# To Our Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_EGY_2022/NYSE_EGY_2022.mmd` · pages 3-9_

---

To Our Fellow Shareholders

2022 was truly a transformational year for VAALCO and a highly positive one that saw us generate record financial results, successfully complete multiple high-impact operational projects, close a strategic acquisition that nearly doubled production, diversify our asset base and increase SEC proved reserves by nearly 150%. Additionally, we implemented our first-ever dividend program in 2022 paying out \(9.4 million in dividends to shareholders and approved a \)30 million stock buy-back program that has returned almost $9.0 million to shareholders through April 2023. Our commitment to returning value to our shareholders has been further enhanced in 2023, as we increased our quarterly dividend by 92%, from \(0.0325 per share to \)0.0625 per share. Our balance sheet remains bank debt-free, even after we fully funded approximately $160 million in capital investments (excluding acquisitions) in 2022 from cash flow and cash on hand. We believe this was the largest capital program in our Company's history, that included drilling multiple wells and completely reconfiguring our Etame field infrastructure, while adding a long-lasting Floating Storage and Offloading vessel "FSO" solution that lowered costs and extended the economic field life at Etame. We have a strong production base that can generate significant cash flow moving forward to fund our dividend, buybacks, capital programs and potentially additional acquisitions. We have positive momentum in 2023 both operationally and financially and we are building size and scale to sustainably grow VAALCO.

I have been CEO at VAALCO for two years now and in Q1 2021, we were producing about 5,000 net barrels a day, with a 2P CPR reserve estimate of 10.4 MMBO from a single producing asset. We had no debt with about $20 million in unrestricted cash and the stock was trading around $2.25 per share and oil prices were around $75 per barrel. My primary objectives were to accretively grow production and value through organic drilling, acquisitions and unlocking the inherent value of our asset base. We are long-term stewards of VAALCO and are

<--- Page Split --->

# "We implemented our first-ever dividend program in 2022 paying out $9.4 million in dividends to shareholders and approved a $30 million stock buy-back program."

building a sustainable business that will maximize value. We are in a risk-based business with a lot of variability, but with significant upside. We believe we have managed these risks very well, while delivering record results.

We have had tremendous success at Etame drilling and developing that vast resource over the past 20 years. Our overall 2021/2022 drilling campaign was a success as the initial two wells were highly successful and exceeded our predrill estimates. The program has materially increased production and extended the economic life of the Etame field, thereby fulfilling the primary objectives of this campaign. We forecast the total drilling program at Etame will achieve payback in 2023 and have strong overall economics at current strip pricing, demonstrating the strong cash flow profile generated from this quality asset.

We successfully completed one of the most comprehensive and complex operational projects in nearly 20 years at Etame with the FSO conversion and full field reconfiguration. It is quite remarkable that a project of that scope and scale was successfully managed and executed by a company the size of VAALCO. Carrying out a project that at times concurrently involved expanding a platform deck, replacing the existing Floating Production, Storage and Offloading unit (FPSO) with an FSO, conducting drilling operations and completing an annual maintenance turnaround took quite a bit of planning. This project was an incredible feat from an engineering, logistical and operational standpoint. I would like to put this in perspective for you: we had about five times the number of personnel in the field during the project than we usually do, with additional boats, equipment and operational responsibilities, all working to ensure that we coordinated and completed this substantial project with minimal downtime to our production. We also had specialized equipment being manufactured, delivered and installed from all over the world, during a particularly difficult worldwide supply chain environment. The availability of equipment, consumables and global logistics have been strained over the past two years, which led to upward cost pressure and some delays. Remaining

<--- Page Split --->

![](images/5_0.jpg)

development, and we are working on concluding remaining documents to begin planning the development project in 2023. We are excited about our future plans for EG and we anticipate a strong, efficient and economic development of this discovery with first oil projected for 2026, which would add a fourth producing asset to our portfolio. We believe our most significant accomplishment in 2022 was the completion of an all-equity combination of two net cash, undervalued companies, VAALCO and TransGlobe Energy Corporation, that provides us with additional size, scale, cash flow, and geographical diversity from adding new producing properties in Egypt and Canada, and creates a more de-risked portfolio. We have already captured meaningful synergies and expect our enhanced size and scale to yield additional cost synergies in the future. While the market has yet to afford us a higher multiple in our common stock price valuation, we believe the current significant discount to the valuation of our 2P reserves provides us a compelling reason for our stock buyback program. We now have a vast resource base of organic opportunities in four countries: Gabon, Egypt, Equatorial Guinea and Canada.

The impact of our highly successful 2022 activities can be seen in the substantial growth of our reserve base. SEC proved reserves at year-end 2022 increased 149% to 27.9 MMBOE. We added 18.6 MMBOE from the TransGlobe acquisition and 2.0 MMBOE from positive revisions which significantly boosted our SEC proved reserves. The proved reserve increase was partially offset by production of 3.9

![](images/5_1.jpg)

![](images/5_2.jpg)

Proved NRI Reserves \( ^{1} \)  (MMBOE)

![](images/5_3.jpg)

![](images/5_4.jpg)

2P CPR WI Reserves \( ^{2} \)  (MMBOE)

<--- Page Split --->

MMBOE. This compelling increase in our SEC proved reserves does not include any positive impact from EG. We believe that once the final documents are executed, we will begin adding proved reserves as we proceed with the development plan. The standardized measure of our SEC proved reserves at year-end 2022 utilizing SEC pricing increased 529% from \(99.3 million to \)624 million. This was largely driven by the TransGlobe transaction and from higher SEC pricing. Our 2P CPR estimate, which includes proven and probable reserves using VAALCO's management assumptions for future Brent escalated crude oil pricing and costs reported on a working interest basis prior to deductions for government royalties, saw a year-over-year increase of 292% to 76.4 MMBOE. The 2P CPR NPV10 value increased more than four times from \(183.7 million at year-end 2021 to \)815 million at year-end 2022.

We have accomplished all of this while nearly doubling the share price, staying bank debt-free, and increasing the cash on the balance sheet to over \(37 million at the end of 2022. We have done an excellent job growing VAALCO, prudently returning cash to shareholders and enhancing the value of the Company. We are forecasting 2023 net production to be more than three times where we were in Q1 2021, which should allow us to build significant cash. We are delivering on what we committed to the market and to our shareholders and we are better positioned today than we were two years ago when I began as CEO. We have improved average market trading liquidity almost seven-fold from early 2021. We also have the cash on hand and unused borrowing base to quickly execute accretive opportunities that become available.

As we look forward into 2023, we remain focused on the measured and methodical application of our strategy to sustainably grow the Company while delivering solid shareholder returns. I want to thank my management team and all of our employees for their continued hard work and dedication, as well as our Board for their guidance and support. We are confident that we can continue to deliver superior long-term value to our shareholders.

George Maxwell
Chief Executive Officer

![](images/6_0.jpg)

Returning Value Through
Sustainable Dividends

<--- Page Split --->

![](images/7_0.jpg)

Successfully Completed the Highly Complex FSO Installation, Field Reconfiguration and Full Field Turnaround in October 2022

Increases Storage
Capacity by 50% While
Reducing Costs by
about $13 to $16
Million Annually

![](images/7_1.jpg)

![](images/7_2.jpg)

Required Specialized Equipment That Was Being
Manufactured, Delivered and Installed From All Over the
World, During A Particularly Difficult Worldwide Supply
Chain Environment

<--- Page Split --->

![](images/8_0.jpg)

Lower Costs Extends
the Economic Field
Life at Etame,
Increasing Reserves

![](images/8_1.jpg)

Remaining Committed to Safety And Operational Excellence, VAALCO Took Every Opportunity to Reduce Project Risk Exposure, Which Increased Project Costs, But Eliminated Costly Delays, Ensured Employee Safety and Ensured Minimal Production Interruptions

![](images/8_2.jpg)

![](images/8_3.jpg)

![](images/8_4.jpg)

Better Positioned
in Etame for the
Next Decade

Reduces Emissions
and Delivers
ESG Benefits