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AfrOil NEWS IN BRIEF AfrOil

Highlights: Acquiring an additional 27.8% should be. Capital is nevertheless fungible, and
working interest in the Etame Marin block off- to attract capital to possible future projects, Afri-
shore Gabon, increasing VAALCO’s total work- can nations with petroleum resources will most
ing interest to 58.8%; Nearly doubles VAALCO’s likely have to adapt their fiscal regimes similar
total net production and reserves; Increases to how other nations have adapted them in light
net revenue interest (NRI) production from of the current era. Failing to do so can lead to
4,850 bpd to 9,150 bpd of oil based on current stranded resources and outcompeted projects.
month production; Increases year-end 2019 Across the continent, major projects are
SEC reserves from 5.0mn to 9.4mn barrels of unlikely to be sanctioned because of challeng-
oil; Increases year-end 2019 independent 2P ing market dynamics, but especially because
CPR reserves from 9.2mn barrels to 17.5mn of uncompetitive fiscal regimes. The passing
barrels; Immediately accretive to VAALCO, we have previously stated, we are focused on of the Deep Offshore and Inland Basin Pro-
with estimated increase of 23% in free cash flow maximising the value of our Gabon resources as duction Sharing Contract (Amendment) Act
per barrel from approximately $10.90 to $13.30 well as expanding into new development oppor- 2019 in Nigeria is an unfortunate example. The
at $45 realised oil price; Adds optionality from tunities across Africa.” Amendment Act introduced in 2019 a combined
acquisition of Sasol’s 40% non-operated partic- The Company has agreed to total cash con- production and price-based royalty system to
ipating interest in Block DE-8 offshore Gabon; sideration for both properties of approximately replace the existing production-based royalty
Agreed to total consideration to Sasol for the $44mn. The effective date of the transaction is system, which varies according to areas of oper-
entire transaction of $44mn, subject to custom- July 1, 2020, and the Company anticipates that ations. While the Amendment Act is expected
ary post-effective date adjustments, and future the transaction will close within 90 days. Cash to help maximise government take from PSCs, it
contingent payments of up to $6mn; and Fund- paid at closing is expected to be less than $44mn also renders the development of deepwater fields
ing for the acquisition will be from cash on hand as the amount paid will be subject to certain cus- less economical. As a result, multi-billion-dollar
and cash from operations. tomary financial adjustments, including adjust- projects in Nigerian deep water are now back
Cary Bounds, Chief Executive Officer, ments to account for estimated positive net cash on the shelves because uneconomical under
commented: “We believe that the acquisition flows attributable to the period from the effec- such fiscal terms. They notably include Owowo
of Sasol’s interest at Etame is a very attractive tive date until the closing date. VAALCO plans (ExxonMobil), Bonga South West Aparo (Shell),
and value accretive strategic acquisition for the to fund the net cost of the transaction with cash Bosi (ExxonMobil), Nsiko (Chevron), Preowei
Company that confirms our position as one of on hand and cash from operations. The SPA (Total) or Uge (ExxonMobil). Regardless of
the leading independent exploration and pro- contains customary closing conditions includ- how advanced each of these pre-FID projects
duction companies in West Africa. In what ing receipt of all necessary written consents, were, their sanctioning will not happen unless
was a competitive sales process, this is the ideal approvals or waivers, and provides for certain revisions are brought to the Nigerian deepwa-
growth transaction that we have been seeking contingent payments of up to $6mn, as discussed ter fiscal environment. Only the passing of the
for VAALCO. We believe the acquisition of an below. Reserves, production and financial results Petroleum Industry Bill (PIB) could now pave
additional stake in this field that we know so for the interests being acquired will be included the way for the sanctioning before the end of the
well, having been the operator since 1995, is an in VAALCO’s results for periods after the closing decade.
important step in implementing our strategy. date of the transaction. Elsewhere, market-driven fiscal reforms
The acquisition is expected to deliver a step VAALCO Energy, November 19 2020 have brought opposite results and currently
change in our production to over 9,000 barrels maintaining momentum in upstream activity.
of oil per day net based on current production Angola for instance has been promoting a much
and significantly boosts our cash flow profile. POLICY stronger enabling environment since 2017. The
With minimal additions to our overhead costs, country has completely overhauled its regulatory
we expect this transaction to lower our G&A New energy market realities framework, especially to encourage investments
cost per barrel by approximately 40%. The in gas and marginal fields. Such measures have
strong operational and economic performance for 2021 should drive fiscal supported the sanctioning of several deepwater
of Etame in recent years has enabled us to grow subsea tie back projects by international majors,
our net cash position, which we are now using to reforms in Africa confirming the direct link between attractive fis-
fund this value accretive acquisition and profita- cal terms and investments. These notably include
bly expand our reserve base.” Without bold fiscal reforms, Africa is doomed to Block 17 and 32 (Total), Block 31 (BP), Block
Bounds continued: “We completed a highly further loose its global market share of oil & gas 15/06 (Eni), Block 15 (ExxonMobil) and Block
successful drilling program earlier this year that investment and production. This is a major take- 14 (Chevron).
demonstrated the quality of the asset and the away, if not the most important takeaway, from Within its 2021 Outlook, the Chamber
upside that resides in the field, and this transac- the Africa Energy Outlook 2021 released this notably demonstrates how the adoption of a
tion, coupled with our recent announcement of month by the African Energy Chamber. As oil UK-type fiscal regime can help unlock $100bn
acquiring new proprietary 3D seismic data over prices settle around the $60 per barrel threshold investments in Africa, even in a $50 per barrel
the entire Etame Marin block, underscores the in a few years, the end of the super-profit era is scenario. The same reforms could result in a pro-
belief that we have in the long-term potential at over and adopting competitive fiscal frameworks duction increase of up to 1mn barrels per day by
Etame. We are also enhancing upside potential will become increasingly central to maintaining 2030 on the continent. Such achievements and
with a 40% non-operated position in Block DE-8 investment in the sector. their impact on macro-economic stability and
offshore Gabon which includes an existing dis- However, changing fiscal regimes do come jobs creation cannot be under-estimated as Afri-
covery and for which there are plans to poten- with challenges. It causes uncertainty, it distorts can nations seeks efficient ways to recover from
tially drill an appraisal well in 2021 representing the expected revenue profile for the state, and the COVID-19 pandemic.
an exciting near-term catalyst. In summary, as it is hard to arrive at what the fiscal parameters African Energy Chamber, November 24 2020

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