# TO OUR FELLOW
STOCKHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_EGY_2017/NYSE_EGY_2017.mmd` · pages 3-9_

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TO OUR FELLOW
STOCKHOLDERS

Looking back on 2017, I am proud of our talented team and all of the accomplishments we were able to achieve together this past year. Throughout the year, we paid careful attention to delivering the highest levels of production at the lowest possible costs while maintaining financial discipline to improve liquidity. As a result, our balance sheet has strengthened and we are generating substantial cash flow at improved oil prices. Looking forward to 2018, our plan is to remain diligent at optimizing our existing operations and act on growth opportunities that create value for our shareholders.
Cary Bounds

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Chief Executive Officer

Despite that no new wells were drilled since 2015 and spending less than \(2 million of capital in 2017, we were able to maintain nearly flat production year over year. We were also able to increase our year-end 2017 proved reserves by 15% to 3.0 million barrels of oil ("MMBO"), up from 2.6 MMBO at year-end 2016. As a result of better than expected production performance and higher oil prices, at year-end 2017 we recorded proved reserve additions of 1.9 MMBO which is equivalent to 127% of 2017 production. We are very pleased with the growth in reserves at year-end 2017 and we believe that there is potential for further upward revisions associated with higher oil pricing thus far in 2018.

From a financial perspective, we were able to pay off \(10 million of our debt in 2017 and we plan to pay down nearly all of our remaining \)9 million of debt in 2018. As we move into 2018, we are forecasting a meaningful increase in sales

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"Our forecasted free cash flow breakeven price in 2018 is approximately $40 per barrel of oil sales, which leaves VAALCO well positioned to generate substantial free cash flow."

and revenues with no hedges currently in place for 2018 and beyond. Our forecasted free cash flow breakeven price in 2018 is approximately \(40 per barrel of oil sales, which leaves VAALCO well positioned to generate substantial free cash flow. As we further strengthen our balance sheet over the coming year, we will seriously consider deploying capital to expand operations on our Etame license offshore Gabon. After the successes we experienced in 2017, we believe that VAALCO's ability to generate substantial cash flow has significantly improved and I am optimistic about our future.

We have operated the Etame Marin block for nearly twenty years and we know it very well. We remain confident in our Etame asset and believe that we can add strong, sustainable value through development drilling. Our subsurface team has identified numerous drilling opportunities at Etame and we may consider drilling a couple of these later this year, or early next year, depending on approvals from the Gabon government and our partners. In parallel, we are in discussions with Gabon government officials to extend the Etame license.

In Angola, we continue to have productive discussions with officials from Sonangol in anticipation of reaching a fair and equitable settlement that allows VAALCO to exit Block 5 at a reasonable cost which will then allow us to substantially reduce the $15 million liability currently on our balance sheet.

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"We believe VAALCO possesses the opportunities to add significant value to our shareholders in 2018 and beyond. Clearly, the outlook for VAALCO continues to improve."

In Equatorial Guinea, we continue to work with our partners, GEPetrol and the Ministry of Hydrocarbons to determine the best way forward to establish the economic threshold of the development of existing discoveries in Block P, and to assess its exploration potential.

I would like to thank John Myers and Michael Keane for their time, dedication, and commitment to our board. Their insights and knowledge have helped to positively transform the company and I wish them well in their future endeavors. I would also like to thank you, our fellow shareholders, for your continued support. As I discussed, we believe VAALCO possesses the opportunities to add significant value to our shareholders in 2018 and beyond. Clearly, the outlook for VAALCO continues to improve.

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Cary Bounds
Chief Executive Officer