Document:

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                                                                    EXHIBIT 10.1

                                                                  Execution Copy

                            STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made to be effective as
of the 23rd day of August, 2002 (the "Effective Date"), by and between VAALCO
International, Inc., a Delaware corporation (the "Company"), VAALCO Energy,
Inc., a Delaware corporation ("VEI") and Nissho Iwai Corporation, a Japanese
corporation (the "Purchaser").

                             Preliminary Statements

     WHEREAS, The Company and VEI entered into the Subscription Agreement dated
as of August 23, 2002 (the "Subscription Agreement") pursuant to which the
Company issued and sold 10,000 shares of the Company's common stock, par value
$0.001 per share (the "Common Stock"), to VEI; and

     WHEREAS, VEI desires to sell to the Purchaser, and the Purchaser desires to
purchase and accept 999 shares of the Common Stock from VEI and the Warrants
(defined below) all in accordance with the terms and subject to the conditions
set forth in this Agreement.

                                    Agreement

     NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the Company, VEI and the Purchaser hereby agree
as follows:

1.   Purchase and Sale.

     (a)  Common Stock.

          (i) Subject to the terms and conditions of this Agreement, at the
     Closing VEI will sell to the Purchaser, and the Purchaser will purchase
     from VEI Nine Hundred Ninety-Nine (999) shares of its Common Stock
     representing 9.99% of the shares of the issued and outstanding Common Stock
     as of the date hereof (the "Purchased Shares") for aggregate consideration
     of Three Million Two Ninety One Thousand Three Hundred and Fifteen United
     States Dollars (US $3,291,315) (the "Aggregate Consideration") which amount
     shall consist of the Purchase Price and the Additional Consideration. For
     the purposes of this Agreement, the "Purchase Price" shall be $3,000,000
     and the "Additional Consideration" shall be $291,315, which is an amount
     equaling 9.99% of the cash calls since April 1, 2002 for VAALCO Gabon
     (Etame) Inc., a Delaware corporation and wholly-owned subsidiary of the
     Company ("VGEI").

          (ii) Subject to the terms and conditions of this Agreement, at the
     Closing VEI shall sell and issue to NIC warrants to purchase shares of
     VEI's common stock (the "Warrants") in the forms attached hereto as
     Exhibits B-1 and B-2.

<PAGE>

          (iii) Subject to the terms and conditions of this Agreement, at the
     Closing, VEI agrees to satisfy its payment obligations under Section 1 of
     the Subscription Agreement.

     (b) Closing. The purchase and sale of Purchased Shares and Warrants to the
Purchaser shall take place at the offices of the Company, located at 4600 Post
Oak Place, Suite 309, Houston, Texas 77027, contemporaneously with the execution
of this Agreement (which time and place are designated as the "Closing"). At the
Closing, the Company shall deliver to the Purchaser stock certificate(s) No. 2
representing the Purchased Shares and the Warrants in exchange for the Aggregate
Consideration by wire transfer of immediately available funds as directed by the
Company in writing to Purchaser at least 2 business days prior to the Closing.

2. Representations and Warranties of the Company and VEI. The Company and VEI
hereby represent and warrant to the Purchaser that as of the date hereof, except
as set forth on the Schedule of Exceptions (the "Schedule of Exceptions")
furnished to the Purchaser and attached hereto as Exhibit A specifically
identifying the relevant subparagraphs hereof, which exceptions shall be deemed
to be representations and warranties as if made hereunder:

     (a) Organization and Good Standing. Each of the Company and VEI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted. Each of the Company and VEI is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.

     (b) Capitalization and Voting Rights. The authorized capital stock of the
Company consists, or will consist immediately prior to the Closing, of Ten
Thousand (10,000) shares of Common Stock, all of which are issued and
outstanding and owned by VEI prior to the Closing.

     (c) Authorization. All corporate action on the part of the Company and VEI,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and all other agreements and
instruments contemplated hereunder, the performance of all obligations of each
of the Company and VEI hereunder and thereunder, and the authorization,
issuance, sale and delivery of the Purchased Shares and the Warrants has been
taken or will be taken prior to the Closing, and this Agreement and all other
agreements and instruments contemplated hereunder constitute valid and legally
binding obligations of each of the Company and VEI, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.

     (d) Valid Issuance of Purchased Shares and the Warrants. The Purchased
Shares and the Warrants that are being purchased hereunder, when issued, sold
and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free and clear of encumbrances other than any
encumbrances in favor of 1818 Fund II, L.P. ("1818 Fund") or International

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Finance Corporation ("IFC") or created under this Agreement, other agreements
and instruments contemplated hereunder as listed in the Schedule of Exceptions,
and applicable securities laws.

     (e) Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority of any country on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement.

     (f) Lender Consents. No consent, approval, or filing with, any lender is
required in connection with the consummation of the transactions by VEI or the
Company contemplated by this Agreement other than 1818 Fund and IFC.

     (g) Offering. Subject in part to the truth and accuracy of the Purchaser's
representations set forth in Section 3 of this Agreement, the offer, sale and
issuance of the Warrants and the Common Stock as contemplated by this Agreement
are exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Act").

     (h) Capital Contribution. VEI agrees that it will contribute at Closing
100% of its right title and interest in and to the shares of VGEI to the Company
(the "Capital Contribution"). Following the Capital Contribution the Company
will own 100% of the capital stock of VGEI, free of restrictions on transfer,
other than such restrictions on transfers under this Agreement, other agreements
and instruments contemplated hereunder as listed in the Schedule of Exceptions,
and applicable securities laws.

     (i) Gabon Production Sharing Contract. VGEI is the owner of an undivided
30.35% of the interest in that certain Exploration and Production Sharing
Contract with the Republic of Gabon dated July 7, 1995 (the "Contract") and such
interest is owned free and clear of any lien or encumbrance except as set forth
in the Schedule of Exceptions.

     (j) Financial Condition. The financial statements for the year ended
December 31, 2001 as set forth in the Independent Auditor's Report of VGEI dated
April 26, 2002 ("Financial Statement") and the related unaudited interim
financial statements, including Statement of Operations, Statement of Cash Flow,
Statement of Stock Holders' Equity and Balance Sheet dated as of May 31, 2002
("Interim Financial Statement") fairly present in all material respects the
financial condition and the results of operations, changes in equity and cash
flows of VGEI as of the respective dates and for the period referred to in such
Financial Statements, all in accordance with GAAP (provided that the Interim
Financial Statement will not include auditor's notes). These Financial
Statements reflect the consistent application of such accounting principles
throughout the periods involved and have been or will be prepared from and are
in accordance with the accounting records of VGEI.

     (k) Absence of Material Changes and Undisclosed Liabilities. Neither the
Company nor VEI are aware of any material adverse changes in the assets of VGEI,
the operations in the Gabon Contract Area or in the relationship between the
parties to the Production Sharing Contract and the Government of the Republic of
Gabon. Neither the

                                       3

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Company nor VGEI have any known liabilities except for: liabilities reflected or
reserved against in the Interim Financial Statement or Financial Statement,
liabilities that are listed in the Schedule of Exceptions, current liabilities
incurred in the ordinary course of business of VGEI since the date of the
Interim Balance Sheet, and liabilities that would not have a material adverse
effect on the business, operations or assets of VGEI.

     (l) Books and Records. The books of account and other financial records of
the Company and of VGEI, all of which have been made available to NIC, are
complete and correct in all material respects and represent actual, bona fide
transactions and have been maintained in accordance with customary business
practices, including the maintenance of adequate system of internal controls.

3. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants that:

     (a) Authorization. The Purchaser has full power and authority to enter into
this Agreement and the other agreements and instruments contemplated hereunder,
and each such Agreement constitutes its valid and legally binding obligation,
enforceable in accordance with its terms.

     (b) Purchase Entirely for Own Account. The Purchased Shares to be received
by the Purchaser pursuant to this Agreement will be acquired for investment for
the Purchaser's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and the Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same.

     (c) Accredited Investor. The Purchaser is an "accredited investor" within
the meaning of SEC Rule 501 of Regulation D, as presently in effect.

     (d) Knowledge, Experience and Resources. The Purchaser has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in the Company and is able to
bear the economic risks of an investment in the Purchased Shares for an
indefinite period of time and to withstand a complete loss of such investment.

     (e) Receipt of Information. The Purchaser has met with officers of the
Company and its subsidiary, has had an opportunity to ask questions and receive
answers concerning the business, properties, prospects and financial condition
of the Company and the terms and conditions of an investment in the Company, and
has received all information that it believes is necessary or desirable in
connection with an investment in the Company. The Purchaser is solely
responsible for its own due diligence investigation of the Company and its
proposed business, for its analysis of the merits and risks of its investment
made pursuant to this Agreement and for its analysis of the terms of its
investment.

     (f) Restricted Securities. The Purchaser understands that the Purchased
Shares and the Warrants it is purchasing are characterized as "restricted
securities" under the federal

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securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, as amended, only in certain limited circumstances. In this connection,
the Purchaser represents that it is familiar with Securities and Exchange
Commission Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act

     (g) Brokers and Finders. Neither the Purchaser nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fee, commission or finders fee in connection with
the transactions contemplated by this Agreement.

     (h) Legends. It is understood that the certificates evidencing the
Purchased Shares may bear one or all of the following legends:

          (i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
     ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
     HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
     RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
     SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
     UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."

          (ii) The legend required by the Stockholders' Agreement, as defined in
     Section 4(d), below.

          (iii) Any legend required by the blue sky laws of any state to the
     extent such laws are applicable to the shares represented by the
     certificate so legended.

     (j) Foreign Investors. If Purchaser is not a United States person,
Purchaser hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the Purchased Shares or any use of this Agreement, including (i)
the legal requirements within its jurisdiction for the purchase of the Purchased
Shares and the Warrants, (ii) any foreign exchange restrictions applicable to
such purchase, (iii) any governmental or other consents that may need to be
obtained, and (iv) the income tax and other tax consequences, if any, that may
be relevant to the purchase, holding, redemption, sale or transfer of the
Purchased Shares and the Warrants. Such Purchaser's payment for, and its
continued beneficial ownership of the Purchased Shares and the Warrants, will
not violate any applicable securities or other laws of its jurisdiction.

4. Conditions of Purchaser's Obligations at Closing. The obligation of the
Purchaser to purchase the Purchased Shares and the Warrants at the Closing under
this Agreement is subject to the fulfillment on or before the Closing of each of
the following conditions, any of which may be waived pursuant to Section 6(e) of
this Agreement:

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     (a) Performance. The Company and VEI shall have performed and complied, in
all material respects, with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing.

     (b) Compliance Certificate. The President or Chief Executive Officer of the
Company and the President or Chief Executive Officer of VEI shall deliver to the
Purchaser at the Closing a certificate stating that the conditions specified in
Section 4(a) together with a customary certification of the Secretaries of the
Company and of VEI as to the incumbency of the relevant officers of the Company
and of VEI.

     (c) Authorizations. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and sale of the Purchased Shares at the Closing
pursuant to this Agreement shall be duly obtained and effective as of the
Closing.

     (d) Stockholders' Agreement. Contemporaneously with the execution of this
Agreement, the Company, the Purchaser, and VEI shall have executed and delivered
the Stockholders' Agreement in the form attached hereto as Exhibit B (the
"Stockholders' Agreement").

     (e) Tax Summary. VEI shall have furnished to Purchaser a summary of the tax
implications of the transactions contemplated by this Agreement as they relate
to the Purchaser, the Company, VEI and VGEI.

     (f) Legal Opinions. VEI and VGEI shall have delivered to the Purchaser a
legal opinion in the form attached as Exhibit C.

     (g) Required Consents. VEI and VGEI shall have received the consent of IFC
and 1818 Fund to the transactions contemplated by this Agreement.

5. Conditions of VEI's and the Company's Obligations at Closing. The obligation
of VEI to sell the Purchased Shares and the Warrants at the Closing to the
Purchaser under this Agreement is subject to the fulfillment on or before the
Closing of each of the following conditions, any of which may be waived pursuant
to Section 6(e) of this Agreement:

     (a) Payment of Consideration. The Purchaser shall have delivered the
Aggregate Consideration as specified in Section 1(a) hereof to VEI.

     (b) Performance. The Purchaser shall have performed and complied, in all
material respects, with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.

     (c) Compliance Certificate. The Representative Director of the Purchaser
shall deliver to the Company at the Closing a certificate stating that the
conditions specified in Section 5(b) have been fulfilled together with
certifications as to the incumbency of relevant officers of the Purchaser.

                                       6

<PAGE>

     (d) Authorizations. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body that are required in connection
with the lawful issuance and sale of the Purchased Shares at the Closing
pursuant to this Agreement shall be duly obtained and effective as of the
Closing.

     (e) Stockholders' Agreement. Contemporaneously with the execution of this
Agreement, the Company, the Purchaser, and VEI shall have executed and delivered
the Stockholders' Agreement.

     (f) Required Consents. The Company, VEI and VGEI shall have received the
consent of IFC and 1818 Fund to the transactions contemplated by this Agreement.

     (g) Amended and Restated Subordinated Credit Agreement. Purchaser shall
have entered into the Amended and Restated Subordinated Credit Agreement with
VEI and 1818 Fund to loan $3,000,000 of a $13,000,000 loan described in such
Agreement dated as of             , 2002, in form and substance reasonably
                      ------------
satisfactory to VEI and shall fund $3,000,000 at Closing into the "Sponsor
Escrow Account" as defined in said Amended and Restated Subordinated Credit
Agreement.

6. Miscellaneous.

     (a) Indemnity; Survival of Warranties. The warranties, representations and
covenants of the Company, VEI and the Purchaser contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing for a period of one year and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Purchaser, VEI or the Company. Each party shall indemnify and hold harmless the
other parties from and against any actual damage, loss, liability, cost or
expense (including reasonable attorneys fees) incurred by the other resulting
from any breach of the party's representations, warranties or covenants in this
Agreement.

     (b) No Assignment. No party may assign or otherwise transfer any rights,
interests or obligations under this Agreement without the prior written consent
of the other parties, which consent may be withheld in the sole and absolute
discretion of such parties for any reason whatsoever or for no reason, and any
attempted assignment in violation of this provision shall be void and of no
effect.

     (c) Severability. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances shall be interpreted so as best to reasonably effect the intent
of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.

     (d) Entire Agreement. This Agreement, the exhibits hereto, the documents
and agreements referred to herein and the exhibits thereto, constitute the
entire understanding and

                                       7

<PAGE>

agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. To the extent that the
terms of this Agreement conflict with the terms of any document or agreement
referred to herein, the terms of the Loan Agreement dated as of April 19, 2002
between VGEI and IFC shall control.

     (e) Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Purchaser.

     (f) Expenses. Except as provided to the contrary herein, each party shall
pay all of its own costs and expenses with respect to the negotiation, execution
and delivery of this Agreement and exhibits hereto. The Company's costs and
expenses with respect to the negotiation, execution and delivery of this
Agreement and exhibits hereto shall be paid by VEI.

     (g) Governing Law. This Agreement shall be governed by, and construed in
all respects in accordance with, the laws of the State of New York, without
regard to the principles of conflict of laws thereof.

     (h) Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be delivered by personal delivery, an
internationally recognized courier such as DHL or Federal Express, facsimile or
first class registered or certified mail, postage prepaid, addressed as follows:

          If to the Purchaser to:

          Nissho Iwai Corporation
          3-1, Daiba 2-chome, Minato-ku, Tokyo 135-8655 JAPAN
          Attention: Shinichi Teranishi, General Manager,
          Energy Project Department,
          Facsimile No.: 81-3-5520-2964

          If to the Company to:

          VAALCO International, Inc.
          4600 Post Oak Place, Suite 309
          Houston, Texas 77027
          Attention: President
          Facsimile No.: 713-623-0982

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<PAGE>

          If to VEI to:

          VAALCO Energy, Inc.
          4600 Post Oak Place, Suite 309
          Houston, Texas 77027
          Attention: President
          Facsimile No.: 713-623-0982

or at such other address as the intended recipient previously shall have
designated by written notice to the other party. Notice by registered or
certified mail shall be effective on the date it is officially recorded as
delivered to the intended recipient by return receipt or equivalent, and in the
absence of such record of delivery, the effective date shall by presumed to have
been the eighth business day after it was deposited in the mail. All notices and
other communications required or contemplated by this Agreement delivered in
person or sent by an internationally recognized courier shall be deemed to have
been delivered to and received by the addressee and shall be effective on the
date of personal delivery. Notices delivered by confirmed facsimile shall be
deemed delivered to and received by the addressee and effective on the date
sent. Notice not given in writing shall be effective only if acknowledged in
writing by a duly authorized representative of the party to whom it was given.

     (i) Headings. The titles of the sections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.

     (j) Jurisdiction. Any legal action or proceeding relating to this Agreement
shall be instituted in a state or federal court in New York, NY. The parties
agree to submit to the jurisdiction of, and agree that venue is proper in, these
courts in any such legal action or proceeding.

     (k) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Execution and delivery of this Agreement by
exchange of facsimile copies bearing the facsimile signature of a party hereto
shall constitute a valid and binding execution and delivery of this Agreement by
such party. Such facsimile copies shall constitute enforceable original
documents.

     (l) Construction. This Agreement has been negotiated by the respective
parties hereto and their attorneys and the language hereof shall not be
construed for or against any party.

                           [signature pages to follow]

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<PAGE>

          IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first above written.

                                                COMPANY:

                                                VAALCO International, Inc.

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

                                                PURCHASER:

                                                Nissho Iwai Corporation

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

                                                VEI:

                                                VAALCO Energy, Inc.

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

                                 Signature Page
                            Stock Purchase Agreement

<PAGE>

                                    EXHIBIT A
                             Schedule of Exceptions

Section 2(h)

1.   Amended and Restated Subordinated Credit Agreement, dated as of June 10,
     2002 among 1818 Fund II, L.P, Nissho Iwai Corporation and VALCO Energy,
     Inc., as amended.

2.   Loan Agreement, dated as of April 19, 2002 between VAALCO Gabon (Etame)
     Inc. and International Finance Corporation, as amended.

Section 2(i)

1.   Amended and Restated Pledge of Shares Agreement dated May 31, 2002, among
     VAALCO Energy, Inc., VAALCO International Inc. and International Finance
     Corporation as amended.

<PAGE>

                                    EXHIBIT B
                             Stockholders' Agreement<PAGE>

                                                                    EXHIBIT 10.2

                                                                  Execution Copy

                             STOCKHOLDERS' AGREEMENT

     THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made and entered into
this 23rd day of August, 2002, by and among VAALCO International, Inc., a
Delaware corporation (the "Company"), VAALCO Energy, Inc., a Delaware
corporation ("VEI"), and Nissho Iwai Corporation, a Japanese corporation
("NIC").

                             Preliminary Statements

     WHEREAS, NIC, VEI and the Company (collectively the "Parties") are party to
that certain Stock Purchase Agreement dated as of August 23, 2002 (the "Purchase
Agreement"), pursuant to which NIC will purchase from VEI 999 shares of the
Company's common stock, par value $0.001 per share (the "Common Stock");

     WHEREAS, VEI is the holder of the remaining 9001 shares of Common Stock
outstanding, and continues to be a party to the Subscription Agreement dated
August 23, 2002 between the Company and VEI with respect to such shares (as
amended, supplemented or otherwise modified from time to time, (the
"Subscription Agreement"); and

     WHEREAS, the parties hereto deem it in their mutual best interests to make
the agreements contained herein.

                                    Agreement

     NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:

1. Definitions. The following defined terms shall have the respective meanings
assigned to them below:

     "1818 Fund" shall mean The 1818 Fund II, L.P., a Delaware limited
partnership and its successors and assigns.

     "AFE" shall mean an authorization for expenditure pursuant to Article 6.6
of the Joint Operating Agreement.

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

     "Amounts Attributable to a Consent Operation" shall have the meaning set
forth in Section 6(a).

     "Amounts Attributable to Non-Consent Operations" shall have the meaning set
forth in Section 5(a).

     "Approved Budget" shall mean the annual budget forming part of the Work
Program and Budget as in effect from time to time, as discussed and approved in
accordance with Article VI

                                       1

<PAGE>

                                                                  Execution Copy

of the Joint Operating Agreement. The Approved Budget for the current fiscal
year is attached as Exhibit C.

     "Capital Cost of Consent Operations" shall have the meaning set forth in
Section 5(a).

     "Capital Cost of a Non-Consent Operation" shall have the meaning set forth
in Section 6(a).

     "Cash Call" shall have the meaning set forth in Section 6(e).

     "Common Stock" shall have the meaning set forth in the Preliminary
Statements to this Agreement.

     "Company" shall have the meaning set forth in the Preamble to this
Agreement.

     "Consent Operation" means all Mandatory Operations and any Discretionary
Operations with respect to which there are no Non-Consenting Stockholders.

     "Consenting Stockholder" shall have the same meaning set forth in Section
6(b).

     "Default Loan" shall have the same meaning set forth in Section 7(a).

     "Default Note" shall have the same meaning set forth in Section 7(a).

     "Default Notice" shall have the same meaning set forth in Section 7(a).

     "Designated Director" shall mean a person designated as a nominee for
election to the Company's Board of Directors pursuant to this Agreement in
accordance with Section 2(a). The initial Designated Directors are: W. Russell
Scheirman, Robert Gerry III and Shinichi Teranishi.

     "Designated Officer" shall mean the following persons designated for
election to serve as officers of the Company by the Company's Board of
Directors:

--------------------------------------------------------------------------------
Name                                   Title
--------------------------------------------------------------------------------
W. Russell Scheirman                   President, Treasurer, Assistant Secretary
--------------------------------------------------------------------------------
Shinichi Teranishi                     Vice President (NIC Representative)
--------------------------------------------------------------------------------
Gayla Cutrer                           Vice President, Secretary
--------------------------------------------------------------------------------

     "Discretionary Operations" shall have the same meaning set forth in Section
6(a).

     "Disposition" shall mean any sale, transfer, assignment, pledge or other
disposition, whether voluntary or involuntary or in full or in part.

     "Drag Along Right" shall have the meaning set forth in Section 10(c).

                                       2

<PAGE>

                                                                  Execution Copy

     "Etame Field Contract Area" shall mean that certain area offshore the
Republic of Gabon in which VGEI has a 30.35% participating interest pursuant to
the Production Sharing Contract.

     "Excess Amount" shall have the meaning set forth in Section 6(d).

     "Excess Percent" shall have the meaning set forth in Section 6(d).

     "IFC" shall mean the International Finance Corporation and its successors
and assigns.

     "IFC Loan" shall mean the loan evidenced by Loan Agreement dated April 19,
2002, between IFC and VGEI, as amended, supplemented or modified from time to
time.

     "Initial Percent" shall have the meaning set forth in Section 6(b).

     "Initial Revolving Note" shall have the meaning set forth in Section 5(c).

     "Joint Operating Agreement" shall mean the Joint Operating Agreement dated
as of April 4, 1997 among VGEI, VAALCO Energy (Gabon), Inc., Western Atlas
Afrique, Ltd., Petrofields Exploration & Development Co., Inc. and Alcorn
Petroleum and Minerals Corporation, as it may be amended, supplemented or
modified from time to time.

     "Mandatory Operation" shall mean a particular operation in the Etame Field
Contract Area relating to (i) Minimum Work Obligations pursuant to Article V of
the Joint Operating Agreement approved by the Operating Committee, (ii) any
other operation conducted as contemplated by a Work Program and Budget, provided
that VGEI did not vote against the proposal for such operation as contemplated
by Section 5.13(B) of the Joint Operating Agreement, or (iii) in connection with
emergency actions for which reimbursement of the Operator is mandatory,
including pursuant to Article 4.2(B)(11) and Article 13.5 of the Joint Operating
Agreement.

     "Minimum Work Obligations" shall mean those work and/or expenditure
obligations specified in the Production Sharing Contract which must be performed
during the then current Production Sharing Contract phase or period in order to
satisfy the obligations of the Production Sharing Contract.

     "Monthly Statement" shall have the meaning set forth in Section 5(a).

     "NIC" shall have the meaning set forth in the Preamble to this Agreement.

     "Non-Consent Note" shall have the meaning set forth in Section 6(e).

     "Non-Consent Operation" will mean any Discretionary Operation with respect
to which there is a Non-Consenting Stockholder.

     "Non-Consenting Stockholder" shall have the meaning set forth in Section
6(b).

     "Offering Notice" shall have the meaning set forth in Section 10(a)(i).

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     "Offering Price" shall mean the price at which the Selling Stockholder
would be willing to make a Disposition of the Subject Shares to the other
Stockholders.

     "Operating Committee" shall mean the committee constituted in accordance
with Article V of the Joint Operating Agreement.

     "Operator" shall mean the operator of the Etame Field Contract Area under
the Joint Operating Agreement.

     "Participation Agreement" shall mean the agreement of even date herewith
between 1818 Fund and NIC with respect to NIC's participation under the
Subordinated Loan.

     "Party" shall mean the Company, VEI, NIC or any other party to this
Agreement as applicable.

     "Party in Default" shall have the meaning set forth in Section 7(a).

     "Permitted Disposition" shall have the meaning set forth in Section 9.

     "Pledge of Shares Agreement" shall mean the Pledge of Shares Agreement
dated May 31, 2002 between VEI and IFC, as amended modified or otherwise
supplemented from time to time.

     "Production Sharing Contract" shall mean that certain Exploration and
Production Sharing Contract dated as of July 7, 1995, between VGEI and the
Republic of Gabon, and any extension, renewal or amendment thereof and any
supplements or modification thereto.

     "Proposed Purchaser" shall have the meaning set forth in Section 10(b).

     "Purchase Agreement" shall have the meaning set forth in the Preliminary
Statements to this Agreement.

     "Reply Notice" shall have the meaning set forth in Section 10(a)(i).

     "Request for Advance" shall have the meaning set forth in Section 5(b).

     "Revolving Note" shall mean one or more of the Company's revolving
promissory notes payable to a Stockholder substantially in the form of Exhibit
B, completed as contemplated by this Agreement.

     "Section 7.2(E) Request" shall have the meaning set forth in Section 6(b).

     "Selling Stockholder" shall have the meaning set forth in Section 10(a).

     "Stockholders" shall mean VEI, NIC and any person who executes or is
required to execute an Addendum Agreement (attached hereto as Exhibit A).

     "Subject Shares" shall have the meaning set forth in Section 10(a).

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     "Subordinated Loan" shall mean that loan facility evidenced by the
Subordinated Credit Agreement dated as of June 10, 2002, between 1818 Fund and
VEI, as amended, modified or otherwise supplemented from time to time.

     "Subordination and Share Retention Agreement" shall mean that Subordination
and Share Retention Agreement dated May 10, 2002 between VGEI, VEI and IFC, as
amended, modified or otherwise supplemented from time to time.

     "Subscription Agreement" shall have the meaning set forth in the
Preliminary Statements to this Agreement.

     "Tag Along Stockholders" shall have the meaning set forth in Section 10(b).

     "Tag Along Notice" shall have the meaning set forth in Section 10(b).

     "Tag Along Shares" shall have the meaning set forth in Section 10(b).

     "Unfunded Capital Costs of Consent Operations" shall have the meaning set
forth in Section 5(a).

     "VEI" shall have the meaning set forth in the Preliminary Statements to
this Agreement.

     "VGEI" shall mean the Company's subsidiary VAALCO Gabon (Etame) Inc., a
Delaware corporation.

     "Voting Securities" shall mean Common Stock and any other securities of the
Company entitled to vote generally for the election of directors of the Company.

     "Work Programs and Budgets" shall mean work programs for those operations
and activities carried out by the Operator pursuant to the Joint Operating
Agreement, the costs of which are chargeable to all parties, and budget
therefore as described and approved in accordance with Article VI of the Joint
Operating Agreement.

2. Directors; Voting Agreement; Officers.

     (a) For so long as this Agreement shall be in effect, the Company's Board
of Directors shall be comprised of three members, two of which shall be
nominated by VEI and one of which shall be nominated by NIC (with each such
director being referred to as a "Designated Director"). If there exists a Party
in Default, each Stockholder agrees to use its reasonable best efforts,
including voting its shares of Common Stock, to cause the Company's Board of
Directors to remove any Designated Director(s) of the Party in Default from the
Company's Board of Directors for so long as the default is continuing. Upon cure
of such default, the Stockholders agree to cause the Company to promptly
nominate for election or re-election, as the case may be, to the Company's Board
of Directors a nominee designated by the Stockholder that was formerly the Party
in Default.

     (b) Each Stockholder agrees (i) to use its reasonable best efforts to cause
the Company's Board of Directors to be composed of three members, (ii) to use
its reasonable best

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efforts to cause the Company to nominate or cause to be nominated to the
Company's Board of Directors all Designated Directors (iii) to use its
reasonable best efforts to cause the Company to elect or cause to be elected to
serve as officers of the Company all Designated Officers and (iv) to vote or
cause to be voted all Voting Securities beneficially owned by such Stockholder
in favor of the election of the Designated Directors to the Company's Board of
Directors.

     (c) In the event of the death, incapacity, resignation or removal of a
Designated Director, the Stockholder who initially nominated such Designated
Director shall promptly nominate a new person to be a Designated Director to
fill the vacancy caused thereby and the Stockholders shall use their reasonable
best efforts to promptly cause such Designated Director to be elected to the
Company's Board of Directors in accordance with Section 2(b).

     (d) Each Stockholder agrees to use its reasonable best efforts to cause the
Company's Board of Directors to re-elect the Designated Officers until such time
as the Company's Board of Directors unanimously agrees not to re-elect or
unanimously agrees to remove one or more of such Designated Officers. In the
event of the death, incapacity, resignation or removal of a Designated Officer,
the Stockholder who initially selected such Designated Officer shall promptly
select a new person to be a Designated Officer to fill the vacancy caused
thereby and the Stockholders shall use their reasonable best efforts promptly
cause such Designated Officer to be elected to the Company's Board of Directors
in accordance with Section 2(b).

     (e) Unanimous approval of the Company's Board of Directors shall be
required for the following actions:

          (i) determining the amount, if any, of fees and compensation amounts
     to be paid by the Company to the officers and members of the Board of
     Directors of the Company;

          (ii) approval of any loans by the Company to the officers or members
     of the Board of Directors of the Company;

          (iii) other than for advances or loans by the Stockholders
     contemplated by this Agreement, borrowing by the Company of any amounts
     over $1,000,000 aggregate principal amount outstanding at any one time; and

          (iv) to incur any general and administrative expense that would cause
     total general and administrative expenses to exceed $25,000 during any
     fiscal year of the Company.

3. Unanimous Stockholder Approval. Each Stockholder agrees that each of the
following actions will require the unanimous approval of all Stockholders and
that it will use its reasonable best efforts, including voting against such
action if a vote is required, to prevent any of the following actions from
occurring without unanimous approval of all Stockholders:

     (a) Any transaction of merger, consolidation or reorganization, conveyance,
sale, lease, exchange, transfer, pledge or other disposition in any transaction
or related series of transactions of all or substantially all of the respective
capital stock, properties, business or assets of the Company or VGEI, except
for: (i) any direct or indirect sale, transfer or assignment of common stock of
VGEI pursuant to realization of any pledge relating to the IFC Loan or
Subordinated Loan, or as otherwise provided herein, (ii) transfers pursuant to
which: (x) the

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Stockholders receive their proportionate interest in (based on ownership of
Common Stock) and become, directly or indirectly, parties to the Joint Operating
Agreement, Production Sharing Contract and other agreements relating to the
ownership and operation of the Etame Field Contract Area and (y) no right of
first refusal or preferential right is triggered under the Joint Operating
Agreement or Production Sharing Contract with respect to such transfer; provided
however that the Stockholders acknowledge and agree that if at anytime a
Stockholder desires to divest its underlying economic interest in the Etame
Field Contract Area, each of the Stockholders shall cooperate and act reasonably
to allow such Stockholder to accomplish the divestiture of its underlying
economic interest in the Etame Field Contract Area.

     (b) Any disposition of capital stock of the Company, provided that if there
is a Party in Default, until any default causing such Party to be a Party in
Default shall have been cured, any disposition of capital stock of the Company
shall be approved by a majority of the Company's Board of Directors excluding
the Designated Director(s) of the Party in Default.

     (c) Any new investments by the Company outside of the Etame Field Contract
Area.

4. Dividend Policy. Each Stockholder agrees to use its reasonable best efforts
to cause the Company's Board of Directors to adhere to a dividend policy
whereunder, to the extent permitted by Delaware law, all cash flow from
Mandatory Operations and all cash flow from Discretionary Operations, less any
amount used to repay advances to Stockholders made pursuant to Sections 5 or 6,
or 7 and as reasonably determined by the Board of Directors to be necessary to
fund the working capital requirements of the Company over the next 12 months,
shall be distributed to the Stockholders as a dividend at least annually. The
Company agrees, as the sole stockholder of VGEI, to use its reasonable best
efforts to cause VGEI's Board of Directors to adhere to a dividend policy
whereunder, to the extent permitted by Delaware law, all cash on hand, less any
amount reasonably determined by the Board of Directors of VGEI to be necessary
to fund the working capital requirements of VGEI over the next 12 months
contained in an Approved Budget, shall be distributed to the Company as a
dividend, at least annually; provided, however, for so long as the IFC Loan
remains in effect, such policy shall comply with the terms and conditions of the
IFC Loan and the transactions contemplated therein.

5. Funding of Consent Operations.

     (a) As used herein, (i) "Capital Costs of Consent Operations" means the
amount allocable to VGEI as set forth in a monthly statement ("Monthly
Statement"), AFE or supplemental AFE issued by the Operator under the Joint
Operating Agreement stating the payments then due or to become due by VGEI to
fund its pro rata share of a Consent Operation attributable to periods after
March 31, 2002; (ii) "Unfunded Capital Costs of Consent Operations" means, at
any time, the Capital Costs of Consent Operations, less without duplication (x)
any amounts (net of reasonable reserves established by the Company) then held by
the Company representing Amounts Attributable to Consent Operations (y) any
amounts that VGEI determines are available to fund such costs under the IFC Loan
and (z) any funds held by VGEI, other than Amounts Attributable to Non-Consent
Operations, less reserves deemed necessary by VGEI to meet working capital
requirements over the next 12 months contained in an Approved Budget or amounts
determined by VGEI to be necessary under the IFC Loan to maintain minimum equity
threshold levels; and (iii) "Amounts Attributable to Consent

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Operations" means all funds held by the Company at any time attributable to
dividends, payments or other amounts received by the Company from VGEI or any
other source other than Amounts Attributable to Non-Consent Operations. The
Company shall cause VGEI to provide to the Company and the Stockholders within
30 days after the last day of VGEI's fiscal quarter on a quarterly basis a cash
flow projection covering at least the next 90 days from the date of this
Agreement.

     (b) Subject to the terms and conditions set forth herein, each Stockholder
agrees to advance to the Company, from time to time as provided herein, pursuant
to the Initial Revolving Note, such Stockholder's pro rata share, based on the
number of shares of Common Stock owned, of Unfunded Capital Costs of Consent
Operations. Unless otherwise agreed by the Stockholders, not less than 10 days
(or such shorter period as may be necessary) before due and promptly upon
receipt by VGEI of the Monthly Statement, any AFE or supplemental AFE, the
Company shall cause VGEI to distribute to the Company and the Stockholders a
copy of the Monthly Statement, AFE or Supplemental AFE and the Company shall
distribute to each Stockholder a request for advance ("Request for Advance")
setting forth the amount of the Capital Costs of Consent Operations, the
Unfunded Capital Costs of Consent Operations, such Stockholder's share of such
Unfunded Capital Costs of Consent Operations, the due date for the advance of
such Stockholder's share of such costs and wire transfer instructions for
payment of such advance. On or prior to the due date for such payment as
specified in the Request for Advance, each Stockholder shall wire transfer to
the account specified in such Request for Advance such Stockholder's share of
the Unfunded Capital Cost of Consent Operations as specified in the Request for
Advance. The Company shall promptly advance such funds to VGEI as a capital
contribution or loan, as determined by the Company; provided that if the IFC
Loan has not been repaid, the advance shall be made in accordance with the terms
of the IFC Loan.

     (c) On the date hereof, the Company has executed and delivered to each
Stockholder a Revolving Note pursuant to which the advances contemplated by this
Section and with respect to Consent Operations will be made and repaid ("Initial
Revolving Note"). All principal and interest of the Initial Revolving Notes will
be non-recourse to the Company, payable solely from Amounts Attributable to
Consent Operations. The terms and conditions of the Initial Revolving Note shall
be incorporated by reference herein as if fully stated herein.

     (d) The Stockholders acknowledge and agree that it is the intention of such
Stockholders and of the Company to utilize the available capital of VGEI and the
Company and the funds available to VGEI under the IFC Loan to the maximum extent
possible to fund VGEI's obligations under the Joint Operating Agreement before
requiring the Stockholders to advance additional amounts to the Company except
to the extent required under the IFC Loan to maintain threshold equity levels
and to otherwise comply with the terms and conditions of the IFC Loan.

6. Funding of Non-Consent Operations.

     (a) As used herein, (i) a "Discretionary Operation" means a particular
operation in the Etame Contract Field Area under the Joint Operating Agreement
other than a Mandatory Operation for which an AFE has been issued or is proposed
to be issued; (ii) a "Non-Consent Operation" shall mean a Discretionary
Operation with respect to which one party is a

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Consenting Stockholder and the other party is a Non-Consenting Stockholder;
(iii) "Capital Cost of a Non-Consent Operation" shall mean the capital costs
accrued after March 31, 2002 and paid or payable by VGEI under the Joint
Operating Agreement with respect to a Non-Consent Operation; and (iv) "Amounts
Attributable to a Non-Consent Operation" means, for each Non-Consent Operation,
at any time, all dividends or other payments received by the Company from VGEI
attributable to such Non-Consent Operation plus any interest or other earnings
thereon. For the avoidance of doubt a Discretionary Operation may include
Exclusive Operations under and as defined in the Joint Operating Agreement, or
operations in which all parties to the Joint Operating Agreement participate.

     (b) The Company shall cause VGEI to promptly provide written notice to the
Company and the Stockholders of each and every communication received or sent
under the Joint Operating Agreement requesting that VGEI consent to or not
consent to any operation. Each Stockholder shall notify the Company within the
time periods specified below, whether (i) such Stockholder agrees to advance to
the Company, from time to time as provided herein, an amount equal to such
Stockholder's Initial Percent of the Capital Cost of such Discretionary
Operation or (ii) such Stockholder will not advance such funds. As used herein,
(i) a Stockholder's "Initial Percent" is equal to the number of shares of Common
Stock then owned by a Stockholder divided by the total number of shares of
Common Stock then outstanding, expressed as a percentage; (ii) a Stockholder
which agrees to advance such funds shall be deemed a "Consenting Stockholder"
and a Stockholder which does not agree, or is deemed not to agree, to advance
such funds shall be a "Non-Consenting Stockholder." A Stockholder shall be
deemed to have elected not to advance funds, and shall be deemed a
Non-Consenting Stockholder, if such Stockholder has not notified the Company of
its agreement to advance funds as contemplated by this Section 6(b) no later
than 12 hours prior to VGEI's deadline to respond under the Joint Operating
Agreement to the extent the deadline is twenty-four hours or less and no later
than one day prior to any other deadlines under the Joint Operating Agreement by
which VGEI is required to respond with respect to its election as to such
proposed Discretionary Operations. If, with respect to a Discretionary
Operation, a party to the Joint Operating Agreement exercises its non-consent
rights and VGEI is requested to contribute additional amounts to pay a portion
of the amounts attributable to the non-consenting party as contemplated by
Section 7.2(E) of the Joint Operating Agreement (a "Section 7.2(E) Request"),
then the Company shall cause VGEI to notify the Company and the Stockholders of
such request. With respect to any operation, each Stockholder consent shall be
deemed revoked with respect to such operation upon receipt of a Section 7.2(E)
Request, and the Section 7.2(E) Request shall be deemed a new request that VGEI
consent to an operation and shall be subject to the provisions of Section
6.2(b).

     (c) If all of the Stockholders are Consenting Stockholders, then the
Company shall cause VGEI to take all actions under the Joint Operating Agreement
to consent to the Discretionary Operation. If one or more Stockholders is a
Non-Consenting Stockholder, the Company will cause VGEI to take all actions
under the Joint Operating Agreement to not consent to the operation, subject to
Subsection (d) below.

     (d) If one or more Stockholders is a Non-Consenting Stockholder, the
Company may request that the Consenting Stockholders agree in writing to advance
the Initial Percent of the Capital Costs of a Discretionary Operation allocable
to the Non-Consenting Stockholders. If one

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or more Consenting Stockholders agrees to advance the entire Initial Percent of
the Capital Costs of a Discretionary Operation allocable to Non-Consenting
Stockholders then the Company shall cause VGEI to take all actions under the
Joint Operating Agreement to consent to the Discretionary Operation (and such
Discretionary Operation shall be deemed a Non-Consent Operation as used herein).
The portion of the Initial Percent of the Capital Costs of a Non-Consent
Operation that a Consenting Stockholder agrees to advance that were otherwise
allocable to Non-Consenting Stockholders is referred to as the Consenting
Stockholder's "Excess Percent" For purposes of greater clarity, if a Consenting
Stockholder agrees to fund 50% of the Initial Percent of a Non-Consenting
Stockholder in respect of a Non-Consent Operation and such Initial Percent of
such Non-Consenting Stockholder is 20%, the Excess Percent of such Consenting
Stockholder in respect of such Non-Consent Operation shall be 10%. The amount of
Capital Costs of a Non-Consent Operation actually advanced by a Consenting
Stockholder shall be referred to as such Stockholder's "Excess Amount" in
respect of such Non-Consent Operation.

     (e) If the Company has caused VGEI to consent to a Non-Consent Operation as
contemplated by this Section, each Consenting Stockholder agrees to advance to
the Company, from time to time as provided herein, such Consenting Stockholder's
Initial Percent and Excess Percent, if any, of each Cash Call with respect to
such Non-Consent Operation. Promptly following receipt of an AFE, supplemental
AFE, Cash Call or other request for payment of all or a portion of the Capital
Cost of a Non-Consent Operation ("Cash Call") made to VGEI under the Joint
Operating Agreement for any Non-Consent Operation, the Company shall cause VGEI
to promptly notify the Company, and to provide to the Company a copy of such
Cash Call and all other information received in connection with such Cash Call.
The Company shall promptly provide to each Stockholder which is a Consenting
Stockholder with respect to such Non-Consent Operation, a copy of the materials
received from VGEI together with the following: (i) the aggregate amount of the
Cash Call, (ii) the Initial Percent of such Consenting Stockholder, (iii) the
Excess Percent of the Consenting Stockholder, if any, (iv) the total amount such
Consenting Stockholder is required to advance and (v) wire transfer instructions
for the account to which such Consenting Stockholder should transfer such funds.
Each Consenting Stockholder shall promptly, but in any event within five
business days of the receipt of such materials, advance to the Company by wire
transfer to the account specified in the foregoing notice, an amount equal to
such Consenting Stockholder's Initial Percent multiplied by the applicable Cash
Call plus such Stockholder's Excess Percent, if any, multiplied by the
applicable Cash Call. Such advances shall be made pursuant to a Revolving Note,
in a form substantially similar to the Initial Revolving Note with appropriate
changes to reflect the repayment terms set forth herein ("Non-Consent Note"). A
Non-Consent Note shall be issued by the Company to the Consenting Stockholder at
the time the applicable funds are advanced and shall provide that all amounts
owed or owing under such note shall be payable solely out of the Amounts
Attributable to the Non-Consent Operation with respect to which such note was
made and shall be otherwise non-recourse to the Company. The Company shall
advance the amounts received from the Consenting Stockholders to VGEI as a loan
or capital contribution, as determined by the Company; provided that if the IFC
Loan has not been repaid, the advance shall be made in accordance with the terms
of the IFC Loan and the Transaction Documents (as defined in the loan agreement
evidencing the IFC Loan).

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     (f) With respect to each Non-Consent Operation, the Non-Consenting
Stockholder(s) shall assign to each Consenting Stockholder (pro rata in
accordance with such Consenting Stockholder's Excess Percent), as liquidated
damages for the failure to consent to such operation, the right to receive all
dividends or other distributions payable by the Company to such Non-Consenting
Stockholder representing Amounts Attributable to such Non-Consent Operation
until such time as the Consenting Stockholders shall have received:

          (i) if such Non-Consent Operation is described in Section 7.5(B)(i) of
     the Joint Operating Agreement, 300% of the Excess Amount advanced by such
     Consenting Stockholder; and

          (ii) otherwise, 500% of the Excess Amount advanced by such Consenting
     Shareholder.

Each Non-Consenting Stockholder hereby assigns to each Consenting Stockholder
the dividends contemplated above, and directs to the Company to make payment of
such dividend directly to the Consenting Stockholder as contemplated above. Each
Non-Consenting Stockholder hereby releases the Company from any liability or
obligation with respect to such payments.

7. Default.

     (a) If a Stockholder fails to pay any amounts due under Section 5 or any
amount it owes as a Consenting Stockholder under Section 6 of this Agreement, or
any other amount due under this Agreement, when due, it shall be deemed a "Party
in Default" and the non-defaulting Stockholder(s) shall be required to promptly
advance such amounts to the Company (if more than one such non-defaulting
Stockholder, pro rata in accordance with the number of shares of Common Stock
owned) a "Default Loan". Upon the making of a Default Loan by a Stockholder, the
Company shall issue a note a "Default Note" evidencing such Default Loan (in
form substantially similar to the Initial Revolving Note with appropriate
changes to reflect the interest rate and repayment terms set forth herein) to
the Stockholders making such advances. Amounts advanced pursuant to a Default
Loan shall accrue interest from the date advanced until paid in full at the rate
per annum equal to the higher of the interest payable on the applicable
Revolving Note, or Non-Consent Note plus 2%, provided, however, that in the
event the aforesaid rate is contrary to any applicable usury law, the rate of
interest to be charged shall be the maximum rate permitted by such applicable
law. Notwithstanding anything to the contrary set forth herein, the Company
shall repay amounts advanced as a Default Loan, interest thereon and all other
amounts due or outstanding thereunder from any payments under an Initial Note or
Non-Consent Note payable to such Party in Default, or dividends or other
payments payable to the Party in Default from the Company until such amounts are
paid in full. If more than one Default Note has been issued and is outstanding,
the repayment of amounts made by the Company thereunder shall be paid to each
holder of a Default Note pro rata in accordance with all amounts of principal
and interest due and outstanding under such Default Notes as of the date of such
repayment. The Company shall promptly give notice of any default by a Party in
Default to a Party in Default and to each non-defaulting Stockholder (the
"Default Notice"). If the default is not cured within five days after receipt by
a Party in Default of the Default Notice, then in such event, for so long as
such default is continuing, the Party in Default shall be subject to the
following:

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          (i) Beginning five business days from the date a Default Notice is
     sent to a Party in Default, and thereafter while the Party in Default
     remains in default, neither the Party in Default nor its Designated
     Director(s) or Officer(s) shall be entitled to any rights under Sections 2,
     3, 4, 7, 8 and 9 and any information or access pertaining to the Etame
     Field Contract Area.

          (ii) Beginning 60 days from the date the Default Notice is sent to a
     Party in Default, and thereafter while the Party in Default remains in
     default, without prejudice to any other rights available to the
     non-defaulting Stockholder to recover amounts owing to it under this
     Agreement, such non-defaulting Stockholder or Stockholders (pro rata based
     on the number of shares of Common Stock owned) shall have the option
     exercisable for a period of 30 days after all amounts due under the IFC
     Loan have been paid in full, to purchase at a price of $1,000 all of the
     Party in Default's right, title and beneficial interest in and to the
     capital stock of the Company from the Party in Default effective on the
     date of the non-defaulting Stockholder's notice of intent to exercise the
     option to the Party in Default; provided that so long as any amounts remain
     due under the IFC Loan, the non-defaulting Stockholder must, at its option,
     either pay in full all amounts owed under the IFC Loan or delay the
     exercise of the option set forth in this section until the IFC Loan has
     been repaid. Effective on the date of the non-defaulting Party's notice of
     intent to exercise the option to purchase the Common Stock owned by the
     Party in Default, the Party in Default shall assign to the non-defaulting
     Stockholder as liquidated damages for the failure to pay any amounts due in
     connection with approved operations, the right to receive all dividends or
     other distributions payable by the Company to such Party in Default. After
     receipt of the non-defaulting Stockholder's notice of intent to exercise
     the option, the Party in Default shall not have the right to cure its
     default or refuse to allow the non-defaulting Stockholder to exercise the
     purchase option when the IFC Loan has been repaid.

     (b) Should the Party in Default desire to cure its default such Party must
advance to the Company pursuant to the Initial Revolving Note or appropriate
Non-Consent Note, in one lump sum, all amounts outstanding or owed on any
Default Notes issued to the other Stockholders in respect of the default of such
Party in Default. Immediately upon such payment, the Company shall use the
proceeds to repay the Default Loan, such Party shall no longer be in default.
Notwithstanding the foregoing, a Party in Default may not cure such Default
after another Party has sent notice of the exercise of the option in Section
7(a)(ii).

8. Financial Reporting.

     (a) The Company agrees to deliver and each Stockholder agrees to use its
reasonable efforts to cause the Company to deliver to each Stockholder:

          (i) as soon as practicable and in any event within 45 days after the
     end of each quarterly period (other than the last quarterly period) in each
     fiscal year, statements of income, stockholders' equity and cash flows of
     the Company for the period from the beginning of the current fiscal year to
     the end of such quarterly period, and a balance sheet of the Company as at
     the end of such quarterly period, setting forth in each case in comparative
     form figures for the corresponding period in the preceding fiscal year, all
     in

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     reasonable detail and satisfactory in form to the Stockholders and
     certified by an authorized financial officer of the Company, subject to
     changes resulting from year-end adjustment;

          (ii) as soon as practicable and in any event within 90 days after the
     end of each fiscal year, statements of income and cash flows and a
     statement of stockholders' equity of the Company for such year, and a
     balance sheet of the Company as at the end of such year, setting forth in
     each case in comparative form corresponding figures from the preceding
     annual audit, and reported on by independent public accountants of
     recognized national standing selected by the Company and, as to the
     consolidating statements, certified by an authorized financial officer of
     the Company as true and correct in all material respects;

          (iii) as soon as practicable and in any event within 20 days after the
     end of each month, copies of Management Reports prepared by VGEI one
     delivered to the Company setting forth in each case in comparative form
     corresponding figures for monthly revenues, expenses, production, and
     accounts balances attributable to VGEI's interest in the Etame Field
     Contract Area and the Production Sharing Contract

          (iv) such other information respecting the condition or operations,
     financial or otherwise, of the Company as any Stockholder may reasonably
     request.

     (b) The Company shall maintain, and shall cause VGEI to maintain, their
respective books and records in a manner such that they can specifically
identify and allocate all distributions, dividends and other amounts paid by
VGEI to the Company and attributable to Mandatory Operations and each
Discretionary Operation conducted under the Joint Operating Agreement. In
determining whether an item of revenue, cost or expense or a distribution,
dividend or other amount was attributable to a Mandatory Operation or a
particular Discretionary Operation, all revenues, costs and expenses shall be
allocated as provided in the Joint Operating Agreement, and if not provided for
in the Joint Operating Agreement, such revenues, costs and expenses shall be
allocated in a manner deemed appropriate by the Company in its reasonable
discretion, whose allocation shall be final and binding absent manifest error.
Each Stockholder shall have the right, during normal business hours and for a
proper purpose to inspect the books and records of the Company and VGEI relating
to such allocations. The Company shall use such allocations to determine the
Capital Cost of a Consent Operation, the Amounts Attributable to a Consent
Operation, the Capital Costs of a Non-Consent Operation, the Amounts
Attributable to Non-Consent Operations and the other amounts required to be
determined under Sections 5, 6 and 7 of this Agreement, and such determinations
by the Company shall be final and binding on the Parties absent manifest error.

9. General Restrictions on Transfer. The Stockholders agree that they will not
make a Disposition, except to a wholly owned subsidiary of such Stockholder or
to a person who directly or indirectly owns 50% or more of the capital stock of
such Stockholder (a "Permitted Disposition") for so long as such assignee
remains wholly owned, or in accordance with the terms of this Agreement. Any
purported Disposition in violation of any provision of this Agreement, the
Subordination and Share Retention Agreement or the Pledge of Shares Agreement
will be void and will not operate to transfer any interest or title in such
shares to the

                                       13

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                                                                  Execution Copy

purported transferee, and will give the other Stockholders an option and
preferential right to purchase such shares in the manner and on the terms and
conditions provided in such Agreement.

10. Right of First Option; Tag-Along Rights; and Drag-Along Rights.

     (a) If any Stockholder desires to make a Disposition (other than a
Permitted Disposition) of any shares of Common Stock owned or held by it by
offering for Disposition to a third party, such Stockholder (for purposes of
this Section 10, a "Selling Stockholder") shall first offer such shares (the
shares of Common Stock proposed to be transferred being called the "Subject
Shares") for sale at the Offering Price to the other Stockholders, all in
accordance with the following provisions of this Section 10; provided however,
if VEI is the Selling Stockholder and any amounts are owed under the IFC Loan,
the Selling Stockholder must either obtain the written consent of IFC for the
proposed Disposition or cause VGEI to repay all amounts due under the IFC Loan.

          (i) The Selling Stockholder shall deliver a written notice ("Offering
     Notice") to the other Stockholders to sell the Subject Shares to the
     Stockholders pursuant to this Agreement, indicating the number of Subject
     Shares and the proposed Offering Price. Within 15 days from the receipt of
     such Offering Notice, the other Stockholders may deliver to the Selling
     Stockholder written notice accepting the offer in the Offering Notice
     ("Reply Notice"), pursuant to which each such Stockholder must purchase the
     number of shares equal to the product of: (A) the total number of Subject
     Shares, multiplied by (B) the fraction equal to the total number of shares
     of Common Stock owned by the Stockholder, divided by the aggregate number
     of shares of Common Stock owned by all Stockholders other than the Selling
     Stockholder. Any such Reply Notice shall constitute an agreement binding
     upon the Selling Stockholder and the Stockholder(s) delivering the Reply
     Notice to sell and purchase the stated portion of the Subject Shares at the
     Offering Price or the Purchase Price, as applicable.

     (b) If the Stockholders do not elect to purchase all of the Subject Shares
then upon any Disposition of the Subject Shares the Selling Stockholder shall
cause the proposed transferee (the "Proposed Purchaser") to offer in writing (a
"Sale Notice"), not less than 30 nor more than 120 days prior to the
consummation of any proposed Disposition, to the Stockholders other than the
Selling Stockholder (the "Tag Along Stockholders") to purchase a Proportionate
Share of the shares held by each Tag Along Stockholder. The Sale Notice shall
set forth: (i) the name of the Selling Stockholder and the number of Subject
Shares proposed to be transferred, (ii) the name and address of the Proposed
Purchaser, (iii) the proposed amount and form of consideration and terms and
conditions of payment offered by such Proposed Purchaser and (iv) that the
Proposed Purchaser has been informed of the tag along right provided for in this
Section 10(b) and has agreed to purchase shares of Common Stock owned by any Tag
Along Stockholder in accordance with the terms hereof. The tag along right may
be exercised by any Tag Along Stockholder by delivery of a written notice to the
Proposed Purchaser and Selling Stockholder (the "Tag Along Notice") within 30
days following its receipt of the Sale Notice. The Tag Along Notice shall state
the amount of shares of Stock (the "Tag Along Shares") that such Tag Along
Stockholder proposes to include in such transfer to the Proposed Purchaser. To
the extent that a Tag Along Stockholder accepts such tag along offer, the number
of shares of Common Stock to be sold to the Proposed Purchaser by the Selling
Stockholder shall be reduced

                                       14

<PAGE>

                                                                  Execution Copy

to the extent necessary to comply with this Section 10(b). In the event that the
Proposed Purchaser does not purchase all Tag Along Shares from the Tag Along
Stockholders on the same terms and conditions as specified in the Sale Notice,
then the Selling Stockholder shall not be permitted to sell any Subject Shares
to the Proposed Purchaser in the proposed transfer. The closing of any purchase
from the Tag Along Stockholders shall occur contemporaneously with the purchase
and sale of the Subject Shares (as adjusted hereunder) or at such other time as
such Tag Along Stockholders and the Proposed Purchaser shall agree.

     (c) In the event that (i) the total shares sought to be purchased by the
Proposed Purchaser constitute 100% of the shares of Common Stock outstanding on
the date of the Sale Notice, and (ii) a majority of the Company's Board of
Directors approves such transaction, then each such Selling Stockholder shall
have the right (the "Drag Along Right") beginning on the date that is the first
day after such tag-along right has either expired or been rejected and ending 20
days thereafter, to request that each Stockholder sell all shares of Common
Stock owned by such Stockholder to the Proposed Purchaser. All such sales shall
be on the same terms and conditions as, and occur simultaneously with, the sale
of shares to such Proposed Purchaser by such Selling Stockholder. If all
Stockholders do not agree to sell their shares to the Proposed Purchaser, the
Company shall use its reasonable best efforts to restructure the ownership of
the Company and/or VGEI to enable the Selling Stockholder to sell its entire
economic interest in the Etame Field Contract Area; provided however, if any
amounts are owed under the IFC Loan the Selling Stockholder must either obtain
the written consent of IFC for the proposed Disposition or cause VGEI to repay
all amounts due under the IFC Loan.

     (d) If the other Stockholders do not elect to purchase all Subject Shares,
the Selling Stockholder shall, subject to Sections 10(b) and 10(c) hereof, be
freed and discharged, except as herein stated, from all obligations under the
terms of Section 10(a) provided that the Selling Stockholder sells the Subject
Shares at 90% or more of the Offering Price and upon the terms stated in the
Offering Notice, and only if such sale shall be completed within a period of 180
days from the date of delivery of the Offering Notice to the other Stockholders.
If the Selling Stockholder does not complete the Disposition within such 180 day
period, all the provisions of this Agreement, including the provisions of
Section 10(a), shall apply to any future sale or offer for sale of such shares
of Common Stock owned by the Selling Stockholder.

     (e) If a Stockholder receives notice or otherwise becomes aware that its
Common Stock may be the subject of an involuntary Disposition, such Stockholder
shall notify the other Stockholders of such possible involuntary Disposition,
and will cooperate with such other Stockholders to avoid such involuntary
Disposition. Upon any involuntary Disposition of shares of a Stockholder's
Common Stock, the Stockholder or its representative shall send notice thereof,
disclosing in full to the Company and the other Stockholders the nature and
details of such involuntary Disposition. The transferee of such shares shall not
be entitled to any rights under this Agreement other than the right to receive
dividends and distributions but shall have all obligations to make the advances
to the Company set forth in Sections 5 and 6 of this Agreement.

     (f) The transferee of any shares of a Stockholder's Common Stock pursuant
to a Disposition shall be subject to and bound by the terms and conditions of
this Agreement and each such transferee shall execute an Addendum Agreement in
the form attached as Exhibit A.

                                       15

<PAGE>

                                                                  Execution Copy

11. Representations and Warranties of Stockholders. Each Stockholder hereby
represents and warrants to the other Stockholders as follows:

     (a) As of the date hereof, such Stockholder is the record and beneficial
owner of the number of shares of Common Stock set forth in the Preliminary
Statements to this Agreement.

     (b) Such Stockholder, if not a natural person, is duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
formation.

     (c) Such Stockholder has full power and authority to execute, deliver, and
perform this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by such Stockholder and
constitutes a valid and legally binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms.

     (d) The execution, delivery, and performance by such Stockholder of this
Agreement do not and will not (i) contravene or violate any provision of its
charter or other governing documents, from time to time in effect, (ii) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or any of its properties may be bound or (iii) violate any
applicable law, rule or regulation binding upon such Stockholder.

     (e) No consent, approval, order, or authorization of, or declaration,
filing, or registration with, any court or governmental agency or of any third
party which has not been received is required to be obtained or made by such
Stockholder in connection with the execution, delivery, or performance by such
Stockholder of this Agreement.

12. Survival of Provisions. All representations, warranties and covenants made
by each party hereto in this Agreement or any other document contemplated hereby
shall be considered to have been relied upon by the other Parties hereto and
shall survive the execution and delivery of this Agreement or such other
document, regardless of any investigation made by or on behalf of any such
Party.

13. Entire Agreement. This Agreement and the other documents contemplated
hereunder contain the entire understanding of the parties hereto with respect to
the subject matter hereof. Neither the Company nor any Stockholder shall be a
party to any agreement regarding the voting or Disposition of capital stock of
the Company, as such, unless the Company and all such Stockholders are also
parties to that agreement, except with the written consent of the Company and
all such Stockholders who are not parties to such an agreement. To the extent
that the terms of this Agreement conflict with, or shall require the Company,
VGEI or a stockholder to take an action which would or could with the passage of
time result in a default under, the terms of the IFC Loan, Stockholders shall
only take such actions, and shall use reasonable best efforts to cause the
Company and VGEI to take such actions, as do not conflict with or cause a
default under, the IFC Loan.

                                       16

<PAGE>

                                                                  Execution Copy

14. Amendments. This Agreement may be amended, modified, supplemented, restated
or discharged only by unanimous agreement of the Stockholders.

15. Notices. All notices and other communications required under this Agreement
shall (i) be in writing; (ii) shall be addressed to the Parties as indicated
below unless modified in writing of a change in address pursuant to the methods
described in this Section 15; and (iii) shall be deemed to have been given
either when personally delivered or if sent by recognized overnight courier
service, the next business day, or if sent by mail (in which event it shall be
sent postage prepaid), upon delivery thereof, or, if sent by telegram, telex, or
facsimile upon delivery thereof (if such delivery is promptly confirmed in
writing). The addresses of the Parties are as follows:

          If to VEI to:

          VAALCO Energy, Inc.
          4600 Post Oak Place, Suite 309
          Houston, Texas 77027
          Attention: President
          Facsimile No.: 713-623-0982

          If to NIC to:
          Nissho Iwai Corporation
          3-1, Daiba 2-chome, Minato-ku, Tokyo 135-8655 JAPAN
          Attention: Shinichi Teranishi General Manager, Energy Project
          Department,
          Facsimile No.: 81-3-5520-2964

          If to the Company to:
          VAALCO International, Inc.
          4600 Post Oak Place, Suite 309
          Houston, Texas 77027
          Attention: President
          Facsimile No.: 713-623-0982

16. Termination. This Agreement shall terminate upon: the written consent of
each of the Stockholders. The commitment of any Stockholder to make any advance
or loan to the Company hereunder pursuant to Sections 5, 6 or 7 or otherwise
shall terminate upon the occurrence of the earlier of (i) the adjudication of
the Company as bankrupt or insolvent by a court of competent jurisdiction, (ii)
the liquidation or dissolution of the Company, (iii) the merger of the Company,
other than a merger into a wholly owned subsidiary, in which the Company is not
the surviving corporation, (iv) the consolidation of the Company with one or
more other corporations, or (v) a public offering of the Common Stock pursuant
to a registration statement under the Securities Act of 1933, as amended. The
rights of a particular Stockholder under this Agreement, other than the right to
receive payment for his shares, shall terminate immediately upon such
Stockholder ceasing to be a holder of Common Stock other than rights to be
repaid pursuant to sections 5, 6, or 7 hereof, or note contemplated hereunder.

17. Power of Attorney. For the purpose of executing an Addendum Agreement, all
the Stockholders hereby appoint the Company as their agent and attorney to
execute such Addendum

                                       17

<PAGE>

                                                                  Execution Copy

Agreement on their behalf and expressly bind themselves to the Addendum
Agreement by the Company's execution of that Agreement without further action on
their part.

18. Waiver. Each Party may only waive any right it may have pursuant to this
Agreement in writing and subject to the notice provisions hereof. Any waiver of
a right, including any right under this Agreement, by any Party shall not
constitute a waiver of any other right by such Party. Failure or delay by any
Party to enforce any term or condition of this Agreement shall not constitute a
wavier of such term or condition.

19. Choice of Law. This Agreement shall be governed by the Delaware General
Corporate Law with respect to corporate law matters and for all other matters
the internal laws of the State of New York, notwithstanding regard to principles
of conflicts of law.

20. Successors and Assigns. This Agreement shall be binding on and inure to the
benefit of the Parties hereto and their respective successors and permitted
assigns.

21. Legends. The certificate or certificates representing the Common Stock now
owned or hereafter acquired by the Stockholders shall have conspicuously
stamped, printed, or typed on the face or back thereof a legend substantially in
the following form:

     "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THAT CERTAIN
     STOCKHOLDERS' AGREEMENT, DATED AS OF AUGUST ___, 2002, BY AND AMONG THE
     COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY AS AMENDED, MODIFIED OR
     OTHERWISE SUPPLEMENTED FROM TIME TO TIME. A COPY OF SUCH STOCKHOLDERS'
     AGREEMENT WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF WITHOUT
     CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
     BUSINESS OR REGISTERED OFFICE."

22. Specific Performance. Each of the Parties hereto recognizes that any breach
of the terms of this Agreement may give rise to irreparable harm for which money
damages would not be an adequate remedy, and accordingly agree that, in addition
to other remedies, any nonbreaching Party shall be entitled to enforce the terms
of this Agreement by a decree of specific performance without the necessity of
proving the inadequacy as a remedy of money damages.

23. Counterparts. This Agreement may be executed in multiple counterparts, with
each such counterpart constituting an original and all of such counterparts
constituting but one and the same agreement. Execution and delivery of this
Agreement by exchange of facsimile copies bearing the facsimile signature of a
Party hereto shall constitute a valid and binding execution and delivery of this
Agreement by such Party. Such facsimile copies shall constitute enforceable
original documents.

24. Jurisdiction. Any legal action or proceeding relating to this Agreement
shall be instituted in a state or federal court located in New York, NY. The
Parties agree to submit to the jurisdiction of, and agree that venue is proper
in, these courts in any such legal action or proceeding.

                                       18

<PAGE>

                                                                  Execution Copy

     IN WITNESS WHEREOF, this Stockholders' Agreement has been executed as of
the date above first written.

                                       VAALCO International, Inc.

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

                                       Nissho Iwai Corporation

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

                                       VAALCO Energy, Inc.

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

                                       19

<PAGE>

                                    EXHIBIT A

                               ADDENDUM AGREEMENT

     Addendum Agreement made this      day of         ,     , by and between
                                  ----        --------  ----
                                             (the "New Stockholder") and VAALCO
--------------------------------------------
International, Inc., a Delaware corporation (the "Company"), and the other
stockholders (the "Stockholders") of the Company, who are parties to that
certain Stockholders' Agreement dated August   , 2002 (the "Agreement"), between
                                             --
the Company and the Stockholders.

                               W I T N E S E T H:

     WHEREAS, the Company and the Stockholders entered into the Agreement to
impose certain restrictions and obligations upon themselves and the shares of
Common Stock, $0.001 par value, of the Company held by them (the "Shares");

     WHEREAS, the New Stockholder is desirous of becoming a stockholder of the
Company; and

     WHEREAS, the Company and the Stockholders have required in the Agreement
that in certain circumstances certain persons being offered Shares must enter
into an Addendum Agreement binding the New Stockholder to the Agreement to the
same extent as if it was an original party thereto, so as to promote the mutual
interests of the Company, the Stockholders and the New Stockholder by imposing
the same restrictions and obligations on the New Stockholder and the shares of
Common Stock to be acquired by it as were imposed upon the Stockholders under
the Agreement;

     NOW, THEREFORE, in consideration of the mutual promises of the parties, and
as a condition of the purchase of the shares of Common Stock in the Company, the
New Stockholder acknowledges that it has read the Agreement. The New Stockholder
shall be bound by, and shall have the benefit of, all the terms and conditions
set out in the Agreement to the same extent as if it was a "Stockholder" as
defined in the Agreement. This Addendum Agreement shall be attached to and
become a part of the Agreement.

                                       New Stockholder

                                       By
                                         ---------------------------------------

Address for notices under
Section 15 of Agreement:

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

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

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

                                       20

<PAGE>

                                    EXHIBIT B

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN STOCKHOLDERS'
AGREEMENT, DATED AS OF AUGUST___, 2002, BY AND AMONG THE MAKER AND CERTAIN
STOCKHOLDERS OF THE MAKER, AS AMENDED, MODIFIED OR OTHERWISE SUPPLEMENTED FROM
TIME TO TIME. A COPY OF SUCH STOCKHOLDERS' AGREEMENT WILL BE FURNISHED BY THE
MAKER TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST TO THE MAKER AT
ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.

                                 REVOLVING NOTE

$______.00                        New York, NY               August   , 2002
                                                                   ---

     FOR VALUE RECEIVED, the undersigned, VAALCO International, Inc. ("Maker"),
hereby unconditionally promises to pay to the order of           ("Payee"), at
                                                       ---------
               , or such other address given to Maker by Payee at the times set
---------------
forth herein but in no event later than the Extended Maturity Date, the
principal sum of            ($________.00), or so much thereof as may be
                 -----------
advanced from time to time by Payee hereunder prior to maturity, in lawful money
of the United States of America, together with interest (calculated on the basis
of a 365-day or 366-day year, as appropriate) on the unpaid principal balance
from day-to-day remaining and any other amounts due and payable hereunder,
computed, in the case of principal, from the date of advance until maturity, and
in the case of any other amount, from the date due until repaid in full at the
rate per annum which shall from day-to-day be equal to the Interest Rate.

     1. Definitions. Capitalized terms not defined herein shall have the meaning
assigned to those terms in the Stockholders' Agreement defined below. When used
in this Note, the following terms shall have the respective meanings specified
herein or in the Section referred to:

          (a) Base Rate means for any day a fluctuating rate per annum equal to
the higher of (i) the Federal Funds Rate plus one-half of one percent (0.5%),
and (ii) the rate of interest in effect for such day as publicly announced from
time to time by Citibank, N.A. as its "prime rate." Such rate is a rate set by
Citibank, N.A. based upon various factors including costs and desired return,
general economic conditions, and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate. Any change in such rate announced by Citibank, N.A. shall take effect at
the opening of business on the day specified in the public announcement of such
change.

          (b) Business Day means for all purposes, any day other than Saturday,
Sunday, and any other day on which commercial banking institutions are required
or authorized

                                       21

<PAGE>

by any applicable law to be closed at the place of Payee's office stated above
and in New York, New York.

          (c) Default has the meaning ascribed to it in Section 7 hereof.

          (d) Extended Maturity Date means the fifth anniversary of the Maturity
Date.

          (e) Federal Funds Rate means, for any day, the rate per annum (rounded
upwards to the nearest 1/100 of 1%) equal to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank on the Business Day next succeeding such day; provided that
(i) if such day is not a Business Day, then the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if no such rate is so
published on such next succeeding Business Day, then the Federal Funds Rate for
such day shall be the average rate charged to Citibank, N.A. on such day on such
transactions.

          (f) Interest Rate means if a Default shall exist, the lesser of (a)
the Maximum Rate and (b) the sum of (i) the Base Rate plus (ii) four percent
(4%) and if no Default shall exist, subject to Section 2(c) hereof, the lesser
of (a) the Maximum Rate and (b) the sum of (i) the Base Rate plus (ii) two
percent (2%).

          (g) Maturity Date means the twentieth (20th) anniversary of the date
hereof.

          (h) Maximum Rate means, for any day a rate per annum equal to 18%.

          (i) Obligation means all indebtedness, liabilities, and obligations,
of every kind and character, of Maker, now or hereafter existing in favor of
Payee, arising under this Note.

          (j) Stockholders' Agreement means that certain Stockholders' Agreement
dated August   , 2002, between Maker,            and Payee, including any
             --                       ----------
related instruments, and agreements executed in connection therewith, in each
case as the same may be renewed, extended, amended, supplemented, restructured,
restated, refunded, replaced, or refinanced from time to time on one or more
occasions.

     2. Payment. The principal hereof advanced and from time to time remaining
unpaid and interest upon this Note shall be due and payable, as follows:

          (a) Principal together with accrued interest thereon, shall be paid on
the last Business Day of each of the Maker's fiscal quarters in an amount equal
to [9.99][90.01] % of the Amounts Attributable to Consent Operations on such
date, less reasonable reserves, commencing on August   , 2002, with a final
                                                     --
payment of all unpaid principal and interest thereon on the "Maturity Date" of
August    , 2022. All payments received hereunder shall be
       ---

                                       22

<PAGE>

applied first to the payment of accrued but unpaid costs or other expenses
constituting Obligation, second to interest due and payable with the balance
applied to principal. This Note is non-recourse to the Company, payable solely
as described in this Section 2.

          (b) Should the principal of, or any installment of the accrued but
unpaid costs or other expenses constituting the Obligation, or interest upon,
this Note become due and payable on any day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day, and
interest shall be payable with respect to such extension.

          (c) All past due principal of and, to the extent permitted by
applicable law, interest upon this Note shall bear interest at the Maximum Rate.

          (d) Until the Maturity Date, the undersigned may borrow, pay, prepay
in whole or in part and reborrow hereunder, so long as not more than $__________
of principal is outstanding at any one time, it being understood that this Note
is a revolving credit note; it being expressly contemplated that, by reason of
prepayments hereon, there may be times when no indebtedness is owing hereunder,
but, notwithstanding such occurrences, this note shall remain valid and shall be
in full force and effect as to loans or advances made subsequent to such
occurrences; and it being understood and agreed that advances and repayments of
principal under this Note are not limited to the face amount of principal, but
to a maximum of the face amount of principal at any one time outstanding. Payee
may advance funds pursuant to this note from time to time, and from time to time
the undersigned will make repayments on the principal of this Note, so that no
more than the face amount of principal shall be outstanding at any one time.
Each advance and each payment of principal hereunder shall be reflected by a
notation made by Payee in its business records. The aggregate unpaid principal
amount of advances, the accrual and capitalization of interest hereon, the
amount of any other Obligation outstanding and the repayment thereof, in each
case reflected by the notations made in Payee's business records shall be prima
facie evidence absent manifest error of the amount of Obligation owing under
this Note, which amount the undersigned unconditionally promises to pay to the
order of Payee under the terms hereof.

          (e) Notwithstanding anything to the contrary set forth herein, if the
Payee becomes a party in Default as defined in the Stockholders' Agreement, no
amounts shall be payable to Payee under this Note until such time as Payee cures
such default as provided in the Stockholders' Agreement. Amounts otherwise
payable to Payee shall be used to repay any Default Loan as provided in the
Stockholders' Agreement, or if all such Default Loans have been repaid, such
amounts shall be retained by the Company.

     3. Extension. Notwithstanding anything to the contrary contained herein, so
long as no Default has occurred under this Note, and no Default has occurred
under any document evidencing or securing this Note, and no event has occurred
which could, with the giving of notice or the passage of time, or both,
constitute such a Default, Payee shall, at Maker's request, exercised by
delivery to Payee, on or before a date more than thirty (30) days, but not more
than

                                       23

<PAGE>

ninety (90) days, prior to the Maturity Date of an extension request to, extend
the maturity date of this Note to the Extended Maturity Date.

     4. Rights Under Stockholder Agreement. This Note has been executed and
delivered pursuant to, and is subject to certain terms and conditions set forth
in the Stockholders' Agreement and is one of the "Initial Revolving Notes"
referred to therein. The Holder of this Note shall be entitled to the benefits
provided in the Stockholders' Agreement. Reference is made to the Stockholders'
Agreement for a statement of (a) the obligation of Payee to advance funds
hereunder and (b) Maker's right to prepay this Note.

     5. Waivers. Maker and each surety, endorser, guarantor, and other party
ever liable for payment of any sums of money payable upon this Note, jointly and
severally waive presentment, demand, protest, notice of protest and non-payment
or other notice of default, notice of acceleration, and intention to accelerate,
or other notice of any kind, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases, or changes.

No waiver by Payee of any of its rights or remedies hereunder or under any other
document evidencing or securing this Note or otherwise, shall be considered a
waiver of any other subsequent right or remedy of Payee; no delay or omission in
the exercise or enforcement by Payee of any rights or remedies shall ever be
construed as a waiver of any right or remedy of Payee; and no single or partial
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Payee. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Payee at law, in equity or otherwise.

     6. Default and Remedies.

          (a) A "Default" shall exist hereunder if any one or more of the
following events shall occur and be continuing: (i) Maker shall fail to pay when
due any principal of, or interest upon, this Note or the Obligation and such
failure shall continue for sixty (60) days following the date Payee notifies
Maker of such failure; (ii) default shall occur in the performance of any of the
covenants or agreements of Maker contained herein, in any other document
executed or delivered to Payee in connection herewith and such default shall
continue [for sixty (60) days following the date Payee notifies Maker of such
default];(iii) an order, judgment or decree shall be entered by any court of
competent jurisdiction or other competent authority finding that either the
Production Sharing Contract or the Joint Operating Agreement (A) ceases to be a
legal, valid, binding agreement enforceable against any party executing the same
in accordance with the respective terms thereof, (B) are ineffective or
inoperative or (C) in any way whatsoever cease to give or provide the respective
liens, security interests, rights,

                                       24

<PAGE>

titles, interests, remedies, powers or privileges intended to be created
thereby; (iv) Maker shall (A) apply for or consent to the appointment of a
receiver, trustee, intervenor, custodian or liquidator of itself or of all or a
substantial part of its assets, (B) be adjudicated a bankrupt or insolvent or
file a voluntary petition for bankruptcy or admit in writing that it is unable
to pay its debts as they become due, (C) make a general assignment for the
benefit of creditors, (D) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, or (E) file an answer admitting the material allegations of, or consent
to, or default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding, or take corporate action for the
purpose of effecting any of the foregoing; (v) an order, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition seeking reorganization of Maker or appointing a
receiver, trustee, intervenor or liquidator of any such person, or of all or
substantially all of its or their assets, and such order, judgment or decree
shall continue unstayed and in effect for a period of sixty (60) days; (vi)
Payee's liens, mortgages or security interests in any of the collateral for this
Note, if any, should become unenforceable, or cease to be liens, mortgages or
security interests of the priority purported to be granted thereby; or (vii) the
dissolution or termination of Maker.

          (b) If Maker fails or refuses to pay any part of the principal of or
interest upon this Note or any Obligation as the same become due, or upon the
occurrence of any Default hereunder or under any other agreement or instrument
securing or assuring the payment of this Note or executed in connection
herewith, then in any such event the holder hereof may, at its option, (i)
terminate Payee's commitment to make advances hereunder, (ii) declare the entire
unpaid balance of the Obligations to be immediately due and payable without
presentment or notice of any kind which Maker waives pursuant to Section 5
herein, (iii) reduce any claim to judgment, and/or (iv) pursue and enforce any
of Payee's rights and remedies available pursuant to any applicable law or
agreement including, without limitation, foreclosing all liens and security
interests securing payment thereof or any part thereof; provided, however, in
the case of any Default specified in (iv), (v) or (vii) of Section (a) above
without any notice to Maker or any other act by Payee, Maker's right to request
advances under this Note shall thereupon terminate and the Obligations shall
become immediately due and payable without presentment, demand, protest, or
other notice of any kind, all of which are hereby waived by Maker.

     7. Voluntary Prepayment. Maker reserves the right to prepay the outstanding
principal balance of this Note, in whole or in part, at any time and from time
to time, without premium or penalty. Any such prepayment shall be made together
with payment of interest accrued on the amount of principal being prepaid
through the date of such prepayment, and shall be applied to the installments of
principal due hereunder in the inverse order of maturity.

     8. Usury Laws. Regardless of any provisions contained in this Note, the
Payee shall never be deemed to have contracted for or be entitled to receive,
collect, or apply as interest on the Note, any amount in excess of the Maximum
Rate, and, in the event Payee ever receives, collects, or applies as interest
any such excess, such amount which would be excessive interest

                                       25

<PAGE>

shall be applied to the reduction of the unpaid principal balance of this Note,
and, if the principal balance of this Note is paid in full, then any remaining
excess shall forthwith be paid to Maker. In determining whether or not the
interest paid or payable under any specific contingency exceeds the highest
lawful rate, Maker and Payee shall, to the maximum extent permitted under
applicable law, (a) characterize any non-principal payment (other than payments
which are expressly designated as interest payments hereunder) as an expense,
fee, or premium, rather than as interest, (b) exclude voluntary prepayments and
the effect thereof, and (c) spread the total amount of interest throughout the
entire contemplated term of this Note so that the interest rate is uniform
throughout such term.

     9. Costs. The loan evidenced by this Note shall be closed without expense
to Payee, it being understood and agreed that all expenses necessary and usual
to a transaction of this kind shall be paid by Maker on demand, such costs and
expenses to include but not to be limited to: reasonable attorneys' fees arising
in connection with the negotiation and preparation of this Note and all
documents to be executed in connection with this Note. If this Note is placed in
the hands of an attorney for collection, or if it is collected through any legal
proceeding at law or in equity, or in bankruptcy, receivership or other court
proceedings, Maker agrees to pay on demand all costs of collection, including,
but not limited to, court costs and reasonable attorneys' fees, including all
costs of appeal.

     10. GOVERNING LAW; JURISDICTION. THIS INSTRUMENT AND ALL ISSUES AND CLAIMS
ARISING IN CONNECTION WITH OR RELATING TO THE INDEBTEDNESS EVIDENCED HEREBY,
INCLUDING BUT WITHOUT LIMITATION, ALL CONTRACT, TORT, EQUITY, OR OTHER CLAIMS OR
COUNTERCLAIMS AND ALL QUESTIONS INVOLVING USURY AND THE MAXIMUM RATE OF INTEREST
WHICH MAY BE CONTRACTED FOR, CHARGED, OR RECEIVED SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. IN ANY LITIGATION IN CONNECTION
WITH OR TO ENFORCE THIS NOTE MAKER AND PAYEE IRREVOCABLY CONSENT TO AND CONFER
PERSONAL JURISDICTION ON THE COURTS OF THE STATE OF NEW YORK OR THE UNITED
STATES COURTS LOCATED WITHIN THE STATE OF NEW YORK.

     11. JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, MAKER
AND PAYEE 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 ANY OF THIS NOTE, THE STOCKHOLDER'S
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR THE ACTIONS OF
PAYEE AND MAKER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN

                                       26

<PAGE>

KNOWINGLY AND VOLUNTARILY BY MAKER AND PAYEE, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY
JURY WOULD OTHERWISE ACCRUE. EACH OF PAYEE AND MAKER IS HEREBY AUTHORIZED TO
FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS A CONCLUSIVE EVIDENCE OF THIS
WAIVER BY MAKER.

     12. ENTIRETY. THE PROVISIONS OF THIS NOTE MAY BE AMENDED, REVISED OR WAIVED
ONLY BY AN INSTRUMENT IN WRITING SIGNED BY MAKER AND PAYEE. ANY SUCH WAIVER OR
AMENDMENT SHALL BE EFFECTIVE ONLY IN THE SPECIFIC INSTANCE MADE OR GIVEN. THIS
NOTE AND THE STOCKHOLDERS' AGREEMENT EMBODY THE FINAL, ENTIRE AGREEMENT OF MAKER
AND PAYEE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF MAKER AND PAYEE. THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER AND PAYEE.

     13. If any one or more of the provisions contained herein, or the
applications thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any other provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.

     14. This note shall be binding and inure to the benefit of the parties and
their respective successors and permitted assigns; however, no assignment or
other transfer of the Maker's rights or obligations hereunder shall be made or
be effective without the Payee's prior written consent nor shall it relieve the
Maker of any Obligations hereunder.

                  [Remainder of Page Intentionally Left Blank;

                            Signature Page Follows.]

                                       27

<PAGE>

                                       MAKER:

                                       VAALCO INTERNATIONAL, INC.

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

<PAGE>

                                    EXHIBIT C

                                 Approved Budget

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