Vaalco Energy Update

There have been a couple of news items on Vaalco Energy (NYSE: EGY) over the last two weeks that I hadn't gotten around to mentioning. Earlier this week, the company announced that it had hired a new CFO. Previously, Vaalco's president, Russell Scheirman, was also its CFO; as part of it settlement of a proxy fight earlier this year, Vaalco had agreed to split the roles. Last week, Vaalco released an update on its drilling and exploration program. Vaalco expects production of about 4500 barrels per day by January from its development well in the Ebouri field offshore of Gabon. That would raise Vaalco's total production per day about 22%, from 20,500 to 25,000. The company also offered these updates on its exploration program:

• Three exploratory wells in the Etame block: These wells include an appraisal well (North Ebouri) for possible expansion of the Ebouri field and two wells (North Etame and South East Etame) on newly mapped structures. Due to one of the Company's partners electing to go non-consent, VAALCO has increased its interest in the North Ebouri development well and in the South East Etame well to 44% from 30%. The jack-up drilling rig, Pride Cabinda, is now expected to be on location by November with drilling to commence shortly thereafter. The wells will be drilled back to back and have combined gross reserve potential additions in excess of 60 million barrels.

• Two exploratory wells onshore Gabon in the Mutamba concession: VAALCO remains on schedule to commence drilling the first of these two exploratory wells in December 2008, as previously announced. VAALCO has a 100% working interest in the onshore Mutamba block. Combined potential reserves for these wells are expected to be in excess of 30 million barrels.

• One exploratory well in Angola: The Company previously announced that it expected to move forward on the planning for a well on Angola Block 5 during the first half of 2009 depending upon rig availability. Due to rig demand, VAALCO now expects this to occur in the third quarter of 2009. The Company has recommended to the consortium a prospect with three objective zones, both above and below the salt layer on the block. Total potential from all three objectives is 150 million barrels. VAALCO has a 40% working interest in Block 5.
  
  
• Interest in North Sea: VAALCO has a 25% interest in a gas prospect on Block 48/25c in the British North Sea. The Company is participating with Century Exploration on the well, which is an offset to a former Shell gas discovery made in 1987. 3-D seismic data indicates the ability to get higher on the structure than the earlier well, increasing the potential reserves to 60 Bcf. VAALCO continues to expect that drilling will begin in the fourth quarter of 2008.

With about $103 million in net cash, Vaalco ought to be able to continue its exploration program without relying on external financing. Vaalco's share price has declined with the correction in oil: Vaalco closed at $4.59 today; when we last mentioned it here, in August, ("Vaalco Energy Reports"), it was trading at $5.69.