Offshore staff

(Gabon)- Small E&P company Vaalco Energy is spending significant amounts of both time and money drilling off the coast of the tiny African country of Gabon.

Executives at Houston-based Vaalco, which has just 20 full-time employees and annual revenue of $93 million, have gambled that the odds of striking significant reserves were better in a foreign territory than at home, where hundreds of other wildcatters are scrambling for a dwindling number of prospects.

The gamble is paying off. Gabon oil has fueled phenomenal growth for the company. Over the past three years, its revenues have increased more than eightfold, while profits are up 75 times, to $33.7 million, from just $445,000 in 2002. That not only put Vaalco on BusinessWeek's Hot Growth list for the first time, it allowed it to debut at No. 1.

Chief Executive Robert Gerry III says "For us there's a lot less competition and a lot more opportunity offshore." Gerry, a 67-year-old veteran of the oil patch who started out as a New York stockbroker, is credited with turning the company around. The company was barely alive in the late 1990s as energy prices cratered and production from its old wells in the Philippines dwindled. Its annual revenue was less than $1 million through 2001.

To revive the company, Gerry drilled a test well in an expanse extending 25 mi from the coast of Gabon. Vaalco had paid less than $1 million in 1995 for the right to drill there. The well, in 270 ft of water, found reserves estimated at 30 MMbbl, and Vaalco owns 28% of that oil. The Etame field now produces about 18,000 b/d for its partners, and provides essentially all of Vaalco's revenue.

With cash reserves of $70 million, Gerry is ready to do more wildcatting. Later this year, he hopes to sink wells in new acreage in Gabon. The oil producer also has put up $8.4 million for a 40% interest in 1.4 million acres off the coast of Angola and has set up an office in Scotland to scout for North Sea projects.

Vaalco's future depends on adding reserves to offset its output. Given its current small stature, Vaalco is far more vulnerable to a string of dry wells or a plunge in oil prices than the major players like BP or ExxonMobil. If successful finds continue and the company's reserves keep growing, don't be surprised to see a larger player try to gobble it up.

5/26/2006