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.


DaveinHackensack said...

Interesting point brought up on today's conference call: The one analyst who covers the company (the one I alluded to above) estimates the company will earn 65 cents in 2009. A caller mentioned that this earnings estimate implies an oil price of about $60 per barrel next year.

ravinsu said...

I remember VAALCO energy being mentioned in the book, though the one chapter that stands out in my memory has the details of the antics of uncle-nephew presidents of equatorial Guinea. "Graphic" would be a gross understatement.

O&G companies are dirt cheap now including many of the independents that have excellent prospects. One of my biggest holdings Harvest Natural reported their 2nd Quarter earnings the other day. They have almost 5$/share in cash and are on target for getting production back to 26K bopd by the end of this year. Very encouraging.

ATP Oil & Gas is at 6X their 2009 estimates and I might pull the trigger on that one after some more research. May be I will go for some LEAPS here for added leverage.

DaveinHackensack said...

I've been wary of HNR since (up until recently, at least) it had nearly all of its production in Venezuela. I'll take a look at ATP though.

ravinsu said...

"Until recently" is the key word.

Even for a person like you who cannot take Venezuela risk , you should take a look at HNR to see what they are doing. Their operations in Venezuela are pretty much self-funding ( production ramping up,2009 should be around 40K bopd). Currently using their cash horde to fund meaningful exploration programs.Couple of things I like about the management are their ability to get good assets for value prices and their alignment of interest with shareholders. (Unlike Cryptologic - I am noting down a bunch of points about how a management shouldn't be like, one of these days I'll post them)

There has been good steady amounts of insider buying for a while now.

Here is a link to their recent presentation at Enercom conference.

Enercom Presentation

Also there is a very good recent write-up on VIC ( Not by Pabrai)

DaveinHackensack said...


Sorry for the delayed response, I just caught this comment of yours. I'll give the presentation and the VIC write-up a look.