Vaalco Energy (NYSE: EGY): Adding exploration upside in Cote d’Ivoire
• Vaalco has farmed into the CI-705 block offshore Côte d’Ivoire. Vaalco will become operator of the block with a 70% WI and a 100% paying interest though a commercial carry arrangement. The partners are Ivory Coast Exploration Oil & Gas (ICE) and PETROCI. Vaalco has invested US$3 mm to acquire its 70% WI in the block.• The CI-705 block is located in the Tano basin and is ~70 km to the west of Vaalco’s CI-40 Block, where the Baobab and Kossipo oil fields are located, and 60 km west of ENI’s 2024 (1-1.5 bn boe light oil, gas and condensate) Calao discovery. Block CI-705 covers ~2,300 km2 with water depths ranging from zero to 2,500 m.
• ICE signed a PSC for the CI705 block in 2023, initially holding 90% WI. The exploration period spans seven years from 2023, with five years remaining. The block is covered by high-quality 2D and 3D seismic data, and ICE has identified a large gas-prone prospect in water less than 200 m deep.
• Only three wells have been drilled on the block, including the Barracuda-1 exploration well drilled by TotalEnergies in August 2021, which did not encounter hydrocarbons (Upper Cretaceous targets), leading the company to relinquish the block.
• ICE has previously indicated that their focus will be on the Albian sands.
• We do not anticipate much drilling activity on the block in the near term. However, this new asset increases Vaalco’s runway in Côte d'Ivoire. The size of the 2024 Calao discovery underscores the potential significance of offshore discoveries in Côte d'Ivoire. Note that the PSC covering the CI-705 block was awarded before this discovery was made.
• We reiterate our target price of US$10 per share in line with our ReNAV. The focus for 2025 will be on execution, with two large drilling and redevelopment programs running in parallel, encompassing approximately 40 mmbbl of combined contingent resources (unrisked NAV of over US$3.30 per share). Vaalco's strong execution capabilities were demonstrated during the reconfiguration of the surface infrastructure at Etame Marin in Gabon.
Valuation
Our ReNAV is ~US$9.52/sh. Our combined unrisked NAV for Ebouri, Kossipo, the contingent resources at Baobab, the exploration programme in Canada and the contingent resources in Egypt is US$7.36 per share. We are currently not ascribing any value to CI-705.
VAALCO Energy is an independent energy company engaged in the acquisition, exploration, development and production of crude oil. The company is primarily engaged in its Etame Production Sharing Contract related to the Etame Marin block located offshore the Republic of Gabon in West Africa. The company also owns interests in an undeveloped block offshore Equatorial Guinea, West Africa.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
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