Vaalco Energy's Q3 2025: Contradictions Emerge on Drilling Efficiency, CapEx, and Gabon Production Uptime

Date of Call: None provided

Financials Results

• EPS: $0.01 per share for Q3 2025; $0.16 per share year-to-date (first nine months 2025)

Guidance:

• Q4 2025 production guidance: 20,300–22,200 working interest BOE/d and 15,600–70,300 NRI BOE/d.
• Q4 sales expected higher vs Q3 due to more Gabon liftings; absolute operating costs higher but roughly flat on a per-BOE basis.
• Q4 CapEx expected $90M–$110M; full-year capital midpoint reduced to ~ $240M (≈$60M lower).
• Gabon drilling campaign to begin (rig timing dependent); continued spend in Côte d’Ivoire and Egypt in line with Q3.
• Hedging: ~500k barrels of remaining 2025 hedged (avg floor ~$61); ~800k barrels hedged H1 2026 (avg floor ~$62); target ~40% H1 2026 hedged by year-end.

Business Commentary:

• Production and Sales Performance:
• VAALCO reported a NRI production of 15,405 BOE per day in Q3, at the high end of guidance.
• The company's working interest production was 19,887 BOE, above the midpoint of guidance.

• The strong production and sales performance, with NRI sales of 12,831 BOE per day, was driven by operational excellence and consistent production across their portfolio.

  

• Capital Expenditure and Guidance:

• VAALCO reduced its full-year capital guidance by almost 20%, to around $240 million.
• This reduction was due to a delay in the Gabon drilling campaign from 2025 into 2026.

• The company's ability to achieve efficiency gains in Egypt, where they drilled eight wells for the same CapEx as originally budgeted, contributed to this reduction.

• Earnings and Financial Results:

• VAALCO delivered a net income of $17.2 million or $0.16 per share in the first nine months of 2025.
• The adjusted EBITDA was $130.5 million, despite Côte d'Ivoire being offline.

• Strong operational performance, particularly in Gabon and Egypt, drove these results, despite challenges such as offshore liftings in Gabon.

• Strategic Projects and Future Outlook:

• The completion of the Gabon maintenance shutdown and the anticipated drilling campaign were highlighted as key upcoming events.
• VAALCO's focus on major projects like the Côte d’Ivoire FPSO refurbishment and new drilling programs in Gabon and Egypt was emphasized.
• These projects are expected to contribute significantly to future production and reserve growth, enhancing VAALCO's position in the industry.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted operational outperformance: 'we have raised the midpoint of our full-year production and sales guidance by about 5% while also further reducing our capital guidance by almost 20%.' Reported strong cash generation: $130.5M adjusted EBITDAX YTD and Q3 net income of $1.1M; returned ~$20M to shareholders YTD and maintaining a $0.25 annual dividend (~7% yield).

Q&A:

• Question from Stefan Fassad (Actis Advisors): Two questions: 1) Broadly how is 2025 CapEx split across assets and how will 2026 CapEx compare to 2025? 2) For South Gazala, in a success case how material could reserves be relative to existing Egypt reserves?
  Response: About $60M was removed from the capital midpoint, with roughly $20M permanent/discretionary cuts (including pulling Canadian drilling), a $10M increase in Côte d’Ivoire MV10 spend, and the remainder largely shifting Gabon drilling into 2026; on South Gazala results are mixed (oil and gas zones with low pressures), more technical and commercial work is required before sizing any reserve upside.

• Question from Jeff Robertson (Water Tower Research): Clarify: is ~ $20M of the reduced 2025 CapEx permanent (efficiency or reforecast) and are Egypt efficiency gains sticky? Also, is the RBL increase to $240M in January a reflection of asset performance?
  Response: Yes — about $20M of the cut is permanent (Canadian drilling and discretionary cuts); Egyptian drilling efficiencies are real and expected to persist; the RBL uplift reflects market/liquidity considerations and management choosing to secure capacity from a position of strength.

• Question from Christopher Wheaton (Stifel): What drove Gabon’s strong production without recent drilling (better geology, wells performing better)? And how much flexibility will 2026 CapEx have given competing projects (Gabon drilling, Côte d’Ivoire)?
  Response: Improved field performance stems from reconfiguration that reduced backpressure and strong well uptime (including Eburi 4H with manageable H2S), while 2026 CapEx has some scheduling flexibility (rig timing) but limited downside because planned investments in Gabon and Côte d’Ivoire are material and deliver significant production uplift.

• Question from Charlie Sharp (Canaccord): Timing—will Baobab FPSO be back on stream before mid-2026 to allow second-half drilling? For Gabon, will you drill roughly one well per quarter and batch-complete or complete as you go?
  Response: Current schedule targets FPSO hookup late March/early April with production by end-April/early-May (well before mid-year); Gabon will use pilot wells and, if successful, drill and complete sequentially (not batch), starting on Etamy.

• Question from Phil Desilum (Teton Capital Management): What are the swing factors that would move Côte d’Ivoire drilling earlier vs later in H2 2026? And regarding Equatorial Guinea, was the subsea option part of FEED or is it a separate study?
  Response: The primary swing factor is rig availability/mobilization timing; FEED confirmed technical viability but highlighted shelf risks, so management is evaluating subsea/drillship alternatives (not a full separate FEED yet) to de-risk drilling and potentially improve economics despite higher day rates.

• Question from Jeff Robertson (Water Tower Research): When the FPSO returns to Baobab, how long until field reaches full production, and what did the July Gabon maintenance do to prepare for drilling?
  Response: Expected commissioning and startup after FPSO return is ~6–8 weeks before achieving full rates (startup sequencing pending); July Gabon maintenance upgraded power and water handling and completed inspections, leaving facilities ready for drilling.

• Question from Jamie Weiland (Weiland Management): Refresh on H2S-impacted wells shut in years ago—how many, what volumes, and expectations going forward?
  Response: Historically about three Buri wells were shut in (~6,000–8,000 bpd gross from Buri historically), earlier individual wells flowed ~1,500–2,000 bpd gross; planned sidetrack/redrill (e.g., 5H) is expected to perform better and H2S has proven manageable with chemical treatment.

Contradiction Point 1

Drilling Efficiency and CapEx Impact

It involves the impact of drilling efficiency on CapEx spending, which directly affects operational costs and investor expectations.

Could you clarify the 2025 CapEx forecast and its relation to 2026? - Stefan Fassad (Actis Advisors)

2025Q3: Regarding CapEx, we moved about $60 million from the midpoint guidance. About $10 million is from increased spending in Côte d’Ivoire, and the rest is due to the delay in the Gabon drilling campaign. In Egypt, we completed eight wells for the same CapEx, showing increased drilling efficiency. - Ron Bain(CFO)

How many wells are planned for drilling in Egypt in H2 2025 compared to H1 2025? - Stephane Guy Patrick Foucaud (Auctus Advisors LLP, Research Division)

2025Q2: If you look at Egypt, 8 wells for the same CapEx, same rig time, same cycle time, so we've reduced cycle times by 10 days from the start of the year. - George Maxwell(CEO)

Contradiction Point 2

Côte d'Ivoire Drilling Program Timing

It involves the timeline for the Côte d'Ivoire drilling program, which affects operational planning and investor expectations.

What factors will determine the timing of the Côte d’Ivoire drilling program in 2026? - Phil Desilum (Teton Capital Management)

2025Q3: The timing depends on the drilling rig schedule. The long lead items are ready, and we're monitoring the rig move closely. - George Maxwell(CEO)

What is the current status of the FPSO project in Côte d'Ivoire? - Stephane Guy Patrick Foucaud (Auctus Advisors LLP, Research Division)

2025Q2: Our offshore operations in Côte d’Ivoire are on target. We expect FPSO to be back in the field in late May and production initiated within 2 weeks. - George Maxwell(CEO)

Contradiction Point 3

CapEx Guidance and Flexibility

It involves changes in financial forecasts, specifically regarding capital expenditure guidance and flexibility, which are critical for investor expectations regarding future spending and production.

Could you detail the 2025 CapEx forecast and its relation to 2026? - Stefan Fassad (Actis Advisors)

2025Q3: Regarding CapEx, we moved about $60 million from the midpoint guidance. About $10 million is from increased spending in Côte d’Ivoire, and the rest is due to the delay in the Gabon drilling campaign. - Ron Bain(CFO)

What is the midpoint of the 2025 CapEx guidance, and how does it compare to the 2026 anticipated CapEx? - Jeff Robertson (Water Tower Research)

2025Q1: CapEx guidance for 2025 is $143 million, including $84 million for Gabon drilling, $41 million for Egypt drilling and $18 million for GDC. For 2026, we expect a slight increase from 2025, assuming oil prices remain between $70 and $80. - Ron Bain(CFO)

Contradiction Point 4

Drilling Efficiency in Egypt

It involves operational changes, specifically regarding drilling efficiency in Egypt, which are critical for production costs and company operations.

Can you clarify the 2025 CapEx forecast and its connection to 2026? - Stefan Fassad (Actis Advisors)

2025Q3: In Egypt, we completed eight wells for the same CapEx, showing increased drilling efficiency. - Ron Bain(CFO)

Can you update on Gabon’s production for H2 2025 and how it aligns with guidance? - Jeff Robertson (Water Tower Research)

2025Q1: The Egypt drilling campaign had been on budget and on schedule for the early part of the year. We're on track to drill 26 gross wells. - George Maxwell(CEO)

Contradiction Point 5

Gabon Drilling Campaign and Production Uptime

It involves the explanation of Gabon's production uptime without drilling since 2021, which could affect expectations regarding the company's production capabilities and financial performance.

What's driving Gabon's production uptime without drilling since 2021? - Christopher Wheaton(Stifel)

2025Q3: The reconfiguration reduced back pressure and enhanced well performance. The Eburi wells are exceeding expectations, and 4H's production is ongoing. - George Maxwell(CEO)

Will the upcoming drilling campaign in Gabon significantly boost production like the 2022 campaign? - Christopher Wheaton(Stifel)

2024Q4: The program has been increased from four to five wells due to enhanced performance in Etame. The drilling campaign aims to extend production into the mid-2030s, with a GOC lifting in Q1 and no other government liftings expected in 2025. - George Maxwell(CEO)