Vaalco Energy: Assessing the Scalability of Its Gabon Drilling Campaign and Path to Growth

Vaalco has begun the next leg of its growth story. The company has commenced its Phase Three Drilling Program offshore Gabon, spudding the ET-15 infill well at the Etame platform. This is not a speculative venture but a targeted campaign designed to enhance production and potentially add reserves. The program's scope is methodical: it starts with pilot holes and infill wells at Etame, followed by work at the SEENT and Ebouri platforms. This structured approach aims to drive meaningful growth, as CEO George Maxwell noted, and represents a near-term catalyst for the company's output.

The program is launching from a position of operational stability. For the full year 2025, Vaalco produced approximately 21,150 WI BOEPD, landing at the midpoint of its guidance range. This consistency provides a solid base from which to ramp up. More importantly, the company is executing its capital plans without financial strain, having increased cash at bank to $58.8 million while funding its programs without drawing on its reserve-based lending facility.

This growth initiative is underpinned by a substantial resource base that defines its Total Addressable Market. Vaalco holds 11.0 MMBbls of SEC Net 1P reserves and 17.1 MMBbls of 2P working interest in Gabon. This foundation of proven and probable reserves provides the geological certainty needed to justify the drilling campaign's costs and timelines. The successful initial results from the ET-15 pilot well, which encountered high-quality reservoir sands and confirmed a connected reservoir system, validate the program's potential to unlock this resource efficiently.

The bottom line is that Vaalco's Gabon drilling campaign is a scalable growth initiative. It leverages a defined resource base to execute a phased, low-risk expansion plan. The company is moving from a stable production plateau into a period of targeted development, with the potential to significantly increase its output and reserve position over the coming years.

Financial Impact, Scalability, and Valuation Metrics

Vaalco's operational execution has been solid, setting a strong foundation for its growth plans. For the full year, the company recorded sales volumes of approximately 22,100 WI BOEPD, landing at the top of its guidance range. This performance, coupled with a production figure of 21,150 WI BOEPD, demonstrates the stability needed to fund expansion. More critically, the company has improved its financial flexibility, increasing cash at bank by nearly $35 million to $58.8 million as of year-end while funding all capital expenditures without drawing on its reserve-based lending facility. This balance sheet strength is a key enabler for the drilling campaign.

The market's view aligns with this operational setup, reflecting a clear growth expectation. Analyst consensus is a "Buy," with an average price target implying a forecasted upside of 96.36% from the current share price. This bullish sentiment is anchored in the projected financial inflection from the Gabon program. While revenue forecasts show a decline in 2025, they point to a sharp rebound. Analysts project revenue to grow 20% in 2026 and accelerate to 49% in 2027. This trajectory suggests the drilling program's impact is poised to materialize in the financials, with the company transitioning from a stable producer to a growth story.

The scalability of this model is evident. The company is executing its capital-intensive plans from a position of financial control, using operating cash flow rather than debt. This discipline supports the high-growth scenario. The key for investors is to watch the cadence of production growth in 2026 to see if it matches the projected revenue ramp. If so, the current valuation gap could narrow as the market prices in the successful execution of this scalable drilling campaign.

Catalysts, Timeline, and Key Risks

The path to value creation for Vaalco is now clearly mapped out, with specific milestones on the horizon. The primary near-term catalyst is the successful completion of the ET-15 pilot well and the subsequent ET-15P-ST1 well, both of which are expected to be finalized in the first quarter of 2026. The initial results have been positive, with the ET-15 well encountering high-quality reservoir sands and confirming a connected system. The detailed analysis of the second pilot hole is underway to assess its commercial viability, a key step before committing to further infill drilling at Etame. This phase sets the stage for the broader campaign, which will move to the SEENT and Ebouri platforms later in the year.

A second major catalyst is the progress on the Baobab field in Côte d'Ivoire. The company has confirmed that the Baobab Ivorian (formerly MV10) Floating Production Storage and Offloading Vessel (FPSO) remains on track to leave the Dubai dry dock in early February and sail back to Côte d'Ivoire. This arrival is a critical operational milestone, as it will enable the startup of production from the Baobab field, adding a new, low-cost asset to the portfolio and diversifying the company's production base.

Despite these clear catalysts, the growth thesis faces tangible risks. The most immediate is execution risk on the drilling program itself. Delays in completing the pilot wells or moving the rig to subsequent platforms could push back the timeline for production growth. Cost overruns on the drilling campaign or the Baobab FPSO project would also pressure the company's financial discipline, which has been a strength. Furthermore, Vaalco's operations are concentrated in West Africa, a region with inherent macroeconomic volatility. While some countries like Nigeria and Ghana are showing improved economic resilience, the broader region remains heavily commodity dependent and vulnerable to global shocks, which could impact operations, logistics, and cash flow.

Yet the company's business model offers a path to scale beyond these near-term projects. Its operations in Gabon are characterized by low-cost production, providing a strong cash flow foundation. The substantial reserve base-11.0 MMBbls of SEC Net 1P reserves and 17.1 MMBbls of 2P working interest-provides a pipeline for multiple phases of development. The planned work at SEENT and Ebouri platforms is just the next step in a longer-term expansion strategy. This scalability, combined with the company's financial control, means that successful execution of the current plan could unlock a multi-year growth trajectory, turning the initial Gabon drilling campaign into a sustained period of value creation.