Vaalco Energy (NYSE: EGY): Strong quarter. Resilient to low oil price
• 1Q25 WI production of 22,402 boe/d was at the high end of expectations. The Ebouri well continues to produce at ~1 mbbl/d (gross) on test.• Cash flow from operations was US$32.7 mm, while capex of US$58 mm came in below projections. Underlying cash flow was even higher, at ~US$41 mm. Additionally, one lifting in Gabon (~US$30 mm) was allocated to the Gabonese State as its share of profit oil, with no further allocations expected for the remainder of 2025.
• At the end of March, Vaalco reported US$40.9 mm in cash, alongside a US$190-300 mm revolving credit facility, strengthening financial flexibility beyond our expectations.
• The FY25 production guidance (19.3-22.3 mboe/d) has been reaffirmed, while capex guidance has been reduced from US$270-330 mm to US$250-300 mm, primarily due to deferred Canadian drilling. Drilling in Gabon remains scheduled for 3Q25, with Côte d’Ivoire set to resume production in 2026.
• Vaalco has three large projects planned for parallel execution in 2026, namely drilling in CI and Gabon and development in EG. The company's financial framework (capex and dividend) is based on US$60-65/bbl Brent. At the individual project level, EG—despite being a greenfield project with the lowest returns—remains profitable at US$55/bbl Brent.
• The three key projects operate under a PSC regime with high cost stops (70%-85%), ensuring that most of the revenue is initially allocated to Vaalco, making these projects highly resilient to lower oil prices.
• Ahead of the capital markets day next week, we reiterate our TP of US$10/sh. The dividend yield is currently ~7.2%. With significantly higher production expected from 2026 onwards, we forecast ~39 mboe/d output by 2028, marking 2025 as a pivotal year for the company's growth trajectory.
Other take-aways
Receivables in Egypt have been reduced by US$8-9 mm in 1Q25. The work commitment associated with the licence reorganization will be met by the end of 2Q25. Production at Ebouri contained less H2S than anticipated, confirming the effectiveness of chemical treatment in controlling H2S. In Canada the well drilled in the southern acreage is producing 200 bbl/d. This could unlock additional reserves and resources.
Valuation
Our Core NAV for the company is ~US$5.30/sh. We carry ~10 mmbbl WI resources for Ebouri, valued at US$1.20/sh unrisked. Our combined unrisked NAV for Kossipo, the contingent resources at Baobab and the resources upside in Egypt, is US$6.90/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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