VAALCO Energy (NYSE: EGY): Low capex redevelopment of Ebouri confirmed. Material exploration drilling in Canada in 2H24
• 2Q24 WI production was 25,411 boe/d, in line with our expectations and within the company’s guidance for 2Q24 (23.8-27 mboe/d).• WI production of ~3.3 mbb/d in Cote d’Ivoire was particularly high. WI production has now stabilized at ~4.5 mbbl/d.
• In Gabon, production in 2Q24 was negatively impacted by a platform issue at Avouma. This is now resolved and production could be higher in 3Q24. The decline at the existing wells is lower while uptime is higher.
• VAALCO has re-iterated its FY24 guidance of 23.6-26.5 mboe/d with US$115-140 mm capex.
• Success at the 2H24 exploration well in the southern area of the Canada licence could derisk 8-12 mmboe.
• The H2S at the Ebouri field in Gabon can be handled with chemicals only and will not require a more expensive redevelopment with new infrastructure. This is a positive development and production is expected to restart in 2025 with a potential 6-8 mmbbl reserves addition. This will initially include drilling a side track of a previous well that was shut-in in 2014 with gross production of 3-4 mbbl/d and two work-overs. The overall 2025 drilling programme is expected to include seven firm wells plus five contingent wells (including Ebouri). Further details will be disclosed in November.
• In Egypt, the company is looking to secure a rig to return to drilling in 2H24. The potential additional capex is estimated at US$9.4 mm with additional production from early 2025.
• Drilling in EG is expected to start in mid to late 2026 with first oil in 2027.
• We re-iterate our target price of US$10/sh in line with our ReNAV. We believe that visibility on (1) the redevelopment of Baobab and (2) the development of Ebouri and EG will be a catalyst to the share price.
Egypt receivables
VAALCO has received confirmation from EGPC that US$51.7 mm was recognized in their June accounts payable as owed to VAALCO for the Merged Concession, from which US $11.2 mm will be offset against VAALCO’s obligations. VAALCO has also received a payment of ~US$8 mm for aged receivables. Resolving the receivables issue would allow the company to increase investment, enhance production and add reserves.
Valuation
Our ReNAV is ~US$9.60/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.
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