# To Our Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_EGY_2021/NYSE_EGY_2021.mmd` · pages 3-9_

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To Our Fellow Shareholders

We began 2021 by closing a highly accretive acquisition, welcoming new senior leadership and refreshing our strategic vision. Our updated strategic vision is built upon four key pillars:

1. Executing work programs at Etame to grow production and reserves;

2. Maintaining operational excellence, cost discipline and a strong balance sheet;

3. Unlocking meaningful potential in Equatorial Guinea; and

4. Pursuing value accretive M&A opportunities within our strategic focus.

These pillars form the foundation for a strategy designed towards driving accretive growth and creating shareholder value. Over the past year, we successfully executed our strategic vision, generated robust financial results and bolstered our strong, debt-free balance sheet. This has also allowed us to develop a sustainable dividend policy to return cash to shareholders, which is yet another way we are creating and distributing value.

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"Etame has been a highly prolific field with over 126 million gross barrels produced thus far and we believe that the field still has over 100 million gross barrels of resource potential remaining."

## 1. Executing work programs at Etame to grow production and reserves

Production in 2021 was up almost 50% and SEC proved reserves increased 250% over 2020, driven by our successful 2019/2020 drilling campaign, a stable production base, an improved commodity price environment and the acquisition of Sasol's working interest at Etame in February 2021. The proved reserves increase resulted from a combination of positive factors including improved well performance, Etame field life extension resulting from our changeover to a more cost-effective floating storage and offloading unit ("FSO") in 2022, proved undeveloped reserve additions, positive oil pricing revisions, and the Sasol interest acquisition. As in prior years, we continue to see positive reserve revisions due to improved well performance which demonstrates the strength of our premier Etame asset. Our year-end 2021 2P CPR reserves increased 88% to 19.5 million barrels of oil and the PV-10 value was $183.7 million, up 118% from year-end 2020.

Etame has been a highly prolific field with over 126 million gross barrels produced thus far and 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 several future drilling programs focused on profitable growth at Etame. In preparation for additional drilling at Etame, we acquired new 3-D seismic over the entire Etame Marin block and have reprocessed it to maximize the impact of the drilling campaign while de-risking future drilling locations and potentially identifying new drilling locations. Our plans
197%
Total Revenues ($ millions)
$199M (2021)
$67M (2020)

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for the current campaign are to drill at least four wells that, if successful, could increase gross field production by 7,000 to 8,000 barrels of oil per day ("BOPD") at the end of the program. In December 2021, we kicked off our drilling campaign on the Etame platform with the Etame 8H-ST development well. In February 2022, we reported that we completed and placed the 8H-ST well online with an initial flow rate of approximately 5,000 gross BOPD, above our expectations. The drilling rig was then moved to the Avouma platform to drill the next two development wells. Results from the first well have been very positive and show that we are well on our way to meeting our initial full drilling program production expectations. Hand-in-hand with the forecasted production increase will be margin expansion and per barrel cost reductions. As we have previously advised, about 90% of our production costs are fixed, and as production increases, our per barrel costs will decrease. Every new barrel we bring online at Etame is more economic because of the low variable costs, so as we grow production, we are also growing our margin per barrel and reducing our costs per barrel. Given the increasing oil price environment, the current drilling campaign has the potential to generate significant additional free cash flow and the returns on these investments should be very strong.

## 2. Maintaining operational excellence, cost discipline and a strong balance sheet

Our strong 2021 results enabled us to grow cash flow from operations by 83% and generate enough cash to fund the accretive Sasol acquisition and capital expenditures. By building this significant cash position and growing production, we have provided more than sufficient line of sight to fund our entire 2021/2022 drilling campaign, FSO conversion and dividend from cash on hand and operational cash flow in 2022. Our 2022 capital budget of \(90 million to \)110 million net to VAALCO is one of the highest in VAALCO's history, and based on current oil prices, we expect to generate meaningful free cash flow beyond that capital commitment and our dividend.

In August 2021, we announced that we had signed and received co-venturer approval for a new FSO solution. This solution will significantly reduce storage and offloading costs by almost 50%, increase effective capacity for storage by over 50%, and lead to an extension of the economic field life, resulting in a corresponding increase in recovery and reserves at Etame. In the first quarter of 2022, we announced that all of the associated engineering, long-lead equipment and significant contracts for the FSO and related field infrastructure changes are proceeding in-line with the project timelines which has the expected deployment of the FSO in the third quarter of 2022. Estimated capital costs associated with the FSO conversion and field reconfiguration are expected to be between \(26 to \)32 million net to VAALCO. This capital investment is projected to save approximately \(13 to \)16 million annually net to VAALCO in operational costs through 2030, giving the project a very attractive simple payback period of only about two years.

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"We are excited about our opportunities in EG on Block P and believe it makes sense to move this project forward with a definable timeline for development."

## 3. Unlocking meaningful potential in Equatorial Guinea

Another area that holds significant future potential for VAALCO is Equatorial Guinea. We have a substantial working interest in Block P and we are evaluating several development, step out and exploration opportunities on our acreage. We are excited about our opportunities on the Block and believe it makes sense to move this project forward with a definable timeline for development. At Venus and Europa, two previously discovered but undeveloped fields on Block P, we are targeting 16.5 to 23.5 million barrels of oil equivalent ("BOE") of unrisked 2C resource for the Venus prospect. Last summer, we completed our feasibility study for the standalone development of the Venus discovery and we have decided to move forward with a field development plan. As we work through the development plan with our partners and the government, we will provide more details about potential timing, capital costs, and reserves and production estimates, providing us, on a success case, the benefit of a second source of production and cash flow beyond Gabon. In addition, we believe that there is exploration upside at the SW Grande prospect with 164 million BOE of unrisked gross prospective resources. We are committed to profitably exploiting the resource potential of our assets and this can become a significant operational asset in the near-term and longer-term for VAALCO.

## 4. Pursuing value accretive M&A opportunities within our strategic focus

In February 2021, we closed on the purchase of Sasol's 27.8% working interest in Etame, bringing our total working interest in the license to 58.8%. Taking into account closing cost adjustments, the total cash we paid was \(38.9 million. We believe the transaction is very accretive to VAALCO as it is improving our margins, increasing production and the price we paid per net barrel of oil was about \)14.41 for SEC proved reserves and $4.91 for 2P CPR reserves. Since we already operate the asset, we had minimal additional G&A expense, and there was no integration of staff or processes required.

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## 250%

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

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## 88%

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

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 \( ^{1} \)  SEC reserves are NSAI estimates as of December 31, 2020 and December 31, 2021

 \( ^{2} \) 2P CPR Reserves are NSAI estimates as of December 31, 2021 with VAALCO's management assumptions for escalated crude oil price and costs
In October 2021, we announced an exciting new opportunity in Gabon when we entered into a consortium with BW Energy and Panoro Energy. The consortium has been provisionally awarded two blocks in the 12th Offshore Licensing Round in Gabon with two exploration periods totaling eight years which may be extended by a further two years. The two blocks, G12-13 and H12-13, are adjacent to VAALCO's Etame production sharing contract ("PSC") as well as BW Energy and Panoro's Dussafu PSC offshore Southern Gabon with the majority of these two blocks in water depths similar to Etame. Both Etame and Dussafu have been highly successful exploration, development and production projects undertaken by the consortium members over the past 20 years with approximately 250 million barrels discovered to date. The consortium is working through detailed production sharing contract discussions with the Gabonese Government. We have demonstrated that through targeted, accretive acquisitions we are materially changing the size and scale of VAALCO. As you can see, 2021 was an outstanding year for VAALCO and we believe that 2022 can be even better.

## A Look Ahead

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 roles and I believe VAALCO is in an excellent position to achieve this goal. With this in mind, in November 2021, we announced that our Board established a quarterly cash dividend policy to return cash to our shareholders and we paid our first quarterly cash dividend in the first quarter of 2022. We have adopted a sustainable annual dividend of $0.13 per share that we will continue to evaluate over time that will allow us to return value to shareholders while we continue to build size and scale. We believe that prudently returning cash to shareholders is a great way to complement our accretive growth strategy.

We are excited about 2022 with initial production guidance that is 40% higher than 2021, production cost per barrel guidance that is ~20% lower, and expected significant cash

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generation growth that will fund future development plans. Our growth is driven through organic drilling success and we are continuing to evaluate additional opportunities with a focus on providing sustainable returns to our shareholders. We have a strong asset base at Etame that is generating substantial free cash flow, even more so in the current pricing environment, which enhances our financial flexibility and allows us to return cash to our shareholders through our quarterly dividends. We are firmly focused on maximizing shareholder return opportunities and operating with the highest regards toward environmental, social and governance ("ESG") obligations while we progress our strategic objectives focused on accretive growth.

I would like to close with a discussion on ESG and our ongoing commitment to developing and producing oil resources in West Africa in a safe and environmentally responsible manner. We have issued sustainability reports over the past two years focused on our environmental track record, our commitment to our employees and the communities where we operate, and our sound governance practices. We have increased our transparency and disclosures each year, including multiple years of key ESG sustainability metrics developed specifically for our industry and plan to continue to add more information and insight in our next sustainability report this summer. 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's Nominating and Corporate Governance committee which in 2020 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, with an engineered approach to reduce our Scope 1 emissions within our direct activities to ensure these reductions are sustainable and permanent.

## Safety is
a Priority

Total Recordable Incident Rate ("TRIR")

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I would like to thank our hard-working team here at VAALCO who continue to operate and execute on our strategic vision of accretive growth and free cash flow generation. The communication and execution over the past 12 months, coupled with the significant rise in commodity pricing has provided a period of strong share performance, coupled with the underlying focus firmly on maximizing shareholder value. The future remains very bright for VAALCO, and this is a very dynamic time in our energy industry.

George Maxwell
Chief Executive Officer