Vaalco Energy (NYSE: EGY): Two large projects to boost FY26 production
• 4Q24 production was 25,300 boe/d; which is in line with our expectations.• The YE24 WI 2P reserves were estimated at 96.1 mmboe) Adjusting for the acquisition of the Ivory Coast assets, the company has organically replaced over 100% of the FY24 production of ~9 mmboe. This exceeds our expectations and reflects the strong performance of Vaalco’s various assets.
• Vaalco expects to produce 19.3-22.3 mboe/d in 2025 with a capex of US$270-300 mm. The guidance is below our forecast of 24.9 mbbl/d, which assumed the earlier contributions from new wells in Gabon. FY25 WI production in Gabon is expected to average 7.0-8.3 mbbl/d (4Q24: 8.6 mbbl/d). Drilling in Gabon is expected to start around August, with only two new wells expected to add production by YE25. The drilling campaign will continue with an additional three wells plus two work-overs to be drilled from early 2026, with the option to drill five more wells later that year.
• Ivory Coast and Gabon each represent 40-45% of the total capex program. Production in Côte d’Ivoire is expected to resume in 2Q26, with back-to-back drilling assumed from that point.
• In Egypt, Vaalco has fractured a new well at South Ghazalat, which could derisk further resources.
• The FID for Venus (Equatorial Guinea) could be taken later in 2025.
• As we incorporate the FY25 guidance and new reserves, we reiterate our target price of US$10 per share in line with our ReNAV. For now, we forecast ~28 mboe/d production in 2026. Including contributions from Equatorial Guinea from 2028, production could exceed 35 mboe/d by then. The dividend yield is ~5.8%.
Assumptions and forecasts
Following the production restart in Ivory Coast, we assume the company will drill one new well per quarter. In Gabon, we assume only three additional wells plus two work-overs in 2026. As a result, we forecast only ~US$285 mm capex for 2026 (FY25: US$305 mm). There is an 25% uplift on capex in Ivory Coast and that cost oil can recovered against 100% of revenue. As a results, the company cash flow from Ivory Coast will be very high once production is back on line.
Valuation
Our ReNAV is ~US$9.70/sh. Drilling success at Ebouri could lead to further drilling activities. Currently, we carry ~10 mmbbl WI resources for Ebouri, valued at US$1.20/sh unrisked. Additionally, our combined unrisked NAV for Kossipo, the contingent resources at Baobab, the exploration program in Canada, and the contingent resources in Egypt is US$7.53/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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