Houston-based Vaalco Energy is moving forward with its previously announced acquisition of Sasol’s working interest in the Etame Marin block, located offshore Gabon, as no other partner in the block exercised its pre-emptive right. As a result, Vaalco will nearly double its total production and reserves.
Vaalco said on Monday that, in connection with its acquisition from Sasol of Sasol’s 27.8 per cent working interest in the Etame Marin block, the other joint owners in the block had not exercised their pre-emptive rights. The deal was announced in November 2020.
As a result, Vaalco will now move forward with acquiring Sasol’s entire working interest in the field.
Prior to the closing of the acquisition, Vaalco’s working interest in Etame is 31.1 per cent and its participating interest is 33.6 per cent; Sasol’s working interest in Etame is 27.8 per cent and its participating interest is 30 per cent.
Furthermore, Vaalco also said in November it would acquire Sasol’s 40 per cent non-operated participating interest in Block DE-8 offshore Gabon.
Sasol’s participating interest in DE-8 is 40 per cent and its working interest is subject to government rights for a 20 per cent carried interest and 10 per cent back-in interest.
However, in the update on Monday, Vaalco said that the 60 per cent operated participating interest owner, Perenco, had exercised its preferential rights in regard to Block DE-8.
As a result, Perenco is acquiring Sasol’s 40 per cent non-operated participating interest, releasing Vaalco from the potential obligation to drill an appraisal well.
Vaalco will not be subject to any contingency payments due regarding Block DE-8. The terms of the sale and purchase agreement did not attribute a material value to the undeveloped resource at Block DE-8, as such, the purchase price for Sasol’s 27.8 per cent working interest of $44 million less customary post-effective date adjustments has not changed.
The maximum future contingency payments have been reduced from $6 million to $5 million.
Since Vaalco currently owns and operates a 31.1 per cent working interest in Etame, the transaction will almost double Vaalco’s total production and reserves.
Cary Bounds , Chief Executive Officer, commented, “Based on production performance in November, our production capacity, including volumes acquired from Sasol, would be over 9,000 barrels of oil per day and with the recent increase in oil pricing, this should significantly boost our free cash flow profile in 2021.
“In addition, this transaction is lowering our breakeven cost per barrel by increasing production with minimal increases to G&A expense. While we are disappointed that we will not be participating in Block DE-8, this eliminates the cost to drill the appraisal well, thereby reducing our overall capital commitment in 2021 by between $7 million and $9 million and removes the $1 million potential contingency obligation.
“We are even more confident in the future for Vaalco and this acquisition coupled with the new proprietary 3-D seismic data we are processing over the entire Etame Marin block will allow us to maximize the value of our Gabon resources”.