Chernoff suspects that his final pick, Vaalco, could eventually catch more attention.
Chernoff himself discovered the company while scanning the news a few months back. When Vaalco announced a new discovery, he says he "saw very large numbers for a very small company." Through further research, he learned that Vaalco owned offshore Gabon properties known for their valuable "Brent-quality" crude. He said that Gabon, located in West Africa, also offers "very favorable tax and operational policies" for international companies.
Chernoff walked away from his research impressed. But he soon turned around and jumped into the stock when it fell, he felt, without good reason.Chernoff said investors worried when Vaalco announced that it had "temporarily abandoned" a project. But he said "the key word was 'temporarily'" because the company fully intended to resume the project after it had finished another well. Since Chernoff bought Vaalco for around $2 a share on the OTC Bulletin Board, the stock has more than doubled and moved on to the energy-dominated Amex. It climbed 1% to $4.94 on Friday. Chernoff expects the run to continue. "Capex in 2005 will be for bringing on stream recent major discoveries, meaning a big increase in production and revenues," he said. And "extremely low overhead and variable costs mean that an unusually large percentage of revenue drops to the bottom line." Jennings Capital analyst Andy Gustajtis likes one of Vaalco's partners. Pan-Ocean owns properties with Vaalco offshore but also boasts valuable onshore Gabon discoveries as well. Gustajtis notes that Pan-Ocean has enjoyed success with both so far. Indeed, he says the company has announced an "incredible string of 17 successful drilled wells since 2000 without a single dry hole." And he marvels at that performance. "This kind of major value creation through exploration drilling makes us ask, 'What the heck is going on?'" he wrote in late September. "Put simply, the company has unlocked a secret." He points to new seismic technology as the weapon. And he now expects the company's earnings to triple in 2005 -- and then double again in 2006 -- as it explores its other properties. "Our hypothesis," Gustajtis wrote, is "that Pan-Ocean holds exploration rights to a world-class reserve potential with a technical skill set that should deliver well-above average success."