Vaalco Energy (NYSE: EGY): FY25 production guidance increased. CI on track

• WI production averaged 19,887 boe/d in 3Q25, exceeding our forecast of ~19,160 boe/d. This outperformance was driven by stronger-than-expected volumes from Gabon (7,118 boe/d vs our estimate of 6.6 mboe/d and company guidance of 6.4–7.1 mboe/d). Despite a full platform shutdown in July for planned maintenance, Gabon’s production impact was less than anticipated.
• On the back of robust Gabon performance and sustained drilling activity in Egypt, the lower end of FY25 production guidance has been raised from 19,250 boe/d to 20,600 boe/d. Gabon guidance now stands at 7.9–8.4 mboe/d (previously 7.0–8.3 mboe/d), while Egypt is revised to 10.4–11.1 mboe/d (from 9.75–11.1 mboe/d).
• The timeline of the CI Baobab redevelopment project has the FPSO restarting production in 2Q26. Drilling will start in 2H26.
• Underlying operating cash flow for 3Q25 (pre-working capital movements) was ~US$13.7 mm, consistent with our expectations.
• FY25 capex guidance has been reduced from US$250–300 mm to US$225–260 mm, primarily due to delays in the Gabon drilling programme but also due to higher capital efficiency. We have shifted ~US$25 mm from our FY25 forecast (now ~US$250 mm) into 2026 (now ~US$270 mm).
• In EG, Vaalco is evaluating a development concept centered on a vertical well with a subsea wellhead and an FPSO, instead of long deviated well with a MOPU in shallow water. This approach could enhance oil recovery.
• With CI production restart now just 5–8 months away, the period of negative free cash flow is nearing its end—removing a key risk and enhancing investor appeal. The investment case centers on a fully funded doubling of production while sustaining a high level of dividend distribution (currently ~7% yield). Excluding Kossipo and Baobab Phase 6, Vaalco’s 2026-2029 cumulative free cash flow is projected to match its current market capitalization. We re-iterate our target price of US$10/sh.

Potential reserve upside in Gabon
The decline rate at Etame has been lower than expected, potentially indicating a larger oil pool than previously estimated. Vaalco is currently remapping the reservoir to reflect this. At the Ebouri 4H well, gross production has averaged ~1,000 bbl/d in 2025, with H₂S levels remaining manageable. The well is outperforming expectations, highlighting the effectiveness of the chemical treatment solution.

Financials and Valuation
Our Core NAV and ReNAV for Vaalco stand at US$5.50/share and US$9.55/share, respectively. The Unrisked NAV, which incorporates contingent resources and exploration upside, is US$15.59/share. These valuations reflect lower Brent price assumptions of US$65/bbl through the end of Q1 2026, down from US$70/bbl previously.