Vaalco Energy (NYSE: EGY): Much stronger balance sheet than expected. Exploration success in Egypt opens a new area
• Vaalco has agreed to divest its Canadian producing assets for US$25.6 mm, effective 1 February 2026.• Although the price is below our expectations, the Canadian portfolio is non‑core. In the context of (1) growing resource potential in Egypt following the successful H‑field exploration well in the Eastern Desert, and (2) the capital requirements associated with developing the Equatorial Guinea assets—where we estimate total project capex at approximately US$350 mm—we view the decision to recycle capital into higher‑impact projects as strategically sound.
• With Canadian natural‑gas prices depressed, the transaction values the assets at 2.7× trailing 12‑month operating cash flow and roughly 4× our forecast 2026 free cash flow. Importantly, the sale does not affect the company’s borrowing base.
• The Canadian business also consumes management bandwidth and sits outside Vaalco’s strategic geographic focus.
• In January, Vaalco confirmed that the Baobab FPSO remained on schedule to depart the Dubai dry dock in early February for its return to Côte d’Ivoire. With departure now likely imminent and production restart only 4–5 months away, the overall risk profile of the business has improved. The investment case continues to centre on a fully funded doubling of production while maintaining a robust dividend (currently yielding ~4.8%).
• Ahead of FY25 results and the release of the FY26 budget, we reiterate our target price of US$10 per share.
Valuation
We have changed our Core NAV and ReNAV to US$5.63 per share and US$9.54 per share, respectively. This does 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$14.93 per share.
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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