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Market Update: Tuesday 11 May 2021

Vaalco Energy (LON:EGY): 70% of production hedged to the end of October 2021


Energy Prices         

Brent Oil US$67.7/bbl vs US$68.6/bbl yesterday

WTI Oil US$64.3/bbl vs US$65.3/bbl yesterday

Natural Gas US$2.91/mmbtu vs US$2.93/mmbtu yesterday


Oil Price News 

  • Money managers continue to take a bullish stance in oil futures and options contracts, estimating that oil prices will increase later this year as economies reopen and travel and fuel demand rise
  • In the week to 4 May, hedge funds bought the equivalent of 40MMbbls in both Brent and WTI according to Reuters
  • This was the fourth week in a row in which portfolio managers have added long positions in oil futures
  • In the week to 27 April, hedge funds added the equivalent of 30MMbbls in the six most important petroleum futures and options contracts
  • At the time, this was the most bullish position in the oil complex in more than two and a half months, with the net long in crude oil futures jumping to the highest in six weeks
  • In the past few weeks, signs of oil demand recovery outweighed bearish news such as India’s records in daily coronavirus cases as market participants expect the reopening of major developed economies to lead to increased travel and fuel demand for the rest of the year
  • Both Brent and WTI saw increased net long position, the difference between bullish and bearish positions, in the week to 4 May
  • The increased net long was predominantly driven by fresh longs entering the market
  • Oil prices posted weekly gains in the past two weeks, for a first such back-to-back weekly gain in nearly two months


Gas Price News 

  • Natural gas futures are edged lower yesterday shortly after the regular session opening
  • The market continues to consolidate near a two-month high after settling 0.92% higher last week
  • The price movement suggests traders are waiting for a catalyst after last week’s performance was supported by “a favourable storage report, continued robust export activity and the spectre of stronger cooling demand on the near-term horizon,” according to Natural Gas Intelligence
  • While the temperatures in the United States have been cooler than anticipated, the reality is that sooner or later the oversupply of natural gas comes back into the picture
  • There has been foreign demand for liquefied natural gas, but at the end of the day there is more than enough natural gas in the United States to cover all bases
  • After posting a strong gain last week and changing the trend to up on the daily chart, natural gas bulls are hoping that the market continues to remain supported by solid LNG demand and forecasts calling for more heat
  • Strong demand from manufacturing also helped buoy natural gas prices
  • US Durable Goods orders are stoked by manufacturing demand that has been building since last fall
  • According to the Commerce Department, new orders for durable goods increased by 0.5% to US$256.3bn in March compared with February
  • According to the National Oceanic Atmospheric Administration, the rally in natural gas comes despite warmer than expected weather that will cover most of the United States for the next two weeks


Company News

Vaalco Energy (LON:EGY): 70% of production hedged to the end of October 2021

Share Price: 180p, Market Cap: £104m

  • Vaalco has confirmed that the Company has entered into crude oil commodity swap agreements for a total of 672,533bbls at a Dated Brent weighted average price of US$66.51/bbl for the period from and including May 2021 through October 2021.
  • These swaps will settle on a monthly basis. 
  • The Company is hedging a majority of its 2021 production volumes to protect cash flows which are expected to be used to fund the 2021/2022 drilling program of up to four wells and the potential Floating Storage and Offloading (FSO) unit capital upgrade costs if an agreement is executed.
  • The Company entered into similar commodity swap agreements in January 2021.
  • In total, Vaalco now has 70% of its production hedged through October 2021 at a Dated Brent weighted average price of US$62.27/bbl.

Our take: Vaalco continues to protect is free cash flow outlook on the back of strong commodity pricing. This is particularly important as the Company is benefitting from the additional volumes associated with the acquisition of Sasol’s interest at Etame that closed in late February. With these additional hedges, Vaalco has materially de-risked its work program from a funding standpoint, and management expects the Company’s capital commitments over the next 12 months to be fully funded through cash flow and cash on hand therefore avoiding any near term shareholder dilution.


Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

[email protected]



Richard Parlons – 020 3470 0472 

Abigail Wayne – 020 3470 0534 

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  


SP Angel                                                            

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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.


Sources of commodity prices

Oil Brent, WTI – ICE

Natural Gas – NYMEX



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Recommendations are based on a 12-month time horizon as follows:


Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%

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