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VAALCO Energy's Production Initiatives Look Impressive for the Long Run

January 13, 2015 | About:

VAALCO Energy’s (NYSE:EGY) third-quarter results were impacted by lower oil prices and a scheduled maintenance performed by the operator of its FPSO facility. However, the FPSO maintenance is essential for the company as it is will help VAALCO provide the infrastructure required to produce the wells from its two new platforms. VAALCO is also anticipating an increase in production. Let's see how the company is positioned for the future.

Strategies in focus

VAALCO is following an expansion strategy and it is planning to drill six new development wells on the Etame Marin block. This will help the company to position itself in a good position for execution of its initiatives also, preparing it reinforce its executive plans towards growing West Africa business.

Lot of opportunities are evident in Equatorial Guinea and Angola and VAALCO is also working closely to fetch these profitable opportunities. Under this, the company is working with GE petrol which is a national oil company of Equatorial Guinea and also an operator of Block P to prepare a revised capital budget and work program for submittal to The Ministry of Mines Industry and Energy. The key role of this is to move to development of the discovered resources at the Venus field which will be ahead of any exploration drilling on the Block.

There are ample opportunities for VAALCO in West Africa even the company is also seeking ways to fetch these opportunities. But the lower oil prices are a hurdle in the way as it can be a headwind to some of the initiatives that it takes. In order to be most profitable, it is advancing its analysis and understanding of a number of discovered resource acquisitions to select the right opportunity at right time.

VAALCO is planning to open six wells at Etame and SEENT. The company is expecting good results from these wells in the future. If it turns out well, VAALCO will plan to drill at other potential locations. The SEENT platform has other importance too. It can be a key role player in reducing the operating cost of the company. This will provide the company with a fuel gas source to run the power generation to power all the ESP’s that it has on its facilities. This will also allow VAALCO to reduce the substantial amount of Diesel, saving more money.

Conclusion

With a trailing P/E of 5.65 the stock looks dirt cheap while the forward P/E of 12.75 shows impressive growth in the earnings. However, in the long term the company’s statistics are disappointing. Its earnings are growing at a CAGR of just 2.00% as compared to the industry average of 15.00%. This can be mainly due to the anticipated decline in the crude oil prices in future.

However, in the near term the VAALCO is looking strong as its earnings growth reveals. Thus from the investment point of view, as of now the investors should definitely include VAALCO in their portfolio and the long term investors should stay away from the stock until it shows concrete signs of gaining market share.


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