Vaalco Energy (NYSE: EGY): Much stronger balance sheet than expected. Exploration success in Egypt opens a new area

• FY25 WI production averaged 21,150 boe/d, landing comfortably within the upgraded guidance range of 20.8–22.2 mboe/d.
• Vaalco ended FY25 with US$58.8 mm in cash, an increase of ~US$35 mm versus end‑September levels, achieved without drawing further on the RBL facility.
• YE25 net debt position (based on cash and debt and excluding the rest of the balance sheet) was just US$1 mm, far below our expectation of ~US$100 mm. This reflects a substantial positive working‑capital swing, including a US$40 mm payment received in the final week of the year. EGPC receivables were reduced by US$82 mm to US$31 mm, with receivables now largely current. We also note that FY25 liftings exceeded production by 950 boe/d, and capex may have been lower than anticipated due to the late start of the Gabon drilling programme in 4Q25.
• The Baobab FPSO remains on schedule to depart the Dubai dry dock in early February for its return to Côte d’Ivoire. With production restart now less than six months away—and with a materially stronger cash position—the company’s balance‑sheet risk has meaningfully diminished, improving the overall risk profile. The investment case continues to centre on a fully funded doubling of production while maintaining a robust dividend (currently yielding ~6%).
• We re-iterate our target price of US$10/sh.

Positive drilling results in Gabon and Egypt
• Results from the ET‑15P well in the Gamba reservoir were in line with expectations and confirm 2.4–3.2 mmbbl of oil in place, likely already reflected in 2P reserves. The well also intersected high‑quality, oil‑bearing sands in the Dentale, which could provide upside potential, particularly as reservoir communication between the various sands appears better than previously anticipated.
• In Egypt, Vaalco drilled a successful exploration well in the H‑field in the Eastern Desert, delivering an initial flow rate of approximately 450 boe/d. This is a meaningful development, as it opens a new area with additional drilling opportunities that could contribute incremental reserves and production in 2026.

Financials and Valuation
We have increased our Core NAV and ReNAV by ~US$0.50/sh to US$6.01/share and US$9.92/share, respectively. These revisions do not yet incorporate the recent exploration success in the Eastern Desert. Our Unrisked NAV, which includes contingent resources and exploration upside, now stands at US$16.08/share.