Vaalco Energy (EGY)

[OilStockReport]

VAALCO is a great example of a U.S.-based company that - through its operations off the coast of Africa - will profit from higher oil prices and the dollar's long-term drop in value.

This is an American company that generates most of its production from outside of the United States. It has produced oil off shore Gabon for the last decade, and it's discovered a number of nearby satellite fields that have helped the company maintain consistent production.

VAALCO currently has a four-well drilling campaign going through this year. The company also recently discovered a new pocket of oil that should be developed in 2011, giving it a new source for future production needs.

Additionally, the company owns concessions both onshore Gabon and offshore Angola where it has 40% of a 1.5 million acre Block 5. While the company has not produced these new properties, it is preparing to expand its drilling campaigns to include both of these projects along with expanding their production. This gives VAALCO three paths toward organic oil production and reserve growth.

VAALCO stock has traded sideways for the last five years, as a block of large investors was liquidated into the market. This process has kept an artificial cap on the stock price, but now the company is posited to break out to new highs.

There no longer is a significant number of underwater investors or motivated sellers, so I believe the stock is poised to make a major move up from here as the implications of the dollar settle into the market.

VAALCO just reported earnings of 22 cents per share for the third quarter with revenue growing to $32 million. The company has no debt and currently holds just under $100 million dollars in cash and equivalents. So when you buy a share in this company, you are buying a market cap that has 25% of its value in cash.

I personally love it when I can find a profitable company with no debt and a huge pile of cash. I have noticed that these types of investments usually have a high degree of internal ownership. VAALCO has stable long-term management with experience in operating off shore. They helped build this company from the ground up. It has skin in the game.