Monday, August 11, 2008
Vaalco Energy Reports
Vaalco Energy (NYSE: EGY) reported income of $13 million per share, or 22 cents per share, for the second quarter, versus 6 cents per share in 2Q07 and 3 cents per share in 1Q08 (Vaalco's 10Q).
Vaalco is a Houston-based oil & gas E&P with most of its operations in West Africa, mainly in Gabon. Gabon, according to the CIA World Factbook, is one of the more prosperous and stable African countries, thanks to the combination of plentiful natural resources plus a small (~1.5 million) population.
In his book Untapped: The Scramble for Africa's Oil (pictured above), John Ghazvinian notes some of the attractions of West African crude: it's light and sweet (so it's cheaper to refine), and it tends to be easy to transport. The oil from Vaalco's wells off the coast of Gabon, for example, is pumped to Vaalco's FPSO (Floating Production, Storage and Offloading facility), and from there it can be taken by a tanker Northwest across the Atlantic to the U.S. No perilous journey through the Persian Gulf, or through a pipeline running through some former Soviet Republic. Another advantage, at least for the oil Vaalco is currently producing from Gabon, is low production costs. Costs averaged under $10 per barrel over the last quarter.
Vaalco has come down from its recent 52-week high of $8.99, as oil prices have declined, and at today's closing price of $5.69, it has a market cap of $336 million with about $100 million in net cash. Backing out that cash, it currently trades with an enterprise value about 7x its trailing twelve months earnings and about 6x an analyst's estimate of its '09 earnings. The company also has an exploration program expected to start this fall that could significantly increase its production and reserves.