VAALCO Energy, Inc. (NYSE: EGY) is screaming for the top in the market this morning, and for good reason. The company announced that it has entered into an acquisition agreement. Of course, the news is exciting investors who are sending the stock on a dramatic run for the top. Here’s what’s going on:
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EGY Stock Rockets On Acquisition News
In the press release, VAALCO Energy announced that it has entered into a sale and purchase agreement with Sasol Gabon S.A. Under the terms of the agreement, the company will be acquiring Sasol’s 27.8% working interest in the Etame Marin block offshore Gabon.
Prior to the announcement, VAALCO already owned and operated a 21.1% working interest in Etame. Through this transaction, the company will nearly double its total production and reserves, bringing its total working interest in the asset to 58.8%.
Moreover, the company said that it will be acquiring Sasol’s 40% non-operated participating interest in Block DE-8 offshore Gabon.
The agreement will also greatly increase production. In fact, based on current month production, EGY said that it expects production to climb from 4,850 barrels of oil per day (BOPD) to 9,150 BOPD.
Importantly, the acquisition is expected to be immediately accretive. In fact, as a result of the transaction, VAALCO is expecting to see an increase of 23% in free cash flow per barrel, rising from $10.90 to $13.30 based on a $45 per barrel price tag.
In exchange for the assets, EGY has agreed to pay $44 million as wll as up to $6 million in future contingent payments to Sasol. The company intends on funding the acquisition with cash on hand as well as cash from operations.
In a statement, Cary Bounds, CEO at EGY, had the following to offer:
We believe that the acquisition of Sasol’s interest at Etame is a very attractive and value accretive strategic acquisition for the Company that confirms our position as one of the leading independent exploration and production companies in West Africa. In what was a competitive sales process, this is the ideal growth transaction that we have been seeking for VAALCO. We believe the acquisition of an additional stake in this field that we know so well, having been the operator since 1995, is an important step in implementing our strategy.
The acquisition is expected to deliver a step change in our production to over 9,000 barrels of oil per day net based on current production and significantly boosts our cash flow profile. With minimal additions to our overhead costs, we expect this transaction to lower our G&A cost per barrel by approximately 40%. The strong operational and economic performance of Etame in recent years has enabled us to grow our net cash position, which we are now using to fund this value accretive acquisition and profitably expand our reserve base.
We completed a highly successful drilling program earlier this year that demonstrated the quality of the asset and the upside that resides in the field, and this transaction, coupled with our recent announcement of acquiring new proprietary 3-D seismic data over the entire Etame Marin block, underscores the belief that we have in the long-term potential at Etame. We are also enhancing upside potential with a 40% non-operated position in Block DE-8 offshore Gabon which includes an existing discovery and for which there are plans to potentially drill an appraisal well in 2021 representing an exciting near-term catalyst. In summary, as we have previously stated, we are focused on maximizing the value of our Gabon resources as well as expanding into new development opportunities across Africa.
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This Is Exciting News
The news released by VAALCO Energy this morning proved to be overwhelmingly positive. After all, the company is doing something that we should be seeing a lot of in the oil space at the moment, acquiring assets.
The fact of the matter is that oil prices are tremendously low at the moment due to demand issues associated with a lack of travel due to COVID-19. As a result, profits have declined and many companies are dealing with capital issues. As a result, now is the time to strike and build up assets in order to take advantage of the resurgence in the price of oil as demand ticks up and a vaccine comes online.
This particular acquisition is a highly accretive one. It will lead to a tremendous rise in revenues and production immediately. Moreover even at relatively low prices per barrel, EGY will be making compelling margins following the closing of the transaction.
All in all, the acquisition seems to be the right move, at the right time. As a result, investors are excitedly sending EGY stock through the roof!
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