December 19, 2022, ST. PETERSBURG, FL – Water Tower Research (www.watertowerresearch.com) has published an Initiation of Coverage Report on VAALCO Energy, Inc. (NYSE: EGY) titled, “A Balanced Portfolio of African E&P Assets”. The report can be accessed here.
VAALCO is an Africa-focused exploration and production company whose primary focus has been on producing assets offshore Gabon and exploration opportunities offshore Gabon and Equatorial Guinea. On October 14, 2022, VAALCO closed the stock-for-stock acquisition of TransGlobe Energy Corporation. The combined entity owns a diversified portfolio of producing assets and prospects in Gabon, Egypt, Canada, and Equatorial Guinea. The acquisition increased VAALCO’s pro forma proved reserves (1P) to 32 MMBOE from 11 MMBOE and proved plus probable (2P) reserves to 51 MMBOE from 17 MMBOE. Management forecasts a year-end 2022 production exit rate of 19.5-20.0 MBOE/d, the midpoint of which more than doubles VAALCO’s 3Q22 output.
The expanded resource base created through the TransGlobe acquisition provides VAALCO with a balanced mix of producing assets, each with incremental development potential, in Gabon, Egypt, and Canada, and exploration exposure in Gabon, Equatorial Guinea, and Egypt. Project variety provides capital allocation options that can be adjusted as economic conditions warrant between long-cycle and short-cycle investment opportunities.
The TransGlobe acquisition should drive significant production, EBITDA, and free cash flow growth in 2023. Management has not provided a 2023 operating outlook yet. Our preliminary estimates incorporate average sales volumes of ~18.5 BOE/d and an average Brent oil price of $90/bbl to generate $351 million of EBITDA and $127 million of free cash flow.
The combined entity’s increased scale and cash flow generation capacity are expected to fund increased cash returns to shareholders. Management is committed to enhancing such returns to shareholders and has indicated that the annualized dividend will be increased to $0.25/share beginning in 1Q23 from $0.13/share currently. The board has also authorized a $30-million share repurchase plan.
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