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Note 3 - Acquisitions and Dispositions | 6 Months Ended
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Jun. 30, 2022
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | 3. ACQUISITIONS AND DISPOSITIONS Pending Merger On July 13, 2022, the Company and VAALCO Energy Canada ULC (“AcquireCo”), an Alberta unlimited liability company and an indirect wholly owned subsidiary of the Company, entered into an Arrangement Agreement (the “Arrangement Agreement”) with TransGlobe Energy Corporation, an Alberta corporation (“TransGlobe”), pursuant to which, among other things, AcquireCo agreed to acquire all of the issued and outstanding common shares of TransGlobe (the “Arrangement”), with TransGlobe continuing as a direct wholly owned subsidiary of AcquireCo and an indirect wholly-owned subsidiary of the Company. The aggregate consideration for the Arrangement is approximately $307 million. The $307 million aggregate consideration is estimated from the Company's share price of $6.23 at the close of business on July 13, 2022 multiplied by the exchange ratio negotiated with TransGlobe of 0.6727 shares of the Company's stock for each TransGlobe share multiplied by the number of TransGlobe outstanding shares of 73,309,064. The Arrangement will be implemented by way of a plan of arrangement (the “Plan of Arrangement”) in accordance with the Business Corporations Act (Alberta) (the “ABCA”) and is subject to approval by the Court of Queen’s Bench of Alberta (the “Court”), the stockholders of the Company and the shareholders of TransGlobe, among other customary conditions for a transaction of this nature and size. On the terms and subject to the conditions of the Arrangement Agreement and the Plan of Arrangement, at the effective time of the Arrangement (the “Effective Time”), each common share of TransGlobe that is issued and outstanding immediately prior to the Effective Time will be deemed to be transferred and assigned to AcquireCo in exchange for 0.6727 of a share (“Exchange Ratio”) of VAALCO common stock (the “Consideration”). No fractional shares of VAALCO common stock will be issued in the Arrangement, and TransGlobe’s shareholders will receive cash in lieu of any fractional shares of VAALCO common stock. Any shares in respect of which dissent rights have been properly exercised and not withdrawn pursuant to Section 191 of the ABCA, will be deemed to be transferred and assigned to VAALCO, but will not be entitled to the Consideration and will, instead, be subject to dissent rights under the ABCA, as modified by the Plan of Arrangement and the interim order of the Court. The shareholders of TransGlobe will be asked to approve the Arrangement (the “TransGlobe Resolution”) at a shareholder meeting, and the stockholders of VAALCO will be asked to approve (i) the issuance of shares of VAALCO common stock as Consideration for the Arrangement (the “Consideration Shares”) (the “VAALCO Share Issuance Resolution”); and (ii) an amendment to VAALCO’s certificate of incorporation to increase the size of VAALCO’s authorized share capital (the “VAALCO Amendment Resolution” and, together with the VAALCO Share Issuance Resolution, the “VAALCO Resolutions”) at a stockholder meeting. VAALCO will use commercially reasonable efforts to schedule its stockholder meeting as promptly as reasonably practicable following clearance by the SEC of VAALCO’s proxy statement relating to such meeting and on the same date as the TransGlobe’s shareholder meeting. TransGlobe will use its commercially reasonable efforts to schedule its shareholder meeting on the same date as VAALCO’s stockholder meeting. The closing of the Arrangement is conditioned on the adoption of the TransGlobe Resolution and the VAALCO Resolutions. Consummation of the Arrangement is also subject to (a) the approval of the Arrangement by the Court in form and substance acceptable to each of VAALCO and TransGlobe, acting reasonably; (b) the absence of any law, injunction or other governmental order that prohibits the consummation of the Arrangement; (c) the approval for listing on the NYSE of the Consideration Shares; (d) the U.K. Financial Conduct Authority (the “FCA”) shall have acknowledged that the application for admission of VAALCO’s enlarged share capital has been approved and (after satisfaction of any conditions to which such approval is expressed to be subject (“U.K. Listing Conditions”)), such admission will become effective as soon as a dealing notice has been issued by the FCA and any U.K. Listing Conditions having been satisfied; (e) the LSE shall have acknowledged that the conditions to VAALCO’s enlarged share capital being admitted to trading on the standard segment of the main market of the LSE have been satisfied; (f) the availability of an exemption of Consideration Shares from the registration requirements of the Securities Act of 1933 (the “Securities Act”) under Section 3(a)(10) thereof; (g) the absence of a material adverse effect in respect of either TransGlobe or VAALCO; (h) to the extent required or necessary, (1) the approval or consent of, or waiver or non-exercise of any material termination, pre-emption or similar rights by, any governmental entity in, or in respect of the interests held by TransGlobe in, Canada and Egypt and (2) no actions or inactions having been taken which are likely to result in the withdrawal, cancellation, termination or modification of any license or permit held by TransGlobe or any of its subsidiaries in respect of the interests held by TransGlobe in Canada and Egypt which is necessary for the proper carrying on of its business; (i) dissent rights not having been exercised (or if exercised, remaining unwithdrawn) with respect to more than 10% of the issued and outstanding TransGlobe shares; and (j) other customary closing conditions, including the accuracy of the other party’s representations and warranties (subject to certain materiality qualifications), and the other party’s compliance with its covenants and agreements contained in the Arrangement Agreement. If consummated, the Arrangement will result 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 outstanding as of the date of the Arrangement Agreement. The Arrangement is expected to be completed before the end of 2022. The Arrangement Agreement provides for mutual termination fees of $9.15 million in the event the Arrangement Agreement is terminated by either party in certain circumstances. For the three and six months ended June 30, 2022 included in the line item "Other (expense) income, net" is $1.2 million of transactions costs associated with the Arrangement with TransGlobe. Acquisition of Sasol Gabon S.A.’s Interest in Etame On February 25, 2021, VAALCO Gabon S.A. completed the acquisition of Sasol’s 27.8% working interest in the Etame Marin block offshore Gabon pursuant to the SPA. The effective date of the transaction was July 1, 2020. Prior to the Sasol Acquisition, the Company owned and operated a 31.1% working interest in Etame. The Sasol Acquisition increased the Company’s working interest to 58.8%. As a result of the Sasol Acquisition, the net portion of production and costs relating to the Company’s Etame operations increased from 31.1% to 58.8%. Reserves, production and financial results for the interests acquired in the Sasol Acquisition have been included in VAALCO’s results for periods after February 25, 2021. The following amounts represent the allocation of the purchase price to the assets acquired and liabilities assumed in the Sasol Acquisition.
|  | February 25, 2021 |
|  | (in thousands) |
Purchase Consideration |  |  |  |
Cash |  | $ | 33,959 |
Fair value of contingent consideration |  |  | 4,647 |
Total purchase consideration |  | $ | 38,606 |
|  | February 25, 2021 |
|  | (in thousands) |
Assets acquired: |  |  |  |
Wells, platforms and other production facilities |  | $ | 37,176 |
Equipment and other |  |  | 5,568 |
Value added tax and other receivables |  |  | 1,234 |
Abandonment funding |  |  | 11,781 |
Accounts receivable - trade |  |  | 11,220 |
Other current assets |  |  | 3,963 |
Liabilities assumed: |  |  |  |
Asset retirement obligations |  |  | (14,564 | )
Accrued liabilities and other |  |  | (10,121 | )
Bargain purchase gain |  |  | (7,651 | )
Total purchase price |  | $ | 38,606 |
All assets and liabilities associated with Sasol’s interest in Etame Marin block, including crude oil and natural gas 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, February 25, 2021, 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 the Company’s 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 risk adjusted discount rates. Other significant estimates were used by the Company to determine the fair value of assets acquired and liabilities assumed. The Company had one year from the date of closing to record purchase price adjustments as a result of changes in such estimates. As a result of comparing the purchase price to the fair value of the assets acquired and liabilities assumed a $7.7 million bargain purchase gain was recognized. A bargain purchase gain of $5.5 million is included in “Other, net" under "Other income (expense)" in the 2021 cond ensed consolidated statements of operations. An income tax benefit of $2.2 million, related to the bargain purchase gain, is also included in the 2021 condensed consolidated statements of operations. The bargain purchase gain is primarily attributable to the increase in crude oil price forecasts from the date the SPA was signed, November 17, 2020, to the closing date, February 25, 2021, when the fair value of the reserves associated with the Sasol Acquisition were determined. The impact of the Sasol Acquisition was an increase to “Crude oil and natural gas sales” in the condensed consolidated statement of operations of $52.4 million and $84.8 million for the three and six months ended June 30, 2022, respectively, and $7.1 million and $12.9 million increase to “Net income” in the condensed consolidated statements of operations for the three and six months ended June 30, 2022, respectively. The impact of the Sasol Acquisition was an increase to “Crude oil and natural gas sales” in the condensed consolidated statement of operations of $22.2 million and $31.6 million for the three and six months ended June 30, 2021, respectively, and $8.1 million and $9.9 million increase to “Net income” in the condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively. The unaudited pro forma results presented below have been prepared to give the effect to the Sasol Acquisition discussed above on the Company’s results of operations for the three and six months ended June 30, 2021, respectively, as if the Sasol Acquisition had been consummated on January 1, 2020. The unaudited pro forma results do not purport to represent what the Company’s actual results operations would have been if the Sasol Acquisition had been completed on such date or to project the Company’s results of operations for any future date or period.
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |  |
|  | 2021 |  |  | 2021 |  |
|  | (in thousands) |  |
Pro forma (unaudited) |  |  |  |  |  |  |  |  |
Crude oil and natural gas sales |  | $ | 47,023 |  |  | $ | 104,570 |  |
Operating income |  |  | 18,874 |  |  |  | 43,899 |  |
Net income |  |  | 5,884 |  |  |  | 17,620 |  | (a)
Basic net income loss per share: |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 0.10 |  |  | $ | 0.30 |  |
Net income per share |  | $ | 0.10 |  |  | $ | 0.30 |  |
Basic weighted average shares outstanding |  |  | 58,072 |  |  |  | 57,855 |  |
Diluted net income per share: |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 0.10 |  |  | $ | 0.30 |  |
Net income per share |  | $ | 0.10 |  |  | $ | 0.30 |  |
Diluted weighted average shares outstanding |  |  | 58,574 |  |  |  | 58,527 |  |
| (a) | The pro forma net income for the six months ended June 30, 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.
Under the terms of the SPA, a contingent payment of $5.0 million was payable to Sasol should the average Dated Brent price over a consecutive 90-day period from July 1, 2020 to June 30, 2022 exceed $60.00 per barrel. Included in the purchase consideration was the fair value, at closing, of the contingent payment due to Sasol. The conditions related to the contingent payment were met and on April 29, 2021, the Company paid the $5.0 million contingent amount to Sasol in accordance with the terms of the SPA. Discontinued Operations - Angola In November 2006, the Company signed a production sharing contract for Block 5 offshore Angola (“Block 5 PSA”). The Company’s working interest was 40%, and the Company carried Sonangol P&P, for 10% of the work program. On September 30, 2016, the Company notified Sonangol P&P that it was withdrawing from the joint operating agreement effective October 31, 2016. On November 30, 2016, the Company notified the national concessionaire, Sonangol E.P., that it was withdrawing from the Block 5 PSA and reduced its activities in Angola. As a result of this strategic shift, the Company classified all the related assets and liabilities as those of discontinued operations in the condensed consolidated balance sheets. The operating results of the Angola segment have been classified as discontinued operations for all periods presented in the Company’s condensed consolidated statements of operations. The Company segregated the cash flows attributable to the Angola segment from the cash flows from continuing operations for all periods presented in the Company’s condensed consolidated statements of cash flows. During three and six months ended June 30, 2022 and 2021, the Angola segment did not have a material impact on the Company’s financial position, results of operations, cash flows and related disclosures.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI https://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 + Details
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