VAALCO Energy Inc.
11/10/2025 | Press release | Distributed by Public on 11/10/2025 16:07
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Quarterly Report") includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may also include forward-looking information within the meaning defined under applicable Canadian securities laws (collectively, "forward-looking statements"), which are intended to be covered by the safe harbors created by those laws. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included in this Quarterly Report that address activities, events or developments that we expect or anticipate may occur in the future, including, without limitation, statements regarding our financial position, operating performance and results, reserve quantities and net present values, market prices, business strategy, derivative activities, the amount and nature of capital expenditures, payment of dividends and plans and objectives of management for future operations are forward-looking statements. When we use words such as "anticipate," "believe," "estimate," "expect," "intend," "forecast," "outlook," "aim," "target," "will," "could," "should," "may," "likely," "plan" and "probably" or the negative of such terms or similar expressions, we are making forward-looking statements. Many risks and uncertainties that could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements include, but are not limited to:
•the impact of world health events, including any related impact on global demand for crude oil and crude oil prices, potential difficulties in obtaining additional liquidity, when and if needed, disruptions in global supply chains and disruptions to our workforce;
•the impact of any future production quotas imposed by Gabon, as a member of the Organization of the Petroleum Exporting Countries ("OPEC"), as a result of agreements among OPEC, Russia and other allied producing countries (collectively, "OPEC+") with respect to crude oil production levels;
•the impact of the wide-ranging policy changes and numerous executive actions issued by the current U.S. presidential administration on topics including international trade, imposition of trade tariffs, energy resources, corporate taxes, global climate change initiatives, employment practices, corporate compliance programs, environmental regulations, as well as other matters;
•our ability to remediate our material weaknesses;
•volatility of, and declines and weaknesses in crude oil, natural gas and natural gas liquids ("NGLs") prices, as well as our ability to offset volatility in prices through the use of hedging transactions;
•the discovery, acquisition, development and replacement of crude oil, natural gas and NGLs reserves;
•impairments in the value of our crude oil, natural gas and NGLs assets;
•future capital requirements;
•our ability to maintain sufficient liquidity in order to fully implement our business plan;
•our ability to generate cash flows that, along with our cash on hand, will be sufficient to support our operations and cash requirements;
•the ability of the BWE Consortium to successfully execute its business plan;
•our ability to attract capital or obtain debt financing arrangements;
•our ability to pay the expenditures required in order to develop certain of our properties;
•operating hazards inherent in the exploration for and production of crude oil, natural gas and NGLs;
•difficulties encountered during the exploration for and production of crude oil, natural gas and NGLs;
•the impact of competition;
•our ability to identify and complete complementary opportunistic acquisitions;
•our ability to effectively integrate assets and properties that we acquire into our operations;
•weather conditions;
•the uncertainty of estimates of crude oil, natural gas and NGLs reserves;
•currency exchange rates and regulations;
•unanticipated issues and liabilities arising from non-compliance with environmental regulations;
•our limited control over the assets we do not operate;
•the impact and duration of scheduled maintenance of the floating, production, storage and offloading ("FPSO") vessel in Côte d'Ivoire;
•the ultimate resolution of our abandonment funding obligations with the government of Gabon and the audit of our operations in Gabon that was conducted by the government of Gabon;
•the availability and cost of seismic, drilling and other equipment;
•difficulties encountered in measuring, transporting and delivering crude oil, natural gas and NGLs to commercial markets;
•timing and amount of future production of crude oil, natural gas and NGLs;
•hedging decisions, including whether or not to enter into derivative financial instruments;
•general economic conditions, including any future economic downturn, the impact of inflation, and disruption in financial credit and other disruptions resulting from geo-political events such as the Russian invasion of Ukraine, conflicts in the Middle East, and trade tensions between the U.S. and China;
•our ability to enter into new customer contracts;
•changes in customer demand and producers' supply;
•actions by the governments and other significant actors with respect to events occurring in the countries in which we operate;
•actions by our joint venture owners;
•compliance with, or the effect of changes in, governmental regulations regarding our exploration, production, and well completion operations including those related to climate change;
•the outcome of any governmental audit;
•the anticipated impact on our business and operations of the OBBBA; and
•actions of operators of our crude oil, natural gas and NGLs properties.
The information contained in this Quarterly Report and the information set forth under the heading "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 Form 10-K"), identifies additional factors that could cause our results or performance to differ materially from those we express in forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this Quarterly Report, and the 2024 Form 10-K, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. When you consider our forward-looking statements, you should keep in mind these risk factors and the other cautionary statements in this Quarterly Report.
Our forward-looking statements speak only as of the date the statements are made and reflect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be affected by inaccurate assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations and assumptions. Our forward-looking statements, express or implied, are expressly qualified in their entirety by this "Cautionary Statement Regarding Forward-Looking Statements," which constitute cautionary statements. These cautionary statements should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances occurring after the date of this Quarterly Report.
INTRODUCTION
Vaalco is a Houston, Texas-based, African-focused independent energy company with strong production and reserve portfolio of assets in Gabon, Egypt, Equatorial Guinea, Nigeria, Côte d'Ivoire, as well as Canada. We are currently engaged in the acquisition, exploration, development and production of crude oil, natural gas and NGLs.
RECENT DEVELOPMENTS
Quarterly Cash Dividends
The Company paid a quarterly cash dividend of $0.0625 per share of common stock for the third quarter of 2025 ($0.25 annualized) on September 19, 2025 to stockholders of record at the close of business on August 22, 2025. The Company also announced its next quarterly cash dividend of $0.0625 per share of common stock for the fourth quarter of 2025 ($0.25 annualized) to be paid on December 24, 2025 to stockholders of record at close of business on November 21, 2025. Payment of future dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including current financial condition, the tax impact of repatriating cash, operating results and current and anticipated cash needs.
Recent Operational Updates
Gabon
The Company secured a drilling rig in December 2024 in conjunction with its 2025/2026 drilling program, which is expected to begin during the fourth quarter of 2025, once the drilling rig completes its current commitments. The program includes drilling multiple development wells, and appraisal or exploration wells, and perform workovers, with options to drill additional wells. We plan to drill wells at both the Etame platform and at its Seent platform, as well as a re-drill and a number of workovers in the Ebouri field to access production and reserves that were previously removed from proved reserves due to the presence of hydrogen sulfide.
In July 2025, the Company performed planned, staged shutdowns of the Gabon platforms to perform safety inspections and necessary maintenance to increase the integrity and reliability of the assets. This is the first full field maintenance shutdown that the Company has performed since the new Floating Storage and Offloading vessel ("FSO") was brought online in 2022. All fields were successfully brought back online and the planned turnaround was completed on budget and with no safety or environmental incidents.
Egypt
The current drilling campaign in Egypt began in December 2024 and has continued through the third quarter of 2025. During the third quarter of 2025, four development wells were drilled in the Eastern Desert, of which three were completed during the same period and the fourth well was completed in October 2025. Also, during the third quarter of 2025, we drilled one exploration well in the Western Desert which was completed in October 2025. Additionally, continuous well interventions, workovers and optimization activities were carried out throughout the third quarter of 2025 to enhance production levels.
Canada
In 2025, the Company decided to defer the drilling of additional wells in Canada based on a reassessment of capital allocation priorities across the portfolio and to ensure that investment is directed toward projects with the highest expected returns. Therefore, the Canadian division is looking towards lower-cost optimization projects to enhance productivity by year-end.
Côte d'Ivoire
As part of the planned dry dock refurbishment, the Baobab FPSO ceased hydrocarbon production on January 31, 2025 and the final lifting of crude oil from the FPSO took place in February 2025. The vessel departed from the field in late March 2025 and arrived at the shipyard in Dubai ahead of schedule in mid-May 2025. The FPSO refurbishment is progressing well and has now been underway for the last five months in the shipyard. A rig has been secured for significant development drilling which is expected to begin in 2026 after the FPSO returns to service, bringing meaningful additions to production from the main Baobab field in CI-40. The Company is also evaluating the anticipated impact of the potential future development of the Kossipo field, which is also on the CI-40 license.
Equatorial Guinea
We own a 60% working interest in an undeveloped portion of Block P offshore Equatorial Guinea where we are the designated operator. We have an existing plan of development of the Venus field discovery on Block P, which focuses on key areas of drilling evaluations, facilities design, market inquiries and metocean review. The Company has completed the initial Front End Engineering and Design study that confirmed the viability of the development concept and is currently evaluating alternative technical solutions which may deliver enhanced economic value.
CAPITAL RESOURCES AND LIQUIDITY
Cash Flows
Our cash flows for the nine months ended September 30, 2025 and 2024 are as follows:
| Nine Months Ended September 30, | |||||||||||||||||
| 2025 | 2024 | Change in 2025 over 2024 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Net cash provided by operating activities before changes in operating assets and liabilities | $ | 86,969 | $ | 134,521 | $ | (47,552) | |||||||||||
| Net change in operating assets and liabilities | (19,475) | (65,336) | 45,861 | ||||||||||||||
| Net cash provided by operating activities | 67,494 | 69,185 | $ | (1,691) | |||||||||||||
| Net cash used in investing activities | (155,762) | (61,118) | (94,644) | ||||||||||||||
| Net cash provided by (used in) financing activities | 22,603 | (32,264) | 54,867 | ||||||||||||||
| Effects of exchange rate changes on cash | 53 | (4) | 57 | ||||||||||||||
| Net change in cash, cash equivalents and restricted cash | $ | (65,612) | $ | (24,201) | $ | (41,411) | |||||||||||
The $1.7 million decrease in net cash provided by operating activities during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was driven primarily by changes in operating assets and liabilities during the period. The net increase in changes provided by operating assets and liabilities of $45.9 million for the nine months ended September 30, 2025 compared to the same period of 2024 was primarily related to the overall decrease in accrued liabilities and accounts payable, decrease in trade receivables due to the settlement of the Egypt backdated receivables and improvement of trade receivables, value added tax and other receivables. The favorable changes in the cash flows from operating activities are offset primarily by a decrease in foreign taxes payable.
The $94.6 million change in net cash used in investing activities during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, was due to costs associated with the development drilling programs in Egypt, as well as maintenance, project costs and long lead items for Gabon and Côte d'Ivoire. For the nine months ended September 30, 2024, cash used in investing activities was due to capital spending costs associated with the development drilling programs in Egypt and Canada not exceeding prior year expenditures along with reduced current year expenditures for Gabon. In addition, Vaalco used $40.2 million in cash for the acquisition of Svenska which is offset by the cash received from Svenska in the amount of $40.6 million.
Net cash provided by financing activities during the nine months ended September 30, 2025 primarily consists of $60.0 million in proceeds from borrowings under the 2025 RBL Facility, offset by cash used of $19.8 million for dividend distributions, $7.1 million of payments for deferred financing costs and $9.8 million of principal payments on our finance leases. For the nine months ended September 30, 2024, cash used in financing activities included $19.6 million for dividend distributions, $6.8 million for treasury stock repurchases made under our stock repurchase plan or as a result of tax withholding on options exercised and on vested restricted stock, and $6.3 million of principal payments on our finance leases partially offset by $0.4 in proceeds from options exercised.
Capital Expenditures
For the nine months ended September 30, 2025, we had accrual basis capital expenditures of $147.6 million compared to $73.1 million accrual basis capital expenditures for the same period in 2024. For the nine months ended September 30, 2025, our cash spending primarily related to the new wells drilled as part of the drilling campaign in Egypt as well as expenditures associated with the refurbishment of the FPSO in Côte d'Ivoire. During the same period in 2024, our cash spending primarily related to the Svenska acquisition as well as payments for the 2024 drilling campaigns in both Egypt and Canada.
See discussion below in "Capital Resources, Liquidity and Cash Requirements" for further information.
Commodity Price Hedging
The price we receive for our crude oil significantly influences our revenue, profitability, liquidity, access to capital and prospects for future growth. Crude oil and natural gas commodities, and therefore their prices, can be subject to wide fluctuations in response to relatively minor changes in supply and demand. We believe these prices will likely continue to be volatile in the future.
Due to the inherent volatility in crude oil prices, we use commodity derivative instruments such as swaps, costless collars and put options to hedge price risk associated with a portion of our anticipated crude oil and gas production. These instruments allow us to reduce, but not eliminate, the potential effects of variability in cash flow from operations due to fluctuations in commodity prices. The instruments provide only partial protection against declines in crude oil and gas prices and may limit our potential gains from future increases in prices. None of these instruments are used for trading purposes. We do not speculate on commodity prices, but rather attempt to hedge physical production by individual hydrocarbon product in order to protect returns. The counterparty to our derivative swap transactions was a major oil company's trading subsidiary, and our costless collars are with Glencore. We have not designated any of our derivative contracts as fair value or cash flow hedges. The changes in fair value of the contracts are included in the unaudited condensed consolidated statements of operations and other comprehensive income. We record such derivative instruments as assets or liabilities in the unaudited condensed consolidated balance sheets. Our 2025 RBL Facility requires us to enter into commodity price hedge positions establishing certain minimum fixed prices for anticipated future production. See Part I, Item 1, Note 8. Derivatives to the unaudited condensed consolidated financial statements for further discussion.
Cash on Hand
At September 30, 2025, we had unrestricted cash of $24.0 million. We invest cash not required for immediate operational and capital expenditure needs in short-term money market instruments primarily with financial institutions where we determine our credit exposure is negligible. As operator of the Etame Marin block in Gabon, we enter into project-related activities on behalf of our working interest joint venture owners. We generally obtain advances from joint venture owners prior to significant funding commitments. Our cash on hand will be utilized, along with cash generated from operations, to fund our operations and capital expenditures.
Capital Resources, Liquidity and Cash Requirements
Our primary source of liquidity has been cash flows from operations and our primary use of cash has been to fund capital expenditures for development activities. We continually monitor the availability of capital resources, including equity and debt financings that could be utilized to meet our future financial obligations, planned capital expenditure activities and liquidity requirements including those to fund opportunistic acquisitions. Our future success in growing proved reserves, production and balancing the long-term development of our assets with a focus on generating attractive corporate-level returns will be highly dependent on the capital resources available to us.
Based on current expectations, we believe we have sufficient liquidity through our existing cash balances, cash flow from operations and our 2025 RBL Facility to support our current cash requirements during the next 12 months and beyond, including the FPSO refurbishment, drilling programs, dividend payments, Merged Concession Agreement, abandonment funding, as well as transaction expenses and capital and operational costs associated with our business segments' operations. However, our ability to generate sufficient cash flow from operations or fund any potential future acquisitions, consortiums, joint ventures or pay dividends for other similar transactions depends on operating and economic conditions, some of which are beyond our control. If additional capital is needed, we may not be able to obtain debt or equity financing on terms favorable to us, or at all. We are continuing to evaluate all uses of cash, including opportunistic acquisitions, and
whether to pursue growth opportunities and whether such growth opportunities, additional sources of liquidity, including equity and/or debt financings, are appropriate to fund any such growth opportunities.
Merged Concession Agreement
For information on the Merged Concession Agreement, see Part I, Item 1, Note 10. Commitments and Contingencies to the unaudited condensed consolidated financial statements.
2025 Facility Agreement and Available Credit
For information on our 2025 Facility Agreement and available credit, see Part I, Item 1., Note 11. Debt, to the unaudited condensed consolidated financial statements.
Cash Requirements
Our material cash requirements generally consist of the FPSO refurbishment, finance and operating leases, capital projects, dividend payments, Merged Concession Agreement and abandonment funding, each of which is discussed in further detail below.
Abandonment Funding- Under the terms of the Etame PSC, we have a cash funding arrangement for the eventual abandonment of all offshore wells, platforms and facilities on the Etame Marin block. As a result of the extension of the Etame PSC, annual funding payments are spread over the periods from 2018 through 2028, under the applicable abandonment study. The amounts paid will be reimbursed through the Cost Account and are non-refundable. At September 30, 2025, the balance of the abandonment fund was $10.7 million ($6.3 million, net to Vaalco) on an undiscounted basis. The annual payments will be adjusted based on revisions in the abandonment estimate. This cash funding is reflected under "Other noncurrent assets" in the "Abandonment funding" line item of the unaudited condensed consolidated balance sheets. Future changes to the anticipated abandonment cost estimate could change the asset retirement obligation and the amount of future abandonment funding payments.
Capital Projects- In December 2024, Vaalco secured a rig for the 2025/26 drilling campaign at Etame and is currently finalizing locations and planning for the next drilling campaign, which is expected to begin during the fourth quarter of 2025. In Egypt, additional drilling and completion activities are expected to continue during the last quarter of 2025.
Leases -We are a party to several operating and financing lease arrangements, including operating leases for the corporate office, a drilling rig, rental of marine vessels and a helicopter, warehouse and storage facilities, equipment and financing lease agreements for the FSO, generators and turbines used in the operations of the Etame Marin block and for equipment, offices and vehicles used in the operations of Canada and Egypt. The annual costs of these leases are significant to us.
Merged Concession Agreement- On January 20, 2022, the Merged Concession Agreement was executed with EGPC that merged the three existing Eastern Desert concessions with a 15-year primary term and improved economics. As part of the agreement, the Company is required to make an annual modernization payment of $10.0 million per year to EGPC through February 2026. In accordance with the Merged Concession Agreement, we agreed to substitute the 2023, 2024 and 2025 payments and issue three $10.0 million credits against receivables owed from EGPC. We will make one further annual modernization payment of $10.0 million on February 1, 2026. For information on the Merged Concession Agreement, see Part I, Item 1, Note 10. Commitments and Contingencies to the unaudited condensed consolidated financial statements.
Financial Work Commitments -In Egypt, we also have financial work commitments of $50.0 million per each five-year period of the primary development term, commencing on February 1, 2020 for a total of $150 million over the 15 year license contract term. Through September 30, 2025, our financial work commitments have exceeded the five-year minimum $50 million threshold and any excess carries forward to offset against subsequent five-year commitments.
FPSO Maintenance- The Baobab FPSO arrived at the shipyard in Dubai ahead of schedule in mid-May for planned maintenance and upgrades. The FPSO refurbishment is now underway in the shipyard. The FPSO is expected to return to service in 2026.
Drilling Rig Commitment - The Company entered into a bareboat charter agreement (the "Bareboat Charter") during the fourth quarter of 2024 to charter a drilling rig for its drilling program in Gabon that is expected to commence during the fourth quarter of 2025. Pursuant to the Bareboat Charter, the Company also entered into a service agreement with a third party for purposes of maintaining and operating the drilling rig on its behalf. The Bareboat Charter is expected to commence once the mobilization of the drilling rig towards the Company's first well has commenced and has a
noncancellable period of 300 days plus five single well options. The Bareboat Charter stipulates fixed day rates and other variable payments.
Trends and Uncertainties
Geopolitical Conflict and Other Market Forces- The Company continues to monitor geopolitical developments globally, and specifically in Europe, the Middle East, Africa, and North America, where they have the potential to impact operational continuity and market dynamics. On October 9, 2025, Israel, Hamas, the United States and other countries in the region agreed to a framework for a ceasefire in Gaza between Israel and Hamas, which if sustained, could reduce regional instability in the Eastern Mediterranean, and improve security conditions affecting Egypt operations and related energy supply chains. However, whether the ceasefire will be sustained or will result in a lasting de-escalation of tensions in the region is unknown. Additionally, geopolitical tensions and localized disruptions persist in parts of West Africa, where we hold significant producing and development interests, require ongoing vigilance regarding political, economic, and security risks.
Additionally, global market forces including inflation, supply chain constraints due to lingering impacts from conflicts such as the Russia-Ukraine war, and shifts in U.S. trade policy including tariffs on energy-related goods, continue to increase costs and extend lead times for equipment and materials essential to drilling and production activities. These factors could affect project timing, cost structures, and overall operational efficiency. The Company also notes ongoing volatility in commodity prices driven by dynamic supply and demand fundamentals, energy transition policies, and broader macroeconomic uncertainties. Vaalco actively manages exposure to these risks through operational flexibility, diversified sourcing, and prudent financial planning to safeguard long-term growth and value creation.
U.S. Tariffs and Global Trade Policies- In 2025, the U.S. administration enacted sweeping trade legislation, including significant tariff increases on industrial goods, energy-related equipment, and certain critical minerals, with a stated intent to prioritize domestic manufacturing and energy security. While there is significant uncertainty as to the duration of these and any further tariffs, and the impacts these tariffs and any corresponding retaliatory tariffs will have on the oil and gas industry and on commodity prices, these tariffs, along with anticipated retaliatory measures from affected trading partners, have introduced new volatility into the global supply chain for energy infrastructure. While we do not maintain U.S. based production assets, our operations in Canada and on the continent of Africa rely on equipment, services, and materials that are often sourced, engineered, or consolidated through the United States or through U.S. aligned trading routes. As a result, we may experience increased costs and longer lead times for the procurement and delivery of drilling and production equipment, particularly if suppliers adjust pricing in response to increased duties or if we are required to diversify sourcing channels. These impacts could affect the timing, cost structure and execution risk of certain development activities, especially in frontier offshore environments.
Additionally, the evolving global trade environment may increase compliance complexity and affect the cost efficiency of international operations. Enhanced documentation requirements and new rules of origin associated with U.S. trade actions could impact our ability to efficiently move materials through international logistics hubs, such as those in Houston, Texas and could necessitate additional internal resources to maintain compliance. These complexities necessitate additional internal resources to ensure sustained compliance and efficient material flow.
The broader geopolitical trade environment, including retaliatory tariffs and ongoing trade tensions with key partners, continues to inject volatility into the global supply network, necessitating vigilant risk management and strategic sourcing to mitigate operational disruptions and cost impacts.
Enactment of the One Big Beautiful Bill Act of 2025- On July 4, 2025, the budget reconciliation bill known as the One Big Beautiful Bill Act of 2025 ("OBBBA") was signed into law, which includes significant changes to federal tax law and other regulatory provisions that may impact the Company. Among other provisions, the OBBBA makes permanent key elements of the Tax Cuts and Jobs Act of 2017. We are currently evaluating the provisions of the OBBBA law and the potential effects on our financial position, results of operations, and cash flows, however we do not anticipate any material financial impact from the passage of the OBBBA.
Moreover, to the extent U.S. policy shifts create uncertainty in bilateral relations or disrupt traditional trade partnerships, there could be indirect effects on our ability to manage risk and maintain favorable operating conditions in host countries. While we continue to monitor the evolving regulatory and trade landscape, we cannot predict the full impact of current or future tariffs, trade restrictions or retaliatory actions on our operations, financial condition or future capital deployment decisions.
Commodity Prices - Historically, the markets for oil, natural gas and NGLs have been volatile. Oil, natural gas and NGLs prices are subject to wide fluctuations in supply and demand. Our cash flows from operations may be adversely impacted by volatility in crude oil and natural gas prices, a decrease in demand for crude oil, natural gas or NGLs and future production cuts by OPEC. In addition, recent U.S. energy policy changes that prioritize domestic production and energy security, including through tax credits and development incentives, may influence global supply dynamics and capital flows, potentially altering the competitive landscape for international assets.
ESG and Climate Change Effects- Sustainability matters continue to attract public, political, regulatory and scientific attention.
While 2025 has seen a deceleration in the adoption of sustainability-oriented regulation, particularly in the U.S., and a noticeable shift by some financial institutions away from explicitly "ESG" or "Net Zero" branded initiatives due to perceived political or reputational sensitivities, we believe the underlying trend of focusing on sustainability remains consistent. Long-term structural pressures, including stakeholder expectations, evolving global market standards, and transition-related investment priorities, continue to support the integration of sustainability considerations into corporate strategy and capital markets.
The attention to climate change and environmental stewardship coupled with increasing government incentives around renewable energy sources may result in demand shifts away from crude oil and natural gas products, higher regulatory and compliance costs, additional governmental investigations and private litigation against the oil and gas industry, including Vaalco. For example, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, voluntary efforts to reduce routine flaring, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources. In addition, institutional investors, proxy advisory firms and other industry participants continue to focus on environmental, social and governance ("ESG") matters, including climate change. We expect that this heightened focus will continue to drive ESG efforts across our industry and influence investment and voting decisions, which for some investors may lead to less favorable sentiment towards carbon assets and diversion of investment to other industries.
Climate-Related Disclosures- On March 27, 2025, the SEC ended its defense of the final rules on climate-related disclosures, effectively withdrawing its support for the regulation. The rules, which were adopted in March 2024, require publicly traded companies to disclose climate-related risks and greenhouse gas emissions. The SEC's decision to end its defense was made after a change in administration and a shift in policy, with Acting Chairman Mark Uyeda expressing concerns about the rule's costs and intrusiveness. While the rules remain on hold pending legal challenges, which, as of September 2025, have been held in abeyance by the Eighth Circuit Court of Appeals until such time as the SEC reconsiders the challenged rules by notice-and-comment rulemaking or renews its defense of the rules, the SEC's withdrawal of support signals a potential shift in direction for climate disclosure regulations. Despite this regulatory shift in the U.S., we remain committed to maintaining transparency and aligning with industry standards for similarly situated companies.
U.S. activity notwithstanding, for the past three years, the Company has refined its reporting in line with the recommendations of the Task Force on Climate-Related Disclosures ("TCFD"), which is recognized as the global standard in climate-related reporting and required by Vaalco to report against through its listing on the London Stock Exchange. The full TCFD report was included within the Company's 2024 Sustainability Report (rather than in the Annual Report on Form 10-K or in the annual report which was published in connection with the annual meeting), as the Sustainability Report details environmental, social and governance matters of which the TCFD report forms an important part. The 2024 Sustainability Report is available on the Company's website.
The Company considers itself aligned with both the TCFD's Governance and Strategy pillars and the recommendations therein. During 2025, the Company has made meaningful progress against certain of the underlying recommendations of the TCFD's Governance and Strategy pillars and provides statements of intent to address these recommendations, including communicating its short-, mid- and long-range goals for emission reductions, beginning with its operated assets.
In June 2025, the UK government advanced its endorsement process for sustainability reporting standards by publishing exposure drafts for UK Sustainability Reporting Standards ("UK SRS") S1 and S2, derived from the International Financial Reporting Standards ("IFRS") S1 and S2 frameworks, and initiated a public consultation scheduled to conclude in autumn 2025. Pending final government approval and subsequent Financial Conduct Authority (FCA) rulemaking, UK listed businesses will be subject to phased implementation starting with climate-related disclosures, excluding Scope 3 greenhouse gas emissions in the first period, transitioning to full coverage in subsequent years. The UK approach eliminates fixed commencement dates and offers regulatory flexibility, with transitional reliefs supporting issuer compliance and a "climate-first" methodology for initial reports, ensuring a measured shift from existing TCFD
requirements to the new UK SRS/IFRS-aligned disclosure regime. UK listed entities are advised to prepare for mandatory reporting in line with IFRS S1 and S2, anticipated from accounting periods beginning in 2026, subject to the outcomes of the consultation and final government direction.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates subsequent to December 31, 2024. For a discussion of the Company's critical accounting policies for the fiscal year ended December 31, 2024, please see our 2024 Form 10-K.
NEW ACCOUNTING STANDARDS
See Part I, Item 1, Note 2. New Accounting Standards to the unaudited condensed consolidated financial statements.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024
Net income for the three months ended September 30, 2025 was $1.1 million compared to a net income of $11.0 million during the same period of 2024. See discussion below for changes in revenues and expenses.
Crude oil, natural gas and NGLs revenues decreased $79.3 million, or approximately 57%, to $61.0 million during the three months ended September 30, 2025 from $140.3 million during the same period in 2024. The revenue decrease is primarily attributable to lower revenues in our Côte d'Ivoire and Canada segments.
| Three Months Ended September 30, | Increase/(Decrease) | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Net crude oil, natural gas, and NGLs revenue | $ | 61,007 | $ | 140,334 | $ | (79,327) | |||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Production expense | 29,872 | 42,324 | (12,452) | ||||||||||||||
| Exploration expense | 353 | - | 353 | ||||||||||||||
| Depreciation, depletion and amortization | 20,555 | 47,031 | (26,476) | ||||||||||||||
| General and administrative expense | 8,845 | 6,929 | 1,916 | ||||||||||||||
| Credit losses and other | 484 | 69 | 415 | ||||||||||||||
| Total operating costs and expenses | 60,109 | 96,353 | (36,244) | ||||||||||||||
| Other operating income, net | - | 102 | (102) | ||||||||||||||
| Operating income | 898 | 44,083 | (43,185) | ||||||||||||||
| Other expense, net | (3,393) | (519) | (2,874) | ||||||||||||||
| Income before income taxes | (2,495) | 43,564 | (46,059) | ||||||||||||||
| Income tax expense | (3,596) | 32,574 | (36,170) | ||||||||||||||
| Net income | $ | 1,101 | $ | 10,990 | $ | (9,889) | |||||||||||
The revenue changes in the three months ended September 30, 2025 compared to the same period in 2024 identified as related to changes in price or volume, are shown in the table below:
| (in thousands) | ||||||||
| Price | $ | (16,704) | ||||||
| Volume | (62,369) | |||||||
|
Other(1)
|
(254) | |||||||
| (79,327) | ||||||||
(1) Other in the table above includes revenues attributed to carried interests.
The table below shows net production, sales volumes and realized prices for both periods.
| Three Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net crude oil, natural gas and NGLs production (MBoe) | 1,417 | 2,004 | |||||||||
| Net crude oil, natural gas and NGLs sales (MBoe) | 1,180 | 2,134 | |||||||||
| Average realized crude oil, natural gas and NGLs price ($/Boe) | $ | 51.26 | $ | 65.41 | |||||||
| Average Dated Brent spot price* ($/Bbl) | $ | 69.04 | $ | 80.01 | |||||||
*Average of daily Dated Brent spot prices posted on the U.S. Energy Information Administration website.
Crude oil, natural gas and NGL revenues:
Gabon
Crude oil sales in Gabon are a function of the number and size of crude oil liftings in each year and thus crude oil sales do not always coincide with volumes produced in any given year. The Company's Gabon segment contributed $21.3 million of revenue to the Company's total revenue during the three months ended September 30, 2025, a decrease of $26.3 million from the $47.6 million of revenue reported during the three months ended September 30, 2024. The decrease in revenues is primarily due to a sales volume decrease in Gabon from the 617 MBbls reported during the third quarter of 2024 to 333 MBbls for the three months ended September 30, 2025 combined with a lower average realized sales price received in Gabon of $62.40 per Bbl for three months ended September 30, 2025 compared to the $77.16 per Bbl average realized sales price received during the same period in 2024. The lower sales and production volumes is primarily a result of a planned and successful full field maintenance shutdown which occurred in July 2025. Gabon's share of crude oil inventory, excluding royalty barrels, was approximately 292 MBbls to 217 MBbls at September 30, 2025 and 2024, respectively.
Egypt
Crude oil sales in Egypt are either sold to a third party via a cargo lifting or sold directly to the government, through EGPC. During the three months ended September 30, 2025, the oil sold in Egypt was through direct sales to EGPC. The Company's Egypt segment contributed $35.7 million of revenue to the Company's total revenue for the three months ended September 30, 2025, which is higher than the $34.5 million of revenue reported during the three months ended September 30, 2024. The increase in revenues was primarily due to an increase in sales volumes to 693 MBbls during the three months ended September 30, 2025 compared to 657 MBbls, during the three months ended September 30, 2024 partially offset by a decrease in average realized sales price from $52.58 per Bbl during the three months ended September 30, 2024 to $51.51 per Bbl during the same period in 2025.
Canada
Crude oil sales in Canada are normally sold through pipelines to a third party. The Company's Canadian segment contributed $4.0 million of revenue to the Company's total revenue for the three months ended September 30, 2025, or a decrease of $4.4 million compared to $8.4 million of revenue reported during the three months ended September 30, 2024. The decrease in revenues was primarily due to lower average realized sales price received of $26.13 per Boe during the
three months ended September 30, 2025 compared to the $36.95 per Boe received during the same period in 2024. Sales volumes in Canada decreased during the three months ended September 30, 2025 to 155 MBoe in comparison to 227 MBoe in the same period in 2024.
Côte d'Ivoire
Crude oil sales in Côte d'Ivoire are sold through a marketing contract with an international oil trading company which offers the cargo shipments to buyers, mainly refineries, around the world. As previously noted, the FPSO ceased production in January 2025 and its refurbishment is currently underway in the shipyard. The FPSO is expected to return to service in 2026. As such, there were no revenues from the Company's Côte d'Ivoire segment during the three months ended September 30, 2025. Revenues during the three months ended September 30, 2024 were $49.8 million with total sales volumes of 632 MBbls and an average sales price received of $78.75 per Bbl.
Production expenses decreased $12.5 million, or approximately 29%, for the three months ended September 30, 2025 to $29.9 million from $42.3 million for the same period in the prior year. The decrease was primarily driven by a reduction in production expenses in our Côte d'Ivoire segment. On a per barrel basis, production expense, excluding workover expense and stock compensation expense, for the three months ended September 30, 2025 increased to $25.23 per barrel from $19.80 per barrel for the three months ended September 30, 2024.
Exploration expense for the three months ended September 30, 2025 of $0.4 million was attributable to the purchase of additional seismic data to be used in Block 705 in Cote d'Ivoire and to expenses related to Blocks G and H in Gabon. There were no exploration costs incurred during the same period in 2024.
Depreciation, depletion and amortizationcosts decreased by $26.5 million, or approximately 56%, for the three months ended September 30, 2025 to $20.6 million from $47.0 million during the same period in 2024. Since there was no production during the three months ended September 30, 2025 in Côte d'Ivoire, there was also no depletion expense recorded and therefore resulted in the decrease in the overall depletion expense for the period.
General and administrative expensesincreased by $1.9 million, or 28%, for the three months ended September 30, 2025 to $8.8 million from $6.9 million during the same period in 2024. The increase in general and administrative expenses is primarily due to an increase in professional service fees and salaries and wages.
Credit losses and other increased by approximately $0.4 million for the three months ended September 30, 2025 compared to the same period in 2024. The increase in credit losses and other is primarily attributable to allowance charges related to the joint venture partners and value added tax receivables. Credit losses and other for the same period in 2024 was an insignificant amount due to a smaller joint venture partner receivable.
Derivative instruments gain (loss), net is attributable to our swaps and collars as discussed in Part I, Item 1, Note 8. Derivatives to the unaudited condensed consolidated financial statements. Derivative loss increased by $1.3 million to a loss of $1.1 million for the three months ended September 30, 2025 from a gain of $0.2 million during the same period in 2024. Derivative loss for the three months ended September 30, 2025 are a result of the decrease in the price of Dated Brent crude oil over the initial strike price per barrel of the option over the three months ended September 30, 2025. Our derivative instruments currently cover a portion of our production through September 2026 for oil and through December 2026 for natural gas.
Interest expense, net was $2.3 million for the three months ended September 30, 2025 compared to an expense of $0.6 million during the same period in 2024. The increase in net interest expense for the three months ended September 30, 2025 primarily resulted from an increase in our amortization of debt issue costs, commitment fees incurred and interest incurred on our borrowing under the 2025 RBL Facility, partially offset by interest income.
Other income (expense), net increased by $0.2 million to an income of less than $0.1 million for the three months ended September 30, 2025 from a $0.1 million expense during the same period in 2024. Other income (expense), net, normally consists primarily of foreign currency gains and losses.
Income tax expense (benefit)for the three months ended September 30, 2025 was a benefit of $3.6 million which includes a $3.9 million favorable oil price adjustment as a result of the change in value of the government of Gabon's allocation of Profit Oil between the time it was produced and the time it was taken in-kind. After excluding this impact, income taxes were $0.3 million for the period. Income tax expense for the three months ended September 30, 2024 was an expense of $32.6 million. This expense is comprised of current tax expense of $33.7 million including a $1.8 million favorable oil
price adjustment as a result of the change in value of the government of Gabon's allocation of Profit Oil between the time it was produced and the time it was taken in-kind. After excluding this impact, current income taxes were $35.5 million for the period.
Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024
Net income for the nine months ended September 30, 2025 was $17.2 million compared to a net income of $46.8 million during the same period of 2024. See discussion below for changes in revenues and expenses.
Crude oil, natural gas and NGLs revenues decreased $89.0 million, or approximately 25%, to $268.2 million during the nine months ended September 30, 2025 from $357.3 million during the same period in 2024. The revenue decrease is primarily due to lower revenues in Gabon and Côte d'Ivoire.
| Nine Months Ended September 30, | Increase/(Decrease) | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Net crude oil, natural gas, and NGLs revenue | $ | 268,230 | $ | 357,267 | $ | (89,037) | |||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Production expense | 115,070 | 126,859 | (11,789) | ||||||||||||||
| Exploration expense | 2,873 | 48 | 2,825 | ||||||||||||||
| Depreciation, depletion and amortization | 79,133 | 105,987 | (26,854) | ||||||||||||||
| General and administrative expense | 26,393 | 21,230 | 5,163 | ||||||||||||||
| Credit losses and other | 485 | 5,222 | (4,737) | ||||||||||||||
| Total operating costs and expenses | 223,954 | 259,346 | (35,392) | ||||||||||||||
| Other operating expense, net | - | 68 | (68) | ||||||||||||||
| Operating income | 44,276 | 97,989 | (53,713) | ||||||||||||||
| Other income (expense), net | (7,594) | 12,953 | (20,547) | ||||||||||||||
| Income before income taxes | 36,682 | 110,942 | (74,260) | ||||||||||||||
| Income tax expense | 19,470 | 64,115 | (44,645) | ||||||||||||||
| Net income | $ | 17,212 | $ | 46,827 | $ | (29,615) | |||||||||||
The revenue changes in the nine months ended September 30, 2025 compared to the same period in 2024 identified as related to changes in price or volume, are shown in the table below:
| (in thousands) | ||||||||
| Price | $ | (39,969) | ||||||
| Volume | (47,917) | |||||||
|
Other(1)
|
(1,151) | |||||||
| $ | (89,037) | |||||||
(1) Other in the table above includes revenues attributed to carried interests.
The table below shows net production, sales volumes and realized prices for both periods.
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net crude oil, natural gas and NGLs production (MBoe) | 4,559 | 5,410 | |||||||||
| Net crude oil, natural gas and NGLs sales (MBoe) | 4,662 | 5,388 | |||||||||
| Average realized crude oil, natural gas and NGLs price ($/Boe) | $ | 57.42 | $ | 65.99 | |||||||
| Average Dated Brent spot price* ($/Bbl) | $ | 71.01 | $ | 82.50 | |||||||
*Average of daily Dated Brent spot prices posted on the U.S. Energy Information Administration website.
Crude oil, natural gas and NGL revenues:
Gabon
Crude oil sales in Gabon are a function of the number and size of crude oil liftings in each year and thus crude oil sales do not always coincide with volumes produced in any given year. The Company's Gabon segment contributed $132.0 million of revenue to the Company's total revenue during the nine months ended September 30, 2025, a decrease of $26.8 million from the $158.8 million of revenue reported during the nine months ended September 30, 2024. The decrease in revenues is primarily due to the lower average realized sales price received in Gabon of $69.52 per Bbl for nine months ended September 30, 2025 compared to $81.55 per Bbl average realized sales price received during the same period in 2024. Additionally, there was a decrease in sales volume in Gabon to 1,891 MBbls for the nine months ended September 30, 2025 from the 1,947 MBbls sales volume during the same period of 2024. Gabon's share of crude oil inventory, excluding royalty barrels, was approximately 292 MBbls and 217 MBbls at September 30, 2025 and 2024, respectively.
Egypt
Crude oil sales in Egypt are either sold to a third party via a cargo lifting or sold directly to the government, through EGPC. During the nine months ended September 30, 2025, the oil sold in Egypt was through direct sales to EGPC. The Company's Egypt segment contributed $102.9 million of revenue to the Company's total revenue for the nine months ended September 30, 2025, which is $4.1 million lower than the $107.0 million of revenue reported during the nine months ended September 30, 2024. The decrease in revenues was primarily due to a decrease in average realized sales price from $55.12 per Bbl during the nine months ended September 30, 2024 to $50.74 per Bbl during the same period in 2025. Sales volumes in Egypt remained relatively consistent at 2,027 MBbls and 1,941 MBbls during the nine months ended September 30, 2025 and 2024, respectively.
Canada
Crude oil sales in Canada are normally sold through pipelines to a third party. The Company's Canadian segment contributed $14.9 million of revenue to the Company's total revenue for the nine months ended September 30, 2025, or a decrease of $9.6 million, compared to $24.5 million of revenue reported during the nine months ended September 30, 2024. The decrease in revenues was primarily due to lower average realized sales price received of $29.54 per Boe during the nine months ended September 30, 2025 compared to $37.29 per Boe received during the same period in 2024. Sales volumes in Canada decreased during the nine months ended September 30, 2025 to 506 MBoe in comparison to 656 MBoe in the same period in 2024.
Côte d'Ivoire
Crude oil sales in Côte d'Ivoire are sold through a marketing contract with an international oil trading company which offers the cargo shipments to buyers, mainly refineries, around the world. As previously noted, the FPSO ceased production in January 2025 and its refurbishment is currently underway in the shipyard. The FPSO is expected to return to service in 2026. The Company's Côte d'Ivoire segment contributed $18.4 million of revenue to the Company's total revenue for the nine months ended September 30, 2025, or a decrease of $48.6 million, compared to $67.0 million of revenue reported during the nine months ended September 30, 2024. The decrease in revenues was primarily due to a decrease in sales volumes from 844 MBbls during nine months ended September 30, 2024 to 238 MBbls during the same
period in 2025. In addition, the average realized sales price received of $77.36 per Bbl during the nine months ended September 30, 2025 was lower compared to $79.43 per Bbl received during the same period in 2024.
Production expenses decreased $11.8 million for the nine months ended September 30, 2025 to $115.1 million from $126.9 million for the same period in the prior year. The decrease was primarily driven by higher expenses in Gabon which includes customs costs and increased maintenance costs to enhance well productivity offset by a decrease in expenses in the Cote d'Ivoire segment. On a per barrel basis, production expense, excluding workover expense and stock compensation expense, for the nine months ended September 30, 2025 increased to $24.63 per barrel from $23.51 per barrel for the nine months ended September 30, 2024.
Exploration expense for the nine months ended September 30, 2025 of $2.9 million was attributable to the purchase of seismic data to be used in Block 705 in Cote d'Ivoire and the costs associated with Blocks G and H in Gabon. Exploration costs incurred during the same period in 2024 was minimal.
Depreciation, depletion and amortizationcosts decreased $26.9 million, or approximately 25%, for the nine months ended September 30, 2025 to $79.1 million from $106.0 million during the same period in 2024. The decrease in depreciation, depletion and amortization expense is primarily related to the lower depletable costs in Gabon and Egypt. Also, since there was no production since January 2025 in Côte d'Ivoire, there was also no depletion expense recorded and therefore resulted in the decrease in the overall depletion expense for the period.
General and administrative expensesincreased $5.2 million, or 24%, for the nine months ended September 30, 2025 to $26.4 million from $21.2 million during the same period in 2024. The increase in general and administrative expenses is primarily due to an increase in professional service fees, salaries and wages, and accounting and legal fees.
Credit losses and other decreased by approximately $4.7 million during the nine months ended September 30, 2025 compared to the same period in 2024. The decrease in credit losses and other for the nine months ended September 30, 2025, is primarily attributable to the higher allowance calculated during the first nine months of 2024 related to the Backdated Receivables, defined in Part I, Item 1, Note 10. Commitments and Contingencies to the unaudited condensed consolidated financial statements. The Backdated Receivables were settled as of March 31, 2025.
Derivative instruments gain (loss), net is attributable to our swaps and collars as discussed in Part I, Item 1, Note 8. Derivatives to the unaudited condensed consolidated financial statements. Derivative loss increased by $0.4 million to a loss of $0.8 million for the nine months ended September 30, 2025 from a loss of $0.4 million during the same period in 2024. Derivative losses for the nine months ended September 30, 2025 are a result of the decrease in the price of Dated Brent crude oil over the initial strike price per barrel of the option over the nine months ended September 30, 2025. Our derivative instruments currently cover a portion of our production through September 2026 for oil and through December 2026 for gas.
Interest expense, net was $6.2 million for the nine months ended September 30, 2025 compared to an expense of $2.6 million during the same period in 2024. The increase in net interest expense for the nine months ended September 30, 2025 primarily resulted from an increase in our amortization of debt issue costs, commitment fees incurred and interest incurred on our borrowings under the 2025 RBL Facility, partially offset by interest income.
Other income (expense), net was an expense of $0.6 million for the nine months ended September 30, 2025 compared with an expense of $3.9 million during the same period in 2024. The decrease in other income (expense) was substantially due to transactions costs associated with the Svenska acquisition of $3.4 million that were incurred during the nine months ended September 30, 2024.
Income tax expense (benefit)for the nine months ended September 30, 2025 was an expense of $19.5 million which includes a $6.4 million favorable oil price adjustment as a result of the change in value of the government of Gabon's allocation of Profit Oil between the time it was produced and the time it was taken in-kind. After excluding this impact, income taxes were $25.9 million for the period. Income tax expense for the nine months ended September 30, 2024 was $64.1 million. This expense is comprised of current tax expense of $72.7 million including a $1.2 million favorable oil price adjustment as a result of the change in value of the government of Gabon's allocation of Profit Oil between the time it was produced and the time it was taken in-kind. After excluding this impact, current income taxes were $73.9 million for such period.
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