Document:

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                                                                    EXHIBIT 10.3

C L I F F O R D                                    LIMITED LIABILITY PARTNERSHIP
C H A N C E

                           VAALCO GABON (ETAME), INC.

                                       And

               J.P. MORGAN TRUSTEE AND DEPOSITARY COMPANY LIMITED

                                       And

                       JPMORGAN CHASE BANK, LONDON BRANCH

                                   ETAME FIELD
                       TRUSTEE AND PAYING AGENT AGREEMENT

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                                    CONTENTS
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CLAUSE                                                                                                PAGE
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1.  Defined Terms......................................................................................  1

2.  Receipt Of Funds...................................................................................  7

3.  Disbursements With Respect To Government Payments.................................................. 14

4.  Establishment Of Etame Operating Account........................................................... 14

5.  Disbursements With Respect To Trustee  Compensation And The Tinworth Reserve Account............... 14

6.  Procedures Respecting Accounts And Security Interests Under This Agreement......................... 16

7.  Investment Of Funds Held In Accounts Under This Agreement.......................................... 18

8.  Concerning The Trustee And Paying Agent And Account Bank........................................... 19

9.  Miscellaneous...................................................................................... 29

Schedule A      Consortium Members Account And Subordinate Secured Party Designations.................. 38

Schedule B      Trustee And Paying Agent And Account Bank Fee Schedule................................. 39

Schedule C      Funds Transfer Confirmation Contact Party Designation.................................. 40

Schedule D      Tinworth Draw Notice................................................................... 41

Schedule E      Form Of Notice Of Assignment Of Crude Oil Sales Contract............................... 43

Schedule F      Form Of Acknowledgement Of Crude Oil Sales Contract Assignment......................... 45

Schedule G      Form Of Notice Of Assignment........................................................... 46

Schedule H      Form Of Acknowledgement Of Assignment.................................................. 48

Schedule I      Form Of Deed Of Accession.............................................................. 52
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THIS AGREEMENT, made as of the 26 day of June, 2002 between VAALCO GABON
(ETAME), INC., a Delaware corporation ("VGEI"), on behalf of itself, in its
capacity as Operator acting under the Operating Agreement and as a Consortium
Member and on behalf of each other Consortium Member under the Operating
Agreement, J.P. Morgan Trustee and Depositary Company Limited having its
registered office at 125 London Wall, London EC2Y 5AJ as Trustee and Paying
Agent and JPMorgan Chase Bank, London Branch (the "Bank"), acting through its
branch located at Trinity Tower, 9 Thomas More Street, London, England E1W 1YT
as Account Bank (all capitalized terms in the Preface and Recitals are
hereinafter defined under Section 1 below).

WITNESSETH:

WHEREAS, VGEI, as the Operator and on behalf of the Consortium Members, will be
executing Crude Oil Sales Contracts;

WHEREAS, each Crude Oil Sales Contract will provide that the Buyer shall pay
Crude Oil Sales Contract Revenues due thereunder to the Etame Revenue Account;

WHEREAS, pursuant to the FPSO Contract between VGEI, as Operator, and TINWORTH,
TINWORTH is entitled to receive certain Compensation subject to the terms and
conditions thereof secured by the TINWORTH Reserve Account created and funded as
provided herein;

WHEREAS, from time to time Consortium Members may enter into financing
agreements with Subordinate Secured Parties and assign as security therefor,
subject to funding Government Payments, Fees and Expenses and Additional
Remuneration of the Trustee and Paying Agent and of the Account Bank and the
TINWORTH Reserve Account (as provided herein), their pro rata share of Crude Oil
Sale Contract Revenues;

WHEREAS, to secure payment of amounts due to (i) TINWORTH under the FPSO
Contract and (ii) the several obligations of the Consortium Members to their
Subordinate Secured Parties, VGEI, as the Operator and on behalf of the
Consortium Members, wishes to assign its rights and their respective rights to
the Crude Oil Sales Contract Revenues in respect of the related Crude Oil Sales
Contracts to the Trustee and Paying Agent upon the terms and conditions set
forth in this Agreement;

WHEREAS, amounts paid with respect to the Crude Oil Sales Contract Revenues in
respect of the Crude Oil Sales Contracts will be received, held, managed and
disbursed by the Trustee and Paying Agent (as provided herein);

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the
Parties hereto agree as follows:

1.   DEFINED TERMS

1.1  The following defined terms shall have the meanings set forth below, such
     meanings to be applicable to both the singular and the plural forms of such
     expressions:

     "Accession Deed" shall have the meaning set forth in Section 2.9.

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     "Accounts" shall mean the Etame Reserve Account, the Etame Operating
     Account and the TINWORTH Reserve Account.

     "Account Bank" shall mean the JPMorgan Chase Bank or any Successor
     appointed pursuant to Section 8.7.

     "Account Bank's Office" shall mean the office of the Account Bank, the
     address of the first Account Bank being set out in Section 9.6 or any other
     office of the Account Bank in London, the address of which is notified to
     the Operator and TINWORTH, with copies to any Subordinate Secured Parties,
     by the Account Bank pursuant to Section 9.6 or the office specified in an
     instrument delivered by any Successor.

     "Agreement" shall mean this Etame Field Trustee and Paying Agent Agreement,
     as modified, supplemented or amended from time to time in accordance with
     the terms hereof.

     "Applicable Law" shall have the meaning set forth in Section 9.9.

     "Assigned Property" shall mean the property subject to the Crude Oil Sales
     Contracts Assignments.

     "Authority" any national, supranational, regional or local government or
     governmental, administrative, fiscal, judicial, or government-owned body,
     department, commission, authority, tribunal, agency or entity, or central
     bank (or any person, whether or not government owned and howsoever
     constituted or called, that exercises the functions of a central bank);

     "Authorisation" any consent, registration, filing, agreement, notarization,
     certificate, license, approval, permit, authority or exemption from by or
     with any Authority, whether given by express action or deemed given by
     failure to act within any specified time period and all corporate,
     creditors' and stockholders' approvals or consents;

     "Bank" shall have the meaning set forth in the introduction to this
     Agreement.

     "Beneficiaries" shall have the meaning set forth in Section 2.4.

     "Business Day" shall mean any day other than a Saturday, Sunday or other
     day on which commercial banking institutions in London and New York are
     authorized or obligated by law to remain closed.

     "Buyers" shall mean collectively each of the buyers of Crude Oil under the
     Crude Oil Sales Contracts and their respective successors and permitted
     assigns thereunder.

     "Charter" the articles of incorporation and bylaws an/or such other
     constitutive documents, howsoever called;

     "Collection Actions" shall have the meaning set forth in Section 2.7(f).

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     "Compensation" shall mean all charter rate, operating rate and any other
     compensation whatsoever payable by the Operator to TINWORTH in accordance
     with their obligations and liabilities under the FPSO Contract.

     "Consortium Members" shall mean collectively VGEI, PetroEnergy, Pan African
     Energy, Sasol, WAAL and NISSHO, and in each case its successors and
     permitted assigns under the Production Sharing Contract and the Operating
     Agreement.

     "Consortium Member Accounts" shall mean the designated deposit accounts for
     each Consortium Member as designated on Schedule A hereto.

     "Crude Oil" shall mean crude oil produced from the Field.

     "Crude Oil Sales Contract Revenues" shall mean each amount payable in U.S.
     Dollars pursuant to sales of Crude Oil exported from the Project and any
     amounts payable on account of interest due by reason of the late payment
     for Crude Oil under the Crude Oil Sales Contracts, in each case net of
     sales commissions provided for in the Crude Oil Sales Contracts or in any
     sales agency agreements entered into in connection therewith.

     "Crude Oil Sales Contracts" shall mean each and all of the sales contracts
     for the marketing and sale of Crude Oil from the Project to be entered into
     either by:

     (i)  the Operator on behalf of itself, the Consortium Members and the
          Government of Gabon and its assigns and each of the Buyers thereof;
          and

     (ii)   such Consortium Members who elect to take in kind and separately
          sell its share of Crude Oil from the Project directly and each of the
          Buyers thereof;

     as the same may be modified, supplemented or amended, including any
     extension or renewal thereof.

     "Crude Oil Sales Contracts Assignment" shall have the meaning set forth in
     Section 2.7 (a).

     "Crude Sharing Agreement" shall mean any agreement entered into between the
     Operator and any Consortium Member under which such Consortium Member
     elects to take in kind its share of Crude Oil from the Project and to sell
     it directly under a Crude Oil Sales Contract.

     "Eligible Bank" means the Bank or any of the Bank's affiliates or any other
     bank or trust company with a registered office or branch in London,
     England, provided the Bank or its relevant affiliate or such other bank or
     trust company has capital and surplus of at least US $500,000,000 and whose
     long term senior debt is rated at least "A" by Standard & Poor's
     Corporation or its successor or at least "A3" by Moody's Investors Service,
     Inc. or its successor, or any equivalent rating, issued by such services or
     successors, as from time to time may be in effect.

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     "Environmental Law" shall mean all applicable laws, including common law,
     orders, decrees, permits, rules or regulations pertaining to the
     environment, health and safety, hazardous substances, or the environmental
     conditions on, under, or about the Field, the Project or the loading,
     storage, off-loading and transportation of Crude Oil from the Field.

     "Environmental Liability" shall mean any liability under any Environmental
     Law.

     "Etame Operating Account" shall mean the account established and maintained
     pursuant to Section 4.1 by the Trustee and Paying Agent in the Trustee and
     Paying Agent's name with the Account Bank, having the designation "JPMTDC
     Re: Etame Operating Account" and account number 24690601.

     "Etame Revenue Account" shall mean the account established and maintained
     pursuant to Section 2.1 by the Trustee and Paying Agent in the Trustee and
     Paying Agent's name with the Account Bank, having the designation "JPMTDC
     Re: Etame Revenue Account" and account number 24690602.

     "Fees and Expenses" shall have the meaning set forth in Section 8.2.

     "Field" shall mean the Etame Field located offshore Gabon and more
     particularly described in the Production Sharing Contract and the Operating
     Agreement.

     "Final Compensation Payment" shall mean the final payment for Compensation
     due and owing to TINWORTH under the FPSO Contract.

     "Finance Document" means any agreement or deed relating to the transactions
     contemplated by this Agreement, other than this Agreement.

     "FPSO Contract" shall mean the Contract for the Provision and Operation of
     an FPSO for the Field dated August 20, 2001, between the Operator and
     TINWORTH, as the same may hereafter be modified, supplemented or amended,
     including any extension or renewal thereof.

     "Gabon" shall mean the Republic of Gabon.

     "Government" shall mean the government of Gabon.

     "Government Payments" shall mean any funds to be disbursed by the Trustee
     and Paying Agent to the Government under Section 3.1.

     "Investment Designation" shall have the meaning set forth in Section 7.1.

     "Letters of Credit" shall mean each irrevocable and transferable letter of
     credit or any similar payment security provided by a Buyer in favor of the
     Operator, any Consortium Member or Trustee and Paying Agent to provide for
     the payment when due of the purchase price of Crude Oil sold pursuant to
     the Crude Oil Sales Contracts.

     "NISSHO" shall mean Nissho Iwai Corporation, a Japanese corporation.

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     "Operating Agreement" shall mean the joint operating agreement effective as
     of April 4, 1997 between VGEI, VAALCO Energy (Gabon), Inc., WAAL,
     Petrofields Exploration & Development Co. Inc. and Alcorn Petroleum and
     Mineral Corporation, as the same has been and may hereafter be modified,
     supplemented or amended, including any extension or renewal thereof and any
     successors of the original parties.

     "Operator" shall mean VGEI, the designated Operator pursuant to the
     Operating Agreement and its successors and permitted assigns under the
     Operating Agreement and the Production Sharing Contract.

     "Pan African Energy" shall mean Pan African Energy Gabon Corporation,
     (formerly known as VAALCO Energy (Gabon), Inc.), a Delaware Corporation.

     "Party" shall mean each of the Trustee and Paying Agent, the Account Bank
     and the Operator.

     "Payment Default" shall have the meaning set forth in Section 5.3.

     "Payment Due Date" shall mean the date on which the Buyer must pay the
     amount due under the relevant Crude Oil Sales Contract to the Operator or,
     as the case may be, the relevant Consortium Member.

     "Permitted Investments" shall mean any of the following investments having
     a maturity date not later than the Business Day immediately preceding the
     date on which it is anticipated the proceeds thereof will be required in
     order to make any payment hereunder and in any event not more than one year
     from the date the investment is acquired by the Trustee and Paying Agent:
     (i) Eurodollar time deposits with Eligible Banks, (ii) Eurodollar
     certificates of deposit of Eligible Banks, (iii) commercial paper, finance
     company paper or bonds denominated in Eurodollars of any issuer, including
     Trustee and Paying Agent or any of its affiliates, or (iv) money market
     funds, provided that in the case of any investments described in either
     clause (iii) or (iv) above, such investments shall be rated not less than
     "P-I" by Moody's Bank Credit Report Service or its successors and "A-1 +"
     by Standard & Poor's Corporation CD Ranking Service or its successors, or
     any equivalent rating, issued by such services or successors, as from time
     to time may be in effect, all in accordance with Section 7.1.

     "PetroEnergy" shall mean PetroEnergy Resources Corporation, a Philippine
     corporation.

     "Production Sharing Contract" shall mean the Production Sharing Contract
     executed by VGEI and VAALCO Energy (Gabon), Inc. with the Ministry of
     Petroleum of Gabon on July 6, 1995, as the same has been and may hereafter
     be modified, supplemented or amended, including any extension or renewal
     thereof.

     "Project" shall mean the floating production storage and offloading system
     and the three oil wells existing in the Field and such other wells or
     facilities as may be added to develop the Field.

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     "Sasol" shall mean Sasol Petroleum International (Pty) Ltd., a South
     African Corporation.

     "Secured Obligations" shall mean collectively such obligations owed by the
     Operator, for itself and as agent for and on behalf of the other Consortium
     Members to TINWORTH under the FPSO Contract and the several obligations, if
     any, owed by the Consortium Members to their respective Subordinate Secured
     Parties.

     "Security" shall mean the security created or expressed to be created in
     favour of the Trustee and Paying Agent pursuant to this Agreement.

     "Subordinate Secured Parties" shall mean, at any time, the party or parties
     identified in Schedule A that a Consortium Member has notified in writing
     to the Operator, the Trustee and Paying Agent and the Account Bank is a
     secured creditor with respect to such Consortium Member's share of the
     Crude Oil Sales Contract Revenues and a beneficiary of the Crude Oil Sales
     Contract Assignment with respect to such share.

     "Successor" shall have the meaning set forth in Section 8.7.

     "Tax" shall mean all present and future taxes, levies, imposts or duties
     (including value added and stamp duties) whatsoever and wheresoever
     imposed.

     "TINWORTH" shall mean TINWORTH Ltd., a Bermudian corporation or its
     successor.

     "TINWORTH Draw Notice" shall mean a written notification in form of
     Schedule D attached hereto as provided in Section 5.3.

     "TINWORTH Reserve Account" shall mean the account established pursuant to
     Section 5.1 by the Trustee and Paying Agent in the Trustee and Paying
     Agent's name with the Account Bank, having designation "JPMTDC: TINWORTH
     Reserve Account" and account number 24690603.

     "TINWORTH Reserve Account Maximum Balance" shall have the meaning set forth
     in Section 5.2.

     "Trustee Acts" shall mean the Trustee Act 1925 and the Trustee Act 2000 of
     England and Wales.

     "Trustee and Paying Agent" shall mean the person designated as such by the
     Operator pursuant to Section 2.1 or any Successor appointed pursuant to
     Section 8.7.

     "Trustee and Paying Agent's Office" shall mean the office of the Trustee
     and Paying Agent, the address of the first Trustee and Paying Agent being
     set out in Section 9.6 or any other office of the Trustee and Paying Agent
     in London, the address of which is notified to the Operator and TINWORTH,
     with copies to any Subordinate Secured Parties, by the Trustee and Paying
     Agent pursuant to Section 9.6 or the office specified in an instrument
     delivered by any Successor.

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     "Trust Funds" shall have the meaning set forth in Section 2.4.

     "Trust Property" shall mean the property held by the Trustee and Paying
     Agent upon the terms of the trusts set out in Section 2.4.

     "Underlying Security" shall mean all liens, security interests, Letters of
     Credit, mortgages or similar rights securing payment by the Buyers of the
     Crude Oil Sales Contract Revenues.

     "US$" and "U.S. Dollars" shall mean the lawful currency of the United
     States of America.

     "VGEI" shall have the meaning set forth in the introduction to this
     Agreement.

     "WAAL" shall mean Western Atlas Afrique, Ltd., a Bermuda Corporation.

1.2  INTERPRETATION

     In this Agreement, unless the context otherwise requires:

     (a)  headings are for convenience only and do not affect the interpretation
          of this Agreement;

     (b)  words importing the singular include the plural and vice versa;

     (c)  a "person" includes any company, corporation, partnership, trust,
          estate, unincorporated organization, joint venture, association,
          juridical entity, corporation or other body corporate and any
          government, state or any political subdivision, authority or agency
          thereof;

     (d)  a reference to a party, Schedule or Section is a reference to that
          Section of, or that party or Schedule to, this Agreement;

     (e)  a reference to a party to any document includes that party's
          successors and permitted assigns; and

     (f)  a reference to a statute or statutory provision shall be construed as
          a reference to such statute or statutory provision as the same shall
          have been or may be amended or re-enacted.

2.   RECEIPT OF FUNDS

2.1  DESIGNATION OF TRUSTEE AND PAYING AGENT AND ETAME REVENUE ACCOUNT

     The Operator hereby appoints J.P. Morgan Trustee and Depositary Company
     Limited as the Trustee and Paying Agent and J.P. Morgan Trustee and
     Depositary Company Limited hereby accepts its appointment as Trustee and
     Paying Agent and its obligations hereunder upon and subject to the terms
     and conditions of this Agreement. The Trustee and Paying Agent may delegate
     all or any of the rights, powers and discretions vested in it by this
     Agreement pursuant to Clause 8.1(k). All Crude Oil Sales Contract Revenues
     shall be paid to the Trustee and Paying Agent. In the event any Consortium

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     Member sells its share of Crude Oil directly under a Crude Oil Sales
     Contract such Consortium Member shall, as shall be required by the Operator
     under the relevant Crude Sharing Agreement, appoint J.P. Morgan Trustee and
     Depositary Company Limited as the Trustee and Paying Agent to which Crude
     Oil Sales Contract Revenues under its Crude Oil Sales Contract shall be
     paid. The Trustee and Paying Agent shall establish and maintain the Etame
     Revenue Account, to which all Crude Oil Sales Contract Revenues and any
     other monies which may be payable to Consortium Members in respect of any
     Crude Oil Sales Contract Revenues shall be paid. The Trustee and Paying
     Agent shall deposit in the Etame Revenue Account each amount of Crude Oil
     Sales Contract Revenues and any other monies which may be payable to
     Consortium Members in respect of any Crude Oil Sales Contract Revenues
     received by it.

2.2  The Operator shall and shall cause any Consortium Member selling Crude Oil
     directly to send to the Trustee and Paying Agent (i) any Crude Oil Sales
     Contract promptly following the execution of the contract and (ii) a copy
     of each invoice at the same time that such invoice is sent to the relevant
     Buyer.

2.3  COVENANT TO PAY

     The Operator on behalf of each of the Consortium Members covenants with the
     Trustee and Paying Agent on behalf of itself and as trustee for and on
     behalf of the Beneficiaries (as defined below) that the Operator and such
     Consortium Members will pay and discharge the Secured Obligations owed to
     TINWORTH under the FPSO Contract.

2.4  DECLARATION OF TRUST FUNDS

     All amounts received in the Etame Revenue Account pursuant to Section 2.1,
     and Section 2.1 as applied by Section 2.9, in the Etame Operating Account
     pursuant to Section 4.2 and the TINWORTH Reserve Account pursuant to
     Section 5.2, Section 7.1 and Section 7.2 are herein referred to as the
     "Trust Funds." The Trustee and Paying Agent hereby declares itself trustee
     of the Trust Funds on trust for itself, the Operator, the Consortium
     Members, TINWORTH and the Subordinate Secured Parties each as the case may
     be (being the beneficiaries hereto) the "Beneficiaries" and shall hold the
     Trust Funds and the benefit of all related rights in trust for the
     Beneficiaries in accordance with their respective rights hereunder. Such
     funds shall be held upon trust for the benefit of those having a right to
     receive disbursements and distributions to the extent provided in this
     Agreement.

2.5  AMOUNTS RECEIVED

     (a)  In the event the Trustee and Paying Agent receives any amount from any
          person which amount is not designated for the Etame Revenue Account or
          for any other account established or to be established hereunder, or
          an amount in relation to which it has not received a notification from
          the Operator, the Trustee and Paying Agent shall request instructions
          from the Operator as to

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          the proper account designation of the amount received and shall
          deposit such amount in the account or accounts specified in the
          designation given by the Operator.

     (b)  If the Operator receives any sum which, pursuant to this Agreement,
          should have been paid to the Trustee and Paying Agent, that sum shall
          be held by the Operator on trust for the Beneficiaries and shall
          promptly be paid to the Trustee and Paying Agent in accordance with
          this Agreement.

2.6  CURRENCY CONVERSION

     If the Trustee and Paying Agent recovers a payment in a currency other than
     US dollars, the Trustee and Paying Agent may convert the moneys received or
     recovered by the Trustee and Paying Agent into US dollars at the spot rate
     at which the Trustee and Paying Agent is able to purchase US dollars with
     the amount received.

2.7  CRUDE OIL SALE CONTRACTS ASSIGNMENT

     (a)  To the extent permitted or not prohibited by the Crude Oil Sales
          Contracts, the Operator on behalf of each of the Consortium Members
          with full title guarantee and as continuing security for the payment
          and discharge of the Secured Obligations to the Trustee and Paying
          Agent for the benefit of TINWORTH and the Subordinate Secured Parties
          assigns by way of security absolutely to the Trustee and Paying Agent
          (the "Crude Oil Sales Contracts Assignment") all the Crude Oil Sales
          Contract Revenues in respect of the Crude Oil Sales Contracts to which
          it is a party, and all liens, security interests, Letters of Credit,
          mortgages or similar rights securing payment by the Buyers of the
          Crude Oil Sales Contract Revenues pursuant to the related Crude Oil
          Sales Contracts, including without limitation:

          (i)    the right to receive all Crude Oil Sales Contract Revenues,

          (ii)   payments arising from any claims for damages in respect of
                 Crude Oil Sales Contract Revenues, and

          (iii)  payments received as a result of the Operator, Trustee and
                 Paying Agent or its assignee compelling performance of the
                 payment of such Crude Oil Sales Contract Revenues (all of
                 which shall be held by the Trustee and Paying Agent upon the
                 terms of the trusts set out in Section 2.4 above);

                 provided however that the Trustee and Paying Agent shall have
                 no right or obligation (unless instructed to do so by the
                 Operator) to consent or agree to any amendment, modification or
                 waiver under or with respect to any such Crude Oil Sales
                 Contract or any such lien, security interest, Letter of Credit,
                 mortgage or similar right. The Trustee and Paying Agent hereby
                 accepts such Crude Oil Sale Contracts Assignment in accordance
                 with the terms hereof.

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                 The Operator shall, contemporaneously with the execution of
                 each Crude Oil Sales Contract to which it is a party, serve a
                 notice of the Crude Oil Sales Contract Assignment, in the form
                 set out in Schedule E on each Buyer thereunder and the Operator
                 shall use its reasonable endeavors to procure that each Buyer
                 promptly executes and delivers to the Trustee and Paying Agent
                 (with a copy thereof to the Operator, TINWORTH and the
                 Subordinate Secured Parties) an acknowledgement of the Crude
                 Oil Sales Contract Assignment in the form set out in Schedule
                 F. The Operator shall use its reasonable endeavors to obtain
                 any relevant consent, waiver or acknowledgement necessary to
                 give full effect to the foregoing assignment to the Trustee and
                 Paying Agent.

     (b)  The Operator for itself and on behalf of each of the Consortium
          Members represents, warrants and covenants that:

          (i)    it has not assigned and will not assign for itself or on behalf
                 of each of the Consortium Members any of its rights or
                 interests hereby assigned to any person other than the Trustee
                 and Paying Agent as aforesaid;

          (ii)   it has and will have the necessary power to enable it to enter
                 into and perform its obligations under this Agreement;

          (iii)  this Agreement constitutes and will constitute its legal,
                 valid, binding and enforceable obligation (except as
                 enforcement may be limited by bankruptcy, moratorium,
                 insolvency, reorganisation or similar laws generally affecting
                 creditors' rights as well as the awards by courts of relief in
                 lieu of specific performance of contractual provisions); and

          (iv)   all necessary authorisations to enable it to enter into this
                 Agreement have been obtained and are, and will remain, in full
                 force and effect.

     (c)  Anything herein to the contrary notwithstanding, the Operator agrees
          for the benefit of the Trustee and Paying Agent and for the benefit of
          each person having an interest in or right at any time to distribution
          or disbursement of Trust Funds hereunder that:

          (i)    the Operator shall at all times remain liable to the other
                 party or parties to each Crude Oil Sales Contract to which the
                 Operator is a party to perform all of the duties and
                 obligations of the Operator thereunder as if the Crude Oil Sale
                 Contracts Assignment hereunder had not been made, and

          (ii)   the Trustee and Paying Agent shall not have any obligation or
                 liability under any Crude Oil Sales Contract or in respect of
                 any Crude Oil Sales Contract Revenue or any lien, security
                 interest, Letter of Credit, mortgage or similar right securing
                 payment by the Buyers of the Crude Oil Sales Contract Revenues
                 pursuant to the related Crude Oil Sales Contracts or any other
                 instrument or agreement securing

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                 payment by the Buyers of the Crude Oil Sales Contract Revenues
                 pursuant to the related Crude Oil Sales Contracts by reason of,
                 or arising under, this Agreement or be obligated to perform any
                 of the obligations of the Operator under any thereof or, except
                 as otherwise expressly provided in Section 2.7(f), to make any
                 payment or to make any inquiry as to the sufficiency of any
                 payment received by it or to present or file any claim or to
                 take any other action to collect or enforce any claim for or
                 right to any payment or security therefor assigned hereunder.

     (d)  The Operator on behalf of each of the Consortium Members does hereby
          constitute the Trustee and Paying Agent and its respective delegates,
          the Operator's true and lawful attorney irrevocably, with full power
          (in the name of the Operator or otherwise on its behalf) to do all
          acts and all things (including full power to delegate) and to sign,
          seal, execute, deliver, perfect and do all deeds, instruments and
          documents, acts and things which may be necessary hereunder and to
          ask, require, demand, receive, compound and give acquittance for any
          and all monies and claims for monies due and to become due under or
          arising out of each Crude Oil Sales Contract to which the Operator is
          a party and, to endorse any instruments or orders in connection
          therewith. The Operator ratifies and confirms and agrees to ratify and
          confirm whatever any attorney appointed hereunder shall do in its
          capacity as such. Unless and until the Trustee and Paying Agent shall
          take any action or exercise any right under Section 2.7(f) and shall
          have notified the Operator to such effect, the Operator may in its
          discretion take any such action or exercise any such right.

     (e)  The Operator agrees that, subject to the Operating Agreement, the
          Operator will, at its own expense, promptly and duly execute and
          deliver any and all such further notices, instruments and documents
          and take such further action as the Trustee and Paying Agent may
          require or consider necessary in order to obtain the full benefits of
          the Crude Oil Sale Contracts Assignment and the rights and powers
          herein granted. The Operator shall deliver, and shall cause to be
          delivered, to the Trustee and Paying Agent all Crude Oil Sales
          Contracts and Letters of Credit and any other security for performance
          of the Buyers under the Crude Oil Sales Contracts. The Operator shall
          provide, and shall cause to be provided, to the Trustee and Paying
          Agent all amendments, modifications or supplements to the Crude Oil
          Sales Contracts, the Letters of Credit or any other instruments or
          agreements securing payment by the Buyers of the Crude Oil Sales
          Contract Revenues pursuant to the related Crude Oil Sales Contracts or
          the Letters of Credit; provided however that until the Trustee and
          Paying Agent shall have received any such amendment, modification or
          supplement, it may assume and act or not act on the basis that the
          executed original documentation in its possession is solely
          authoritative, in effect and binding.

                                     - 11 -

<PAGE>

     (f)  In the event payment is not made in respect of any Crude Oil Sales
          Contract or Letter of Credit when due, the Trustee and Paying Agent
          shall have no duty to exercise any right or take any action under any
          Crude Oil Sales Contract or, except as set forth in Section 2.8, under
          any Letter of Credit ("Collection Actions"). The Trustee and Paying
          Agent may, and if instructed in writing by the Operator, shall appoint
          the Operator or its nominee as the agent of the Trustee and Paying
          Agent to exercise any such right or take any such action provided that
          the Trustee and Paying Agent is indemnified and or secured to its
          satisfaction. In acting (or refraining from acting) as such agent of
          the Trustee and Paying Agent, the Operator and its assignee shall have
          all rights, benefits, powers and protections provided to the Trustee
          and Paying Agent under or pursuant to this Agreement.

     (g)  Notwithstanding anything to the contrary contained herein, the Trustee
          and Paying Agent makes no representation as to the collectability of
          any lien or security interest purported to be created hereby, or as to
          the sufficiency, validity or genuineness of any instruments or
          documents at any time assigned or deposited with the Trustee and
          Paying Agent hereunder, or any liens purported to be created hereunder
          or under any other document referred to or provided for in this
          Section. The Trustee and Paying Agent shall have no duty to do, cause
          to be done or advise with respect to any filing or recording or to the
          maintenance of any such filing or recording with any governmental
          agency or office or otherwise. The Trustee and Paying Agent shall, if
          directed by the Operator or its nominee in accordance with Section
          2.7(f), deliver or cause to be delivered to the Operator such
          instruments, notices or other documents designed to create, protect,
          perfect or effect the Crude Oil Sales Contracts Assignment, which
          instruments, notices or other documents shall have been prepared by
          the Operator or its nominee and delivered to the Trustee and Paying
          Agent.

2.8  LETTERS OF CREDIT

     (a)  If, as indicated by the relevant invoice, payment for Crude Oil sold
          pursuant to a Crude Oil Sales Contract is to be effected by a Letter
          of Credit, the Trustee and Paying Agent shall, but only to the extent
          that the applicable Letter of Credit (together with all documents
          required to be presented thereunder) is in the possession of the
          Trustee and Paying Agent, draw on the applicable Letter of Credit in
          the manner provided therein and for the amount then due on the
          applicable payment due date. If any invoice under a Crude Oil Sales
          Contract is not paid when due in respect of which invoice a Letter of
          Credit is held by the Trustee and Paying Agent as security for payment
          of such invoice, the Trustee and Paying Agent shall notify the
          Operator of such event and the Trustee and Paying Agent shall draw on
          the applicable Letter of Credit, in the manner provided therein and
          for the amount then due, after the lapse of five (5) calendar days
          following the applicable payment due date, but in any event prior to
          the expiration date of the relevant Letter of Credit. If the

                                     - 12 -

<PAGE>

          applicable Letter of Credit is in favour of the Operator or any
          Consortium Member, the Trustee and Paying Agent shall request such
          party to draw on the Letter of Credit and deposit such funds into the
          Etame Revenue Account.

     (b)  In the event the issuing bank, advising bank or confirming bank, as
          the case may be, fails to honor any draw by or on behalf of the
          Trustee and Paying Agent under a Letter of Credit, the Trustee and
          Paying Agent shall promptly notify the Operator and shall make prompt
          written demand on the issuing bank, advising bank or confirming bank.
          The Trustee and Paying Agent may, and if requested by the Operator
          shall, provided that the Trustee and Paying Agent is indemnified
          and/or secured to its satisfaction, take or cause to be taken such
          other reasonable action as may be specified by the Operator to, cause
          the issuing bank, advising bank or confirming bank to honor such
          Letter of Credit, which instructions may be to appoint the Operator or
          its nominee as the Trustee and Paying Agent's agent pursuant to
          Section 2.7(f). If the Operator should directly receive any monies
          from the issuing bank, advising bank or confirming bank as a result of
          such action such monies shall be held on trust by the Operator and
          shall immediately be transferred to the Trustee and Paying Agent and
          shall be treated as Crude Oil Sales Contract Revenues.

2.9  DIRECT SALES/CRUDE SHARING AGREEMENTS

     In the event that any Consortium Member elects to sell its share of Crude
     Oil from the Project directly to a Buyer, the Operator shall cause such
     Consortium Member to enter into a Crude Sharing Agreement with the Operator
     whereby such Consortium Member shall covenant, among other matters, to
     perform, with respect to the Crude Oil Sales Contracts and Crude Oil Sales
     Contract Revenues related to such Consortium Member's share of Crude Oil,
     the obligations of the Operator under Sections 2.1 (save for the obligation
     of the Operator referred to in the 4th sentence thereof), 2.2, 2.3, 2.4,
     2.5(b), 2.6, 2.7, 2.8, 8.1(a), (i), (m), (p)(iii), and 9.4(c) as more
     particularly set forth under such Crude Sharing Agreement (including, for
     avoidance of doubt, an obligation of the Operator to cause any such
     Consortium Member to duly execute an assignment of such Consortium Member's
     rights under such Crude Oil Sales Contracts to the Trustee and Paying Agent
     in accordance with Section 2.5) and to execute an instrument acceding to
     this Agreement in substantially the form of Schedule I hereto ("Accession
     Deed"). The Trustee and Paying Agent shall be entitled to Fees and Expenses
     and Additional Remuneration in connection therewith pursuant to Section 8.2
     and 8.3.

2.10 ACCEPTANCE OF ACCESSION DEEDS

     Each of the Parties hereto appoints the Trustee and Paying Agent to receive
     on its behalf each Accession Deed delivered to the Trustee and Paying Agent
     pursuant to Section 2.9 and to accept and sign it if the Trustee and Paying
     Agent has received such documentation from the acceding Consortium Member
     that it, in its sole discretion, requires in order to comply with all
     applicable legal and regulatory requirements. No Accession Deed shall be
     effective unless and until accepted and signed by the Trustee and Paying
     Agent. The Trustee and Paying Agent shall be entitled to assume, without

                                     - 13 -

<PAGE>

     further enquiry, that any such Accession Deeds are duly executed,
     authentic, legal, valid, binding and enforceable.

3.   DISBURSEMENTS WITH RESPECT TO GOVERNMENT PAYMENTS

3.1  GOVERNMENT PAYMENTS

     The Trustee and Paying Agent shall as soon as practicable but not more than
     three (3) Business Days after receipt of any amount of Crude Oil Sales
     Contract Revenues, pay over from the Etame Revenue Account to the
     Government an amount specified by the operator as the Government's share of
     such amount pursuant to the Production Sharing Contract ("Government
     Payments"), which amount shall be as specified in the notice received by
     the Trustee and Paying Agent from the Operator at least three (3) Business
     Days prior to the due date of each invoice for the sale of Crude Oil under
     the relevant Crude Oil Sales Contract, failing the receipt of which the
     Trustee and Paying Agent shall act in accordance with the previous such
     notice in determining the applicable amount to be paid to the Government.
     Amounts payable to the Government hereunder shall be paid to such account
     as shall be specified in writing by the Operator to the Trustee and Paying
     Agent.

4.   ESTABLISHMENT OF ETAME OPERATING ACCOUNT

4.1  ETAME OPERATING ACCOUNT

     The Trustee and Paying Agent shall establish and maintain the Etame
     Operating Account.

4.2  FUNDS TO BE DEPOSITED

     As soon as practicable but no later than two (2) Business Days after
     receipt by it of any amount in funds in the Etame Revenue Account, the
     Trustee and Paying Agent shall deposit in the Etame Operating Account all
     amounts in the Etame Revenue Account in excess of the amount of Government
     Payments required to be made pursuant to Section 3.1.

5.   DISBURSEMENTS WITH RESPECT TO TRUSTEE  COMPENSATION AND THE TINWORTH
     RESERVE ACCOUNT

5.1  ESTABLISHMENT OF TINWORTH RESERVE ACCOUNT

     The Trustee and Paying Agent shall establish and maintain the TINWORTH
     Reserve Account.

5.2  PAYMENT

     Any time funds are deposited in the Etame Operating Account, the Trustee
     and Paying Agent shall as soon as practicable after such deposit but in no
     event more than two (2) Business Days thereafter pay or deposit such funds
     in the following order:

                                     - 14 -

<PAGE>

     First, pay Fees and Expenses incurred in accordance with Section 8.2 hereof
     and Additional Remuneration incurred in accordance with Section 8.3 hereof.

     Second, deposit such amounts in the TINWORTH Reserve Account as may be
     necessary to ensure that the credit balance of the TINWORTH Reserve
     Account, including the value of any Permitted Investments and accrued
     interest in accordance with Section 7, is equal to $2,500,000 (the
     "TINWORTH Reserve Account Maximum Balance").

     Third, distribute the balance remaining in the Etame Operating Account, if
     any, to each of the Consortium Member's Accounts the amounts in accordance
     with their respective entitlements under Production Sharing Contract and
     the Operating Agreement, as shall be specified in the notice received by
     the Trustee and Paying Agent from the Operator at least three (3) Business
     Days prior to the date of such distribution.

5.3  TINWORTH RESERVE ACCOUNT DRAWS

     TINWORTH shall be entitled to draw such amounts out of the TINWORTH Reserve
     Account up to the TINWORTH Reserve Account Maximum Balance in the event
     Operator fails to pay any Compensation due to TINWORTH under the FPSO
     Contract on the due date thereof and after the expiration of any applicable
     grace periods (a "Payment Default"), upon five (5) Business Days' written
     notice from TINWORTH ("TINWORTH Draw Notice") to the Trustee and Paying
     Agent with copies to the Operator and each of the Subordinate Secured
     Parties (as designated on the most recent Schedule A delivered to TINWORTH
     pursuant to Section 6.1(b)), declaring that a Payment Default has occurred
     under the FPSO Contract and for these purposes the Trustee and Paying Agent
     can rely without enquiry on a certificate from TINWORTH certifying that
     TINWORTH has sent such copies of the TINWORTH Draw Notice and the Trustee
     and Paying Agent shall not be liable for so acting. TINWORTH shall have no
     obligation to confirm that Schedule A is a complete and current list of
     Subordinate Secured Parties. The Trustee and Paying Agent shall distribute
     to TINWORTH such amounts in the TINWORTH Reserve Account up to the TINWORTH
     Reserve Account Maximum Balance as certified due and owing under the
     TINWORTH Draw Notice. Trustee and Paying Agent shall liquidate the
     Permitted Investments to the extent necessary to fund the full amount of
     the TINWORTH Draw Notice, whether or not such Permitted Investments have
     matured. Anything herein to the contrary notwithstanding, the Operator on
     behalf of itself and each of the Consortium Members agrees for the benefit
     of the Trustee and Paying Agent that the Trustee and Paying Agent shall be
     under no duty to inquire or seek approval from Operator, any Consortium
     Member or any Subordinate Secured Party or any other person with respect to
     the occurrence or not of the Payment Default or the right of TINWORTH to
     receive the amount requested under the TINWORTH Draw Notice and Trustee and
     Paying Agent shall have no liability to the Operator, any Consortium Member
     or Subordinate Secured Party to determine or resolve any claims with
     respect to their

                                     - 15 -

<PAGE>

     rights under the FPSO Contract, TINWORTH's Compensation, or any other
     disputes between TINWORTH and the Operator thereunder for payment of such
     amounts.

5.4  FINAL COMPENSATION PAYMENT

     After the date of payment of the Final Compensation Payment pursuant to the
     FPSO Contract as confirmed by notice from the Operator and TINWORTH to the
     Trustee and Paying Agent, the Trustee and Paying Agent shall as promptly as
     practicable convert to cash any Permitted Investments then held in the
     TINWORTH Reserve Account and promptly pay all amounts remaining in the
     TINWORTH Reserve Account to the Consortium Members' Accounts in accordance
     with the instructions as provided by the Operator in the manner described
     in Paragraph "Third" under Section 5.1, and thereafter close the TINWORTH
     Reserve Account.

6.   PROCEDURES RESPECTING ACCOUNTS AND SECURITY INTERESTS UNDER THIS AGREEMENT

6.1  BENEFICIAL RIGHTS IN TRUST FUNDS

     (a)  TINWORTH shall have under this Agreement or otherwise no claim or
          interest in the Etame Revenue Account or Etame Operating Account
          except to the extent funds deposited in the Etame Operating Account
          are to be deposited in the TINWORTH Reserve Account as provided in
          Section 5.2. The funds in the TINWORTH Reserve Account, up to the
          TINWORTH Reserve Account Maximum Balance, shall be held for the
          benefit of TINWORTH as security for and payment of the Compensation.
          Except as provided under Section 7.2, prior to the Final Compensation
          Payment, neither Operator nor any Consortium Member or any Subordinate
          Secured Party shall have any security interest in the TINWORTH Reserve
          Account. TINWORTH has no claim or interest in the Consortium Member
          Accounts under this Agreement or otherwise.

     (b)  At any time and from time to time any Consortium Member may give
          notice to the Trustee and Paying Agent and the Operator that it has
          assigned with full title guarantee to its Subordinate Secured Party by
          way of security absolutely all of such Consortium Member's rights in
          and to the Etame Operating Account funds substantially in the form of
          Exhibit G hereto. Upon receipt of such notice, (i) the Trustee and
          Paying Agent and Operator shall amend Schedule A as appropriate and
          deliver a copy thereof to each of TINWORTH, each of the Consortium
          Members and each of their respective Subordinate Secured Parties, if
          applicable (ii) the Trustee and Paying Agent and the Operator shall
          acknowledge such Subordinate Secured Party's security interest
          substantially in the form of Exhibit H hereto and (iii) thereafter the
          Trustee and Paying Agent shall distribute such Consortium Member's
          share of the Etame Operating Account funds to such Consortium Member's
          Account as directed in such notice.

                                     - 16 -

<PAGE>

6.2  NO OVERDRAFT

     None of the Accounts may go to into overdraft.

6.3  ACCOUNTING FOR ASSETS

     All assets under the jurisdiction and control of the Trustee and Paying
     Agent and held from time to time in the Trust Funds shall be accounted for
     within the Etame Revenue Account, Etame Operating Account and TINWORTH
     Reserve Account specifying the designated account to which such assets may
     be allocated and the place or places at which Permitted Investments may be
     held in custody for the account of the Trustee and Paying Agent. The
     Trustee and Paying Agent shall maintain such books of account and other
     records as may be necessary to ensure full and proper segregation of the
     funds credited to such accounts as may be established by the Trustee and
     Paying Agent hereunder. Such books of account shall be open to inspection
     by the duly authorized representatives of the Operator, TINWORTH, the
     Government, the Consortium Members and their respective Subordinate Secured
     Parties at all reasonable times and upon reasonable notice.

6.4  REPORTS

     The Trustee and Paying Agent shall furnish to the Operator, TINWORTH and
     each Subordinate Secured Party the following reports:

     (a)  Within 20 days after the close of each calendar quarter, a statement
          prepared by the Trustee and Paying Agent setting forth the amount and
          source (by category) of funds received pursuant to this Agreement and
          the disbursements of such funds as disclosed by the records and
          accounts kept by the Trustee and Paying Agent pursuant to Section 6.3
          during such preceding calendar quarter and a statement of the cash and
          investments held in the accounts under this Agreement as of the end of
          such period.

     (b)  As soon as practicable after its receipt or disbursement of any funds
          pursuant to this Agreement, a statement by facsimile transmission or,
          if so requested by any party, by e-mail, of such transactions
          specifying the amount and the source (by category) of the funds
          received and disbursed and the amounts credited or charged to the
          Etame Revenue Account, the Etame Operating Account, the TINWORTH
          Reserve Account and each Consortium Member's Account.

6.5  TAX CONSIDERATIONS

     (a)  All payments from the Trust Funds to Consortium Members shall be paid
          gross except to the extent required by law and the Trustee and Paying
          Agent shall be entitled to deduct or withhold any sum on account of
          any Tax required or which in its view is required to be so deducted or
          withheld or for which it is in its view liable or accountable by law
          or practice of any relevant revenue

                                     - 17 -

<PAGE>

          authority of any jurisdiction and in each case in accordance with the
          Trustee and Paying Agent's usual and customary business practice.

     (b)  The Operator shall use reasonable endeavors to procure, on request
          from the Trustee and Paying Agent, that each Consortium Member makes
          such declarations as may be required (including, without limitation,
          declarations under paragraph 4 of the Income Tax (Paying and
          Collecting Agents) Regulations 1996 (as amended)) that may be required
          to avoid any withholding from payments out of the Trust Fund that
          would otherwise be required by law.

7.   INVESTMENT OF FUNDS HELD IN ACCOUNTS UNDER THIS AGREEMENT

7.1  PERMITTED INVESTMENTS

     The Trustee and Paying Agent shall invest amounts held by it from time to
     time in the TINWORTH Reserve Account solely in such Permitted Investments
     specifically designated by the Operator (as to type, obligor, yield,
     maturity and other necessary information) from time to time in writing
     ("Investment Designation"); provided that (a) if the Trustee and Paying
     Agent has not received an Investment Designation as to any funds required
     to be invested hereunder it shall invest such funds in an interest bearing
     deposit account held with the Account Bank and bearing a rate of interest
     of the JPMorgan Chase Bank overnight bid rate for deposits in US dollars
     less 50 basis points or such other interest rate as may be agreed from time
     to time; (b) upon receipt of an Investment Designation, the Trustee and
     Paying Agent shall to the extent practicable terminate non-designated
     investments to which such Investment Designation applies and re-invest the
     proceeds thereof in the Permitted Investments designated therein; and (c)
     the Trustee and Paying Agent shall in no event have any liability if a
     Permitted Investment not made performs better than any other investment the
     Trustee and Paying Agent enters into. For the avoidance of doubt the
     Trustee and Paying Agent shall not exercise discretion with regard to the
     selection of Permitted Investment except as directed in 7.1(a). All
     Permitted Investments shall be and become part of the Trust Funds and shall
     be included in the credit balance of the TINWORTH Reserve Account for the
     purpose of meeting the TINWORTH Reserve Account Maximum Balance. The
     Permitted Investments shall be valued in accordance with the Trustee and
     Paying Agent's normal banking practice.

7.2  INTEREST ALLOCATION

     Interest and any other income arising out of the Permitted Investments
     shall be and become a part of the Trust Funds, allocated to the account for
     which such investment was made; provided, as of the first Business Day of
     each calendar quarter during the term hereof, Trustee and Paying Agent
     shall transfer to the Etame Operating Account quarterly all interest and
     any other income accruing on amounts in the TINWORTH Reserve Account in
     excess of the TINWORTH Reserve Account Maximum Balance.

                                     - 18 -

<PAGE>

8.   CONCERNING THE TRUSTEE AND PAYING AGENT AND ACCOUNT BANK

8.1  In connection with its duties, rights and powers under this Agreement
     (including in relation to transactions it may enter into pursuant hereto),
     the Trustee and Paying Agent shall be subject to the following:

     (a)  Instructions. The Trustee and Paying Agent shall, except as otherwise
          contemplated herein, act solely in accordance with instructions given
          to it by the Operator for and on behalf of itself and the Consortium
          Members. The Trustee and Paying Agent shall be entitled to assume that
          (i) any instruction received by it from the Operator is duly given by
          or on behalf of the Consortium Members, if applicable, in accordance
          with the terms of the Operating Agreement and any other applicable
          Finance Documents, (ii) unless it has received actual written notice
          of revocation, that any instructions or directions given by the
          Operator have not been revoked and no revocation of any instructions
          by the Operator shall affect any action of the Trustee and Paying
          Agent in reliance upon such instruction or direction prior the actual
          receipt of the notice of revocation, and (iii) the Operator is
          entitled under the Operating Agreement and other Finance Documents to
          give such instructions. The Trustee and Paying Agent shall be entitled
          to request clarification of any instruction or direction and pending
          receipt of such clarification to its satisfaction may refrain from
          acting and shall have no liability for the consequences thereof.

     (b)  Reliance on Certificates. The Trustee and Paying Agent shall be
          entitled to act upon any notice, certificate, request, direction,
          waiver, receipt or other document which it in good faith believes to
          be genuine; and it shall be entitled to rely upon the due execution,
          validity and effectiveness, and the truth and acceptability of any
          provisions contained therein.

     (c)  Gross Negligence. The Trustee and Paying Agent shall not be liable for
          any error of judgment or for any act done or omitted by it in good
          faith or for any mistake of fact or law, or for anything which it may
          do or refrain from doing, except for its own gross negligence or
          wilful misconduct.

     (d)  Professional Advice. The Trustee and Paying Agent may consult with,
          and obtain advice from accounting and legal advisers or such other
          advisers, consultants and agents as the Trustee and Paying Agent may
          deem necessary or advisable and it shall incur no liability or loss
          and shall be fully protected in acting in good faith in accordance
          with the opinion and advice of any such advisers, consultants or
          agents, as the case may be.

     (e)  No other duties. The Trustee and Paying Agent shall have no duties
          other than those specifically set forth or provided for in this
          Agreement and shall not have any implied duties, obligations or
          responsibilities. In performing or carrying out its duties,
          obligations and responsibilities, the Trustee and Paying

                                     - 19 -

<PAGE>

          Agent shall be considered to be acting only in a mechanical and
          administrative capacity (save as expressly provided in this Agreement)

     (f)  Recitals. The recitals contained herein shall be taken as the
          statements of the Operator, and the Trustee and Paying Agent assumes
          no responsibility for their correctness.

     (g)  Other agreements. The Trustee and Paying Agent shall have no
          obligation to familiarize itself with and shall have no responsibility
          with respect to any Finance Document, including, without limitation,
          the Crude Oil Sale Contracts, the Operating Agreement and the
          Production Sharing Contract, relating to the transactions contemplated
          by this Agreement nor any obligation to inquire whether any notice,
          instruction, statement or calculation is in conformity with the terms
          of any such agreement, except for those irregularities, errors or
          mistakes apparent on the face of such document or to the knowledge of
          the Trustee and Paying Agent. If, however, any remittance or
          communication received by the Trustee and Paying Agent appears
          erroneous or irregular on its face, the Trustee and Paying Agent shall
          be under a duty to make prompt inquiry to the person or party
          originating such remittance or communication in order to determine
          whether clerical error or inadvertent mistake has occurred.

     (h)  Payment in error. If the Trustee and Paying Agent pays out funds from
          the Accounts in error, it shall be entitled to recoup such funds from
          the party to whom it paid such funds.

     (i)  Representations, defaults, etc. The Trustee shall be entitled to
          assume, unless it has in its capacity as Trustee and Paying Agent for
          the Beneficiaries received actual notice to the contrary from the
          Operator, that any representation made or deemed to be made hereunder
          is true and that neither the Operator nor the Consortium Members are
          in breach of or default under any of its obligations under this
          Agreement.

     (j)  Agents. The Trustee and Paying Agent may, in the conduct of its trust
          business, instead of acting personally, employ and pay an agent on any
          terms, selected by it whether or not a lawyer or other professional
          person, to transact or conduct, or concur in transacting or
          conducting, any business and to do or concur in doing all acts
          required to be done by the Trustee and Paying Agent (including the
          receipt and payment of money) and the Trustee and Paying Agent shall
          not be responsible for any misconduct on the part of any person
          appointed by it hereunder or be bound to supervise the proceedings or
          acts of any such person, provided that the Trustee and Paying Agent
          shall exercise reasonable care in selecting any such person;

     (k)  Delegates. The Trustee and Paying Agent may, at any time, delegate by
          power of attorney or otherwise to any person for any period, all or
          any of the rights, powers and discretions vested in it by this
          Agreement, including

                                     - 20 -

<PAGE>

          without limitation to the Account Bank. The delegation may be made
          upon any terms and conditions (including the power to sub-delegate)
          and subject to any restrictions as the Trustee and Paying Agent may
          think fit in the interest of the Beneficiaries and it shall not be
          bound to supervise, or be in any way responsible for any loss incurred
          by reason of any misconduct or default on the part of any delegate or
          sub-delegate, provided that the Trustee and Paying Agent shall
          exercise reasonable care in selecting any such delegate.

     (l)  Co-trustees. The Trustee and Paying Agent may at any time appoint (and
          subsequently remove) any Eligible Bank to act as a separate trustee or
          as a co-trustee jointly with it (i) if it considers that appointment
          to be in the interests of the Beneficiaries or (ii) for the purposes
          of confirming to any legal requirements, restrictions or conditions
          which the Trustee and Paying Agent deems to be relevant or (iii) for
          obtaining or enforcing any judgment in any jurisdiction, provided that
          the Trustee and Paying Agent exercises reasonable care in selecting
          any such co-trustee and uses reasonable endeavours to consult with the
          other Beneficiaries in relation thereto, including, without
          limitation, in respect of any remuneration expected to be paid to such
          co-trustee. The Trustee and Paying Agent shall give notice to the
          Operator and the Consortium Members of any appointment. Any person so
          appointed (subject to the terms of this Agreement) shall have the
          rights, powers and discretions (not exceeding those conferred on the
          Trustee and Paying Agent by this Agreement) and the duties and
          obligations as are conferred or imposed by the instrument of
          appointment. The remuneration that the Trustee and Paying Agent may
          pay to any person, and any costs and expenses incurred by that person
          in performing its functions pursuant to that appointment shall, for
          the purposes of this Agreement, be treated as costs and expenses
          incurred by the Trustee and Paying Agent.

     (m)  No action without indemnification. The Trustee and Paying Agent may
          refrain from acting in accordance with the instructions of the
          Operator or from taking any other action hereunder unless and until it
          has received indemnification and/or security as it may in its absolute
          discretion require (whether by way of advance payment or otherwise)
          and for all costs, losses, expenses, claims and liabilities which it
          may incur or expend or to which it may be exposed.

     (n)  Expending own funds. Nothing contained in this Agreement shall require
          the Trustee and Paying Agent to expend or risk its own funds or
          otherwise incur any financial liability and the Trustee and Paying
          Agent shall not be obliged to do or omit anything, including entering
          into any transaction or incurring any liability including without
          limitation any Environmental Liability unless the Trustee and Paying
          Agent's liability is limited in a manner satisfactory to it in its
          absolute discretion. Nor shall the Trustee and Paying Agent in any
          circumstances be obliged to give its own indemnity to any receiver or
          delegate or to become a mortgagee in possession.

                                     - 21 -

<PAGE>

     (o)  Excluded Obligations. Notwithstanding anything to the contrary
          expressed or implied hereunder or in any of the Finance Documents, the
          Trustee and Paying Agent shall not:

          (i)    be bound to enquire as to the performance, default or any
                 breach by the Operator, any of the Consortium Members, TINWORTH
                 or any of the Subordinate Secured Parties of any of their
                 respective obligations hereunder or under any of the Finance
                 Documents;

          (ii)   be bound to assess or keep under review the financial
                 condition, creditworthiness, condition, value, affairs, status
                 or nature of the Project;

          (iii)  except as provided in Sections 6.3 and 6.4, be bound to account
                 to any other Beneficiary for any sum or the profit element of
                 any sum received by the Trustee and Paying Agent for its own
                 account;

          (iv)   unless ordered to do so by a court of competent jurisdiction,
                 and except as provided in Section 6.3, be bound to disclose to
                 any other person (including any other Beneficiary) any
                 confidential information;

          (v)    except as specifically set out herein, have or be deemed to
                 have any duty, obligation or responsibility to, or relationship
                 of trust or agency with, the Operator or any Consortium Member;

     (p)  Exclusion of Liability. Unless caused directly by its gross negligence
          or wilful misconduct the Trustee and Paying Agent shall not accept
          responsibility or be liable for:

          (i)    the adequacy, accuracy and/or completeness of any information
                 supplied by the Trustee and Paying Agent or any other person in
                 connection with this Agreement or the transactions contemplated
                 in this Agreement, or any other agreement, arrangement or
                 document entered into, made or executed in anticipation of,
                 pursuant to or in connection with this Agreement;

          (ii)   the legality, validity, effectiveness, adequacy or
                 enforceability of the Agreement, the Security or the Underlying
                 Security or any other agreement, arrangement or document
                 entered into, made or executed in anticipation of, pursuant to
                 or in connection with this Agreement, the security or the
                 underlying security;

          (iii)  any losses to any person or any liability arising as a result
                 of taking or refraining from taking any action in relation to
                 this Agreement, the Security, the Underlying Security or
                 otherwise, whether in accordance with an instruction from the
                 Operator or otherwise;

                                     - 22 -

<PAGE>

          (iv)   the exercise of, or the failure to exercise, any judgment,
                 discretion or power given to it by or in connection with this
                 Agreement or the Security, the Underlying Security or any other
                 agreement, arrangement or document entered into, made or
                 executed in anticipation of, pursuant to or in connection with
                 this Agreement, the Security or the Underlying Security; or

          (v)    any shortfall which arises on the enforcement of the Security
                 or the Underlying Security or otherwise.

     (q)  Own responsibility. It is understood and agreed by each Beneficiary
          (except the Trustee and Paying Agent and Account Bank) that at all
          times that Beneficiary has itself been, and will continue to be,
          solely responsible for making its own independent appraisal of and
          investigation into all risks arising under or in connection with this
          Agreement including but not limited to:

          (i)    the financial condition, creditworthiness, condition, affairs,
                 status and nature of the Operator, each of the Consortium
                 Members and each of the Buyers;

          (ii)   the financial condition, creditworthiness, condition, value,
                 affairs, status and nature of the Project;

          (iii)  the legality, validity, effectiveness, adequacy and
                 enforceability of this Agreement and the Security and the
                 Underlying Security and any other agreement, arrangement or
                 document entered into, made or executed in anticipation of,
                 pursuant to or in connection with this Agreement, the Security
                 or the Underlying Security;

          (iv)   whether that Beneficiary has recourse, and the nature and
                 extent of that recourse, against the Operator, any Consortium
                 Member, any Buyer or any other person or any of their
                 respective assets under or in connection with this Agreement,
                 the transactions contemplated in this Agreement or any other
                 agreement, arrangement or document entered into, made or
                 executed in anticipation of, pursuant to or in connection with
                 this Agreement;

          (v)    the adequacy, accuracy and/or completeness of any information
                 provided by any person in connection with this Agreement, the
                 transactions contemplated in this Agreement or any other
                 agreement, arrangement or document entered into, made or
                 executed in anticipation of, pursuant to or in connection with
                 this Agreement; and

          (vi)   the right or title of any person in or to, or the value or
                 sufficiency of any part of the Trust Property, the priority of
                 any of the Security, the Underlying Security or the existence
                 of any security interest affecting the Trust Property,

                                     - 23 -

<PAGE>

                 and the Operator for and on behalf of itself and the Consortium
                 Members warrants to the Trustee and Paying Agent that it has
                 not relied on and will not at any time rely on the Trustee and
                 Paying Agent in respect of any of these matters.

     (r)  No Responsibility to Perfect Security. The Trustee and Paying Agent
          shall not be liable for any failure to:

          (i)    require the deposit with it of any deed or document certifying,
                 representing or constituting the title of any Beneficiary to
                 any of the Trust Property;

          (ii)   obtain any license, consent or other authority for the
                 execution, delivery, legality, validity, enforceability or
                 admissibility in evidence of this Agreement, the Security or
                 the Underlying Security;

          (iii)  register, file or record or otherwise protect any of the
                 Security or the Underlying Security (or the priority of any of
                 the Security or the Underlying Security) under any applicable
                 laws in any jurisdiction or to give notice to any person of the
                 execution of this Agreement or of the Security or the
                 Underlying Security;

          (iv)   take, or to require any of the Beneficiaries to take, any steps
                 to perfect its title to any of the Trust Property or to render
                 the Security or the Underlying Security effective or to secure
                 the creation of any ancillary security interest under the laws
                 of any jurisdiction; or

          (v)    require any further assurances in relation to this Agreement,
                 the Security or the Underlying Security.

     (s)  Insurance. Other than as required by applicable law or regulation, the
          Trustee and Paying Agent shall not be under any obligation to insure
          any of the Trust Property, to require any other person to maintain any
          insurance or to verify any obligation to arrange or maintain insurance
          contained in the Finance Documents. The Trustee and Paying Agent shall
          not be responsible for any loss which may be suffered by any person as
          a result of the lack of or inadequacy of any insurance.

     (t)  Custodians and Nominees. The Trustee and Paying Agent may appoint and
          pay any person to act as a custodian or nominee on any terms in
          relation to any assets of the trust as the Trustee and Paying Agent
          may determine, including for the purpose of depositing with a
          custodian this Agreement and the Trustee and Paying Agent shall not be
          responsible for any loss, liability, expense, demand, cost, claim or
          proceedings incurred by reason of the misconduct, omission or default
          on the part of any person appointed by it under this Agreement or be
          bound to supervise the proceedings or acts of any person, provided
          that the Trustee and Paying Agent shall exercise reasonable care in
          selecting any such custodian or nominee.

                                     - 24 -

<PAGE>

     (u)  Acceptance of Title. The Trustee and Paying Agent shall be entitled to
          accept without enquiry, and shall not be obliged to investigate, the
          right and title as the Operator or any of the Consortium Members may
          have to any of the Assigned Property and shall not be liable for or
          bound to require any Operator or any Consortium Member to remedy any
          defect in its right or title.

     (v)  Illegality. The Trustee and Paying Agent may refrain from doing
          anything which in its opinion will or may be contrary to any relevant
          law, directive or regulation of any jurisdiction which would nor might
          otherwise render it liable to any person, and the Trustee and Paying
          Agent may do anything which is, in its opinion, necessary to comply
          with any law, directive or regulation.

     (w)  Powers Supplemental. The rights, powers and discretions conferred upon
          the Trustee and Paying Agent by this Agreement shall be supplemental
          to the Trustee Acts and in addition to any which may be vested in the
          Trustee and Paying Agent by general law or otherwise.

     (x)  Trustee Division Separate. In acting as trustee for the Secured
          Parties, the Trustee and Paying Agent shall be regarded as acting
          through its trustee division which shall be treated as a separate
          entity from any of its other divisions or departments and any
          information received by any other division or department of the
          Trustee and Paying Agent may be treated as confidential and shall not
          be regarded as having been given to the Trustee and Paying Agent's
          trustee division.

     (y)  Disapplication. Section 1 of the Trustee Act 2000 shall not apply to
          the duties of the Trustee and Paying Agent in relation to the trusts
          constituted by this Agreement. Where there are any inconsistencies
          between the Trustee Acts and the provisions of this Agreement, the
          provisions of this Agreement shall, to the extent allowed by law,
          prevail and, in the case of any inconsistency with the Trustee Act
          2000, the provisions of this Agreement shall constitute a restriction
          or exclusion for the purposes of that Act.

     (z)  Protection for Account Bank. If the Trustee and Paying Agent delegates
          any of its functions to the Account Bank, then the relevant protective
          language in this Agreement (including, without limitation, this
          Section 8 (including, without limitation, Sections 8.2, 8.3 and 8.10))
          in favour of the Trustee. Under no circumstances will the Account Bank
          be liable to any party hereto for any consequential loss (inter alia,
          being loss of business, goodwill, opportunity or profit) even if
          advised of such loss or damage).

8.2  TRUSTEE AND PAYING AGENT FEES

     The Trustee and Paying Agent shall be entitled to receive fees as set forth
     on Schedule B hereto for the services to be performed by it hereunder and
     to be reimbursed for all properly incurred out-of-pocket expenses incurred
     by the Trustee and Paying Agent on a full indemnity basis in connection
     therewith, including properly incurred legal fees

                                     - 25 -

<PAGE>

     and expenses (such fees and expenses payable under this Section 8.2 are
     referred to herein as "Fees and Expenses"). The Trustee and Paying Agent
     may charge such agreed Fees and Expenses and the Additional Remuneration
     (referred to in Section 8.3 below) to the Etame Operating Account as an
     expense to be paid under Section 5 prior to the payment of any other amount
     thereunder, providing the Operator with such evidence as to the nature and
     amount of such expenses as the Operator may reasonably require. If the
     balance in the Etame Operating Account is insufficient therefor, the
     Operator, on behalf of each of the Consortium Members, but not TINWORTH or
     the Subordinate Secured Parties, shall pay such Fees and Expenses and the
     Additional Remuneration to the Trustee and Paying Agent.

8.3  EXCEPTIONAL FEES

     In the event of the occurrence of Collection Actions or if payment is not
     made on any Crude Oil Sales Contract or Letter of Credit when due or the
     Trustee and Paying Agent is requested by the Operator to undertake duties
     which the Trustee and Paying Agent, the Operator and the Subordinate
     Secured Parties agree to be of an exceptional nature or otherwise outside
     the scope of the normal duties of the Trustee and Paying Agent under this
     Agreement, the Operator shall pay to the Trustee and Paying Agent any
     additional remuneration (together with any applicable VAT) as the Operator
     and the Subordinate Secured Parties shall have consented to, such consent
     not to be unreasonably withheld. If the Trustee and Paying Agent, the
     Operator and the Subordinate Secured Parties fail to agree upon the nature
     of the duties or upon such Additional Remuneration, that dispute shall be
     determined by a investment bank (acting as an expert and not as an
     arbitrator) selected by the Trustee and Paying Agent and approved by the
     Operator and the Subordinate Secured Parties or, failing approval,
     nominated (on the application of the Trustee and Paying Agent) by the
     President for the time being of the Law Society of England and Wales (the
     costs of the nomination and of the investment bank being payable by the
     Operator) and the determination of any investment bank shall be final and
     binding upon the Beneficiaries. Such remuneration payable under this
     Section 8.3 is referred to herein as "Additional Remuneration".

8.4  STAMP TAXES.

     The Operator shall pay all stamp, registration, notarial and other taxes or
     fees to which this Agreement, the security or any judgment given in
     connection with them, is or at any time may be, subject and shall, from
     time to time, indemnify the Trustee and Paying Agent on demand against any
     liabilities, costs, claims and expenses resulting from any failure to pay
     or any delay in paying any tax or fee.

8.5  INTEREST ON DEMANDS

     If the Operator fails to pay any amount payable by it to the Trustee and
     Paying Agent under this Agreement on its due date interest shall accrue on
     the overdue amount (and be compounded with it) from the due date up to the
     date of actual payment (both before and after judgment and to the extent
     interest at a default rate is not otherwise being paid on such sum) at the
     rate which is one per cent. per annum over the rate at which

                                     - 26 -

<PAGE>

     the Trustee and Paying Agent was being offered, by prime banks in the
     London Interbank Market, deposits in an amount comparable to the unpaid
     amounts in the currencies of those amounts for such period(s) as the
     Trustee and Paying Agent may from time to time select

8.6  RESIGNATION AND TERMINATION

     (a)  The Trustee and Paying Agent may, at any time, without assigning any
          reason and without being responsible for the costs and expenses
          occasioned thereby, by notice to the Operator and TINWORTH tender its
          resignation as Trustee and Paying Agent under this Agreement.

     (b)  The Operator may, with consent of TINWORTH and Subordinate Secured
          Parties, at any time by notice given by it, terminate the Trustee and
          Paying Agent's appointment hereunder. Such resignation or termination
          shall be effective as from the appointment of a successor as
          hereinafter provided and when all the Security has been transferred to
          such successor.

8.7  APPOINTMENT OF SUCCESSOR

     (a)  Within 45 days of receipt of a notice of resignation or issuance of a
          notice of termination, the Operator shall appoint a successor, being
          an Eligible Bank, acceptable to TINWORTH and the Subordinate Secured
          Parties. The proposed successor bank (the "Successor") shall promptly
          give notice of its appointment to the Trustee and Paying Agent and
          shall execute and deliver to each of the Parties an instrument in
          writing accepting its appointment hereunder which shall specify the
          office of the Successor in London which is to be that Trustee and
          Paying Agent's Office for the purpose of this Agreement.

     (b)  If in any case a Successor shall not be appointed pursuant to the
          foregoing provisions of this Section 8.7 within the 45 days aforesaid,
          the Trustee and Paying Agent may be entitled on behalf of the Operator
          to appoint a Successor being an Eligible Bank of good standing.

8.8  SUCCESSOR VESTED WITH RIGHTS

     Upon and from the execution and delivery of the instrument in writing
     appointing the successor and the transfer of all the Security to the
     Successor, the Successor without any further act or deed shall become fully
     vested with all the rights, powers and duties and subject to all the
     obligations of the Trustee and Paying Agent hereunder, but the retiring
     Trustee and Paying Agent shall be discharged from any further obligation
     under this Agreement, but shall retain the benefit of this Section 8.

8.9  PAYMENTS AFTER NOTICE

     Upon and from the date of notification from any Successor, any person
     required to pay amounts to the Trustee and Paying Agent under this
     Agreement shall pay the Successor

                                     - 27 -

<PAGE>

     at its office specified as aforesaid all amounts described herein as
     payable to the Trustee and Paying Agent.

8.10 INDEMNIFICATION

     The Operator on behalf of itself and the Consortium Members hereby
     irrevocably and unconditionally agrees to indemnify, and keep fully and
     effectively (and on an after-Tax basis) indemnified, the Trustee and Paying
     Agent against all actions, proceedings, claims, demands, losses, damages,
     liabilities, calls, assessments, costs, charges and expenses, which may be
     brought or preferred against or incurred by the Trustee and Paying Agent
     (otherwise than as a result of its gross negligence or wilful misconduct)
     in connection with the Trust Fund, this Agreement or the performance of the
     Trustee and Paying Agent's obligations hereunder including, without
     prejudice to the generality of the foregoing, any Tax, other than tax on or
     attributable to the income earned by the Trustee and Paying Agent for which
     the Trustee and Paying Agent is or may be liable or accountable in
     connection with the Trust Fund, this Agreement or the performance of the
     Trustee and Paying Agent's obligations hereunder.

8.11 TRUSTEE AND PAYING AGENT IN INDIVIDUAL CAPACITY

     The Trustee and Paying Agent, in its individual capacity, or any affiliate
     thereof shall have the same rights, powers and authority to enter into any
     deposit agreement, loan agreement or any other banking or business
     relationship permitted by law with any of the Government, the Operator, the
     Consortium Members, TINWORTH or the Subordinate Secured Parties as though
     it were not the Trustee and Paying Agent under this Agreement.

8.12 SET-OFF

     The Trustee and Paying Agent is entitled at any time to exercise rights of
     set-off against (or otherwise make a deduction from) the Trust Fund, in
     relation to any payment due to the Trustee and Paying Agent under this
     Agreement in respect of any indemnification, Fees and Expenses or
     Additional Remuneration.

8.13 SECURITY PROCEDURES

     In the event funds transfer instructions are given (other than in writing
     at the time of execution of this Agreement), whether in writing, by
     facsimile or otherwise, the Trustee and Paying Agent is authorized to seek
     confirmation of such instructions by telephone call-back to the person or
     persons designated on Schedule C and the Trustee and Paying Agent may rely
     upon the confirmation of anyone purporting to be the person or persons so
     designated. In the event Trustee and Paying Agent is unable to obtain a
     call-back within two (2) Business Days the Trustee and Paying Agent shall
     proceed on the written instructions as originally received. The persons and
     telephone numbers for call-backs may be changed only by written
     instructions actually received and acknowledged by the Trustee and Paying
     Agent. The Trustee and Paying Agent in any funds transfer may rely solely
     upon any account numbers or similar identifying

                                     - 28 -

<PAGE>

     numbers provided by the Operator, the Consortium Members, TINWORTH or the
     Subordinate Secured Parties identifying:

     (i)     the beneficiary,

     (ii)    the beneficiary's bank, or

     (iii)   an intermediary bank.

     The Trustee and Paying Agent may apply any of the Trust Funds for any
     payment order it executes using any such identifying number, even where its
     use may result in a person other than the beneficiary being paid, or the
     transfer of funds to a bank other than the beneficiary's bank or an
     intermediary bank designated. The Parties acknowledge that these security
     procedures are commercially reasonable.

8.14 REPRESENTATIONS AND WARRANTIES

     Each of the Trustee and Paying Agent and the Account Bank represents and
     warrants:

     (a)  It is duly incorporated and validity existing under the laws of its
          jurisdiction of incorporation, and has the corporate power and has
          obtained all required Authorisations to enter into, and comply with
          its obligations under this Agreement;

     (b)  This Agreement has been duly authorised and executed by it and
          constitutes a valid and legally binding obligation the Trustee and
          Paying Agent or, as the case may be, the Account Bank, enforceable in
          accordance with its terms, except as may be affected by bankruptcy,
          administration, insolvency and other similar laws affecting creditors
          rights generally;

     (c)  Neither the entering into of this Agreement nor the compliance with
          its terms will conflict with or result in a breach of any of the
          terms, conditions or provisions of, or constitute a default or require
          any consent under, any indenture, mortgage, agreement or other
          instrument or arrangement to which the Trustee and Paying Agent or, as
          the case maybe, the Account Bank is a party or by which it is bound,
          or violate any of the terms or provisions of the Trustee and Paying
          Agent's or, as the case maybe the Account Bank's Charter or any
          Authorisation, judgment, decree or order or any statute, rule of
          regulation applicable to the Trustee and Paying Agent or, as the case
          maybe, the Account Bank.

9.   MISCELLANEOUS

9.1  REMEDIES AND WAIVERS

     No failure to exercise, or any delay in exercising, on the part of any
     Secured Party, any right or remedy under this Agreement shall operate as a
     waiver, nor shall any single or partial exercise of any right or remedy
     prevent any further or other exercise thereof or the exercise of any other
     right or remedy. The rights and remedies provided

                                     - 29 -

<PAGE>

     in this Agreement are cumulative and not exclusive of any rights or
     remedies provided by law.

9.2  PARTIAL INVALIDITY

     If, at any time, any provision of this Agreement is or becomes illegal,
     invalid or unenforceable in any respect under any law of any jurisdiction,
     neither the legality, validity or enforceability of the remaining
     provisions nor the legality, validity or enforceability of the provision
     under the law of any other jurisdiction will in any way be affected or
     impaired.

9.3  COUNTERPARTS; TERM

     This Agreement may be executed in any number of counterparts and by the
     Parties on separate counterparts, each of which when so executed and
     delivered shall be an original, but all such counterparts together shall
     constitute one and the same instrument. Complete sets of counterparts shall
     be lodged with the Trustee and Paying Agent. This Agreement shall be
     effective as of the date hereof and shall remain in effect with respect to
     provisions regarding the TINWORTH Reserve Account until TINWORTH and the
     Operator have notified the Trustee and Paying Agent that the Final
     Compensation Payment has been paid and with respect to all other provisions
     until the Operator and each Subordinate Secured Party shall have notified
     the Trustee and Paying Agent that this Agreement shall terminate.

9.4  DISPUTES AND SUBMISSION TO JURISDICTION

     (a)  The Parties hereby irrevocably submit to the non-exclusive
          jurisdiction of the English courts in any legal action or proceedings
          in relation to any disputes which may arise in connection with the
          rights and obligations established by this Agreement or otherwise
          arising in connection with this Agreement. England shall be each of
          the Trustee and Paying Agent's and the Account Bank's jurisdiction for
          the purposes of the Uniform Commercial Code as in effect in any
          jurisdiction. Each of the Trustee and Paying Agent, the Account Bank
          and the Operator represents that it has not entered into any agreement
          relating to the Accounts that designates any other jurisdcition as the
          Trustee and Paying Agent's or the Account Bank's jurisdiction for such
          purposes and agrees that it will not enter into any such agreement;

     (b)  Each of Trustee and Paying Agent, the Operator, TINWORTH, the
          Consortium Members and the Subordinate Secured Parties (with the
          exception of the International Finance Corporation) irrevocably waives
          any objections on the ground of venue or forum non conveniens or any
          similar grounds;

     (c)  Each of Trustee and Paying Agent, the Operator and TINWORTH
          irrevocably consents to service of process by mail or in any manner
          permitted by the relevant law.

9.5  NOTICE OF TRUST AND PAYING AGENT AGREEMENT

                                     - 30 -

<PAGE>

     The Operator hereby undertakes to give notice of the trust created hereby
     and a copy of this Agreement to the Beneficiaries promptly following the
     execution of this Agreement.

9.6  NOTICES

     All notices, approvals, instructions, and other communications for purposes
     of this Agreement shall be in writing, and shall be transmitted by
     certified or registered airmail, hand, overnight courier, facsimile or
     e-mail, directed as set forth below:

     (a)  To the Operator at the following mail, facsimile and e-mail addresses:

          VAALCO Gabon (Etame), Inc.
          4600 Post Oak Place, Suite 309
          Houston, Texas 77027

          Attention:      President or Vice President
          Telephone:      713-623-0801
          Facsimile No.:  713-623-0982
          Email address:  vaalco@vaalco.com

     (b)  to TINWORTH at the following mail, facsimile and e-mail addresses:

          TINWORTH
          c/o Fred.Olsen Production A.S.
          Fred.Olsen Gate 2
          PO Box 1159 Sentrum
          0152 OSLO
          Norway

          Attention:      Commercial Manager
          Facsimile No.:  47 22 42 9946
          Email address:  fpso@fredolsen.no

     (c)  To the Trustee and the Paying Agent at the following mail, facsimile
          and e-mail addresses:

          JPMorgan Chase Bank
          Trinity Tower
          9 Thomas More Street
          London E1W 1YT

          Attention:      Manager, Escrow Administration
          Facsimile No.:  44 20 7777 5410
                          44 20 7777 5450
          Email address:  will.manns@jpmorgan.com
                          phillip.runciman@jpmorgan.com

                                     - 31 -

<PAGE>

     (d)  To the Account Bank at the following mail, facsimile and e-mail
          addresses:

          JPMorgan Chase Bank
          Trinity Tower
          9 Thomas More Street
          London E1W 1YT

          Attention:      Manager, Escrow Administration

          Facsimile No.:  44 20 7777 5410
                          44 20 7777 5450

          Email address:  will.manns@jpmorgan.com
                          phillip.runciman@jpmorgan.com

     (e)  To each of the Subordinate Secured Parties at the mail and facsimile
          address specified on Schedule A.

     The Parties may designate additional addresses for particular
     communications as required from time to time, and may change any address,
     by notice given ten days in advance of such additions or changes.
     Immediately upon receiving communications by facsimile or e-mail
     transmission, a Party may request a repeat transmittal of the entire
     communication or confirmation of particular matters.

     All notices and other communications given to any Party in accordance with
     the provisions of this Agreement shall be deemed to have been given on the
     date of receipt if delivered by hand or overnight courier service, or the
     day after the date of receipt if sent by facsimile or e-mail, or on the
     date seven Business Days after dispatch by certified or registered mail if
     mailed, in each case delivered, sent or mailed (properly addressed) to such
     Party as provided in this Section or in accordance with the latest
     unrevoked direction from such Party given in accordance with this Section.

9.7  INCUMBENCY CERTIFICATES; NOTICES

     (a)  The Operator shall furnish the Trustee and Paying Agent, from time to
          time, with duly executed incumbency certificates showing the names,
          titles and specimen signatures of the persons authorized on behalf of
          Operator, TINWORTH and the Subordinate Secured Parties, respectively,
          to give the notifications and approvals required by this Agreement and
          such other material in relation to the opening and operating of the
          Accounts as Trustee and Paying Agent may reasonably request. The
          Trustee and Paying Agent has a general right, in relation to the
          receipt of notices, instructions and certificates, to act in
          accordance with normal banking practice. The Operator shall furnish to
          the Trustee and Paying Agent from time to time any information as the
          Trustee and Paying Agent may reasonably specify as being necessary or
          desirable to enable the Trustee and Paying Agent to perform its
          functions hereunder.

                                     - 32 -

<PAGE>

     (b)  The Trustee and Paying Agent shall furnish the Operator, from time to
          time, with notice of the officers of the Trustee and Paying Agent who
          are authorized to act on its behalf in the performance by the Trustee
          and Paying Agent of its duties under this Agreement.

9.8  NO AMENDMENT EXCEPT IN WRITING

     This Agreement may not be revoked, amended, modified, varied or
     supplemented except by an instrument in writing signed by the Parties
     hereto after submission to the Trustee and Paying Agent of the written
     consent to such amendment of TINWORTH and the Subordinate Secured Parties;
     provided, however, the Parties agree that Schedule A may be revised and
     replaced from time to time with a new Schedule A upon receipt of a
     notification from a Consortium Member as to the identity of such Consortium
     Member's Subordinate Secured Party or confirmation or change of the
     respective Consortium Member's Account, accompanied by the written consent
     of such Subordinate Secured Party.

9.9  APPLICABLE LAW

     THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
     LAWS OF ENGLAND AND WALES (the "Applicable Law").

9.10 BENEFIT OF AGREEMENT

     This Agreement shall be binding upon the Parties, and inure to the benefit
     of, the Parties, each Consortium Member, TINWORTH and each Subordinate
     Secured Party and their respective successors and assigns.

9.11 LANGUAGE

     All notices and documents given under this Agreement shall be in English.

9.12 THIRD PARTY RIGHTS

     The Parties agree that TINWORTH, the Consortium Members and each of their
     Subordinate Secured Parties has the right to enforce the terms of this
     Agreement to the extent necessary to enforce their benefits hereunder, but
     that no other person has any right under the Contracts (Rights of Third
     Parties) Act 1999 to enforce or to enjoy the benefit of any term of this
     Agreement.

9.13 PERPETUITY PERIOD

     The perpetuity period under the rule against perpetuities, if applicable to
     this Agreement, shall be the period of eighty years from the date of this
     Agreement.

9.14 WINDING UP OF TRUST

     If the Trustee and Paying Agent with the written consent of the Operator,
     TINWORTH and Subordinate Secured Parties determines that all of the Secured
     Obligations have

                                     - 33 -

<PAGE>

     been fully and finally discharged then the trust shall be wound up. At that
     time the Trustee and Paying Agent shall, at the cost and expense of the
     Operator, release, without recourse or warranty, all of the security held
     by it hereunder and the Trustee and Paying Agent shall be released from its
     obligations under this Agreement (save for those which arose prior to such
     winding-up). The Trustee and Paying Agent shall also reassign to the
     relevant parties those rights assigned to it pursuant to the Crude Oil Sale
     Contracts Assignment and shall forthwith instruct the Account Bank to
     transfer all amounts together with any accrued but uncredited interest, if
     any, standing to the credit of the Accounts to the Consortium Member
     Accounts and close the Accounts.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as a
deed by their respective duly authorized signatories as of the date first above
written.

                                     - 34 -

<PAGE>

                                                          Executed as a deed by:
                                                      VAALCO GABON (ETAME), Inc.
                                               acting by                     and
                                                     and                  acting
                                                   under the authority of VAALCO
                                                             GABON (ETAME), Inc.

                                                     By:

                                                     Name:

                                                     Title:

                                                     By:

                                                     Name:

                                                     Title:

                                                          Executed as a deed by:
                                                             JPMORGAN CHASE BANK

                                                    ----------------------------
                                                            Authorized Signatory

                                            In the presence of:
                                                                ----------------

                                            Signature of Witness:
                                                                 ---------------

                                            Name of Witness:
                                                            --------------------

                                            Address of Witness:
                                                               -----------------

                                            Occupation of Witness:
                                                                  --------------

                                     - 35 -

<PAGE>

                                                             The Common Seal of:
                                                         J.P. MORGAN TRUSTEE AND
                                                      DEPOSITARY COMPANY LIMITED
                                                            was hereunto affixed
                                                             in the presence of:

                                                    ----------------------------
                                                            Authorised Signatory

                                                    ----------------------------
                                                            Authorised Signatory

IN WITNESS WHEREOF, TINWORTH acknowledges and consents to the terms of this
Agreement, executed by its duly authorized signatory as of the date first above
written.

                                                                TINWORTH LIMITED

                                                      By:

                                                      Name:
                                                           ---------------------

                                                      Title:

                                                      By:

                                                      Name:
                                                           ---------------------

                                                      Title:

                                     - 36 -

<PAGE>

                                    Schedules

A.   Consortium Members Account and Subordinate Secured Party Designations

B.   Trustee  Fee Schedule

C.   Funds Transfer Confirmation Contact Party Designation

D.   TINWORTH Draw Notice

E.   Notice of Assignment of Crude Oil Sales Contract

F.   Acknowledgement of Crude Oil Sales Contract Assignment

G.   Notice of Assignment of Consortium Member's Account

H.   Acknowledgement of Assignment of Consortium Member's Account

I.   Appointment Instrument

                                     - 37 -

<PAGE>

                                   SCHEDULE A

            CONSORTIUM MEMBERS ACCOUNT AND SUBORDINATE SECURED PARTY

                                  DESIGNATIONS

                                     - 38 -

<PAGE>

                                   SCHEDULE B

             TRUSTEE AND PAYING AGENT AND ACCOUNT BANK FEE SCHEDULE

Initial Acceptance Fee:                       US$25,000

Etame Revenue Account Administration Fee:     US$7,500 per annum or part thereof

Etame Operating Account Administration Fee:   US$7,500 per annum or part thereof

TINWORTH Reserve Account Administration Fee:  US$7,500 per annum or part thereof

                                     - 39 -

<PAGE>

                                   SCHEDULE C

              FUNDS TRANSFER CONFIRMATION CONTACT PARTY DESIGNATION

VAALCO Gabon (Etame), Inc.             PetroEnergy Resources Corporation
4600 Post Oak Place Suite 309          7th Floor, JMT Building
Houston, TX 77098 USA                  ADB Avenue, Ortigas Center
Attn: W. Russell Scheirman             Pasig City, Metro Manila Philippines
President                              Tel: 632-633-8716
Tel: 713-499-1463                      Fax: 632-633-8730
Fax: 713-623-0982                      Attn: Milagros V. Reyes, President

Nissho Iwai Corporation                Sasol Petroleum International (Pty) Ltd.
3-1, Daiba 2-Chome                     7th Floor, Marble Arch Tower
Minatoku, Tokyo 135-8655               55 Bryanston Street
Japan                                  London W1H 7AJ
Attn: Mr. Shinichi Teranishi           Tel: 44-207-868-2232
General Manager                        Fax: 44-207-868-8600
Offshore Energy Project Dept.          Attn: Hans Oesterle
Tel: 813-3588-2694                           Exploration Manager
Fax: 813-3588-4547

PanAfrican Energy Gabon Corporation    Director General de Hydrocarbures
PanAfrican Energy Corporation Ltd.     Ministere  des Mines de  L'Energie, du
PO Box 332, Sir Walter Raleigh House   Petrole et des Ressources Hydraulique
48-50 Esplanade, St. Helier, Jersey    B.P. 2199 Libreville Gabon
Channel Islands JE4 9YA                Attn: Jean KOUMBI GUIYEDI
Tel: 44(0) 1534 700900                 Directeur de l'Exportation
Fax: 44(0) 1534 700901                 Tel: 241 76 39 23
Attn: David Lyons                      Fax: 241 72 49 90
      President

West Atlas Afrique, Ltd.               TINWORTH
7th Floor, Marble Arch Tower           c/o Fred.Olsen Production A.S.
55 Bryanston Street                    Fred.Olsensgt.2
London W1H 7AJ                         PO Box 1159 Sentrum
Tel:  44-207-868-2232                  0152 OSLO
Fax:  44-207-868-8600                  Norway
Attn:  Hans Oesterle                   Tel: 47-22-34-10-00
       Exploration Manager             Fax: 47-22-42-9946
                                       Attn: Georg S. Onsrud, director

                                     - 40 -

<PAGE>

                                   SCHEDULE D

                              TINWORTH DRAW NOTICE

From:       TINWORTH, Ltd
To:         Trustee and Paying Agent and the Account Bank
Copy to:    The Operator, the other Consortium Members, and the Subordinate
            Secured Parties

Dated:

                              TINWORTH DRAW NOTICE

Dear Sirs

Relating to a Trustee and Paying Agent Agreement dated 26 June 2002 between
Vaalco Gabon (Etame), Inc., JPMorgan Chase Bank, London Branch and J.P. Morgan
Trustee and Depositary Company Limited as from time to time modified,
supplemented or amended in accordance with the terms thereof. Terms not
otherwise defined herein shall have the meaning given to them in the Trustee and
Paying Agent Agreement.

1.   We hereby certify that the Operator has failed to pay the Compensation in
     the amount of US$_________________ (the "Default Amount") to TINWORTH under
     the FPSO Contract on the due date thereof and that all applicable grace
     periods have expired. TINWORTH hereby declares that a Payment Default has
     occurred.

2.   We hereby further certify that the Default Amount is now due and owing to
     TINWORTH under the FPSO Contract. Pursuant to Section 5.3 of the Trustee
     and Paying Agent Agreement we hereby direct the Trustee and Paying Agent to
     distribute the lesser of (i) the Default Amount and (ii) the balance of the
     TINWORTH Reserve Account up to the TINWORTH Reserve Account Maximum Balance
     to TINWORTH at the following account:

                             [specify bank account]

3.   Our notice details for the purpose of receiving communications under the
     Trustee and Paying Agent Agreement are as follows:

     Address:
     Attention:
     Telephone No:
     Facsimile No:
     Email Address:

4.   We hereby further certify that a copy of this TINWORTH Draw Notice has been
     sent by facsimile with an overnight copy sent via international courier to
     each of the

                                     - 41 -

<PAGE>

     Operator, the other Consortium Members, and the Subordinate Secured Parties
     as designated on the most recent Schedule A delivered to TINWORTH pursuant
     to Section 6.1(b) of the Trustee and Paying Agent Agreement.

5.   This TINWORTH Draw Notice shall be governed by, and construed in accordance
     with, English law.

IN WITNESS whereof this TINWORTH Draw Notice has been executed and is intended
to be and is hereby delivered on the date first above written.

TINWORTH, Ltd

-------------------------------------------
EXECUTED by [                      ])
As attorney for and on behalf of    )    ---------------------------
[                          ]        )

Witnessed by:
Name:
Address:

                                     - 42 -

<PAGE>

                                   SCHEDULE E

            FORM OF NOTICE OF ASSIGNMENT OF CRUDE OIL SALES CONTRACT

                         (On the Operator's letterhead)

To:  [Counterparty to the Crude Oil Sales Contract]

Dear Sirs,

We hereby give you notice that pursuant to the Etame Field Trustee and Paying
Agent Agreement dated 26 June 2002 between ourselves and ___________________
[name of Trustee and Paying Agent] (the "Trustee and Paying Agent") and
___________________[name of Account Bank] (the "Account Bank") we have assigned
to the Trustee and Paying Agent, all our right, to and in respect of each amount
payable in U.S. Dollars pursuant to sales of crude oil produced from the Etame
Field (as more particularly described in the operating agreement (being the
joint operating agreement effective as of April 4, 1997 between Vaalco Gabon
(Etame), inc., VAALCO Energy (Gabon), Inc., Western Atlas Afrique Ltd.,
Petrofields Exploration & Development Co. Inc. and Alcorn Petroleum and Mineral
Corporation, as the same has been and may hereafter be modified, supplemented or
amended, including any extension or renewal thereof and any successors of the
original parties) and exported from the Project (being the floating production
storage and offloading system and the three oil wells existing in the Etame
Field and such other wells or facilities as may be added to develop the Etame
Field) and any amounts payable on account of interest due by reason of the late
payment for such crude oil under the Contract, in each case net of sales
commissions provided for in the Contract or in any sales agency agreements
entered into in connection therewith.(the "Crude Oil Sale Contract Revenues") in
respect of [details of contract] (the "Contract") and all liens, security
interests, Letters of Credit, mortgages or similar rights securing payment by
[name of buyer] (the "Buyers") of the Crude Oil Sales Contract Revenues in
respect of the Contract.

With effect from your receipt of this notice we hereby give you notice that we
have agreed that:

     (a)  all Crude Oils Sales Contract Revenues under or arising from the
          Contract should be made to [specify bank account];

     (b)  all rights to compel performance of payment of Crude Oils Sales
          Contract Revenues under or arising from the Contract shall be
          exercisable by the Trustee and Paying Agent or its nominee and agents
          (although we shall remain liable to perform all the obligations
          assumed by us under the Contract); and

     (c)  all rights, interests and benefits whatsoever accruing to or for the
          benefit of ourselves for the payment of the Crude Oils Sales Contract
          Revenues under or arising from the Contract belong to the Trustee and
          Paying Agent and no changes may be made to the terms of the Contract
          nor may the Contract be

                                     - 43 -

<PAGE>

          terminated without the Trustee and Paying Agent's consent with respect
          to the payment of any monies thereunder.

You are hereby authorized and instructed, without requiring further approval
from us, to provide the Trustee and Paying Agent with such information relating
to the Contract as it may from time to time request and to send copies of all
notices issued by you under the Contract to the Trustee and Paying Agent as well
as to us.

These instructions may not be revoked, nor may the terms of the Contract be
amended, varied or waived without the prior written consent of the Trustee and
Paying Agent.

Please acknowledge receipt of this notice by signing and dating the
acknowledgement set out on the enclosed copy and returning it to the Trustee and
Paying Agent.

Yours faithfully,

for and on behalf of
[the Operator]

                                     - 44 -

<PAGE>

                                   SCHEDULE F

         FORM OF ACKNOWLEDGEMENT OF CRUDE OIL SALES CONTRACT ASSIGNMENT

To:  [Insert name of Trustee and Paying Agent]

     [insert address]

     Attention:

We acknowledge receipt of the notice dated [ ] (the "Notice"). We confirm that
we have not received notice of any previous assignments or charges of or over
any of the rights, interests and title in, to or in respect of the Contract and
that we will comply with the terms of the Notice.

We further agree and confirm that:

     (a)  we will not, without your prior written consent, vary, suspend,
          rescind, discharge or otherwise terminate the Contract or in any way
          prejudice the rights, titles, benefits and interests assigned to you;

     (b)  we will not claim any set-off or counterclaim to your prejudice in
          respect of any moneys payable under the Contract;

     (c)  we will procure that payments are made to you in accordance with the
          authority and instruction contained in the Notice; and

     (d)  we will not withhold consent to the assignment of the Contract by you
          to another person.

Yours faithfully,

For and on behalf of [          ]

By:

Date:

                                     - 45 -

<PAGE>

                                   SCHEDULE G

                          FORM OF NOTICE OF ASSIGNMENT

                       (On Consortium Member's letterhead)

To:  [Insert Trustee and Paying Agent and Operator's Name and Address]

Dear Sirs,

We hereby give you notice that pursuant to an agreement dated [              ]
between ourselves and [Subordinate Secured Party] (the "Subordinate Secured
Party") we have assigned with full title guarantee to the Subordinate Secured
Party by way of security absolutely all our right, title and interest in, to and
in respect of the Etame Operating Account as defined and governed under the
Etame Field Trustee and Paying Agent Agreement dated 26 June 2002 (the "Trust
Agreement") including all monies which may be payable to us in respect of the
Etame Operating Account. We acknowledge that the right, title and interest in,
to and in respect of the Etame Operating Account so assigned is subject to the
rights of the Trustee and Paying Agent and the Account Bank under the Trust
Agreement.

With effect from your receipt of this notice we hereby give you notice that we
have agreed that:

     (a)  all payments to be made to us under or arising from the Etame
          Operating Account should be made to [specify bank account ("Designated
          Account")]; and

     (b)  all rights, interests and benefits whatsoever accruing to or for the
          benefit of ourselves arising from the Etame Operating Account belong
          to the Subordinate Secured Party.

We hereby covenant with the Trustee and Paying Agent on behalf of itself and as
trustee for an on behalf of the Beneficiaries that we will pay and discharge
those Secured Obligations to which we are liable when due.

You are hereby authorized and instructed, without requiring further approval
from us, to provide the Subordinate Secured Party with such information relating
to the Etame Operating Account as it may from time to time request and to send
copies of all notices issued by you under the Trust Agreement to the Subordinate
Secured Party as well as to us.

These instructions may not be revoked, nor may the Designated Account be amended
or changed without the prior written consent of the Subordinate Secured Party.

Please acknowledge receipt of this notice by signing and dating the
acknowledgement set out on the enclosed copy and returning it to Subordinate
Secured Party.

                                     - 46 -

<PAGE>

Yours faithfully,

Executed as a Deed by:

[Insert relevant execution clause]

[Consortium Member]

                                     - 47 -

<PAGE>

                                   SCHEDULE H

                      FORM OF ACKNOWLEDGEMENT OF ASSIGNMENT

To:  [Subordinate Secured Party]

     [insert address]

     Attention:

We acknowledge receipt of the Notice of Assignment dated [     ] (the "Notice")
from [Consortium Member] ("your Consortium Member"). We confirm that we have not
received notice of any previous assignments or charges of or over any of the
rights, interests and title in, to or in respect of your Consortium Member's
interest in and to the Etame Operating Account and that we will comply with the
terms of the Notice. Terms defined in the Notice shall have, when used in this
acknowledgement, the same meaning herein as therein, unless the context
otherwise requires.

We further agree and confirm that:

     (a)  we will not, without your prior written consent, amend or change the
          Designated Account or in any way prejudice the rights, titles,
          benefits and interests assigned to you;

     (b)  we will procure that payments are made to you in accordance with the
          authority and instruction contained in the Notice;

     (c)  we will not withhold consent to the assignment of the Designated
          Account by you to another person; and

     (d)  we will not claim any set off or counterclaim to your prejudice in
          respect of any moneys held in the Designated Account; and

     (e)  we will not revoke, amend, modify, vary or supplement any of the Trust
          Agreement without evidence of your consent, except with respect to
          changes in Schedule A to the extent permitted under Section 9.8 of the
          Trust Agreement insofar as such changes modify the identity of other
          Subordinate Secured Parties and/or Consortium Members' Accounts other
          than your Consortium Member's Account.

Yours faithfully,

For and on behalf of [insert name of Trustee and Paying Agent]

By:

Date:

                                     - 48 -

<PAGE>

And

For and on behalf of [VAALCO Gabon (Etame), Inc.]

By:

Date:

                                     - 49 -

<PAGE>

                                                    By:
                                                          ----------------------

                                                    Name:
                                                          ----------------------

                                                    Title:
                                                          ----------------------

Executed as a deed by:
VAALCO GABON (ETAME), Inc.
acting by [name of person signing] and
[name of person signing] acting under
the authority of VAALCO GABON (ETAME), Inc.

                                                    By:
                                                          ----------------------

                                                    Name:
                                                          ----------------------

                                                    Title:
                                                          ----------------------

                                                    By:
                                                          ----------------------

                                                    Name:
                                                          ----------------------

                                                    Title:
                                                          ----------------------

Executed as a deed by:
VAALCO GABON (ETAME), Inc.
acting by [name of person signing] and
[name of person signing] acting under
the authority of VAALCO GABON (ETAME), Inc.
as attorney for [Retiring Party]

                                                    By:
                                                          ----------------------

                                                    Name:
                                                          ----------------------

                                                    Title:
                                                          ----------------------

                                     - 50 -

<PAGE>

                                                    By:
                                                          ----------------------

                                                    Name:
                                                          ----------------------

                                                    Title:
                                                          ----------------------

IN WITNESS WHEREOF, TINWORTH acknowledges and consents to the terms of this
Agreement, executed by its duly authorized signatory as of the date first above
written.

                                                                TINWORTH LIMITED

                                                    By:
                                                          ----------------------

                                                    Name:
                                                          ----------------------

                                                    Title:
                                                          ----------------------

                                                    By:
                                                          ----------------------

                                                    Name:
                                                          ----------------------

                                                    Title:
                                                          ----------------------

                                     - 51 -

<PAGE>

                                   SCHEDULE I

                            FORM OF DEED OF ACCESSION

From:     [Consortium Member]

To:       Trustee and Paying Agent and the Account Bank

Copy to:  The Operator, the other Consortium Members, TINWORTH and the
          Subordinate Secured Parties

Dated:

Dear Sirs

                        Consortium Member Accession Deed

Relating to a Trustee and Paying Agent Agreement dated 26 June 2002 between
VAALCO Gabon (Etame), Inc., JPMorgan Chase Bank and J.P. Morgan Trustee and
Depositary Company Limited as from time to time amended, varied, waived, novated
or supplemented. Terms not otherwise defined herein shall have the meaning given
to them in the Trustee and Paying Agent Agreement.

6.   We hereby confirm that we have elected to sell our share of Crude Oil from
     the Project directly to a Buyer and have entered into a Crude Sharing
     Agreement with the Operator.

7.   We acknowledge and agree that upon and by reason of our delivering this
     Accession Deed to the Trustee and Paying Agent and acceptance by the
     Trustee and Paying Agent of it we will thereby forthwith become a party to
     the Trustee and Paying Agent Agreement as a Consortium Member thereunder
     and shall be entitled to those rights and benefits, and be bound by those
     obligations, of the Operator that are set out in Sections 2.1 (save for the
     obligation of the Operator referred to in the 4th sentence thereof), 2.2,
     2.3, 2.4, 2.5(b), 2.6, 2.7, 2.8, 8.1(a), (i), (m), (p)(iii) and 9.4(c) of
     the Trust and Paying Agent Agreement.

8.   We hereby make the representations, warranties and covenants set out in
     Sections 2.7(b) and 8.1(q) to the Trustee and Paying Agent Agreement.

9.   We confirm and agree that we have been, and will continue to be, solely
     responsible for making our own independent appraisal of and investigations
     into the financial condition, creditworthiness, condition, value, affairs,
     status and nature of the Project and the legality, validity, effectiveness,
     adequacy or enforceability of the Finance Documents and any documents or
     other matters delivered pursuant thereto or of any security purportedly
     granted by or pursuant thereto. We further confirm that we have not relied
     and will not hereafter rely on any of the Trustee and Paying Agent or any
     party to the Finance Documents:

                                     - 52 -

<PAGE>

     (a)  to check or enquire on our behalf into the adequacy, accuracy or
          completeness of any information provided by any person in connection
          with any of the Finance Documents;

     (b)  to assess or keep under review on our behalf the financial condition,
          creditworthiness, condition, value, affairs, status or nature of the
          Project; or

     (c)  to assess or keep under review on our behalf the legality, validity,
          effectiveness, adequacy or enforceability of the Finance Documents or
          any document or other matter delivered pursuant thereto or of any
          security purportedly granted by or pursuant thereto.

10.  Our notice details for the purpose of receiving communications under the
     Trustee and Paying Agent Agreement are as follows:

     Address:

     Attention:

     Telephone No:

     Facsimile No:

     Email Address:

11.  This Accession Deed shall be governed by, and construed in accordance with,
     English law.

IN WITNESS whereof this Accession Deed has been executed as a deed poll and is
intended to be and is hereby delivered on the date first above written.

-------------------------------------------

EXECUTED by [                           ] )

as attorney for and on behalf of          )     ---------------------------

[                         ]               )

Witnessed by:

Name:

Address:

Countersignature by Trustee and Paying Agent:

                                     - 53 -

<PAGE>

-------------------------------------------
[Trustee and Paying Agent]

                                     - 54 -<PAGE>

                                                                    EXHIBIT 10.4

                          SUBORDINATED CREDIT AGREEMENT

                            Dated as of June 10, 2002

                                     Between

                        VAALCO ENERGY, INC., as Borrower

                                       And

                          1818 FUND II, L.P., as Lender

1818 Fund Loan Agreement                -i-

<PAGE>

                                TABLE OF CONTENTS

                                                                          PAGE
                                                                          ----

ARTICLE I. CREDIT TERMS...................................................  1
    SECTION 1.01 LINE OF CREDIT LOAN......................................  1
      (a)   Line of Credit Loan...........................................  1
      (b)   Repayment.....................................................  1
      (c)   Mandatory Prepayment..........................................  1
    SECTION 1.02 INTEREST/FEES............................................  2
      (a)   Interest......................................................  2
      (b)   Warrants......................................................  2
      (c)   Additional Warrant............................................  2
    SECTION 1.03 PAYMENTS.................................................  2
    SECTION 1.04 COLLATERAL...............................................  3
    SECTION 1.05 SUBORDINATION OF DEBT....................................  3
ARTICLE II. REPRESENTATIONS AND WARRANTIES................................  4
    SECTION 2.01 LEGAL STATUS.............................................  4
    SECTION 2.02 CAPITALIZATION...........................................  4
    SECTION 2.03 AUTHORIZATION AND VALIDITY...............................  5
    SECTION 2.04 NO VIOLATION.............................................  5
    SECTION 2.05 LITIGATION...............................................  6
    SECTION 2.06 CORRECTNESS OF FINANCIAL STATEMENT.......................  6
    SECTION 2.07 INCOME TAX RETURNS.......................................  6
    SECTION 2.08 NO SUBORDINATION.........................................  6
    SECTION 2.09 PERMITS, FRANCHISES......................................  6
    SECTION 2.10 ERISA....................................................  6
    SECTION 2.11 OTHER OBLIGATIONS........................................  7
    SECTION 2.12 ENVIRONMENTAL MATTERS....................................  7
    SECTION 2.13 NO CONSENT...............................................  7
    SECTION 2.14 NO LIENS.................................................  7
    SECTION 2.15 LAWS.....................................................  7
    SECTION 2.16 JUDGMENTS................................................  7
    SECTION 2.17 INFORMATION..............................................  8
    SECTION 2.18 VGEI.....................................................  8
ARTICLE III. CONDITIONS...................................................  8
    SECTION 3.01 CONDITIONS TO INITIAL LOAN...............................  8
      (a)   Approval Of Lender Counsel....................................  8
      (b)   Documentation.................................................  8
      (c)   Lender Approval and Closing of Senior Loan....................  8
      (d)   Financial Condition...........................................  8
      (e)   Insurance.....................................................  8
      (f)   Opinion of Investment Bank....................................  8
      (g)   Opinion of Counsel............................................  9

1818 Fund Loan Agreement               -ii-

<PAGE>

    SECTION 3.02 CONDITIONS OF ALL LOANS.................................   9
    SECTION 3.03 BORROWER'S CERTIFICATION................................  10
    SECTION 3.04 CONDITIONS FOR LENDER'S BENEFIT.........................  10
 ARTICLE IV. AFFIRMATIVE COVENANTS.......................................  10
    SECTION 4.01 PUNCTUAL PAYMENTS.......................................  10
    SECTION 4.02 ACCOUNTING RECORDS......................................  10
    SECTION 4.03 FINANCIAL STATEMENTS....................................  10
      (a)   Annual Reports...............................................  10
      (b)   Quarterly Reports............................................  11
      (c)   Audit Reports................................................  11
      (d)   SEC and Other Reports........................................  11
      (e)   VGEI Reports.................................................  11
      (f)   Other Information............................................  11
    SECTION 4.04 COMPLIANCE..............................................  11
    SECTION 4.05 INSURANCE...............................................  11
    SECTION 4.06 FACILITIES..............................................  12
    SECTION 4.07 TAXES AND OTHER LIABILITIES.............................  12
    SECTION 4.08 LITIGATION..............................................  12
    SECTION 4.09 NOTICE TO LENDER........................................  12
    SECTION 4.10 MAINTENANCE OF EXISTENCE................................  12
ARTICLE V. NEGATIVE COVENANTS............................................  12
    SECTION 5.01 USE OF FUNDS............................................  12
    SECTION 5.02 OTHER INDEBTEDNESS......................................  12
    SECTION 5.03 MERGER, CONSOLIDATION, TRANSFER OF ASSETS...............  12
    SECTION 5.04 LOANS, ADVANCES, INVESTMENTS............................  13
    SECTION 5.05 DIVIDENDS, DISTRIBUTIONS................................  13
    SECTION 5.06 PLEDGE OF ASSETS........................................  13
    SECTION 5.07 SALES AND LEASEBACKS....................................  13
    SECTION 5.08 NATURE OF BUSINESS......................................  13
    SECTION 5.09 TRANSACTIONS WITH AFFILIATES............................  13
    SECTION 5.10 FISCAL YEAR.............................................  13
    SECTION 5.11 PROJECT.................................................  13
    SECTION 5.12 VGEI PSC INTEREST.......................................  13
ARTICLE VI. EVENTS OF DEFAULT............................................  13
    SECTION 6.01 EVENTS OF DEFAULT.......................................  13
    SECTION 6.02 REMEDIES................................................  15
ARTICLE VII. MISCELLANEOUS...............................................  15
    SECTION 7.01 NO WAIVER...............................................  15
    SECTION 7.02 NOTICES.................................................  15
    SECTION 7.03 COSTS, EXPENSES AND ATTORNEYS' FEES.....................  16
    SECTION 7.04 ASSIGNMENTS.............................................  16
    SECTION 7.05 AMENDMENT...............................................  17
    SECTION 7.06 NO THIRD PARTY BENEFICIARIES............................  17
    SECTION 7.07 TIME....................................................  17
    SECTION 7.08 SEVERABILITY OF PROVISIONS..............................  17
    SECTION 7.09 COUNTERPARTS............................................  17

1818 Fund Loan Agreement               -iii-

<PAGE>

    SECTION 7.10 FURTHER ASSURANCES......................................  17
    SECTION 7.11 GOVERNING LAW...........................................  17
    SECTION 7.12 SAVINGS CLAUSE..........................................  19
    SECTION 7.13 RIGHT OF SETOFF; DEPOSIT ACCOUNTS.......................  19
    SECTION 7.14 BUSINESS PURPOSE........................................  20
    SECTION 7.15 INDEMNIFICATION.........................................  20
    SECTION 7.16 WAIVER OF JURY TRIAL....................................  20

APPENDIX A

Defined Terms

EXHIBITS

A.    Note
B.    Warrants
C.    Subordination Agreement
D.    Assignment Agreement

SCHEDULES

I     Security Documents
II    Lender's Commitments
III   Form of Borrower's Certificate

1818 Fund Loan Agreement               -iv-

<PAGE>

                          SUBORDINATED CREDIT AGREEMENT

     THIS SUBORDINATED CREDIT AGREEMENT (this "Agreement") is entered into as of
June 10, 2002, by and between VAALCO ENERGY, INC., a Delaware corporation
("Borrower"), and 1818 FUND II, L.P., a Delaware limited partnership, and such
other parties from time to time a Lender hereto (herein collectively "Lender").

                                    RECITALS

     WHEREAS, Vaalco Gabon (Etame), Inc. ("VGEI") and International Finance
Corporation ("IFC") entered into that certain Loan Agreement dated April 19,
2002 (the "IFC Loan Agreement"), for the purpose of financing the Project (all
capitalized terms not defined in the body of this Agreement are defined under
Appendix A hereto).

     WHEREAS, as a condition precedent to funding under the IFC Loan Agreement,
IFC has required an escrow account (the "Sponsor Escrow Account") be established
pursuant to that certain Escrow Account Agreement between Borrower, IFC and
JPMorgan/Chase Bank, London Branch ("Escrow Account Bank") dated May 31, 2002
(the "Sponsor Escrow Agreement") in which Borrower shall maintain certain
required balances up to $10,000,000 as security for the obligations of Borrower
to IFC under the Guarantee Agreement dated on or about the date of the IFC Loan
Agreement between Borrower and IFC.

     WHEREAS, Borrower has requested Lender extend it credit for the purpose of
funding the Sponsor Escrow Account and Lender has agreed to provide such credit
to Borrower on the terms and conditions contained herein.

     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lender and Borrower hereby agree as follows:

                                   ARTICLE I.
                                  CREDIT TERMS

     SECTION 1.01 LINE OF CREDIT LOAN.

          (a) Line of Credit Loan. Subject to the terms and conditions of this
     Agreement until January 31, 2003, Lender hereby agrees to make one or more
     loans (each such advance a "Loan" and collectively the "Loans") to Borrower
     in an aggregate principal amount not to exceed Ten Million Dollars
     ($10,000,000) (the "Commitment"), the proceeds of which shall be funded
     directly into and held in the Sponsor Escrow Account pursuant to the
     Sponsor Escrow Agreement. Borrower's obligation to repay the Loans shall be
     evidenced by a promissory note substantially in the form of Exhibit A
     attached hereto (as same may be amended, renewed, assigned in whole or in
     part, collectively, the "Note"), all terms of which are incorporated herein
     by this reference. After the earlier of (i) Phase One Completion Date and
     (ii) January 31, 2003, Lender shall have no obligation to make any
     additional Loans to Borrower.

          (b) Repayment. Principal and interest on the Loans shall be repaid in
     accordance with the provisions of the Note, the terms of which are
     incorporated herein by reference.

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1818 Fund Loan Agreement

<PAGE>

          (c) Mandatory Prepayment. Principal outstanding under the Loans is
     subject to mandatory prepayment in accordance with provisions of the Note,
     the terms of which are incorporated herein by reference.

     SECTION 1.02 INTEREST/FEES.

          (a) Interest. The outstanding principal balance of the Loans shall
     bear interest at the rate of interest and on the dates set forth in the
     Note and this Agreement.

          (b) Warrants. Borrower shall sell and issue to Lender warrants to
     purchase 15,000,000 shares of Borrower's Common Stock at $0.50 per share,
     subject to adjustment pursuant to the terms thereof (the "Warrants") in the
     forms attached hereto as Exhibits B-1 and B-2.

          (c) Additional Warrant. If all principal, interest and other amounts
     under the Loans and the Note have not been paid in full and Lender's
     obligation to make Loans has not been terminated on or prior to the second
     anniversary following the first funding hereunder, Borrower shall issue to
     Lender a warrant ("Additional Warrant") to purchase a number of shares of
     Borrower's Common Stock equal to 7,500,000 multiplied by a fraction, the
     numerator of which shall be the principal amount of the Loans outstanding
     on such second anniversary and the denominator of which shall be $10.0
     million. The number of shares subject to such Additional Warrant shall be
     subject to appropriate adjustment if any of the events described in
     Sections 5.1, 5.2, 5.3, 5.5 and 5.9 of the Warrant attached as Exhibit B-1
     occurs prior to such second anniversary. The exercise price of such
     Additional Warrant shall be $0.10 per share. The Additional Warrant shall
     expire seven years following the date of issuance. The Additional Warrant
     shall be substantially identical to the Warrant attached as Exhibit B-1
     (except that the antidilution adjustments will be appropriately modified so
     as to adjust the number of shares only and the number of shares subject to
     the Additional Warrant shall be reduced as set forth in Sections 5.1, 5.2,
     5.3, 5.5 and 5.9 of the Warrant).

     SECTION 1.03 PAYMENTS.

          (a) Borrower shall make all payments of principal, interest, fees, and
     any other amount due to Lender under the Loan Documents in Dollars, in same
     day funds, to Brown Brothers Harriman & Co., for credit to Lender's account
     number 9201033231 at JPMorgan Chase & Co. (ABA #0210-00021), for further
     credit to The 1818 Fund II, L.P. to account number 3592441 (Reference:
     VAALCO), or at such other bank or account in New York as Lender from time
     to time designates. Payments must be received in Lender's designated
     account no later than 1:00 p.m. New York time.

          (b) The tender or payment of any amount payable under the Loan
     Documents (whether or not by recovery under a judgment) in any currency
     other than Dollars shall not novate, discharge or satisfy the obligation of
     Borrower to pay in Dollars all amounts payable under the Loan Documents
     except to the extent that (and as of the date when) Lender actually
     receives funds in Dollars in the account specified in, or pursuant to,
     Subsection 1.03(a).

          (c) Borrower shall indemnify Lender against any losses resulting from
     a payment being received or an order or judgment being given under the Loan
     Documents in any currency other than Dollars or any place other than the
     account specified in, or pursuant to, Subsection 1.03(a). Borrower shall,
     as a separate obligation, pay such additional amount as is necessary to
     enable Lender to receive, after conversion to Dollars at a market rate and
     transfer to

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1818 Fund Loan Agreement

<PAGE>

     that account, the full amount due to Lender under the Loan Documents in
     Dollars and in the account specified in, or pursuant to, Subsection
     1.03(a).

          (d) Notwithstanding the provisions of Subsection 1.03(a) and
     Subsection 1.03(b), Lender may require Borrower to pay (or reimburse
     Lender) for any Taxes and other amounts payable under Subsection 1.07(a) in
     the currency in which they are payable, if other than Dollars.

     SECTION 1.04 COLLATERAL.

          (a) As security for the payment or performance, as applicable, of all
     of Borrower's Obligations, Borrower has granted security interests to
     Lender, and its successors and assigns pursuant to the security agreements
     and other documents described on Schedule I hereto and any financing
     statements filed in connection therewith or as Lender shall require, all in
     form and substance satisfactory to Lender (collectively the "Security
     Documents").

          (b) Borrower hereby authorizes Lender to file one or more financing
     statements, continuation statements, or other documents for the purpose of
     perfecting, confirming, continuing, enforcing or protecting the security
     interest granted pursuant to the Security Documents by Borrower naming
     Borrower as debtor and Lender as secured party. Borrower shall reimburse
     Lender immediately upon demand for all reasonable costs and expenses
     incurred by Lender in connection with the Loan Documents or any of the
     foregoing, including without limitation, filing and recording fees and
     costs of appraisals, audits, title insurance, and attorneys' fees.

     SECTION 1.05 SUBORDINATION OF DEBT. In connection with the Note, VGEI is
borrowing money from and incurring obligations to IFC (the "IFC Indebtedness").
The obligation of Borrower to repay the Note and other indebtedness under the
Loan Documents and the priority of liens created under the Security Documents
are subject to the terms of that certain Subordination Agreement, dated as of
even date herewith, by and between Borrower, IFC and Lender attached as Exhibit
C hereto (hereafter, the "Subordination Agreement").

     SECTION 1.06. SUSPENSION OR CANCELLATION BY LENDER.

          (a) Lender may, by notice to Borrower, suspend the right of Borrower
     to borrow and/or cancel the undisbursed portion of the Commitment in whole
     or in part:

               (i) if the first Loan has not been made by September 30, 2002 or
               such earlier date agreed to by VGEI and IFC under the IFC Loan
               Agreement;

               (ii)  if any Event of Default has occurred and is continuing;

               (iii) if any event or condition has occurred and is continuing
               which has or can reasonably be expected to have a material
               adverse effect;

               (iv) on or after December 31, 2003; or

               (v) the Phase One Completion Date.

          (b) Upon the giving of any such notice, the right of Borrower to any
     further Loans shall be suspended or canceled, as the case may be. The
     exercise by Lender of its right of

                                        3
1818 Fund Loan Agreement

<PAGE>

     suspension shall not preclude Lender from exercising its right of
     cancellation, either for the same or any other reason specified in Section
     1.06. Upon any cancellation, Borrower shall, subject to Subsection 1.06(d),
     pay to Lender all fees and other amounts accrued (whether or not then due
     and payable) under this Agreement up to the date of that cancellation. A
     suspension shall not limit any other provision of this Agreement.

          (c) Any portion of the Commitment that is canceled under this Section
     1.06 may not be reborrowed.

          (d) In the case of a partial cancellation of the Commitment pursuant
     to Subsection 1.06(a), interest on the amount then outstanding of the Loans
     remains payable as provided in Subsection 1.02(a).

     SECTION 1.07 TAXES.

          (a) Borrower shall pay or cause to be paid all Taxes other than taxes,
     if any, payable on the overall income of Lender on or in connection with
     the payment of any and all amounts due under this Agreement that are now or
     in the future levied or imposed by any Authority of Gabon, the United
     States of America, or the United Kingdom or by any organization of which
     Gabon, the United States of America or the United Kingdom is a member or
     any jurisdiction through or out of which a payment is made.

          (b) All payments of principal, interest, fees and other amounts due
     under this Agreement shall be made without deduction for or on account of
     any Taxes.

          (c) If Borrower is prevented by operation of law or otherwise from
     making or causing to be made those payments without deduction, the
     principal or (as the case may be) interest, fees or other amounts due under
     this Agreement shall be increased to such amount as may be necessary so
     that Lender receives the full amount it would have received (taking into
     account any Taxes payable on amounts payable by Borrower under this
     subsection) had those payments been made without that deduction.

          (d) If Section 1.07 applies and Lender so requests, Borrower shall
     deliver to Lender official tax receipts evidencing payment (or certified
     copies of them) within thirty (30) days of the date of that request.

                                   ARTICLE II.
                         REPRESENTATIONS AND WARRANTIES

     Borrower makes the following representations and warranties to Lender,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to
Lender subject to this Agreement.

     SECTION 2.01 LEGAL STATUS. Borrower and VGEI are each corporations, duly
organized and existing and in good standing under the laws of the State of
Delaware and are qualified or licensed to do business (and are in good standing
as a foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower or VGEI.

     SECTION 2.02  CAPITALIZATION.

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1818 Fund Loan Agreement

<PAGE>

          (a) The authorized capital stock of Borrower consists solely of
     100,000,000 shares of common stock, par value $.10 per share ("Common
     Stock") and 500,000 shares of preferred stock, par value $25.00 per share
     ("Preferred Stock"). As of the date hereof: (i) 20,744,569 shares of Common
     Stock were issued and outstanding, (ii) 10,000 shares of Series A Preferred
     Stock ("Series A Preferred Stock") were issued and outstanding, (iii)
     3,495,325 shares of Common Stock were reserved for issuance upon exercise
     of outstanding options, warrants (excluding the Warrants) and other rights
     to acquire Common Stock, (iv) 15,000,000 shares of Common Stock were
     reserved for issuance upon exercise of the Warrants, (v) 5,395 shares of
     Common Stock were held by the Company in its treasury, and (vi) 27,500,000
     shares of Common Stock were reserved for issuance upon conversion of the
     Series A Preferred Stock. The Warrants and the Additional Warrants are duly
     authorized, and when issued to Lender after payment therefor, will be
     validly issued and will be free and clear of all liens. The shares of
     Common Stock issuable upon exercise of the Warrants and the Additional
     Warrants, when issued in compliance with the terms thereof, will be validly
     issued, fully paid and nonassessable and not subject to any preemptive
     rights. Except as set forth above, as of the date hereof, no shares of
     capital stock or other equity securities of Borrower were issued, reserved
     for issuance or outstanding, and there are no other options, warrants or
     other rights presently outstanding to purchase or otherwise acquire (i) any
     authorized but unissued, unauthorized or treasury shares of the Borrower's
     capital stock, or (ii) any security which by its terms is convertible or
     exercisable for shares of Borrower's capital stock, and there are no
     commitments to issue any of the foregoing. All outstanding shares of Common
     Stock and Preferred Stock of Borrower are duly authorized, validly issued,
     fully paid and nonassessable and not subject to preemptive rights.

          (b) The authorized capital stock of VGEI consists solely of 1,000
     shares of common stock, par value $10.00 per share ("VGEI Common Stock").
     As of the date hereof 1,000 shares of VGEI Common Stock were issued and
     outstanding. As of the date hereof all of the capital stock of VGEI was
     owned by Borrower and no shares of capital stock or other equity securities
     of VGEI were issued, reserved for issuance or outstanding, and there are no
     other options, warrants or other rights presently outstanding to purchase
     or otherwise acquire (i) any authorized but unissued, unauthorized or
     treasury shares of VGEI's capital stock, or (ii) any security which by its
     terms is convertible or exercisable for shares of VGEI's capital stock, and
     there are no commitments to issue any of the foregoing. All outstanding
     shares of VGEI Common Stock are duly authorized, validly issued, fully paid
     and nonassessable and not subject to preemptive rights.

     SECTION 2.03 AUTHORIZATION AND VALIDITY.

          (a) This Agreement, the Note, the Security Documents, the Warrants,
     the Additional Warrants and each contract, instrument and other document
     required hereby or at any time hereafter delivered to Lender in connection
     herewith (collectively, the "Loan Documents") have been duly authorized,
     and upon their execution and delivery in accordance with the provisions
     hereof will constitute legal, valid and binding agreements and obligations
     of Borrower, enforceable in accordance with their respective terms.

          (b) The IFC Loan Agreement, and the other Transaction Documents
     contemplated by the IFC Loan Agreement, have been duly authorized, and upon
     their execution and delivery in accordance with the provisions of the IFC
     Loan Agreement will constitute legal, valid and binding agreements and
     obligations of VGEI or Borrower, as the case may be, enforceable in
     accordance with their respective terms.

     SECTION 2.04 NO VIOLATION.

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1818 Fund Loan Agreement

<PAGE>

          (a) The execution, delivery and performance by Borrower of each of the
     Loan Documents do not violate any provision of any law or regulation, or
     contravene any provision of the Articles of Incorporation or By-Laws of
     Borrower, or result in any breach of or default under any contract,
     obligation, indenture or other instrument to which Borrower is a party or
     by which Borrower may be bound.

          (b) The execution, delivery and performance by VGEI or Borrower, as
     the case may be, of the IFC Loan Agreement and each of the Transaction
     Documents do not violate any provision of any law or regulation, or
     contravene any provision of the Articles of Incorporation or By-Laws of
     VGEI, or result in any breach of or default under any contract, obligation,
     indenture or other instrument to which VGEI is a party or by which VGEI may
     be bound.

     SECTION 2.05 LITIGATION. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower or VGEI other than those disclosed by Borrower to Lender
in writing prior to the date hereof.

     SECTION 2.06 CORRECTNESS OF FINANCIAL STATEMENT. The quarterly consolidated
and consolidating balance sheet dated December 31, 2001, prepared by Borrower's
chief financial officer (a) are complete and correct and present fairly the
consolidated financial condition of Borrower, (b) disclose all liabilities of
Borrower and its Subsidiaries that are required to be reflected or reserved
against under U.S. generally accepted accounting principles, whether liquidated
or unliquidated, fixed or contingent, and (c) were prepared in accordance with
U.S. generally accepted accounting principles consistently applied. Since the
date of such quarterly financial statement there has been no material adverse
change in the consolidated financial condition of Borrower, nor has Borrower or
any of its Subsidiaries mortgaged, pledged, granted a security interest in or
otherwise encumbered any of its assets or properties except in favor of Lender
or IFC or as otherwise permitted by Lender in writing.

     SECTION 2.07 INCOME TAX RETURNS. All tax returns and reports of Borrower
and its Subsidiaries required by law to be filed have been duly filed and all
taxes, obligations, fees and other governmental charges upon Borrower and its
Subsidiaries, or their properties, or their income or assets, which are due and
payable or to be withheld, have been paid or withheld, other than those
currently payable without penalty or interest.

     SECTION 2.08 NO SUBORDINATION. There is no agreement, indenture, contract
or instrument to which Borrower or any of its Subsidiaries is a party or by
which Borrower or any of its Subsidiaries may be bound that requires the
subordination in right of payment of any of Borrower's obligations subject to
this Agreement to any other obligation of Borrower except as provided in the
Subordination Agreement.

     SECTION 2.09 PERMITS, FRANCHISES. Each of Borrower and its Subsidiaries
possess, and will hereafter possess, all permits, consents, approvals,
franchises and licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable it to conduct the
business in which it is now engaged in compliance with applicable law.

     SECTION 2.10 ERISA. Each of Borrower and its Subsidiaries is in compliance
in all material respects with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended or recodified from time to
time ("ERISA"); Neither Borrower nor any of its Subsidiaries has violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower or its Subsidiaries (each, a "Plan");
no Reportable Event as defined in ERISA

                                        6
1818 Fund Loan Agreement

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has occurred and is continuing with respect to any Plan initiated by Borrower or
its Subsidiaries; each of Borrower and its Subsidiaries has met its minimum
funding requirements under ERISA with respect to each Plan; and each Plan will
be able to fulfill its benefit obligations as they come due in accordance with
the Plan documents and under U.S. generally accepted accounting principles.

     SECTION 2.11 OTHER OBLIGATIONS. Neither Borrower nor any of its
Subsidiaries is in default on any obligation for borrowed money, any purchase
money obligation or any other material lease, commitment, contract, instrument
or obligation.

     SECTION 2.12 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Lender in writing prior to the date hereof, Borrower and each of its
Subsidiaries is in compliance with all applicable federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
or its Subsidiaries' operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances
Control Act, as any of the same may be amended, modified or supplemented from
time to time. None of the operations of Borrower or its Subsidiaries is the
subject of any federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Neither Borrower nor
any of its Subsidiaries has a material contingent liability in connection with
any release of any toxic or hazardous waste or substance into the environment.

     SECTION 2.13 NO CONSENT.

          (a) Borrower's execution, delivery and performance of each of the Loan
     Documents, including this Agreement, to which Borrower is a party do not
     require the consent or approval of any other person or entity which has not
     been obtained, including, without limitation, any regulatory authority or
     governmental body of the United States of America or any state thereof or
     any political subdivision of the United States of America or any state
     thereof.

          (b) VGEI's or Borrower's, as the case may be, execution, delivery and
     performance of the IFC Loan Agreement and each of the Transaction
     Documents, to which VGEI or Borrower, as the case may be, is a party do not
     require the consent or approval of any other person or entity which has not
     been obtained, including, without limitation, any regulatory authority or
     governmental body of the United States of America or any state thereof or
     any political subdivision of the United States of America or any state
     thereof.

     SECTION 2.14 NO LIENS. Neither Borrower nor any of its Subsidiaries has any
outstanding lien on any of its assets other than liens under the IFC Loan
Agreement in favor of IFC and otherwise as arising by operation of law, and no
contract or arrangements, conditional or unconditional, exist for the creation
by Borrower or any of its Subsidiaries of any lien, except for liens in favor of
IFC pursuant to the IFC Loan Agreement and Lender pursuant to the Loan
Documents.

     SECTION 2.15 LAWS. To the best of Borrower's knowledge and belief after due
inquiry, neither Borrower nor any of its Subsidiaries is in violation of any
statute or regulation of any governmental authority.

     SECTION 2.16 JUDGMENTS. No judgment or order has been issued which has or
may reasonably be expected to have a material adverse effect on the financial
conditions or operations of Borrower or any of its Subsidiaries.

                                        7
1818 Fund Loan Agreement

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     SECTION 2.17 INFORMATION. All information regarding Borrower and its
Subsidiaries furnished to Lender prior to or contemporaneously herewith, by or
on behalf of Borrower, was and continues to be true and accurate and does not
contain any information that is misleading in any material respect nor does it
omit any information the omission of which makes the information contained in it
misleading in any material respect, and none of the representations and
warranties in this Article II omits any matter the omission of which makes any
of such representations and warranties misleading.

     SECTION 2.18 VGEI. The representations and warranties made by VGEI in
Section 4.01 of the IFC Loan Agreement are true and correct in all material
respects (except for any such representations and warranties which are qualified
by their terms by a reference to materiality or material adverse affect, which
representation as so qualified shall be true and correct in all respects).

                                  ARTICLE III.
                                   CONDITIONS

     SECTION 3.01 CONDITIONS TO INITIAL LOAN. The obligation of Lender to make
the initial Loan under Section 1.01(a) is subject to the fulfillment to Lender's
satisfaction of all of the following conditions:

          (a) Approval Of Lender Counsel. All legal matters incidental to the
     extension of credit by Lender shall be satisfactory to Lender's counsel.

          (b) Documentation. Lender shall have received, in form and substance
     satisfactory to Lender, such documents as Lender may require including,
     without limitation, this Agreement, the Note, the Warrants and each of the
     documents described on Schedule I attached hereto.

          (c) Lender Approval and Closing of Senior Loan. The IFC Loan
     Agreement, the Transaction Documents and other related documents (the "IFC
     Loan Documents") shall be satisfactory to Lender in its sole discretion,
     all conditions precedent under the IFC Loan Documents will following the
     occurrence of funding hereunder, be satisfied (and not waived except with
     Lender's consent), and all such agreements shall close and fund within
     three (3) Business Days following Closing and funding hereunder. Borrower
     will deliver to Lender all documents delivered to IFC upon closing of the
     IFC Loan Agreement that Lender specifically requests Borrower to deliver to
     Lender.

          (d) Financial Condition. There shall have been no material adverse
     change, as determined by Lender, in the financial condition or business of
     Borrower and its Subsidiaries, nor any material decline, as determined by
     Lender, in the market value of any collateral required hereunder or a
     substantial or material portion of the assets of Borrower and its
     Subsidiaries.

          (e) Insurance. Borrower shall have delivered to Lender evidence of
     insurance coverage on all Borrower's and its Subsidiaries' property, in
     form, substance, amounts, covering risks and issued by companies
     satisfactory to Lender, including without limitation, policies of fire and
     extended coverage insurance covering all real property collateral required
     hereby, and such policies of insurance against specific hazards affecting
     any such real property as may be required by governmental regulation.

          (f) Opinion of Investment Bank. An opinion of an investment bank or
     financial advisor acceptable to Lender that the terms of this Agreement and
     the other Loan Documents are fair to Borrower from a financial point of
     view.

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1818 Fund Loan Agreement

<PAGE>

          (g) Opinion of Counsel. An opinion of Borrower's counsel, addressed to
     Lender in form and substance satisfactory to Lender's counsel and opinion
     of Borrower's U.K. counsel, addressed to Lender, in form and substance
     satisfactory to Lender's counsel, regarding the validity and enforceability
     of the Charge Over Deposit Agreement.

     SECTION 3.02 CONDITIONS OF ALL LOANS. The obligation of Lender to make any
Loan, including the initial Loan, on any date is also subject to the conditions
that:

          (a) no Event of Default has occurred and is continuing;

          (b) no event of default pursuant to Section 7.02 of the IFC Loan
     Agreement ("IFC Events of Default") and no event or circumstance which
     would, with notice, lapse of time, the making of a determination or any
     combination thereof, become an event of default pursuant to Section 7.02 of
     the IFC Loan Agreement ("IFC Potential Events of Default") has occurred and
     is continuing;

          (c) the proceeds of such requested Loan shall, at such date, be used
     by Borrower for the sole purpose of funding the Sponsor Escrow Account as a
     condition precedent to a funding in the same amount by IFC to VGEI under
     the IFC Loan Agreement within three (3) Business Days thereof;

          (d) since the date of this Agreement, no event has occurred which (i)
     has and is continuing to have or (ii) can reasonably be expected to have a
     material adverse effect on Borrower and its Subsidiaries taken as a whole;

          (e) since December 31, 2001, Borrower and its Subsidiaries have not
     incurred any material loss or liability (except such liabilities as may be
     incurred in accordance with Article V );

          (f) the representations and warranties made in Article II are true and
     correct in all material respects (except for any such representations and
     warranties which are qualified by their terms by a reference to materiality
     or material adverse affect, which representation as so qualified shall be
     true and correct in all respects) on and as of such date with the same
     effect as if those representations and warranties had been made on and as
     of such date;

          (g) after giving effect to such Loan, neither Borrower nor its
     Subsidiaries would be in violation of:

               (i)   its articles of incorporation and bylaws and/or such other
                     constitutive documents, however so called;

               (ii)  any provision contained in any document to which Borrower
                     or any of its Subsidiaries is a party (including this
                     Agreement) or by which Borrower or any of its Subsidiaries
                     is bound; or

               (iii) any law, rule, regulation, authorization or agreement or
                     other document binding on Borrower or any of its
                     Subsidiaries directly or indirectly limiting or otherwise
                     restricting Borrower's or any of its Subsidiary's borrowing
                     power or authority or its ability to borrow;

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1818 Fund Loan Agreement

<PAGE>

          (h) on and as of such date, Borrower's Long-term Debt to Equity Ratio
     does not exceed 70:30; and

          (i) the undisbursed portion of funds available to VGEI under the IFC
     Loan Agreement are sufficient to finance VGEI's share of costs projected to
     be incurred up through the Phase One Completion Date.

     SECTION 3.03 BORROWER'S CERTIFICATION. Lender shall not be obligated to
make any Loan until Borrower shall have delivered to Lender with respect to each
request for a Loan:

          (a) certifications, in the form included in Schedule III signed by an
     executive officer of Borrower, certifying the conditions specified in
     Section 3.02 expressed to be effective as of such date; and

          (b) such evidence as Lender may reasonably request of the proposed
     utilization of the proceeds of the Loan or the utilization of the proceeds
     of the corresponding loan to VGEI under the IFC Loan Agreement.

     SECTION 3.04 CONDITIONS FOR LENDER'S BENEFIT. The conditions in Section
3.01 through Section 3.03 are for the benefit of Lender and may be waived only
by Lender in its sole discretion.

                                   ARTICLE IV.
                              AFFIRMATIVE COVENANTS

     Borrower covenants that so long as any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Lender under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall (and shall cause its Subsidiaries, if
applicable), unless Lender otherwise consents in writing.

     SECTION 4.01 PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.

     SECTION 4.02 ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with U.S. generally accepted accounting principles consistently
applied, and permit any representative of Lender, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the same,
and to inspect the properties of Borrower and its Subsidiaries.

     SECTION 4.03 FINANCIAL STATEMENTS. Borrower will promptly furnish to Lender
from time to time upon request such information regarding the business and
affairs and financial condition of Borrower and its Subsidiaries as Lender may
reasonably request, and will furnish to Lender:

          (a) Annual Reports - promptly after becoming available and in any
     event within 90 days after the close of each fiscal year of Borrower, the
     audited consolidated and unaudited consolidating balance sheets of Borrower
     and its Subsidiaries as at the end of such year, the audited consolidated
     and unaudited consolidating statements of profit and loss of Borrower and
     its Subsidiaries for such year and the audited consolidated and unaudited
     consolidating statements of reconciliation of capital accounts of Borrower
     and its Subsidiaries for such year, setting forth in each case for fiscal
     years ending after September 30, 2001, in comparative form the
     corresponding figures for the preceding fiscal year, accompanied by the
     related report of

                                       10
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<PAGE>

     independent public accountants acceptable to Lender which report shall be
     to the effect that such statements have been prepared in accordance with
     U.S. generally accepted accounting principles consistently followed
     throughout the period indicated except for such changes in such principles
     with which the independent public accountants shall have concurred, showing
     the calculations confirming Borrower's compliance with all financial
     covenants; and

          (b) Quarterly Reports - promptly after becoming available and in any
     event within 45 days after the end of each of the first three quarterly
     periods in each fiscal year of Borrower, the consolidated and consolidating
     balance sheets of Borrower and its Subsidiaries as at the end of such
     period, the consolidated and consolidating statements of profit and loss of
     Borrower and its Subsidiaries for such quarter and for the period from the
     beginning of the fiscal year to the close of such quarter, and the
     consolidated and consolidating statement of reconciliation of capital
     accounts of Borrower and its Subsidiaries for such quarter and for the
     period from the beginning of the fiscal year to the close of such quarter,
     setting forth in each case for fiscal years ending after September 30,
     2001, in comparative form the corresponding figures for the corresponding
     period of the preceding fiscal year, certified by the principal financial
     officer of Borrower to have been prepared in accordance with U.S. generally
     accepted accounting principles consistently followed throughout the period
     indicated except to the extent stated therein, subject to normal changes
     resulting from year-end adjustment;

          (c) Audit Reports - promptly upon receipt thereof, one copy of each
     other report submitted to Borrower or any Subsidiary by independent
     accountants in connection with any annual, interim or special audit made by
     them of the books of Borrower or any Subsidiary;

          (d) SEC and Other Reports - promptly upon their becoming available,
     one copy of each financial statement, report, notice or proxy statement
     sent by Borrower to stockholders generally, and of each regular or periodic
     report and any registration statement, prospectus or written communication
     (other than transmittal letters) in respect thereof filed by Borrower with
     or received by Borrower in connection therewith from any securities
     exchange or the Securities and Exchange Commission or any successor agency;

          (e) VGEI Reports - to the extent requested by Lender, all reports,
     documents or other materials required to be delivered or otherwise
     delivered to IFC pursuant to Section 6.03 of the IFC Loan Agreement.

          (f) Other Information - from time to time such other information as
     Lender may reasonably request.

     SECTION 4.04 COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business and the business of its Subsidiaries; and comply with
the provisions of all documents pursuant to which Borrower and its Subsidiaries
organized and/or which govern Borrower's and its Subsidiaries' continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower, its Subsidiaries and/or
their business.

     SECTION 4.05 INSURANCE. Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Lender, and
deliver to Lender from time to time, at Lender's request, schedules setting
forth all insurance then in effect.

                                       11
1818 Fund Loan Agreement

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     SECTION 4.06 FACILITIES. Keep all properties useful or necessary to
Borrower's and its Subsidiaries' business in good repair and condition, and from
time to time make necessary repairs, renewals and replacements thereto so that
such properties shall be fully and efficiently preserved and maintained.

     SECTION 4.07 TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower or any Subsidiary
may in good faith contest or as to which a bona fide dispute may arise, and (b)
for which Borrower or any Subsidiary has made provision, to Lender's
satisfaction, for eventual payment thereof in the event Borrower or any
Subsidiary is obligated to make such payment.

     SECTION 4.08 LITIGATION. Promptly give notice in writing to Lender of all
litigation pending or threatened against Borrower or any Subsidiary with claims
in excess of $10,000.00 in the aggregate.

     SECTION 4.09 NOTICE TO LENDER. Promptly give written notice to Lender in
reasonable detail of: (a) the occurrence of any Event of Default of which
Borrower is aware along with written notices or correspondence regarding same,
or any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any IFC Events of Default
or IFC Potential Events of Default along with written notices or correspondence
regarding same; (c) any change in the name or the organizational structure of
Borrower; and (d) the occurrence and nature of any Reportable Event or
Prohibited Transaction, each as defined in ERISA, or any funding deficiency with
respect to any Plan.

     SECTION 4.10 MAINTENANCE OF EXISTENCE. Each of Borrower and its
Subsidiaries shall preserve and maintain in full force and effect their legal
existence, and maintain their good standing under the laws of their state or
jurisdiction of formation.

                                   ARTICLE V.
                               NEGATIVE COVENANTS

     Borrower further covenants that so long as Lender remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Lender under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not (and shall cause its Subsidiaries
not to, if applicable) without Lender's prior written consent:

     SECTION 5.01 USE OF FUNDS. Use the proceeds of Loans for purposes other
than to fund the Sponsor Escrow Account pursuant to the IFC Loan Agreement.

     SECTION 5.02 OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any Debt with respect to Borrower and its Subsidiaries except (a) the
liabilities of Borrower to Lender, (b) any other liabilities of Borrower and its
Subsidiaries existing as of, and described in the Subordination Agreement, and
(c) other Long Term Debt, provided that Borrower's Long Term Debt to Equity
Ratio shall not exceed 70:30.

     SECTION 5.03 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's or any Subsidiary's business as conducted as of the date hereof;
acquire all or substantially all of the assets of

                                       12
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<PAGE>

any other entity; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of Borrower's or any Subsidiary's assets except
in the ordinary course of its business.

     SECTION 5.04 LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or
investments in any person or entity, except any of the foregoing to VGEI and to
the extent existing as of, and disclosed to Lender prior to, the date hereof.

     SECTION 5.05 DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's or any
Subsidiary's (other than wholly-owned Subsidiaries) stock now or hereafter
outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of
any class of Borrower's or any Subsidiary's (other than wholly-owned
Subsidiaries) stock now or hereafter outstanding except as provided in the
Warrants.

     SECTION 5.06 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's or any
Subsidiary's assets now owned or hereafter acquired, except any of the foregoing
in favor of Lender or which is existing as of the date of, and described under,
the Subordination Agreement.

     SECTION 5.07 SALES AND LEASEBACKS. Enter into any arrangement, directly or
indirectly, with any person whereby Borrower or any Subsidiary shall sell or
transfer any of its property, whether now owned or hereafter acquired, and
whereby Borrower or any Subsidiary shall then or thereafter rent or lease as
lessee such property or any part thereof or other property which Borrower or any
Subsidiary intends to use for substantially the same purpose or purposes as the
property is sold or transferred.

     SECTION 5.08 NATURE OF BUSINESS. Allow any material change to be made in
the character of Borrower's or any Subsidiary's business as conducted on the
date of this Agreement.

     SECTION 5.09 TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any affiliate of Borrower or any of its
Subsidiaries unless such transactions are in the ordinary course of its business
and are upon fair and reasonable terms no less favorable to Borrower or its
Subsidiary than Borrower or its Subsidiary would obtain in a comparable
arm's-length transaction with a person not an affiliate.

     SECTION 5.10 FISCAL YEAR. Change the fiscal accounting year of Borrower or
its Subsidiaries from a calendar year commencing each year on January 1 and
ending on the following December 31.

     SECTION 5.11 PROJECT. Permit VGEI to change in any material way the nature
or scope of the Project or change the nature of its present or contemplated
business or operations.

     SECTION 5.12 VGEI PSC INTEREST. Permit VGEI to reduce its working interest
under the PSC below 30.35% during the exploration phase and below 28.07% during
the production phase.

                                   ARTICLE VI.
                                EVENTS OF DEFAULT

     SECTION 6.01 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an "Event of Default" under this Agreement:

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1818 Fund Loan Agreement

<PAGE>

          (a) Borrower shall fail to pay when due any principal, interest, fees
     or other amounts payable under any of the Loan Documents.

          (b) Any default in the performance of or compliance with any
     obligation, agreement or other provision contained herein or in any other
     Loan Document (other than those referred to in subsections 6.01(a)), and
     with respect to any such default which by its nature can be cured, such
     default shall continue for a period of thirty (30) days from its
     occurrence.

          (c) Borrower or any of its Subsidiaries fails to pay any of its Debt
     (other than as provided under 6.01 (a)) or to perform any of its
     obligations under any agreement pursuant to which there is outstanding any
     Debt, and any such failure continues for more than any applicable period of
     grace or any such Debt becomes prematurely due and payable or is placed on
     demand, provided such non-payment or non-performance will not be an Event
     of Default if (i) such non-payment or non-performance relates to a Debt not
     exceeding one hundred fifty thousand Dollars ($150,000) and (ii) is being
     contested by Borrower or such Subsidiary in good faith in a court of
     competent jurisdiction for reasons other than its inability to make due and
     punctual payment and for which Borrower or such Subsidiary has set aside
     adequate reserves.

          (d) Any of the representations and warranties of Borrower made herein
     or in any other Loan Document or that is contained in any certificate,
     document or financial or other statement furnished by it at any time under
     or in connection with this Agreement or any such other Loan Document shall
     prove to have been inaccurate, false or misleading in any material respect
     on or as of the date made.

          (e) The filing of a notice of judgment lien against Borrower or any of
     its Subsidiaries; or the recording of any abstract of judgment against
     Borrower or any of its Subsidiaries in any county in which Borrower has an
     interest in real property; or the service of a notice of levy and/or of a
     writ of attachment or execution, or other like process, against the assets
     of Borrower or any of its Subsidiaries; or the entry of a judgment against
     Borrower or any of its Subsidiaries. Notwithstanding the foregoing, there
     shall not be an Event of Default upon the filing of notices of judgment
     lien, the recording of abstracts of judgment, or the entries of judgment
     against Borrower or any of its Subsidiaries if the aggregate amount of all
     such judgments not covered by insurance is less than $1,000,000 and such
     judgments are released within sixty (60) days of the filing, recording or
     entry of such judgment.

          (f) Borrower or any of its Subsidiaries shall become insolvent, or
     shall suffer or consent to or apply for the appointment of a receiver,
     trustee, custodian or liquidator of itself or any of its property, or shall
     generally fail to pay its debts as they become due, or shall make a general
     assignment for the benefit of creditors; Borrower or any of its
     Subsidiaries shall file a voluntary petition in bankruptcy, or seeking
     reorganization, in order to effect a plan or other arrangement with
     creditors or any other relief under the Bankruptcy Reform Act, Title 11 of
     the United States Code, as amended or recodified from time to time
     ("Bankruptcy Code"), or under any state or federal law granting relief to
     debtors, whether now or hereafter in effect; or any involuntary petition or
     proceeding pursuant to the Bankruptcy Code or any other applicable state or
     federal law relating to bankruptcy, reorganization or other relief for
     debtors is filed or commenced against Borrower or any of its Subsidiaries,
     or Borrower or any of its Subsidiaries shall file an answer admitting the
     jurisdiction of the court and the material allegations of any involuntary
     petition; or Borrower or any of its Subsidiaries shall be adjudicated a
     bankrupt, or an order for relief shall be entered against Borrower or any
     of its Subsidiaries by any court of competent jurisdiction under the
     Bankruptcy Code or any other applicable state or federal law relating to
     bankruptcy, reorganization or other relief for debtors.

                                       14
1818 Fund Loan Agreement

<PAGE>

          (g) The dissolution or liquidation of Borrower or any Subsidiary, or
     any of its directors or stockholders respectively, shall take action
     seeking to effect the dissolution or liquidation of Borrower or any
     Subsidiary.

          (h) Any IFC Event of Default.

     SECTION 6.02 REMEDIES. Upon (a) the occurrence of any Event of Default
under subsection 6.01(f) above, all indebtedness including principal and accrued
and unpaid interest outstanding under each of the Loan Documents shall become
automatically due and payable and (b) upon the occurrence of any other Event of
Default, all indebtedness including all principal and accrued and unpaid
interest outstanding under each of the Loan Documents, any term thereof to the
contrary notwithstanding, shall at Lender's option and without notice become
immediately due and payable; in each case without presentment, demand, or any
notices of any kind, including without limitation notice of nonperformance,
notice of protest, protest, notice of dishonor, notice of intention to
accelerate or notice of acceleration, all of which are hereby expressly waived
by Borrower. Upon acceleration of the indebtedness, Lender shall have all
rights, powers and remedies available under each of the Loan Documents, and
accorded by law, including without limitation the right to resort to any or all
security for any credit subject hereto and to exercise any or all of the rights
of a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Lender may be exercised at any time by Lender and from time to
time after the occurrence of an Event of Default, are cumulative and not
exclusive, and shall be in addition to any other rights, powers or remedies
provided by law or equity.

                                  ARTICLE VII.
                                  MISCELLANEOUS

     SECTION 7.01 NO WAIVER. No delay, failure or discontinuance of Lender in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Lender of any breach of or default under any of the Loan Documents must
be in writing and shall be effective only to the extent set forth in such
writing.

     SECTION 7.02 NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:

          BORROWER:        VAALCO ENERGY, INC.
                           4600 Post Oak Place, Suite 309
                           Houston, Texas 77027-0130
                           Attn: Russell Scheirman

          LENDER:          1818 FUND II, L.P.
                           59 Wall Street
                           New York, New York 10005-2818
                           Attn: Walter Grist

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1818 Fund Loan Agreement

<PAGE>

or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

     SECTION 7.03 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Lender immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees), expended or incurred by Lender in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents,
Lender's continued administration hereof and thereof, and the preparation of any
amendments and waivers hereto and thereto, (b) the enforcement of Lender's
rights and/or the collection of any amounts which become due to Lender under any
of the Loan Documents, and (c) the prosecution or defense of any action in any
way related to any of the Loan Documents, including without limitation, any
action for declaratory relief, whether incurred at the trial or appellate level,
in an arbitration proceeding or otherwise, and including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought by
Lender or any other person) relating to Borrower or any other person or entity.

     SECTION 7.04 ASSIGNMENTS.

          (a) Borrower may not assign its rights or obligations hereunder or
     under the Note without the prior consent of Lender.

          (b) Lender may assign to one or more assignees all or a portion of its
     rights and obligations under this Agreement pursuant to an Assignment
     Agreement substantially in the form of Exhibit D (an "Assignment");
     provided, however, that any such assignment shall be in the amount of at
     least $1,000,000 and provided further, at no time shall there be more than
     four (4) Lenders. Any such assignment will become effective upon the
     execution and delivery to Borrower and all Lenders then party to this
     Agreement ("Existing Lenders") of the Assignment and the consent of
     Existing Lenders. Upon receipt of such executed Assignment, Borrower, will,
     at its own expense, execute and deliver new Notes to the assignor and/or
     assignee, as appropriate, in accordance with their respective interests as
     they appear. Borrower and Lenders further agree to enter into such
     modifications, assignments and amendments to the Loan Documents as
     necessary to provide for multiple Lenders, including, for example,
     designation of a collateral agent and administrative agent for the Lenders.
     Upon the effectiveness of any assignment pursuant to this Section 7.04(b),
     the assignee will become a "Lender" for all purposes of this Agreement and
     obligated, subject to the terms of this Agreement and the Assignment, to
     fund up to the full amount of its assigned percentage of the Commitment
     (the "Percentage Share of the Commitment"). The assignor shall be relieved
     of its obligations hereunder to the extent of such assignment (and if the
     assigning Lender no longer holds any rights or obligations under this
     Agreement, such assigning Lender shall cease to be a "Lender" hereunder).
     Existing Lenders will prepare a new Schedule II giving effect to all such
     assignments effected restating each Lenders' Percentage Share of the
     Commitment, its pro-rata share of the Commitment and assigned share of
     Loans then outstanding, and will promptly provide the same to Borrower and
     each Lender.

          (c) Existing Lenders may furnish any information concerning Borrower
     in their possession from time to time to assignees (including prospective
     assignees); provided that, such persons agree to maintain such information
     confidential.

          (d) Notwithstanding anything in this Section 7.04 to the contrary, any
     Lender may assign and pledge its Note to any Federal Reserve Bank or any
     Affiliate of such Lender for so

                                       16
1818 Fund Loan Agreement

<PAGE>

     long as such entity remains an Affiliate of Lender. No such assignment
     and/or pledge shall release the assigning and/or pledging Lender from its
     obligations hereunder.

          (e) Notwithstanding any other provisions of this Section 7.04, no
     transfer or assignment of the interests or obligations of any Lender or any
     grant of participations therein shall be permitted if such transfer,
     assignment or grant would require Borrower to file a registration statement
     with the SEC or to qualify the Loans under the "Blue Sky" laws of any
     state.

     SECTION 7.05 AMENDMENT. This Agreement may be amended or modified only in
writing signed by each party hereto.

     SECTION 7.06 NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.

     SECTION 7.07 TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.

     SECTION 7.08 SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.

     SECTION 7.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement. Any signed counterpart shall be deemed delivered by the party signing
it if sent to the other parties hereto by electronic facsimile transmission.

     SECTION 7.10 FURTHER ASSURANCES. Borrower agrees, at its own expense, to
execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Lender may from time
to time reasonably request to preserve, protect and perfect the security
interests granted pursuant to the Security Documents and the rights and remedies
created hereby, including the payment of any fees and taxes required in
connection with the execution and delivery of this Agreement, the granting of
the security interests granted pursuant to the Security Documents and the filing
of any financing statements (including fixture filings) or other documents in
connection herewith or therewith.

     SECTION 7.11 GOVERNING LAW.

          (a) This Agreement is governed by and shall be construed in accordance
     with the laws of the State of New York and applicable U.S. federal law.

          (b) For the exclusive benefit of Lender, Borrower irrevocably agrees
     that any legal action, suit or proceeding arising out of or relating to
     this Agreement or any other Loan Document to which Borrower is a party may
     be brought by Lender, in its discretion, in the courts of the State of New
     York, the United States for the Southern District of New York, or England.
     By the execution of this Agreement, Borrower irrevocably submits to the
     non-exclusive

                                       17
1818 Fund Loan Agreement

<PAGE>

     jurisdiction of such courts in any such action, suit or proceeding. Final
     judgment against Borrower in any such action, suit or proceeding shall be
     conclusive and may be enforced in any other jurisdiction, including Gabon,
     London, New York and Delaware, by suit on the judgment, a certified or
     exemplified copy of which shall be conclusive evidence of the judgment, or
     in any other manner provided by law.

          (c) Nothing in this Agreement shall affect the right of Lender to
     commence legal proceedings or otherwise sue Borrower in Gabon, London, New
     York, Delaware or any other appropriate jurisdiction, or concurrently in
     more than one jurisdiction, or to serve process, pleadings and other papers
     upon Borrower in any manner authorized by the laws of any such
     jurisdiction.

          (d) Borrower hereby irrevocably designates, appoints and empowers the
     Chief Executive and the Head of the Litigation Group of Bird & Bird located
     at 90 Fetter Lance, London EC4A 1JP (reference VAAEN.0001), as its
     authorized agent solely to receive for and on its behalf service of the
     writ of summons or other legal process in any action, suit or proceeding
     Lender may bring in the courts of England and CT Corp., as its authorized
     agent solely to receive for and on its behalf service of the writ of
     summons or other legal process in any action, suit or proceeding Lender may
     bring in the courts of the Southern District of New York.

          (e) As long as this Agreement or any other Loan Document to which
     Borrower is a party remains in force, Borrower shall maintain a duly
     appointed and authorized agent to receive for and on its behalf service of
     the writ of summons or other legal process in any action, suit or
     proceeding brought by Lender in the courts of England or in the Southern
     District of New York with respect to this Agreement or such other Loan
     Documents. Borrower shall keep Lender advised of the identity and location
     of such agent.

          (f) Borrower irrevocably waives: (i) any objection which it may have
     now or in the future to the laying of the venue of any action, suit or
     proceeding in any court referred to in this Section 7.11; and (ii) any
     claim that any such action, suit or proceeding has been brought in an
     inconvenient forum.

          (g) To the extent that Borrower may be entitled in any jurisdiction to
     claim for itself or its assets immunity with respect to its obligations
     under this Agreement or any other Loan Document to which it is a party from
     any suit, execution, attachment (whether provisional or final, in aid of
     execution, before judgment or otherwise) or other legal process or to the
     extent that in any jurisdiction that immunity (whether or not claimed), may
     be attributed to it or its assets, Borrower irrevocably agrees not to claim
     and irrevocably waives such immunity to the fullest extent now or in the
     future permitted by the laws of such jurisdiction.

          (h) Borrower also consents generally with respect to any proceedings
     arising out of or in connection with this Agreement or any other Loan
     Document to which it is a party to the giving of any relief or the issue of
     any process in connection with such proceedings including, without
     limitation, the making, enforcement or execution against any property
     whatsoever (irrespective of its use or intended use) of any order or
     judgment which may be made or given in such proceedings.

          (i) To the extent that Borrower may, in any suit, action or proceeding
     brought in any of the courts referred to in Subsection 7.11(b) or a court
     of Gabon, London, New York, Delaware or elsewhere arising out of or in
     connection with this Agreement or any other Loan Document to which Borrower
     is a party, be entitled to the benefit of any provision of law requiring
     Lender in

                                       18
1818 Fund Loan Agreement

<PAGE>

     such suit, action or proceeding to post security for the costs of Borrower,
     or to post a bond or to take similar action, Borrower hereby irrevocably
     waives such benefit, in each case to the fullest extent now or in the
     future permitted under the laws of Gabon, London, New York, Delaware or, as
     the case may be, the jurisdiction in which such court is located.

          (j) Borrower also irrevocably consents, if for any reason Borrower's
     authorized agent for service of process of summons, complaint and other
     legal process in any action, suit or proceeding is not present in New York
     or England, to service of such papers being made out of those courts by
     mailing copies of the papers by registered air mail, postage prepaid, to
     Borrower at its address specified pursuant to Section 7.02. In such a case,
     Lender shall also send by facsimile, or have sent by facsimile, a copy of
     the papers to Borrower.

     SECTION 7.12 SAVINGS CLAUSE. It is the intention of the parties to comply
strictly with applicable usury laws. Accordingly, notwithstanding any provision
to the contrary in the Loan Documents, in no event shall any Loan Documents
require the payment or permit the payment, taking, reserving, receiving,
collection or charging of any sums constituting interest under applicable laws
that exceed the maximum amount permitted by such laws, as the same may be
amended or modified from time to time (the "Maximum Rate"). If any such excess
interest is called for, contracted for, charged, taken, reserved or received in
connection with any Loan Documents, or in any communication by or any other
person to Borrower or any other person, or in the event that all or part of the
principal or interest hereof or thereof shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, reserved or received on the
amount of principal actually outstanding from time to time under the Loan
Documents shall exceed the Maximum Rate, then in such event it is agreed that:
(i) the provisions of this paragraph shall govern and control; (ii) neither
Borrower nor any other person or entity now or hereafter liable for the payment
of any Loan Documents shall be obligated to pay the amount of such interest to
the extent it is in excess of the Maximum Rate; (iii) any such excess interest
which is or has been received by Lender, notwithstanding this paragraph, shall
be credited against the then unpaid principal balance hereof or thereof, or if
any of the Loan Documents has been or would be paid in full by such credit,
refunded to Borrower; and (iv) the provisions of each of the Loan Documents, and
any other communication to Borrower, shall immediately be deemed reformed and
such excess interest reduced, without the necessity of executing any other
document, to the Maximum Rate. The right to accelerate the maturity of the Loan
Documents does not include the right to accelerate, collect or charge unearned
interest, but only such interest that has otherwise accrued as of the date of
acceleration. Without limiting the foregoing, all calculations of the rate of
interest contracted for, charged, taken, reserved or received in connection with
any of the Loan Documents which are made for the purpose of determining whether
such rate exceeds the Maximum Rate shall be made to the extent permitted by
applicable laws by amortizing, prorating, allocating and spreading during the
period of the full term of such Loan Documents, including all prior and
subsequent renewals and extensions hereof or thereof, all interest at any time
contracted for, charged, taken, reserved or received by Lender. The terms of
this paragraph shall be deemed to be incorporated into each of the other Loan
Documents.

     To the extent that either Chapter 303 or 306, or both, of the Texas Finance
Code apply in determining the Maximum Rate, Lender hereby elects to determine
the applicable rate ceiling by using the weekly ceiling from time to time in
effect, subject to Lender's right subsequently to change such method in
accordance with applicable law, as the same may be amended or modified from time
to time.

     SECTION 7.13 RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the
occurrence of an Event of Default, (a) Borrower hereby authorizes Lender, acting
on Lender's behalf, at any time and from time to time, without notice, which is
hereby expressly waived by Borrower, and whether or not Lender shall have
declared any credit subject hereto to be due and payable in accordance with the
terms

                                       19
1818 Fund Loan Agreement

<PAGE>

hereof, to set off against, and to appropriate and apply to the payment of,
Borrower's obligations and liabilities under the Loan Documents (whether matured
or unmatured, fixed or contingent, liquidated or unliquidated), any and all
amounts owing by Lender to Borrower (whether payable in U.S. dollars or any
other currency, whether matured or unmatured, and in the case of deposits,
whether general or special (except trust and escrow accounts), time or demand
and however evidenced), and (b) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such obligations and
liabilities. Borrower hereby grants to Lender a security interest in all
deposits and accounts maintained with Lender and with any financial institution
to secure the payment of all obligations and liabilities of Borrower to Lender
under the Loan Documents.

     SECTION 7.14 BUSINESS PURPOSE. Borrower represents and warrants that each
credit subject hereto is for a business, commercial, investment, agricultural or
other similar purpose and not primarily for a personal, family or household use.

     SECTION 7.15 INDEMNIFICATION. Borrower agrees to indemnify Lender, each
assignee or participant hereunder, each of their affiliates and each of their
officers, directors, partners, employees, representatives, agents, attorneys,
accountants and experts ("Indemnified Parties") from, hold each of them harmless
against and promptly upon demand pay or reimburse each of them for, the
Indemnity Matters which may be incurred by or asserted against or involve any of
them (whether or not any of them is designated a party thereto) as a result of,
arising out of or in any way related to (i) any actual or proposed use by
Borrower of the proceeds of any of the Loans, (ii) the execution, delivery and
performance of the Loan Documents and amendments to such documents, (iii) the
operations of the business of Borrower, (iv) the failure of Borrower to comply
with the terms of any Loan Documents or this Agreement and amendments to such
documents, or with any applicable law, (v) any inaccuracy of any representation
or any breach of any warranty of Borrower set forth in any of the Loan Documents
and amendments to such documents, (vi) any assertion that any Indemnified Party
was not entitled to receive the proceeds received pursuant to the Loan Documents
and amendments to such documents, (vii) the administration of this Agreement,
(viii) the custody or preservation of, or the sale of, collection from or other
realization upon any of the collateral, (ix) the exercise, enforcement or
protection of any of the rights of the Lender hereunder, or (x) any other aspect
of the Loan Documents and amendments to such documents, including, without
limitation, the reasonable fees and disbursements of counsel and all other
expenses incurred in connection with investigating, defending or preparing to
defend any such action, suit, proceeding (including any investigations,
litigation or inquiries) or claim and including all Indemnity Matters arising by
reason of the ordinary negligence of any Indemnified Party, but excluding all
Indemnity Matters arising solely by reason of claims between Lender or any
assignee or participant, or any such party's shareholders against Lender or any
assignee or participant or by reason of the gross negligence or willful
misconduct on the part of the Indemnified Party.

     SECTION 7.16 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF
LENDER IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.

     NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE

                                       20
1818 Fund Loan Agreement

<PAGE>

PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO
THE INDEBTEDNESS.

1818 Fund Loan Agreement                21

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.

                                        VAALCO ENERGY, INC.

                                        By:
                                           ------------------------------------
                                        Name:
                                             ----------------------------------
                                        Title:
                                              ---------------------------------

               SIGNATURE PAGE S-1 TO SUBORDINATED CREDIT AGREEMENT

                                       S-1
1818 Fund Loan Agreement

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.

                                        1818 FUND II, L.P.

                                        By:                                    ,
                                             ---------------------------------
                                             Brown Brothers Harriman & Co.,
                                             its general partner

                                             By:
                                                --------------------------------
                                                 Walter Grist
                                             Title:
                                                   -----------------------------

               SIGNATURE PAGE S-2 TO SUBORDINATED CREDIT AGREEMENT

                                       S-2
1818 Fund Loan Agreement

<PAGE>

                                   APPENDIX A

                                  DEFINED TERMS

General Definitions. Wherever used in this Agreement, the following terms have
the meanings specified or referred to below:

"Additional Warrant" has the meaning specified in Subsection 1.02(c).

"Affiliate" means, in respect of any Person, any other Person directly or
indirectly Controlling, Controlled by or under common Control with, such Person;

"Agreement" has the meaning set forth in the introductory paragraph hereto.

"Assignment" has the meaning specified in Subsection 7.04(b).

"Authority" means any national, supranational, regional or local government or
governmental, administrative, fiscal, judicial, or government-owned body,
department, commission, authority, tribunal, agency or entity, or central bank
(or any entity, whether or not government owned and howsoever constituted or
called, that exercises the functions of a central bank).

"Bankruptcy Code" has the meaning specified in Subsection 6.01(f).

"Business Day" means a day when banks are open for business in New York, New
York.

"Borrower" has the meaning set forth in the introductory paragraph hereto.

"Common Stock" has the meaning specified in Subsection 2.02(a).

"Control" means the power to direct the management or policies of a Person,
directly or indirectly, whether through the ownership of shares or other
securities, by contract or otherwise, provided that the direct or indirect
ownership of fifty-one per cent (51%) or more of the voting share capital of a
Person is deemed to constitute control of that Person, and "Controlling" and
"Controlled" have corresponding meanings;

"Current Liabilities" means, with respect to Borrower and/or its Subsidiaries,
as applicable, the aggregate of all liabilities of Borrower falling due on
demand or within one year (including the portion of Long-term Debt falling due
within one year);

"Debt" means, with respect to Borrower and/or its Subsidiaries, as applicable,
the aggregate of all obligations (whether actual or contingent) of such Person,
to pay or repay money including, without limitation: (i) all Indebtedness for
Borrowed Money; (ii) the aggregate amount then outstanding of all liabilities of
any party to the extent such Person guarantees them or otherwise directly or
indirectly obligates itself to pay them; (iii) all liabilities of such Person
(actual or contingent) under any conditional sale or a transfer with recourse or
obligation to repurchase, including, without limitation, by way of discount or
factoring of book debts or receivables; and (iv) all liabilities of such Person
(actual or contingent) under its Articles of Incorporation or Bylaws, any
resolution of its shareholders, or any agreement or other document binding on
such Person to redeem any of its shares.

1818 Fund Loan Agreement
                                  APPENDIX A-1

<PAGE>

"Derivative Transaction" means any swap agreement, cap agreement, collar
agreement, futures contract, forward contract or similar arrangement with
respect to interest rates, currencies or commodity prices.

"Disbursement" has the meaning ascribed to such term in the IFC Loan Agreement.

"Dollars" and "$" means the lawful currency of the United States of America.

"ERISA" has the meaning specified in Section 2.10.

"Escrow Account Bank" has the meaning set forth in the recitals hereto.

"Etame Field" means the area 45 kilometers offshore of the southern coast of
Gabon identified as the "Delimited Area" (Zone Delimitee) in the PSC, which
contains hydrocarbon accumulations, in relation to which the EEA has been
granted by GOG.

"Event of Default" has the meaning specified in Section 6.01.

"EEA" means the Exclusive Exploitation Authorization granted to Borrower with
respect to the Etame Field through an edict by the Minister in charge of
Hydrocarbons of Gabon on July 17, 2001, for a term of at least ten (10) years.

"Existing Lenders" has the meaning specified in Subsection 7.04(b).

"Gabon" means the Republic of Gabon.

"GOG" means the government of the Republic of Gabon.

"IFC" has the meaning set forth in the recitals hereto.

"IFC Indebtedness" has the meaning specified in Section 1.05.

"IFC Loan Agreement" has the meaning set forth in the recitals hereto.

"IFC Events of Default" has the meaning specified in Subsection 3.02(b).

"IFC Potential Events of Default" has the meaning specified in Subsection
3.02(b).

"IFC Loan Documents" has the meaning specified in Subsection 3.01(c).

"Indebtedness for Borrowed Money" means, with respect to Borrower and/or its
Subsidiaries, as applicable, all obligations of such Person to repay money
including, without limitation, with respect to: (i) borrowed money; (ii) the
outstanding principal amount of any bonds, debentures, notes, loan stock,
commercial paper, acceptance credits, bills or promissory notes drawn, accepted,
endorsed or issued by such Person; (iii) any credit to such Person from a
supplier of goods or services under any installment purchase or other similar
arrangement with respect to goods or services (except trade accounts that are
payable in the ordinary course of business and included in Current Liabilities);
(iv) non-contingent obligations of such Person to reimburse any other person or
entity with respect to amounts paid by such Person to that person or entity
under a letter of credit or similar instrument (excluding any letter of credit
or similar instrument issued for the benefit of such Person with respect to
trade accounts that are payable in the ordinary course of business and included
in Current Liabilities); (v) amounts raised under any other transaction

1818 Fund Loan Agreement
                                  APPENDIX A-2

<PAGE>

having the financial effect of a borrowing and which would be classified as a
borrowing (and not as an off-balance sheet financing) under U.S. generally
accepted accounting principles applied on a consistent basis including, without
limitation, under leases or similar arrangements entered into primarily as a
means of financing the acquisition of the asset leased; (vi) the amount of such
Person's obligations, as the case may be, pursuant to Derivative Transactions
which consist of swap, collar and cap agreements entered into in connection with
other Debt of such Person or VGEI, respectively, provided that for the avoidance
of double counting and for so long as any such swap, collar or cap agreement is
in effect, that Debt will be included in Indebtedness for Borrowed Money
pursuant to the terms of the relevant Derivative Transaction and not the terms
of the agreement providing for that Debt when it was incurred; and (vii) any
premium payable on a mandatory redemption or replacement of any of the foregoing
obligations.

"Indemnified Parties" has the meaning specified in Section 7.15.

"Indemnity Matters" means any and all actions, suits, proceedings (including any
investigations, litigation or inquiries), claims, demands and causes of action
made or threatened against a person and, in connection therewith, all losses,
liabilities, damages (including, without limitation, consequential damages) or
reasonable costs and expenses of any kind or nature whatsoever incurred by such
person (including, without limitation, expenses and fees of counsel and of any
experts and agents) whether caused by the sole or concurrent negligence of such
person seeking indemnification.

"Lender" has the meaning set forth in the introductory paragraph hereto.

"Loan" has the meaning specified in Subsection 1.01(a).

"Loan Documents" has the meaning specified in Subsection 2.03(a).

"Long Term Debt" means, with respect to Borrower, that part of the Debt of
Borrower the final maturity of which, by its terms or the terms of any agreement
relating to it, falls due more than one year after the date of its incurrence.

"Long-term Debt to Equity Ratio" means, at any calculation date, with respect to
Borrower, the result obtained by dividing Borrower's Long-term Debt by
Borrower's Shareholder Equity.

"Maximum Rate" has the meaning specified in Section 7.12.

"Note" has the meaning specified in Subsection 1.01(a).

"Obligations" means, collectively, (a) the due and punctual payment by the
Borrower of (i) the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Loans, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, and (ii) all other monetary obligations, including fees, costs,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed
or otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding), of the Borrower to the Lender
or any other Person under the Loan Documents and (b) the due and punctual
payment and performance of all covenants, agreements, obligations and
liabilities of the Borrower, monetary or otherwise, under or pursuant to the
Loan Documents.

1818 Fund Loan Agreement
                                  APPENDIX A-3

<PAGE>

"Percentage Share of the Commitment" has the meaning specified in Subsection
7.04(b).

"Person" means any natural person, corporation, partnership, company, or other
entity, whether acting in an individual, fiduciary or other capacity.

"Phase One Completion Date" has the meaning ascribed to such term in the IFC
Loan Agreement as in effect on the date hereof.

"Plan" has the meaning specified in Section 2.10.

"Preferred Stock" has the meaning specified in Subsection 2.02(a).

"PSC" means the Exploration and Production Sharing Contract dated as of July 7,
1995, between the Republic of Gabon, represented by the Minister of Mines,
Energy and Petroleum, and Borrower and PanAfrican Gabon (under its former name
VAALCO Energy (Gabon), Inc.), collectively as the Contractor, as amended October
__, 2001.

"Project" means that certain project consisting of the development of the Etame
Field in the Etame Marin block, 45 km offshore of the southern coast of Gabon
and involving the re-entering and completing of three existing wells, the
drilling and completing of up to three additional wells and installing of
flowlines to connect the wells to a registered floating production storage and
offloading tanker facility and its mooring system capable of processing up to
30,000 barrels per day and storing up to 1.1 million barrels of oil.

"Security Documents" has the meaning specified in Section 1.04.

"Series A Preferred Stock" has the meaning specified in Subsection 2.02(a).

"Shareholders' Equity" means, with respect to Borrower, the aggregate of: (i)
the amount paid up on the share capital of Borrower; and (ii) the amount
standing to the credit of the reserves of Borrower (including, without
limitation, any share premium account, capital redemption reserve funds and any
credit balance on the accumulated profit and loss account); after deducting from
that aggregate (A) any debit balance on the profit and loss account or
impairment of the issued share capital of Borrower (except to the extent that
deduction with respect to that debit balance or impairment has already been
made), (B) amounts set aside for dividends or taxation (including deferred
taxation), and (C) amounts attributable to capitalized items such as goodwill,
trademarks, deferred charges, licenses, patents and other intangible assets.

"Sponsor Escrow Account" has the meaning set forth in the recitals hereto.

"Sponsor Escrow Agreement" has the meaning set forth in the recitals hereto.

"Subordination Agreement" has the meaning specified in Section 1.05.

"Subsidiary" means (a) any corporation in which Borrower, directly or
indirectly, owns more than fifty percent (50%) of the issued and outstanding
securities having voting power to elect a majority of the directors of such
corporation; and (b) any partnership, association, joint venture, or other
entity in which Borrower, directly or indirectly, has more than a fifty percent
(50%) equity interest at the time.

1818 Fund Loan Agreement
                                  APPENDIX A-4

<PAGE>

"Taxes" means any present or future taxes, withholding obligations, duties and
other charges of whatever nature levied by any Authority.

"Transaction Documents" has the meaning ascribed to such term in the IFC Loan
Agreement.

"VGEI Common Stock" has the meaning specified in Subsection 2.02(b).

"VGEI" has the meaning set forth in the recitals hereto.

"Warrants" has the meaning specified in Subsection 1.02(b).

1818 Fund Loan Agreement
                                  APPENDIX A-5

<PAGE>

                                   SCHEDULE I

Unless otherwise stated, all documents are of even date herewith.

1.   "Subordination Agreement" by and between Borrower, IFC and Lender.

2.   "Subordinated Pledge of Shares Agreement" by and between Borrower and
     Lender.

3.   "Charge Over Deposit Agreement" by and between Borrower and Lender and any
     notices required thereby or delivered thereto.

                                   Schedule I
1818 Fund Loan Agreement

<PAGE>

                                   SCHEDULE II

1.   Lender's Commitments

     Lender:                         Percentage Share       Commitment Amount
                                    of the Commitment
     1818 Fund II, L.P.                   100%                 $10,000,000

1818 Fund Loan Agreement

<PAGE>

                                                                    SCHEDULE III
                                                                     Page 1 of 2

                                  SCHEDULE III

                         FORM OF BORROWER'S CERTIFICATE

                             [Borrower's Letterhead]

                                                                          [Date]

1818 Fund II, L.P.
59 Wall Street
New York, New York  10005-2818

Attention:  Walter Grist

Gentlemen:

1.   Please refer to the Subordinated Credit Agreement (the "Loan Agreement")
dated ___________, ___, between VAALCO Energy, Inc. (the "Borrower") and 1818
Fund II, L.P. ("Lender"). Terms defined in the Loan Agreement have their defined
meanings whenever used in this certificate.

2.   The Borrower irrevocably requests the disbursement on ____________, ____
(or as soon as practicable thereafter) of the amount of ____________
(____________) in accordance with the provisions of Section 3.03 of the Loan
Agreement. You are requested to pay such amount to the Escrow Account Bank,
Account No. ____________ at [Name and Address of Bank] in London, England.

3.   Borrower certifies as follows:

     (a) no Event of Default has occurred and is continuing;

     (b) no event of default pursuant to Section 7.02 of the IFC Loan Agreement
and no event or circumstance which would, with notice, lapse of time, the making
of a determination or any combination thereof, become an event of default
pursuant to Section 7.02 of the IFC Loan Agreement has occurred and is
continuing;

     (c) the proceeds of the Loan are at the date of this certificate needed by
the Borrower to fund the Sponsor Escrow Account as a condition precedent to a
funding in the same amount to VGEI under the IFC Loan Agreement to be made
within three (3) Business Days after this Loan for the purpose of financing
costs associated with the Project;

     (d) since the date of the Loan Agreement nothing has occurred which (i) has
and is continuing to have, or (ii) can reasonably be expected to have a material
adverse effect on Borrower and its Subsidiaries taken as a whole;

     (e) since December 31, 2001, the Borrower and its Subsidiaries have not
incurred any material loss or liability (except such liabilities as may be
incurred by the Borrower or any of its Subsidiaries in accordance with Article
V);

1818 Fund Loan Agreement

<PAGE>

                                                                    SCHEDULE III
                                                                     Page 2 of 2

     (f) the representations and warranties made in Article II are true and
correct in all material respects (except for any such representations and
warranties which are qualified by their terms by a reference to materiality or
material adverse affect, which representation as so qualified shall be true and
correct in all respects) on and as of such date with the same effect as if those
representations and warranties had been made on and as of such date;

     (g) after giving effect to the Loan, neither the Borrower nor any of its
Subsidiaries will be in violation of:

          (i)   its articles of incorporation and bylaws and/or such other
                constitutive documents, howsoever called;

          (ii)  any provision contained in any document to which Borrower or any
                of its Subsidiaries is a party (including the Loan Agreement) or
                by which Borrower or any of its Subsidiaries is bound; or

          (iii) any law, rule, regulation, authorization or agreement or other
                document binding on the Borrower or any of its Subsidiaries
                directly or indirectly, limiting or otherwise restricting the
                Borrower's or any of its Subsidiaries' borrowing power or
                authority or its ability to borrow;

     (h) on and as of the date of this certificate, Borrower's Long-term Debt to
Equity Ratio does not exceed 70:30; and

     (i) the undisbursed portion of funds available to VGEI under the IFC Loan
Agreement are sufficient to finance VGEI's share of costs projected to be
incurred up through the Phase One Completion Date.

     The above certifications are effective as of the date hereof and shall
continue to be effective as of the date of the Loan. If any of these
certifications is no longer valid as of or prior to the date of the Loan, the
Borrower undertakes to immediately notify Lender.

                                                    Yours truly,

                                                    VAALCO ENERGY, INC.

                                                    By
                                                       -------------------------
                                                       Authorized Representative

1818 Fund Loan Agreement

<PAGE>

                                    EXHIBIT A

                                      NOTE

$10,000,000.00                                                     June 10, 2002

     FOR VALUE RECEIVED, the undersigned VAALCO ENERGY, INC., a Delaware
corporation ("Borrower"), promises to pay to the order of 1818 FUND II, L.P.,
Delaware limited partnership or its permitted assigns ("Lender") at its office
at 59 Wall Street, New York, New York 10005-2818, or at such other place as the
holder hereof may designate, in lawful money of the United States of America and
in immediately available funds, the principal sum of Ten Million Dollars
($10,000,000.00), or such lesser amount advanced by Lender to Borrower under the
terms of the Credit Agreement (as defined below), and to pay interest thereon as
set forth herein. This Note is issued in connection with that certain
Subordinated Credit Agreement between Lender and Borrower of even date herewith
(the "Credit Agreement"), and is secured as provided therein by the Security
Documents. All capitalized terms not otherwise defined herein are defined in the
Credit Agreement.

PROCEDURE FOR BORROWINGS:

     (a) Each advance of principal hereunder shall be made upon Borrower's
irrevocable written notice delivered to Lender (each a "Borrowing Notice");
which notice must be received by Lender prior to 9:00 a.m. (Central time) ten
(10) days prior to the date of the requested advance except for the initial
advance in the amount of $___________ which shall be made on the date hereof.

     (b) Each Borrowing Notice shall specify (i) the amount of principal to be
advanced, which shall be in an aggregate minimum amount of $2,000,000 or any
multiple integrals of $100,000 in excess thereof; and (ii) the requested date
principal is to be advanced which shall be a Business Day. Any amounts repaid
under this Note may not be reborrowed.

     (c) Each advance or repayment shall be recorded by Lender and endorsed on
the grid attached hereto, which is part of this Note.

INTEREST:

     Borrower agrees to pay interest at Lender's address listed above on the
unpaid principal outstanding under this Note and, to the extent permitted by
law, the accrued interest in respect hereof from time to time from the date
hereof until payment in full of the principal amount hereof and accrued interest
hereon, at a rate equal to (i) ten percent (10%) per annum, compounded annually,
from the period beginning on the date hereof and ending on the earlier of nine
(9) months from the First Sale of Production (as defined in the Senior Loan
Documents as in effect on the date hereof) and eighteen (18) months following
the date hereof and (ii) fourteen percent (14%) per annum, compounded annually
for the period beginning on the date next succeeding the period referred to in
clause (i) and ending when the full principal amount hereof and accrued interest
hereon have been paid in full. Interest shall be computed on the basis of a
360-day year, actual days elapsed, unless such calculation would result in a
usurious rate, in which case interest shall be computed on the basis of a
365/366-day year, as the case may be, actual days elapsed. Interest shall be
payable in a single payment on the "Maturity Date" as hereinbelow defined.

                                   Exhibit A-1
1818 Fund Loan Agreement

<PAGE>

     Notwithstanding the foregoing provisions of this Section, but subject to
applicable law, any overdue principal of and overdue interest on this Note shall
bear interest, payable on demand in immediately available funds, for each day
from the date payment of principal or interest was due to the date of actual
payment, at the then current rate of interest plus 2.0% per annum, and, upon and
during the continuance of an Event of Default, this Note shall bear interest,
from the date of the occurrence of such Event of Default until such Event of
Default is cured or waived, payable on demand in immediately available funds, at
the then current rate of interest plus 2.0% per annum.

REPAYMENT AND PREPAYMENT:

     (a) Repayment. To the extent not sooner paid, the unpaid principal balance
of this Note, together with all accrued but unpaid interest and outstanding
expenses hereunder and under the Loan Documents shall be due and payable on the
earliest of (i) the Phase One Completion Date, (ii) March 31, 2005; and (iii)
the date that all principal and accrued and unpaid interest shall become due and
payable pursuant to Article VI of the Credit Agreement (the "Maturity Date").

     (b) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.

     (c) Prepayment. Borrower may prepay this Note plus accrued and unpaid
interest hereon provided that all terms in the Credit Agreement and herein are
complied with, at any time upon one day prior notice and in the minimum amount
of One Hundred Thousand Dollars ($100,000); provided, however, that if the
outstanding principal balance of such portion of this Note plus accrued and
unpaid interest hereon is less than said amount, the minimum prepayment amount
shall be the entire outstanding principal hereof.

     (d) Mandatory Prepayment. In the event that IFC has not made a Disbursement
pursuant to the IFC Loan Agreement in an amount equal to or greater than the
Loan made hereunder within three (3) Business Days of the funding of such Loan
pursuant to Section 1.01(a) of the Credit Agreement, Borrower shall immediately
notify Lender and shall repay such loan plus interest accruing thereon to Lender
upon three Business Days written demand from Lender. Further, Borrower shall
prepay this Note in amounts equal to (i) any amounts released by IFC under the
Sponsor Escrow Account other than the amounts described under the first sentence
of this subsection (d), (ii) the net proceeds of any debt or issuance of
securities received by Borrower in excess of Ten Million Dollars ($10,000,000),
and (iii) to the extent not prohibited under the IFC Loan Agreement (as in
effect on the date hereof), ninety percent (90%) of the Free Cash Flow from the
Project. For purposes of this subsection (d), "Free Cash Flow" shall mean cash
flow from the Project net of amounts required to maintain the PSC in full force
and effect. All amounts prepaid shall first be applied to accrued and unpaid
interest and then to outstanding principal.

EVENTS OF DEFAULT:

     (a) Events of Default. The occurrence of an Event of Default under the
Credit Agreement shall constitute an "Event of Default" under this Note.

     (b) Remedies. Upon the occurrence of any Event of Default, Lender shall be
entitled to such remedies as set forth in the Credit Agreement.

                                   Exhibit A-2
1818 Fund Loan Agreement

<PAGE>

     MISCELLANEOUS:

(a)  Governing Law.

          (i) This Note is governed by and shall be construed in accordance with
     the laws of the State of New York and applicable Federal Law.

          (ii) For the exclusive benefit of Lender, Borrower irrevocably agrees
     that any legal action, suit or proceeding arising out of or relating to
     this Note or any other Loan Document to which Borrower is a party may be
     brought by Lender, in its sole discretion, in the courts of the State of
     New York, the United States for the Southern District of New York, or
     England. By the execution of this Note, Borrower irrevocably submits to the
     non-exclusive jurisdiction of such courts in any such action, suit or
     proceeding. Final judgment against Borrower in any such action, suit or
     proceeding shall be conclusive and may be enforced in any other
     jurisdiction, including Gabon, London, New York and Delaware, by suit on
     the judgment, a certified or exemplified copy of which shall be conclusive
     evidence of the judgment, or in any other manner provided by law.

          (iii) Nothing in this Note shall affect the right of Lender to
     commence legal proceedings or otherwise sue Borrower in Gabon, London, New
     York, Delaware or any other appropriate jurisdiction, or concurrently in
     more than one jurisdiction, or to serve process, pleadings and other papers
     upon Borrower in any manner authorized by the laws of any such
     jurisdiction.

          (iv) Borrower hereby irrevocably designates, appoints and empowers the
     Chief Executive and the Head of the Litigation Group of Bird & Bird located
     at 90 Fetter Lance, London EC4A 1JP (reference VAAEN.0001), as its
     authorized agent solely to receive for and on its behalf service of the
     writ of summons or other legal process in any action, suit or proceeding
     Lender may bring in the courts of England and CT Corp., as its authorized
     agent solely to receive for and on its behalf service of the writ of
     summons or other legal process in any action, suit or proceeding Lender may
     bring in the courts of the Southern District of New York.

          (v) As long as this Note or any other Loan Document to which Borrower
     is a party remains in force, Borrower shall maintain a duly appointed and
     authorized agent to receive for and on its behalf service of the writ of
     summons or other legal process in any action, suit or proceeding brought by
     Lender in the courts of England or in the Southern District of New York
     with respect to this Note or such other Loan Documents. Borrower shall keep
     Lender advised of the identity and location of such agent.

          (vi) Borrower irrevocably waives: (x) any objection which it may have
     now or in the future to the laying of the venue of any action, suit or
     proceeding in any court referred to in this Section; and (y) any claim that
     any such action, suit or proceeding has been brought in an inconvenient
     forum.

          (vii) To the extent that Borrower may be entitled in any jurisdiction
     to claim for itself or its assets immunity with respect to its obligations
     under this Note or any other Loan Document to which it is a party from any
     suit, execution, attachment (whether provisional or final, in aid of
     execution, before judgment or otherwise) or other legal process or to the
     extent that in any jurisdiction that immunity (whether or not claimed), may
     be attributed to it or its assets, Borrower

                                   Exhibit A-3
1818 Fund Loan Agreement

<PAGE>

     irrevocably agrees not to claim and irrevocably waives such immunity to the
     fullest extent now or in the future permitted by the laws of such
     jurisdiction.

          (viii) Borrower also consents generally with respect to any
     proceedings arising out of or in connection with this Note or any other
     Loan Document to which it is a party to the giving of any relief or the
     issue of any process in connection with such proceedings including, without
     limitation, the making, enforcement or execution against any property
     whatsoever (irrespective of its use or intended use) of any order or
     judgment which may be made or given in such proceedings.

          (ix) To the extent that Borrower may, in any suit, action or
     proceeding brought in any of the courts referred to in Subsection (ii) or a
     court of Gabon, London, New York, Delaware or elsewhere arising out of or
     in connection with this Note or any other Loan Document to which Borrower
     is a party, be entitled to the benefit of any provision of law requiring
     Lender in such suit, action or proceeding to post security for the costs of
     Borrower, or to post a bond or to take similar action, Borrower hereby
     irrevocably waives such benefit, in each case to the fullest extent now or
     in the future permitted under the laws of Gabon, London, New York, Delaware
     or, as the case may be, the jurisdiction in which such court is located.

          (x) Borrower also irrevocably consents, if for any reason Borrower's
     authorized agent for service of process of summons, complaint and other
     legal process in any action, suit or proceeding is not present in New York
     or England, to service of such papers being made out of those courts by
     mailing copies of the papers by registered air mail, postage prepaid, to
     Borrower at its address specified pursuant to Section 7.02 of the Credit
     Agreement. In such a case, Lender shall also send by facsimile, or have
     sent by facsimile, a copy of the papers to Borrower.

     (b) Savings Clause. It is the intention of the parties to comply strictly
with applicable usury laws. Accordingly, notwithstanding any provision to the
contrary in this Note, the Credit Agreement, or in any other Loan Document, in
no event shall this Note or any Loan Document require the payment or permit the
payment, taking, reserving, receiving, collection or charging of any sums
constituting interest under applicable laws that exceed the maximum amount
permitted by such laws, as the same may be amended or modified from time to time
(the "Maximum Rate"). If any such excess interest is called for, contracted for,
charged, taken, reserved or received in connection with this Note or any Loan
Document, or in any communication by Lender or any other person to Borrower or
any other person, or in the event that all or part of the principal or interest
hereof or thereof shall be prepaid or accelerated, so that under any of such
circumstances or under any other circumstance whatsoever the amount of interest
contracted for, charged, taken, reserved or received on the amount of principal
actually outstanding from time to time under this Note shall exceed the Maximum
Rate, then in such event it is agreed that: (i) the provisions of this paragraph
shall govern and control; (ii) neither Borrower nor any other person or entity
now or hereafter liable for the payment of this Note or any Loan Document shall
be obligated to pay the amount of such interest to the extent it is in excess of
the Maximum Rate; (iii) any such excess interest which is or has been received
by Lender, notwithstanding this paragraph, shall be credited against the then
unpaid principal balance hereof or thereof, or if this Note or any Loan Document
has been or would be paid in full by such credit, refunded to Borrower; and (iv)
the provisions of this Note and each Loan Document, and any other communication
to Borrower, shall immediately be deemed reformed and such excess interest
reduced, without the necessity of executing any other document, to the Maximum
Rate. The right to accelerate the maturity of this Note or any Loan Document
does not include the right to accelerate, collect or charge unearned interest,
but only such interest that has otherwise accrued as of the date of
acceleration. Without limiting the foregoing, all calculations of the rate of
interest contracted for, charged, taken, reserved or received in connection with
this Note and any Loan Document which are

                                   Exhibit A-4
1818 Fund Loan Agreement

<PAGE>

made for the purpose of determining whether such rate exceeds the Maximum Rate
shall be made to the extent permitted by applicable laws by amortizing,
prorating, allocating and spreading during the period of the full term of this
Note or such Loan Document, including all prior and subsequent renewals and
extensions hereof or thereof, all interest at any time contracted for, charged,
taken, reserved or received by Lender. The terms of this paragraph shall be
deemed to be incorporated into each Loan Document.

     To the extent that either Chapter 303 or 306, or both, of the Texas Finance
Code apply in determining the Maximum Rate, Lender hereby elects to determine
the applicable rate ceiling by using the weekly ceiling from time to time in
effect, subject to Lender's right subsequently to change such method in
accordance with applicable law, as the same may be amended or modified from time
to time.

     (c) Right of Setoff; Deposit Accounts. Upon and after the occurrence of an
Event of Default, (i) Borrower hereby authorizes Lender, at any time and from
time to time, without notice, which is hereby expressly waived by Borrower, and
whether or not Lender shall have declared this Note to be due and payable in
accordance with the terms hereof, to set off against, and to appropriate and
apply to the payment of, Borrower's obligations and liabilities under this Note
(whether matured or unmatured, fixed or contingent, liquidated or unliquidated),
any and all amounts owing by Lender to Borrower (whether payable in U.S. dollars
or any other currency, whether matured or unmatured, and in the case of
deposits, whether general or special (except trust and escrow accounts), time or
demand and however evidenced), and (ii) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such obligations and
liabilities. Borrower hereby grants to Lender a security interest in all
deposits and accounts maintained with Lender and with any financial institution
to secure the payment of all obligations and liabilities of Borrower to Lender
under this Note.

     (d) Subordination. Payment of this Note is subject to the terms of the
Subordination Agreement of even date herewith between Borrower, Lender and IFC.

     (e) Assignment. Lender may assign this Note pursuant to the terms of the
Credit Agreement. Borrower may not assign its rights or obligations under this
Note without the prior consent of Lender.

     (f) Amendment. This Note may be amended or modified only in writing signed
by Borrower and Lender.

NOTICE: THIS NOTE AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS EVIDENCED
HEREBY CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS NOTE AND THE
INDEBTEDNESS EVIDENCED HEREBY.

   [The remainder of this page intentionally blank. Signature page to follow.]

                                   Exhibit A-5
1818 Fund Loan Agreement

<PAGE>

     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.

                                        VAALCO ENERGY, INC.

                                        By:
                                           ------------------------------------
                                        Name:
                                             ----------------------------------
                                        Title:
                                              ---------------------------------

                                   Exhibit A-6
1818 Fund Loan Agreement

<PAGE>

                          LOANS AND PRINCIPAL PAYMENTS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                 AMOUNT OF           AMOUNT OF             UNPAID
                   LOAN              PRINCIPAL            PRINCIPAL                         NOTATION
   DATE            MADE                REPAID              BALANCE            TOTAL          MADE BY
-----------------------------------------------------------------------------------------------------
   <S>           <C>                 <C>                  <C>                 <C>           <C>
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

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-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------

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</TABLE>

                                   Exhibit A-7
1818 Fund Loan Agreement

<PAGE>

                                    EXHIBIT D

                          FORM OF ASSIGNMENT AGREEMENT

     ASSIGNMENT AGREEMENT ("Agreement") dated as of ____________, 200__ between:
_______________________ (the "Assignor") and ____________________ (the
"Assignee").

                                    RECITALS

     A. The Assignor is a party to the Credit Agreement dated as of ___________,
2002 (as amended and supplemented and in effect from time to time, the "Credit
Agreement") among VAALCO Energy, Inc., a Delaware corporation (the "Borrower"),
1818 Fund II, L.P., a Delaware limited partnership, and each of Lenders that is
or becomes a party thereto as provided in Section 7.04 of the Credit Agreement
(individually, together with its successors and assigns, a "Lender", and
collectively, together with their successors and assigns, the "Lenders").

     B. The Assignor proposes to sell, assign and transfer to the Assignee, and
the Assignee proposes to purchase and assume from the Assignor, [all] [a
portion] of the Assignor's Percentage Share of the Commitment and outstanding
Loans, all on the terms and conditions of this Agreement.

     C. In consideration of the foregoing and the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                                    ARTICLE I

                                   DEFINITIONS

     Section 1.01 Definitions. All capitalized terms used but not defined herein
have the respective meanings given to such terms in the Credit Agreement.

     Section 1.02 Other Definitions. As used herein, the following terms have
the following respective meanings:

"Assigned Interest" shall mean [all] [stated percentage] of Assignor's (in its
     capacity as a "Lender") Percentage Share of the Commitment including its
     pro rata rights and obligations under the Credit Agreement and the other
     Security Documents and the obligation to make Loans and any right to
     receive payments for the Loans outstanding under the Credit Agreement equal
     to the Percentage Share of the Commitment specified on Schedule I hereto
     for Assignee, plus the interest and fees which will accrue from and after
     the Assignment Date.

"Assignment Date" shall mean____________________, 200__.

                                   ARTICLE II

                               SALE AND ASSIGNMENT

     Section 2.01 Sale and Assignment. On the terms and conditions set forth
herein, effective on and as of the Assignment Date, the Assignor hereby sells,
assigns and transfers to the Assignee, and the Assignee hereby purchases and
assumes from the Assignor, all of the right, title and interest of the Assignor

1818 Fund Loan Agreement
                                  Exhibit D - 1

<PAGE>

in and to, and all of the obligations of the Assignor in respect of, the
Assigned Interest. Such sale, assignment and transfer is without recourse and,
except as expressly provided in this Agreement, without representation or
warranty.

     Section 2.02 Assumption of Obligations. The Assignee agrees with the
Assignor (for the express benefit of the Assignor and Borrower) that the
Assignee will, from and after the Assignment Date, perform all of the
obligations of the Assignor in respect of the Assigned Interest. From and after
the Assignment Date: (a) the Assignor shall be released from the Assignor's
obligations in respect of the Assigned Interest, and (b) the Assignee shall be
entitled to all of the Assignor's rights, powers and privileges under the Credit
Agreement and the other Security Documents in respect of the Assigned Interest.

     Section 2.03 Consent by Existing Lenders. By executing this Agreement as
provided below, in accordance with Section 7.04(b) of the Credit Agreement, the
Existing Lenders hereby acknowledge notice of the transactions contemplated by
this Agreement and consent to such transactions.

                                   ARTICLE III

                                    PAYMENTS

     Section 3.01 Payments. As consideration for the sale, assignment and
transfer contemplated by Section 2.01 hereof, the Assignee shall, on the
Assignment Date, assume Assignor's obligations in respect of the Assigned
Interest and pay to the Assignor an amount equal to the Assignee's Share of
Loans outstanding, as set forth on Schedule I hereto, if any. An amount equal to
all accrued and unpaid interest and fees attributable to the Assigned Interest
shall be paid to the Assignor as provided in Section 3.02(i) and (iii) below.
Except as otherwise provided in this Agreement, all payments hereunder shall be
made in United States Dollars and in immediately available funds, without
setoff, deduction or counterclaim.

     Section 3.02 Allocation of Payments. The Assignor and the Assignee agree
that (i) the Assignor shall be entitled to any payments of principal with
respect to the Assigned Interest made prior to the Assignment Date, together
with any interest and fees with respect to the Assigned Interest accrued prior
to the Assignment Date, (ii) the Assignee shall be entitled to any payments of
principal with respect to the Assigned Interest made from and after the
Assignment Date, together with any and all interest and fees with respect to the
Assigned Interest accruing from and after the Assignment Date, and (iii)
Borrower is instructed to allocate payments due under the Credit Agreement pro
rata between Assignor and the Assignee as provided in the foregoing clauses.
Each party hereto agrees that it will hold any interest, fees or other amounts
that it may receive to which the other party hereto shall be entitled pursuant
to the preceding sentence for account of such other party and pay, in like money
and funds, any such amounts that it may receive to such other party promptly
upon receipt.

     Section 3.03 Delivery of Notes. Promptly following the receipt by the
Assignor of the consideration required to be paid under Section 3.01 hereof, the
Assignor shall, in the manner contemplated by Section 7.04(b) of the Credit
Agreement, (i) deliver to the Existing Lenders (or their counsel) the Note(s)
held by the Assignor and (ii) notify Borrower to execute and deliver new Notes
to the Assignor, if Assignor continues to be a Lender, and the Assignee, dated
the date of this Agreement in respective principal amounts equal to the
respective Maximum Loan Amounts of the Assignor (if any) and the Assignee as set
forth on Schedule I hereto after giving effect to the sale, assignment and
transfer contemplated hereby.

     Section 3.04 Further Assurances. The Assignor and the Assignee hereby agree
to execute and deliver such other instruments, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.

1818 Fund Loan Agreement
                                  Exhibit D - 2

<PAGE>

                                   ARTICLE IV

                              CONDITIONS PRECEDENT

     Section 4.01 Conditions Precedent. The effectiveness of the sale,
assignment and transfer contemplated hereby is subject to the satisfaction of
each of the following conditions precedent:

          (a) the execution and delivery of this Agreement by the Assignor and
     the Assignee;

          (b) the receipt by the Assignor of the payment required to be made by
     the Assignee under Section 3.01 hereof; and

          (c) the acknowledgment and consent by the Existing Lenders
     contemplated by Section 2.03 hereof.

                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES.

     Section 5.01 Representations and Warranties of the Assignor. The Assignor
represents and warrants to the Assignee as follows:

          (a) it has all requisite power and authority, and has taken all action
     necessary to execute and deliver this Agreement and to fulfill its
     obligations under, and consummate the transactions contemplated by, this
     Agreement;

          (b) the execution, delivery and compliance with the terms hereof by
     Assignor and the delivery of all instruments required to be delivered by it
     hereunder do not and will not violate any provision of any law or
     regulation of any Authority applicable to it;

          (c) this Agreement has been duly executed and delivered by it and
     constitutes the legal, valid and binding obligation of the Assignor,
     enforceable against it in accordance with its terms;

          (d) all approvals and authorizations of, all filings with and all
     actions by any Authority necessary for the validity or enforceability of
     its obligations under this Agreement have been obtained; and

          (e) the Assignor has good title to, and is the sole legal and
     beneficial owner of, the Assigned Interest, free and clear of all liens,
     claims, participations or other charges of any nature whatsoever.

     Section 5.02 Disclaimer. Except as expressly provided in Section 5.01
hereof, the Assignor does not make any representation or warranty, nor shall it
have any responsibility to the Assignee, with respect to the accuracy of any
recitals, statements, representations or warranties contained in the Credit
Agreement or in any certificate or other document referred to or provided for
in, or received by any Lender under, the Credit Agreement, or for the value,
validity, effectiveness, genuineness, execution, effectiveness, legality,
enforceability or sufficiency of the Credit Agreement, the Note(s) or any other
document referred to or provided for therein or for any failure by Borrower or
any other person (other than Assignor) to perform any of its obligations
thereunder prior hereto or for the existence, value, perfection or priority of
any collateral security or the financial or other condition of Borrower or the
Subsidiaries or any other obligor or guarantor,

1818 Fund Loan Agreement
                                  Exhibit D - 3

<PAGE>

or any other matter relating to the Credit Agreement or any other Security
Documents or any extension of credit thereunder.

     Section 5.03 Representations and Warranties of the Assignee. The Assignee
represents and warrants to the Assignor as follows:

          (a) it has all requisite power and authority, and has taken all action
     necessary to execute and deliver this Agreement and to fulfill its
     obligations under, and consummate the transactions contemplated by, this
     Agreement;

          (b) the execution, delivery and compliance with the terms hereof by
     Assignee and the delivery of all instruments required to be delivered by it
     hereunder do not and will not violate any provision of any law or
     regulation of any Authority applicable to it;

          (c) this Agreement has been duly executed and delivered by it and
     constitutes the legal, valid and binding obligation of the Assignee,
     enforceable against it in accordance with its terms;

          (d) all approvals and authorizations of, all filings with and all
     actions by any Authority necessary for the validity or enforceability of
     its obligations under this Agreement have been obtained; and

          (e) the Assignee has fully reviewed the terms of the Credit Agreement
     and the other Security Documents and has independently and without reliance
     upon the Assignor, and based on such information as the Assignee has deemed
     appropriate, made its own credit analysis and decision to enter into this
     Agreement.

                                   ARTICLE VI

                                 MISCELLANEOUS.

     Section 6.01 Notices. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers,
requests or consents under, this Agreement) shall be given or made in writing
(including, without limitation, by telex or telecopy) to the intended recipient
at its "Address for Notices" specified below its name on the signature pages
hereof or, as to either party, at such other address as shall be designated by
such party in a notice to the other party.

     Section 6.02 Amendment, Modification or Waiver. No provision of this
Agreement may be amended, modified or waived except by an instrument in writing
signed by the Assignor and the Assignee, and consented to by the Existing
Lenders.

     Section 6.03 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. The representations and warranties made herein by the
Assignee are also made for the benefit of the Existing Lenders and Borrower, and
the Assignee agrees that the Existing Lenders and Borrower are entitled to rely
upon such representations and warranties.

     Section 6.04 Assignments. Neither party hereto may assign any of its rights
or obligations hereunder except in accordance with the terms of the Credit
Agreement.

1818 Fund Loan Agreement
                                  Exhibit D - 4

<PAGE>

     Section 6.05 Captions. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.

     Section 6.06 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, taken together,
shall constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.

     Section 6.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.

     Section 6.08 Expenses. To the extent not paid by Borrower pursuant to the
terms of the Credit Agreement, each party hereto shall bear its own expenses in
connection with the execution, delivery and performance of this Agreement.

     IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered as of the date first above written.

                                ASSIGNOR:

                                --------------------------------------------

                                By:
                                   -----------------------------------------
                                Name:
                                     ---------------------------------------
                                Title:
                                      --------------------------------------

                                Address for Notices:

                                --------------------------------------------

                                --------------------------------------------

                                --------------------------------------------

                                Telecopier No.:
                                               -------------------------
                                Telephone No.:
                                              --------------------------
                                Attention:
                                               -------------------------

                                ASSIGNEE:

                                --------------------------------------------

                                By:
                                   -----------------------------------------
                                Name:
                                     ---------------------------------------
                                Title:
                                      --------------------------------------

1818 Fund Loan Agreement
                                  Exhibit D - 5

<PAGE>

                                Address for Notices:

                                --------------------------------------------

                                --------------------------------------------

                                --------------------------------------------

                                Telecopier No.:
                                               -------------------------
                                Telephone No.:
                                              --------------------------
                                Attention:
                                              --------------------------

ACKNOWLEDGED AND CONSENTED TO:

[Existing Lenders, if applicable]

----------------------------------

By:
   -----------------------------
Name:
     ---------------------------
Title:
      --------------------------

1818 Fund Loan Agreement
                                  Exhibit D - 6

<PAGE>

                                   SCHEDULE I
                             TO ASSIGNMENT AGREEMENT

<TABLE>
<CAPTION>
                                                   Assignor              Assignee
                                                   (Retained Interest)   (Assigned Interest)

     <S>                                           <C>                   <C>
     a.   Percentage Share of the Commitment       ________%             _______%

     b.   Maximum Loan Amount                      $__________           $________

     c.   Share of Loans Outstanding               $__________           $________
</TABLE>

1818 Fund Loan Agreement
                                  Exhibit D - 7

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