WI, INC.

10011 Meadowglen
Houston, Texas 77042
P.O. Box 1147
Houston, Texas 77251
Tel 713-972-6800
Fax 713-972-6801

January 22,1997

CONFIDENTIAL

Vaalco Energy, Inc.
Vaalco Energy (Gabon), Inc.
Vaalco Gabon (Etame), Inc.

Attention: Virgil A. Waiston, Chief Operating Officer

Gentlemen:

This letter is intended to summarize the principal terms of a proposal by WI,
Inc. ("WI") regarding the possible acquisition of an undivided sixty-five
percent (65%) interest in the production sharing contract dated July 7, 1995
(the "PSC") for the Etame Permit (the "Contract Area") entered into between the
Republic of Gabon (the "State"), of the first part, and Vaalco Gabon (Etame),
Inc. ("Vaalco Etame") and Vaalco Energy (Gabon), Inc. ("Vaalco Gabon"), of the
second part (the "Proposed Transaction"). Vaalco Etame and Vaalco Gabon are
wholly-owned subsidiaries of Vaalco Energy, Inc. ("Vaalco Energy", Vaalco Etame.
Vaalco Gabon and Vaalco Energy are sometimes collectively referred to in this
letter as the "Vaalco Parties").

If this proposal is acceptable to the Vaalco Parties, this letter will evidence
the mutual intentions of the Vaalco Parties, on the one part, and of WI, on the
other part, to proceed diligently to negotiate the terms and conditions of a
participation agreement (the "Participation Agreement")and a joint operating
agreement (the "JOA") pursuant to which WI would acquire an undivided sixty-five
percent (65%) interest in the PSC and the parties would explore for hydrocarbons
in the Contract Area (the Participation Agreement and the JOA, collectively the
"Definitive Agreements").

Based on the information currently known to WI, it is proposed that the
Definitive Agreements include the following terms:

1.1 ACQUISITION OF WI PARTICIPATING INTEREST. Upon the execution of the
Participation Agreement, WI would acquire an undivided sixty-five percent (65%)
interest in the PSC (the "WI Participating Interest"). The manner in which WI
would acquire the WI Participating Interest would either be pursuant to (a) an
assignment to WI by Vaalco Etame and Vaalco Gabon of an undivided sixty-five
percent (65%) in the PSC (the "Assignment"), (b) the acquisition by WI of all of
the shares of Vaalco Gabon which would have been confirmed by the State at the
time of the acquisition as owning an undivided sixty-five percent (65%) interest
in the PSC (the "Stock Purchase") or (c) such other manner as may be determined
by WI based on advice from legal counsel. The Participation Agreement would
provide for Vaalco Etame and Vaalco Gabon to reimburse to WI all sums paid by WI
under the Participation Agreement, the JOA and the PSC, including all amounts
paid by WI for the Seismic Program as described in paragraph 1.4 below,

should, in the case of the Assignment, the State fail to grant all necessary
approvals as may be required or deemed appropriate to make fully effective the
Assignment in which case WI would reassign to Vaalco Etame and Vaalco Gabon the
WI Participating Interest or, in the case of the Stock Purchase, the State fail
to have confirmed in writing that Vaalco Gabon owns an undivided sixty-five
percent (65%) interest in the PSC. The manner in which WI would acquire the WI
Participating Interest shall be determined in the sole discretion of WI. The
appropriate company on behalf of WI would be responsible for the WI
Participating Interest share of the commitment set forth in Article 46.2 of the
PSC.

1.2. CONSIDERATION. For and in consideration of the assignment to WI of WI's
Participating Interest, WI would pay for all of the costs required to conduct 2D
and 3D seismic acquisition and processing programs over the Contract Area
sufficient to satisfy the Contractor's seismic obligation set forth in Section
4.1 of the PSC (the "Seismic Program") and for eighty percent million seven
hundred thousand dollars ($4,700,000) incurred to drill to targeted depth and
log the first exploratory well in the Contract Area (the "First Well"). The
parties estimate that the cost of the Seismic Program would not exceed three
million five hundred thousand ($3,500,000). Any costs incurred for the First
Well above four million seven hundred thousand dollars ($4,700,000) would be
borne and paid by the parties in accordance with their respective participating
interests in the PSC in the manner provided in the JOA. Upon approval of an AFE
for the First Well, each of WI, Vaalco Etame, Vaalco Gabon, Petrofields
Exploration and Development Co., Inc. ("Petrofields")and Alcorn Petroleum and
Minerals Corporation ("APMC") would deposit into an interest bearing joint
account administered by the operator and opened at a bank agreed to by the
parties its participating interest share of an amount no less than one hundred
ten percent (110%) of the cost of the First Well as defined by the AFE.
Withdrawals from the joint account would require signatures of authorized
representatives of parties holding a majority of the interest in the PSC and
would be applied by the operator to pay for WI's, Vaalco Etame's (and Vaalco
Gabon's if WI acquires the WI Participating Interest by Assignment),
Petrofields' and APMC's share of the costs of the First Well. All indirect
charges which would be subject to cost recovery under the PSC and the JOA and
would be incurred by the party designated as operator under the JOA would be
borne by each party in accordance with its participating interest in the PSC.
All indirect charges which would not eligible for cost recovery under the PSC
and JOA would be borne by the party which incurs the charge. Default by any
party of its financial or other material obligations under the Definitive
Agreements or the PSC would subject its participating interest in the PSC to
forfeiture in accordance with the JOA.

1.3 TERMINATION OF PREVIOUS ASSIQNMENTS. As a condition to the acquisition by WI
of the WI Participating Interest, prior to the execution of the Definitive
Agreements, Vaalco, Petrofields and APMC would execute such documentation as is
necessary and appropriate and in forms acceptable to WI to cause the forty-nine
percent (49%) participating interest in the PSC previously assigned to
Petrofields and seven and one-half percent (7.5%) of the forty-nine percent
(49%) participating interest in the PSC previously assigned to APMC to be
reassigned to Vaalco Gabon and Vaalco Etame including, but not limited to,
agreements to terminate respectively that certain Heads of Agreement dated June
28, 1995 between Vaalco and Petrofields and that certain agreement dated August
29. 1995 between Petrofields and APMC (the "Reassignment Agreements").
1.4. SEISMIC ACQUISITION. It is acknowledged by the parties that the Seismic
Program could commence prior to the execution by the parties of the Definitive
Agreements and the acquisition by WI of the WI Participating Interest. WI is
willing to allow the Seismic Program to commence and to accept responsibility
for paying the costs of the Seismic Program, provided that, as security to WI
for expending the funds prior to the execution of Definitive Agreements and the
acquisition of the WI Participating Interest, (i) WI would be the sole owner of
the seismic data until the execution by the parties of the Definitive Agreements
and (ii) Vaalco Energy would enter into a promissory note and a stock pledge
agreement in forms acceptable to WI pursuant to which Vaalco Energy would
evidence the debt to WI of the cost of the Seismic Program and pledge to WI
sixty-five percent (65%)of all of the issued and outstanding shares of Vaalco
Gabon and Vaalco Etame. The ownership of the seismic data would remain with WI
and the promissory note and stock pledge agreement would continue in force until
(a) the execution of the Definitive Agreements and the acquisition by WI of the
WI Participating Interest or (b) WI is reimbursed all sums paid by WI under the
Participation Agreement, the JOA and the PSC, including all amounts paid by WI
for the Seismic Program, should WI fail to acquire the WI Participating Interest
for the reasons described in paragraph 1.1 of this letter. Upon the occurrence
of (a) or (b) of this paragraph, the ownership of the seismic data would be
transferred to each party holding a participating interest in the PSC and the
promissory note and stock pledge agreement would be terminated.

1.5. JOINT OPERATING AGREEMENT. A JOA based on the AIPN (Association of
International Petroleum Negotiators) form would govern the rights and
obligations of all parties owning a participating interest in the PSC. The JOA
would be separately executed by the parties concurrently with the execution of
the Participation Agreement and filed with the State for its review, approval
and execution. All decisions to be made by the parties under the JOA until the
completion or plugging and abandoning of the First Well would require the
consent of WI. Thereafter, all decisions made by the parties under the JOA would
require the consent of two (2) or more parties holding collectively a majority
of the participating interest in the PSC. Vaalco Etame would be designated as
the operator for the Seismic Program and the First Well. Thereafter, the
designation of operator would be determined in accordance with the voting
provisions specified in the JOA. WI would be designated as technical advisor for
the Seismic Program and would instruct Vaalco Etame, as operator, on the amount
of data to be acquired and the specifications pursuant to which the Seismic
Program would be conducted. Cost Oil attributed to cost recovery for the direct
costs incurred for the Seismic Program would be allocated solely to WI. Eighty
percent (80%) of the Cost Oil attributed to cost recovery for the first four
million seven hundred thousand dollars (S4,700,000) of direct costs incurred for
the First Well would be allocated to WI. Transfer by any party of its
participating interest in the PSC would be subject to a right of first
negotiation in favor of the other parties.

1.6. OTHER TERMS OF DEFINITIVE AGREEMENTS. The Definitive Agreements would
contain comprehensive representations, warranties, covenants and indemnities of
the Vaalco Parties and WI as are customary in such transactions of this kind and
such other terms as may be deemed necessary and advisable by the parties. In
addition, the Definitive Agreements would contain terms and provisions relating
to the following:

(a) all tax liabilities related to periods prior to the Closing of the
Proposed Transaction and any tax (whether income, sales, use tax or
otherwise and federal, state or foreign) consequences arising from the
Proposed Transaction would be for the account of Vaalco Gabon and Vaalco
Etame or Vaalco Energy; and
(b) the closing of the Proposed Transaction would be on or before
February 28, 1997, or such other date and time as may be agreed to by
the parties.

2. CONDITIONS OF PROPOSED TRANSACTION. The Proposed Transaction outlined in
this letter would be subject to: (i) the negotiation and execution of the
Definitive Agreements; (ii) in the case of a Stock Purchase, satisfactory
completion of WI's due diligence concerning the business and assets of the
Vaalco Gabon; (iii) the approvals of the respective Boards of Directors of
the Vaalco Parties and the Board of Directors of WI of the Proposed
Transaction; (iv) the approvals of the respective Boards of Directors of
Petrofields and APMC of the execution of the Reassignment Agreements; (v)
the receipt by WI of fully executed Reassignment Agreements; and (vi) such
other matters as may be agreed by WI and the Vaalco Parties.

3. IMMEDIATE ACTIONS. Upon acceptance by the Vaalco Parties of this letter:

(a) the Vaalco Parties shall conduct the business of the Contractor
under the PSC in the ordinary course and refrain from any extraordinary
transactions with respect to the PSC or any operations thereunder
without the prior consent of WI;

(b) Vaalco Etame and Vaalco Gabon covenant that they will not either
alone or together assign, transfer, sell or pledge any rights or
interests in the PSC which would prevent, restrict or encumber WI's
acquisition of the WI Participating Interest;

(c) upon notification to Vaalco Energy by WI that WI elects to acquire
the WI Participating Interest by a Stock Purchase, Vaalco Energy shall
cause a firm of nationally recognized independent public accountants to
conduct an audit of the financial statements of Vaalco Gabon for the
period from incorporation of Vaalco Gabon and December 31, 1996, and
provide to WI a copy of such audited financial statements promptly upon
receipt thereof by Vaalco Gabon;

(d) representatives of WI shall have full and free access to the
properties, contracts, books and records, and all other documents and
data regarding the PSC and the Contract Area, and shall begin a due
diligence review of the financial condition, prospects, properties,
contracts, books and records and all other documents and data of the PSC
and the Contract Area satisfactory to WI; and

(e) WI shall commence the preparation of initial drafts of the
Participation Agreement and the JOA.

4. EXCLUSIVITY. WI and the Vaalco Parties will proceed diligently to negotiate
the terms and conditions of the Definitive Agreements during the period of sixty
(60) days following the date of acceptance of this proposal by the Vaalco
Parties. Upon the acceptance of the proposal set forth in this letter by the
Vaalco Parties, the Vaalco Parties agree that they will not, directly or
indirectly, through any representative or otherwise, solicit or entertain offers
from, negotiate with or in any manner encourage, consider, discuss, or accept
any proposal of any other person relating to the acquisition of the WI
Participating Interest, in whole or in part, whether directly or indirectly.
through purchase, merger, consolidation, or otherwise unless and until
negotiations hereunder shall have terminated. Vaalco Energy will immediately
notify WI regarding any contact between the Vaalco Parties or any of their
representatives and any other person regarding any
such offer or proposal or any related inquiry. Likewise, Petrofields and APMC
agree to comply with the provisions of the two previous sentences with respect
to their respective participating interests in the PSC which they hold. After
the expiration of sixty (60) days, either WI or the Vaalco Parties may terminate
negotiations hereunder by giving written notice of termination to the other
unless the Seismic Program has commenced in which case only WI shall be entitled
to terminate negotiations hereunder.

5. PUBLIC STATEMENTS. Except as may be required by applicable securities laws
and stock exchange regulations, WI, the Vaalco Parties, Petrofields and APMC
shall not, without the prior written consent of the others, disclose or
publicize the transaction contemplated by this letter, the fact that WI and the
Vaalco Parties have executed this letter and are negotiating with respect to the
Proposed Transaction, other than to their respective counsel, public
accountants, financial advisors, or key personnel of WI, the Vaalco Parties,
Petrofields and APMC who are participating in evaluation of the Proposed
Transaction. Any proposed disclosure in connection with a filing with the
Securities and Exchange Commission and any other disclosures required pursuant
to applicable laws or regulations shall, to the extent reasonably practicable,
be coordinated among WI and the Vaalco Parties prior to disclosure.

6. BROKERS' OR FINDERS' FEES. Each of WI and the Vaalco Parties represent and
warrant to the other that no broker or finder has been or shall be utilized in
connection with the Proposed Transaction, that, to the best of their respective
knowledge, no person is or shall be entitled to any fee, commission or similar
compensation for effecting or assisting in the consummation of the Proposed
Transaction, and, further, each is not aware of any claim or the basis for any
claim by a third party for any such fee, commission or compensation.

7. COSTS AND EXPENSES. Each of WI, the Vaalco Parties, Petrofields and APMC
shall bear and be solely responsible for its respective costs and expenses
incurred in connection with pursuing or consummating the Proposed Transaction.

8. NATURE OF PROPOSAL. Except for the obligations established in paragraphs 1.4,
3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 which are binding on the parties (the
"Binding Provisions"), this letter constitutes a nonbinding letter of intent and
not a contract, agreement or valid and enforceable offer, express or implied,
binding on any of the parties, and neither the signing, delivery nor acceptance
of this letter shall create any obligations of any party. This letter is only a
statement of intention which sets forth the basis for the negotiation,
preparation and consummation of the Definitive Agreements described in this
letter.

9. NO LIABILITY. Except as expressly provided in the Binding Provisions, no past
or future action, course of conduct, or failure to act relating to the Proposed
Transaction, or relating to the negotiation of the terms of the Proposed
Transaction, will give rise to or serve as a basis for any obligation or other
liability on the part of the Vaalco Parties or WI.

10. GOVERNING LAW. Irrespective of the place of execution by the parties hereto,
this letter shall be construed according to the laws of the State of Texas, the
United States of America which laws shall govern the validity and interpretation
of the provisions hereof and the transactions contemplated hereby, without
application of its conflict of laws principles.

11. FURTHER ASSURANCE. The parties undertake to use all reasonable endeavors to
obtain consents, approvals and waivers.
12. ENTIRE AGREEMENT. The Binding Provisions constitute the entire agreement
between the parties, and supersede all prior oral or written agreements,
understandings, representations and warranties, and courses of conduct and
dealing between the parties on the subject matter hereof. Except as otherwise
provided herein, the Binding Provisions may be amended or modified only by a
writing executed by all of the parties.

13. COUNTERPART AND FACSIMILE EXECUTION. This letter may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute only one
original. This letter may also be executed and delivered by exchange of
facsimile transmissions of originally executed copies, provided that an
originally executed copy is promptly delivered to each party.

If the proposal outlined in this letter is an acceptable basis for the
negotiation, preparation and execution of Definitive Agreements setting forth
the Proposed Transaction described in this letter, please have this original
letter and the five (5) enclosed copies of this letter signed on behalf of the
Vaalco Parties, Petrofields and APMC where indicated below and return one (1)
fully executed copy to WI.

Sincerely,

WI, INC.
By:/s/GERALD M. GILBERT
Gerald M. Gilbert, Executive Vice President

Accepted and agreed to this
22 day of January, 1997.

VAALCO ENERGY, INC.

By:/s/VIRGIL A. WALSTON
Title:Vice Chairman
Accepted and agreed to this
22 day of January, 1997.

VAALCO ENERGY (GABON), INC.

By:/s/W. RUSSELL SCHEIRMAN
Title:President


Accepted and agreed to this
22 day of January, 1997.

VAALCO GABON (ETAME), INC.

By:/s/W. RUSSELL SCHEIRMAN
Title:President

The undersigned, Petrofields Exploration and Development Co., Inc. and
Alcorn Petroleum and Minerals Corporation, hereby consent and agree to be bound
by the obligations established in paragraphs 1.2, 1.3, 1.4, 1.5, 2(iv), 2(v), 4,
5, 7, 10 and 13 of this letter.

Accepted and agreed to this
___day of January__, 1997.

PETROFIELDS EXPLORATION AND DEVELOPMENT CO., INC.

By:______________________________

Title:___________________________

Accepted and agreed to this
___day of January___, 1997

ALCORN PETROLEUM AND MINERALS CORPORATION By:

By:_____________________________

Title:__________________________
Accepted and agreed to this
22 day of January, 1997.

VAALCO ENERGY (GABON), INC.

By:/s/W. RUSSELL SCHEIRMAN
Title:President

Accepted and agreed to this
22 day of January, 1997.

VAALCO GABON (ETAME), II',lC.

By:/s/W. RUSSELL SCHEIRMAN
Title:President

The undersigned, Petrofields Exploration and Development Co., Inc. and
Alcorn Petroleum and Minerals Corporation, hereby consent and agree to be bound
by the obligations established in paragraphs 1.2, 1.3, 1.4, 1.5, 2(iv), 2(v'l,
4, 5, 7, 10 and 13 of this letter.

Accepted and agreed to this
31ST day of January___, 1997

PETROFIELDS EXPLORATION AND DEVELOPMENT CO., INC.

By:Unreadable Signature
Title:President

Accepted and agreed to this
31ST day of January___, 1997

ALCORN RETROLEUM AND MINERALS CORPORATION

By:Unreadable Signature
Title:Vice-President