New York-based hedge fund Nanes Delorme Partners I LP and associated entities are urging Vaalco Energy Inc., Houston, (NYSE: EGY) to seek strategic alternatives, including the possible sale of the company, following stock underperformance in 2007.

Vaalco has assets in the Etame, Avouma and South Tchibala fields in Gabon, a 40% interest in Block 5 concession offshore Angola, a farm-in agreement to earn 25% interest in the 9-28b offshore license in the U.K. North Sea and minority interests in four wells in Texas. Production from the Gabon assets was 1.8 million bbl. (500,000 bbl. net) from July through September.

Nanes Delorme holds 8% of the common stock of Vaalco, making it the largest independent stockholder. The hedge fund feels the company is undervalued and suggests the entire company or its West African portfolio be sold.

In a letter to the Vaalco board, Nanes managing member Julien Balkany reports, “We are extremely frustrated by the major disconnect that exists between Vaalco’s depressed stock price and the underlying value of its assets. We estimate the total net asset value of the company at approximately $420 million, which translates into approximately $7.12 per share and as of March 6, the shares closed as low as $4.45.”

He adds that Nanes has lost confidence in Vaalco management and directors, due to its inability to move out of mature regions such as the North Sea, where it has been spending capital with no significant drilling discoveries, and the lack of any important reserves replacement.

“We strongly believe that Vaalco’s stock price is significantly undervalued, particularly when taking into account the value of similar M&A transactions in Africa where the company’s core assets are located. In spite of record oil prices and a portfolio of high-quality oil and gas E&P properties, the company’s stock price remains depressed and we believe is not appropriately valued by the public market.”

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