VAALCO Energy, Inc. (EGY)

Quick napkin math on the shift from the Q2 hedge book to Q3:

Q2 had 579,000 barrels hedged at an average of $77.26
Q3 has 375,000 barrels hedged at an average of $76.53

Assuming Brent $115:
Each Q2 hedge barrel would be a loss of $37.74
Each Q3 hedge barrel would be a loss of $38.47

Q2 hedging loss would be $21.8 million
Q3 hedging loss would be $14.4 million

So we stand to pick up about $7.4 million in Q3 vs Q2 due to the shrinking hedge book. That number goes up and down with Brent prices. The numbers on the Q2 report will be based on the fair value of the derivatives when the quarter closed, so the final impact on net income will show up a bit different.

Still, the hedge book dead weight is getting lighter. Given that capex for this year is more than paid with plenty to spare for next year, I'd like to see the hedging fall off altogether for the next few quarters. We're debt free with fully funded capex with a cost per barrel under $20 by year end. The only thing adding more hedges protect at this point is our broker's annual bonus.

I really did expect George to post something on the third well at 2 AM this morning. Of course, there is a possibility (slim) that he will post something during the day. The real question is whether we can trust what the CEO says, including the board members. All of these people knew that the June 2 news release stated that the third well should be online and producing in June. If company wasn't going to meet that deadline, the company should have posted a new date with an explanation that caused the delay. The concept of keeping the little stockholders in the dark, when we were the ones that stuck by the company in the bad times, seems to display the same arrogant that got us in trouble before. If the management has enough time to spend three days in London, glad handing, it surely has time to provide a paragraph of PR to keep its commitments to the stockholders.

As we start day 69 of the drilling of well 3 (I think they have already started on well 4) and day 27 after the announcement that we struck hydrocarbons in the Dentale zone and have come to the last 2 days in June that George said the well would be put into productions, the silence is deafening. Announcements are normally released at 2:00 am EDT, so it is doubtful we will hear anything today. Hopefully, George will keep to his word, and we hear something tomorrow morning. I hope Jimmy is correct in his assumption that they are having a hard time determining how much the well is capable of producing.
The one good thing that does occur tomorrow is the end of 2 hedges, leaving only one hedge in effect after June. These hedges have had and will have a significant effect on the EPS for Quarter 1 and 2. The remaining hedge will have a much smaller effect on quarter 3. Based on the company projections we will, at a minimum, double the first quarters EPS and Adjusted Net Income. The cash coming into the company during the second quarter should cover all the remaining CAPX projects for the remainder of the year.

We are at the 64-day mark on the drilling of the third well (longest ever was 78 days) and the 22nd day since the announcement that we struck oil as compared to the previous well that was put on line 15 days after the news announcing that oil was struck.
The new well announcement did not include any lateral drilling, which was significant in the last well, so this is not taking additional time. They did case the D9 section for future development which would have taken some time. There was no mention of any well problems like sulfur or extreme high pressure. I am going with the idea that they are having a problem handling the flow rate, but no matter what the problem may be, George said it would be online producing in June. I am sure he will make it happen!
It does look like an up day for the stock. We haven't been at these low levels since late May. Keep in mind that the projections by the company for the second quarter were made using an oil price of $90/barrel.