Vaalco Energy pitches itself as an Africa-focused independent, following its acquisition of Egypt-focused TransGlobe Energy. The strategy has been successful, thus far, although executives have put relationships at the heart of its progress.
Vaalco has its roots in Gabon, where it has worked on the Etame Marin block for many years. Gabon recently underwent a military coup. The new government has taken some steps to rock the boat, including efforts to pre-empt the sale of Assala Energy.
The move into Egypt also poses problems. The North African state faces economic headwinds and has struggled to pay producers for their output in recent times, repeating some of the woes it encountered around a decade ago.
Despite challenges in these two pillars of Vaalco’s strategy, company executives are upbeat – although spending substantial time visiting governments.
© Supplied by Vaalco“Our operating philosophy is that, if there’s an issue, we’ll get on a plane. I’ve been four or five times to Egypt to meet [Egyptian Minister of Petroleum and Mineral Resources Tarek El Molla],” George Maxwell, CEO of Vaalco, told Energy Voice this week. “I’ve met him in Houston, I’ve met him in Cairo. We understand there are issues in the Egyptian economy, we can see that with our Egyptian employees.”
In talks with El Molla, Vaalco has pointed out that when production rises, the majority of the additional barrels go to the government. “It helps them, it’s beneficial for both sides,” Maxwell said. “It’s a lot of give and taken. We don’t always have a meeting of minds, but it doesn’t prevent us from sitting down.”
To Vaalco’s advantage, the company is a smaller player in the Egyptian economy than some of its peers, such as Eni and Apache.
As of the end of the third quarter, Vaalco had reduced amounts receivable in Egypt by $17.7 million, to $18.8mn.
Since acquiring TransGlobe, Vaalco has made a number of improvements to operations. “There’s a clear focus on cash and delivery, we’re impatient on delivery,” Maxwell said. “We knew it had considerable efficiencies that weren’t being realised, on the governmental and contracting side.”
Chasing efficiencies
Vaalco’s overall supply chain management has been a major improvement in addition to HSE progress. Maxwell said the company had improved safety performance in addition to production.
© Supplied by VaalcoVaalco CFO Ron Bain noted changes in drilling time in Egypt. Previously, it had taken 35 days from spud to completion, he said. “Now we’re at 15 days on average, while eight days is our record. In a cost inflationary environment its also about making sure equipment is there on time – and that has paid for itself.”
The company carried out a drilling campaign in Egypt this year. “In January, we found the spooling unit hadn’t been ordered,” Maxwell said, while there also were not enough drill bits.
Improving supply chain performance helped the company conclude its drilling campaign in August, rather than the end of the year. “It’s a testament to the people who are there. We’ve invested some money in maintenance, so operations are more than fit for purpose, but we will get that back through a better relationship” with Egyptian General Petroleum Corp. (EGPC), Bain said.
Vaalco has centralised its supply chain management in Houston, which has been crucial to delivering consistency to its disparate operations. “We can’t always point to equipment being lower priced than last year, but we can say there are no delays in delivering,” Maxwell said.
The company has a workover rig in Egypt constantly in action. It is also planning to return to drilling, with a 12-well programme scheduled for June 2024.
Gabon
Vaalco also has plans for work in Gabon, although Maxwell noted this was rig dependent. The company has previously used the Borr Norve jack-up, which is currently with BW Energy.
“We have that rig in our sights”, Maxwell said, although warning that it may go to Cameroon after completing work with BW Energy. “Timing is fluid”, he said.
While the change in government has unnerved some, Maxwell said there had been no impact on Vaalco. The company is the only US based producer in Gabon, he noted, saying as a result it gets “good attention from the State Department”.
Maxwell said that he had held talks with the new government and these had been productive. “We re-emphasised the point that [Etame] is one of the key production assets in Gabon. We welcome any opportunity from the government to further that investment. The change in government is up to the people, but there has been no impact on our operations.”
The CEO was similarly sanguine on union problems. The company is in “constant communication” with ONEP, he said. Vaalco benefits from having a local in office as country manager, he said, in line with the company philosophy. “In any negotiation, you can’t give everything – but you have to be receptive.”
On the growth curve
Vaalco, in addition to its operational philosophy, is also focused on scaling up, as can be seen by the deal for TransGlobe.
Vaalco continues to hold acreage in Canada, that seems initially at odds with its African vision. However, Maxwell said the asset generates cash and is focused on “value creation. A barrel of oil is a barrel of oil. Our business is all about volume. We’ve got working interest production of 24,000 bpd, but we’ve got to get that up to 50,000 bpd.”
Such growth would come from both organic and inorganic moves, the CEO said. Vaalco is in talks with BW Energy on a step-out opportunity in Gabon, which could be an attractive growth step.
“Inorganic growth is the fastest, but it comes at a cost. When we complain about drilling at the top of the cycle, it’s the same with buying flowing barrels,” he said.
Canada, it seems, may stay in, at least for now. But with Africa directly in Vaalco’s sites, it seems the executive team will continue to build up their frequent flyer points.