VAALCO Energy's (EGY, Financial) healthy operating performance puts it in a robust position to invest in future growth and deliver superior shareholder returns. The company is investing aggressively in growth as we will see in this article.
Smart investments
VAALCO employed $175 million of gross investment in developing the new Etame platform. The platform comprised of 4 pile, 8 slot located 85 meters below water. Initially, VAALCO decided to develop three wells worth $25 million gross per well.
The unique growth opportunities and some key partnerships are believed to slightly affect the company’s balance sheet, reducing the free cash flow but are expected to diversify the company growth. VAALCO has decided to sign a PSC term sheet for developing its Mutamba Iroru and Gabon discovery.
These healthy drilling data signifies the robust company performance and encourages the management to undertake significant drilling activities, moving ahead. VAALCO estimate on $150 million of gross investment in SEENT platform again with a 4-pile, 8-slot platform at a depth of 85 meters.
VAALCO’s entire net investment in SEENT and Etame is estimated to be approximately $333 million. The major target of these two key projects is expected to be to enhance its production to 20,000 barrels per day or higher into 2016.
VAALCO employed $200 million to $250 million of gross investment in centralized crude sweetening platform. It developed a new Ebouri well at $27 million and expects the re-entry of three already active Ebouri wells at $33 million.
VAALCO licensed 1,085 square kilometers of seismic data. Seismic is the deeper water portion of its block and leveraged to assess structure comparable to the one already drilled for cobalt discovery and hence leading to the Kwanza Basin discoveries.
These significant expansion techniques include enhancing the net investments in Etame and SEENT along with expanding the seismic data by increased licensing agreements are expected to drive significant company revenue and thereby enhanced investor returns.
Conclusion
Going forward, VAALCO seems like a worthwhile investment option with it being a proven international low cost operator, operating at 100% efficiency in 3 of top 4 West Africa producing nations and delivering the projects on schedule and in budget. In addition, the company has a robust cash flow with a stable production profile, illustrated by the fact that the company’s total cash holds at $133.50 million, much above its total debt level of $15.00 million only.
The profit margin and operating margins of 28.95% and 46.53% respectively indicate significant profit to investors coupled with solid operating conditions. Therefore, investors are advised a strong buy for this stock looking at extremely solid financials and relatively poor valuations levels which make the stock quite cheaper to buy.
