VAALCO ENERGY INC /DE/EGY

VAALCO ENERGY INC /DE/ Income Taxes Disclosure

10-KFiled Mar 16, 20265 min read
INCOME TAXES
Income (loss) before income taxes is attributable as follows:
Year Ended December 31,
(in thousands)202520242023
U.S.$(24,853)$(26,337)$(15,781)
Foreign(1,716)166,134 165,927 
 $(26,569)$139,797 $150,146 
Provision for income taxes related to income (loss) consists of the following:
Year Ended December 31,
202520242023
U.S. Federal:(in thousands)
Current$— $— $— 
Deferred(1,940)(1,698)6,214 
Foreign:
Current44,341 98,882 92,642 
Deferred(27,579)(15,877)(9,079)
Total$14,822 $81,307 $89,777 
The reconciliation of income tax expense (benefit) to income tax at the U.S. statutory rate is as follows:
Year Ended December 31,
(in thousands)2025
U.S. Federal Statutory Tax Rate$(5,580)21.00 %
Domestic Federal
Tax Credits - Foreign Tax Credit(13,982)52.63 %
Changes in Valuation Allowance7,385 (27.79)%
Cross-border tax laws - US taxation of foreign disregarded entity8,242 (31.02)%
Nontaxable or nondeductible items806 (3.03)%
Foreign Tax Effects
Gabon
Statutory income tax rate differential4,923 (18.53)%
Rate difference between Gabon statutory tax rate and the PSC 9,435 (35.51)%
Nontaxable or nondeductible items:
Non Recoverable Costs1,067 (4.02)%
Nondeductible Interest1,670 (6.29)%
Impact of revenue differences between production and lifting(8,075)30.39 %
Carried interests (1,020)3.84 %
Other reconciling items478 (1.80)%
Changes in Valuation Allowance2,095 (7.89)%
Egypt
Statutory income tax rate differential9,067 (34.13)%
Nontaxable or nondeductible items:
Non Recoverable Costs2,288 (8.61)%
Other reconciling items(92)0.35 %
Changes in Valuation Allowance356 (1.34)%
Canada
Statutory income tax rate differential4,184 (15.75)%
Subnational income taxes(5,580)21.00 %
Changes in Valuation Allowance16,045 (60.39)%
Cote D'Ivoire
Statutory income tax rate differential(716)2.70 %
Rate difference between statutory tax rate and the PSC (12,197)45.91 %
Nontaxable or nondeductible items:
Non Recoverable Costs1,033 (3.89)%
Stat to US GAAP adjustments(1,250)4.71 %
Cost Recovery Uplift(9,167)34.50 %
Changes in Valuation Allowance1,834 (6.90)%
Equatorial Guinea
Statutory income tax rate differential(119)0.45 %
Changes in Valuation Allowance744 (2.80)%
Sweden
Tax Credits - Foreign Tax Credit(3,767)14.18 %
Cross-border tax laws - Sweden taxation of foreign disregarded entity(2,885)10.86 %
Nontaxable or nondeductible items:
Realized foreign exchange gain4,036 (15.19)%
Other reconciling items(100)0.38 %
Changes in Valuation Allowance3,126 (11.76)%
Other
Nontaxable or nondeductible items:
Other reconciling items538 (2.03)%
Total $14,822 (55.77)%

Income taxes paid (net of refunds received) were as follows:
December 31,
(in thousands)
2025
2024
Gabon
$36,739 $31,109 
Egypt
29,025 31,355 
Cote d’Ivoire
2,221 9,155 
Total taxes paid
$67,985 $71,619 

Deferred tax assets and liabilities, which are computed on the estimated income tax effect of temporary differences between financial and tax bases in assets and liabilities, are determined using the tax rates expected to be in effect when taxes are actually paid or recovered.
In assessing the realizability of the deferred tax assets, the Company considers all available positive and negative evidence by jurisdiction to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. The ultimate realization of the deferred tax assets is dependent upon the generation of future income in periods in which the deferred tax assets can be utilized. Numerous judgments and assumptions are inherent in this assessment, including the determination of future taxable income, future operating conditions, particularly as related to prevailing crude oil prices.

On the basis of this evaluation, as of December 31, 2025, a valuation allowance of $203.6 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are reduced or increased.
The tax effects of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:
December 31,
(in thousands)20252024
Deferred tax assets:
Fixed assets(1)
$40,988 $35,541 
Foreign tax credit carryforward133,803 123,660 
Net operating losses58,892 56,317 
Asset retirement obligations48,015 20,384 
ROU lease liabilities8,567 9,973 
Accrued liabilities16,071 19,686 
Receivables(146)(1,788)
Other3,846 2,682 
Total deferred tax assets310,036 266,455 
Valuation allowance(203,624)(173,140)
Net deferred tax assets$106,412 $93,315 
 
Deferred tax liabilities:
Basis difference in fixed assets(115,217)(131,639)
Net deferred tax liabilities$(115,217)$(131,639)
(1)This line includes ROU lease asset.

The Corporation’s undistributed earnings from subsidiary companies outside the United States include amounts that have been retained to fund prior and future capital project expenditures. Deferred income taxes have not been recorded for potential future tax obligations, such as foreign withholding tax and state tax, as these undistributed earnings are expected to be indefinitely reinvested for the foreseeable future. As of December 31, 2025, it is not practicable to estimate the unrecognized deferred tax liability. However, unrecognized deferred taxes on remittance of these funds are not expected to be material.
The Company has NOL’s, in the following jurisdictions as of December 31, 2025:
Jurisdiction
Amount
(in thousands)
Expiration Period
Egypt$14,596 2026-2028
Canada$91,662 2031-2040
Equatorial Guinea$127,564 No expiration
The Company recognizes the financial statement benefit of a tax position only after determining that they are more likely than not to sustain the position following an audit. The Company believes that its income tax positions and deductions will be sustained on audit, and therefore no reserves for uncertain tax positions have been established. Accordingly, no interest or penalties have been accrued as of December 31, 2025 and 2024. The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense.
The Company is subject to income taxation in the United States and various foreign jurisdictions, including Canada. The Company’s Canadian subsidiaries are currently under examination by the Canada Revenue Agency (“CRA”) with respect to the tax treatment of the disposition of shares of certain foreign affiliates for taxation years included in the year ended December 31, 2022.
In January 2026, the Company received an assessment from the CRA related to this examination. The Company is currently evaluating the assessment and available administrative remedies, including the filing of a notice of objection. The Company is also considering this matter in connection with the previously announced sale of the Company’s Canadian assets. As of December 31, 2025, there have been no developments or new information that would require the Company to record an unrecognized tax benefit. Based on currently available information, the Company does not believe that the
ultimate resolution of this matter will have a material adverse effect on its consolidated financial position, tax expense, results of operations, or cash flows; however, the final outcome remains uncertain.
For the years ended December 31, 2025, 2024 and 2023, the Company is subject to foreign and U.S. federal taxes only, with no allocations made to state and local taxes. The following table summarizes the tax years that remain subject to examination by major tax jurisdictions.
JurisdictionYears
U.S.
2015-2025
Gabon
2021-2025
Egypt
2020-2025
Canada
2020-2025
Sweden
2019-2025
Cote d'Ivoire
2022-2025
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Historical Timeline

Fiscal YearFiled
2025Mar 16, 2026Showing above
2024Mar 17, 2025
2023Mar 15, 2024
2022Apr 6, 2023
2021Mar 11, 2022
2020Mar 9, 2021
2019Mar 10, 2020
2018Mar 8, 2019
2017Mar 7, 2018
2016Mar 13, 2017
2015Mar 16, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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