Restricted cash and abandonment funding – Restricted cash includes cash that is contractually restricted. Restricted cash is classified as a current or non-current asset based on its designated purpose and time duration. Current amounts in restricted cash at June 30, 2022March 31, 2023 and 20212022 each include an escrow amount for the floating, production, storage and offloading vessel (“FPSO”), representing bank guarantees for customs clearance in Gabon. Long-term amounts at June 30, 2022March 31, 2023 and 20212022 include a charter payment escrow for the FPSO offshore Gabon as discussed inin Note 10 andand amounts set aside for the future abandonment of the Etame Marin block. The Company invests restricted and excess cash in readily redeemable money market funds. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows.

The Company conducts regular abandonment studies to update the estimated costs to abandon the offshore wells, platforms and facilities on the Etame Marin block. This cash funding is reflected under “Other noncurrent assets” as “Abandonment funding” on 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. See Note 10 for further discussion.

On February 28, 2019, the Gabonese branch of the international commercial bank holding the abandonment funds in a U.S. dollar ("USD") denominated account advised the Company that the bank regulator required transfer of the funds to the Bank Of Central African States (BEAC) which is the Central Bank (“Central Bank”) for Africanof the Economic and Monetary Community (“CEMAC”),of Central Africa (CEMAC) of which Gabon is one of the six member states, for conversion to local currency with a credit back to the Gabonese branch in local currency. The Company’s production sharing contract related to the Etame Marin block located offshore Gabon (“Etame PSC”)PSC provides these payments must be denominated in U.S. dollarsUSD and the CEMAC regulations provide for the establishment of a U.S. dollarUSD account with the Central Bank. Although the Company requested establishment of such account, the Central Bank did not comply with its requests until February 2021. since they were working on an abandonment fund common policy for the oil and gas Industry as well as the mining industry. As a result, the Company was not able to make the annual abandonment funding payments inpayment for the years 2019 through 2020 or 20212022 totaling $4.3$5.8 million, net to VAALCO based on the 2018 abandonment study. InOn FebruaryJanuary 12, 2023, of 2021, the Bank of Central African State (“BEAC”) authorized the Company to apply for a U.S. dollar denominated escrow account for the abandonment fund at Citibank Gabon (“Citibank”). Workingafter continued discussions with Citibank, on March 12, 2021 the Company filed the application to open the accountvarious BEAC and is currently awaiting the approval of the account from the Central Bank. Accordingly,government officials, the Company was not ableallowed to make ourre-establish a USD denominated account and made whole for the original USD amount of $37.3 million that was in the account prior to conversion to a local currency account in 2019.

In the first quarter of 2023, the Directorate of Hydrocarbons in Gabon approved a $26.6 million ($15.6 million, net to VAALCO) abandonment funding payment associated with the FPSO retirement. The Company received payment of $15.6 million in 2021.March 2023. In December 2021, as part of the new FX regulations issued by BEAC, BEAC allowed for the opening of U.S. dollars escrow accounts for the abandonment funds at BEAC.

The Company is currently working with the extractive industryDirectorate of Hydrocarbons in Gabon on establishing a payment schedule to formulate the agreements, which are expected to be finalized in 2022, that regulate these accounts. Accordingly, pursuant to Amendment No.5 of the Etame PSC that required these funds to be in U.S. dollars, once the account for the U.S. dollars abandonment fund is open at BEAC we will resume our funding of the abandonment fund in compliance with the Etame PSC.

Accounts with joint venture owners, net – Accounts with joint venture owners represent the excess of charges billed over cash calls paid by the joint venture owners for exploration, development and production expenditures made by the Company as an operator.

Accounts Receivable and Allowance for Doubtful Accounts – The Company’s accounts receivable results from sales of crude oil production, joint interest billings to its joint interest owners for their share of expenses on joint venture projects for which the Company is the operator, and receivables from the government of Gabon for reimbursable Value-Added Tax (“VAT”). Collection efforts, including remedies provided for in the contracts, are pursued to collect overdue amounts owed to the Company. Portions of the Company’s costs in Gabon (including the Company’s VAT receivable) are denominated in the local currency of Gabon, the Central African CFA Franc (“XAF”). Most of these receivables have payment terms of 30 days or less. Joint owner receivables are secured through cash calls and other mechanisms for collection under the terms of the joint operating agreements. For credit losses associated with accounts with joint venture owners, seeallowance for credit losses below.

Accounts Receivable, net– The Company routinely assesses the recoverability of all material receivables to determine their collectability. The Company accrues a reserve on a receivable when, based on management’s judgment, it is probable that a receivable will not be collected and the amount of such reserve may be reasonably estimated. When collectability is in doubt, the Company records an allowance against theCompany’s trade accounts receivable results from sales of crude oil, natural gas, and a corresponding income charge for bad debts, which appears in the “Bad debt expense and other” line item of the condensed consolidated statements of operations.

As of June 30, 2022, the outstanding VAT receivable balance, excluding the NGLs. For credit losses associated with accounts with trade receivables, seeallowance for bad debt, was approximately $17.4 million ($10.6 million, net to VAALCO). As of June 30, 2022, the exchange rate was XAF 627.6 = $1.00. As of December 31, 2021, the outstanding VAT receivable balance, excluding the allowance for bad debt, was approximately $14.5 million ($9.6 million, net to VAALCO). As of December 31, 2021, the exchange rate was XAF 578.2 = $1.00. The receivable amount, net of allowances, is reported as a non-current asset in the “Value added tax and other receivables” line item in the condensed consolidated balance sheets. Because both the VAT receivable and the related allowances are denominated in XAF, the exchange rate revaluation of these balances into U.S. dollars at the end of each reporting period also has an impact on the Company’s results of operations. Such foreign currency gains (losses) are reported separately in the “Other, net” line item of the condensed consolidated statements of operations.credit losses below.

The following table provides a roll forward of the aggregate allowance for bad debt:

Other receivables, net– Under the terms of the Etame PSC, the Company can be required to contribute to meeting domestic market needs of the Republic of Gabon by delivering to it, or another entity designated by the Republic of Gabon, an amount of crude oil proportional to the Company’s share of production to the total production in Gabon over the year. In 2021, the Company was notified by the Republic of Gabon to deliver to a refinery its proportionate share of crude oil to meet the domestic market need as per the terms of the Etame PSC. The Company is entitled, per the Etame PSC, to a fixed selling price for the oil delivered. Since the crude-oilcrude oil produced by the Company was not compatible with the crude-oilcrude oil requirements of the refinery, the Company entered into 2two contracts to fulfill its domestic market needs obligation under the Etame PSC. One contract was to purchase oil from another producer that produced the compatible oil the refinery needs and another contract with the refinery itself to deliver the crude oil to.oil. Under the contract with the provider of the crude oil, the third party-party provider is entitled to a selling price consistent with the price the Company receives under the terms of the Etame PSC for the delivery of the crude oil to the refinery. As a result of these contracts and timing differences between when the oil is procured and when it is delivered to and paid for by the refinery, included in the Company’s June 30, 2022March 31, 2023 condensed consolidated balance sheet are current receivables in the "other, net" line item of approximately $10.7$16.8 million for amounts due to the Company from the refinery for 195228 MBbls delivered to the refinery, a $17.9 million current liability included in the "Account payable" line item for amounts due to the oil supplier for April 195 MBbls of purchased crude oil from the supplier in the second half of 2022and May 2022, a $19.1$2.5 million current liability included in the "Accrued liabilities and other" line item for amounts due to the oil supplier for 16332.5 MBbls of crude oil purchased in April March 2023.and

On JuneJanuary 19, 2022, TransGlobe’s West Gharib, West Bakr and $12.6North West Gharib (collectively the "Eastern Desert") concessions were merged into the Merged Concession Agreement with the Egyptian General Petroleum Corporation ("EGPC"). The Merged Concession includes improved cost recovery and production sharing terms scaled to oil prices with a new 15-year development term and a 5-year extension option. Upon execution of the Merged Concession, there was an effective date adjustment owed to the Company for the difference between historic and Merged Concession Agreement commercial terms applied against Eastern Desert production from the Merged Concession Effective Date, February 1, 2020. The cumulative amount of the effective date adjustment was estimated at $67.5 million includedand was recorded as part of the TransGlobe Arrangement. During the fourth quarter of 2022, the Company received $17.2 million of the receivable. At March 31, 2023, the remaining $50.3 million was recorded on the condensed consolidated balance sheet in current assets onreceivables in the "Crude oil inventory""Other, net" line itemitem. The Company continues to work with the marketing and scheduling department of EGPC, as well as the Ministry, to crystallize cargoes against the back dated receivable.

For credit losses associated with other receivables, seeallowance for 98 MBbls of crude oil procured in June 2022, which is 98 MBbls of the 163 MBbls included in accrued liabilities.credit losses below.

Value added tax and other receivables, net – The Company incurs receivables from the government of Gabon for reimbursable Value-Added Tax (“VAT”).  For the allowance associated with VAT, see allowance for credit losses and other below.  Since VAT is assessed under a foreign taxing authority, the allowance falls outside of the scope of the credit loss standard.  

As of March 31, 2023, the outstanding VAT receivable balance, excluding the allowance, was approximately $22.9 million ($14.9 million, net to VAALCO). As of March 31, 2023, the exchange rate was XAF 602.976 = $1.00. As of December 31, 2022, the outstanding VAT receivable balance, excluding the allowance, was approximately $21.8 million ($13.9 million, net to VAALCO). As of December 31, 2022, the exchange rate was XAF 612.6 = $1.00. The receivable amount, net of allowances, is reported as a non-current asset in the “Value added tax and other receivables” line item in the unaudited condensed consolidated balance sheets. Because both the VAT receivable and the related allowances are denominated in XAF, the exchange rate revaluation of these balances into U.S. dollars at the end of each reporting period also has an impact on the Company’s results of operations. Such foreign currency gains (losses) are reported separately in the “Other expense, net” line item of the condensed consolidated statements of operations and comprehensive income.

Allowance for credit losses and other – On January 1, 2023, the Company adopted Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”). ASU 2016-13 requires an entity to measure credit losses of certain financial assets, including trade receivables, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. 

The Company estimates the current expected credit losses based primarily using an either an aging analysis or discounted cash flow methodology that incorporates consideration of current and future conditions that could impact its counterparties’ credit quality and liquidity. Uncollectible receivables are written off when a settlement is reached for an amount that is less than the outstanding historical balance or when the Company has determined that the balance will not be collected.

The Company has identified the following types of financial assets that are within the scope of ASU 2016-13:

As a result of adopting ASU 2016-13 on January 1, 2023, the Company recognized a $3.1 million provision ($18.2 million other receivable balance excluding the provision) for current expected credit losses on its other receivables related to amounts owed to the Company from the refinery in Gabon through a cumulative effect adjustment offset to retained earnings. During the three months ended March 31, 2023, the Company recorded an additional provision of $0.4 million for the oil delivered to the refinery during the quarter.

Also on January 1, 2023, the Company transferred its $0.3 million provision related toaccounts with joint venture owners from an allowance for bad debt account to an expected credit loss account. As of March 31, 2023, the Company has established a credit loss allowance for the full $0.3 million receivable from one of the non-operating partners in Block P offshore Equatorial Guinea. The Company is working with its partner on collecting payment.

During the three months ended March, 31, 2023, the Company recognized an additional $0.6 million provision related to its Value added tax with Gabon.

With respect to the Company’s receivable from the refinery and TVA receivable balances, collection efforts, including remedies provided for in the contracts, are being pursued to collect overdue amounts owed to the Company. The Company is in ongoing discussions with the Ministry of the Economy, Hydrocarbons and the Presidency of Gabon on finding a solution to the realization of the past due balances.

The following table provides an analysis of the change of the aggregate credit loss allowance and other allowances.

Crude oil inventory – Crude oil inventories are carried at the lower of cost or net realizable value andvalue. In Gabon, inventories represent the Company's share of crude oil produced and stored on the FSO at March 31, 2023 or the FPSO at March 31, 2022, but unsold at the end of the period andperiod. In Egypt, inventory consists of the Company's entitlement crude oil purchasedbarrels not yet sold. The Company has made the decision to keep an inventory of crude in Egypt rather than perform direct sales in order to comply withpush for an export cargo during the domestic market needssecond quarter of the Republic of Gabon.  As of June 30, 20222023. At March 31, 2023, the crude oil inventory associated with the domestic market needs obligation was $12.6 million and the amount related to unsold crude oil inventory was $1.3 million.Company is in an underlift situation in Egypt.

Prepayments and Other – Included in “Prepayments and other” line item of the Company’s March 31, 2023 condensed consolidated balance sheet for the six months ended June 30, 2022are $6.0$2.5 million of prepayments related to fixed assets.assets, $1.6 million of prepayments related to royalties in Gabon, $1.9 million in prepaid insurance and other, $3.9 million related to prepaid fuel in Egypt, $2.2 million in advances to contractors, and $5.3 million in other prepaid items.

Materials and supplies – Materials and supplies, which are included in the “Prepayments and other” line item of the condensed consolidated balance sheet, are primarily used for production related activities. These assets are valued at the lower of cost, determined by the weighted-average method, or net realizable value.

Crude Oil and natural gas properties, equipment and other – The Company uses the successful efforts method of accounting for crude oil, and natural gas and NGLs producing activities. Management believes that this method is preferable, as the Company has focused on exploration activities wherein there is risk associated with future success and as such earnings are best represented by drilling results.

Capitalized Equipment Inventory – Capitalized equipment inventory represents the costs incurred in bringing the inventory to its present location and condition and is based on purchase costs calculated on weighted average cost basis, including transportation costs. Capitalized equipment inventory is classified as long term when the Company expects to utilize the inventory beyond the normal operating cycle.

Capitalization – Costs of successful wells, development dry holes and leases containing productive reserves are capitalized and amortized on a unit-of-production basis over the life of the related reserves. Other exploration costs, including dry exploration well costs, geological and geophysical expenses applicable to undeveloped leaseholds, leasehold expiration costs and delay rentals, are expensed as incurred. The costs of exploratory wells are initially capitalized pending a determination of whether proved reserves have been found. At the completion of drilling activities, the costs of exploratory wells remain capitalized if a determination is made that proved reserves have been found. If no proved reserves have been found, the costs of exploratory wells are charged to expense. In some cases, a determination of proved reserves cannot be made at the completion of drilling, requiring additional testing and evaluation of the wells. Cost incurred for exploratory wells that find reserves that cannot yet be classified as proved are capitalized if (a) the well has found a sufficient quantity of reserves to justify its completion as a producing well and (b) sufficient progress in assessing the reserves and the economic and operating viability of the project has been made. The status of suspended well costs is monitored continuously and reviewed quarterly. Due to the capital-intensive nature and the geographical characteristics of certain projects, it may take an extended period of time to evaluate the future potential of an exploration project and the economics associated with making a determination of its commercial viability. Geological and geophysical costs are expensed as incurred. Costs of seismic studies that are utilized in development drilling within an area of proved reserves are capitalized as development costs. Amounts of seismic costs capitalized are based on only those blocks of data used in determining development well locations. To the extent that a seismic project covers areas of both developmental and exploratory drilling, those seismic costs are proportionately allocated between development costs and exploration expense. 

Depreciation, depletion and amortization – Depletion of wells, platforms, and other production facilities are calculated on a block basis under the unit-of-production method based upon estimates of proved developed reserves. Depletion of developed leasehold acquisition costs are provided on a block basis under the unit-of-production method based upon estimates of proved reserves. Support equipment (other than equipment inventory) and leasehold improvements related to crude oil, and natural gas and NGLs producing activities, as well as property, plant and equipment unrelated to crude oil, and natural gas and NGLs producing activities, are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which are typically three to five years for office and miscellaneous equipment and five to seven years for leasehold improvements.

Impairment – The Company reviews the crude oil, and natural gas and NGLs producing properties for impairment on a block basis whenever events or changes in circumstances indicate that the carrying amount of such properties may not be recoverable. If the sum of the expected undiscounted future cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment charge is recorded based on the fair value of the asset. This may occur if the block contains lower than anticipated reserves or if commodity prices fall below a level that significantly effectsaffects anticipated future cash flows. The fair value measurement used in the impairment test is generally calculated with a discounted cash flow model using several Level 3 (as defined in the policy "Fair value" below) inputs that are based upon estimates the most significant of which is the estimate of net proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the Company’s control. Reserve engineering is a subjective process of estimating underground accumulations of crude oil, and natural gas and NGLs that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of crude oil, and natural gas and NGLs that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures and future crude oil and natural gas sales prices may all differ from those assumed in these estimates. Capitalized equipment inventory is reviewed regularly for obsolescence. When undeveloped crude oil, and natural gas and NGLs leases are deemed to be impaired, exploration expense is charged. Unproved property costs consist of acquisition costs related to undeveloped acreage in the Etame Marin block in Gabon, Canada, Egypt and in Block P in Equatorial Guinea. See Note 7 for further discussion.

Purchase Accounting – On FebruaryOctober 13, 2022, 25,2021, VAALCO Gabon S.A., a wholly ownedthe Company and AcquireCo, an indirect wholly-owned subsidiary of the Company, completed the business acquisition of Sasol Gabon S.A.’s (“Sasol’s”) 27.8% working interest in the Etame Marin block offshore GabonTransGlobe and TransGlobe became a direct wholly-owned subsidiary of AcquireCo and an indirect wholly-owned subsidiary of VAALCO, pursuant to the sale and purchase agreement (“SPA”) datedArrangement Agreement on NovemberJuly 13, 2022. 17,2020 (the “Sasol Acquisition”). The Company made various assumptions in determining the fair values of acquired assets and liabilities assumed. In order to allocate the purchase price, the Company developed fair value models with the assistance of outside consultants. These fair value models were used to determine the fair value associated with the reserves and applied discounted cash flows to expected future operating results, considering expected growth rates, development opportunities, and future pricing assumptions. The fair value of working capital assets acquired and liabilities assumed were transferred at book value, which approximates fair value due to the short-term nature of the assets and liabilities. The fair value of the fixed assets acquired was based on estimates of replacement costs and the fair value of liabilities assumed was based on their expected future cash outflows. See Note 3 for further discussion.

Lease commitments – At inception, contracts are reviewed to determine whether an agreement contains a lease as defined under Accounting Standards Codification (“ASC”) 842, Leases. Further, if a lease is identified within the contract, a determination is made whether the lease qualifies as an operating or financing lease. Regardless of the type of lease, the initial measurement of the lease results in recording a right of use (“ROU”) asset and a lease liability at the present value of the future lease payments. ROU assets for operating leases are recorded under “Right of use operating lease assets” and the current portion and long-term portion of the lease liabilities for operating leases are reflected in “Operating lease liabilities – current portion” and “Operating lease liabilities – net of current portion” within the condensed consolidated balance sheets. ROU assets for financing leases are recorded within “Right of use financingfinance lease assets” and the current portion and long-term portion of the lease liabilities for financing leases are reflected in “Financing“Finance lease liabilities – current portion” and “Financing“Finance lease liabilities – net of current portion” within the condensed consolidated balance sheets.

Asset retirement obligations (“ARO”) – The Company has significant obligations to remove tangible equipment and restore land or seabed at the end of crude oil, and natural gas and NGLs production operations. The removal and restoration obligations are primarily associated with plugging and abandoning wells, removing and disposing of all or a portion of offshore crude oil, and natural gas and NGLs platforms, and capping pipelines. Estimating the future restoration and removal costs is difficult and requires management to make estimates and judgments. Asset removal technologies and costs are constantly changing, as are regulatory, political, environmental, safety, and public relations considerations.

A liability for ARO is recognized in the period in which the legal obligations are incurred if a reasonable estimate of fair value can be made. The ARO liability reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with crude oil, and natural gas and NGLs properties. The Company uses current retirement costs to estimate the expected cash outflows for retirement obligations. Inherent in the present value calculation are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit-adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. Initial recording of the ARO liability is offset by the corresponding capitalization of asset retirement cost recorded to crude oil, and natural gas and NGLs properties. To the extent these or other assumptions change after initial recognition of the liability, the fair value estimate is revised, and the recognized liability adjusted, with a corresponding adjustment made to the related asset balance or income statement, as appropriate. Depreciation of capitalized asset retirement costs and accretion of asset retirement obligations are recorded over time. Depreciation is generally determined on a units-of-production basis for crude oil, and natural gas and NGLs production facilities, while accretion escalates over the lives of the assets to reach the expected settlement value. Where there is a downward revision to the ARO that exceeds the net book value of the related asset, the corresponding adjustment is limited to the amount of the net book value of the asset and the remaining amount is recognized as a gain. See Note 13 for further discussion.

Revenue recognition – The Company's revenues are derived primarily from contracts with customers. Royalties are considered to be part of the price of the sale transaction and are therefore presented as a reduction to revenues. Revenues associated with the sale of crude oil, natural gas and NGLs are measured based on the consideration specified in contracts with customers.

Revenues from contracts with customers are generated from sales in Gabon pursuant to crude oil sales and purchase agreements. There isrecognized when the Company satisfies a single performance obligation (delivering crudeby transferring a good or service to a customer. A good or service is transferred when the customer obtains control of the good or service. The transfer of control of oil, natural gas and NGLs usually coincides with title passing to the delivery point, i.e.customer and the connection to the customer’s crude oil tanker) that gives rise to revenue recognitioncustomer taking physical possession. VAALCO mainly satisfies its performance obligations at thea point in time whenand the amounts of revenues recognized relating to performance obligation event takes place. In addition to revenues from customer contracts, the Company has other revenues related to contractual provisions under the Etame PSC. The Etame PSC isobligations satisfied over time are not a customer contract. The terms of the Etame PSC includes provisions for payments to the government of Gabon for: royalties based on 13% of production at the published price and a shared portion of “Profit Oil” determined based on daily production rates, as well as a gross carried working interest of 7.5% (increasing to 10% beginning June 20,2026) for all costs. For both royalties and Profit Oil, the Etame PSC provides that the government of Gabon may settle these obligations in-kind, i.e. taking crude oil barrels, rather than with cash payments.significant. See Note 6 for further discussion.

In connection with the acquisition of TransGlobe on October 13, 2022, the Company has elected to continue its policy regarding shipping and handling costs and are presenting these costs net within revenue in the consolidated statements of operations and comprehensive income. In addition, the Company has elected to recognize revenue from oil, natural gas and NGL’s on the basis of the Company’s net working interest, less royalties on the consolidated statements of operations and comprehensive income. Any imbalances from an underlift or overlift position are valued based on the actual sales proceeds received.

Major maintenance activities – Costs for major maintenance are expensed in the period incurred and can include the costs of workovers of existing wells, contractor repair services, materials and supplies, equipment rentals and labor costs.

Stock-based compensation – The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The grant date fair value for options or stock appreciation rights (“SARs”) is estimated using either the Black-Scholes or Monte Carlo method depending on the complexity of the terms of the awards granted. The SARs fair value is estimated at the grant date and remeasured at each subsequent reporting date until exercised, forfeited or cancelled.

Black-Scholes and Monte Carlo models employ assumptions, based on management’s best estimates at the time of grant, which impact the calculation of fair value and ultimately, the amount of expense that is recognized over the life of the stock options or SAR award. These models use the following inputs: (i) the quoted market price of the Company’s common stock on the valuation date, (ii) the maximum stock price appreciation that an employee may receive, (iii) the expected term that is based on the contractual term, (iv) the expected volatility that is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the option or SAR award, (v) the expected dividend yield that is based on the anticipated dividend payments and (vi) the risk-free interest rate that is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the option or SAR award. 

For restricted stock, the grant date fair value is determined using the market value of the common stock on the date of grant.

The stock-based compensation expense for equity awards is recognized over the requisite or derived service period, using the straight-line attribution method over the service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

Unless the awards contain a market condition, previously recognized expense related to forfeited awards is reversed in the period in which the forfeiture occurs. For awards containing a market condition, previously recognized stock-based compensation expense is not reversed when the awards are forfeited. See Note 15 for further discussion.

Foreign currency transactions – The U.S. dollar is the functional currency of most of the Company’s foreign operating subsidiaries. However, in connection with the Company’s acquisition of TransGlobe, the Company acquired TransGlobe’s Canadian operations whose functional currency is the Canadian dollar. When the Company’s subsidiaries' functional currency is the US dollar, gains and losses on foreign currency transactions are included in income. When the Company’s subsidiaries' functional currency is the local currency, not the US dollar, the cumulative effects of translating the balance sheet accounts from the functional currency into the U.S. dollar at current exchange rates are included in accumulated other comprehensive income. Both realized and unrealized foreign exchange gain and losses are recorded within the condensed consolidated statements of operations and comprehensive income line item “Other (expense) income, net”. 

Income taxes – The annual tax provision is based on expected taxable income, statutory rates and tax planning opportunities available to the Company in the various jurisdictions in which the Company operates. The determination and evaluation of the annual tax provision and tax positions involves the interpretation of the tax laws in the various jurisdictions in which the Company operates and requires significant judgment and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations, agreements and tax treaties or the level of operations or profitability in each jurisdiction would impact the tax liability in any given year. The Company also operates in foreign jurisdictions where the tax laws relating to the crude oil, and natural gas and NGLs industry are open to interpretation, which could potentially result in tax authorities asserting additional tax liabilities. While the income tax provision (benefit) is based on the best information available at the time, a number of years may elapse before the ultimate tax liabilities in the various jurisdictions are determined. WeThe Company also record as income tax expense the increase or decrease in the value of the government’s allocation of Profit Oil which results due to changes in value from the time the allocation is originally produced to the time the allocation is actually lifted.

Judgment is required in determining whether deferred tax assets will be realized in full or in part. Management assesses the available positive and negative evidence to estimate if existing deferred tax assets will be utilized, and when it is estimated to be more-likely-than-not that all or some portion of specific deferred tax assets, such as net operating loss carry forwards or foreign tax credit carryovers, will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are estimated to not be realizable. Factors considered are earnings generated in previous periods, forecasted earnings and the expiration period of carryovers.

In certain jurisdictions, the Company may deem the likelihood of realizing deferred tax assets as remote where the Company expects that, due to the structure of operations and applicable law, the operations in such jurisdictions will not give rise to future tax consequences. For such jurisdictions, the Company has not recognized deferred tax assets. Should the expectations change regarding the expected future tax consequences, the Company may be required to record additional deferred taxes that could have a material effect on the condensed consolidated financial position and results of operations. See Note 16 for further discussion.

Derivative instruments and hedging activities – The Company enters into crude oil hedging arrangements from time to time in an effort to mitigate the effects of commodity price volatility and enhance the predictability of cash flows relating to the marketing of a portion of ourthe Company's crude oil production. While these instruments mitigate the cash flow risk of future decreases in commodity prices, they may also curtail benefits from future increases in commodity prices.

The Company records balances resulting from commodity risk management activities in the condensed consolidated balance sheets as either assets or liabilities measured at fair value. The Company has elected not to offset fair value amounts of qualifying derivatives under a master netting arrangement and associated fair value amounts for cash collateral receivables and payables. Gains and losses from the change in fair value of derivative instruments and cash settlements on commodity derivatives are presented in the “Derivative instruments loss, net” line item located within the “Other income (expense)” section of the condensed consolidated statements of operations.operations and comprehensive income. See Note 8 for further discussion.

Fair value – Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. The three input levels of the fair-value hierarchy are as follows:

Level 1 – Inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives).

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs).

Level 3 – Inputs that are not observable from objective sources, such as internally developed assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in the internally developed present value of future cash flows model that underlies the fair-value measurement).

Nonrecurring Fair Value Measurements – The Company applies fair value measurements to its nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements or remeasurements of impairment of crude oil, and natural gas and NGLs properties, asset retirement assets and liabilities and other long-lived assets and assets acquired and liabilities assumed in a business combination. Generally, a cash flow model is used in combination with inflation rates and credit-adjusted, risk-free discount rates or industry rates to determine the fair value of the assets and liabilities. Based upon ourthe Company's review of the fair value hierarchy, the inputs used in these fair value measurements are considered Level 3 inputs.

Fair value of financial instruments – The Company’s current assets and liabilities include financial instruments such as cash and cash equivalents, restricted cash, accounts receivable, derivative assets and liabilities, accounts payable, accrued liabilities, liabilities for SARs and guarantees. As discussed further in Note 8, derivative assets and liabilities are measured and reported at fair value each period with changes in fair value recognized in net income. The derivatives referenced below are reported in “Accrued liabilities and other” on the condensed consolidated balance sheet. SARs liabilities are measured and reported at fair value using Level 2 inputs each period with changes in fair value recognized in net income. The current portion of the SARs liabilities is reported in “Accrued liabilities and other” on the condensed consolidated balance sheet.sheet while the long-term portion is reported in “Other long-term liabilities”. With respect to the other financial instruments included in current assetscash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, the carrying value of each financial instrument approximates fair value primarily due to the short-term maturity of these instruments.instruments and are considered Level 1 inputs. The Company generally extends unsecured credit to these clients; therefore, collection of receivables may be affected by the economy surrounding the oil and natural gas industry or other economic conditions. The Company closely monitors extensions of credit and may negotiate payment terms that mitigate risk.

Earnings per Share – Basic earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of diluted common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities consist of unvested restricted stock awards and stock options using the treasury method. Under the treasury method, the amount of unrecognized compensation expense related to unvested stock-based compensation grants or the proceeds that would be received if the stock options were exercised are assumed to be used to repurchase shares at the average market price. When a loss exists, all potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share. See Note 5 for further discussion. 

Other, net – “Other, net” in non-operating income and expenses includes gains and losses from foreign currency transactions as discussed above, as well as taxes other than income taxes. 

Other comprehensive income – All of the Company’s other comprehensive income arises from TransGlobe's Canadian operations whose functional currency is the Canadian dollar. Translation gains and losses occur when translating the financial statements of non-U.S. functional currency operations to the USD. These translation gains and losses are recorded as currency translation adjustments and presented as other comprehensive income on the consolidated statements of operations and comprehensive income. Translations occur as follows:

2. NEW ACCOUNTING STANDARDS

Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“(“ASU 2016-13”) related to the calculation of credit losses on financial instruments. All financial instruments not accounted for at fair value will be impacted, including the Company’s trade and joint venture owners’ receivables. Allowances are to be measured using a current expected credit loss (“CECL”) model as of the reporting date that is based on historical experience, current conditions and reasonable and supportable forecasts. Thisis significantly different from the current model that increases the allowance when losses are probable. Initially, ASU 2016-13 wasis effective for all publicSecurities and Exchange Commission filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As a smaller reporting company, through December 31, 2022, the Company was required to adopt the new standard for the fiscal years and will be applied withbeginning after December 15, 2022, including interim periods within those fiscal years.

The Company adopted ASU 2016-13 ("ASC 326") on January 1, 2023 using the modified-retrospective approach. The modified-retrospective approach consists of applying the amendments in ASU 2016-03 through a cumulative-effect adjustment, if required, to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The FASB subsequently issued ASU No.2019-04 (“ASU 2019-04”): Codification Improvements to TopicCompany’s current method and timing of recognizing credit losses is in accordance with ASC 326 Financial Instruments-Credit Losses, Topicand is consistent with the previous method of recognizing credit losses, except for 815,one Derivatives, and Topic 825, Financial Instruments and ASU No.2019-05 (“ASU 2019-05”receivable, which now utilizes the Discounted Cash Flow method for computing its Expected Credit Loss ("ECL"): Financial Instruments-Credit Losses (Topic 326) - Targeted Transition Relief. ASU 2019-04 and ASU 2019-05 provide certain codification improvements related. The Company recorded an ECL allowance of $3.1 million as an opening balance adjustment to implementation of ASU 2016-13 and targeted transition relief consisting of an option to irrevocably elect the fair value option for eligible instruments.  In November 2019, the FASB issued ASU No.2019-10,Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. This amendment deferred the effective date of ASU No.2016-13 fromretained earnings at January 1, 20202023. toSee Note January 1 2023 for calendar year end smaller reporting companies, which includes the Company.  The Company plans to defer the implementation of ASU 2016-13, and related updates, until January 2023.further details.

3. ACQUISITIONS AND DISPOSITIONS

PendingTransGlobe Merger

On JulyOctober 13, 2022, the Company and VAALCO Energy Canada ULC (“AcquireCo”), an Alberta unlimited liability company and an indirect wholly owned subsidiary ofAcquireCo completed the Company, entered into an Arrangement Agreement (the “Arrangement Agreement”)previously announced business combination with TransGlobe Energy Corporation, an Alberta corporation (“TransGlobe”), pursuant to which, among other things,whereby AcquireCo agreed to acquireacquired all of the issued and outstanding common shares of TransGlobe (the “Arrangement”), withand TransGlobe continuing asbecame a direct wholly owned subsidiary of AcquireCo and an indirect wholly-ownedwholly owned subsidiary of the Company. The aggregate consideration forCompany pursuant to an arrangement agreement entered into by 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 businessCompany, AcquireCo and TransGlobe 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”“Arrangement Agreement”) 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..

OnAt the terms and subject to the conditionseffective time of the Arrangement and pursuant to the Arrangement Agreement, each common share of TransGlobe issued and the Plan of Arrangement, atoutstanding immediately prior to the effective time of the Arrangement (the “Effective Time”), each“TransGlobe common share of TransGlobe that is issued and outstanding immediately priorshares”) was converted into the right to the Effective Time will be deemed to be transferred and assigned to AcquireCo in exchange forreceive 0.6727 (the “exchange ratio”) of a share of common stock, par value $0.10 per share, of the Company (“Exchange Ratio”)VAALCO common stock,” and each share of VAALCO common stock, (the “Consideration”a “VAALCO share”). No fractional sharesThe total number of VAALCO common stock will beshares issued in the Arrangement, andto 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 ofwas approximately 49.3 million. The 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 resultresulted 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 outstanding as of the date of the Arrangement Agreement. The Arrangement is expected to be completed before the end of 2022.

ThePrior to the Arrangement, Agreement provides for mutual termination fees of $9.15 millionTransGlobe was a cash flow-focused oil and gas exploration and development company whose activities were concentrated in the eventArab 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 Arrangement AgreementCompany is terminated by either party in certain circumstances.the accounting acquiror. The purchase accounting for the business combination has not been completed. 

ForDuring the three andmonths ended sixMarch 31, 2023, the deferred tax liability in Egypt was increased by $1.4 million 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 three months ended June 30, 2022March 31, 2023 includedand is reflected in our condensed consolidated statements of operations in the line, item "Other (expense) income,expense, 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.

The actual impact of the Arrangement was an increase to “Crude oil, natural gas and NGLs sales” of $43.7 million and $9.7 million of “Net income” in the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2023.

All assets and liabilities associated with Sasol’s interest in Etame Marin block,TransGlobe, including crude oil, and 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, February 25, 2021, 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 the Company’sa 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 adjustedadjustment factors based on reserve category 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 resultallocation is preliminary pending final determination of changes in such estimates.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, a $7.7an initial $10.8 million bargain purchase gain was recognized. AAs a result of the transition period adjustment, the initial bargain purchase gain of $5.5 million is included in “Other, net" under "Other income (expense)" in the 2021 condensed consolidated statements of operations. An income tax benefit of $2.2 million, relatedhas been reduced to the bargain purchase gain, is also included in the 2021 condensed consolidated statements of operations.

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,July 13, 2022 respectively, and $7.1 million and $12.9 million increase to “Net income” in the condensed consolidated statements of operations for theshare price at closing, three and six months ended June 30,October 13, 2022 respectively.while the exchange ratio, of TransGlobe shares converted to VAALCO shares, remained the same. 

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 toof the Sasol AcquisitionTransGlobe Arrangement discussed above on the Company’s results of operations for the three and sixmonths ended June 30, 2021,March 31, 2022, respectively, as if the Sasol AcquisitionArrangement had been consummated on January 1, 2020.2021. The unaudited pro forma results do not purport to represent what the Company’s actual results of operations would have been if the Sasol AcquisitionTransGlobe Arrangement had been completed on such date or to project the Company’s results of operations for any future date or period.