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Small Cap Watch List member VAALCO Energy, Inc. (NYSE:EGY), announced that for the first quarter of 2007 earnings were $4.6 million or $0.08 per diluted share. Analysts had been expecting the company to earn $0.12. According to the company:

We have begun exploration activities in earnest on our exploration blocks in Gabon (Etame — offshore, Mutamba — onshore) and offshore in Angola. During the quarter, we shot 400 square kilometers of new proprietary 3-D seismic data on the Etame Block to delineate several prospects and leads in anticipation of a 2008 drilling campaign. In Angola, we acquired a license to 1,000 square kilometers of 3-D seismic in the fairway of Block 5. Processing and interpretation of the seismic is underway. The $5.1 million expensed to acquire these data is an investment in our future efforts to build reserves through the drill bit.

Perhaps. The $5.1 million spent is roughly the pre-tax equivalent of the $0.04 they were short. So if estimates were expecting zero investment in such activities (which seems unlikely) the adjusted results would be on target.

Compared to last year, the company got less ($57.03 vs. $60.93) for each barrel of oil sold, but spent more ($8.35 vs. $6.38) to get it. Further, depletion costs per barrel nearly tripled to $9.13. These are clearly not favorable trends.

Disclosure: author is long UNITED STS OIL FD LP UNITS (NYSEARCA:USO) at time of publication.

EGY 1-yr chart:

EGY 1-yr chart

Source: VAALCO Energy: Revenues Down, Costs Up