VAALCO Energy (NYSE: EGY): Another strong quarter
• 3Q23 NRI sales volumes were 19.7 mboe/d, near previous indications.• 4Q23 WI production is expected to stand at 22.9-24.6 mboe/d with Egypt (11.1-11.8 mbbl/d) and Gabon (9.4-10.1 mbbl/d) expected to be particularly strong. We are increasing our forecast from 23.2 mboe/d to 23.8 mboe/d.
• VAALCO has again increased its FY23 production guidance from 22.20 24.30 mboe/d (mid-point of 23.25 mboe/d) set in August to 23.45-24.40 mboe/d (mid-point of ~23.9 mboe/d). The FY23 production guidance had been previously increased from 20.4 24.4 mboe/d (mid-point of 22.4 mboe/d).
• The production guidance increase reflects better than expected drilling results and performance in Egypt and Canada and better uptime in Gabon (97% in 2023 versus 85% in 2022).
• VAALCO held US$103 mm in cash and cash equivalents at the end of September, in line with previous indications. The company generated US$57.2 mm of free cash flow during 3Q23.
• VAALCO continues to receive US$ payments in Egypt and the Egyptian receivables have been reduced by ~US$18 mm to ~US$19 mm. In addition, VAALCO continues to be owed ~US$50 mm for a share of Egyptian production over a period of time since the effective date when the licences were restructured under new terms.
• We re-iterate our target price of US$9.00 per share.
Financials
We anticipate high cash flow in 4Q23. VAALCO has already sold another lifting in Gabon of about 0.6 mmbbl (gross) in early October. 4Q23 NRI sales are expected to be 19.8-22.0 mboe/d, well above 3Q23 NRI sales (19.7 mboe/d). We forecast VAALCO will hold ~US$140 mm in cash at YE23. This is after having paid >US$25 mm in dividends and bought back >US$20 mm in shares.
Cashflow and value
Assuming US$85/bbl in 4Q23 and 2024 and a ~US$135 mm capex programme in 2024 (assuming important new drilling programmes in Gabon and Egypt starting in 3Q24), we forecast that VAALCO will hold >US$230 mm in net cash at YE24 (>50% of the current market cap). This is after shareholder distributions and does not include the potential for the repayment of the US$50 mm historic“ adjustment” receivables by EGPC.
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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