Section 1.03. Financial Calculations. (a) All financial calculations to be made under, or for the purposes of, this Agreement and any other Transaction Document shall be determined in accordance with the Accounting Principles and, except as otherwise required to conform to any provision of this Agreement, shall be calculated from the then most recently issued quarterly financial statements, prepared on a consolidated basis, which the Borrower is obligated to furnish to IFC under Section 6.03 (a) (Reporting Requirements).

(b) Where quarterly financial statements are used for the purpose of making certain financial calculations and those statements are with respect to the last quarter of a Fiscal Year then, at IFC’s option, those calculations may instead be made from the audited financial statements for the relevant Fiscal Year.

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(c) If any material adverse change in the financial condition of the Borrower or the Sponsor has occurred after the end of the period covered by the financial statements used to make the relevant financial calculations, that material adverse change shall also be taken into account in calculating the relevant figures.

Section 1.04. Interpretation. In this Agreement, unless the context otherwise requires:

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

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

(c) a reference to an Annex, Article, party, Schedule or Section is a reference to that Article or Section of, or that Annex, party or Schedule to, this Agreement;

(d) a reference to a document includes an amendment or supplement to, or replacement or novation of, that document but disregarding any amendment, supplement, replacement or novation made in breach of this Agreement; and

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

Section 1.05. Business Day Adjustment. When the day on or by which a payment is due to be made is not a Business Day, that payment shall be made on or by the next succeeding Business Day. Interest, fees and charges (if any) shall continue to accrue for the period from the due date that is not a Business Day to that next succeeding Business Day.

ARTICLE II

The Project, Project Cost and Financial Plan

Section 2.01. The Project. The project to be financed consists of the ongoing and future oil and gas operations and production, developments, appraisal and exploration in the Etame Block offshore of the southern coast of Gabon, including related capital expenditures, working capital requirements and debt repayment requirements relating to the Borrower’s operations in Gabon.

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ARTICLE III

The Facility

Section 3.01. The Facility.

(a) Subject to the provisions of this Agreement, IFC agrees to make available to the Borrower a revolving loan facility of up to thirty million Dollars ($30,000,000) (the “Facility”).

(b) Each Loan under the Facility may be used solely for the Project.

Section 3.02. Loan Procedure.

(a) The Borrower may request Loans up to the Available Amount during the Availability Period by delivering to IFC, at least ten (10) Business Days prior to the proposed date of a Loan, a Loan request substantially in the form of Schedule 2, and a receipt substantially in the form of Schedule 3.

(b) Each Loan shall be made by IFC at a bank in New York, New York for further credit to the VAALCO Operating Account or any other place acceptable to IFC, all as specified by the Borrower in the relevant Loan request.

(c) Where any Loan is outstanding on any Interest Payment Date, the Borrower in respect of that Loan will be conclusively deemed to have given IFC a duly completed request (and receipt) for a Rollover Loan (of an aggregate amount equal to the outstanding amount of all Loans, including any Rollover Loan, which are scheduled to mature on that Interest Payment Date) to be applied in refinancing the outstanding Loan or Loans in full unless, (i) not later than thirty (30) days prior to such Interest Payment Date, the Borrower notifies IFC that it does not wish this provision to apply in respect of all or a portion of any Loan, and/or (ii) IFC at any time notifies the Borrower that all or a portion of any Loan is not eligible to be treated as a Rollover Loan because the conditions necessary for the making of such Rollover Loan as required pursuant to Section 5.02 and 5.03 hereof (including that the amount of such Rollover Loan does not exceed the Available Amount) are not fulfilled.

(d) Each Loan (other than a Rollover Loan) shall be made in an amount of not less than five million Dollars ($5,000,000), or, if lower, in an amount that equals the maximum amount drawable of the Available Amount.

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Section 3.03. Interest. Subject to the provisions of Section 3.04 (Default Rate Interest), the Borrower shall pay interest on each Loan in accordance with this Section 3.03:

(a) During each Interest Period, each Loan shall bear interest at the applicable Interest Rate for that Interest Period.

(b) Interest on each Loan shall accrue from day to day, be prorated on the basis of a 360-day year for the actual number of days in the relevant Interest Period and be payable in arrears on the Interest Payment Date immediately following the end of that Interest Period; provided that with respect to any Loan made less than fifteen (15) days before an Interest Payment Date, interest on that Loan shall be payable on the second Interest Payment Date following the date of that Loan.

(c) The Interest Rate for any Interest Period shall be the rate which is the sum of:

(d) If, for any Interest Period IFC cannot determine LIBOR by reference to the Telerate Service or any other service that displays BBA rates, IFC shall notify the Borrower and shall instead determine LIBOR:

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(e) On each Interest Determination Date for any Interest Period, IFC shall determine the Interest Rate applicable to that Interest Period and promptly notify the Borrower of that rate.

(f) The determination by IFC, from time to time, of the Interest Rate shall be final and conclusive and bind the Borrower (unless the Borrower shows to IFC’s satisfaction that the determination involves manifest error).

Section 3.04. Default Rate Interest. (a) Without limiting the remedies available to IFC under this Agreement or otherwise (and to the maximum extent permitted by applicable law), if the Borrower fails to make any payment of principal or interest (including interest payable pursuant to this Section) or any other payment provided for in Section 3.07 (Fees) when due as specified in this Agreement (whether at stated maturity or upon acceleration), the Borrower shall pay interest on the amount of that payment due and unpaid at the rate which shall be the sum of two per cent (2%) per annum and the Interest Rate in effect from time to time.

(b) Interest at the rate referred to in Section 3.04 (a) shall accrue from the date on which payment of the relevant overdue amount became due until the date of actual payment of that amount (as well after as before judgment), and shall be payable on demand or, if not demanded, on each Interest Payment Date falling after any such overdue amount became due.

Section 3.05. Repayment.

(a) The Borrower must repay each Loan made to it in full on the Interest Payment Date immediately following the date on which such Loan is made.

(b) Subject to the terms of this Agreement, any amounts repaid under paragraph (a) above may be reborrowed.

Section 3.06. Prepayment and Mandatory Payment. (a) The Borrower may prepay all or any of the Loans, on not less than thirty (30) days’ prior notice to IFC, but only if:

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(b) If at any time any of Interest Cover, LOL and/or LOF are less than the Minimum Levels, the Borrower shall prepay all or a part of the Loans in an amount sufficient for such ratios to be equal to or greater than the Minimum Levels no later than thirty (30) days after the date such non-compliance first occurred and:

(c) Upon delivery of a notice in accordance with Section 3.06 (a), the Borrower shall make the payment in accordance with the terms of that notice.

Section 3.07. Fees. (a) The Borrower shall pay to IFC a commitment fee at the rate of one per cent (1%) per annum on that part of the Facility which from time to time has not been disbursed or cancelled. The commitment fee shall:

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(b) The Borrower shall also pay to IFC a front-end fee of four hundred and thirty-seven thousand five hundred dollars ($437,500), to be paid upon the earlier of (x) the date which is thirty (30) days after the date of this Agreement and (y) the date of the First Loan;.

(c) The Borrower shall pay to IFC an annual supervision fee of fifteen thousand US Dollars ($15,000) for each Fiscal Year during which any portion of this Facility is committed or outstanding, whether that year is complete or not, to be paid (i) with respect to the 2005 calendar year, within thirty (30) days of the date of this Agreement or on or before the date of the First Loan, whichever is earlier, and (ii) with respect to each Fiscal Year thereafter, on January 15.

Section 3.08. Currency and Place of Payments. (a) The Borrower shall make all payments of principal, interest, fees, and any other amount due to IFC under this Agreement in Dollars, in same day funds, to Citibank, N.A., 111 Wall Street, New York, New York, U.S.A., ABA#021000089, for credit to IFC’s account number 36085579, or at such other bank or account in New York as IFC from time to time designates. Payments must be received in IFC’s designated account no later than 1:00 p.m. New York time.

(b) The tender or payment of any amount payable under this Agreement (whether or not by recovery under a judgment) in any currency other than Dollars shall not novate, discharge or satisfy the obligation of the Borrower to pay in Dollars all amounts payable under this Agreement except to the extent that (and as of the date when) IFC actually receives funds in Dollars in the account specified in, or pursuant to, Section 3.08 (a).

(c) The Borrower shall indemnify IFC against any losses resulting from a payment being received or an order or judgment being given under this Agreement in any currency other than Dollars or any place other than the account specified in, or pursuant to, Section 3.08 (a). The Borrower shall, as a separate obligation, pay such additional amount as is necessary to enable IFC to receive, after conversion to Dollars at a market rate and transfer to that account, the full amount due to IFC under this Agreement in Dollars and in the account specified in, or pursuant to, Section 3.08 (a).

(d) Notwithstanding the provisions of Section 3.08 (a) and Section 3.08 (b), IFC may require the Borrower to pay (or reimburse IFC) for any Taxes, fees, costs, expenses and other amounts payable under Section 3.14 (a) (Taxes) and Section 3.15 (Expenses) in the currency in which they are payable, if other than Dollars.

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Section 3.09. Allocation of Partial Payments. If at any time IFC receives less than the full amount then due and payable to it under this Agreement, IFC may allocate and apply the amount received in any way or manner and for such purpose or purposes under this Agreement as IFC in its sole discretion determines, notwithstanding any instruction that the Borrower may give to the contrary.

Section 3.10. Increased Costs. On each Interest Payment Date, the Borrower shall pay, in addition to interest, the amount which IFC from time to time notifies to the Borrower in an Increased Costs Certificate as being the aggregate Increased Costs of IFC accrued and unpaid prior to that Interest Payment Date.

Section 3.11. Unwinding Costs. (a) If IFC incurs any cost, expense or loss as a result of the Borrower:

then the Borrower shall immediately pay to IFC the amount which IFC from time to time notifies to the Borrower as being the amount of those costs, expenses and losses incurred.

(b) For the purposes of this Section, “costs, expenses or losses” include any premium, penalty or expense incurred to liquidate or obtain third party deposits or borrowings in order to make, maintain or fund all or any part of the Loans.

Section 3.12. Suspension or Cancellation by IFC. (a) IFC may, by notice to the Borrower, suspend or cancel the right of the Borrower to the undisbursed portion of the Facility in whole or in part:

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(b) Upon the giving of any such notice, the right of the Borrower to the undisbursed portion of the Facility shall be suspended or cancelled, as the case may be. The exercise by IFC of its right of suspension shall not preclude IFC from exercising its right of cancellation, either for the same or any other reason specified in Section 3.12 (a). Upon any cancellation the Borrower shall, subject to paragraph (d) of this Section 3.12, pay to IFC all fees and other amounts accrued (whether or not then due and payable) under this Agreement up to the date of that cancellation. A suspension shall not limit any other provision of this Agreement.

(c) Any portion of the Facility that is cancelled under this Section 3.12 may not be reborrowed.

(d) In the case of a partial cancellation of the Facility pursuant to paragraph (a) of this Section 3.12, or Section 3.13 (a) below, interest on the amount then outstanding of the Loans remains payable as provided in Section 3.03 (Interest).

Section 3.13. Cancellation by the Borrower. (a) The Borrower may, by notice to IFC, irrevocably request IFC to cancel either in whole or in part the undisbursed portion of the Facility on the date specified in that notice (which shall be a date not earlier than thirty (30) days after the date of that notice); provided that the Borrower may request any such cancellation only once in any Fiscal Year.

(b) IFC shall, by notice to the Borrower, cancel the undisbursed portion of the Facility effective as of that specified date if, subject to Section 3.12 (d) above IFC has received all fees and other amounts accrued (whether or not then due and payable) under this Agreement up to such specified date; and

(c) Any portion of the Facility that is cancelled under this Section 3.13 may not be reborrowed.

Section 3.14. Taxes. (a) The Borrower shall pay or cause to be paid all Taxes other than taxes, if any, payable on the overall income of IFC on or in connection with the payment of any and all amounts due under this Agreement that are now or in the future levied or imposed by any Authority of Gabon, the United Kingdom or the United States of America or by any organization of which Gabon, the United Kingdom or the United States of the America is a member or any jurisdiction through or out of which a payment is made.

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

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

(d) If Section 3.14 (c) applies and IFC so requests, the Borrower shall deliver to IFC official tax receipts evidencing payment (or certified copies of them) within thirty (30) days of the date of that request.

Section 3.15. Expenses. (a) The Borrower shall pay or, as the case may be, reimburse IFC or its assignees on demand any amount paid by them on account of, all taxes (including stamp taxes), duties, fees or other charges payable on or in connection with the execution, issue, delivery, registration or notarization of the Transaction Documents and any other documents related to this Agreement or any other Transaction Document.

(b) The Borrower shall pay promptly, on demand, to IFC or as IFC may direct:

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ARTICLE IV

Representations and Warranties

Section 4.01. Representations and Warranties. The Borrower represents and warrants that:

(a) the Borrower is a company duly incorporated and validly existing under the laws of Delaware, and has the corporate power – and has obtained all required Authorizations – to own its assets, conduct its business as presently conducted and to enter into, and comply with its obligations under, the Transaction Documents to which it is a party or will, in the case of any Transaction Document not executed as at the date of this Agreement, when that Transaction Document is executed, have the corporate power to enter into, and comply with its obligations under, that Transaction Document;

(b) each Transaction Document to which the Borrower is a party has been, or will be, duly authorized and executed by the Borrower and constitutes, or will, when executed constitute, a valid and legally binding obligation of the Borrower, enforceable in accordance with its terms;

(c) neither the making of any Transaction Document to which the Borrower is a party nor (when all the Authorizations referred to in Section 5.01(d) (Conditions of Loans) have been obtained) the compliance with its terms will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default or require any consent under, any indenture, mortgage, agreement or other instrument or arrangement to which the Borrower is a party or by which it is bound, or violate any of the terms or provisions of the Borrower’s Charter or any Authorization, judgment, decree or order or any statute, rule or regulation applicable to the Borrower;

(d) to the best of the Borrower’s knowledge after due inquiry:

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(e) the Borrower’s Charter has not been amended since June 14, 1995;

(f) neither the Borrower nor any of its property enjoys any right of immunity from set-off, suit or execution with respect to its assets or its obligations under any Transaction Document;

(g) since December 31, 2004, the Borrower:

(h) the financial statements of the Borrower for the period ending on December 31, 2004:

(i) the Borrower is not a party to, or committed to enter into, any contract which would or might affect the judgment of a prospective investor other than the FPSO Contract;

(j) the Borrower has no outstanding Lien on any of its assets other than Liens arising by operation of law, and no contracts or arrangements, conditional or unconditional, exist for the creation by the Borrower of any Lien, except for the Security, security granted to IFC in connection with the Existing

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IFC Loan, and the Liens created pursuant to the FPSO Contract and the Etame Accounts Agreement;

(k) all tax returns and reports of the Borrower required by law to be filed have been duly filed and all Taxes, obligations, fees and other governmental charges upon the Borrower, or its properties, or its income or assets, which are due and payable or to be withheld, have been paid or withheld, other than those presently payable without penalty or interest;

(l) the Borrower is not engaged in nor, to the best of its knowledge after due inquiry, threatened by, any litigation, arbitration or administrative proceedings, the outcome of which could reasonably be expected to have a Material Adverse Effect;

(m) to the best of its knowledge and belief after due inquiry, the Borrower is not in violation of any statute or regulation of any Authority;

(n) no judgment or order has been issued which has or may reasonably be expected to have a Material Adverse Effect;

(o) (i) to the best of its knowledge and belief, after due inquiry, the Borrower is not in violation of any of the Agreed Environmental and Social Requirements; and

(p) neither Borrower nor Sponsor nor any of their respective Affiliates, nor any Person acting on its or their behalf, has made, with respect to the Project or any transaction contemplated by this Agreement, any Prohibited Payment;

(q) it is the Operator of the Project;

(r) it owns, solely in its own name, a working interest under the PSC equal to at least 30.35% during the exploration phase and at least 28.07% during the production phase, free and clear of all Liens (other than the Lien in favor of

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IFC in connection with the Existing IFC Loan) and any other interests of any other Person;

(s) all written information regarding the Borrower, the Sponsor, their respective Affiliates and the Project furnished to IFC prior to or contemporaneously herewith, by or on behalf of the Borrower, was and continues to be true and accurate (other than projections and other forward looking statements that the Borrower believes to be reasonable) and does not contain any information that is misleading in any material respect nor does it omit any information the omission of which makes the information contained in it misleading in any material respect;

(t) it is not incorporated or otherwise organized under the laws of, and does not have a registered office or place of business in, the United Kingdom;

(u) it is not engaged in any business activity outside the scope of the PSC;

(v) as of the date of this Agreement, neither the GOG nor any of its Authorities has exercised the GOG’s preference rights under Article 24 or Article 25 of the PSC and the Borrower has no reason to believe any such exercise is contemplated;

(w) except as specified in the Western Atlas Agreement or pursuant to the Production Sharing Contract, the Borrower has no partnership, profit-sharing or royalty agreement or other similar arrangement whereby the Borrower’s income or profits might be shared with any other Person;

(x) none of the representations and warranties in this Section 4.01 omits any matter the omission of which makes any of such representations and warranties misleading.

Section 4.02. IFC Reliance. The Borrower acknowledges that it makes the representations and warranties in Section 4.01 (Representations and Warranties) with the intention of inducing IFC to enter into this Agreement and that IFC enters into this Agreement on the basis of, and in full reliance on, each of such representations and warranties.

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ARTICLE V

Conditions of Loans

Section 5.01. Conditions of First Loan The obligation of IFC to make the First Loan is subject to the fulfillment prior to or concurrently with the making of that First Loan of the following conditions:

(a) the following agreements, together with any amendments to such agreements entered into after the date hereof, each in form and substance satisfactory to IFC, have been entered into by all parties to them and have become (or, as the case may be, remain) unconditional and fully effective in accordance with their respective terms (except for this Agreement having become unconditional and fully effective, if that is a condition of any of those agreements), and IFC has received a copy of each of those agreements to which it is not a party:

(b) IFC’s Security has been duly created and perfected as: (i) first ranking security interests in the VAALCO Accounts and the respective funds held therein; (ii) a security interest in all of the Borrower’s rights, title and interest (other than solely in its capacity as the Operator) in the Etame Revenue Account and the Etame Operating Account, subject to the interests of the GOG, and the Etame Trustee and Paying Agent to the extent expressly provided in the Etame Accounts Agreement; (iii) a security interest in all of the “Security Assets” (as defined in the Debenture), (iv) a first ranking pledge by VAALCO International of all of the Borrower’s shares; and (v) an assignment by way of security of all rights, title and interest in and to the Borrower’s share of Project-related insurance policies, reinsurance policies and any proceeds of any of them;

(c) the Borrower has obtained, and provided to IFC copies of, all Authorizations (including, without limitation, the MOF Loan Authorization and the MOH Loan Authorization) that are necessary as of the date of this Agreement for:

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and all those Authorizations are in full force and effect and in form and substance satisfactory to IFC;

(d) IFC has received a legal opinion satisfactory in form and substance to IFC, from Borrower’s counsel in Gabon relating to the transactions contemplated by this Agreement;

(e) IFC has received a legal opinion satisfactory in form and substance to IFC, from its special counsel on English law matters with regard to this Agreement and other Transaction Documents and Project Documents governed by English Law;

(f) IFC has received a legal opinion satisfactory in form and substance to IFC, from its special counsel in New York, New York, and concurred in by counsel for the Borrower and the Sponsor, with regard to this Agreement and other Transaction Documents and Project Documents;

(g) IFC has received a legal opinion satisfactory in form and substance to IFC, from Texas counsel for the Borrower and the Sponsor, with regard to this Agreement and the other Transaction Documents and the Project Documents;

(h) IFC has received copies of all insurance policies required to be obtained pursuant to Section 6.04 (Insurance) and Annex A prior to the date of First Loan, and a certification of the Borrower’s insurers or insurance agents confirming that such policies are in full force and effect and all premiums then due and payable under those policies have been paid;

(i) IFC has received, or has received irrevocable written instructions to deduct from the proceeds of the First Loan, the fees specified in Section 3.07

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(Fees) required to be paid before or on the date of the First Loan, as the case may be;

(j) if IFC so requires, IFC has received the reimbursement of all invoiced fees and expenses of IFC’s counsel as provided in Section 3.15 (b) (iv) (Expenses) or confirmation that those fees and expenses have been paid directly to that counsel;

(k) IFC has received a copy of the authorization to the Auditors referred to in Section 6.01(e) (Affirmative Covenants);

(l) IFC has received a Certificate of Incumbency and Authority;

(m) the Borrower has delivered to IFC evidence, substantially in the form of Schedule 4, of appointment of an agent for service of process pursuant to Section 8.05 (d) (Applicable Law and Jurisdiction);

(n) the Existing IFC Loan, together with all interest, prepayment fees and other amounts payable with respect thereto, shall have been fully repaid, or IFC shall have received irrevocable written instructions to deduct from the proceeds of the First Loan, an amount equal to all principal, interest and other amounts outstanding under or in respect to the Existing IFC Loan;

(o) the Borrower has delivered to IFC a letter confirming, inter alia, that (i) the Borrower is in compliance with all of its material obligations under the Production Sharing Contract, and (ii) there are no material disputes relating to the Production Sharing Contract, which letter shall be in form and substance satisfactory to IFC; and

(p) the Borrower has delivered to IFC evidence reasonably satisfactory to it confirming that its branch office registration in Gabon is in full force and effect and that it is duly maintaining such branch office.

Section 5.02. Conditions of All Loans. The obligation of IFC to make any Loan, including the First Loan, and any Rollover Loan, is also subject to the conditions that:

(a) no Event of Default or Potential Event of Default has occurred and is continuing or will occur on making such Loan;

(b) in respect of any Loan which is not a Rollover Loan, the proceeds of that Loan are, at the date of the relevant request, needed by the Borrower for the purpose of the Project, or will be needed for that purpose within six (6) months of that date or are needed to reimburse the Borrower for costs incurred in connection with the Project;

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(c) since the date of this Agreement, nothing has occurred and is continuing that has or can reasonably be expected to have a Material Adverse Effect;

(d) since the date of its most recent financial statements, the Borrower has not incurred any material loss or liability (except such liabilities as may be incurred in accordance with Section 6.02 (Negative Covenants ));

(e) the representations and warranties made in Article IV are true and correct in all material respects on and as of the date of that Loan with the same effect as if those representations and warranties had been made on and as of the date of that Loan (but in the case of Section 4.01 (c) (Representations and Warranties), without the words in parentheses);

(f) the proceeds of that Loan are not in reimbursement of, or to be used for, expenditures in the territories of any country which is not a member of the World Bank or for goods produced in or services supplied from any such country;

(g) IFC has received (if it so requires) a legal opinion or opinions in form and substance satisfactory to IFC, of IFC’s counsel in Gabon, New York, New York, London, England and/or Texas, and concurred in by counsel for the Borrower in the relevant jurisdiction(s), with respect to any matters relating to that Loan;

(h) after giving effect to that Loan, the Borrower would not be in violation of:

(i) the representations and warranties made by the Sponsor and VAALCO International, respectively, in Section 20.01 of the Subordination and Share Retention Agreement and Section 3.01 of the Pledge of Shares,

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respectively, are true and correct in all material respects on and as of the date of that Loan with the same effect as if those representations and warranties had been made on and as of the date of that Loan; and

(j) following the making of the Loan, including any Rollover Loan, the aggregate outstanding amount of all Loans under the Facility shall not exceed the Available Amount and the Borrower’s Interest Cover (for the current Calculation Period, and if the date of the Loan falls during the last two Fiscal Quarters of any year, the next Calculation Period as well), LOF and LOL shall not be less than the Minimum Levels. If IFC so requires in connection with any Loan (including any Rollover Loan), the Borrower shall provide to IFC an updated IFC Base Case confirming the above.

Section 5.03. Borrower’s Certification.

(a) Except as provided for in Section 5.03(b), the Borrower shall deliver to IFC with respect to each request for Loan:

(b) In the case of any Rollover Loan, except where the Borrower makes a specific representation or where certifications or evidence is requested by IFC pursuant to Section 5.03(a) above, the Borrower shall deemed to have provided such certifications as of the date of such Rollover Loan.

Section 5.04. Conditions for IFC Benefit. The conditions in Section 5.01 through Section 5.03 are for the benefit of IFC and may be waived only by IFC in its sole discretion.

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ARTICLE VI

Particular Covenants

Section 6.01. Affirmative Covenants. Unless IFC otherwise agrees, the Borrower shall:

(a) carry out the Project and conduct its business with due diligence and efficiency and in accordance with (i) good international oil industry practices and standards; (ii) sound financial and business practices generally accepted in the international oil industry; (iii) the Development Plan(s) and approved work programs; and (iv) all applicable laws and regulations;

(b) cause the Loans to be applied exclusively to the Project;

(c) maintain an accounting and control system, management information system and books of account and other records, which together adequately reflect truly and fairly the financial condition of the Borrower and the results of its operations in conformity with the Accounting Principles;

(d) maintain at all times a firm of internationally recognized independent public accountants acceptable to IFC as auditors of the Borrower;

(e) irrevocably authorize, in the form of Schedule 5, the Auditors (whose fees and expenses shall be for the account of the Borrower) to communicate directly with IFC at any time regarding the Borrower’s accounts and operations, and provide to IFC a copy of that authorization, and, no later than thirty (30) days after any change in Auditors, issue a similar authorization to the new Auditors and provide a copy thereof to IFC;

(f) upon IFC’s request, such request to be made with reasonable prior notice to the Borrower, except if an Event of Default or Potential Event of Default is continuing or if special circumstances so require, permit representatives of IFC, during normal office hours, to:

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(g) design, construct, operate, maintain and monitor all of its sites, plant, equipment and facilities in accordance with the Agreed Environmental and Social Requirements;

(h) within not less than 180 days from the date of this Agreement, prepare and establish an ESMS acceptable to IFC;

(i) update the Environmental Plans in the ESMS, from time to time, in a manner consistent the Agreed Environmental and Social Requirements;

(j) from time to time, execute, acknowledge and deliver or cause to be executed, acknowledged and delivered such further instruments as may reasonably be requested by IFC for perfecting or maintaining in full force and effect the Security or for re-registering the Security or otherwise to enable the Borrower to comply with its obligations under the Transaction Documents;

(k) (i) obtain and maintain in force (and where appropriate, renew in a timely manner) all Authorizations (including, without limitation, any Authorizations from any Authority of the GOG and/or CEMAC) that are necessary for the implementation of the Project, the carrying out of the Borrower’s business and operations generally and the compliance by the Borrower with all its obligations under the Transaction Documents and the Project Documents; and

(l) enter into and maintain in effect at all times a Marketing Contract relevant for the sale of production from the Etame Block Fields in a form satisfactory to IFC, and deliver to IFC a signed copy of such Marketing Contract in effect from time to time;

(m) pay all royalties and all Taxes including license and other fees, which are properly assessed against it, not later than the due date therefor;

(n) maintain at all times, the Interest Cover, LOL and LOF for the current Calculation Period (and during the last two Fiscal Quarters of any Fiscal

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Year, the next Calculation Period as well) at or above the Minimum Levels and the Debt to Equity Ratio at or below 50:50;

(o) ensure that the funds in the VAALCO Accounts are used only as permitted in accordance with the Transaction Documents and that the funds in the Etame Accounts are used only as permitted in accordance with the Etame Accounts Agreement;

(p) consult with IFC prior to the appointment by the Borrower of an expert or arbitrator pursuant to the provisions of any Project Document to resolve any disputes referred to in Section 6.03 (j);

(q) make the ERS or, as appropriate, information contained in the ERS, available to all those who request it from the Borrower;

(r) periodically review the form of the Annual Monitoring Report and advise IFC as to whether modification of the form is necessary based on any changes in the Project, and/or revise the form as agreed with or requested by IFC;

(s) at all times duly maintain (i) its corporate existence in the State of Delaware; and (ii) any qualifications for doing business in Gabon and Texas under the laws of Gabon and Texas, respectively, and comply, in a timely manner, with all the laws applicable to it;

(t) ensure that any interest rate of any Subordinated Debt shall not, at any time, be higher than the interest rate specified in respect of the Loan under this Agreement;

(u) contemporaneously with the execution of this Agreement, provide the Sponsor and the VAALCO Accounts Bank with a copy of this Agreement;

(v) in the event the GOG or any of its Authorities elects to exercise its preference rights under Article 24 and/or Article 25 of the PSC, ensure that any payments made by the GOG and/or its Authorities, following the exercise of such rights, are paid to the Etame Revenue Account or, if required to be paid elsewhere, are transferred promptly to the Etame Revenue Account;

(w) comply with all of its obligations under the Project Documents and at all times maintain and enforce its rights under the Project Documents;

(x) other than as required under Section 35 of the PSC, export its entire share (other than solely in its capacity as the Operator) of the oil produced from the Etame Block Fields and receive Dollar-denominated sales proceeds therefor;

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(y) ensure adequate segregation of costs including financing thereof incurred in connection with the Project and any other activity for the purpose of the books of account and other records in conformity with applicable law, the PSC, the JOA and any other relevant agreement and in accordance with the Accounting Principles;

(z) prior to the election by any Project Partner to take any of its share of oil production from the Etame Block Fields in kind, ensure that such Project Partner has (i) entered into an agreement with the Operator that provides, inter alia, that all proceeds from the sale of such oil are deposited directly into the Etame Revenue Account, such agreement to be satisfactory in form and substance to IFC, or (ii) entered into such other arrangements with the Operator as shall be acceptable to IFC, acting reasonably, to ensure that such Project Partner is able to fulfill its direct or indirect obligations under or in connection with any Material Contracts; provided that for avoidance of doubt, the arrangements in place as of the date of this Agreement in respect of PanAfrican Etame, Inc. shall be deemed to fulfill the requirements of this subclause (ii); and

(aa) publicly disclose, annually the Borrower’s share of all payments made to local, regional or central governmental Authorities, unless such disclosure has already been made by the respective Authorities.

Section 6.02. Negative Covenants. Unless IFC otherwise agrees, the Borrower shall not:

(a) make any Restricted Payments:

provided always that if the Borrower is permitted to make any Restricted Payments pursuant to this Section 6.02 (a), such Restricted Payments shall be made in accordance with the terms of the VAALCO Accounts Agreement;

(b) incur expenditures or commitments for expenditures for fixed or other non-current assets, other than those required for carrying out the Project or necessary for repairs, replacements and maintenance of satisfactory operating conditions that are essential to the Borrower’s business or operations unless (i) after incurring such expenditure or commitment for expenditure, any of the LOF

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or the LOL shall fall below the Minimum Levels, and (ii) if such expenditures are not included in the IFC Base Case updated as of the most recent Calculation Date, unless those expenditures or commitments do not exceed an aggregate amount equivalent to one million Dollars ($1,000,000) in the relevant Calculation Period;

(c) incur, assume or permit to exist any Debt except:

(d) enter into any agreement or arrangement to lease any property or equipment of any kind, except the FPSO Contract and leases of land/buildings and equipment, as necessary to carry on the Borrower’s business and operate the Project;

(e) enter into any Derivative Transaction or assume the obligations of any party to any Derivative Transaction unless the Derivative Transaction is consistent with a hedging program previously approved by IFC, which approval shall not be unreasonably withheld;

(f) enter into any agreement or arrangement to guarantee or, in any way or under any condition, assume or become obligated for all or any part of any financial or other obligation of another Person except as required by the terms of the JOA;

(g) create or permit to exist any Lien on any property, revenues or other assets, present or future, of the Borrower, except for:

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(h) enter into any transaction except in the ordinary course of business on the basis of arm’s-length arrangements (including, without limitation, transactions whereby the Borrower might pay more than the ordinary commercial price for any purchase or might receive less than the full ex-works commercial price (subject to normal trade discounts) for its products);

(i) establish any sole and exclusive purchasing or sales agency;

(j) enter into any partnership, profit-sharing or royalty agreement or other similar arrangement whereby the Borrower’s income or profits are, or might be, shared with any other Person;

(k) enter into any management contract or similar arrangement whereby its business or operations are managed by any other Person;

(l) form or have any Subsidiary;

(m) make or permit to exist loans or advances to, or deposits (except commercial bank deposits in the ordinary course of business) with, other Persons or investments in any Person or enterprise other than as permitted by the VAALCO Accounts Agreement, the Etame Accounts Agreement and Section 4.8 of the JOA and the Accounting Procedures set forth in Exhibit “A” to the JOA;

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(n) change its Charter in any manner which would be inconsistent with the provisions of any Transaction Document;

(o) change its Fiscal Year;

(p) change in any material way the nature or scope of the Project or change the nature of its present or contemplated business or operations;

(q) sell, transfer, lease or otherwise dispose of all or a substantial part of its assets, other than inventory, whether in a single transaction or in a series of transactions, related or otherwise other than assets that have been worn out or are obsolete and are replaced or upgraded or that are no longer required for the purposes of carrying out the Project, in each case in the ordinary course of business and in a manner consistent with the Transaction Documents;

(r) undertake or permit any merger, spin-off, consolidation or reorganization;

(s) terminate, amend or grant any waiver with respect to any provision of any Project Document; provided that the Borrower may from time to time amend or grant waivers with respect to (i) provisions of a Project Document (other than the PSC, JOA and the Etame Accounts Agreement) if necessary for the implementation and safe and efficient operation of the Project so long as such amendments or waivers have no Material Adverse Effect and do not change any material provisions such as the parties to such Project Documents, pricing and payment and term, etc.; and (ii) provisions of the PSC and/or the JOA solely for the purposes of effectuating a permitted transfer of interests thereunder by one of the other Project Partners but in no event by the Borrower;

(t) use the proceeds of any Loan in the territories of any country which is not a member of the World Bank or for reimbursements of expenditures in those territories or for goods produced in or services supplied from any such country;

(u) engage in any business activity outside the scope of the PSC and with respect to activities within the scope of the PSC, any business activity that might hinder the completion and normal operations of the Project or the Borrower’s ability to perform fully its obligations under the Transaction Documents and Project Documents;

(v) make (and shall not authorize or permit any Affiliate or any other Person, acting on its behalf to make) with respect to the Project or any transaction contemplated by this Agreement, any Prohibited Payment. The Borrower further covenants that should IFC notify the Borrower of its concerns that there has been a violation of the provisions of this Section or of Section 4.01 (p) of this

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Agreement, it shall cooperate in good faith with IFC and its representatives in determining whether such a violation has occurred, and shall respond promptly and in reasonable detail to any notice from IFC, and shall furnish documentary support for such response upon IFC’s request;

(w) reduce its working interest under the PSC below 30.35% during the exploration phase and below 28.07% during the production phase; and

(x) create or permit to exist any Lien on the Houston Account.

Section 6.03. Reporting Requirements. Unless IFC otherwise agrees, the Borrower shall:

(a) as soon as available but in any event within sixty (60) days after the end of each Fiscal Quarter, deliver to IFC:

(b) as soon as available but in any event within ninety (90) days after the end of each Fiscal Year, deliver to IFC:

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(c) deliver to IFC, promptly following receipt, a copy of any management letter or other communication sent by the Auditors (or any other accountants retained by the Borrower) to the Borrower or its management in relation to the Borrower’s financial, accounting and other systems, management or accounts, if not provided pursuant to Section 6.03 (b) (ii);

(d) within ninety (90) days after the end of each Fiscal Year, deliver to IFC an Annual Monitoring Report, confirming compliance with the applicable national or local requirements and the Agreed Environmental and Social Requirements, together with the action being taken to ensure compliance;

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(e) as soon as possible but no later than three (3) days after its occurrence, notify IFC by facsimile of any incident or accident which has or may reasonably be expected to have an adverse effect on the environment, health or safety, including, without limitation, explosions, spills or workplace accidents which result in death, serious or multiple injury or major pollution, specifying, in each case, the nature of the incident or accident, the on-site and off-site impacts arising or likely to arise therefrom and the measures the Borrower is taking or plans to take to address those impacts; and keep IFC informed of the on-going implementation of those measures;

(f) give notice to IFC, concurrently with the Borrower’s notification to its stockholders, of any meeting of its stockholders, such notice to include the agenda of the meeting; and, as soon as available, deliver to IFC two (2) copies of:

(g) give notice to IFC of any meetings of the Operating Committee and the Technical Committee (as each such term is defined in the JOA) and the Technical Consulting Committee (as such term is defined in PSC); and, as soon as available, deliver to IFC two (2) copies of:

(h) deliver copies to IFC of all Development Plans, Work Programs and Budgets (as such term is defined in the JOA) for the Etame Block or Etame Block Fields approved by the Operating Committee pursuant to the JOA and all EIA(s) in relation to the Project;

(i) promptly notify IFC of any proposed change in the nature or scope of the Project or the business or operations of the Borrower and of any event or condition which has or may reasonably be expected to have a Material Adverse Effect;

(j) promptly upon becoming aware of (i) any litigation or administrative proceedings before any Authority or arbitral body to which the

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Borrower is or may become a party; (ii) any material dispute with any Authority or any other Project Partner; (iii) any technical or other material disputes with any other third party under any Project Document; or (iv) the occurrence of any event of force majeure under any Project Document, notify IFC by facsimile of that event specifying the nature of that litigation, the proceedings or the event and the steps the Borrower is taking or proposes to take with respect thereto;

(k) promptly upon the occurrence of an Event of Default or Potential Event of Default, notify IFC by facsimile specifying the nature of that Event of Default or Potential Event of Default and any steps the Borrower is taking to remedy it;

(l) provide to IFC, in a timely manner, the insurance certificates and other information referred to in Section 6.04 (d) (Insurance);

(m) provide to IFC a Reserve Certification, at the Borrower’s expense, within sixty (60) days of the end of each Fiscal Year and, from time to time but no more than two (2) times per Fiscal Year, as otherwise reasonably requested by IFC, provided that:

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(n) within ninety (90) days of the end of each Fiscal Year, provide IFC with a copy of the IFC Base Case in accordance with Section 6.05;

(o) promptly notify IFC if (i) the GOG or any of its Authorities notifies the Borrower that the GOG is exercising its preference rights under Article 24 and/or Article 25 of the PSC or (ii) the Borrower has reason to believe the GOG and/or any of its Authorities intends to exercise such rights; and

(p) promptly provide to IFC such other information as IFC from time to time requests about the Borrower, its assets and the Project.

Section 6.04. Insurance.

(a) Insurance Requirements and Borrower’s Undertakings. Unless IFC otherwise agrees, the Borrower shall:

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provided always that if at any time and for any reason any insurance required to be maintained under this Agreement shall not be in full force and effect, then IFC shall thereupon or at any time while the same is continuing be entitled (but have no such obligation) on its own behalf to procure such insurance at the expense of the Borrower and to take all such steps to minimize hazard as IFC may consider expedient or necessary.

(b) Policy Provisions. Each insurance policy required to be obtained pursuant to this Section 6.04 shall be in English language, be on terms and conditions acceptable to IFC, and shall contain cut-through provisions, and assignment of reinsurance proceeds with respect to insurance governed by Gabon law, together with provisions to the effect that:

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(c) Application of Proceeds.

(d) Reporting Requirements. Unless IFC otherwise agrees, the Borrower shall provide to IFC the following:

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Section 6.05. IFC Base Case. The IFC Base Case shall be prepared in a manner acceptable to IFC, and the Net Cash Flow and the Relevant Figures determined as of and from the most recent Calculation Date, in accordance with the IFC Base Case Assumptions, the latest Reserve Certification and other relevant information, and submitted by the Borrower to IFC within ninety days (90) days of the end of each Fiscal Year, subject to the provisions of Section 6.03(m), and at any time requested by IFC, including, without limitation on or prior to any Interest Payment Date.

ARTICLE VII

Events of Default

Section 7.01. Acceleration after Default. If any Event of Default occurs and is continuing (whether it is voluntary or involuntary, or results from operation of law or otherwise), IFC may, by notice to the Borrower, require the Borrower to repay the Loans or such part of the Loans as is specified in that notice. On receipt of any such notice, the Borrower shall immediately repay the Loans (or that part of the Loans specified in that notice) and pay all interest accrued on them, and any other amounts then payable under this Agreement. The Borrower waives any right it might have to further notice, presentment, demand or protest with respect to that demand for immediate payment.

Section 7.02. Events of Default. It shall be an Event of Default if:

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(a) the Borrower fails to pay when due any part of the principal of, or interest on, any Loan or any fees payable in connection therewith and such failure continues for a period of five (5) days;

(b) the Borrower fails to pay when due any part of the principal of, or interest on, any loan from IFC to the Borrower other than the Loans and any such failure continues for the relevant period of grace provided for in the agreement providing for that loan;

(c) the Borrower fails to comply with any of its obligations under this Agreement or any other Transaction Document or any other agreement between the Borrower and IFC (other than as set out in subsections (a) and (b) or as expressly addressed in this Section 7.02 below), and any such failure continues for a period of thirty (30) days after the date on which IFC notifies the Borrower of that failure or, if earlier, the date on which the Borrower becomes aware of such failure;

(d) any party to a Transaction Document (other than IFC or the Borrower) fails to observe or perform any of its obligations under that Transaction Document, and any such failure continues for a period of thirty (30) days after the date on which IFC notifies the Borrower of that failure or, if earlier, the date on which the Borrower becomes aware of such failure;

(e) any representation or warranty made in Article IV or in connection with the execution of, or any request (including a request for a Loan, or in respect of a Rollover Loan, a deemed request) under, this Agreement or any other Transaction Document is found to be incorrect in any material respect;

(f) any Authority condemns, nationalizes, seizes, or otherwise expropriates all or any substantial part of the property or other assets of the Borrower or of its capital stock, or assumes custody or control of that property or other assets or of the business or operations of the Borrower or of its capital stock, or takes any action for the dissolution or disestablishment of the Borrower or any action that would prevent the Borrower or its officers from carrying on all or a substantial part of its business or operations;

(g) the Borrower:

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(h) an order is made or an effective resolution passed or analogous proceedings taken for the Borrower’s winding up, bankruptcy or dissolution or a petition is presented or analogous proceedings taken for the winding up or dissolution of the Borrower;

(i) the beneficiary of any Lien lawfully takes possession, or a liquidator, judicial custodian, receiver, administrative receiver or trustee or any analogous officer is appointed, of the whole or any material part of the undertaking or assets of the Borrower or an attachment, sequestration, distress or execution (or analogous process) is levied or enforced upon or issued against any of the assets or property of the Borrower for an amount in excess of the equivalent of five hundred thousand Dollars ($500,000) and is not discharged within thirty (30) days; or

(j) any other event occurs which under any applicable law would have an effect analogous to any of those events listed in Section 7.02 (g), Section 7.02 (h) and Section 7.02 (i);

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

(l) any Authorization necessary for the Borrower to perform and observe its obligations under any Transaction Document, or to carry out the Project, is not obtained when required or is rescinded, terminated, lapses or otherwise ceases to be in full force and effect, including with respect to the remittance to IFC or its assignees, in Dollars, of any amounts payable under any Transaction Document, and is not restored or reinstated within thirty (30) days of notice by IFC to the Borrower requiring that restoration or reinstatement;

(m) any Security Document or any of its provisions:

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(n) any Transaction Document (other than a Security Document) or any of its provisions:

(o) any Transaction Document (other than a Security Document) is repudiated or the validity or enforceability of any of its provisions at any time is challenged by any Person and such repudiation or challenge is not withdrawn within thirty (30) days of IFC’s notice to the Borrower requiring that withdrawal; provided that no such notice shall be required or, as the case may be, the notice period shall terminate if and when such repudiation or challenge becomes effective;

(p) any Project Document;

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(q) the Borrower ceases to be the Operator of the Project and the Person designated as the Operator is not acceptable to IFC;

(r) the Borrower’s right to participate in the Etame Block or the Etame Block Fields is revoked;

(s) Control of the Borrower is transferred to any Person without the consent of IFC, provided such consent shall not be unreasonably withheld if the proposed transferee has a proven technical record in the international oil industry, if relevant, sound financial standing and, in IFC’s reasonable judgment, a good reputation;

(t) the Borrower, the Sponsor and/or any of their respective Affiliates has been found by a judicial process or other official inquiry to have offered or given something of value to influence the action of an Official, or to have threatened injury to person, property or reputation, in connection with the Project in order to obtain or retain business or other improper advantage in the conduct of business;

(u) a final judgment, order or arbitral award for the payment of money in excess of the equivalent of five hundred thousand Dollars ($500,000) is rendered against the Borrower or any of its properties and that judgment, order or arbitral award continues to be unsatisfied for a period of thirty (30) days;

(v) the Borrower ceases to carry on its business; or the Project is abandoned by the Borrower or, all or a significant part of the operations of the Project or in the Etame Block is interrupted for more than 180 consecutive days;

(w) any of the events specified in Section 7.02 (g) through (k) or in Section 7.02 (u) occur to the Sponsor or VAALCO International, or any of their respective properties, assets or share capital; provided that, in the case of Section 7.02 (k) and Section 7.02 (u), such event shall only be an Event of Default if the aggregate amount of the unpaid Debt or the final judgment, order or award, as the case may be, exceeds one million Dollars ($1,000,000) or its equivalent;

(x) there occurs any amendment, waiver or termination of the Etame Accounts Agreement without IFC’s prior written consent,

Section 7.03. Bankruptcy. If the Borrower is liquidated or declared bankrupt, the Loan, all interest accrued on it and any other amounts payable under this Agreement will become immediately due and payable without any presentment, demand, protest or notice of any kind, all of which the Borrower waives.

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ARTICLE VIII

Miscellaneous

Section 8.01. Saving of Rights. (a) The rights and remedies of IFC in relation to any misrepresentation or breach of warranty on the part of the Borrower shall not be prejudiced by any investigation by or on behalf of IFC into the affairs of the Borrower, by the execution or the performance of this Agreement or by any other act or thing which may be done by or on behalf of IFC in connection with this Agreement and which might, apart from this Section, prejudice such rights or remedies.

(b) No course of dealing or waiver by IFC in connection with any condition of any Loan under this Agreement shall impair any right, power or remedy of IFC with respect to any other condition of any Loan, or be construed to be a waiver thereof; nor shall the action of IFC with respect to any Loan affect or impair any right, power or remedy of IFC with respect to any other Loan.

(c) Unless otherwise notified to the Borrower by IFC and without prejudice to the generality of Section 8.01 (b), the right of IFC to require compliance with any condition under this Agreement which may be waived by IFC with respect to any Loan is expressly preserved for the purposes of any subsequent or other Loan.

(d) No course of dealing and no failure or delay by IFC in exercising, in whole or in part, any power, remedy, discretion, authority or other right under this Agreement or any other agreement shall waive or impair, or be construed to be a waiver of or an acquiescence in, such or any other power, remedy, discretion, authority or right under this Agreement, or in any manner preclude its additional or future exercise; nor shall the action of IFC with respect to any default, or any acquiescence by it therein, affect or impair any right, power or remedy of IFC with respect to any other default.

Section 8.02. Notices. (a) Any notice, request or other communication to be given or made under this Agreement shall be in writing. Subject to Sections 6.03 (e), (j) and (k) (Reporting Requirements) and Section 8.05 (j) (Applicable Law and Jurisdiction), any such communication may be delivered by hand, airmail, facsimile or established courier service to the party’s address specified below (or at such other address as such party notifies to the other party from time to time) and will be effective upon receipt.

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For the Borrower:

VAALCO Gabon (Etame), Inc.

4600 Post Oak Place

Suite 309

Houston, TX 77027

United States of America.

Facsimile: 713-623-0982

Attention: President

For IFC:

International Finance Corporation

2121 Pennsylvania Avenue, N.W.

Washington, D.C. 20433

United States of America

Facsimile: (202) 974-4322

Attention: Director, Oil, Gas, Mining and Chemicals Department

With a copy (in the case of communications relating to payments) sent to the attention of the Senior Manager, Financial Operations Unit, at:

Facsimile: 202-974-4371.

(b) The Borrower shall ensure that any notices delivered pursuant to a Project Document that are to be provided to IFC, either directly or through the Borrower, shall be delivered by one of the methods specified in Section 8.02 (a).

Section 8.03. English Language. (a) All documents to be provided or communications to be given or made under this Agreement shall be in the English language.

(b) To the extent that the original version of any document to be provided, or communication to be given or made, to IFC under this Agreement or any other Transaction Document is in a language other than English, that document or communication shall be accompanied by an English translation certified by an Authorized Representative to be a true and correct translation of

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the original. IFC may, if it so requires, obtain an English translation of any document or communication received in another language other than English at the cost and expense of the Borrower. IFC may deem any such English translation to be the governing version between the Borrower and IFC.

Section 8.04. Term of Agreement. This Agreement shall continue in force until all monies payable under it have been fully paid in accordance with its provisions.

Section 8.05. Applicable Law and Jurisdiction. (a) This Agreement is governed by and shall be construed in accordance with the laws of England.

(b) For the exclusive benefit of IFC, the Borrower irrevocably agrees that any legal action, suit or proceeding arising out of or relating to this Agreement or any other Transaction Document to which the Borrower is a party may be brought in the courts of England. By the execution of this Agreement, the Borrower irrevocably submits to the non-exclusive jurisdiction of such courts in any such action, suit or proceeding. Final judgment against the Borrower in any such action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction, including Gabon and Delaware, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the judgment, or in any other manner provided by law.

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

(d) The Borrower hereby irrevocably designates, appoints and empowers the Chief Executive and the Head of the Litigation Group of Bird & Bird located at 90 Fetter Lane, London EC4A 1JP (reference VAAEN.0001), as its authorized agent solely to receive for and on its behalf service of the writ of summons or other legal process in any action, suit or proceeding arising out of or relating to this Agreement or any Transaction Document which IFC may bring in the courts of England.

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

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(f) The Borrower irrevocably waives:

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

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

(i) To the extent that the Borrower may, in any suit, action or proceeding brought in any of the courts referred to in Section 8.05 (b) or a court of Gabon, Delaware or elsewhere arising out of or in connection with this Agreement or any other Transaction Document to which the Borrower is a party, be entitled to the benefit of any provision of law requiring IFC in such suit, action or proceeding to post security for the costs of the Borrower, or to post a bond or to take similar action, the Borrower hereby irrevocably waives such benefit, in each case to the fullest extent now or in the future permitted under the laws of Gabon, Delaware or, as the case may be, the jurisdiction in which such court is located.

(j) The Borrower also irrevocably consents, if for any reason the Borrower’s authorized agent for service of process of summons, complaint and other legal process in any action, suit or proceeding is not present in England, to service of such papers being made out of those courts by mailing copies of the papers by registered air mail, postage prepaid, to the Borrower at its address specified pursuant to Section 8.02 (Notices). In such a case, IFC shall also send by facsimile, or have sent by facsimile, a copy of the papers to the Borrower.

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Section 8.06. Disclosure of Information. (a) IFC may disclose any documents or records of, or information about, this Agreement or any other Transaction Document, or the assets, business or affairs of the Borrower to:

(b) The Borrower acknowledges and agrees that, notwithstanding the terms of any other agreement between the Borrower and IFC, a disclosure of information by IFC in the circumstances contemplated by Section 8.06 (a) does not violate any duty owed to the Borrower under this Agreement or under any such other agreement.

Section 8.07. Successors and Assignees. This Agreement binds and benefits the respective successors and assignees of the parties. However, the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior consent of IFC.

Section 8.08. Amendments, Waivers and Consents. Any amendment or waiver of, or any consent given under, any provision of this Agreement shall be in writing and, in the case of an amendment, signed by the parties.

Section 8.09 Counterparts. This Agreement may be executed in several counterparts, each of which is an original, but all of which together constitute one and the same agreement.

Section 8.10. Severability. To the fullest extent permitted by law, the invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of any other provision hereof in such jurisdiction or of such or any other provision in any other jurisdiction.

Section 8.11. Rights of Third Parties. A Person who is not a party to this Agreement has no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce or enjoy the benefit of any term of this Agreement.

[The remainder of this page was left blank intentionally]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed in their respective names as of the date first above written.

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ANNEX A

Page 1 of 6

MINIMUM INSURANCE REQUIREMENTS

The Borrower shall effect and maintain the following insurance covers, at all times during the period of the Loan Agreement, under forms of policies and with insurers and reinsurers acceptable to IFC, in the following terms:

covering imports (and returns if applicable) of plant, equipment, machinery and materials to the Project site;

Cover is to be on the basis of Institute Cargo Clauses (A) plus War, plus Strike, Riot and Civil Commotion and should include a minimum of 60 days of storage on site.

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A. COVERAGE:

B. SUM INSURED/LIMIT OF LIABILITY

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C. DEDUCTIBLES AND/OR EXCESS:

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For construction and operational periods, third party liability insurances with a minimum limit of indemnity of US$10,000,000 and shall include full cross liabilities.

Other insurance which,

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FORM OF SERVICE OF PROCESS LETTER

[Letterhead of Agent for Service of Process]

(See Section 5.01 (m) of the Loan Agreement)

[Date]

International Finance Corporation

2121 Pennsylvania Avenue, N.W.

Washington, D.C. 20433

Attention: Director, Oil, Gas and Chemicals Department

Re: [Gabon/                    ]

Dear Sirs:

Reference is made to Section 5.01(m) of the Loan Agreement dated June     , 2005 (the “Loan Agreement”) between VAALCO Gabon (Etame), Inc. (the “Borrower”) and International Finance Corporation (“IFC”). Unless otherwise defined herein, capitalized terms used herein shall have the meaning specified in the Loan Agreement.

Pursuant to Section 8.05 (d) of the Loan Agreement, the Borrower has irrevocably designated and appointed the undersigned,                              with offices currently located at                                          as its authorized agent to receive for and on its behalf service of process in any legal action or proceeding with respect to the Loan Agreement and the other Transaction Documents to which it is a party in the courts of England.

The undersigned hereby informs you that it has irrevocably accepted that appointment as process agent as set forth in Section 8.05 (d) of the Loan Agreement from                              until                              and agrees with you that the undersigned (i) shall inform IFC promptly in writing of any change of its address in                             , (ii) shall perform its obligations as such process agent in accordance with the relevant provisions of Section 8.05 (e) of the Loan Agreement, and (iii) shall forward promptly to the Borrower any legal process received by the undersigned in its capacity as process agent.

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As process agent, the undersigned and its successor or successors agree to discharge the above-mentioned obligations and will not refuse fulfillment of such obligations as provided under Section 8.05 (e) of the Loan Agreement.

cc: VAALCO Gabon (Etame), Inc.

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FORM OF LETTER TO BORROWER’S AUDITORS

(See Section 5.01(k) and Section 6.01(e) of

the Loan Agreement)

[Borrower’s Letterhead]

[Date]

[NAME OF AUDITORS]

[ADDRESS]

Ladies and Gentlemen:

We hereby authorize and request you to give to International Finance Corporation of 2121 Pennsylvania Avenue, N.W., Washington, D.C. 20433, United States of America (“IFC”), all such information as IFC may reasonably request with regard to the financial statements of the undersigned company, both audited and unaudited. We have agreed to supply that information and those statements under the terms of an Loan Agreement between the undersigned company and IFC dated                             ,                  (the “Loan Agreement”). For your information we enclose a copy of the Loan Agreement.

We authorize and request you to send two copies of the audited accounts of the undersigned company to IFC to enable us to satisfy our obligation to IFC under Section 6.03 (b) (i) of the Loan Agreement. When submitting the same to IFC, please also send, at the same time, a copy of your full report on such accounts in a form reasonably acceptable to IFC.

Please note that under Section 6.03 (b) (ii) and (iii) and Section 6.03 (c) of the Loan Agreement, we are obliged to provide IFC with:

(a) a copy of the annual and any other management letter or other communication from you to the undersigned company or its management commenting on, among other things, the adequacy of the undersigned company’s financial control procedures and accounting and management information system; and

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(b) a report by you certifying that, based upon its audited financial statements, the undersigned company was in compliance with the financial ratios and financial covenants contained in Sections 6.01 and 6.02 of the Loan Agreement as at the end of the relevant Fiscal Year or, as the case may be, detailing any non-compliance.

Please also submit each such communication and report to IFC with the audited accounts.

For our records, please ensure that you send to us a copy of every letter which you receive from IFC immediately upon receipt and a copy of each reply made by you immediately upon the issue of that reply.

Enclosure

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INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF

OPERATIONS

(See Section 6.03 (b) (iv) of the Loan Agreement)