A Prudent Energy Microcap

04/22/2005 12:00 am EST


Jessica Chiaverini

Associate Editor, The Prudent Speculator

For those building a long-term portfolio based on value and growth, John Buckingham and Jessica Chaiverini should be on your "must see" list in Las Vegas, as they cover the strategies behind the Al Frank funds and The Prudent Speculator . Here's a sample.

"We have recently come across an energy play that still meets our value-oriented strategy. VAALCO Energy (EGY NYSE) is a Houston-based independent energy company engaged in the acquisition, exploration, development, and production of crude oil and natural gas. With a market cap of $129 million, VAALCO is a micro-cap domestic name with an international focus. Though the company does have properties and exploration activities located in the Texas Gulf Coast region, its focal point and high growth prospects are offshore Gabon, West Africa.

"Before you stop reading, please know that we are well aware of the risks involved in international drilling. However, the political situation of Gabon should not be compared to the likes of fellow energy rich African countries such as Nigeria. Gabon, located on the West coast of Africa, has a population of about 1.3 million in an area roughly the size of Colorado. It has a long, established history of oil and gas production under stable contract terms, and because all of VAALCO's drillings are located about 22 miles offshore Gabon, it can literally operate on its own little island.

"As oil prices have climbed, so has VAALCO's top and bottom lines. For the full year 2004, earnings were a record $23 million or $0.39 per diluted share, versus $0.16 per diluted share for year-end 2003. Producing nearly 19,000 barrels of oil per day, revenues for 2004 were $56.5 million, a 59% increase from 2003. In addition, VAALCO has also strengthened its balance sheet. In our view, the stock remains very cheap. Despite its demonstration of growth, the shares trade for only 10 times trailing earnings. This, together with its strong balance sheet, $27.6 million in cash, miniscule debt, and future growth prospects creates, in our minds, an attractive risk-return scenario, and more than compensates for any geopolitical concerns. We would be buyers of EGY up to $4.00 as our fundamental goal price is $8."

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