Thank you for joining us for this session of the Water Tower Research Insights Conference featuring VAALCO Energy. I am Jeff Robertson, Managing Director for Natural Resources here at Water Tower Research. From VAALCO, we're joined by Chief Executive Officer George Maxwell. George, thank you for taking the time to join us today.
Thank you, Jeff. It's a pleasure to be here.
Before we begin, please note that VAALCO's disclosures regarding forward-looking statements can be found under the investor relations tab of its corporate website, along with its latest investor presentation. Also, this fireside chat may not be reproduced, nor may a written transcript be distributed without the express written consent of Water Tower Research. We will aim to address investor questions in the follow-up management series report or via email. If you have questions, please enter them through the portal. Also, investors that may be interested in scheduling a meeting with VAALCO can indicate their interest within the portal, and we'll try to coordinate those. VAALCO Energy, which is headquartered in Houston, Texas, owns interest in a diversified Africa-focused asset portfolio. The portfolio includes a mix of production, development, and exploration projects that provide material organic production and reserve growth in the years ahead.
VAALCO's production base includes assets onshore Egypt and offshore Gabon and Côte d'Ivoire. Its development and exploration portfolio includes opportunities in those three countries, plus a block offshore Equatorial Guinea, which holds the Venus development project. Working interest production averaged about 21,300 BOEs per day in 2025, and the midpoint of management's 2026 guidance is about 21,250 BOEs per day. Oil accounts for about 100% of VAALCO's sales volumes in Egypt, Gabon, and Côte d'Ivoire. Based on the midpoint of CapEx of 2026 guidance, Côte d'Ivoire and Gabon will command about 90% of CapEx. George, I'd like to just start briefly with some strategy before we turn to the assets. How do you think about managing the risk that's inherent in oil and gas exploration in the areas in which VAALCO operates?
Well, obviously what we've done recently is trying to expand the portfolio to give us a full spread of opportunities within our portfolio, from the development and production opportunities, construction opportunities, greenfield project opportunities, and then also, as you mentioned, into exploration opportunities. Now, when we look at exploration opportunities, we're looking at increasing the footprint in already established jurisdictions that we're in. The reason we look in that area is as we look forward, particularly in areas like Gabon and Côte d'Ivoire, where we have producing assets, but they are on a declining basis, and so we need to continue to drill and invest to maintain and enhance those production areas. We also need to look at how we can utilize the resources we have already deployed in these jurisdictions to look towards the future.
You'll see we've done that in Gabon in partnership with BW Energy and Panoro in the Guduma and Niosi blocks for exploration, which are surrounding Etame in the Gabon area. We've done exactly the same in Côte d'Ivoire, where we've picked up a CI-705 Block about 60 km to the west of Baobab, CI-40, and we've got great exploration potential there. That's our first approach to it. How do we increase our footprint? The second approach is there activities where we can get a distinct advantage with the technical skill sets that we have in new areas? That's where we look at the non-organic opportunities. Now, traditionally, VAALCO and our strategy is to look at new areas from a production standpoint, and that's always our first step, so that we have a producing base on which we can then expand the potential for exploration activities.
We always take that first step on a production basis and then look at how we expand the footprint and exploration thereafter.
George, is there something about West Africa? I know VAALCO's been there for a couple of decades now, but is there something about West Africa that really draws the company in terms of opportunities?
There's a couple of things there. One, from an investment standpoint and a return standpoint, the barrels are quite prolific in value. When you look at the value, not all oil barrels are created equally when it comes to value. The production sharing contracts in West Africa, particularly offshore West Africa, are very economically good to the investor. When we look at our Gabon PSC with our 80% cost oil ceiling, there's a very valuable barrel comes back for every dollar we invest. When we look at the Côte d'Ivoire position on CI-40, for every dollar we invest, we're guaranteed a $1.25 back in that investment, regardless of oil price. They're very prolific when it comes to the economic return. When you look down the west coast of Africa, you can see that most of the PSCs in general have very similar terms.
Now, the other thing that's worth mentioning there, when we look at these PSCs in these jurisdictions, is you also have what we call fiscal stability clauses, which means that you're basically sheltered on the whole from any kind of windfall taxes or tax escalations, regardless of oil price. That makes it, despite some investors seeing geopolitical risk, the fiscal risk is taken away. If you look at some of the more developed countries, particularly, in the past in the United States and over in Europe, you'll have seen windfall taxes based on oil prices being imposed, and you don't have that fiscal stability. That's one of the most attractive things we see in West Africa.
How does VAALCO's asset portfolio support the company's long-term growth objectives to deliver value for shareholders? I know you've spoken about a goal by 2030 of growing production towards 50,000 BOEs per day.
Yeah, I think we've developed that. If you look at the journey we've been on in the last five years, we've went from a single asset company in West Africa to now having a portfolio of assets that have longevity into the 2040s. When we've created that type of longevity, and we look at the Capital Markets Day presentation we gave last year with our strategic objectives of hitting 50,000, we demonstrated how we could do that from our organic portfolio at the moment.
Everything we've achieved through including Egypt and the acquisitions in Côte d'Ivoire and the production enhancement we've delivered in Gabon, it gives us the confidence that within the management of the existing portfolio and the new projects yet to come on stream, which is the Phase 5 Drilling in Côte d'Ivoire and the development of the Venus project in Equatorial Guinea, you can see that we can achieve that objective. Now, one of the questions I've been asked from a number of investors, "Well, why is it taking till 2030 to get there?" That's purely to do with effective and efficient balance sheet management. We don't want to be overlevered. We've got the assets in our portfolio right now, and we could develop them right now if we had unlimited funds.
We've got to look at the other side and be prudent in the management of the balance sheet.
The producing assets that VAALCO has performed quite well in 2025, with production that came in above the midpoint of guidance and NRI sales volumes exceeded the high end of guidance. Are there any trends that contributed to the strong performance in 2025 that you think might carry over into 2026?
Well, clearly we've seen a very good performance in Egypt and very good performance in Gabon. Obviously Côte d'Ivoire was offline for most of 2025. We're looking to see, let's take each asset in its turn. In Egypt, we have continued to see very strong performance in the fields, particularly towards the end of the drilling campaign in Q4. We are currently looking at bringing forward our drilling program in Egypt to capture both the upside potential that we saw at the end of 2025 and also to lock into these higher prices. We're currently evaluating bringing forward an Egyptian drilling program which may commence as early as Q2. That was basically something we've been working on in the last number of weeks to say that, "Look, we've got this opportunity.
It's CapEx efficient to do it, so we may accelerate that program." That's something we'll announce in the near future. When we look at Gabon, obviously we've seen exceptional performance from the reservoir, and that comes down to our understanding of the reservoir and reservoir management by the production control individuals in Gabon. With the new modeling, we do see continued, I guess, plateauing of that performance in the Etame reservoir. The drilling campaign that we're embarking upon, we've seen success in the production wells. We've seen not so much success in the one exploration well. That program continues, and we do expect to see that enhancement of production with the successful production well just about to be completed right now and moving on to Ebouri and then on to the SEENT platform.
We do see that enhancement coming into 2026, and if we can see the same performance from these new wells coming on as we've seen from the reservoir, we're quite encouraged by what we'll see from the plateaus going through and into 2027 for Gabon. With obviously Côte d'Ivoire, we're in a very fortunate position. The FPSO is now back on station. It's being moored up right now, and we're still on track for production to recommence in the third or fourth week of May. We're looking forward to some flush production potentially coming through there, which will give us some enhancement to our production targets. Then the drilling campaign commencing in August in CDI. For a relatively small oil company, when you look at all our assets, we've got lots of activity, lots of drill bits spinning in each of our operations.
That, it gives us both the confidence and the belief that when we look at our production profiles, we're in a very good position to at least meet or exceed them.
One question on Egypt before we turn to Côte d'Ivoire. You made a lot of progress, or the company made a lot of progress in 2025 working down the receivables balance with EGPC. Are there opportunities in Egypt, like you spoke about maybe restarting a development program in 2Q, that could expand further what you do there over the next several years?
Of course there is. It goes back to the strategy I mentioned earlier. We move into an area with production, and we look to see how we can utilize our footprint in country to expand those opportunities. Now, our team there have been very successful in working closely with EGPC and the ministry in working on the receivables, but also demonstrating our commitment to the investment. I think it's a credit to the team and how they've worked with our partner, EGPC, there too, that they've been lobbying us to bring forward this drilling program. We've been looking at and evaluating the merits of that. As I say, you know. When you see things working successfully, you tend to go back and keep investing and keep trying again.
Because if we ignore the success of an operation, then we run the risk of it not being as successful in the future. You will see us doing a lot more in Egypt this year and carrying on with the campaigns from last year. Also when we look at linking to our strategy, if there are step-out opportunities or other opportunities that make sense that can correlate to our existing activities in Egypt, we'll certainly have those in our gunsights.
Let's talk about Côte d'Ivoire. You mentioned the FPSO returning to the Baobab field. Fortunately, that FPSO sailed out of the Persian Gulf on time in late January, to get back on location here recently. Can you just outline the process of reconnecting the field to the FPSO and restarting production?
Okay. Where we are right now is that the FPSO is in the field. It's currently being moored with the mooring chains, and they're about 50% complete with re-mooring the vessel. The other vessels that we require in the field for starting up and recommissioning, we need the subsea vessels there in order to pick up the flow lines and reconnect those to the FPSO. That vessel is in the field, and that work will commence within the next 10 days. We have the recommissioning of the processing facilities on the vessel, and the part of that work was done en route as it was being towed back to the field. The real work on that starts when we go live. There's two sections to going live.
One is obviously the production flow lines being reconnected, and then also the water injection flow lines to be reconnected, and then the commissioning of these systems. When we look at the mooring activity, the mooring activity will complete in the next seven to 10 days. We'll be on to the picking up the flow lines and the hookup activity with the subsea vessels. That's expected to take the next four weeks. Four weeks for the flow line connections and then basically the startup and commissioning of the systems another week or so after that. That's really the process. From that start point, we're still expecting to be on production or commencing production the third or fourth week of May.
If you commence production toward the end of May, George, how long should it take for the producing wells or for the operator to start actually lifting cargoes from the FPSO?
Yeah. I think the first cargo is probably forecasted for some time in late August, if memory serves. What we've got to remember here, reservoirs are a natural system. This reservoir's been effectively sealed up for over 12 months. We will see some pressure build up in the reservoir that wasn't there when we shut it down. Exactly what the reservoir pressures are and ergo what the flow rates will be when the wells come back on is still a little bit of unknown. We tend to start on a conservative basis that we take the reservoir pressure, where we left it, which we know is wrong, but we don't know what the right number is because we don't know what the pressure is until we hook up. We do expect a little bit of flush production yet to be quantified.
That may give us a little bit of an earlier lifting, but right now we're looking at the end of August.
I know a big goal of the refurbishment of the FPSO was really to set it up for the future. Just in terms of operating expense, do you anticipate that the refurbishment will have a positive impact on operating expense in Baobab?
We don't really see a big difference in that, to be honest. It's mainly what we've really spent the money on is the reliability and longevity of the vessel. If you could turn around and say, well, maybe there's a quantification on planned maintenance because you've got greater reliability, yes, you could possibly see some reduction in the downtime for planned maintenance, but we haven't yet factored any of that in. That would be the key measurement you could look at, but the primary objective of this refurbishment was longevity, particularly around the turret ball joint that was clearly failing. To give us the surety of that facility to be available to us well into the late 2030s, early 2040s.
The Phase 5 development program that you mentioned is expected to commence later this year. Well, in that, I think that plan includes new producing and water injection wells, I think five in total, along with a couple of workovers. When does the operator expect to take possession of the rig and start that program?
Okay. Well, the rig's currently in the Canary Islands. It's been there for refurbishment, and we're waiting for the full installation of the computerized mud logging system that's being installed on it. The rig has actually been there for some 10 months now. It is due to be in the field in August of this year. We do expect, and I think we mentioned in our earnings call, the operator's planning a batch drilling system, so the top hole sections of the wells will all be drilled in a batch, and that will commence late August. Then by late September, early October, we'll then commence the drilling and completion of the first well, which is expected to be online and in production by late November.
In terms of the guidance that you all laid out a couple of weeks back on the earnings call, is there much embedded in the guidance for CI related to the drilling program, or is it mainly the restart of Baobab?
It's mainly the restart. You've got one well coming in mid to late November for one month, and that's really all we've included from the drilling program and the guidance. What we'll then see is in Q1 and Q2 of 2027, because the top hole sections are already pre-drilled, we'll see an acceleration of the producing and water injecting wells to come in in the first half of 2027. They'll come in a month quicker.
To your earlier point about expanding in the jurisdictions that you operate in, VAALCO operates the Kossipo development, which was an oil discovery. It's located about 8 km from Baobab on Block CI-40. What are the major steps toward finalizing the FEED work and submitting a development plan by the end of 2026?
Well, this is a key objective for us for two reasons. One, we committed to the government in taking over operatorship of this field. We committed to meeting the government's plans of having a field development plan in place before the end of 2026. That's the first thing. Our commitment to government is absolute. We're looking at the field development plan, the draft that was in place previously, which was developed as a tieback to Baobab, and we're also exploring other options that may allow an accelerated development of Kossipo. The other reason we want that field development plan in place is currently, this field is about 103, 104 million barrels of contingent resource, which with a field development plan transfers into 2P reserves for the company. That's a big number. I try to put that into context for some of our investors.
If we think of the last 20 years, VAALCO have been basically developing on the Etame field, and we've extracted 150 million barrels gross from that field. This field, Kossipo, on its own, is 104 million barrels. It's a significant asset that's come to us. We are 60% working interest on that, which is higher than we actually have in Etame. That's about 62 million barrels that will come into our reserves base on the development of the FDP.
When would you expect the real capital program to start on that development plan, assuming you get everything that you want to accomplish in 2026? And then when would you expect first production from Kossipo?
Yeah, I mean, the real capital in earnest won't start until late 2028, and we'd expect first production in 2030. That's all dependent, Jeff, on what the solution is that we select for the FDP. I mean, we've got to look at the lead times for equipment, the availability of drilling rigs, and obviously, if we look for a solution that doesn't tie back to Baobab, if that is one that's more economic or more expedient for us, then there's different equipment lead times for that versus what we'd have to do in trying to tie back to Baobab. We'll look at this on the basis of two things.
One, the availability of capital within our balance sheet to do it, and secondly, the availability of equipment and how expedient we can get equipment to bring the oil out of the ground at the earliest opportunity. That's really the driving factor around the FDP.
The other main area for CapEx in 2026 is in Gabon. The Phase Three Drilling Program kicked off in Gabon at the Etame field late last year. You mentioned the first two wells, one a discovery and one that was non-commercial in the primary exploratory target, but it will be used as a development well. Have the results of the first two wells had any significant impact on your subsurface interpretation across the complex?
Yes, they have. I mean, whenever you drill new wells, you get more information. The more information you get from the field, the more you can plug into your dynamic simulation models. Yes, we deliberately set, and we do this, and this is throughout the program, we have deliberately set points in each of the wells when we're drilling to take pressure readings, so we understand exactly what the pressure readings are in various positions in the field. That allows us to have a better picture on the field, whether there's connectivity through faults or whether faults are sealing, whether we're looking at specifically locked targets of oil or whether that oil has migrated from somewhere else.
It also gives us a good understanding, a better understanding of the drive mechanism that basically feeds the oil into our drainage points. Yes, we do expect to get a much greater understanding of the field dynamics from this drilling campaign, and the first three wells that we've drilled have already provided a lot of insight into how I mean, when you look at the recovery factors in this field, we're up in the 50%, which is a very high recovery factor. Trying to explain those recovery factors, the more knowledge we're getting from the connectivity in the field is giving us a much better understanding and therefore giving us more confidence in these high recovery factors. Because one of the things you'd always question is, where is the drive coming from, and why are you getting such high recovery factors?
With the information we gleaned in the last couple of wells, that really has aided the modeling for the future.
What's coming up in the program over the next couple of wells, and I think you also have an option for five or five option wells under the contract with the rig. Can you share any color on what we should expect over the balance of 2026?
Yeah. Well, we're currently just completing the third well in Etame, which basically was driven from the second pilot well that we drilled in January. We know we're going into a hydrocarbon-bearing sand. We know it's going to be a producer because we've already established. The oil is there, and as soon as we hook up and get the IP rates, we'll announce to market in the next couple of weeks on this well. We're planning to move back into Ebouri. As you know, that's where we had the shutdown from the H2S, and we're going into Ebouri 5-H, which again is going out, it's out over one of the faults in the field where we haven't been before. That's quite an exciting prospect for us to see what we can get there.
We have potentially planned a workover in Ebouri, which we may delay to the end of the program, because right now the well's producing quite strongly, and given the pricing right now, we don't want to interrupt that production when we don't really need to. We may put that to the end of the program. After the 5-H, we'll move over to the SEENT. We've got to drill a gas well. Currently, our field is a little bit gas-starved. We should see an enhancement of anything up to 500-750 barrels a day from that gas well enhancing the production in the other wells. Then a producer out of the SEENT platform as well. We still have optionality should we need that, beyond the SEENT well. That's the program as it sits today.
That would take us through probably to late August to complete. Like I say, we still have the options to move that continuing to the third and fourth quarter if we find the targets that require it.
To be clear, George, on the gas well, if I recall correctly, that's mainly for fuel for the FSO?
It's for two things. It's fuel gas for the FSO. It's for gas compression for gas lift and gas injection. When I talk about that we're gas-starved right now. We can get an enhancement in oil production of between 500-700 barrels a day from increased gas lift through increased gas compression if we have the gas volumes. This isn't purely. I mean, we've always marketed it to the market as a feed fuel position, but it does actually enhance production as well when we have excess gas that we can compress and inject.
The fuel would displace diesel, which would theoretically have a positive impact on operating costs, correct?
That is correct. I mean, our operating costs started to increase last year as we started to get gas deficient, and we were more dependent on diesel, and we mentioned that. For 2026, we're seeing a flatline on OpEx, which may actually come down slightly on the diesel consumption, the earlier we get this gas well in and completed.
Let's touch on the balance sheet and how you think about balance sheet management. The 2026 capital budget guidance range is $290 million-$360 million, which includes roughly $100 million in the first quarter. I assume some of that guidance range reflects timing issues of when monies get spent in the year. George, can you just talk about how you think about funding options after accounting for the net proceeds of the Canadian sale, which closed in the first quarter?
Yeah. As we've said before, for the first time last year, we've went into a debt position where we hadn't been before, but that was purely understandable given the size of the capital programs we had under 2025 and 2026. From our existing lending base, that's up to $300 million. We've got it, I think Rowan announced we've secured up to $255 million of debt that's freely available. We do expect that the full $300 million would be available to us. When we look at the spend profile over 2026, we're working well within that facility. That includes, as I've mentioned many times, and as a Board have committed to our commitment to our return to shareholders on the dividend side. It's always worth mentioning again, that we don't look at the debt provision to provide dividends.
The dividends come from our operating free cash flow. The debt provision that we have is purely to invest CapEx into the ground. It's a clear distinction of how we manage our balance sheet.
Does that point to one thing you said earlier about why can't you do all this and get to 50,000 barrels a day next year? There's obviously a lot of timing issues with these types of projects, but how do you think about cycling or sequencing the development in VAALCO's portfolio as you look toward some of those 2020 goals, I'm sorry, 2030 goals?
Yeah. It's very simple. I mean, we look at the. I've been asked the question many times, George, why haven't you accelerated on Venus and got the production going in Equatorial Guinea? It's really about, we look at the opportunities and say, how long does that dollar have to stay in the ground before it comes back? Now, on major projects, like Côte d'Ivoire, so that project we participated in, but it wasn't ours, it was CNR's. So the dollar has to stay in the ground a long time, because the field's off for a year. When we make that type of commitment, you really don't want the company to make two commitments of that type at the same time.
When you balance a commitment, which is a long-term investment where the money's not coming back for excess of 12 months, you've got to offset that with other types of investment where you're seeing the cash coming back in much shorter cycles, i.e., the Gabon drilling program. This is the kind of balance we have to work to. When we go into 2027, and we come out of the drilling campaign in Côte d'Ivoire. We have to then build up a little bit of a cash balance, and then we're ready to go into another deep cycle with EG, where we've got the affordability to have a long-term dollar investment, while we still have short-term dollar investment cycling, such as in Côte d'Ivoire or in Egypt, for instance, where these dollars turn around very quickly.
Just to bring us to a close, two questions, George. One of them is, when you look at the rest of 2026, can you just highlight for us and for investors what the real key projects are that point toward those 2020-2030 goals? Then secondly, just given that we're in a period of very volatile oil prices, does the volatility have any impact on what you all do in 2026 from a capital standpoint or operating standpoint?
Well, obviously, as I mentioned earlier, it does have an impact. When we look at the volatility and the high oil prices, and we look at the affordability of certain projects and that short-term cycle I mentioned earlier, that's really what's driven Egypt. That's really driven Egypt out of potentially a Q3, Q4 consideration into a Q2 consideration. It's quite unique that we have the types of assets available to us, that we can make that fast determination and move things forward to that level. That's the benefit of having an onshore operation. You normally can't do that for offshore operations at that timeframe. When we then look at what the impact of the key drivers in 2026 are.
Clearly, the completion of the Gabon drilling campaign and the success of that campaign is key to give us that longevity that we're looking for in Gabon, that takes us through with a firm production position through 2027 and into 2028. The recommencement of production in Côte d'Ivoire is a key milestone, because those barrels come back very valuable. As I've mentioned, we've got a lot of dollars invested there. We need to start monetizing these dollars back through production, and we've got a very large cost pool there that, as I mentioned, comes back with a 25% premium that comes back to us into that production. The quicker we get those barrels flowing and monetized, the better. Then we've got the drilling campaign taking place towards the end of 2026 in Côte d'Ivoire. We also have the other assets that are there.
We've got the field development plan, which I said will give us a massive reserve kick at the end of this year, which really improves the company's longevity and reserve profile on the balance sheet. We've also got the exploration opportunities in Gabon and in Côte d'Ivoire. In Gabon, we shot seismic in late December, early January. That seismic interpretation will lead towards the opportunity to drill in Guduma or Niosi. In CDI, we're interpreting the seismic right now in CI-705. We've got some pretty exciting leads. I think we've actually put the map up on our website, so those who are informed can have a look at that. That, we've got to the end of this year to decide, do we take it to the next phase and drill?
Right now it looks like there's enough opportunity there for us to commit to the next phase, which will happen in 2027 and 2028. There's a lot of catalyst and trigger points across our portfolio happening for us in 2026.
George, I think we'll leave it there for today. VAALCO clearly has a full portfolio of assets that will help achieve your goals over time. I want to thank you so much for taking the time to join us today.
Thank you very much, Jeff, and I look forward to when we have a chat the next time.
I'd also like to thank the participants in today's session. Additional content on VAALCO can be found at www.watertowerresearch.com. As a reminder for those with further questions or for investors wishing to meet with management after this event, please reflect your interest through the conference portal so we can address questions and work to coordinate meetings. We'd like to invite you to stay tuned for our next session, which will begin shortly. Once again, George, thank you.
Thank you, Jeff. Thanks then. Bye-bye.