Vaalco Completes Development Program for Etame Field

VAALCO Energy has completed the third well of the development program for the Etame field offshore Gabon. The ET-1VA well was completed as a vertical well and flowed at a rate of 4,130 barrels oil per day on a 48/64" choke. This follows the completion of the ET-3H and 4H wells, which were each drilled horizontally approximately 1,300 feet through the reservoir, and which tested 7,600 and 9,800 barrels oil per day respectively.

Concurrent with the completion of the drilling operations, the floating production, storage and offloading vessel "Petroleo Nautipa" arrived at the Etame Field location on August 28, 2002. The 1.1 million barrel storage vessel is expected to complete anchoring operations in a few days in 250 feet of water. The "Seamac III", a dynamically positioned lay barge vessel is currently on location and is in the advanced stages of placing approximately 6 miles of flowlines on the ocean floor. These flowlines will connect the wells to the storage vessel, which will be made ready to receive the flowlines upon completion of the anchoring operations. Separate umbilical lines are also being laid down by the "Seamac III" which will contain hydraulic lines enabling the wells to be controlled from the storage vessel.

Robert Gerry, Chairman of VAALCO said, "VAALCO management is excited about the progress of the development project. As a result of the consortium's preplanning efforts, the various pieces of the project are all coming together at the right time. Upon completion of the flowline installation and mooring of the 'Petroleo Nautipa' we anticipate bringing the field onstream at about 15,000 BOPD in September."

Separately, VAALCO announced that it has successfully secured $6.2 million in additional financing to help pay for its share of the development project and other planned exploration activities on the Etame Block. The Company has established a new subsidiary VAALCO International, Inc., which will own VAALCO Gabon (Etame), Inc., the subsidiary that owns the interest in the Gabon Production Sharing Contract. An investor has agreed to provide $3.2 million of equity and $3.0 million of loans in return for a 9.99% stake in VAALCO International. VAALCO Energy, Inc. will own the remaining 90.01% of the stock of VAALCO International.

Pursuant to terms negotiated earlier this year and which are substantially the same as those negotiated with the 1818 Fund II L.P. with respect to its previously announced loan to the Company, VAALCO issued warrants to purchase 4,500,000 shares of its common stock at $0.50 per share (subject to anti-dilution adjustments and adjustments if the loan in not repaid within 18 months). The warrants are exercisable for a period of five years from the date of issuance. If the loan is repaid in full prior to 18 months from the loan date, VAALCO will receive back 2,250,000 of the warrants unexercised. If the loan is repaid in full after 18 months but prior to two years, VAALCO will receive back a portion of 2,250,000 of the warrants unexercised. If the loan is not repaid in two years, VAALCO will issue to the investor warrants to purchase 2,250,000 additional shares of Common Stock at $0.10 per share (subject to anti-dilution adjustments). Additional details regarding the financing will be filed on report 8-K with the Security and ExchangeCommission.

In connection with obtaining the additional $6.2 million in financing, VAALCO amended its credit arrangements with the 1818 Fund II L.P. entered into in June 2002. Under the new arrangement, $3 million of the $10 million line of credit is subject to additional lending conditions. To the extent the entire $10 million is not drawn by May 1, 2003, a proportionate portion of the warrants received by the 1818 Fund II L.P. in June will be extinguished.