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VAALCO Energy, Inc. (NYSE:EGY): Diversified Portfolio Driving Strong Results and Shareholder Returns
Published on September 24, 2024 | Ticker: EGY

VAALCO Energy, Inc. (NYSE:EGY) is a Houston-based, African-focused independent energy company with a robust production and reserve portfolio of assets in Gabon, Egypt, Equatorial Guinea and Canada. The company has delivered impressive operational and financial results, driven by its diversified asset base and prudent capital allocation.

Financials

In the fiscal year 2023, VAALCO reported annual net income of $60.4 million, annual revenue of $455.1 million, annual operating cash flow of $223.6 million, and annual free cash flow of $126.4 million. The company's strong performance has enabled it to return significant value to shareholders through dividends and share buybacks.

Quarterly Performance Highlights

VAALCO's first quarter 2024 results showcased the strength of its diversified portfolio. The company generated net income of $7.7 million and adjusted EBITDAX of $61.7 million, both of which exceeded consensus estimates. Production for the quarter remained solid, with sales at the high end of guidance at almost 16,400 barrels of oil equivalent per day.

The company's revenue mix varied across its geographic segments. In Gabon, crude oil sales contributed $57.5 million, driven by higher volumes and pricing compared to the prior-year period. Egypt's crude oil sales added $37.0 million, while Canada's oil, gas and NGL sales totaled $5.7 million.

Business Overview

Operational Highlights and Outlook

VAALCO's diversified portfolio has enabled the company to navigate various challenges and capitalize on opportunities across its assets.

In Gabon, the company completed its previous drilling campaign in the fourth quarter of 2022 and is now focused on optimizing production and evaluating its next drilling program at the Etame, Ebouri, Southeast Etame and North Tchibala fields. VAALCO plans to spend $30-$40 million in 2024 on long-lead items in preparation for the 2025 drilling campaign.

In Egypt, VAALCO has deferred 2024 drilling to work up a robust program expected to commence in late 2024. The company is currently executing a workover program to help mitigate production decline, and it has contracted a second workover rig to supplement the current one.

In Canada, VAALCO successfully drilled four wells in the first quarter of 2024, all of which have been completed and are now contributing to production. The company is also targeting an exploration and appraisal well in the third quarter of 2024 in its southern acreage.

VAALCO's recent acquisition of Svenska Petroleum Exploration Aktiebolag in Côte d'Ivoire further diversifies its portfolio and provides additional production and reserves. The company closed the $40.2 million all-cash deal on April 30, 2024, and the assets will be incorporated into VAALCO's results starting in the second quarter.

Guidance and Outlook

VAALCO has provided updated guidance for the second quarter and full year 2024, which now includes the contribution from the Svenska acquisition. For the second quarter, the company expects total production of 23,800 to 27,000 working interest barrels of oil equivalent per day and 19,000 to 21,800 net revenue interest barrels of oil equivalent per day.

For the full year 2024, VAALCO forecasts total production of 23,600 to 26,500 working interest barrels of oil equivalent per day and 18,900 to 21,400 net revenue interest barrels of oil equivalent per day. The company's capital expenditure guidance for 2024 has increased to $115-$140 million, primarily due to preparations for the 2025 Svenska FPSO change-out, the anticipated next drilling campaigns in Gabon, Côte d'Ivoire and Canada, as well as the Canadian 2024 drilling program.

Liquidity

VAALCO's financial position remains robust, with $113.3 million in unrestricted cash as of March 31, 2024. The company has no outstanding bank debt and continues to generate strong cash flow, which has enabled it to fund its capital program and return capital to shareholders.

In the first quarter of 2024, VAALCO paid a quarterly cash dividend of $0.0625 per common share, or $6.5 million, and repurchased approximately $5.5 million in shares under its buyback program. The company also announced a second dividend payment of the year, which will be paid in June.

VAALCO's commitment to shareholder returns is further evidenced by its current dividend yield of approximately 4.5%, based on the company's share price.

Conclusion

VAALCO's diversified portfolio of producing assets, coupled with its disciplined approach to capital allocation and operational excellence, has positioned the company for continued success. The company's recent acquisition in Côte d'Ivoire, ongoing development projects in Gabon and Egypt, and exploration activities in Canada demonstrate its ability to identify and execute on value-accretive opportunities.

As VAALCO continues to optimize its existing assets and pursue strategic growth initiatives, the company remains focused on generating sustainable cash flow, maintaining a strong balance sheet, and delivering long-term value to its shareholders.

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