# To Our Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_EGY_2018/NYSE_EGY_2018.mmd` · pages 3-9_

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To Our Fellow Shareholders

Over the past several years, we have taken the steps necessary to transform VAALCO into a focused and financially strong company. I am particularly proud of all of the accomplishments that our talented team helped us to achieve in 2018. We operated efficiently, restored production through a successful workover program, paid off all of our remaining debt, significantly grew our reserves and meaningfully added to our cash position. Most importantly, we secured the extension of our Production Sharing Contract (PSC) at our Etame Marin field offshore Gabon, which establishes a long-term time horizon for continued production and reserve growth for up to 20 more years. With the PSC extension in place, a clean balance sheet and strong financial and operational results, VAALCO is now positioned to create significant shareholder value for many years to come.

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Cary Bounds
Chief Executive
Officer

In full year 2018, we reported \(98.7 million of income from continuing operations, or \)1.63 per diluted share, up significantly from \(10.3 million or \)0.17 per diluted share in 2017. We generated net cash provided by continuing operating activities of \(38.2 million in 2018, compared with \)13.4 million in 2017. We ended 2018 with no debt and a very strong cash position.

Although we did not drill any wells in 2018, our reserves increased significantly, primarily as a result of our extension of the Etame PSC in Gabon and improved reservoir performance. Proved reserves increased by 76% year-over-year to 5.4 million barrels of oil with the present value of our proved reserves discounted at 10% (PV-10) increasing almost four-fold to \(80.1 million. We replaced 270% of 2018 production by adding a total of 3.7 million barrels of proved reserves including 2.2 million barrels of proved reserve additions as a result of extending the Etame PSC license in Gabon. We also added 1.1 million barrels of proved reserves as a result of improved reservoir performance at Etame and another 400 thousand barrels of proved reserves due to higher oil pricing. Our proved and probable (2P) reserves increased 144% over 2017 to 9.7 million barrels of oil with our 2P PV-10 increasing by almost \)100 million to $131.9 million at year-end 2018. As we look toward 2019, our planned development wells are expected to immediately increase production, convert proved undeveloped reserves to proved developed and potentially add more proved reserves. The appraisal wellbores will help further define opportunities to potentially add significant reserves and production in future drilling campaigns beyond 2019.

As we continue to deliver operationally, we remain confident in the opportunities on our Etame asset. We are currently forecasting that any capital expenditures made during 2019 will be funded by cash on hand and cash flow from operations. For our drilling program in 2019, we plan to drill up to three

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"We have a clean balance sheet with no debt and ample working capital, a high performing operations and finance team, capacity for growth and a strong track record of operating responsibly."

development wells and two appraisal wellbores, with drilling expected to begin on these wells in the second half of 2019 and running into the first half of 2020. These development drilling locations are easily drilled from our existing platforms with a jack up rig and the wells can be placed on production quickly with minimal increase in operating and overhead costs. The appraisal wellbores we are drilling are to assess the Dentale potential in Etame and evaluate a step out area in South East Etame. If the appraisal wellbores prove up resources in these areas, there is the potential to access two to five additional well locations in a future drilling campaign. I am optimistic that we will create substantial value for our shareholders by executing on our drilling program at Etame, and we believe we can repeat similar drilling programs multiple times adding reserves and production for many more years to come.

Our goal is to achieve transformational growth both organically and through potential acquisitions or mergers as we believe we have a clearly differentiated African expertise and plan to maintain our geographic focus in Africa. Our foundation is solid with a producing asset in Gabon generating significant cash and a 20-year runway to add production and increase reserves. We have a clean balance sheet with no debt and ample working capital, a high performing operations and finance team, capacity for growth and a strong track record of operating responsibly.

The pillars to achieve success are rooted in stakeholder engagement, operational excellence, and maintaining strong financial flexibility to achieve transformational growth. We will maintain our high health, safety, environmental and ethical standards and stress operational excellence at all levels. We are focused on being a premier African operator with a diversified portfolio and are targeting five times growth over the next six years. Our goal has been and will continue to be profitable and accretive growth that creates value for our shareholders.

In closing, I want to thank all of our employees for their hard work and dedication, our Board for their leadership and guidance, and you, our shareholders, for your continued support. We are very excited about the opportunities that lie ahead for VAALCO beyond 2019 and into the future.

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Cary Bounds
Chief Executive Officer