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Note 3 - Acquisitions and Dispositions | 6 Months Ended
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Jun. 30, 2023
Notes to Financial Statements |
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | 3. ACQUISITIONS AND DISPOSITIONS TransGlobe Merger 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 (the “Arrangement Agreement”). 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 common stock, par value $0.10 per share, of the Company (“VAALCO common stock,” and each share of VAALCO common stock, a “VAALCO 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 (the “Combined Company”), calculated based on vested outstanding shares of each company as of the date of the Arrangement Agreement. Prior to the Arrangement, TransGlobe was a cash flow-focused oil and gas exploration and development company whose activities were concentrated in the Arab Republic of Egypt and Canada. The Combined Company is a leading African-focused operator with a strong production and reserve base and a diverse portfolio of assets in Gabon, Egypt, Equatorial Guinea and Canada. The transaction qualifies as a business combination under ASC 805, Business Combinations and the Company is the accounting acquiror. The purchase accounting for the business combination has not been completed. During the three months ended June 30, 2023 the deferred tax liability in Egypt did not change. During the six months ended June 30, 2023, the deferred tax liability in Egypt was increased by $1.4 million, respectively, as of the date of the Arrangement. This resulted in a decrease to the bargain purchase gain of a corresponding $1.4 million for the six months ended June 30, 2023, and is reflected in VAALCO's condensed consolidated statements of operations in the line, “Other expense, net”. The actual impact of the Arrangement was an increase to “Crude oil, natural gas and NGLs sales” of $75.0 million and $1.7 million of “Net income” in the condensed consolidated statements of operations and comprehensive income for the six months ended June 30, 2023. The impact for the three months ended June 30, 2023 was an increase to “Crude oil, natural gas and NGLs sales” of $31.3 million and $(8.0) million of “Net Loss” in the condensed consolidated statements of operations and comprehensive income.
|  | October 13, 2022 |  |  | Measurement Period Adjustment |  |  | October 13, 2022 (As Adjusted) |
|  | (in thousands) |  |  | (in thousands) |  |  | (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) |  |  | (in thousands) |  |  | (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. Other estimates were used by the Company to determine the fair value of assets acquired and liabilities assumed. The purchase price allocation is preliminary pending final determination of the fair values of certain assets and liabilities, primarily the accounts receivable, asset retirement obligations, accounts payable and any contingencies, and any related tax impacts. As a result of comparing the purchase price to the fair value of the assets acquired and liabilities assumed, an initial $10.8 million bargain purchase gain was recognized. As a result of the measurement period adjustment, the initial bargain purchase gain has been reduced to $9.4 million. The bargain purchase gain was due to the decrease in the share price of VAALCO stock from the time period when the arrangement agreement was signed, July 13, 2022, and the share price at closing, October 13, 2022, while the exchange ratio, of TransGlobe shares converted to VAALCO shares, remained the same. The unaudited pro forma results presented below have been prepared to give the effect of the TransGlobe Arrangement discussed above on the Company’s results for the three and six months ended June 30, 2022, 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 project the Company’s results of operations for any future date or period.
|  | Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
|  | 2022 |  |  |  | 2022 |  |
|  | (in thousands) |  |  |  | (in thousands) |  |
Pro forma (unaudited): |  |  |  |  |  |  |  |  |  |
Crude oil, natural gas and natural gas liquids sales |  | $ | 183,665 |  | (a) |  | $ | 304,792 |  | (a)
Operating income |  | $ | 110,091 |  | (b) |  | $ | 171,518 |  | (d)
Net income |  | $ | 41,818 |  | (c) |  | $ | 72,857 |  | (e)
Basic net income per share: |  | $ | 0.39 |  |  |  | $ | 0.67 |  |
Basic weighted average shares outstanding |  |  | 108,232 |  |  |  |  | 108,121 |  |
Diluted net income per share: |  | $ | 0.38 |  |  |  | $ | 0.67 |  |
Diluted weighted average shares outstanding |  |  | 108,668 |  |  |  |  | 108,585 |  |
(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 three months ended June 30, 2022 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 net income for the three months ended June 30, 2022 reclassifies interest expense, for certain leases identified as operating leases, as production expense.
(d) | The unaudited pro forma operating income for the six months ended June 30, 2022 removes the $26.0 million impairment reversal recorded by TransGlobe in 2022, 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.
(e) | The unaudited pro forma net income for the six months ended June 30, 2022 reclassifies interest expense, for certain leases identified as operating leases, as production expense.
Discontinued Operations - Angola and Yemen 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 consolidated balance sheets. The operating results of the Angola segment have been classified as discontinued operations for all periods presented in the Company’s consolidated statements of operations and comprehensive income. 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 consolidated statements of cash flows. During the three and six months ended June 30, 2023 and 2022, the Angola segment did not have a material impact on the Company’s financial position, results of operations, cash flows and related disclosures. As part of the Arrangement with TransGlobe, the Company acquired TG Holdings Yemen Inc. who previously owned TransGlobe's interests in four PSAs in Yemen: Block 32, Block 72, Block 75 and Block S-1. In January 2015, TransGlobe relinquished its interests in Block 32 and Block 72 in Yemen (effective dates of March 31, 2015 and February 28, 2015, respectively), and in October 2015 TransGlobe sold its subsidiary that held interests in Block 75 and Block S-1. The operating results of the Yemen segment have been classified as discontinued operations for all periods presented in the Company’s consolidated statements of operations and comprehensive income. The Company segregated the cash flows attributable to the Yemen segment from the cash flows from continuing operations for all periods presented in the Company’s consolidated statements of cash flows. During the three and six months ended June 30, 2023, the Yemen 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 -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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