VAALCO Energy, Inc. (NYSE: EGY) is a Houston-based independent energy company principally engaged in the acquisition, development, and production of crude oil. The Company’s properties and acreage are located primarily in Gabon and Equatorial Guinea in West Africa.
The company continues Good positive cash flow of $14.6 million in the first quarter of 2018 and recently announced that its subsidiary paid off the outstanding balance on its Amended Term Loan Agreement with the International Finance Corporation (“IFC”) and begun workover operations last week to restore production to two wells currently shut-in on the Avouma platform.
The company’ liquidity continues to improve as it realizes significant cash flow due to the strong improvement in Brent oil prices with no hedges currently in place. This is allowing EGY to eliminate all of its outstanding debt and strengthen the balance sheet.
Before this, on May 7th, the company announced highest Quarterly Earnings Since Second Quarter of 2014. The company Reported income from continuing operations of $8.7 million ($0.15 per diluted share) for the first quarter of 2018, which was 146% higher compared with $3.5 million ($0.06 per diluted share) in the fourth quarter of 2017.
Moving forward with Brent trading at multiyear highs, no hedges in place for EGY, the company anticipate further meaningful growth in its cash position. Already in 2018, it has grown its unrestricted cash significantly above the year-end 2017 balance of $19.7 million to $27.4 million net of partner advances. Vaalco also paid down its debt substantially.
The market is hugely excited about the successful first quarter in 2018. Moreover, from a forward-looking perspective, the company project further improvement as EGY continues to deliver on its guidance and strengthen its balance sheet. Furthermore, the management of the company is confident in its premier Etame asset, and they have several development drilling opportunities that it is considering drilling early next year, depending on approvals from the Gabon government and its partners.
Considering recent developments, analysts see promise in the company and believe it will provide a robust fundamental appeal to the investors as well as momentum players trading the stock. Several brokerage firms have initiated coverage on the company, and the stock currently has an average rating of “Buy” and a consensus price target of $3.75.
About the company: VAALCO Energy, Inc. is a Houston, Texas-based independent energy company principally engaged in the acquisition, exploration, development, and production of crude oil. VAALCO’s strategy is to increase reserves and production through the development and exploitation of international oil and natural gas properties. The Company’s properties and exploration acreage are located primarily in Gabon and Equatorial Guinea in West Africa.
Other key updates:
Significant Development Opportunities at Etame
• Development opportunities identified that would extend the economic life
• Over 71 MMBO of gross unrisked recoverable contingent resources
• Operating infrastructure in place to support the development
Etame License Extension
• Current license terminates in 2021• License extension would enhance the economics of new development wells
• Relinquishing exploration license in Angola to focus on development in Gabon
• VAALCO believes that the accrued $15 million liability will be substantially less• The resolution would strengthen the balance sheet and improve access to capital
• Leverage existing infrastructure, technical expertise and experience in international, offshore major projects and production operations
• Seeking attractively valued new development opportunities in West Africa
• Evaluating value accretive merger and acquisition opportunities
First Quarter 2018 Results:
Revenue: Total oil sales for the first quarter of 2018 were $27.6 million, compared to $17.2 million in the fourth quarter of 2017. During the first quarter of 2018, VAALCO sold approximately 393,000 net barrels of oil at an average price of $68.69 per barrel, compared to 280,000 net barrels at an average price of $59.89 per barrel in the fourth quarter of 2017.
Profitability: As previously disclosed, income from continuing operations, operating income, and Adjusted EBITDAX were positively impacted this quarter by higher realized Brent pricing, no commodity hedges in place and the split lifting that took place during the period from December 31, 2017, to January 1, 2018. Adjusted EBITDAX totalled $14.5 million in the first quarter of 2018 compared with $10.4 million in the same period of 2017, and $3.9 million in the fourth quarter of 2017.
Liquidity and financial flexibility: Already in 2018, it has grown its unrestricted cash significantly above the year-end 2017 balance of $19.7 million to $27.4 million net of partner advances. Vaalco also paid down its debt significantly.
VAALCO Free Cash Flow Overview (2018E)
Key risk factors and potential stock drivers:
- The company’ business risk profile is exposed to significant industry and regulatory risk. The oil and natural gas industry are affected by many factors. Government regulations, particularly in the areas of taxation, energy, climate change and the environment, can have a significant impact on operations and profitability.
- Global energy prices have been under pressure since their mid-2014 highs. Crude oil saw its price plummet from $99 per barrel (dated Brent) in 2014 to just $34 per barrel in January 2016. Crude oil prices are expected to move upward but remain at sub-$70/bbl in fiscal 2019, and their medium-term price outlook remains stable. Going forward, the focus will continue to be on oil and natural gas prices.
- The company’s operational and market risk profile is exposed to risk related to competitive forces. The oil and natural gas industry are intensely competitive, and EGY competes with numerous other oil and natural gas exploration and production companies. Some of these companies have substantially greater operational and financial resources than EGY.
- On Thursday, May 31st, 2018, EGY is trading at $2.3099, on an average volume of 774,884 million shares exchanging hands. Market capitalization is $136.078 million. The current RSI is at 69.35
- In the past 52 weeks, shares of EGY have traded as low as $0.6790 and as high as $2.6610
- At $2.31, shares of EGY are trading above its 50-day moving average (MA) at $1.27 and above its 200-day moving average (MA) at $0.91
- The present support and resistance levels for the stock are at $2.12 & $2.46 respectively.
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