VAALCO Energy (NYSE: EGY): Strong production in Egypt. Lower performance from new wells in Gabon. Weather related delays in Canada.
• 4Q22 WI production was 18,175 boe/d including the contribution of TransGlobe’s assets since mid October.• 4Q22 WI production in Egypt was 8,850 bbl/d, ahead of our expectations of 8,000 bbl/d while Canada generated 2,250 boe/d, below our expectations of 2,500 boe/d given weather and operational delays impacting well tie-ins.
• 4Q22 WI production in Gabon was 7,075 bbl/d below our forecasts of 8,000 bbl/d. This reflects the ramp-up of production following the FSO switch-over and the performance of the North Tchibala 2H-ST that is producing 250 bbl/d gross production. The company has not managed to increase production to the modelled flow rate (1,500 bbl/d). The well does not produce any water and the reservoir pressure is stable. Only one third of the injected fracking fluid has been recovered.
• As we incorporate (1) lower production in Gabon, (2) higher capex and (3) a new drilling programme in Gabon starting from mid 2024 depending on drilling rig availability, we are reducing our target price to US$9.50/sh. The shares continue to offer value. The dividend yield is ~5% and the company has launched a buy back programme for 6% of the market cap.
Revisiting our model
With no further drilling in Gabon in 2023, we assume a slow decline of production in the country from ~9.5 mbbl/d (WI). We are also assuming that the new drilling programme will start 6 months later than we previously forecasted depending on rig availability. We are accordingly reducing our drilling capex forecast in Gabon by US$60 mm in 2023 (moved to 2024). Production in Canada and Egypt is expected to grow from late 1Q23 as new wells are being tied-in. The drilling of the first horizontal well in Egypt has been completed. Overall we now forecast 23.8 mboe/d WI production in 2023.
Cashflow and value
We forecast net cash at YE24 representing 75% of the company’s current market cap. This is after dividend payments representing 10% of the current market cap over 2023-2024 and 6% share buybacks. Our new Core NAV for the company is ~US$6.70 per share which represents ~50% upside while our new ReNAV of ~US$9.75 per share is 2x the current share price. We will be rolling forward our DCF model to YE23 at the time of the publication of the FY22 results, once the financials of TransGlobe are incorporated in the company’s audited accounts.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.