How quickly will the gas well feed through to OpEx savings, and could the 'bigger piece of work' result in higher savings than previously discussed?

The gas well, brought online end of July, allows the Teli FSO in Gabon to switch from diesel to gas, saving $500,000-$600,000 gross per month (VAALCO's share is 58%). This also improves reliability and enables enhanced oil recovery from subsea wells due to better gas lift operation. The 'bigger piece of work' refers to optimizing the entire field's operating model for structural cost enhancements. “The key one here is the tell, which is the FSO it's operating in Gabon. Over that time period, indeed at the end of 2025, we were running that fully on diesel. We've now managed to switch that back fully on to gas. Now there are some elements of it on the platforms themselves, but the big one really is the Teli. And that's roughly about 300 to 350 cubes per month in volume. So that's really the guidance, I would say, from August through to December, you'll see that reduction in volume in diesel usage.”

Why is Gabon production at the lower end of expectations, specifically regarding the Ebouri-5H well?

The main reason is the Ebouri-5H well's decline was much higher than anticipated, with water cut increasing faster than modeled. This requires remodeling the Ebouri structure for better predictability, leading to a lower plateau production estimate for the well compared to original projections. “The main issue there comes down to the 5H well that I mentioned earlier on the call today. The level of decline in that well was far higher than we anticipated and modeled. So we started off at a very high production rate of over 8,000 barrels of oil per day, but the water cut raised far quicker than we anticipated, far quicker than we had modeled, as I mentioned in the call.”

Why has the Kossipo FDP submission timing changed from late 2026 to H1 2027, and what are the key steps?

The change is due to a granted 6-month extension from the DGH (regulator) to allow for a more accurate and higher-quality Field Development Plan (FDP) submission. This extension was lobbied for by VAALCO and PetroCI to utilize new ocean bottom node seismic data. “At the same time, with our partner, PetroCI, we were lobbying the DGH to say, look, in order to get this as accurate and as good as possible, we really look for a 6-month extension to the submission deadline, which we agreed to. And that's why that's the main change is we've been given that extension by the DGH and we're going to take that time to prepare both the teams and the higher quality FDP document for submission.”

EGY

VAALCO (EGY) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Energy· Aug 7, 2026

Source: earnings call transcript

Executive summary

VAALCO Q2 FY26 — Strong Operational Performance Drives Financial Growth and Reaffirmed Full-Year Guidance

VAALCO Energy delivered strong Q2 FY26 results, driven by the successful restart of Baobab production, increased Gabon volumes, and an expanded Egypt drilling program. The company reaffirmed its full-year production and sales guidance without increasing capital expenditures, demonstrating efficient execution despite some operational challenges and market volatility. Management highlighted a diversified portfolio and a clear path to future growth.

Highlights

Net income reached $42.4 million, with adjusted EBITDAX of $54.8 million in Q2 FY26.
Gabon working interest production increased to over 9,300 barrels of oil equivalent per day in Q2 FY26.
Baobab FPSO refurbishment completed on schedule, with production resuming in June 2026 slightly above pre-start-up forecast.
Egypt drilling program expanded to 10-15 wells for the year, with no overall increase in projected capital spend.
Trade receivables reduced by approximately $11.5 million in Q2 FY26, with the balance falling to just under $30 million.

Concerns

Ebouri-5H well in Gabon experienced a faster-than-expected increase in water cut, requiring reservoir remodeling.
Q3 FY26 sales guidance is only slightly higher than Q2 actuals due to cargo sizes and mix across assets.
Inflationary pressures on costs, primarily fuel and freight, due to higher commodity pricing and the Iran conflict, impacted Q2 production costs.

Guidance & targets

Category	Target	Timeline	Confidence
Baobab drilling program first well on production	At least 1 well on production medium materiality	Q4 · FY26	High
CI-705 exploration phase 1 extension	Extended into Q4 2026 low materiality	Q4 · FY26	High
CI-705 exploration phase 2 well commitment decision	Decision later this year medium materiality	Later 2026 · FY26	Medium
Gabon drilling rig release	Release rig after current well, no further drilling/workovers in near term medium materiality	Near term	High
Gabon workover spend	$0 medium materiality	H2 2026 · FY26	High
Egypt drilling program wells	10 to 15 wells medium materiality	Full year 2026 · FY26	High
Venus FID	Q4 2026 high materiality	Q4 · FY26	High
Q3 2026 Net Revenue Interest Sales Volumes	17,200 and 18,900 barrels of oil per day high materiality	Q3 · FY26	High
Q3 2026 Working Interest Production	24,400 and 26,900 barrels of oil per day high materiality	Q3 · FY26	High
Q3 2026 Net Revenue Interest Production	19,600 and 21,600 barrels of oil per day high materiality	Q3 · FY26	High
Full Year Production Guidance	Reaffirmed high materiality	Full Year 2026 · FY26	High
Q3 2026 Absolute Production Cost per NRI barrel	$25 to $29 medium materiality	Q3 · FY26	High
Q3 2026 Exploration Expense	$3 million and $4 million medium materiality	Q3 · FY26	High
Q3 2026 Cash G&A	$7 million to $9 million medium materiality	Q3 · FY26	High
Q3 2026 Capital Spend	$75 million and $115 million high materiality	Q3 · FY26	High
Peak Debt	Q1 2027 high materiality	Q1 · FY27	Medium
Gabon cost pool shield duration	Right through 2027 medium materiality	Through 2027 · FY27	Medium
Cote d'Ivoire cost pool shield duration	Multiple years' worth medium materiality	2-3 years	High
Company working interest production target	North of 60,000 barrels per day high materiality	By 2030 · FY30	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Cote d'Ivoire Baobab FPSO refurbishment completed on time, production resumed slightly above pre-start-up forecast. Kossipo field development plan being refined with new seismic data. CI-705 exploration showing encouraging prospectivity with a 6-month extension granted for Phase 1. Baobab production resumed: June 2026Baobab current gross production: 16,400-16,500 bbl/dBaobab pre-shutdown production: ~14,400 bbl/dFirst lifting expected: Late August 2026First lifting volume: ~950,000 gross barrelsWorking interest in first lifting: 27.4%Kossipo field gross 2C resources: ~102 million boeKossipo field gross oil equivalent in place: 293 million boeCI-705 working interest: 70%	—	—	—	—
Gabon Production increased in Q2 due to the Phase 3 drilling campaign. Etame 14H performing well, but Ebouri-5H experienced faster-than-expected water cut increase, requiring reservoir remodeling. Gas well completed to improve field uptime and reduce diesel costs. Seismic survey completed for Niosi Marine and Guduma Marine blocks. Q2 working interest production: >9,300 boe/dQ1 working interest production: 7,516 boe/dQ4 2025 working interest production: 7,743 boe/dEtame 14H lateral net pay: 325 metersEtame 14H initial gross production: >4,800 bbl/dEtame 14H current gross production: ~3,000 bbl/dEbouri-5H lateral net pay: 300 metersEbouri-5H initial gross production: ~8,000 bbl/dEbouri-5H water cut: Approaching 75%-80% (field-wide average)ETBNM-3 gas well: Gas rates and volumes in line with pre-drill estimates	—	—	10%	—
Egypt Drilling program resumed in May and expanded to 10-15 wells for the year, driving increased production rates into Q3. Strong operational performance and efficiency contributing to minimizing costs. Continued focus on optimizations, workovers, and recompletions. Sales volumes H1 2026 vs H1 2025: 7% higher	—	—	—	—

Deals & partnerships

Canadian assets Sale of all Canadian assets

Divested all Canadian assets in February 2026.

PetroCI Participation in Kossipo field development on CI40 block

VAALCO and PetroCI elected to participate in the development of the Kossipo field in February 2026.

Capital programs

Baobab Development Drilling Program underway

Start: Q3 2026

Benefit:4 producers, 2-3 injectors, 2 workovers

Program includes multiple wells to add production from the main Baobab field. At least one well expected on production by year-end.

Gabon Phase 3 Drilling Campaign nearing completion

Start: Q4 2025

Benefit:Increased production by accessing attic locations and less swept fault blocks, deeper potential in Dentale, exploration prospect

Designed to reverse decline and increase production. Rig to be released after current horizontal well, no further drilling in near term.

Egypt Drilling Program underway

Start: May 2026

Benefit:10 to 15 wells, increased production rates

Expanded scope to include more wells without increasing overall CapEx guidance for the year.

Risks & headwinds

Faster-than-expected water cut increase in Ebouri-5H well Q2 FY26

Water production approaching field-wide average of 75% to 80% water cut

Mitigation:Evaluating well performance with a view to remodeling the Ebouri structure for better predictability.

Inflationary pressure on costs Q2 FY26

Production costs slightly above midpoint of guidance

Mitigation:Focus on keeping costs low, but higher diesel and freight costs due to Iran conflict may lead to near-term expense increases. Gas well in Gabon expected to reduce fuel costs.

Volatile crude market and cargo sizes Q3 FY26

Q3 sales guidance only slightly higher than Q2 actuals

Mitigation:Buyers and traders on the spot market are looking for smaller cargoes and deferring agreements due to uncertainty around war premium pricing.

Baobab O&M change out delays Ongoing

Taking longer than anticipated

Mitigation:Expected savings from the change out will be seen in 2027. Q4 production costs in Cote d'Ivoire may spike due to ROV inspection work.

What to watch in Q3 FY26

Ebouri-5H well performance and remodeling

Next 4-5 months

Current Water cut increased faster than expected, approaching 75%-80%

Target Improved predictability and performance stabilization

Why it matters

The well's performance significantly impacted Gabon's production outlook and requires a rework of the geo-model for future accuracy.

We are currently evaluating this well performance with a view to remodeling the Ebouri structure, which should provide better predictability on 5-8 performance.

Find out whether EGY delivers this. Inve re-checks your case every morning.

Q&A highlights

What was seen in the shallower intervals of the recent gas well and are there any implications?

The shallower intervals showed hydrocarbon shows as expected, but cannot be produced currently due to well design. They have been tagged for potential future recompletion as producers.

“In the shallower intervals, we did see some shows on hydrocarbons. We did expect that. But unfortunately, we can't, at the moment, produce that because of the well design. The well design was purely designed to go down to that specific zone for the gas development. But it has been tagged and sometime in the future, that could be recompleted as a producer.”

asked by David Round · answered by George Maxwell

2 min read 6 chapters

Detailed narrative

Portfolio Transformation and Strategic Growth

VAALCO has significantly transformed its portfolio over the past two years, divesting Canadian assets and expanding its Cote d'Ivoire presence. This includes becoming operator of the Kossipo field on the CI40 block with a 60% working interest, which holds estimated gross 2C resources of 102 million barrels of oil equivalent.

The company also operates the CI-705 exploration block with a 70% working interest, showing encouraging prospectivity.

Baobab FPSO Restart and Development Drilling

The Baobab FPSO successfully completed its refurbishment and resumed production in June 2026, ahead of schedule, with initial production slightly above pre-start-up forecasts. The first lifting of approximately 950,000 gross barrels is expected later this month. A significant development drilling program is set to begin in Q3, including 4 producers, 2-3 injectors, and 2 workovers, with at least one well expected online by year-end, contributing meaningfully to production in 2027.

Gabon Drilling Campaign and Operational Adjustments

The Phase 3 drilling program in Gabon led to Q2 production increasing to over 9,300 working interest barrels of oil equivalent per day. The Etame 14H well came online in late April with initial rates exceeding 4,800 gross barrels of oil per day.

However, the Ebouri-5H well experienced a faster-than-expected increase in water cut, necessitating reservoir remodeling. The company completed a gas supply well (ETBNM-3) to improve field uptime and reduce diesel costs, and has reduced H2 2026 workover spend to zero due to excellent ESP life.

Egypt Drilling Expansion and Receivable Management

VAALCO resumed its drilling program in Egypt in May 2026, expanding the scope to 10-15 wells for the year without increasing overall capital expenditure guidance. This expansion is expected to drive higher production rates into Q3 and for the year-end.

The company also continued its strong performance in managing Egyptian receivables, reducing them by approximately $11.5 million in Q2, bringing the balance to just under $30 million.

Equatorial Guinea Venus Development Progress

The initial FEED study for the Venus Block P plan of development in Equatorial Guinea is complete, confirming technical viability but highlighting risks. VAALCO is now exploring more efficient subsea development opportunities to simplify drilling and well design. The company is targeting a Final Investment Decision (FID) for Venus in Q4 2026, aiming to develop and operate the discovery.

Financial Performance and Hedging Strategy

Q2 FY26 saw strong financial results with net income of $42.4 million and adjusted EBITDAX of $54.8 million. Revenue more than doubled compared to Q1, driven by higher realized pricing and sales volumes. The company's programmatic hedging strategy, required by its RBL facility, aims to safeguard cash flow and fund capital commitments, with 30-40% of production typically hedged up to 12 months out.

A $40 million unrealized gain on derivatives was recorded in Q2 due to declining Brent prices.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.