1,609
Right of use financing leases		204			—			204
Prepayment and other		7,627			—			7,627
Liabilities assumed:								-
Asset retirement obligations		(6,134	)		—			(6,134	)
Accounts payable		(10,223	)		—			(10,223	)
Accrued liabilities and other		(50,128	)		—			(50,128	)
Operating lease liabilities - current portion		(961	)		—			(961	)
Financing lease liabilities - current portion		(125	)		—			(125	)
Operating lease liabilities - net of current portion		(688	)		—			(688	)
Financing lease liabilities - net of current portion		(21	)		—			(21	)
Deferred tax liabilities		(40,964	)		(1,412	)		(42,376	)
Other long-term liabilities		(26,313	)		—			(26,313	)
Bargain purchase gain		(10,819	)		1,412			(9,407	)
Total purchase price	$	274,145		$	—		$	274,145

All assets and liabilities associated with TransGlobe, including crude oil, natural gas and NGLs properties, asset retirement obligations and working capital items, were recorded at their fair value. The Company used estimated future crude oil prices as of the closing date, October 13, 2022, to apply to the estimated reserve quantities acquired and market participant assumptions to the estimated future operating and development costs to arrive at the estimates of future net revenues. The future net revenues were discounted using a weighted average cost of capital to determine the fair value at closing. The valuations to derive the purchase price included the use of both proved and unproved categories of reserves, expectation for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates, and specific risk adjustment factors based on reserve category discount rates. The purchase price allocation was finalized in the third quarter of 2023. A bargain purchase gain of $10.8 million was recognized based on the difference in the fair value of assets and liabilities assumed and the purchase price and is included in the “Other income (expense), net” in the consolidated statements of operations and comprehensive income.

For the twelve months ended December 31, 2022, included in the line item "Other income (expense), net" is $14.6 million of transactions costs associated with the Arrangement with TransGlobe.

The unaudited pro forma results presented below have been prepared to give the effect to the TransGlobe Acquisition discussed above on the Company’s results of operations for the years ended December 31, 2022 and 2021, as if the Arrangement had been consummated on January 1, 2021. The unaudited pro forma results do not purport to represent what the Company’s actual results of operations would have been if the TransGlobe arrangement had been completed on such date or to project the Company’s results of operations for any future date or period.

	Year Ended December 31, 2022			Measurement Period Adjustment			Year Ended December 31, 2022 (As Adjusted)			Year Ended December 31, 2021			Measurement Period Adjustment				Year Ended December 31, 2021 (As Adjusted)
				(in thousands)									(in thousands)
Pro forma (unaudited):
Crude oil, natural gas and natural gas liquids sales	$	547,670	(a)	$	—		$	547,670	(a)	$	367,210	(a)	$	—			$	367,210	(a)
Operating income	$	267,582	(b)	$	—		$	267,582	(c)	$	104,924	(c)	$	—			$	104,924	(c)
Net income	$	130,425	(d)	$	1,412	(g)	$	131,837	(d)	$	54,534	(e,f)	$	(1,412	)	(g)	$	53,122	(e,f)
Basic net income per share:	$	1.21		$	0.01	(g)	$	1.22		$	0.51		$	(0.02	)	(g)	$	0.49
Basic weighted average shares outstanding		108,206			108,206			108,206			107,537			107,537				107,537
Diluted net income per share:	$	1.20		$	0.01	(g)	$	1.21		$	0.50		$	(0.01	)	(g)	$	0.49
Diluted weighted average shares outstanding		108,642			108,642			108,642			108,062			108,062				108,062

(a)	The unaudited pro forma net revenues associated with Crude oil, natural gas and natural gas liquids sales have been adjusted for shipping and handling costs based on the Company’s historical policy and revenue recognition is based on the Company’s working interest, less royalties, the entitlement method.
(b)	The unaudited pro forma operating income for the year ended December 31, 2022 removes the $23.7 million impairment reversal recorded by TransGlobe in 2022, excludes $10.2 million of severance costs associated with the Arrangement, excludes $6.5 million of TransGlobe transaction costs associated with the Arrangement, reclassifies depreciation expense, for certain leases identified as operating leases, to production expense and adjusts depreciation, depletion and amortization expense related to the depletable assets and asset retirement obligations acquired in the Arrangement based on the purchase price allocation.
(c)	The unaudited pro forma operating income for the year ended December 31, 2021 removes the $31.5 million impairment reversal recorded by TransGlobe in 2021, adjusts costs associated with overlifts to reduce revenue, includes $10.2 million of severance costs associated with the Arrangement, reclassifies depreciation expense, for certain leases identified as operating leases, to production expense and adjusts depreciation, depletion and amortization expense related to the depletable assets and asset retirement obligations acquired in the Arrangement based on the purchase price allocation (the impairment reversal was allowable under IFRS by TransGlobe in 2021).
(d)	The unaudited pro forma net income for the year ended December 31, 2022 excludes $14.6 million of transaction costs incurred by VAALCO associated with the Arrangement, excludes the bargain purchase gain of $10.8 million and reclassifies interest expense, for certain leases identified as operating leases, as production expense.
(e)	The unaudited pro forma net income for the year ended December 31, 2021 includes $21.1 million of transaction costs incurred by VAALCO and TransGlobe associated with the Arrangement, includes the bargain purchase gain of $10.8 million and reclassifies interest expense, for certain leases identified as operating leases, as production expense.
(f)	The unaudited pro forma net income for the year ended December 31, 2021 excludes nonrecurring pro forma adjustments directly attributable to the Sasol Acquisition, consisting of a bargain purchase gain of $7.7 million and transaction costs of $1.0 million.
(g)	The Measurement Period Adjustment is due to an original deferred tax liability being estimated at closing.  Additional information about the deferred tax liability was identified in the first part of 2023 creating the need for the $1.4 million adjustment.