Vaalco Energy (NYSE: EGY): Strong quarter on all fronts
• 2Q25 WI production averaged 21,654 boe/d, near the top end of the guidance range (20–22.1 mboe/d). Gabon production was particularly strong at 8,563 bbl/d (guidance of 7.8–8.6 mbbl/d), driven by continued flow from the 4H well at Ebouri, which remains ~1,000 bbl/d (gross). Despite high H₂S concentrations, chemical treatment has proven effective. This has positive implications for the development of the area.• The CI Baobab redevelopment project continues to run ahead of expectations. The timeline of the project has the FPSO restarting production in Q1/Q2 2026.
• 2Q25 operating cash flow was ~US$18 mm, net of a ~US$14 mm negative working capital movement. Underlying operating cash flow of US$32 mm exceeded our forecast of US$24 mm, supported by opex near the low end of guidance (actuals of ~US$40.4 mm vs. guidance of US$39.5–48 million).
• Operating cash flow in 3Q25 will benefit from ~US$19 mm in receivables for Gabon liftings delivered in 2Q25 and collected in early July.
• Vaalco has reaffirmed its FY25 production, opex, and capex guidance. With Baobab on track and drilling expected to resume in Gabon by end-3Q25, we reiterate our target price of US$10/sh, in line with our ReNAV.
• The story is about doubling production (fully funded) while maintaining a high level of dividend distribution (currently ~7% yield). Excluding Kossipo and Baobab Phase 6, Vaalco’s 2026–2029 aggregate free cash flow, at US$65/bbl Brent, is forecast to equal the current market capitalization.
Egypt
Vaalco is ramping up its activity in Egypt. Initially, the FY25 budget anticipated drilling 10 wells in 1H25, with further expansion in 2H25 dependent on improvements in the business environment. Following positive developments, Vaalco now plans to drill an additional 8 wells in 2H25, which will enhance production and support a stronger year-end exit rate. The decision to accelerate drilling reflects EGPC’s timely payment of invoices throughout 2025 and the gradual settlement of outstanding receivables. Notably, Vaalco received US$5 mm from EGPC in July. Despite the increased activity, the capex budget for Egypt remains unchanged. This is due to significantly improved drilling efficiency, allowing more wells to be completed within the original budget framework.
Financials and Valuation
Our Core NAV for Vaalco is US$5.52/sh. Derisking the 2C resources in Gabon adds US$1.41/sh, those in Egypt, US$1.47/sh and those in CI a further US$3.66/sh. Exploration success would add further value. Our ReNAV is US$9.63/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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