- Plans to Drill Seven Wildcats with Exposure to in Excess of 50 million Net Barrels
VAALCO Energy, Inc. announced that for the first quarter of 2008, net income was $1.8 million or $0.03 per diluted share compared to net income of $4.6 million or $0.08 per diluted share for the comparable period in 2007 due to higher taxes and somewhat higher exploration costs in 2008. Discretionary cash flow (a non GAAP measure) was up 30 percent to $14.5 million compared to $11.2 million in the first quarter of 2007.
Robert L. Gerry, III, Chairman and CEO stated, “We are pleased with the progress in our core operations, where we achieved an 11% increase in production from the Etame block complex during the first quarter of 2008 compared to the first quarter of 2007. We are currently producing approximately 22,500 barrels of oil per day. “On the development front, the Ebouri platform sailed from Corpus Christi, Texas for Gabon on May 8, 2008 and should be installed by July. After the development drilling is completed towards the end of the year, the Ebouri field should be capable of delivering an additional 4,000 to 6,000 barrels oil per day,” continued Mr. Gerry.
Exploration Drilling Program
“After years of exacting preparation and planning with our partners and the host governments VAALCO is entering a period that will see the highest levels of exploration and development in the Company's history. VAALCO’s 2008 drilling program builds on the solid exploration track record we have established and presents exciting opportunities to drive significant increases in both production and reserves, further enhancing value for VAALCO shareholders,” continued Mr. Gerry.
VAALCO’s exploration program, which includes seven exploration wells over the next twelve to eighteen months, will expose the Company to in excess of 50 million net barrels compared to VAALCO’s current 6.2 million barrels of proved reserves, representing an 8-fold potential increase.
The Company has made arrangements to contract two offshore jackups for the drilling program offshore Gabon:
• The first rig will be used to drill three exploratory wells: an appraisal well for possible expansion of the Ebouri development project and two additional wells on newly mapped structures. These three wells have gross reserve potential additions in excess of 60 million barrels (approximately 15 million net barrels to VAALCO). Drilling on these wells will commence in September 2008 and the wells will be drilled back to back.
• The second rig will be used to drill development wells at Ebouri. The rig for the development wells will arrive in October 2008. This rig is larger than the one to be used for the exploration wells, as it must jack up over the platform to drill the development wells.
Onshore Gabon, VAALCO has committed to a rig to drill two wildcats with combined potential reserves of in excess of 30 million barrels. VAALCO has a 100% working interest in the onshore Mutamba block. Environment impact assessment studies are underway, with plans to build the drilling pads over the summer and commence drilling in December 2008.
VAALCO is participating with Century Exploration in a gas prospect on Block 48/25c in the British North Sea commencing in August 2008. The well is an offset to a former Shell gas discovery made in 1987. Recently acquired 3-D seismic data indicates the ability to get higher on structure than the earlier well, increasing the potential reserves to 60 Bcf. VAALCO will have a 25% interest in the well.
The Company is also moving forward on the planning for a well on Angola Block 5 during the first half of 2009. The consortium has identified four prospects and will high grade these into a drilling recommendation in the near future. Prospect reserve potentials range from 20 to 150 million barrels of recoverable oil and the Company has a 40% working interest in the block.
Financial Results
The Company sold 446,000 net barrels of oil equivalent at an average price of $94.44 per barrel during the first quarter of 2008 for revenues of $42.2 million, compared to 511,000 net barrels at an average price of $57.03 per barrel for revenues of $29.1 million in the first quarter of 2007.
In the first quarter of 2008, production costs and depletion costs were slightly higher than in the first quarter of 2007, but general and administrative costs were lower. The Company also incurred $6.7 million of exploration costs in the first quarter of 2008, compared to $5.1 million of exploration costs in the first quarter of 2007. Operating income was $24.1 million in the first quarter of 2008 compared to $12.3 million in the first quarter of 2007.
First quarter 2008 results reflect higher income taxes of $21.4 million compared to $7.2 million in the first quarter of 2007. In 2007, the Company benefited from cost recovery of the Avouma and South Thchibala development drilling program, which reduced taxable profit oil barrels. The higher tax rate in the first quarter of 2008 was the primary contributor to lower net income of $1.8 million compared to $4.6 million in the first quarter of 2007. With the planned expenditures to develop Ebouri and for the exploration program, we anticipate the tax rate will be lower during the remainder of the year.
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