Edgar Filing: VAALCO ENERGY INC /DE/

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to

Commission file number 0-20928

VAALCO Energy, Inc.
(Name of small business issuer in its charter)

Delaware 76-0274813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4600 Post Oak Place
Suite 309
Houston, Texas 77027
(Address of principal executive (Zip Code)
offices)

Issuer's telephone number: (713) 623-0801

Securities registered under Section 12(b) of the Exchange Act:

Title
of
each
class Name of each exchange on which registered
----- -----------------------------------------
None

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.10 par value
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[_].

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB [X].

The registrant's revenues for the fiscal year ended December 31, 2000 were
$1,279,465.

The aggregate market value of the voting and non-voting common equity of
the registrant held by non-affiliates, as of March 26, 2001 was $7,735,438
based upon the closing price as of such date.

As of March 26, 2001, there were outstanding 20,744,569 shares of Common
Stock, $.10 par value per share, of the registrant.

Documents incorporated by reference: Definitive proxy statement of VAALCO
Energy, Inc. relating to the Annual Meeting of Stockholders to be filed within
120 days after the end of the fiscal year covered by this Form, which is
incorporated into Part III of this 10-KSB.

Transitional Small Business Disclosure Format: Yes [_] No [X].

VAALCO ENERGY, INC.

TABLE OF CONTENTS

PART I

Item 1. Business....................................................... 3
Item 2. Properties..................................................... 9

PART II

Item 5. Market for Common Equity and Related Stockholder Matters....... 13
Item 6. Management's Discussion and Analysis or Plan of Operations..... 13
Item 7. Financial Statements and Supplementary Data.................... 17
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 35

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 36
Item 10. Executive Compensation......................................... 36
Item 11. Security Ownership of Certain Beneficial Owners and
Management..................................................... 36
Item 12. Certain Relationships and Related Transactions................. 36
Item 13. Exhibits and Reports on Form 8-K............................... 36

PART I

Item 1. Business

Background

VAALCO Energy, Inc., a Delaware corporation, is a Houston-based independent
energy company principally engaged in the acquisition, exploration,
development and production of crude oil and natural gas. As used herein, the
terms "Company" and "VAALCO" mean VAALCO Energy, Inc. and its subsidiaries,
unless the context otherwise requires. VAALCO owns producing properties and
conducts exploration activities as operator of consortiums internationally in
the Philippines and Gabon. Domestically, the Company has interests in the
Texas Gulf Coast area.

On April 21, 1998, VAALCO merged with 1818 Oil Corp. in exchange for 10,000
shares of Convertible Preferred Stock, Series A. The Preferred Stock is
convertible into 27.5 million shares of VAALCO, $0.10 par value per share,
Common Stock. As a result of the voting control 1818 Oil Corp.'s shareholder
obtained in the transaction, the 1818 Oil Corp. acquisition was accounted for
as a reverse acquisition, and 1818 Oil Corp. is the acquiring entity for
accounting purposes. The assets of 1818 Oil Corp. at closing consisted of
certain exploration assets with book values of $2.8 million and $12.6 million
in cash.

VAALCO's Philippine subsidiaries include Alcorn (Philippines) Inc., Alcorn
(Production) Philippines Inc. and Altisima Energy, Inc. VAALCO's Gabon
subsidiaries are VAALCO Gabon (Etame), Inc., VAALCO Production (Gabon), Inc.
and VAALCO Energy (Gabon), Inc. VAALCO Energy (USA), Inc. holds interests in
certain properties located in the United States.

Recent Developments

In January 2001, the Company acquired a 65% interest in the Etame Block
offshore Gabon, West Africa from Western Atlas Afrique, Ltd. a subsidiary of
Baker Hughes. Consideration for the acquisition was $1.0 million in cash and a
future net profits interest in the event the existing discoveries on the block
are developed. The Company resold 52.5% of the interest held by Western Atlas
Afrique to two companies for $1 million and their proportionate assumption of
the future net profits interest. The Company now holds a 30.35% interest in
the Etame Block and is operator of the 3,073 square kilometer concession.

The Company made a Gamba sandstone discovery on the Etame concession in
1998, which tested approximately 3,700 barrels of oil per day on a 32/64's
inch choke. In January 1999, the Company completed the drilling of the Etame
2V well, which delineated the oil water contact for the discovery. Because the
Gamba reservoir lies below a layer of salt and is structurally complex, during
1999 and the first half of 2000, a seismic reprocessing effort was performed
to better map the Gamba reservoir. Based on the seismic reprocessing effort,
the Company drilled a third well, the Etame 3V well, on the discovery during
the first quarter of 2001. The well found pay in the Gamba sandstone
approximately 1.2 kilometers away from the Etame 1 well. In addition, pay was
found in the Dentale sandstones below the Gamba. A total of 34 meters of gross
pay interval was encountered in the Etame 3V well. As a result of the
successful delineation well, the consortium is analyzing development options
and intends to pursue development of the field. Additional wells will be
required to maximize field production.

Effective June 30, 2000, the Company elected to withdraw from Hunt Overseas
Exploration Company L.P. ("Hunt"). The Company formerly held a 7.5% limited
partnership interest in Hunt. The Company's obligations under the partnership
were to contribute up to $22.5 million for its share of the exploration phase
of the partnership, $22.3 million of which had been funded as of June 30,
2000. In addition, if Hunt discovered oil, the Company may have been required
to contribute an additional $7.5 million to fund the appraisal of the
discovery. As a result of withdrawing from the Hunt venture, Hunt released
certain funds in escrow totaling $8.4 million and reimbursed the Company $1.3
million for its share of net working capital in the partnership as of June 30,
2000.

The Company has elected to terminate its joint venture with Paramount
Petroleum, Inc., which focused on domestic onshore prospects in Mississippi,
Alabama and Louisiana. The Company will receive its proportionate 93.75%
interest in kind in all remaining prospects within the joint venture on April
1, 2001, unless the prospects are sold to industry for drilling prior to that
time.

General

The Company's strategy is to increase reserves and production in a cost-
effective manner through a program that balances lower risk exploratory and
development drilling on VAALCO's domestic acreage with high potential
international prospects. Internationally, financial exposure and political
risk are mitigated through alliances with experienced industry partners who
fund the majority of required capital.

International

The Company's international strategy is to pursue selected opportunities
that are characterized by reasonable entry costs, favorable economic terms,
high reserve potential relative to capital expenditures and the availability
of existing technical data that may be further developed using current
technology. The Company believes that it has unique management and technical
expertise in identifying international opportunities and establishing
favorable operating relationships with host governments and local partners
familiar with the local practices and infrastructure. The Company owns
producing properties and conducts exploration activities as operator of
consortium internationally in the Philippines and Gabon.

Domestic

The Company's domestic strategy is to build near-term cash flows through
focused acquisition of domestic properties that have significant exploration
or future development potential. Recognizing that international operations are
subject to greater social, economic and political volatility, the Company
seeks to build a stable domestic production and reserve base that will permit
the Company to continue to participate in more high-risk international
projects with greater reserve potential.

The Company has a new discovery in Brazos County, Texas, which flowed 178
BOPD and 1.0 MMcf per day upon completion in the Georgetown and Budda
formations in January 2001. The Company has a 25% interest in the discovery
well, and a 30% interest in four offset locations, which have been leased.

Customers

Substantially all of the Company's crude oil and natural gas is sold at the
well head at posted or indexed prices under short-term contracts, as is
customary in the industry. For the year ended December 31, 2000, two
purchasers of the Company's crude oil accounted for essentially all of the
Company's total crude oil sales. The Company markets its crude oil share in
the Philippines under an agreement with SeaOil Corporation, a local
Philippines refiner ("SeaOil") and Caltex. While the loss of these buyers
might have a material effect on the Company in the near term, management
believes that the Company would be able to obtain other customers for its
crude oil.

Employees

As of December 31, 2000, the Company had 24 full-time employees, 17 of
which were located in the Philippines. The Company is not subject to any
collective bargaining agreements and believes its relations with its employees
are satisfactory.

Competition

The oil and gas industry is highly competitive. Competition is particularly
intense with respect to acquisitions of desirable oil and gas reserves. There
is also competition for the acquisition of oil and gas leases

suitable for exploration and the hiring of experienced personnel. Competition
also exists with other industries in supplying the energy needs of consumers.
In addition, the producing, processing and marketing of oil and gas is
affected by a number of factors beyond the control of the Company, the effects
of which cannot be accurately predicted.

The Company's competition for acquisitions, exploration, development and
production include the major oil and gas companies in addition to numerous
independent oil companies, individual proprietors, drilling and acquisition
programs and others. Many of these competitors possess financial and personnel
resources substantially in excess of those available to the Company, giving
those competitors an enhanced ability to pay for desirable leases and to
evaluate, bid for and purchase properties or prospects. The ability of the
Company to generate reserves in the future will depend on its ability to
select and acquire suitable producing properties and prospects for future
drilling and exploration.

Environmental Regulations

General

The Company's activities are subject to federal, state and local laws and
regulations governing environmental quality and pollution control. Although no
assurances can be made, the Company believes that, absent the occurrence of an
extraordinary event, compliance with existing federal, state and local laws,
rules and regulations regulating the release of materials in the environment
or otherwise relating to the protection of the environment will not have a
material effect upon the Company's capital expenditures, earnings or
competitive position with respect to its existing assets and operations. The
Company cannot predict what effect additional regulation or legislation,
enforcement policies thereunder, and claims for damages to property,
employees, other persons and the environment resulting from the Company's
operations could have on its activities.

Solid and Hazardous Waste

The Company owns or leases properties that have been used for the
production of oil and gas for many years. Although the Company has utilized
operating and disposal practices standard in the industry at the time,
hydrocarbons or other solid wastes may have been disposed or released on or
under these properties. In addition, some of these properties have been
operated by third parties. The Company had no control over such entities'
treatment of hydrocarbons or other solid wastes and the manner in which such
substances may have been disposed or released. State and federal laws
applicable to oil and gas wastes and properties have gradually become stricter
over time. Under these new laws, the Company could be required to remove or
remediate previously disposed wastes, including wastes disposed or released by
prior owners or operators, or property contamination, including groundwater
contamination by prior owners or operators, or to perform remedial plugging
operations to prevent future contamination.

The Company generates wastes, including hazardous wastes, that are subject
to the Federal Resource Conservation and Recovery Act and comparable state
statutes. The Environmental Protection Agency has limited the disposal options
for certain hazardous wastes and is considering adoption of stricter disposal
standards for nonhazardous wastes. Furthermore, it is possible that certain
wastes currently exempt from treatment as "hazardous wastes" generated by the
Company's oil and gas operations may in the future be designated as "hazardous
wastes" under the Federal Resource Conservation and Recovery Act or other
applicable statutes and, therefore, may be subject to more rigorous and costly
disposal requirements.

Superfund

The Comprehensive Environmental Response, Compensation and Liability Act,
also known as the "Superfund" law, imposes liability, without regard to fault
or the legality of the original conduct, on certain classes of persons with
respect to the release of a "hazardous substance" into the environment. These
persons include the owner and operator of a site and persons that disposed or
arranged for the disposal of the hazardous substances found at a site.
Superfund also authorizes the Environmental Protection Agency and, in some
cases,

third parties to take actions in response to threats to the public health or
the environment and to seek to recover from the responsible classes of persons
the costs of such action. Neither the Company nor its predecessors has been
designated as a potentially responsible party by the Environmental Protection
Agency under Superfund with respect to any such site.

Air Emissions

The Company's operations are subject to local, state and federal
regulations for the control of emissions from sources of air pollution.
Administrative enforcement actions for failure to comply strictly with air
regulations or permits are generally resolved by payment of monetary fines and
correction of any identified deficiencies. Alternatively, regulatory agencies
could require the Company to forego construction or operation of certain air
emission sources. The Company believes that in such case it would have enough
permitted or permittable capacity to continue our operations without a
material adverse effect on any particular producing field.

Risk Factors

Volatility of Oil and Gas Prices and Markets

The Company's revenues, cash flow, profitability and future rate of growth
are substantially dependent upon prevailing prices for oil and gas. The
Company's ability to borrow funds and to obtain additional capital on
attractive terms is also substantially dependent on oil and gas prices. The
Company's production in the Philippines is from mature offshore fields with
high production costs. The Company's margin on sales from these fields (the
price received for oil less the production costs for the oil) is lower than
the margin on oil production from many other areas. As a result, the
profitability of the Company's production in the Philippines is affected more
by changes in prices than production located in other areas. Historically, oil
and gas prices and markets have been volatile and are likely to continue to be
volatile in the future. Prices for oil and gas are subject to wide
fluctuations in response to relatively minor changes in supply of and demand
for oil and gas, market uncertainty and a variety of additional factors that
are beyond the control of the Company. These factors include international
political conditions, the domestic and foreign supply of oil and gas, the
level of consumer demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels and
overall economic conditions. In addition, various factors, including the
availability and capacity of gas gathering systems and pipelines, the effect
of federal, state and foreign regulation of production and transportation,
general economic conditions, changes in supply due to drilling by other
producers and changes in demand may adversely affect the Company's ability to
market its oil and gas production. Any significant decline in the price of oil
or gas would adversely affect the Company's revenues, operating income, cash
flows and borrowing capacity and may require a reduction in the carrying value
of the Company's oil and gas properties and its planned level of capital
expenditures.

Replacement of Reserves

The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable.
Except to the extent that the Company conducts successful exploration or
development activities or acquires properties containing proved reserves, the
estimated net proved reserves of the Company will generally decline as
reserves are produced. There can be no assurance that the Company's planned
development and exploration projects and acquisition activities will result in
significant additional reserves or that the Company will have continuing
success drilling productive wells at economic finding costs. The drilling of
oil and gas wells involves a high degree of risk, especially the risk of dry
holes or of wells that are not sufficiently productive to provide an economic
return on the capital expended to drill the wells. In addition, the Company's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, including title problems, weather conditions, political
instability, economic/currency imbalances, compliance with governmental
requirements or delays in the delivery of equipment and availability of
drilling rigs. Certain of the Company's oil and gas properties are operated by
third parties or may be subject

to operating committees controlled by national oil companies and, as a result,
the Company has limited control over the nature and timing of exploration and
development of such properties or the manner in which operations are conducted
on such properties.

Substantial Capital Requirements

The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploitation, development, exploration and
production of oil and gas reserves. Historically, the Company has financed
these expenditures primarily with cash flow from operations, asset sales, and
private sales of equity. The Company believes that it will have sufficient
capital to finance planned capital expenditures through 2001.

At year-end 2000, the Company had invested $3.0 million in the Paramount
joint venture, of which, approximately $1.6 million has been impaired as of
December 31, 2000.

Drilling Risks

Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil
and natural gas may involve unprofitable efforts, not only from dry wells, but
also from wells that are productive but do not produce sufficient net revenues
to return a profit after drilling, operating and other costs. The cost of
drilling, completing and operating wells is often uncertain and cost overruns
are common. The Company's drilling operations may be curtailed, delayed or
canceled as a result of numerous factors, many of which are beyond the
Company's control, including title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the delivery of
equipment and services.

Operating Hazards and Uninsured Risks

The oil and gas business involves a variety of operating risks, including
fire, explosions, blow-outs, pipe failure, casing collapse, abnormally
pressured formations and environmental hazards such as oil spills, gas leaks,
ruptures and discharges of toxic gases, the occurrence of any of which could
result in substantial losses to the Company due to injury and loss of life,
severe damage to and destruction of property, natural resources and equipment,
pollution and other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. The
Company's production facilities are also subject to hazards inherent in marine
operations, such as capsizing, sinking, grounding, collision and damage from
severe weather conditions. The relatively deep offshore drilling conducted by
the Company overseas involves increased drilling risks of high pressures and
mechanical difficulties, including stuck pipe, collapsed casing and separated
cable. The impact that any of these risks may have upon the Company is
increased due to the low number of producing properties owned by the Company.
The Company and operators of properties in which it has an interest maintain
insurance against some, but not all, potential risks; however, there can be no
assurance that such insurance will be adequate to cover any losses or exposure
for liability. The occurrence of a significant unfavorable event not fully
covered by insurance could have a material adverse effect on the Company's
financial condition and results of operations. Furthermore, the Company cannot
predict whether insurance will continue to be available at a reasonable cost
or at all.

Uncertainties in Estimating Reserves and Future Net Cash Flows

There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating the
underground accumulations of oil and gas that cannot be measured in an exact
manner. The estimates in this document are based on various assumptions
required by the Commission, including unescalated prices and costs and capital
expenditures, and, therefore, are inherently imprecise indications of future
net revenues. Actual future production, revenues, taxes, operating expenses,
development expenditures and quantities of recoverable oil and

gas reserves may vary substantially from those assumed in the estimates. Any
significant variance in these assumptions could materially affect the
estimated quantity and value of reserves set forth in this document. In
addition, the Company's reserves may be subject to downward or upward revision
based upon production history, results of future development, availability of
funds to acquire additional reserves, prevailing oil and gas prices and other
factors. Moreover, the calculation of the estimated present value of the
future net revenue using a 10% discount rate as required by the Commission is
not necessarily the most appropriate discount factor based on interest rates
in effect from time to time and risks associated with the Company's reserves
or the oil and gas industry in general.

It is also possible that reserve engineers may make different estimates of
reserves and future net revenues based on the same available data. In
calculating reserves on a BOE basis, gas was converted to oil at the ratio of
six Mcf of gas to one Bbl of oil. While this conversion ratio approximates the
energy equivalent of oil and gas on a Btu basis, it may not represent the
relative prices received by the Company on the sale of its oil and gas
production.

The estimated future net revenues attributable to the Company's net proved
reserves are prepared in accordance with Commission guidelines, and are not
intended to reflect the fair market value of the Company's reserves. In
accordance with the rules of the Commission, the Company's reserve estimates
are prepared using period end prices received for oil and gas. Future
reductions in prices below those prevailing at year-end 2000 would result in
the estimated quantities and present values of the Company's reserves being
reduced.

A substantial portion of the Company's proved reserves are or will be
subject to service contracts, production sharing contracts and other
arrangements. The quantity of oil and gas the Company will ultimately receive
under these arrangements will differ based on numerous factors, including the
price of oil and gas, production rates, production costs, cost recovery
provisions and local tax and royalty regimes. Changes in many of these factors
do not affect estimates of U.S. reserves in the same way they affect estimates
of proved reserves in foreign jurisdictions, or will have a different effect
on reserves in foreign countries than in the United States. As a result,
proved reserves in foreign jurisdictions may not be comparable to proved
reserve estimates in the United States.

Foreign Operations

The Company's international assets and operations are subject to various
political, economic and other uncertainties, including, among other things,
the risks of war, expropriation, nationalization, renegotiation or
nullification of existing contracts, taxation policies, foreign exchange
restrictions, changing political conditions, international monetary
fluctuations, currency controls and foreign governmental regulations that
favor or require the awarding of drilling contracts to local contractors or
require foreign contractors to employ citizens of, or purchase supplies from,
a particular jurisdiction. In addition, if a dispute arises with foreign
operations, the Company may be subject to the exclusive jurisdiction of
foreign courts or may not be successful in subjecting foreign persons,
especially foreign oil ministries and national oil companies, to the
jurisdiction of the United States.

The Company's private ownership of oil and gas reserves under oil and gas
leases in the United States differs distinctly from its ownership of foreign
oil and gas properties. In the foreign countries in which the Company does
business, the state generally retains ownership of the minerals and
consequently retains control of (and in many cases, participates in) the
exploration and production of hydrocarbon reserves. Accordingly, operations
outside the United States may be materially affected by host governments
through royalty payments, export taxes and regulations, surcharges, value
added taxes, production bonuses and other charges.

Certain of the Company's producing properties are located offshore Palawan
Island in the Philippines, and, consequently, a portion of the Company's
assets is subject to regulation by the government of the Philippines. Although
there has been unrest and uncertainty in the Philippines, to date, the
country's Office of Energy Affairs has been largely unaffected by political
changes. The Company has operated in the Philippines since 1985 and

believes that it has good relations with the current Philippine government.
However, there can be no assurance that present or future administrations or
governmental regulations in the Philippines will not materially adversely
affect the operations or cash flows of the Company.

All of the Company's current Philippine producing properties are located in
fields covered under Service Contract No. 14. To obtain favorable tax
treatment, Philippine nationals must own at least 15% of Service Contract No.
14. Residents of the Philippines currently own in excess of 15% of Blocks A,
B, C and D of Service Contract 14. The Company's ability to export oil
produced in the Philippines is restricted by the terms of Service Contract No.
14. The Company currently sells its oil production within the Philippines and
therefore may be exposed to foreign currency risk.

Control by 1818 Fund

In connection with the 1818 Oil Corp. merger, the Company issued to the
1818 Fund Common Stock and Preferred Stock which votes as a class with the
Common Stock on an as converted basis, representing approximately 65% of the
outstanding voting power of the Company on an as converted basis (excluding
options and warrants). In addition, the terms of the Preferred Stock acquired
by the 1818 Fund provide that while the Preferred Stock is outstanding, the
holders of Preferred Stock voting together as a class are entitled to elect
three directors of the Company. Accordingly, the 1818 Fund is able to control
all matters submitted to a vote of the stockholders of the Company, including
the election of directors.

In connection with the 1818 Oil Corp. merger, the Company made certain
changes to its bylaws which require that at least a majority of the directors
constituting the entire board of directors, which majority must include at
least one of the directors elected by the holders of Preferred Stock, approve
each of the following transactions effected by either the Company or, as
applicable, any subsidiary of the Company, any issuance of or agreement to
issue any equity securities, including securities convertible into or
exchangeable for such equity securities (other than issuances pursuant to an
employee benefit plan); the declaration of any dividend; the incurrence,
assumption of or refinancing of indebtedness; the adoption of any employee
stock option or similar plan; entering into employment or consulting
agreements with annual compensation exceeding $100,000; any merger or
consolidation; the sale, conveyance, exchange or transfer of the voting stock
or all or substantially all of the assets; the sale or other disposition to
another person, or purchase, lease or other acquisition from another person,
of any material assets, rights or properties; certain expenditures in excess
of $300,000; the formation of any entity that is not wholly-owned by the
Company; material changes in accounting methods or policies; any amendment,
modification or restatement of the certificate of incorporation or bylaws; the
settlement of any claim or other action against the Company or subsidiary in
an amount in excess of $50,000; approval or amendment of the annual operating
budget; any other action which is not in the ordinary course of business; and
the agreement to take any of the foregoing actions. Accordingly, none of the
foregoing actions can be taken by the Company without the approval of at least
one director designated by the holders of the Preferred Stock.

Environmental and Other Regulations

The laws and regulations of the United States, Philippines and Gabon
regulate the Company's business. These laws and governmental regulations,
which cover matters including drilling operations, taxation and environmental
protection, may be changed from time to time in response to economic or
political conditions. See "Foreign Operations."

The Company's domestic operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. The Company's domestic
operations could result in liability for personal injuries, property damage,
oil spills, discharge of hazardous materials, remediation and clean-up costs
and other environmental damages. In addition, the Company could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred; the payment of which could have a material adverse effect on the
Company's financial condition, results of operations and liquidity. The
Company maintains insurance

coverage for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Company does not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. Accordingly, the Company may be subject to
liability or may lose substantial portions of its properties in the event of
certain environmental damages. The Company could incur substantial costs to
comply with environmental laws and regulations.

A substantial portion of the Company's producing properties are located
offshore. The costs to abandon offshore wells may be substantial. For
financial accounting purposes the Company accrues a per BOE charge over the
life of a field to cover such abandonment costs. No assurances can be given
that such reserves will be sufficient to cover such costs in the future as
they are incurred.

The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution
Act of 1990, could have a material adverse impact on the Company.

The recent trend toward stricter standards in environmental legislation and
regulation in the U.S. is likely to continue. If such legislation were
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general.

In addition, while the Company believes that it is currently in compliance
with environmental laws and regulations applicable to the Company's operations
in the Philippines, Gabon and the U.S., no assurances can be given that the
Company will be able to continue to comply with such environmental laws and
regulations without incurring substantial costs.

Acquisition Risks

The Company intends to acquire oil and gas properties. Although the Company
performs a review of the acquired properties that it believes is consistent
with industry practices, such reviews are inherently incomplete. It generally
is not feasible to review in depth every individual property involved in each
acquisition. Ordinarily, the Company will focus its due diligence efforts on
the higher valued properties and will sample the remainder. However, even an
in-depth review of all properties and records may not necessarily reveal
existing or potential problems nor will it permit a buyer to become
sufficiently familiar with the properties to assess fully their deficiencies
and capabilities. Inspections may not be performed on every well, and
structural or environmental problems, such as ground water contamination, are
not necessarily observable even when an inspection is undertaken. The Company
may be required to assume preclosing liabilities, including environmental
liabilities, and may acquire interests in properties on an "as is" basis.
There can be no assurance that the Company's acquisitions will be successful.

Reliance on Key Personnel

The Company is highly dependent upon its executive officers and key
employees, particularly Messrs. Gerry, Walston and Scheirman. The unexpected
loss of the services of any of these individuals could have a detrimental
effect on the Company. The Company does not maintain key man life insurance on
any of its employees.

Forward-Looking Information and Risk Factors

This report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements
other than statements of historical fact included in this Report (and the
exhibits hereto), including without limitation, statements regarding the
Company's financial position and estimated quantities and net

present values of reserves, are forward looking statements. The Company can
give no assurances that the assumptions upon which such statements are based
will prove to have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in the section "Risk Factors," elsewhere herein and
in other periodic reports filed under the Exchange Act, which are herein
incorporated by reference. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified by the Cautionary Statements.

Item 2. Properties

Gabon

VAALCO has an interest in one offshore block in Gabon, the Etame Block.
Interest in the block vests in a production-sharing contract entered into by
the Company's subsidiary VAALCO (Gabon) Etame, Inc., providing for two three-
year terms, which commenced in July 1995. The Company elected to extend the
contract into the second three-year term during 1998. At December 31, 2000,
VAALCO owned a 17.85% interest in the production-sharing contract covering the
Etame Block. In January 2001, VAALCO increased its interest in the Etame Block
to 30.35%

Etame Block

The Etame Block is a 3,073 square kilometer block acquired in July 1995,
containing the Etame discovery drilled by the Company and two former Gulf Oil
Company discoveries, the North and South Tchibala discoveries. These
discoveries consist of subsalt reservoirs that lie in approximately 250 feet
of water depth, 20 miles offshore. The Company and its partners undertook an
obligation to the Government of Gabon to obtain and process seismic data and
to drill one commitment well on the Etame block over the three-year primary
term of the license. In April 1998, a participation agreement was entered into
with Western Atlas Afrique, Ltd. ("Western Atlas"), a subsidiary of Baker
Hughes, to conduct a 320 square kilometer seismic survey at Western Atlas'
sole cost and to pay a disproportionate 80% of the cost, up to $4.7 million,
of the first commitment well. In return for these payments, Western Atlas
earned a 65% interest in the production-sharing contract. In June 1998,
Western Atlas completed the above-mentioned acquisition of seismic data over
the property. This data was processed, and the Company drilled the commitment
well, the Etame No. 1 well, in June 1998 resulting in a 3,700 BOPD Gamba
sandstone discovery on the block. Completion of the Etame No. 1 well satisfied
all of the Company's obligations to the Government of Gabon under the primary
three-year term of the contract.

During 1998, the consortium of companies owning the Etame Block production
sharing contract agreed to renew the production sharing contract for three
additional years, thereby taking on a commitment to drill two additional
exploration wells and to perform a 3-D seismic reprocessing. A delineation
well, the Etame 2V well, was drilled in January 1999 and encountered
additional oil pay in the Gamba sandstone, however the well encountered the
Gamba sandstone lower than expected. The Consortium elected to reprocess the
3-D seismic data prior to drilling additional delineation wells. The second
exploration commitment well, the Etame 3V was drilled to further delineate the
Etame discovery in February, 2001. The well successfully encountered Gamba
sandstone pay updip from the Etame 1 well. In addition the well encountered
pay in the Dentale sandstone formation immediately below the Gamba. As a
result of the successful drilling of the Etame 3V well, the consortium is
currently pursuing development options to bring the Etame structure on line.
The Etame 4V well is planned for the second quarter of 2001, and assuming
suitable production facilities can be sourced, including a floating
production, storage and offloading system ("FPSO") the Etame field could be
brought on production during 2002.

Philippines

The Company has an interest in two service contracts in the Philippines.
Service Contract No. 14 covers 158,000 offshore acres and Service Contract No.
6 covers 131,000 offshore acres. The Company produces the Nido and Matinloc
fields with a total gross production for 2000 of approximately 415,000 barrels
or 1,137 BOPD.

Nido Field

This field is covered by Service Contract No. 14 and has four producing
wells. These wells have been producing since 1979, and through the year ended
December 31, 2000 had produced an aggregate of approximately 17.3 MMBbls of
oil. The field is produced using the cyclic method under which the field is
shut in for a period of time (generally 60 days) and then opened up to produce
(generally four to five days). During 2000, the four wells in the field
produced at an equivalent rate of 510 BOPD compared to 108 BOPD in 1999 when
demand for oil in Asia was low. The Company has an approximate 22.1% working
interest and an approximate 17.4% net revenue interest in the field.

Matinloc Field

This field is located within the contract area covered by Service Contract
No. 14 and has three producing wells. The field had produced an aggregate
production of approximately 10.3 MMBbls from 1982 through 1991. Production was
suspended from the field in 1991 until it was reactivated in 1995. At December
31, 2000 the field had produced an aggregate of 11.3 MMBbls. During 2000, the
field produced approximately 213 MBbls or 584 BOPD. The Company has an
approximate 38.1% working interest and an approximate 26.8% net revenue
interest in the field. Other production was obtained from the North Matinloc
field, which is an extension to the Matinloc field. This field produced 16
MBbls or 43 BOPD from one well during 2000. The Company has an approximate
45.4% working interest and an approximate 40.3% net revenue interest in the
North Matinloc field

Galoc Field

This field is located within the contract area covered by Service Contract
No. 14 and is currently not producing. Four wells have been drilled in this
field, of which one well in 1,150 feet of water has undergone a long-term
testing program. The Galoc reservoir is made up of a sandstone turbidite fan
sequence that was deposited on top of the Lower Miocene limestone in a deep-
water environment. Previous wells tested in excess of 5,000 BOPD. The Galoc
field is one of the areas being studied extensively for the potential to drill
an additional delineation well in the field.

Domestic Properties

Brazos County Prospects

The Company participated in the drilling of a horizontal well in the Buda
and Georgetown formations during 2000. The well was a successful discovery and
came on line producing 172 BOPD and 1.0 MMcf per day. The Company has a 25%
interest in the well. Subsequently the working interest group has leased four
offset locations to the discovery well and plans to commence drilling the
first offset location in the first quarter of 2001. The Company has a 30%
working interest in the offset locations under lease.

Goliad County, Texas

VAALCO owns an interest in approximately 1,000 acres located immediately
west of the Goliad town site. The acreage consists of approximately 70 leases
and is located within an area of the Wilcox trend that has recently seen a
considerable amount of leasing, 3-D seismic and drilling activity. In January
1998, a farm out agreement was entered into with an industry partner over
1,000 acres of its Goliad acreage whereby the Company recovered its lease
costs and assigned a 75% working interest to its partner. The Company owns
certain overriding royalties and a 25% working interest in the acreage. The
leases expire in 2001.

Other Domestic Properties

The Company owns an interest in 640 acres (224 net acres) in Dimmit County
on which a horizontal gas well was drilled in 1999 to the Georgetown formation
and placed on production in 2000. The Company also owns certain non-operated
interests in the Vermilion and Ship Shoal areas of the Gulf of Mexico, which

accounted for no significant production during the year ended December 31,
2000. No capital expenditures are anticipated in 2001 for these properties.

The Company participates in a joint venture with Paramount Petroleum, Inc.
to conduct exploration activities primarily in the onshore Gulf Coast area,
including Alabama, Mississippi and Louisiana. During 2000, the Company agreed
to wind up the joint venture effective April 1, 2001, at which time the
Company will take over its 93.75% interest in all prospects not sold by the
joint venture. The Company has production from two small gas discoveries
drilled by the joint venture.

Aggregate Production

Additional production data (net to the Company) for all of the Company's
operations for the years 2000 and 1999 are as follows:

Company Owned Production

Year Ended December 31,
--------------------------------------
2000 1999
------------------- ------------------
BOE(1) Bbl Mcf BOE(1) Bbl Mcf
------ ------ ----- ------ ----- -----

Average Daily Production (Oil in BOPD,
gas in MCFD).......................... 262 255 44 251 249 13
Average Sales Price ($/unit)(2)........ $13.97 $13.76 $3.51 $9.04 $9.00 $2.26
Average Production Cost ($/unit)....... $ 5.04 $ 5.04 $0.84 6.03 6.03 1.00

--------
(1) BOE is barrels of oil equivalent with 6 Mcf of gas equal to 1 Bbl of oil.
(2) Oil prices are primarily from the Philippines properties where a formula
for transportation costs is netted from the sales price.

Reserve Information

A reserve report as of December 31, 2000 has been opined on by Netherland
Sewell & Associates, independent petroleum engineers. There have been no
estimates of total proved net oil or gas reserves filed with or included in
reports to any federal authority or agency other than the Commission since the
beginning of the last fiscal year. All of the reserves are located in the
Philippines. There are no reserve estimates for the U.S. properties or for the
Etame discovery in Gabon, pending further delineation drilling. (See "Item 1--
BACKGROUND" regarding the merger with 1818 Oil Corp.)

As of
December 31,
-------------
2000 1999
------ ------

Crude Oil
Proved Developed Reserves (MBbls).............................. 686 661
Proved Undeveloped Reserves (MBbls)............................ -- --
------ ------
Total Proved Reserves (MBbls)................................ 686 661
====== ======
Standardized measure of discounted future net cash flows at 10%
(in thousands)................................................ $2,702 $2,823
====== ======

The standardized measure of discounted cash flows does not include the
costs of abandoning the Company's non-producing properties.

assumed in these estimates. The standardized measure of discounted future net
cash flow should not be construed as the current market value of the estimated
oil and natural gas reserves attributable to the Company's properties. The
information set forth in the foregoing tables includes revisions for certain
reserve estimates attributable to proved properties included in the preceding
year's estimates. Such revisions are the result of additional information from
subsequent completions and production history from the properties involved or
the result of a decrease (or increase) in the projected economic life of such
properties resulting from changes in product prices. Moreover, crude oil
amounts shown are recoverable under the service contracts and the reserves in
place remain the property of the Philippine government.

In accordance with the guidelines of the Commission, the Company's
estimates of future net cash flow from the Company's properties and the
present value thereof are made using oil and natural gas contract prices in
effect as of year end and are held constant throughout the life of the
properties except where such guidelines permit alternate treatment, including
the use of fixed and determinable contractual price escalations. The contract
price as of December 31, 2000 was $11.69 per Bbl of oil for Matinloc and
$11.09 per Bbl for Nido. See "Financial Statements and Supplementary Data" for
certain additional information concerning the proved reserves of the Company.

Drilling History

The Company drilled or participated in the drilling of four wells for the
period ended December 31, 2000.

2000 Wells Drilled United States International
------------------ ------------------- -------------------
Gross Net Gross Net
--------- --------- --------- ---------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----

Exploration Wells
Productive......................... 1.0 1.0 0.25 0.35 0.00 1.0 0.00 0.18
Dry................................ 1.0 3.0 0.20 0.93 2.00 1.0 0.15 0.08
--- --- ---- ---- ---- --- ---- ----
Total Wells...................... 2.0 4.0 0.45 1.28 2.00 2.0 0.15 0.26
=== === ==== ==== ==== === ==== ====

Acreage and Productive Wells

Below is the total acreage under lease and the total number of productive
oil and gas wells of the Company as of December 31, 2000:

United
States International
------------ --------------
Gross Net(1) Gross Net(1)
----- ------ ------- ------
(In thousands)

Developed acreage................................ 11.0 0.8 14.7 4.6
Undeveloped acreage.............................. 2.0 0.6 1,041.1 233.9
Productive gas wells............................. 2 0.4 -- --
Productive oil wells............................. 6 0.6 7 2.2

--------
(1) Net acreage and net productive wells are based upon the Company's working
interest in the properties.

Office Space

The Company leases its offices in Houston, Texas (approximately 8,000
square feet) and in Manila, The Republic of the Philippines (approximately
3,000 square feet), which management believes are suitable and adequate for
the Company's operations.

Item 3. Legal Proceedings

The Company is currently not a party to any material litigation.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

General

The Company's Common Stock trades on the OTC Bulletin Board. The following
table sets forth the range of high and low sales prices of the Common Stock
for the periods indicated. The prices represent adjusted prices between
dealers, do not include retail markups, markdowns or commissions and do not
necessarily represent actual transactions. As of December 31, 2000 there were
approximately 100 holders of record of the Company's Common Stock.

Period High Low
------ ----- -----

1999:
First Quarter................................................. $1.09 $0.25
Second Quarter................................................ 0.56 0.34
Third Quarter................................................. 0.63 0.44
Fourth Quarter................................................ 0.75 0.44
2000:
First Quarter................................................. $0.63 $0.25
Second Quarter................................................ 0.34 0.19
Third Quarter................................................. 0.47 0.22
Fourth Quarter................................................ 0.51 0.16
2001:
First Quarter (through March 26, 2001)........................ $0.68 $0.28

On March 26, 2001, the last reported sale price of the Common Stock on the
OTC Bulletin Board was $0.61 per share.

Dividends

The Company has not paid cash dividends and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future.

Item 6. Management's Discussion and Analysis or Plan of Operations

Introduction

The Company's results of operations are dependent upon the difference
between prices received for its oil and gas production and the costs to find
and produce such oil and gas. Oil and gas prices have been and are expected in
the future to be volatile and subject to fluctuations based on a number of
factors beyond the control of the Company. The Company's production in the
Philippines is from mature offshore fields with high production costs. The
Company's margin on sales from these fields (the price received for oil less
the production costs for the oil) is lower than the margin on oil production
from many other areas. As a result, the profitability of the Company's
production in the Philippines is affected more by changes in oil prices than
production located in other areas.

The Company's results of operations are also affected by currency exchange
rates. While oil sales are denominated in U.S. dollars, operating costs are
predominately denominated in pesos. An increase in the exchange rate of pesos
to the dollar will have the effect of increasing operating costs while a
decrease in the exchange rate will reduce operating costs.

A substantial portion of the Company's oil production is located offshore
of the Philippines. The Company produces into barges, which transport the oil
to market. Due to weather and other factors, the Company's production is
generally highest during the first and fourth quarters of the year.

The Company uses the successful efforts method to account for its
investment in oil and gas properties whereby costs of productive wells,
developmental dry holes and productive leases are capitalized and amortized
using the units-of-production method based on estimated net proved reserves.
The costs of development wells are capitalized but charged to expense if and
when the well is determined to be unsuccessful. Geological and geophysical
costs and the costs of carrying and retaining undeveloped properties are
expensed as incurred.

Capital Resources and Liquidity

Historically, the Company's primary source of capital resources has been
from cash flows from operations, private sales of equity, borrowings and
purchase money debt. In 1999 and 2000, the Company's primary uses of capital
have been to fund its exploration operations.

The Company produces oil from the Matinloc and Nido fields in the South
China Sea, the Philippines. During the year ended December 31, 2000, total
production from the fields was approximately 415,000 gross barrels of oil.
Substantially all of the Company's crude oil and natural gas is sold at the
well head at posted or index prices under short-term contracts, as is
customary in the industry. The Company markets its share of crude oil under
agreements with Seaoil and Caltex, both local Philippines refiners. While the
loss of these buyers might have a material effect on the Company in the near
term, management believes that the Company would be able to obtain other
customers for its crude oil.

At year-end 2000, the Company had invested $3.0 million in the Paramount
joint venture of which $1.6 million has been impaired as of December 31, 2000.
The Company has elected to terminate the joint venture effective April 1, 2001
unless otherwise extended. The Company will receive its proportionate 93.75%
interest in kind in all remaining prospects within the joint venture on April
1, 2001, unless the prospects are sold to industry for drilling prior to that
time

Effective June 30, 2000 the Company elected to withdraw from Hunt Overseas
Exploration Company L.P. ("Hunt"). The Company formerly held a 7.5% limited
partnership interest in Hunt. The Company's obligations under the partnership
were to contribute up to $22.5 million for its share of the exploration phase
of the partnership, $22.3 million of which had been funded as of June 30,
2000. In addition, if Hunt discovered oil, the Company may have been required
to contribute an additional $7.5 million to fund the appraisal of the
discovery. As a result of withdrawing from the Hunt venture, Hunt released
certain funds in escrow totaling $8.4 million and reimbursed the Company $1.3
million for its share of net working capital in the partnership as of June 30,
2000.

The Company continues to seek financing to fund the development of existing
properties and to acquire additional assets. The Company will rely on the
issuance of equity and debt securities, assets sales and cash flow from
operations to provide the required capital for funding future operations.
While there can be no assurance the Company will be successful in raising new
financing, management believes the prospects the Company has in hand will
enable it to attract sufficient capital to fund required oil and gas
activities.

During 2001, the Company anticipates that it will make capital expenditures
on oil and gas properties of approximately $4.0 million, primarily in Gabon.
This amount may increase if the Etame field in Gabon is approved for
development. The Company will seek outside funds for the development of the
Etame field. The anticipated capital expenditures exclude potential
acquisitions. Other than the funding required to develop the Etame field,
which will be sourced from outside the Company, the Company believes the cash
on hand at December 31, 2000 will be sufficient to fund the Company's capital
budget through 2001.

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Amounts stated hereunder have been rounded to the nearest $100,000;
however, percentage changes have been calculated using the accompanying
consolidated financial statement amounts.

Cash Flows

Net cash provided by operating activities for 2000 was $10.5 million, as
compared to net cash provided by operating activities of $1.1 million in 1999.
Net cash provided by operations in 2000 included $9.3 million from funds taken
out of escrow. Net cash provided by operations in 1999 included $7.6 million
from funds in escrow, which was offset by settlement of $1.4 million of
accounts payable and $4.2 million of accounts with partners.

Net cash used in investing activities for 2000 was $0.9 million, as compared
to net cash used in investing activities of $4.8 million in 1999. Cash used in
investments in unconsolidated entities resulted from $1.7 million in
contributions to Hunt partially offset by a $1.3 million reimbursement to the
Company upon its withdrawal from the Hunt partnership. The net investment total
for 2000 was $0.4 million, as compared to $3.1 million invested in
unconsolidated entities in 1999. Exploration expenses of $0.3 million were
incurred in 2000 versus $1.5 million in 1999. Additions to property and
equipment of $0.3 million in 2000 and 1999 occurred in domestic properties and
in Gabon.

No net cash was provided by or used for financing activities for 2000 or
1999.

Revenues

Total oil and gas sales for 2000 were $1.3 million as compared to $0.8 for
1999. The 2000 and 1999 revenues primarily occurred from operations in the
Philippines. Production volumes increased in 2000 in the Philippines due to
higher volumes from the Nido field. The Company produced the Nido and Matinloc
fields at approximately 1,137 BOPD in 2000 versus 860 BOPD in 1999.

Operating Costs and Expenses

Production expenses for 2000 were $0.5 million as compared to $0.6 for 1999.
In 1999, production expense included the cost of an underwater platform
inspection at the Matinloc field.

Exploration costs for 2000 were $0.9 million as compared to $1.5 million for
1999. 2000 exploration expenses included costs for dry holes in Texas as well
as expiring exploration acreage of $0.2 million. In 1999, the company drilled
unsuccessful exploration wells in Texas and Alabama, and incurred charges
associated with expiring exploration acreage of $0.7 million. In addition, 1999
exploration costs included $0.3 million of seismic reprocessing expense
associated with Gabon.

Depreciation, depletion and amortization of properties for 2000 and 1999 was
$10 and $14 thousand respectively.

General and administrative expenses for 2000 were $1.9 million as compared
to $1.9 million for 1999.

Operating Loss

Operating loss for 2000 was $2.0 million as compared to a $3.0 million
operating loss for 1999 reflecting higher revenues and lower exploration costs
in 2000 versus 1999.

Other Income (Expense)

Interest income for 2000 was $0.6 million compared to $0.8 million in 1999.
Both the 2000 and 1999 amounts represent interest earned and accrued on cash
balances and funds in escrow.

Equity loss in unconsolidated entities for 2000 was $3.2 million compared to
$3.8 million in 1999. Expenses associated with the Paramount exploration effort
and Hunt accounted for the losses in both 2000 and 1999. The Company exited the
Hunt Partnership in June 2000.

Other, net was a loss of $37 thousand in 2000 compared to a loss of $0.4
million in 1999. In 1999, the Company took a $0.2 million abandonment
liability accrual associated with an interest in Service Contract No. 14,
which was reassigned to it by a local company.

In 2000, the Company recognized an income tax benefit of $30 thousand
associated with activity in the Philippines. In 1999, the Company incurred
$0.2 million in income taxes associated with foreign exchange movements in the
Philippines, all of which was deferred.

Net Loss

Net loss attributable to common stockholders for 2000 was $4.6 million as
compared to a net loss of $6.6 million in 1999. The 2000 and 1999 net losses
resulted from exploration expenses internationally as well as domestically.

Item 7. Financial Statements and Supplementary Data

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of VAALCO Energy, Inc. and
Subsidiaries:

We have audited the consolidated balance sheets of VAALCO Energy, Inc. and
its subsidiaries ("VAALCO") as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
VAALCO's management. Our responsibility is to express an opinion on the
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of VAALCO as of December 31,
2000 and 1999, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted
in the United States of America.

Deloitte & Touche LLP

Houston, Texas
March 26, 2001

VAALCO ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars, except par value amounts)

As of December
31,
------------------
2000 1999
ASSETS -------- --------

CURRENT ASSETS:
Cash and cash equivalents..................................... $ 12,440 $ 2,925
Funds in escrow............................................... 751 108
Receivables:
Trade....................................................... 237 411
Other....................................................... 153 131
Materials and supplies, net of allowance for inventory
obsolescence of $5........................................... 329 332
Prepaid expenses and other.................................... 24 24
-------- --------
Total current assets...................................... 13,934 3,931
-------- --------
PROPERTY AND EQUIPMENT-SUCCESSFUL EFFORTS METHOD
Wells, platforms and other production facilities.............. 1,154 1,331
Undeveloped acreage........................................... 555 703
Work in progress.............................................. 2,268 2,331
Equipment and other........................................... 65 64
-------- --------
4,042 4,429
Accumulated depreciation, depletion and amortization.......... (850) (840)
-------- --------
Net property and equipment................................ 3,192 3,589
-------- --------
OTHER ASSETS:
Funds in escrow............................................... -- 9,966
Investment in unconsolidated entities......................... 1,448 4,197
Deferred tax asset............................................ 410 370
Other long-term assets........................................ 57 35
-------- --------
TOTAL..................................................... $ 19,041 $ 22,088
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities...................... $ 463 $ 609
Accounts with partners........................................ 2,047 403
Income taxes payable.......................................... 10 --
-------- --------
Total current liabilities................................... 2,520 1,012
MINORITY INTEREST............................................... 13 12
FUTURE ABANDONMENT COSTS........................................ 3,294 3,297
-------- --------
Total liabilities......................................... 5,827 4,321
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Preferred stock, $25 par value, 500,000 authorized shares;
10,000 shares issued and outstanding in 2000 and 1999,
respectively 250 250
Common stock, $.10 par value, 100,000,000 authorized shares;
20,749,964 shares issued of which 5,395 are in the treasury
in 2000 and 1999............................................. 2,075 2,075
Additional paid-in capital.................................... 41,215 41,215
Accumulated deficit........................................... (30,314) (25,761)
Less treasury stock, at cost.................................. (12) (12)
-------- --------
Total stockholders' equity................................ 13,214 17,767
-------- --------
TOTAL..................................................... $ 19,041 $ 22,088
======== ========

See notes to consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

(in thousands of dollars, except per share amounts)

Year Ended
December 31,
----------------
2000 1999
------- -------

REVENUES:
Oil and gas sales......................................... $ 1,279 $ 824
Gain on sales of assets................................... -- 70
------- -------
Total revenues.......................................... 1,279 894
------- -------
OPERATING COSTS AND EXPENSES:
Production expense........................................ 483 553
Exploration expense....................................... 910 1,488
Depreciation, depletion and amortization.................. 10 14
General and administrative expenses....................... 1,905 1,877
------- -------
Total operating costs and expenses...................... 3,308 3,932
------- -------
OPERATING LOSS.............................................. (2,029) (3,038)
OTHER INCOME (EXPENSE):
Interest income........................................... 638 849
Equity loss in unconsolidated entities.................... (3,155) (3,802)
Other, net................................................ (37) (418)
------- -------
Total other expense..................................... (2,554) (3,371)
------- -------
LOSS BEFORE TAXES........................................... (4,583) (6,409)
Income tax expense (benefit)................................ (30) 163
------- -------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS................ $(4,553) $(6,572)
======= =======
BASIC LOSS PER COMMON SHARE................................. $ (0.22) $ (0.32)
======= =======
DILUTED LOSS PER COMMON SHARE............................... $ (0.22) $ (0.32)
======= =======
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING................................................ 20,745 20,745
======= =======

See notes to consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, except share data)

Preferred
Stock Common Stock Additional Total
------------- ----------------- Paid-in Accumulated Treasury Stockholders'
Shares Amount Shares Amount Capital Deficit Stock Equity
------ ------ ---------- ------ ---------- ----------- -------- -------------

Balance at January 1,
1999................... 10,000 $250 20,749,964 $2,075 $41,215 $(19,189) $(12) $24,339
Net Loss............... -- -- -- -- -- (6,572) -- (6,572)
Balance at December 31,
1999................... 10,000 $250 20,749,964 $2,075 $41,215 $(25,761) $(12) $17,767
Net Loss............... -- -- -- -- -- (4,553) -- (4,553)
------ ---- ---------- ------ ------- -------- ---- -------
Balance at December 31,
2000................... 10,000 $250 20,749,964 $2,075 $41,215 $(30,314) $(12) $13,214
====== ==== ========== ====== ======= ======== ==== =======

See notes to consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(in thousands of dollars)

Year Ended
December 31,
----------------
2000 1999
------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(4,553) $(6,572)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization................... 10 14
Equity loss in unconsolidated entities..................... 3,155 3,802
Provision for deferred income taxes........................ (40) 163
Abandonment reserve........................................ (3) 80
Exploration expense........................................ 905 1,488
Change in assets and liabilities that provided (used) cash:
Funds in escrow............................................ 9,323 7,574
Trade receivables.......................................... 174 (100)
Other receivables.......................................... (22) 204
Materials and supplies..................................... 3 (6)
Prepaid expenses and other................................. -- 1
Accounts payable and accrued liabilities................... (146) (1,432)
Accounts with partners..................................... 1,644 (4,164)
Income taxes payable....................................... 10 --
------- -------
Net cash provided by operating activities................. 10,460 1,052
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration expense......................................... (281) (1,488)
Investment in unconsolidated entities....................... (406) (3,050)
Additions to property and equipment......................... (296) (272)
Disposals of property and equipment......................... 59
Other--net.................................................. (21) 12
------- -------
Net cash used in investing activities....................... (945) (4,798)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions....................................... -- --
Proceeds from the issuance of common stock.................. -- --
------- -------
Net cash provided by financing activities................. -- --
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 9,515 (3,746)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 2,925 6,671
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $12,440 $ 2,925
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Non-cash items:............................................ $ -- $ --

See notes to consolidated financial statements.

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

1. ORGANIZATION

VAALCO Energy, Inc., a Delaware corporation, is a Houston-based independent
energy company principally engaged in the acquisition, exploration,
development and production of crude oil and natural gas. As used herein, the
terms "Company" and "VAALCO" mean VAALCO Energy, Inc. and its subsidiaries,
unless the context otherwise requires. VAALCO owns producing properties and
conducts exploration activities as operator of consortium internationally in
the Philippines and Gabon. Domestically, the Company has interests in the
Texas Gulf Coast area.

VAALCO's subsidiaries include Alcorn (Philippines) Inc. and Alcorn
(Production) Philippines Inc., VAALCO Gabon (Etame), Inc., VAALCO Production
(Gabon), Inc., VAALCO Energy (Gabon), Inc., VAALCO Energy (USA), Inc. and 1818
Oil Corp.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries, as well as the subsidiaries' share in the assets, liabilities,
income and expenses of joint operations. All significant transactions within
the consolidated group have been eliminated in consolidation.

Cash and Cash Equivalents--For purposes of the consolidated statement of
cash flows, the Company and its subsidiaries consider all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. For the years ended December 31, 2000 and 1999, no payments
were made for income taxes or for interest.

Funds in Escrow--Current amounts represent an escrow associated with the
sale of a portion of the Etame Block ($715) which closed in January 2001 funds
for abandonment of certain Gulf of Mexico properties ($36). Prior year funds
in escrow represented amounts for Hunt ($9,996) and funds for abandonment
costs relating to certain Gulf of Mexico properties ($108).

Inventory Valuation--Materials and supplies are valued at the lower of
cost, determined by the weighted-average method, or market.

Income Taxes--The Company records taxes on income in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Under SFAS No. 109, deferred income taxes reflect the net tax
effects of (a) temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) operating loss and tax credit carryforwards.

The Company calculates current and deferred income taxes on separate
company basis. Deferred income taxes are recognized for future tax
consequences of differences between the tax basis of assets and liabilities
and their financial reporting amounts at year-end.

Property and Equipment--The subsidiaries follow the successful efforts
method of accounting for exploration and development costs. Under this method,
exploration costs, other than the cost of exploratory wells, are charged to
expense as incurred. Exploratory well costs are initially capitalized until a
determination as to whether proved reserves have been discovered. If an
exploratory well is deemed to not have found proved reserves, the associated
costs are expensed at that time. All development costs, including
developmental dry hole

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

costs, are capitalized. Provisions for impairment of undeveloped oil and gas
leases are based on periodic evaluations and other factors. The Company
recognizes gains for the sale of developed properties based upon an allocation
of property costs between the interest sold and the interest retained based on
the fair value of those interests.

The Company reviews its oil and gas properties for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
properties may not be recoverable. When it is determined that an oil and gas
property's estimated future net cash flows will not be sufficient to recover
its carrying amount, an impairment charge must be recorded to reduce the
carrying amount of the asset to its estimated fair value. For years ending
December 31, 2000 and 1999, no impairments were recognized.

Depletion of wells, platforms and other production facilities are provided
on a field basis under the unit-of-production method based upon estimates of
proved developed reserves. Provision for estimated abandonment costs,
including platform dismantlement and site restoration, is included in
depreciation, depletion and amortization expense on a unit-of-production
basis. Provision for depreciation of other property is made primarily on a
straight-line basis over the estimated useful life of the property. The annual
rates of depreciation are as follows:

Office and miscellaneous equipment............................. 3-5 years
Leasehold improvements......................................... 8-12 years

In connection with the annual estimate of the Company's oil and gas
reserves for the fiscal year ended December 31, 2000, the Company's
independent petroleum engineers estimated proved oil reserves at December 31,
2000 to be 0.7 million barrels, all of which are classified as proved
developed, net to the Company. The Company had no gas reserves at December 31,
2000. The proved developed reserves relate to the Company's Philippine
operations.

During 1999, the Company was reassigned a 2.6% interest in Block C of
Service Contract No. 14 from a local company in consideration of an unpaid
note receivable. (The Company had previously fully reserved the note
receivable in 1996). Consequently, the Company recorded $816 of Property,
Plant and Equipment attributable to these assets based on prior investments
and $816 of Accumulated Depreciation, Depletion and Amortization since no
proven reserves were reacquired. Due to the non-cash nature of the
acquisition, these amounts have no effect on the Statement of Consolidated
Cash Flows.

Investments--The Company invests funds in escrow and excess cash in
certificates of deposit and commercial paper issued by banks with maturities
typically not exceeding 90 days.

At December 31, 2000, the Company accounted for its investments in
unconsolidated entities under the equity method.

At December 31, 2000, the investment in unconsolidated entities was valued
at fair value using methods determined in good faith by management after
consideration of all relevant information, including, current financial
information and restrictions on dispositions. The values assigned to the
investments do not necessarily represent the amount which might ultimately be
realized upon the sale or other disposition, since such amounts depend on
future circumstances and cannot reasonably be determined until actual
liquidation occurs. However, because of the inherent uncertainty of such
valuations, those estimated values may differ significantly from the values
that would have been used had a ready market for the investments existed, and
the difference could be material.

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

Foreign Exchange Transactions--For financial reporting purposes, the
subsidiaries use the United States dollar as their functional currency.
Monetary assets and liabilities denominated in foreign currency are translated
to U.S. dollars at the rate of exchange in effect at the balance sheet date,
and items of income and expense are translated at average monthly rates.
Nonmonetary assets and liabilities are translated at the exchange rate in
effect at the time such assets were acquired and such liabilities were
incurred. Gains and losses on foreign currency transactions are included in
income currently and were insignificant during each of 2000 and 1999.

Accounts With Partners--Accounts with partners represent cash calls due or
excess cash calls paid by the partners for exploration, development and
production expenditures made by the following subsidiaries of the Company:
APPI-14, APPI-6, and VAALCO Gabon (Etame), Inc.

Revenue Recognition--The Company recognizes revenues from crude oil and
natural gas sales upon delivery to the buyer.

Fair Value of Financial Instruments--The Company's financial instruments
consist primarily of cash, trade accounts and note receivables and trade
payables. The book values of cash, trade receivables, and trade payables are
representative of their respective fair values due to the short-term maturity
of these instruments. The book value of the Company's note receivable
instruments are considered to approximate the fair value, as the interest
rates are adjusted based on rates currently in effect.

Risks and Uncertainties--The Company's interests are located overseas in
certain offshore areas of the Philippines and Gabon.

Substantially all of the Company's crude oil and natural gas is sold at the
well head at posted or index prices under short-term contracts, as is
customary in the industry. For the year ended December 31, 2000 two purchasers
of the Company's crude oil accounted for essentially all of the Company's
total crude oil sales. The Company markets its crude oil share under
agreements with SeaOil and Caltex, both local Philippines refiners. While the
loss of these buyers might have a material effect on the Company in the near
term, management believes that the Company would be able to obtain other
customers for its crude oil.

Estimates of oil and gas values as made in the financial statements require
extensive judgments and are generally less precise than other estimates made
in connection with financial disclosures. Assigning monetary values to such
estimates does not reduce the subjectivity and changing nature of such
estimates of value. The information set forth herein is therefore subjective
and, since judgments are involved, may not be comparable to estimates of value
made by other companies. The Company considers its estimates to be reasonable;
however, due to inherent uncertainties and the limited nature of data,
estimates are imprecise and subject to change over time as additional
information become available.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was
amended in June 1999 by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133" and in June 2000 by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS No. 133, as amended, is
effective for derivative instruments and hedging activities that require an
entity to recognize all derivatives as an asset or liability measured at its
fair value. Depending on the intended use of the derivative, changes in its
fair value will be reported in the period of change as either a component of
earnings or a component of comprehensive income. Retroactive application to
periods prior to adoption is not allowed. The Company adopted SFAS No. 133, as
amended, effective January 1, 2001. The adoption had no

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

effect on the Company's financial position or results of operations as all
existing contracts either do not meet the definition of a derivative or
qualify for the normal purchases and sales exemption. The Company does not
currently engage in hedging activities.

Use of Estimates in Financial Statement Preparation--The preparation of
financial statements in conformity with generally accepted accounting
principles requires estimates and assumptions that affect the reported amounts
of assets and liabilities as well as certain disclosures. The Company's
financial statements include amounts that are based on management's best
estimates and judgments. Actual results could differ from those estimates.

Reclassifications--Certain amounts from 1999 have been reclassified to
conform to the 2000 presentation.

3. INVESTMENT IN UNCONSOLIDATED ENTITIES

At December 31, 2000 and December 31, 1999, VAALCO had the following
investments:

December 31, December 31,
2000 1999
------------ ------------

Investment in Hunt................................. $ -- $2,439
Investment in VAALCO Exploration LLC............... 1,448 1,758
------ ------
$1,448 $4,197
====== ======

Investment in Hunt represented a $30 million limited partnership interest
in Hunt Overseas Exploration Company L.P., a $350 million partnership, giving
the Company a 7.5% interest in the assets of the partnership. Cash investments
were made to Hunt during 1999 totaling approximately $2.5 million. Investment
was recorded under the equity method. Effective June 30, 2000 the Company
elected to withdraw from Hunt Overseas Exploration Company L.P. ("Hunt"). As a
result of withdrawing from the Hunt venture, Hunt released certain funds in
escrow totaling $8.4 million and reimbursed the Company $1.3 million for its
share of net working capital in the partnership as of June 30, 2000.

Investment in VAALCO Exploration LLC represents a 50/50 membership interest
shared by VAALCO Energy, Inc. and Robert Schneeflock of Paramount Petroleum in
VAALCO Exploration LLC. VAALCO Exploration was formed to conduct exploration
activities primarily in the onshore Gulf Coast area, including Alabama,
Mississippi and Louisiana. VAALCO and Schneeflock have contributed capital
interests of 93.75% and 6.25%, respectively. Net Profit is allocated first
based on contributed capital interests up to the aggregate amount of Net Loss
allocated and thereafter based on membership interest of 50/50. Net Loss is
allocated first based on membership interest up to the aggregate amount of Net
Profit allocated and thereafter based on contributed capital interest. VAALCO
has invested $3.0 million to fund overhead, leases, seismic and other amounts
in connection with the business. The Company records the investment under the
equity method as VAALCO's membership interest is 50% and neither party has a
majority voting interest. Investment value at December 31, 2000 and 1999 was
$1.4 and $1.8 million respectively. The Company elected to terminate its
participation in the venture effective April 1, 2001.

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

The following summarizes the aggregated financial information for all
investments owned by VAALCO, which were accounted for under the equity method
as of December 31, 1999 and 2000 respectively:

December 31, December 31,
2000 1999
-------------- --------------
(in thousands) (in thousands)

Balance Sheet:
Current assets............................... $ 311 $ 23,807
Oil and gas property......................... 1,226 30,431
Other assets................................. 17 19
Owner's equity............................... 1,544 44,353
Statement of Earnings:
Revenue...................................... $ 215 $ 1,544
====== ========
Gross profit................................. $ (156) $(34,424)
====== ========
Net loss..................................... $ (330) $(34,978)
====== ========
VAALCO's share of net loss................... $ (310) $ (3,802)
====== ========

December 31, 2000 figures do not include the results of the Hunt
Partnership as the Company withdrew from the partnership in June 2000. The
Company took a writedown of $2,845 thousand dollars associated with the Hunt
Partnership in 2000. December 31, 1999 figures include both figures for both
the Hunt Partnership and VAALCO Exploration LLC.

4. ACCRUED LIABILITIES

December 31,
-------------
2000 1999
------ ------

Other.......................................................... $ 87 $ 129

5. STOCKHOLDERS' EQUITY

The following discussion of shares under option incorporates options
granted by the predecessor VAALCO. These obligations were assumed by the
Company pursuant to the merger.

In 1993, an officer and director of the Company was granted options to
purchase 75,000 shares of Common Stock of the Company, and was also granted
75,000 stock appreciation rights ("SARs"), all at an exercise price of $10.25
per share. One-third of such options and SAR's vested at the end of each of
the three years of the contract term, and are exercisable for five years from
the date of vesting. As of December 31, 2000, the options and SAR's were
completely vested, 25,000 of the options had expired, and none of the options
and SAR's had been exercised. In 1996, additional options were granted to this
officer and director for 1,000,000 shares of the Common Stock of the Company
at exercise prices of $0.375 per share for 400,000 shares, $0.50 for 300,000
shares and $1.00 for 300,000 shares. The options vest over a term of three
years and may be exercised for five years from the vesting date. As of
December 31, 2000, the options were completely vested. None of the options had
been exercised as of December 31, 2000.

In 1996, a former officer of the Company was granted warrants to purchase
shares of the Company's Common Stock. The warrants have a remaining term
expiring August 31, 2003 and consist of the right to

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

purchase 250,000 shares of Common Stock at an exercise price of $0.50 per
share; 250,000 shares of Common Stock at an exercise price of $2.50 per share;
250,000 shares of Common Stock at an exercise price of $5.00 per share; and
250,000 shares of Common Stock at an exercise price of $7.50 per share. None
of the warrants had been exercised as of December 31, 2000.

In 1997, another officer of the Company was granted options to purchase
1,000,000 shares at $0.625 per share, vesting 500,000 shares at August 1, 1997
and 500,000 shares at August 1, 1998. None of the options had been exercised
as of December 31, 2000.

An investment banking firm was granted 345,325 warrants to purchase the
Company's Common Stock on July 31, 1997 in connection with the private
placement of Common Stock. The warrants have a term of five years from the
date of issuance and consist of the right to purchase shares at $1.00 per
share. The same investment banking firm was granted 100,000 warrants to
purchase the Company's Common Stock on April 1, 1998 in connection with the
private placement of Common Stock. The warrants have a term of five years from
the date of issuance and consist of the right to purchase shares at $2.00 per
share. None of the warrants had been exercised as of December 31, 2000.

On November 29, and December 15, 2000, options to purchase a total of
600,000 shares were granted at $0.30 per share to two technical
representatives of the Company. The options have a term of five years from the
date of issuance. These options vest six months after issuance.

Information with respect to the Company's stock options are as follows:

Vested Weighted
Options/ Shares Average
Warrants Under Exercise
Exercisable Option Price
----------- --------- --------

Balance, December 31, 1998.................... 3,520,325 3,520,325 $1.82
Forfeited..................................... 25,000 25,000 10.25
--------- --------- -----
Balance, December 31, 1999.................... 3,495,325 3,495,325 $1.76
Granted....................................... 600,000 0.30
Forfeited..................................... 25,000 25,000 10.25
--------- --------- -----
Balance, December 31, 2000.................... 3,470,325 4,070,325 $1.49
========= ========= =====

The following table summarizes information about stock options outstanding
as of December 31, 2000:

Weighted- Weighted- Weighted-
Number Average Average Number Average
Outstanding Remaining Exercise Exercisable Exercise
Range of Exercise Prices At 12/31/00 Contractual Life Price At 12/31/00 Price
------------------------ ----------- ---------------- --------- ----------- ---------

$0.375 to 1.00.......... 3,195,325 2.42 years $0.59 2,595,325 $0.65
1.01 to 2.50........... 350,000 2.55 years 2.36 350,000 2.36
2.51 to 5.00........... 250,000 2.67 years 5.00 250,000 5.00
5.01 to 10.25.......... 275,000 2.44 years 7.75 275,000 7.75
$0.375 to 10.25......... 4,070,325 2.02 years $1.49 3,470,325 $1.70

SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value as determined by

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

generally recognized option pricing models such as the Black-Scholes model or
the binomial model. Because of the inexact and subjective nature of deriving
non-freely traded employee stock option values using these methods, the
Company has adopted the disclosure-only provisions of SFAS No. 123 and
continues to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."

The provision of SFAS No. 123 had no material effect for 2000.

The Company follows SFAS No. 128--"Earnings per Share," which establishes
the requirements for presenting earnings per share ("EPS"). SFAS No. 128
requires the presentations of "basic" and "diluted" EPS on the face of the
income statement.

The following schedule is presented as a reconciliation of the numerators
and denominators of basic and diluted earnings per share computations.

For the Year Ended December 31,
2000
-----------------------------------
Per-Share Net Loss Shares
Amount (Numerator) (Denominator)
--------- ----------- -------------

Basic EPS
Net loss attributable to common
Shareholders........................ $(0.22) $(4,553) 20,745
Effect of Diluted Securities
Common stock options................. -- -- --
------ ------- ------
Diluted EPS
Net loss attributable to common
shareholders........................ $(0.22) $(4,553) 20,745
====== ======= ======

For the Year Ended December 31,
1999
-----------------------------------
Per-Share Net Loss Shares
Amount (Numerator) (Denominator)
--------- ----------- -------------

Basic EPS
Net loss attributable to common
shareholders........................ $(0.32) $(6,572) 20,745
Effect of Diluted Securities
Common stock options................. -- -- --
------ ------- ------
Diluted EPS
Net loss attributable to common
shareholders........................ $(0.32) $(6,572) 20,745
====== ======= ======

Options excluded from the above calculation, as they are anti-dilutive, are
4,070,325 and 3,495,325 for 2000 and 1999, respectively.

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

6. INCOME TAXES

The Company and its domestic subsidiaries file a consolidated United States
income tax return. Certain subsidiaries' operations are also subject to
Philippine income taxes.

Provision (benefit) for income taxes consists of the following:

Year
Ended
December
31,
----------
2000 1999
---- ----

U.S. federal:
Current........................................................... $ -- $ --
Deferred........................................................ -- --
Philippine:
Current......................................................... 10 --
Deferred........................................................ (40) 163
---- ----
Total......................................................... $(30) $163
==== ====

The primary differences between the financial statement and tax bases of
assets and liabilities at December 31, 2000 and 1999 are as follows:

Year Ended
December 31,
---------------
2000 1999
------- -------

Deferred Tax Liabilities:
Unrealized foreign exchange gain.......................... $ 225 $ 265
------- -------
Deferred Tax Assets:
Reserves not currently deductible......................... 1,044 1,044
Operating loss carryforwards.............................. 15,234 13,742
Alternative minimum tax credit carryover.................. 635 635
Minimum corporate income tax.............................. 12 --
Other assets.............................................. 227 284
------- -------
17,152 15,705
Valuation allowance......................................... 16,517 15,070
------- -------
635 635
------- -------
Net deferred tax asset...................................... $ 410 $ 370
======= =======

Pretax income (loss) is comprised of the following:

Year Ended
December 31,
----------------
2000 1999
------- -------

United States............................................. $(4,514) $(5,545)
Foreign (Philippine/Gabon)................................ (39) (864)
------- -------
$(4,553) $(6,409)
======= =======

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

A reconciliation between the provision (benefit) for income taxes
recognized in the Company's Statements of Operations computed by applying the
statutory federal income tax rate and income taxes to pre-tax losses follows:

Year
ended
December
31,
-----------
2000 1999
---- ----

Statutory income tax rate...................................... (35)% (35)%
Effective income tax rate...................................... (1)% 3 %
(36)% (32)%

At December 31, 2000, the Company and its subsidiaries had no foreign tax
credit ("FTC") carryforwards for United States tax purposes.

At December 31, 2000, the Company and its subsidiaries had net operating
loss ("NOL") carryforwards of approximately $42.7 million for United States
income tax purposes. A full valuation allowance has been provided against this
NOL. Due to previous ownership changes, Internal Revenue Code section 382 will
limit future utilization of the net operating loss carryforwards.

At December 31, 2000, the Company was subject to federal taxes only, with
no allocations made to state and local taxes.

7. RELATED-PARTY TRANSACTIONS

The 1818 Fund entered into a guaranty and covenant agreement with Hunt
under which the 1818 Fund is contingently liable to Hunt in the amount of
undrawn cash commitments of 1818 Oil of $9,374 as of December 31, 1999. The
guaranty and covenant was released when the Company withdrew from the
partnership in June 2000.

Other long term assets included $40,166 in notes due from employees at
December 31, 2000.

8. COMMITMENTS AND CONTINGENCIES

At December 21, 2000 the Company owned a 17.85% interest in a block
offshore Gabon, the Etame Block. In January 2000, the Company increased its
interest in the Etame Block to 30.35%. The block contains the recent Etame
discovery as well as previous discoveries that the Company is currently
evaluating to determine their commercial viability. The Company and its
partners undertook an obligation to the Government of Gabon to obtain and
process seismic data and to drill one commitment well on the Etame Block over
the three-year term of the license. In April 1998, a participation agreement
was entered into with Western Atlas Afrique, Ltd. ("Western Atlas"), a
subsidiary of Western Atlas International, Inc., to conduct a 320 square
kilometer seismic survey at Western Atlas' sole cost and to pay a
disproportionate 80% of the cost, up to $4.7 million, of the first commitment
well. In return for these payments, Western Atlas earned a 65% interest in the
production-sharing contract. In June 1998, Western Atlas completed the above-
mentioned acquisition of seismic data over the property. This data was
processed, and the Company drilled the commitment well, the Etame No. 1 well,
in June 1998 resulting in a 3,700 BOPD Gamba sandstone discovery on the block.
Completion of the Etame No. 1 well satisfied all of the Company's obligations
to the Government of Gabon under the primary three-year term of the contract.

VAALCO ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

(in thousands of dollars, unless otherwise indicated)

9. SUBSEQUENT EVENT

VAALCO ENERGY, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(Unaudited)

(in thousands of dollars, unless otherwise indicated)

The following information is being provided as supplemental information in
accordance with certain provisions of SFAS No. 69, "Disclosures about Oil and
Gas Producing Activities". The Company's reserves are located offshore of the
Republic of the Philippines. The following tables set forth costs incurred,
capitalized costs, and results of operations relating to oil and natural gas
producing activities for each of the periods. (See "Footnote 1--ORGANIZATION")

Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities

United
States International
----------- -------------
2000 1999 2000 1999
------ ---- ------ ------

Costs incurred during the year:
Exploration(1).................................. $1,278 $601 $ 19 $1,234
Acquisition--unproved........................... 13 -- -- --
------ ---- ------ ------
Total......................................... $1,291 $601 $ 19 $1,234
====== ==== ====== ======
Company's share of equity method investee's costs
incurred(1)...................................... $ 18 $945 $1,430 $1,829
====== ==== ====== ======

--------
(1) Includes costs which are capitalized or expensed.

In 2000, of the $905 of United States exploration costs incurred, $707 was
expensed for dry hole costs. In 2000, international exploration costs included
$14 in capitalized costs for Etame as well as $5 in expensed geophysical
costs. In 1999, of the $601 of U.S. exploration costs incurred, $220 was
expensed for dry hole costs. International exploration costs included
capitalized costs in 1999 of $1,234 for Etame, and $217 was expensed for
geophysical costs. The Company's share of investee's costs was for the
Paramount joint venture in the U.S. and Hunt internationally.

Capitalized Costs Relating to Oil and Gas Producing Activities:

Year Ended
December 31,
--------------
2000 1999
------ ------

Capitalized costs--
Unproved properties not being amortized.................. $2,823 $3,034
Properties being amortized................................. 1,154 1,331
------ ------
Total capitalized costs................................ 3,977 4,365
Less accumulated depreciation, depletion, and
amortization............................................ (816) (816)
------ ------
Net capitalized costs.................................... $3,161 $3,549
====== ======
Company's share of equity method investee's net capitalized
costs..................................................... $4,427 $4,850
====== ======

The capitalized costs pertain to the Company's producing activities in the
Philippines, the Etame discovery and U.S. activities. As a result of the
merger with 1818 Oil Corp., $39.5 million carried by VAALCO in previously
fully depleted costs carried in capitalized costs were closed out against the
associated accumulated depreciation, depletion and amortization.

VAALCO ENERGY, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES--(Continued)

(Unaudited)

(in thousands of dollars, unless otherwise indicated)

Results of Operations for Oil and Gas Producing Activities:

United States International
-------------- ----------------
2000 1999 2000 1999
----- ------- ------- -------

Crude oil and gas sales.................. $ 81 $ 29 $ 1,198 $ 795
Production expense....................... (54) (75) (428) (478)
Exploration expense...................... (905) (1,271) (5) --
Depreciation, depletion and
amortization............................ -- -- -- --
----- ------- ------- -------
Loss before taxes........................ (878) (1,317) 765 317
Income tax benefit....................... -- 30 (163)
----- ------- ------- -------
Results from oil and gas
producing activities.................... $(878) $(1,317) $ 795 $ 154
===== ======= ======= =======
Company's share of equity method
investee's results of operations........ $(310) $ -- $(2,845) $(2,185)
===== ======= ======= =======

Proved Reserves

The following tables set forth the net proved reserves of VAALCO Energy,
Inc. as of December 31, 2000 and 1999, and the changes therein during the
periods then ended.

Oil (MBbls)
-----------

PROVED RESERVES:
BALANCE AT DECEMBER 31, 1998..................................... 691
Production..................................................... (91)
Revisions...................................................... 61
---
BALANCE AT DECEMBER 31, 1999..................................... 661
Production..................................................... (92)
Revisions...................................................... 117
---
BALANCE AT DECEMBER 31, 2000..................................... 686
===

Oil (MBbls)
PROVED DEVELOPED RESERVES -----------

Balance at December 31, 1999..................................... 661
Balance at December 31, 2000..................................... 686

All of the Company's Proved Developed Reserves are located offshore the
Republic of the Philippines.

VAALCO ENERGY, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES--(Continued)

(Unaudited)

(in thousands of dollars, unless otherwise indicated)

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil Reserves

The information that follows has been developed pursuant to procedures
prescribed by SFAS No. 69 and utilizes reserve and production data estimated
by independent petroleum consultants. The information may be useful for
certain comparison purposes, but should not be solely relied upon in
evaluating VAALCO Energy, Inc. or its performance.

The future cash flows are based on sales prices and costs in existence at
the dates of the projections, excluding the interests of the Philippine
government and the other consortium members. Future production costs do not
include overhead charges allowed under joint operating agreements or
headquarters general and administrative overhead expenses. Future development
costs include amounts accrued attributable to future abandonment when the
wells become uneconomic to produce. The standardized measure of discounted
cash flows for 2000 do not include the costs of abandoning the Company's non-
producing properties.

Philippines
--------------
December 31,
--------------
2000 1999
------ ------

Future cash inflows......................................... $7,914 $7,825
Future production costs..................................... (3,327) (3,086)
Future development costs.................................... (1,377) (1,605)
Future income tax expense................................... -- --
------ ------
Future net cash flows....................................... 3,210 3,134
Discount to present value at 10% annual rate................ 508 311
------ ------
Standardized measure of discounted future net cash flows.... $2,702 $2,823
====== ======

Future development costs at December 31, 2000 includes $1,377 for future
abandonment costs which have been accrued by the Company. Due to the
availability of net operating loss carryforwards, there is no future income
tax expense attributable to the Company's reserves.

Changes in Standardized Measure of Discounted Future Net Cash Flows:

The following table sets forth the changes in standardized measure of
discounted future net cash flows as follows:

December 31,
--------------
2000 1999
------ ------

BALANCE AT BEGINNING OF PERIOD............................... $2,823 $ 226
Sales of oil and gas, net of production costs................ (796) (271)
Net changes in prices and production costs................... 99 2,350
Revisions of previous quantity estimates..................... 294 495
Purchase (Sale) of reserves in place, net of taxes........... -- --
Changes in estimated future development costs................ -- --
Development costs incurred during the period................. -- --
Accretion of discount........................................ 282 23
Net change in income taxes................................... -- --
Change in production rates (timing) and other................ -- --
------ ------
BALANCE AT END OF PERIOD..................................... $2,702 $2,823
====== ======

VAALCO ENERGY, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES--(Continued)

(Unaudited)

(in thousands of dollars, unless otherwise indicated)

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an exact
manner, and the accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and
judgment. The quantities of oil and natural gas that are ultimately recovered,
production and operating costs, the amount and timing of future development
expenditures and future oil and natural gas sales prices may all differ from
those assumed in these estimates. The standardized measure of discounted
future net cash flow should not be construed as the current market value of
the estimated oil and natural gas reserves attributable to the Company's
properties. The information set forth in the foregoing tables includes
revisions for certain reserve estimates attributable to proved properties
included in the preceding year's estimates. Such revisions are the result of
additional information from subsequent completions and production history from
the properties involved or the result of a decrease (or increase) in the
projected economic life of such properties resulting from changes in product
prices. Moreover, crude oil amounts shown are recoverable under the service
contracts and the reserves in place remain the property of the Philippine
government.

In accordance with the guidelines of the U.S. Securities and Exchange
Commission, the Company's estimates of future net cash flow from the Company's
properties and the present value thereof are made using oil and natural gas
contract prices in effect as of year end and are held constant throughout the
life of the properties except where such guidelines permit alternate
treatment, including the use of fixed and determinable contractual price
escalations. The contract price as of December 31, 2000 was $11.69 per Bbl for
Matinloc oil and $11.09 per barrel for Nido oil in the Philippines.

Under the laws of the Republic of the Philippines, the Philippine
government is the owner of all oil and gas mineral rights. However, pursuant
to The Oil Exploration and Development Act of 1972, the Philippine government,
acting through its Office of Energy Affairs (formerly, the Petroleum Board),
may enter into service contracts under which contractors will be granted
exclusive rights to perform exploration, drilling, production and other
"petroleum operations" in a contract area. Further, such Act vested the
Ministry of Energy with regulatory powers over business activities relating to
the exploration, exploitation, development and extraction of energy resources.

Pursuant to the service contracts, the Philippine government receives an
allocation of the production from the contract area instead of a royalty.
Under the service contracts, the Philippine government does not take actual
delivery of its allocated production. Instead, the Company has been authorized
to sell the Philippine government's share of production and remit the proceeds
to the Philippine government. Under this production sharing scheme, the
consortium is permitted a Filipino Participation Incentive Allowance ("FPIA")
and a deduction to recover certain costs expended on the development of the
contract area of up to 60% of gross revenues from the contract area. The FPIA,
a deduction equivalent to 7.5% of project gross revenue, is allowed when
Filipino ownership participation in the consortium equals or exceeds 15%,
which is the case for Service Contract No. 14. The consortium also receives a
production allowance of approximately 50% of the balance of the oil after
deducting FPIA and cost recovery oil. The remaining oil is shared 40% by the
consortium and 60% by the Philippine government. Under this scheme, the
consortium currently receives approximately 90.3% of the oil produced and the
Philippine government receives approximately 9.7%. Because the cost recovery
account contains over $200 million, the Company anticipates receiving the
maximum 60% of cost oil during the life of the Nido and Matinloc reserves.

Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

Information required by this item will be included in the Company's proxy
statement for its 2000 annual meeting, which will be filed with the Commission
within 120 days of December 31, 2000, and which is incorporated herein by
reference.

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions

Item 13. Exhibits and Reports on Form 8-K

2. Plan of acquisition, reorganization , arrangement, liquidation or
succession

2.1(a) Stock Acquisition Agreement and Plan of Reorganization dated February
17, 1998 by and among the Company and the 1818 Fund II, L.P.

2.2(c) First Amendment to Stock Acquisition Agreement and Plan of
Reorganization, dated April 21, 1998

2.3 Stock Purchase Agreement between Western Atlas International, Inc., as
Seller, and VAALCO Gabon (Etame), Inc. as Purchaser, dated January 4,
2001.

2.4 Stock Purchase Agreement between VAALCO Energy, Inc., as Seller and
PanAfrican Energy Corporation Ltd., as Purchaser, dated January 15,
2001.

2.5 Share Sale and Purchase Agreement By and Between VAALCO Gabon (Etame),
Inc., and Sasol Petroleum International (Pty) Ltd. dated February 5,
2001.

3. Articles of Incorporation and Bylaws

3.1(b) Restated Certificate of Incorporation

3.2(b) Certificate of Amendment to Restated Certificate of Incorporation

3.3(b) Bylaws

3.4(b) Amendment to Bylaws

3.5(c) Designation of Convertible Preferred Stock, Series A

10. Material Contracts

10.1(d) Service Contract No. 6, dated September 1, 1973, among the Petroleum
Board of the Republic of the Philippines and Mosbacher Philippines
Corporation, et al, as amended.

10.2(d) Operating Agreement, dated January 1, 1975, among Mosbacher
Philippines Corporation, Husky (Philippines) Oil, Inc. and Amoco
Philippines Petroleum Company.

10.3(d) Service Contract No. 14, dated December 17, 1975, among the Petroleum
Board of the Republic of the Philippines and Philippines--Cities
Service, Inc., et al, as amended.

10.4(d) Operating Agreement, dated July 17, 1975, among Philippines-Cities
Service, Inc., Husky (Philippines) Oil, Inc., Oriental Petroleum and
Minerals Corporation, Philippines-Overseas Drilling & Oil Development
Corporation, Basic Petroleum and Minerals, Inc., Landoil Resources
Corporation, Westrans Petroleum, Inc. and Philippine National Oil
Company, as amended.

10.5(d) Memorandum of Understanding, dated April 2, 1979, among the Bureau of
Energy Development of the Republic of the Philippines and
Philippines--Cities Service, Inc., et al.

10.6(d) Indemnity Agreement entered into among the Company and certain of its
officers and directors listed therein.

10.7(e) Exploration and Production Sharing contract between the Republic of
Gabon and VAALCO Gabon (Equata), Inc. dated July 7, 1995.

10.8(e) Exploration and Production Sharing contract between the Republic of
Gabon and VAALCO Gabon (Etame), Inc. dated July 7, 1995.

10.9(e) Deed of Assignment and Assumption between VAALCO Gabon (Etame), Inc.,
VAALCO Energy (Gabon), Inc. and Petrofields Exploration & Development
Co., Inc. dated September 28, 1995.

10.10(e) Deed of Assignment and Assumption between VAALCO Gabon (Equata),
Inc., VAALCO Production (Gabon), Inc. and Petrofields Exploration &
Development Co., Inc. dated September 8, 1995.

10.11(f) Letter of Intent for Etame Block, Offshore Gabon dated January 22,
1998 between the Company and Western Atlas International, Inc.

10.12(f) Farm In Agreement for Service Contract No. 14 Offshore Palawan
Island, Philippines dated September 24, 1996 between the Company and
SOCDET Production PTY, Ltd.

10.13(f) Letter Agreement between the Company and Northstar Interests LLC.
dated December 5, 1996.

10.14(g) Registration Rights Agreement, dated July 28, 1997, by and among the
Company, Jefferies & Company, Inc. and the investors listed therein.

10.15(h) Warrant Agreement to Purchase Shares of Common Stock of VAALCO
Energy, Inc., dated July 31, 1997, between VAALCO Energy, Inc. and
Jefferies & Company, Inc.

10.16(c) Registration Rights Agreement among the Company and The 1818 Fund II,
L.P., dated April 21, 1998

10.17(c) Registration Rights Agreement dated April 21, 1998 by and among the
Company, Jefferies & Company, Inc. and the investors listed therein.

10.18(i) Assignment Agreement between the Company, members of the Service
Contract 14 Consortium and SOCDET dated December 29, 1998

10.19 Conveyance of Production Payment from Western Atlas Afrique, Ltd. to
Western Atlas International, Inc. dated December 29, 2000.

21.1 Subsidiaries of the Registrant

--------
(a) Filed as an exhibit to the Company's report on Form 8-K filed with the
Commission on March 4, 1998 (file no. 000-20928) and hereby incorporated
by reference herein.
(b) Filed as an exhibit to the Company's Registration Statement on Form S-3
filed with the Commission on July 15, 1998 and hereby incorporated by
reference herein.
(c) Filed as an exhibit to the Company's Report on Form 8-K filed with the
Commission on May 6, 1998 and hereby incorporated by reference herein.
(d) Filed as an exhibit to the Company's Form 10 (File No. 0-20928) filed on
December 3, 1992, as amended by Amendment No. 1 on Form 8 on January 7,
1993, and by Amendment No. 2 on Form 8 on January 25, 1993, and hereby
incorporated by reference herein.

(e) Filed as an exhibit to the Company's Form 10-QSB for the quarterly period
ended September 30, 1995, and hereby incorporated by reference herein.

(f) Filed as an exhibit to the Company's Form 10-KSB for the annual period
ended December 31, 1996, and hereby incorporated by reference herein.

(g) Filed as an exhibit to the Company's Form 10-QSB for the quarterly period
ended June 30, 1997, and hereby incorporated by reference herein.

(h) Filed as an exhibit to the Company's Form 10-KSB for the annual period
ended December 31, 1997, and hereby incorporated by reference herein.

(i) Filed as an exhibit to the Company's Form 10-KSB for the annual period
ended December 31, 1998, and hereby incorporated by reference herein.

(b) Reports on Form 8-K.

None

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

VAALCO ENERGY, INC.
(Registrant)

/s/ W. Russell Scheirman
By __________________________________
W. Russell Scheirman,
President, Chief Financial Officer
and Director

Dated March 30, 2001

In accordance with the Exchange Act, this report has been signed below on
the 30th day of March, by the following persons on behalf of the registrant
and in the capacities indicated.

Signature Title
--------- -----

/s/ Robert L. Gerry, III Chairman of the Board, Chief
______________________________________ Executive Officer and Director
Robert L. Gerry, III (Principal Executive Officer)

/s/ Virgin A. Walston, Jr. Vice Chairman of the Board, Chief
______________________________________ Operating Officer and Director
Virgil A. Walston,Jr.

/s/ W. Russell Scheirman President, Chief Financial Officer
______________________________________ and Director (Principal Financial
W. Russell Scheirman Officer and Principal Accounting
Officer)

/s/ Director
______________________________________
Walter W. Grist

/s/ Director
______________________________________
T. Michael Long

/s/ Director
______________________________________
Arne R. Nielsen

/s/ Director
______________________________________
Lawrence C. Tucker