This Wildcatter Feels Right at Home in Gabon.

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Author: Morrison, Mark

VAALCO ENERGY

Gabon, on Africa's Atlantic coast, is one of those remote places where it usually takes the deep pockets of an energy industry giant like Exxon Mobil Corp. or Royal Dutch Shell to discover and produce oil and natural gas. So what is VAALCO Energy, an upstart with just 20 full-time employees and annual revenue of $93 million, doing there drilling into the ocean floor? Pumping a lot of cash.

Executives at the Houston-based outfit figured the odds of striking it rich were better in foreign territory than at home, where hundreds of other wildcatters were hustling for a dwindling number of prospects. The timing of its African foray could hardly have been better. With oil prices around $70 a barrel, reserves valued at $101.6 million in 2003 are now worth 60% more. Says Chief Executive Robert Gerry III: "For us there's a lot less competition and a lot more opportunity offshore."

The Gabon oil has fueled phenomenal growth for the energy outfit. 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.

Gerry, a 67-year-old veteran of the oil patch who started out as a New York stockbroker, has taken VAALCO from hard times to wealth. 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 miles from the coast of Gabon. VAALCO had paid less than $1 million in 1995 for the right to drill there. The well, in 270 feet of water, found reserves estimated at 30 million barrels, and Vaalco owns 28% of that oil. The Etame field now produces about 18,000 barrels a day 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.

Of course, VAALCO's future depends on adding reserves to offset its output. Given its peewee stature, VAALCO is far more vulnerable to a string of dry wells or a plunge in oil prices than ExxonMobil or Shell. And if it finds more oil? Don't be surprised to see a larger player try to gobble up the little money pumper.

#1 Black gold. Texas tea. Its oil field off the coast of Gabon in West Central Africa is pumping up VAALCO Energy's profits, which have risen an average of 297.5% a year for three years.

SALES: $93 million

EARNINGS: $33.7 million

LOCATION: Houston

The McGraw-Hill Companies, Copyright 2006

PHOTO (COLOR): GERRY: "A lot less competition and a lot more opportunity offshore"

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By Mark Morrison