Vaalco balances warning with growth in formative yr
Vaalco Power will concentrate on delivering its growth initiatives this yr, whereas avoiding any threats to manufacturing, CEO George Maxwell has mentioned.
The Gabon-focused firm is engaged on drilling wells this yr, whereas additionally swapping its floating manufacturing, storage and offloading (FPSO) vessel for a floating storage and offloading (FSO) unit.
“Vaalco goes into 2022 with one of the vital important capital expenditure plans the corporate has ever had,” Maxwell informed Power Voice.
The corporate is within the midst of a drilling marketing campaign. Outcomes from the second nicely must be due within the subsequent two weeks. The work programme covers 4 wells and a workover, Maxwell mentioned.
“The important thing focus for us is how to have a look at the place we are able to maximise returns and alternatives within the natural portfolio that now we have,” he continued.
Outcomes from the primary nicely have been encouraging. Vaalco accomplished the nicely in February and reported gross flows of round 5,000 barrels per day. It’s now flowing at round 3,200 bpd.
The opposite a part of Vaalco’s huge plans for the yr is the transfer to an FSO. The corporate launched its plan to shift to the FSO within the second quarter of 2021. It must be in place within the third quarter of this yr.
As soon as the brand new infrastructure is in place, it ought to scale back prices by 50% from present ranges. It ought to payback prices inside two years or so, Vaalco has mentioned.
Whereas issues might look clean on the floor, Maxwell mentioned that it was an space of intense exercise. Vaalco has three separate groups engaged on the undertaking, on the procurement and sailaway, on upgrading traces and development, and on the decommissioning and sailaway of the FPSO.
“I talk to traders that it’s a single undertaking, but it surely’s three,” Maxwell mentioned. “It’s one of the vital advanced initiatives. Our eyes are usually not off the ball.”
Vaalco expects to spend $90-110 million on capex this yr. The corporate is in a “distinctive place with no debt”, CFO Ronald Bain mentioned. Consequently, there are not any exterior calls for for hedges.
Bain, who joined Vaalco in July 2021, mentioned the corporate has hedges however these are rolling off this yr. “The majority of these hedges fall off within the second quarter. By the fourth quarter, we can have nothing hedged in any respect – and there’s no push to try this. We are going to proceed to have a look at our capital wants.”
Vaalco paid out a dividend in March. Mentioning potential drivers of hedging, Bain advised Vaalco would take steps to guard its commitments, doubtlessly together with the dividend.
Bain and Maxwell each beforehand labored at Nigeria’s Eland Oil & Gasoline. Maxwell mentioned commitments to paying dividends dated again to Eland.
“It’s not new to us, it might be new to others. There’s a world on the market the place juniors don’t ship on dividends and simply financial institution on development,” Maxwell mentioned. The administration plan for the dividend focuses on sustainable funds, with a plan to pay out to shareholders by means of to no less than the top of 2025.
“We had the chance and the financial savings. We needed to return a few of that important money move – and the board has made a dedication.”
Vaalco’s administration are cautious to increase this monetary sobriety to any new ventures, together with exploration.
The corporate has signed as much as two blocks in Gabon’s twelfth spherical, alongside BW Power and Panoro Power. The areas are adjoining to Vaalco’s Etame area and BW Power’s Dussafu.
Close to-term manufacturing
“The main target us to enhance prices and and enhance netbacks,” mentioned Bain. He did permit that there was room for development with a “second producing asset in Equatorial Guinea”.
Maxwell described Block P in Equatorial Guinea as a “main exploration alternative. However how do you fund exploration? You might want to have deep pockets and be pragmatic, pondering by means of fund a discovery by means of to growth. We should be aware of our funds and our shareholders.”
The SW Grande prospect in Block P has a possible useful resource of 164 million barrels of oil equal, Vaalco has mentioned, however work can be excessive threat. Alongside this are two small discoveries, at Venus and Europa, with 15.5-24mn boe and 8mn boe respectively.
Maxwell mentioned a high-risk exploration marketing campaign was onerous to sq. with a want to offer returns to shareholders within the subsequent 24 months. “As an alternative, we stepped again and seemed on the smaller discovery,” he mentioned. “Equatorial Guinea is a very nice instance of trying in our personal yard.”
Vaalco is engaged on plans to develop the discover from the shelf. This might permit the corporate to drill the finds from a water depth of round 120 metres, reasonably than the expense of the deepwater.
“We’re engaged on long-reach drilling, 3.5 km away. That has began to vary the economics of growth significantly,” Maxwell mentioned. The discover may very well be tied again right into a cellular producing unit.
“We get to a degree the place the discovering and growth price is a suitable $8-14. The highest line oil value is unimportant. We’re not screening alternatives at $120 per barrel. We have a look at the typical and work out whether or not we are able to nonetheless present shareholder returns.”
Vaalco appears more likely to favour natural alternatives over inorganic, though Maxwell did permit it might pursue both – so long as they’re price aggressive.