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Here are some additional observations:

1) There's a disincentive for EGY to produce more than 25k barrels/day in Gabon due to their contract with the gov't (higher royalty bracket that mgmt feels cannot be renegotiated). This serves as an effective ceiling on their growth in Gabon.

2) 1) may be irrelevant since there's an overshadowing concern related to their diminishing reserves.

3) Their entire production operation is dependent on a single ship used to lift the oil. They're in a good contract with the owners of that ship but are trying to renegotiate to increase the ship's capacity, which is currently a limiter on the production rate. The new contract may be unfavorable.

4) Their recent announcement to expand into north sea exploration smacks of desperation. The oil production in that region is in long decline and has become more costly over the years. There's no fundamental reason to believe that EGY will be more successful than the other big names that are already there and currently looking to reduce their dependency on the region. You may also consider that EGY does not currently have any infrastructure in that hemisphere and is looking to partner for a rig.

Disclosure: I hold shares in EGY.

These are some of my greatest concerns but I believe the stock is fundamentally undervalued at $4-5/shr. Also, the basic business model is good and the management team is excellent.

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