VAALCO Q2 2026 Earnings: Higher Oil Prices Lift Revenue and Profit

VAALCO Energy (NYSE: EGY) reported Q2 2026 revenue of $135.2 million, up 39% from $96.9 million a year earlier, while diluted EPS increased to $0.39 from $0.08. Higher realized pricing drove the year-over-year improvement, while the timing of Gabon liftings supported the sequential rebound. However, a large unrealized derivative gain materially boosted GAAP net income, and elevated capital spending increased leverage.

Core earnings data

Revenue increased even though NRI sales volumes declined 8% year over year to 1.621 million BOE, primarily because of the Canadian asset sale. The average realized commodity price rose 47% to $80.77 per BOE, more than offsetting the volume decline.

Operating income more than doubled as higher revenue and sharply lower exploration expense outweighed increases in production costs, depletion and administrative expenses. Adjusted EBITDAX rose more moderately than GAAP earnings because the non-GAAP measure excludes unrealized derivative gains.

Adjusted net income and Adjusted EBITDAX are non-GAAP measures. “NM” indicates that the percentage change is not meaningful because the result moved from a profit to a loss.

Business and regional performance

Gabon generated $91.8 million of net revenue, up from $21.4 million in Q1 2026, with the sequential increase primarily reflecting two oil liftings during the quarter. Working-interest production averaged 9,353 BOEPD, up from 8,563 BOEPD a year earlier. The Ebouri-5H development well began production in June, while a new gas-supply well is being used to reduce reliance on higher-cost diesel transported offshore.

Egypt contributed $43.4 million of net revenue, compared with $38.9 million in the previous quarter. Working-interest production averaged 11,282 BOEPD, versus 10,929 BOEPD in Q2 2025. VAALCO restarted drilling in May, brought the HE-9 development well online in early June and completed two additional development wells in July.

Côte d’Ivoire recorded production but no Q2 sales revenue. Production at the Baobab field resumed in June following the FPSO refurbishment, but the first 2026 crude lifting was scheduled for August. This timing difference is important because production can increase before the related barrels appear in reported sales and revenue.

Canada contributed no Q2 production or revenue following the February 2026 divestiture. The absence of the Canadian assets was the main reason total NRI sales volumes remained below the prior-year quarter.

Profitability, cash flow and balance sheet

Production expense increased 13% to $45.5 million, while production expense per BOE rose 23% to $28.06. Depreciation, depletion and amortization increased 21% to $34.3 million. G&A expense excluding stock-based compensation rose 35% to $9.6 million, primarily because of non-recurring legal and professional service fees.

These increases were partly offset by exploration expense falling to $0.1 million from $2.5 million in Q2 2025. The comparison with Q1 2026 was even more pronounced because that quarter included $22.4 million of exploration expense related largely to seismic data and an unsuccessful offshore Gabon exploration well.

VAALCO invested $103.6 million on a cash basis during Q2, below its $110 million to $130 million quarterly guidance range. The spending covered Gabon and Egypt drilling, the Baobab FPSO refurbishment and reconnection, and preparations for the Côte d’Ivoire drilling program.

Quarterly operating cash flow was not disclosed. For the first six months of 2026, operating cash flow was $34.5 million, property and equipment expenditures were $181.6 million, and the company’s non-GAAP free cash flow measure was negative $15.1 million.

At June 30, cash and cash equivalents stood at $30.4 million, down from $58.9 million at year-end 2025. Long-term debt increased to $177.0 million from $60.0 million, lifting net debt to $146.6 million from $1.1 million. VAALCO had approximately $123.0 million of remaining liquidity under its reserve-based lending facility. Egypt trade receivables improved to $12.9 million from $31.6 million at the end of 2025, partially supporting working-capital liquidity.

The company maintained its quarterly dividend at $0.0625 per share, with the next payment scheduled for September 22, 2026.

Unrealized hedge gains drove the gap between GAAP and adjusted profit

VAALCO’s $42.4 million GAAP net income included a $18.7 million net gain on derivative instruments. That amount consisted of a $43.7 million unrealized gain from changes in the value of commodity contracts, partly offset by a $25.0 million realized loss on contracts that matured during the quarter.

After excluding the unrealized derivative gain and other adjustments, VAALCO recorded an adjusted net loss of $0.3 million. This creates a substantial gap between the reported GAAP profit and the company’s adjusted net-income measure. Adjusted EBITDAX still increased 10% to $54.8 million, indicating that higher commodity prices improved operating performance even without the unrealized hedge benefit.

Guidance

VAALCO reaffirmed the full-year production and sales ranges that it had raised in May by 8% and 12%, respectively, at their midpoints. Full-year capital guidance remained unchanged despite additional drilling in Egypt. Q3 production is expected to benefit from a full quarter of Côte d’Ivoire output, while sales should include the first Baobab lifting of 2026.

Execution in Côte d’Ivoire is central to the Q3 increase. The guidance assumes a full quarter of resumed Baobab production and an August lifting, while the next drilling campaign is expected to begin in September.

Risks investors need to watch

• Capital intensity and leverage: First-half investment materially exceeded operating cash flow, while net debt rose to $146.6 million. Continued drilling execution will affect future borrowing and liquidity needs.
• Hedging exposure: Q2 included a $25.0 million realized derivative loss. Existing 2026 collars can also limit upside on hedged barrels when oil prices exceed their ceiling levels.
• Lifting schedules: The timing of offshore oil liftings can create significant differences between production, sales and reported revenue, as seen in Gabon and Côte d’Ivoire.
• Project execution: Q3 production guidance depends heavily on sustained Baobab operations, while VAALCO is simultaneously running drilling programs in Gabon, Egypt and Côte d’Ivoire.
• Higher unit costs: Production expense per BOE rose 23% year over year, while depletion and administrative expenses also increased. Continued cost growth could offset part of the benefit from higher production or pricing.

Summary

VAALCO’s Q2 2026 revenue and operating profit improved as higher realized oil prices more than offset lower year-over-year sales volumes. Gabon lifting timing drove the sequential rebound, while Côte d’Ivoire’s restart positions production to increase in Q3. The main points to monitor are the gap between GAAP and adjusted earnings, execution of the capital program, the conversion of higher production into sales, and the balance-sheet impact of sustained investment.

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