VAALCO Energy (LSE: EGY): Good operational performance in Egypt
• 1Q23 WI production stood at 23,152 boe/d (18,306 boe/d NRI) in line with expectations and guidance (WI: 22.5-23.8 mboe/d).• As indicated by the company previously, 1Q23 sales were below 4Q22 (1.2 mmbbl in 1Q23 vs ~1.4 mmbbl in 4Q22). A lifting in Gabon originally planned for March was delayed until April. The company anticipates much higher NRI sales in 2Q23 (1.4-1.6 mmbbl).
• Even with the late lifting and low NRI sales in 1Q23, VAALCO held ~US$52 mm in cash at the end of March (up from US$37 mm at YE22) after having distributed US$6.7 mm in dividends and bought back US$4.5 mm in shares during the quarter.
• Egypt is performing well with WI production reaching 11,165 bbl/d at the end of April and 11,811 boe/d in early May. This compares with 9,673 bbl/d in January and reflects the contribution from 5 new wells (+1,071 bbl/d) and production optimization (+660 bbl/d). Drilling efficiency has also increased dramatically with new wells being drilled in less than 15 days (~38 days in 2022).
• VAALCO continues to receive payments for its Egyptian production. Total receivables (including Gabon) at the end of March stood at ~US$98 mm, down from ~US$139 mm at YE22 (including US$100 mm for Egypt). During 1Q23, the company sold an Egyptian cargo for US$28.5 mm and collected an additional US$19.5 mm from sales in Egypt. Egyptian receivables were ~US$78 mm (including ~US$51 mm of historical receivables) at the end of March.
• With further buybacks in 2Q23 (US$3 mm) and a dividend yield over 6.5%, the shares continue to offer a combination of value, distribution and growth. We re-iterate our target price of US$9.00 per share.
EG and Gabon
1Q23 WI production in Gabon has been restored to ~10.5 mbbl/d (~7.1 mbbl/d in 4Q23) in line with expectations. VAALCO continues to expect first oil in EG in 2026. During 2023, the company will prepare the 2024 drilling programme in Gabon and the development of EG where the 3 wells could be drilled back to back.
Cashflow and value
As we have trimmed our Brent price assumptions for 3Q23, we now forecast YE24 net cash of ~US$280 mm. This represents over 65% of the company’s current market cap. This is after the distribution of ~US$50 mm in dividends and US$20 mm in share buybacks (our assumptions for 2023) over 2023-2024 (>15% of the current market cap). Even assuming only US$70/bbl from 3Q23, we forecast US$130 mm in net cash at YE24 (after dividend distributions and share buybacks). This continues to exclude the expected payment of the historical Egyptian receivables that could add a further US$51 mm.
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.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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