# To Our Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_EGY_2020/NYSE_EGY_2020.mmd` · pages 4-10_

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To Our Fellow Shareholders

When I was asked to join VAALCO's Board in 2020, I was very pleased to accept the position. I have spent the majority of my career based in the U.K focused on the West Africa region and believed that my prior experience in the U.K. and European capital and investor markets would be beneficial to the Company. I had known the Company and its management team for a number of years and developed great respect for its achievements and excellent track record as a respected operator. Recently I was asked to assume the role of Chief Executive Officer to build on the success that our prior CEO, Cary Bounds and his team had achieved, and guide VAALCO through the next chapter of its evolution. That includes expanding our presence in those international capital markets to allow us to further grow the Company in a methodical and accretive manner.

Cary guided VAALCO through some very challenging periods for the industry, oversaw some highly successful initiatives and helped the Company emerge stronger and well positioned to continue to generate free cash flow. VAALCO's accomplishments in 2020 discussed in this letter are a testament to his contribution to the success of the Company. We wish Cary the best in the next phase of his career.

Over the past year, we believe we have materially enhanced both short-term and long-term value at VAALCO as a result of four key initiatives: 1) a highly successful drilling program; 2) a very accretive acquisition; 3) new 3-D seismic over our entire Etame Marin license offshore Gabon; and 4) planning for another drilling campaign expected to begin in late 2021. We remain committed to operational excellence while generating strong financial results and preserving our strong, debt free balance sheet. We generated free cash flow

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"As we look to the future, I believe it is paramount that businesses are sustainable in order to provide benefits to all stakeholders, with a focus on growth and investor returns."

in every quarter in 2020, and with our increased production base in a rising oil price environment, we should generate even greater free cash flow in 2021. This will provide flexibility for the future as we look to continue to grow profitably and meet our long-term goals.

Over the past several years we had a number of significant accomplishments, all of which were the building blocks allowing us to achieve profitable growth. We negotiated a license extension of up to 20 years in Gabon, we eliminated all debt, we listed on the London Stock Exchange and we have continued to generate free cash flow. In September of 2019, we kicked off our 2019/2020 drilling campaign, which included three successful development wells that materially increased our

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production and two successful appraisal well bores. We were able to execute the entire drilling program on time, within our initial budget, with no safety or environmental incidents and it was funded with cash on hand and through operational cash flow.

In 2020, we saw oil prices adversely impacted by the global COVID-19 pandemic as well as supply and demand imbalances. We remain fully committed to the health and safety of our employees and as of today, VAALCO has experienced no material impact on its Gabon operations directly associated with COVID-19. Additionally, we were very pleased that we also had hedges in place that provided us good financial protection when oil prices fell in 2020. This allowed us to generate meaningful free cash flow in every quarter in 2020 from our higher production volumes. We increased production 40% year over year as a result of our drilling success when comparing full year 2020 average production of 4,853 net BOPD with our 2019 average of 3,476 net BOPD. This significant production increase allowed us to grow our cash position, provided financial flexibility and gave us the ability to capture value through a very accretive acquisition opportunity that arose in 2020.

In November 2020, we agreed to purchase Sasol's 27.8% working interest in Etame for \(44 million, bringing our total working interest in the license to 58.8%. Taking into account closing cost adjustments, the total cash we paid was \)33.9 million with a contingent payment of \(5 million if Brent oil prices average greater than \)60 per barrel for 90 consecutive days from July 1, 2020 through June 30, 2022. We believe the transaction is very accretive to VAALCO as it is improving our margins, increasing production and the price we paid per net barrel of oil was about \(14.41 for SEC proved reserves and \)4.91 for 2P CPR reserves. Since we already operate the asset, we expect minimal increase in G&A expense, and there is no integration needed. We were able to close the acquisition in February 2021 with cash on hand. Benefiting from the additional production that the transaction brings us, along with the strong recovery in oil pricing, we are projecting significant free cash flow generation going forward. This has provided us with the confidence to announce our next drilling campaign which is expected to start in late 2021. We are planning to drill up to four wells that could add an additional 7,000 to 8,000 gross barrels of oil per day when the drilling program is completed in mid 2022. With our higher working interest in Etame, this could be an additional 3,500 to 4,100 net BOPD to VAALCO.

Our 2020 year-end reserves were significantly impacted by pricing. Despite adding 1.6 MMBO as a result of positive performance revisions and the discovery at SE Etame 4-P, our reserves were down slightly year over year. The downward revisions were driven by 1.8 MMBO in production and a downward pricing revision of 1.6 MMBO. Our net proved SEC reserves at December 31, 2020 were 3.2 MMBO. Regarding our acquisition of Sasol's interest at Etame, the associated reserves were not included in our year-end 2020 reserves. We estimate that approximately 2.7 MMBO of proved SEC net reserves were acquired. Given the recent significant increase in Brent pricing, and assuming that it continues through 2021, we believe that we could see a material increase in reserves not only due to the Sasol acquisition but to pricing as well.

We are excited about the many opportunities that we have identified at Etame. Since its discovery in 1995, we have achieved a 92% success rate on 36 wells drilled and we have produced over 120 million gross barrels thus far. Looking to the

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future, we believe that the field still has over 100 million gross barrels of resource potential remaining. The 2021/2022 drilling campaign is the next of many future drilling programs focused on profitable growth at Eta me.

Turning to our interest in Block P in Equatorial Guinea, in the first quarter of 2020, we acquired additional working interest from a partner, thereby increasing our working interest from 31% to 43%. We are evaluating alternatives to fund the cost to drill an exploratory well targeting over 160 million gross barrels of resources at our SW Grande prospect, as well as evaluating scenarios to develop over 16 million gross barrels of contingent resources at our Venus discovery on Block P. We remain excited about EG and we are working to profitably exploit its resource potential.

Our long track record of success has been underpinned by our commitment to developing and producing oil resources in West Africa in a safe and environmentally responsible manner. Last year, we issued our inaugural Sustainability report which focused on our community involvement, governance practices and environmental commitment. In 2020, we created a committee consisting of the VAALCO executive team and a cross section of employees from across the Company that is charged with the responsibility of monitoring adherence to our ESG standards and formally communicating findings on an ongoing basis to our Board. Also in 2020, our Board's Nominating and Corporate Governance committee amended its charter to include the oversight of the Company's policies and programs on issues of social responsibility and environmental sustainability. Our Board has empowered our management team to create a working environment that assures our success as a trusted operator, a generous partner to the communities where we operate, and as good stewards to the environment. Our 2020 ESG report will be released soon and posted to our web site. It will include three years of key ESG sustainability metrics developed specifically for our industry and give a more in-depth analysis of VAALCO's commitment to ESG.

I am especially grateful to our employees for their contributions and commitments this past year to achieving our strong operational and financial results when they had to cope with the many personal issues created by the pandemic. We have a high performing team with a proven history of operating responsibly. The pillars to achieve success are rooted in maintaining our high standards for health, safety, environmental and ethics while stressing operational excellence at all levels. This success has allowed us to build a strong, clean balance sheet and maintain financial flexibility.

As we look to the future, I believe it is paramount that businesses are sustainable in order to provide benefits to all stakeholders, with a focus on growth and investor returns. This is one of the guiding principles I successfully applied in my previous executive role and I believe VAALCO is in an excellent position to ultimately achieve this. I remain wholly committed to our roots and investor base in the U.S., and believe that our expanded presence in the U.K. financial and advisory markets maximizes opportunities for us to achieve our stated strategy.

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George Maxwell
Chief Executive Officer