VAALCO Energy (NYSE: EGY): Collecting material payments from Egypt
• FY22 production had already been reported.• 4Q22 is the first quarter including the full contribution of TransGlobe.
• At YE22, VAALCO held ~US$37 mm in cash. This is below what we were forecasting (~US$115 mm). However, we note VAALCO had US$46 mm outstanding with EGPC at YE22 associated with September to December invoices. This is partly due to the timing of liftings and the availability of cargoes. Overall and including Egyptian historical receivables from TransGlobe, VAALCO carried ~US$139 mm of receivables at YE22 (~US$100 mm being in Egypt). Correcting for non cash working capital (but excluding US$91 mm of accrued liabilities corresponding to capex and the 2023 contractual bonus payment in Egypt among others) leads to an adjusted YE22 cash position (including working capital) of ~US$129 mm.
• VAALCO is managing the situation in Egypt better than most peers as it continues to receive US$. We understand that it received a payment of US$10 mm in 4Q22 and sold 450 mbbl to an international buyer in 1Q23. The Egyptian costs will be offset against receivables. This includes the US$10 mm per year bonuses due to EGPC.
• VAALCO held 76.4 mmboe WI 2P reserves at YE22 (our estimate of YE21 2P reserves including TransGlobe and EG was 83.8 mmboe), reflecting FY22 production, negative technical revisions in Gabon following the drilling results during 2H22.
• As we incorporate the FY23 production guidance, the new reserves estimate and inflationary pressures on opex, we have trimmed our target price to US$9.00 per share.
FY23 production and capex guidance
1Q23 production is expected to be 22.5-23.8 mboe/d. This is in line with our expectations. The FY23 production has been set at 20.4-24.4 mboe/d also in line with our expectations but with Gabon being marginally higher than we caried and Canada lower. The FY23 capex guidance is US$70 90 mm (we forecasted US$70 mm) including ~50% in Egypt. In Egypt, VAALCO expects that this level of investment will be at least covered by payments in US$, even in the current context.
Cashflow and value
We have rolled forward our DCF by one year to YE23. Our new Core NAV for the company is ~US$6.20 per share which represents ~35% upside to the current share price while our new ReNAV of ~US$8.90 per share is ~2x the current share price. We forecast YE24 net cash of ~US$300 mm. This represents over 60% of the company’s current market cap. This is after the distribution of ~US$50 mm over 2023-2023 (>10% of the current market cap). This also excludes the expected payment of the Egyptian receivables that could add a further US$100 mm (>20% of the current market cap).
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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