VAALCO Energy, Inc. (NYSE: EGY; LSE: EGY) (“VAALCO” or the
“Company”) today announced that it has signed a sale and purchase
agreement (“SPA”) to acquire Sasol Gabon S.A.’s (“Sasol’s”) 27.8%
working interest(1) in the Etame Marin block offshore Gabon. Since
VAALCO currently owns and operates a 31.1% working interest(1) in
Etame, the transaction will almost double VAALCO’s total production
and reserves. In addition, VAALCO is acquiring Sasol’s 40%
non-operated participating interest(1) in Block DE-8 offshore
Gabon.
Highlights |
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Acquiring an additional 27.8% working interest in the Etame Marin
block offshore Gabon, increasing VAALCO’s total working interest to
58.8%; |
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Nearly doubles VAALCO’s total net production and reserves; |
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Increases net revenue interest (“NRI”) production from 4,850 to
9,150 barrels of oil per day (“BOPD”) based on current month
production |
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Increases year-end 2019 SEC reserves(2) from 5.0 million to 9.4
million barrels of oil (“MMBO”) |
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Increases year-end 2019 independent 2P CPR reserves(3) from 9.2
MMBO to 17.5 MMBO |
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Immediately accretive to VAALCO, with estimated increase of 23% in
free cash flow per barrel(4) from approximately $10.90 to $13.30 at
$45 realized oil price; |
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Adds optionality from acquisition of Sasol’s 40% non-operated
participating interest in Block DE-8 offshore Gabon; |
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Agreed to total consideration to Sasol for the entire transaction
of $44 million, subject to customary post-effective date
adjustments, and future contingent payments of up to $6 million;
and |
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Funding for the acquisition will be from cash on hand and cash from
operations. |
(1) |
Prior to the closing of the acquisition, VAALCO’s working interest
in Etame is 31.1% and its participating interest is 33.6%; Sasol’s
working interest in Etame is 27.8% and its participating interest
is 30%. All NRI production rates and volumes are based on working
interest less 13% royalty volumes. Sasol’s participating interest
in DE-8 is 40% and its working interest is subject to government
rights for a 20% carried interest and 10% back-in interest. |
(2) |
“SEC reserves” are Netherland, Sewell & Associates estimates
prepared in accordance with the definitions and regulations of the
U.S. Securities and Exchange Commission as of December 31,
2019. |
(3) |
“2P CPR Reserves” are Netherland, Sewell & Associates proved
plus probable estimates prepared in accordance with the definitions
and guidelines set forth in the 2018 Petroleum Resources Management
Systems approved by the Society of Petroleum Engineers as of
December 31, 2019 using VAALCO’s management assumptions for
escalated crude oil price and costs. The SEC definitions of proved
and probable reserves are different from the definitions contained
in the 2018 Petroleum Resources Management Systems approved by the
Society of Petroleum Engineers as of December 31, 2019. As a
result, 2P CPR reserves may not be comparable to SEC reserves
determined under United States standards. The SEC requires United
States oil and gas reporting companies, in their filings with the
SEC, to disclose only proved reserves after the deduction of
royalties and production due to others but permits the optional
disclosure of probable and possible reserves in accordance with SEC
definitions. |
(4) |
Free cash flow per barrel is calculated as (i) revenues less
production expenses, general and administrative expense, annual
abandonment funding and current income tax expense divided by (ii)
the number of NRI barrels of oil sold. |
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An investor deck with additional information regarding the
transaction is available at www.vaalco.com under the Investor
Relations section. |
Cary Bounds, Chief Executive Officer, commented,
“We believe that the acquisition of Sasol’s interest at Etame is a
very attractive and value accretive strategic acquisition for the
Company that confirms our position as one of the leading
independent exploration and production companies in West Africa. In
what was a competitive sales process, this is the ideal growth
transaction that we have been seeking for VAALCO. We believe the
acquisition of an additional stake in this field that we know so
well, having been the operator since 1995, is an important step in
implementing our strategy. The acquisition is expected to deliver a
step change in our production to over 9,000 barrels of oil per day
net based on current production and significantly boosts our cash
flow profile. With minimal additions to our overhead costs, we
expect this transaction to lower our G&A cost per barrel by
approximately 40%. The strong operational and economic performance
of Etame in recent years has enabled us to grow our net cash
position, which we are now using to fund this value accretive
acquisition and profitably expand our reserve base.”
Bounds continued, “We completed a highly
successful drilling program earlier this year that demonstrated the
quality of the asset and the upside that resides in the field, and
this transaction, coupled with our recent announcement of acquiring
new proprietary 3-D seismic data over the entire Etame Marin block,
underscores the belief that we have in the long-term potential at
Etame. We are also enhancing upside potential with a
40% non-operated position in Block DE-8 offshore Gabon which
includes an existing discovery and for which there are plans to
potentially drill an appraisal well in 2021 representing an
exciting near-term catalyst. In summary, as we have previously
stated, we are focused on maximizing the value of our Gabon
resources as well as expanding into new development opportunities
across Africa.”
Transaction Terms
The Company has agreed to total cash
consideration for both properties of approximately $44 million. The
effective date of the transaction is July 1, 2020, and the Company
anticipates that the transaction will close within 90 days. Cash
paid at closing is expected to be less than $44 million as the
amount paid will be subject to certain customary financial
adjustments, including adjustments to account for estimated
positive net cash flows attributable to the period from the
effective date until the closing date. VAALCO plans to fund the net
cost of the transaction with cash on hand and cash from operations.
The SPA contains customary closing conditions including receipt of
all necessary written consents, approvals or waivers, and provides
for certain contingent payments of up to $6 million, as discussed
below. Reserves, production and financial results for the interests
being acquired will be included in VAALCO’s results for periods
after the closing date of the transaction.
Impact of Acquisition
The metrics provided in the table below reflect
Company management’s estimate of the positive impact of the
acquisition on VAALCO’s key metrics.
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As of December 31, 2019 |
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VAALCO |
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Sasol Interest |
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Combined |
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SEC Crude Oil Proved Reserves (MBbls) |
4,996 |
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4,437 |
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9,433 |
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2P CPR Crude Oil Proved + Probable Reserves (MBbls) |
9,224 |
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8,242 |
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17,466 |
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Nine Months Ended September 30, 2020 |
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VAALCO |
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Sasol Interest |
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Combined |
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NRI SALES DATA |
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Crude oil (MBbls) |
1,337 |
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1,195 |
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2,532 |
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NRI PRODUCTION DATA |
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Crude oil (MBbls) |
1,347 |
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1,204 |
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2,551 |
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Average daily production volumes (BOPD) |
4,918 |
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4,394 |
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9,312 |
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Block DE-8
Offshore Gabon
Under the terms of the SPA, VAALCO is acquiring
a 40% non-operated participating interest in Block DE-8 offshore
Gabon, with Perenco, the operator, holding the remaining 60%. Block
DE-8 is in shallow waters and encompasses multiple producing fields
that are not part of the transaction and are carved out of the
contract area that VAALCO is acquiring. The SPA includes an
interest in the Akoum-B discovery on Block DE-8 that was drilled in
2003 and has a potential appraisal well planned for 2021. If the
appraisal well is successful, it could be tied back through a
subsea completion to a Perenco-operated existing platform on Block
DE-8.
Contingent Payments
Under the terms of the SPA, a contingent payment
of $5 million will be payable to Sasol by VAALCO if Brent oil
pricing averages greater than $60 per barrel for 90 consecutive
days during the period from July 1, 2020 to June 30, 2022. There is
an additional contingent payment of $1 million if the DE-8
appraisal well is successful.
Advisors
Evercore Group L.L.C. served as financial
advisors to VAALCO while Ashurst LLP served as legal advisors.
Conference Call
The Company will hold a conference call to
discuss its acquisition of additional interest at Etame on November
18, 2020, at 9:00 a.m. Central Time (10:00 a.m. Eastern Time and
3:00 p.m. London Time). Interested parties may participate by
dialing (877) 270-2148. Parties in the United Kingdom may
participate toll-free by dialing 08082389064 and other
international parties may dial (412) 902-6510. Participants should
request to be joined to the “VAALCO Energy Conference Call.” This
call will also be webcast on VAALCO’s website at www.vaalco.com. An
archived audio replay will be available on VAALCO’s website.
About VAALCO
VAALCO, founded in 1985, is a Houston, USA
based, independent energy company with production, development and
exploration assets in the West African region.
The Company is an established operator within
the region, holding a 33.6% participating interest in the Etame
Marin block, located offshore Gabon, which to date has produced
over 118 million barrels of crude oil and of which the Company is
the operator.
For
Further Information |
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VAALCO Energy, Inc.
(General and Investor Enquiries) |
+00 1 713 623 0801 |
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Website: |
www.vaalco.com |
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Al Petrie Advisors (US
Investor Relations) |
+00 1 713 543 3422 |
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Al Petrie / Chris Delange |
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Buchanan (UK Financial
PR) |
+44 (0) 207 466 5000 |
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Ben Romney / Kelsey
Traynor / James Husband |
VAALCO@buchanan.uk.com |
Forward Looking Statements
This document includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. All statements, other than statements of
historical facts, included in this document that address
activities, events, plans, expectations, objectives or developments
that VAALCO expects, believes or anticipates will or may occur in
the future are forward-looking statements. These statements may
include statements related to the pending transaction, the impact
of the COVID-19 pandemic, including the recent sharp decline in the
global demand for and resulting global oversupply of crude oil and
the resulting steep decline in oil prices, production quotas
imposed by Gabon, disruptions in global supply chains, quarantines
of our workforce or workforce reductions and other matters related
to the pandemic, well results, wells anticipated to be drilled and
placed on production, future levels of drilling and operational
activity and associated expectations, the implementation of the
Company’s business plans and strategy, prospect evaluations,
prospective resources and reserve growth, its activities in
Equatorial Guinea, expected sources of and potential difficulties
in obtaining future capital funding and future liquidity, its
ability to restore production in non-producing wells, future
operating losses, future changes in crude oil and natural gas
prices, future strategic alternatives, future acquisitions, capital
expenditures, future drilling plans, acquisition and interpretation
of seismic data and costs thereof, negotiations with governments
and third parties, timing of the settlement of Gabon income taxes,
and expectations regarding processing facilities, production, sales
and financial projections. These statements are based on
assumptions made by VAALCO based on its experience and perception
of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the
circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, many of which are beyond
VAALCO’s control. These risks include, but are not limited to,
crude oil and natural gas price volatility, the failure of the
transaction to close, the impact of production quotas imposed by
Gabon in response to production cuts agreed to as a member of OPEC,
inflation, general economic conditions, the outbreak of COVID-19,
the Company’s success in discovering, developing and producing
reserves, production and sales differences due to timing of
liftings, decisions by future lenders, the risks associated with
liquidity, lack of availability of goods, services and capital,
environmental risks, drilling risks, foreign regulatory and
operational risks, and regulatory changes.
Investors are cautioned that forward-looking
statements are not guarantees of future performance and that actual
results or developments may differ materially from those projected
in the forward-looking statements. VAALCO disclaims any intention
or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise.
Inside Information
This announcement contains inside information as
defined in Regulation (EU) No. 596/2014 on market abuse (“MAR”) and
is made in accordance with the Company’s obligations under article
17 of MAR.
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