National Securities Reaffirms Neutral Rating for VAALCO Energy, Inc. (EGY)

National Securities reissued their neutral rating on shares of VAALCO Energy, Inc. (NYSE:EGY) in a report published on Wednesday morning. National Securities currently has a $2.00 price objective on the energy company’s stock.

“What Happened:

• While VAALCO’s sales volumes declined 5% from the prior quarter, the company produced within its range of guidance. Specifically, the company sold 3.6 thousand barrels of oil equivalent per day (Mboe/d) in 4Q16, versus 3.8 in 3Q16, and our own projections (also 3.8 Mboe/d).

• Specific to realized prices, VAALCO saw a 10% increase at $46.42 per boe, versus $41.89 in the prior quarter, and exceeding our own estimates by 16%. As a result, VAALCO generated $15.3 million in revenue, 5% higher on a sequential basis, and 10% stronger than our projection of $13.9 million.

• VAALCO saw an 11% downward revision to its base of proved reserves at 2.6 million barrels of oil equivalent MMBoe, from 3.0 MMBoe in 2015.

Our Take:

• In looking to sales volumes VAALCO did a good job of “holding serve” in 2016, despite the fact that zero new drilling occurred on the year. As it stands, the company was able to replace 87% of production on the year, primarily via “workovers” on its Etame Marin block in offshore Gabon. Specifically, VAALCO completed 2 well interventions on the year, thereby optimizing production on previously drilled wells, while adding 1,000 bbls/d of net production. In general, we would certainly prefer to see replacement rates in excess of 100%, but recognize that VAALCO refrained from drilling new wells in 2016. Given the 2016 price environment, we viewed that decision as prudent, particularly when taking into account the cost of deploying rigs for new offshore drilling (in conjunction with weak pricing).

• Looking ahead, we expect production to remain stable, and submit that the price environment has showed signs of strength, but cannot identify a catalyst to push VAALCO’s shares significantly higher in the next 12 months. As it stands, VAALCO is guiding towards a year over year decline in production, thought we expect a 27% jump in sequential production for 1Q17. VAALCO obtained an additional 3% working interest in the Etame Marin block, and we expect the firm to pursue additional acquisitions.

• As it stands, we contend that VAALCO share prices will be tied primarily to the upward and downward moves of oil itself, as opposed to the development plans of the company. We expect that this will change as the firm increases production, and/or engages in additional acquisitions. We do note however, that the company has added put contracts that cover 60% of expected 2017 production (at $48.46 per bbl). In doing so, it will enable VAALCO to protect against sharp declines in oil prices, while still receiving the benefit of any moves higher in Brent crude. We also see this as a departure from prior years, where VAALCO was largely void of any hedging activity, and completely vulnerable to declines in oil prices.

• We maintain our $2 price target and NEUTRAL rating for VAALCO. As indicated prior, we expect stable production from VAALCO, but do not identify a catalyst in the next 12 months that will push share prices significantly higher. We arrive at our $2 price target (Exhibit 4), using a blended average of VAALCO’s daily production, proved reserves, and projected EBITDA. Additionally, we made balance sheet adjustments to reflect a working capital deficit, along with a net debt surplus, as VAALCO currently carries more cash on its balance sheet than total debt.

,” National Securities’ analyst commented.

Shares of VAALCO Energy (NYSE:EGY) traded down 3.5518% during midday trading on Wednesday, reaching $0.9124. The company’s stock had a trading volume of 35,556 shares. The stock’s market cap is $53.42 million. VAALCO Energy has a one year low of $0.70 and a one year high of $1.43. The firm has a 50-day moving average of $1.11 and a 200-day moving average of $0.98.

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A number of hedge funds and other institutional investors have recently modified their holdings of EGY. Kornitzer Capital Management Inc. KS raised its position in shares of VAALCO Energy by 7.6% in the third quarter. Kornitzer Capital Management Inc. KS now owns 4,792,510 shares of the energy company’s stock valued at $4,453,000 after buying an additional 340,400 shares during the last quarter. Hotchkis & Wiley Capital Management LLC raised its position in shares of VAALCO Energy by 31.0% in the fourth quarter. Hotchkis & Wiley Capital Management LLC now owns 97,840 shares of the energy company’s stock valued at $102,000 after buying an additional 23,166 shares during the last quarter. Renaissance Technologies LLC raised its position in shares of VAALCO Energy by 13.6% in the fourth quarter. Renaissance Technologies LLC now owns 1,243,931 shares of the energy company’s stock valued at $1,294,000 after buying an additional 148,600 shares during the last quarter. Finally, Royal Bank of Canada raised its position in shares of VAALCO Energy by 2.6% in the second quarter. Royal Bank of Canada now owns 412,440 shares of the energy company’s stock valued at $437,000 after buying an additional 10,312 shares during the last quarter. Institutional investors own 41.77% of the company’s stock.

About VAALCO Energy

VAALCO Energy, Inc is an independent energy company. The Company is engaged in the acquisition, exploration, development and production of crude oil and natural gas. Its segments include Gabon, Angola, Equatorial Guinea, the United States, and Corporate and other, which includes corporate and operations support.

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