VAALCO Energy recently reported its second quarter results, revealing a one-time gain of nearly $20 million due to the Svenska acquisition. This gain in purchase indicates the success of the acquisition, with the SEC reserves exceeding expectations by a couple of million barrels. Additionally, the Canadian well campaign surprised with a higher than expected 70% oil production, showcasing the evolution of the acreage from dry gas production to oil production.
The company’s operations in riskier areas have allowed for low prices and a quick payback of the purchase price, resulting in a hefty cash balance and no long-term debt to manage business risks effectively. In Egypt, the government paid a back payment of $8 million in July, with an acknowledgment of owing another $50 million to the company. The confirmation from EGPC regarding the $51.7 million owed is a crucial step towards resolving these payments.
The second quarter production saw growth compared to the previous fiscal year, primarily driven by the Côte d’Ivoire acquisition. Despite the upcoming maintenance of the FPSO in Côte d’Ivoire, the company plans a drilling campaign in Gabon to influence future production. Egypt’s new production agreement has led to higher cost production in older fields, although slow payments from the government remain a challenge.
The success in increasing oil production in Canada is a promising development for future sales growth. However, the FPSO maintenance in Côte d’Ivoire next year may impact production temporarily. Nonetheless, the company’s strong cash position allows for handling repairs and planning future drilling campaigns.
The Svenska acquisition comes with a year-long repair and upgrade, which could affect the stock performance until production resumes in 2026. The Gabon drilling campaign and continued production growth in Egypt offer opportunities to offset the production loss during maintenance. Diversification into different countries helps mitigate risks associated with instability in the region.
Despite the challenges, VAALCO Energy remains a strong buy consideration for investors willing to navigate the company’s strategy and risks. The debt-free balance sheet and cash reserves demonstrate the company’s success and ability to navigate uncertainties in the industry. While volatility in commodity prices and geopolitical factors pose risks, the company’s financial strength provides some protection.
Overall, the company’s ability to generate cash, diversify its operations, and stay debt-free bodes well for its future prospects. By staying agile and adapting to changing market conditions, VAALCO Energy aims to continue its success in the oil and gas industry.
