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Re: A Conversation with the CEO of Vaalco Energy
Posted by: DaveinHackensack (IP Logged)
Date: November 9, 2008 02:18PM

There is some subjectivity in assessing proven reserves, as the annual report notes, but judging from the CEO's comments, last year's figure of 6.2 million barrels may be revised upwards this year. I say that because the daily production rate the company projects for next year is 25,000 barrels, which implies production of over 9 million barrels next year.

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Re: A Conversation with the CEO of Vaalco Energy
Posted by: ccyork (IP Logged)
Date: November 10, 2008 11:09AM

i think i'm losing interest in this stock. it has an amazing balance sheet, and is very cheap on a cash flow basis. however there is a lot riding on their ability to boost reserves

if they make a major find, EGY will soar. if they continue to only keep up with production, EGY will languish. if they don't find any oil soon, then...

thanks for the feedback, dave

-- ccyork

"Slow and steady wins the race." - Aesop


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Re: A Conversation with the CEO of Vaalco Energy
Posted by: DaveinHackensack (IP Logged)
Date: November 10, 2008 11:35AM

No problem, CCYork. The ability to grow reserves is important for all oil E&Ps though. If you are interested in cash-rich companies and don't want to deal with the uncertainty of oil exploration, you might want to look at some of the tech names with cash-rich balance sheets.



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Re: A Conversation with the CEO of Vaalco Energy
Posted by: ccyork (IP Logged)
Date: November 10, 2008 12:51PM



absolutely. actually the only stock i currently own is WDC, which is exactly as you describe, Dave

share and enjoy!

-- ccyork

"Slow and steady wins the race." - Aesop


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Rating: 2.4/5 (9 votes)



Re: A Conversation with the CEO of Vaalco Energy
Posted by: DaveinHackensack (IP Logged)
Date: November 10, 2008 04:42PM

Vaalco Energy (NYSE: EGY) reported its Q3 earnings today. From its press release:

HOUSTON, Nov, 10 /PRNewswire-FirstCall/ -- VAALCO Energy, Inc. (NYSE: EGY - News) announced that for the third quarter of 2008, net income was $22.3 million or $0.38 per diluted share compared to $8.8 million or $0.15 per diluted share for the comparable period in 2007. Third quarter 2008 revenues were $55.5 million compared to $34.8 million in the third quarter of 2007. Discretionary cash flow was up 85% to $66.2 million for the nine months ended September 30, 2008 compared to $35.7 million in the same period of 2007. For the nine months ended September 30, 2008, net income was $37.2 million or $0.63 per diluted share compared to $17.1 million or $0.28 per diluted share in the nine months ended September 30, 2007.

"VAALCO's strong third quarter results reflect higher oil prices and crude volumes, as well as the expected benefit from a lower tax rate, attributable to increased capital expenditures during the quarter," said Robert L. Gerry, III, Chairman and CEO. "Our drilling and exploration program is continuing at one of the strongest rates in our history, with prospects in place to grow reserves and production. VAALCO's capital position remains strong, enabling us to capitalize on these opportunities."

As previously announced, VAALCO is planning seven additional development and exploration wells including a development well in the Ebouri field, three exploratory wells in the Etame block, two exploratory wells onshore Gabon in the Mutamba concession, one exploratory well in Angola, and a 25% interest in a gas prospect in the British North Sea. Together, these wells expose the Company to over 50 million net barrels, or an 8-fold potential increase to VAALCO's current 6.2 million barrels of proved reserves.


Earnings will of course be down significantly from here in Q4, as oil prices have had a steep drop, but if the company's current exploration program is even partially successful, it will be well-positioned when oil prices eventually resume their climb upward.

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Re: A Conversation with the CEO of Vaalco Energy
Posted by: DaveinHackensack (IP Logged)
Date: November 26, 2008 04:57PM

Vaalco went up 24.57% today to close at $6.54.

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Rating: 2.3/5 (10 votes)



Re: A Conversation with the CEO of Vaalco Energy
Posted by: DaveinHackensack (IP Logged)
Date: December 2, 2008 03:51PM

Closed at $7.05 today for some reason, despite the weakness in oil. I have a limit order in to sell 5% of my EGY shares here to buy more Alloy Steel.

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Rating: 2.2/5 (9 votes)



Re: A Conversation with the CEO of Vaalco Energy
Posted by: DaveinHackensack (IP Logged)
Date: December 3, 2008 03:22PM

Closed at $7.29 today, though I sold 5% at $7.04.

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Rating: 2.8/5 (8 votes)



Re: A Conversation with the CEO of Vaalco Energy
Posted by: LwC (IP Logged)
Date: December 3, 2008 04:49PM

Hi Mr. Dave:

I am a bit confused about some of what you have written regarding the prospects of this company.

1) You stated that the CEO told you that the company will "be able to maintain daily production rates of about 25,000 barrels through '09". According to their press release (link provided by you) the company produced approximately 5,700 bbls/day during 3Q08: 517,000 bbls over 90 days= 5,744 bbl/day. Nowhere is there any indication that I can see as to how the company can increase their 2009 average daily production by almost 4X over 3Q08 (I am assuming that even very successful results from their reported drilling programs cannot achieve this goal, and I believe that is a reasonable assumption). Please clarify this for me.

2) You stated that the CEO told you that the company "can make money at $20.00 oil". However, according to that same press release referred to in (1) above, production costs + depletion costs + g&a costs =$26.16/bbl (11.51+11.67+2.98, not including 1.00+/bbl debt costs). What am I missing? How can the company make money at $20/bbl given that cost structure, which by the way apparently does not include inevitable dry hole costs which also must be absorbed into the cost structure. It appears to me that the CEO is counting only the "current production costs of about $10/bbl" when he stated that the company can make money at $20 oil, but is it reasonable to ignore all of the other costs associated with production?

TIA


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Re: A Conversation with the CEO of Vaalco Energy
Posted by: DaveinHackensack (IP Logged)
Date: December 4, 2008 10:21AM

Mr. LwC:

Thank you for the excellent questions.

Regarding your first question, the ~5,700 barrels per day you refer to represent the net barrels Vaalco sold, not its gross current daily production, which, as the press release noted is about 20,500 barrels per day currently. Two factors explain the difference:

1) Daily production of 20,500 B/D is what the the FPSO receives and processes (after removing water/gas), however revenue is calculated only when there is a lifting from the FPSO (a converted single hull supertanker which can hold approx 1 million barrels) to Shell Oil (who is contracted by Vaalco to offload the FPSO). This occurs approximately every month, but the amount can vary depending upon the head space of the Shell Oil Tanker (usually a VLCC), and the amount available in the FPSO at the time of the lifting.

2)Vaalco is the managing partner of the Etame consortium, and while it manages the Etame operations it only has a net working interest of approx. 28%, so it receives only approx. 28% of the revenue recognition when liftings occur.

As a side note, Vaalco does have a higher [approx.40%] net working interest in Ebouri North [The vertical appraisal well currently being drilled) because one of the consortium partners chose not to participate in the drilling of this well and Vaalco exercisied the option to take their interest.

In Mid-December Vaalco will start to drill their on-shore [Mutamba] concession and they have a 100% net working interest.

Regarding your second question, about the CEO's statement that the company could make money with $20 oil, I've left a message with the CEO and intend to pose the question to him when he returns my call, but offhand, here are three possible answers. The first is that, at $20 oil, production costs would drop significantly, since there would be less demand for drilling rigs, etc., and so the costs to lease them would drop considerably. The second is that, if the company uses the percentage depletion method, its depletion costs would decline as its gross income declines with $20 oil. The third is that he may not have included depletion costs because they don't affect cash flow, and when he said "we can make money" he was referring to positive cash flow and not earnings. Again, if I get an answer from the CEO, I'll post it here, but those are the three possibilities that come to mind offhand.

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