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Despite loss, Vaalco tips better times ahead

Offshore drilling equipment
Vaalco's operations offshore Gabon

Vaalco Energy has posted a loss for the third quarter, with realised oil prices slipping and production down.

The company posted a net loss of $3.9 million for the third quarter, which included a non-cash expense of $5.1mn linked to deferred income tax. There was also a positive non-cash impact of $1.8mn from crude oil swaps. This gives an adjusted net loss of $600,000 for the period. In the second quarter, the company posted a net loss of $1mn. All of the company’s production comes from its 31.1% stake in the Etame Marin block, offshore Gabon.

Net income was $78.6mn, including a non-cash $66.2mn deferred tax benefit linked to the extension of Vaalco’s licence.

Production was 3,081 barrels per day during the three-month period, which should increase to reach 3,800-4,100 bpd by the end of the year. This increase will be driven by the Etame 9H development well, which is being drilled and should start up in December. Sales volume in the quarter reached 279,000 barrels, down 15% year on year and down 22% from the second quarter. Output in the third quarter was reduced as a result of planned full-field maintenance in August, while the company is experiencing some problems with wells.

An electric submersible pump (ESP) failed on the Etame 10H well in September, which had been producing around 200 bpd net to Vaalco. The Etame 4H well stopped producing in July and it had been contributing 95 bpd to Vaalco, and 350 bpd gross. In addition, Vaalco carried out an acid stimulation on the North Tchibala 2H well in July following which it was unable to restore production. This had been producing 420 bpd gross, of which 113 bpd was net to Vaalco.

In addition to the lower volumes, realised sale prices have slipped to $61.26 per barrel in the quarter, down by 19% year on year and down 11% from the second quarter.

The company began a new drilling programme in September on Etame. “We are excited by the early results from our 2019-20 drilling programme. The Etame 9P appraisal wellbore encountered good-quality Dentale oil sands and a thicker-than-expected Gamba oil column that could indicate higher oil recovery from the Etame field,” said Vaalco’s CEO Cary Bounds. The drilling programme is funded from cash on hand and from operations.

Results at the Etame 9P suggest recoverable oil resources of 3.9-14.9mn barrels of oil in the Dentale reservoirs, versus the pre-drill estimate of 4.6mn barrels. It also found oil in the Gamba reservoir, which was thicker than expected and may increase the ultimate oil recovery from the Etame field.

The Etame 9H well is being drilled and will be followed by the Etame 11H development well and then the Southeast Etame 4P appraisal. There is also the possibility for a third development well, with the programme due to be completed in the first half of 2020.

Capital expenditure in the third quarter reached $2.2mn in cash with the company projecting the total this year will be $20-25mn. The drilling programme had been originally estimated to cost $25-30mn but, owing to drillpipe problems at Etame 9P, the costs are expected to be $3-5mn higher.

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