VAALCO's (EGY) Acquisition Expands Its West African Footprint
VAALCO Energy EGY entered into an agreement to acquire Svenska Petroleum Exploration AB from Petroswede AB, for a gross consideration of $66.5 million. Svenska Petroleum Exploration AB is a privately held exploration and production company based in Stockholm, Sweden. As part of the acquisition, VAALCO will acquire 100% of the share capital of Svenska from Petroswede AB, effective from Oct 1, 2023.
The purchase will be funded by a pre-closing dividend on Svenska’s balance sheet to Petroswede AB and VAALCO’s cash-on-hand without issuing any debt or equity. The deal is expected to close in the second quarter of 2024, subject to customary closing conditions. VAALCO expects the net cash due at closing to be in the range of $30-$40 million.
Svenska’s primary asset consists of a 27.39% non-operated working interest and a 30.43% paying interest in the CI-40 Block, which includes the producing Baobab field. The Baobab field is operated by Canadian Natural Resources Ltd., which holds a 57.61% working interest in the project. The remaining 15% working interest is held by the national oil company, Petroci Holding.
The Baobab field is located 130 km off the coast of Cote d’Ivoire at a depth of 900-1300 metres under water. The field is characterized by five identifiable reservoir units within Middle to Late Albian sequences. The field was discovered in 2001 and commercial production at the site began in 2005.
The asset has been significantly de-risked by drilling 24 production and 5 injection wells, since 2001. Cumulative gross production from the field was approximately 150 MMBOE, a portion of the projected (in excess of) 1 billion barrels of oil equivalent volumes initially in place.
The transaction is immediately accretive to key financial metrics. The Baobab field currently produces approximately 4,500 working interest (WI) BOE per day, which includes 1P WI CPR reserves of 13.0 MMBOE, consisting of 99% oil, as of Oct 1, 2023, and 2P WI CPR reserves of 21.7 MMBOE, including 97% oil.
The Baobab field includes nine producing subsea wells, all of which are tied to a floating, producing, storage and offloading vessel (FPSO). The FPSO will undergo planned maintenance and upgrades in early 2025 and is anticipated to return to production in 2026.
Significant drilling development is expected to begin in 2026, adding to the production from the main Baobab field in CI-40 license. Additionally, there is potential for the development of the Kossipo field in the same license.
The initial term of the CI-40 license is through mid-2028. However, there is a contractual option to extend the license term to 2038. The CI-40 license features attractive provisions, including a cost oil cap at 80% of revenues, a 25% uplift on development capex for cost recovery purposes and a 53% contractor profit oil take.
The acquisition also includes Svenska’s 21.05% working interest in the Uge discovery in the OML 145 concession in Nigeria. Its partners in the OML 145 Block include ExxonMobil (21.05%), Chevron (21.05%), Oando (21.05%) and NPDC (15.80%). The aforementioned license interest has minimal commitments and has no drilling or development planned as of now.
VAALCO states the acquisition of the Baobab field in Cote d’Ivoire will allow it to diversify its asset base. The acquired asset has a history of strong production and proven reserves, along with significant upside potential through development drilling that will allow the company to generate free cash flows and return capital to shareholders.
Additionally, the dry-docking and upgradation of the FPSO in 2025 will position EGY to gain from the drilling program 2026. These will also prepare the vessel for drilling campaigns in the future.
VAALCO’s overall strategy will allow it to grow further in 2024. The strong financial position, with no bank debt and strong cash position, will enable VAALCO to fund organic and inorganic growth opportunities and grow its business over time.
Zacks Rank and Key Picks
Currently, EGY carries a Zacks Rank #3 (Hold).
Investors might want to look at some better-ranked stocks in the energy sector, such as Energy Transfer LP ET, Archrock Inc. AROC and Repsol REPYY. While both Energy Transfer and ArchRock presently sport a Zacks Rank #1 (Strong Buy), Repsol carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Energy Transfer is a midstream player that owns and operates one of the most diversified portfolios of energy assets in the United States. With a pipeline network extending more than 125,000 miles, its network spans over 44 states. With a presence in all the major U.S. production basins, the company’s outlook seems positive.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
Repsol is a global multi-energy company, involved in exploration and production activities as well as refining and marketing petroleum products. The company is also actively involved in transitioning toward cleaner and more sustainable energy solutions. Recently, it announced the expansion of its network of renewable fuel refilling stations in Europe, demonstrating its commitment to a sustainable energy model.
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