Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Small independent offshore oil producer VAALCO Energy, (NYSE:EGY) stock was knocked down more than 20% today. That's about where the stock is for the year after a 35% rally in January, before beginning to fall again in February. Since peaking last September, the stock has fallen more than 60% on the big drop in oil prices.
So what: VAALCO Energy released full-year and fourth-quarter earnings on March 16 after the market close, and held its conference call this morning. Not only did the company's earnings fall well short of analyst expectations, but total revenue also missed the mark. It's worth noting, however, that about $99 million of the company's earnings shortfall was non-cash, and based on a write down of its oil reserve asset value.
Now what: VAALCO Energy is facing a number of challenges right now. The company primarily operates offshore of West Africa, meaning it is exposed to the higher exploration costs associated with offshore drilling, as well as facing the potential threat of civil and political unrest in countries like Equatorial Guinea. Factor in the collapse in oil prices -- easily the biggest challenge the company faces -- and there are a lot of reasons to avoid VAALCO Energy right now. Toss in the announcement that the company could lose as much as 2.4 million barrels of proved reserves that may be contaminated with hydrogen sulfide, and there are some serious headwinds for VAALCO Energy.
If you're interested in oil producers, there are several better places to invest your money right now.