Petroleo Nautipa - FPSO working on the Etame Marin block; Source: BW Offshore Vaalco Sasol

Vaalco buys additional working interest in Etame Marin block off Gabon

Houston-based oil and gas company Vaalco Energy has signed a sale and purchase agreement to acquire Sasol’s 27.8 per cent working interest in the Etame Marin block offshore Gabon.

Petroleo Nautipa - FPSO working on the Etame Marin block; Source: BW Offshore Vaalco Sasol
Petroleo Nautipa - FPSO working on the Etame Marin block; Source: BW Offshore

Vaalco said on Tuesday that, since it currently owns and operates a 31.1 per cent working interest in Etame, the transaction would almost double its total production and reserves.

Also, Vaalco is acquiring Sasol’s 40 per cent non-operated participating interest in Block DE-8 offshore Gabon.

Source: Vaalco
Source: Vaalco

After the completion of the transaction, Vaalco’s total working interest in the Etame Marin block will increase to 58.8 per cent.

This will increase net revenue interest production from 4,850 to 9,150 barrels of oil per day based on current month production. Furthermore, the acquisition will increase year-end 2019 SEC reserves from 5.0 million to 9.4 million barrels of oil and 2019 independent 2P CPR reserves from 9.2 mmbo to 17.5 mmbo.

For the entire transaction, Vaalco will pay $44 million to Sasol, subject to customary post-effective date adjustments, and future contingent payments of up to $6 million. Funding for the acquisition will be from cash on hand and cash from operations.

The effective date of the transaction is 1 July 2020, and the company anticipates that the transaction will close within 90 days.

Under the terms of the agreement, a contingent payment of $5 million will be payable to Sasol by Vaalco if Brent oil pricing averages greater than $60 per barrel for 90 consecutive days during the period from 1 July 2020 to 30 June 2022. There is an additional contingent payment of $1 million if the DE-8 appraisal well is successful.

Cary Bounds, CEO of Vaalco, said: “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 per cent.

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 per cent 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”.

As for the DE-8 block, it is located in shallow waters and encompasses multiple producing fields that are not part of the transaction and are carved out of the contract area that Vaalco is acquiring.

The agreement includes an interest in the Akoum-B discovery within the block that was drilled in 2003 and has a potential appraisal well planned for 2021.

If the appraisal well is successful, it could be tied back through a subsea completion to an existing platform on the block. The operator of DE-8 is Perenco which holds a 60 per cent interest.