Friday, October 31, 2008

A Conversation with the CEO of Vaalco Energy

The CEO of Vaalco Energy (NYSE: EGY), Robert L. Gerry III, was kind enough to spend a few minutes on the phone with me today. A few notes from our conversation:

- He estimates that the per-barrel cost of production of any oil produced by Vaalco's current exploration projects will be similar to the cost of the company's current production, i.e., about $10 per barrel.

- No predictions on oil prices, but given Vaalco's low cost of production, Gerry was unconcerned. "We can make money on $20 oil," he mentioned.

- Regarding the political environment in West Africa, he said the government of Gabon had been great to deal with, and Vaalco hasn't had any problems there. He noted that Gabon is one of the more stable countries in Africa (as we mentioned in a previous post, "Vaalco Energy Reports"). Vaalco currently has an office in Angola as well, in support of its exploration there.

- Gerry estimated that the company would be able to maintain daily production rates of about 25,000 barrels through '09, but noted that its FPSO1 would be about maxed-out at these levels. He mentioned that the rates to lease an FPSO currently average about $70,000 per day, but given the current correction in crude, these might start coming down at some point. If they do, he'd consider locking in low rates on one in advance.

1Floating Production, Storage, and Offloading vessel -- see the image above, which comes from Vaalco's website.

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