US firm expanding African offshore oil portfolio with new acquisition

Houston-based Vaalco Energy is buying Sweden’s Svenska Petroleum Exploration, enabling it to boost its asset collection with an offshore block in Côte d’Ivoire, West Africa.

After engaging in discussions with the owner of Svenska Petroleum Exploration regarding a possible debt-free corporate transaction, Vaalco entered into a sales and purchase agreement with Petroswede to acquire the Swedish player whose primary asset is a 27.39% interest in the deepwater producing Baobab field in Block CI-40 offshore Côte d’Ivoire.

George Maxwell, Vaalco’s Chief Executive Officer, commented: “Building a diversified portfolio of high performing assets is a key component of our strategic vision. We believe that this acquisition enhances all the key aspects of our strategy. It provides us with additional diversification, strong production and reserves from a proven producing asset, significant organic upside opportunity that is well defined, enhances our ability to generate sustainable cash flow and continue to return cash to shareholders.

“The Baobab field in Cote d’Ivoire has many parallels with Etame in terms of the historic production profile and how the upside is realized through development drilling campaigns meaning this is an asset type that we understand well. The field has been significantly de-risked through the drilling of 24 production wells, five injection wells and a near 20-year production history. The planned dry-docking and upgrading of the FPSO in 2025 will position us well for the expected production growth from the 2026 drilling program and for future drilling campaigns for many years to come.”

The company explains that the gross consideration for the acquisition is $66.5 million, subject to customary closing adjustments, with an effective date of October 1, 2023. The gross purchase price will be partially funded by a pre-closing dividend of cash on Svenska’s balance sheet to the seller with the balance funded by a portion of Vaalco’s cash-on-hand with no issuance of debt or equity.

The closing of the acquisition is expected in the second quarter of 2024, with ultimate timing dependent on the final receipt of all necessary approvals. The U.S. player estimates that the net cash due at closing will be approximately $30 to $40 million, depending on timing.

“We are partnering with a great operator and believe our significant development experience offshore West Africa and the successful managing of our FPSO changeover in 2022 will provide insight and experience to help enhance future success at Baobab. We are adding an asset with strong current production and reserves at a very attractive price and using a portion of our cash on hand to fund the deal. This is highly accretive on key metrics to our shareholder base and provides another strong asset to support future growth,” added Maxwell.

The producing Baobab field is operated by CNRL, which holds a 57.61% working interest in the project, with the national oil company, Petroci Holding, owning the remaining 15% working interest. The field is located 30 kilometers off the coast of Cote d’Ivoire in water depths ranging from 900 to 1,300 meters, consisting of five distinguishable reservoir units in Middle to Late Albian sequences. The field was discovered in March 2001 with the Baobab 1X well and a second well, the Baobab 2X, was drilled in 2002 to appraise the field.

While commercial production from the field began in August 2005, there have been four drilling campaigns at Baobab to date, with the most recent including four production wells and two water injection wells. All wells are tied back to four subsea manifolds connected to the FPSO Baobab Ivoirien MV10, owned and operated by MODEC. Cumulative gross production from the field has been about 150 million boe, a portion of the estimated over one billion barrels of oil equivalent volumes initially in place.

After almost 20 years of production, the FPSO is planned to come off station at the start of 2025 for planned maintenance and upgrade work to allow it to continue to produce through the end of the expected extended field license in 2038. The scope of work for the FPSO upgrade is being finalized but the production on Baobab is expected to restart in 2026, following the FPSO work program. In addition, a fully appraised development drilling program is expected to start in 2026, targeting the incremental probable reserve base on the field.

Moreover, the U.S. firm sees reduced geological risk related to this drilling program. In line with this, the joint venture partners have already started ordering certain long-lead drilling items. Even though further future drilling phases have not yet been sanctioned, Vaalco emphasizes that there is “significant incremental potential” in the Baobab field and the nearby Kossipo development, which has also been appraised by two wells drilled in 2002 and 2019.

This is expected to provide a material uplift to the reserve and production volumes, supporting long-term production into the late 2030s. Given the development activities associated with the FPSO upgrade and future drilling program, the license partners are engaged in discussions with the relevant government bodies in Cote d’Ivoire to secure an early license extension on CI-40.

In addition to this license in Cote d’Ivoire, Svenska currently owns a 21.05% working interest in the early stage Uge discovery in the OML 145 concession in Nigeria, alongside partners ExxonMobil (21.05%), Chevron (21.05%), Oando (21.05%) and NPDC (15.80%).