Vaalco Energy (NYSE: EGY): High production. Balance sheet strength ahead of expectations
• 3Q24 WI production was 26,709 boe/d. This is above our expectations of 25,740 boe/d and towards the higher end of the guidance range of 24.9-27.6 mboe/d.• Vaalco has narrowed its FY24 production guidance range from 23.6-26.5 mboe/d to 24.1-25.4 mboe/d with lower capex (US$110-130 mm vs US$115-140 mm previously).
• Success at the 4Q24 exploration well in the southern area of the Canada licence could derisk 8-12 mmboe and add ~US$0.45/sh to our Core NAV.
• The detailed 2025 programme will be disclosed in early 2025. However, Vaalco has confirmed that it will include (1) a seven well drilling programme in Gabon starting mid-2025, (2) the potential drilling of 10-13 new wells in Egypt (a rig has been contracted and will drill at least two wells in 4Q24) and (3) the FPSO maintenance and upgrade in Cote d’Ivoire to restart production in 2026.
• The key near term risk is the potential cost overrun and delays at the FPSO upgrade project in Cote d’Ivoire, particularly given that Vaalco will be running simultaneously a large drilling programme in Gabon, particularly given that Vaalco will simultaneously be running a large drilling programme in Gabon. The Cote d’Ivoire project is managed by CNR but Vaalco has assigned four personnel to the team in charge of the project including one at the yard where the work will take place. Vaalco has strong execution capabilities, as highlighted during the reconfiguration of the surface infrastructure at Etame Marin in Gabon. The nature of the cost recovery mechanism in Gabon also mitigates Vaalco’s financial exposure in case of delays in Cote d’Ivoire. Vaalco will drill the lower risk development wells at the beginning of the programme, maximizing production and the proportion of cashflow available for cost recovery for the riskier wells later in the program.
• We re-iterate our target price of US$10/sh in line with our ReNAV.
Balance sheet better than we expected
Vaalco held US$89 mm in unrestricted cash at the end of September. While this in line with our forecasts, the overall balance sheet is stronger than we expected with current receivables minus current payables of ~US$111 mm. This represents an increase of ~US$28 mm since the end of June (position of ~US$83 mm at that time). This reflects high production and sales in 3Q24 and low capex.
Valuation
Our ReNAV is ~US$9.80/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$7.71/sh.
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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