Form: 10QSB

Optional form for quarterly and transition reports of small business issuers

August 14, 1997

Documents

10QSB: Optional form for quarterly and transition reports of small business issuers

Published on August 14, 1997


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

COMMISSION FILE NUMBER 0-20928
-----------------------
VAALCO ENERGY, INC.
(Exact name of small business issuer as specified in its charter)

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

4600 POST OAK PLACE
SUITE 309
HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)


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




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

As of August 11, 1997 there were outstanding 15,466,527 shares of Common
Stock, $.10 par value per share, of the registrant.

VAALCO ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION


CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996....................3
Statements of Consolidated Operations (Unaudited)
Three and six months ended June 30, 1997 and 1996...................4
Statements of Consolidated Cash Flows (Unaudited)
Six months ended June 30, 1997 and 1996.............................5
Notes to Consolidated Financial Statements.............................6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................8

PART II. OTHER INFORMATION...........................................13

2
3
VAALCO ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PAR VALUE AMOUNTS)



JUNE 30, DECEMBER 31,
1997 1996
-------- --------
(UNAUDITED)

ASSETS
CURRENT ASSETS:
Cash and equivalents ............................................ $ 1,434 $ 1,055
Advances - related party ........................................ -- 1,916
Marketable securities - related party ........................... -- 777
Receivables:
Trade ......................................................... 1,455 103
Accounts with partners ........................................ 110 190
Other ......................................................... 752 1,177

Materials and supplies .......................................... 391 387
Prepaid expenses and other ...................................... 34 9
-------- --------
Total current assets .......................................... 4,176 5,614
-------- --------

PROPERTY AND EQUIPMENT-SUCCESSFUL EFFORTS METHOD
Wells, platforms and other production facilities ................ 46,866 46,866
Wells in progress ............................................... -- --
Undeveloped acreage ............................................. 840 808
Equipment and other ............................................. 355 342
-------- --------
48,061 48,016
Accumulated depreciation, depletion and amortization .............. (46,678) (46,383)
-------- --------
Net property and equipment .................................... 1,383 1,633
-------- --------

OTHER ASSETS:
Funds in escrow ............................................... 378 119
Other long-term assets ........................................ 132 370
-------- --------
TOTAL ............................................................. $ 6,069 $ 7,736
======== ========

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable ................................................ $ 1,987 $ 1,862
Accrued liabilities ............................................. 1,095 1,280
Current portion of debt obligations ............................. 198 3,918
-------- --------
Total current liabilities ..................................... 3,280 7,060
-------- --------

FUTURE ABANDONMENT COSTS .......................................... 4,942 4,942
OTHER LONG TERM LIABILITIES ....................................... -- 1,000
-------- --------
Total liabilities ............................................... 8,222 13,002
-------- --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Preferred stock, $25 par value, 10% cumulative dividend .........
500,000 authorized shares; 90,000 shares issued and outstanding 2,250 2,250
Common stock, $.10 par value, 15,000,000 authorized shares;
8,870,864 shares issued of which 5,395 are in the treasury
in 1997 and 1996 .............................................. 887 887
Additional paid-in capital ...................................... 11,261 11,401
Accumulated deficit ............................................. (16,538) (19,707)
Net unrealized loss on non-current marketable securities .......... -- (84)
Less treasury stock, at cost .................................... (13) (13)
-------- --------
Total stockholders' deficit ................................... (2,153) (5,266)
-------- --------

TOTAL ............................................................. $ 6,069 $ 7,736
======== ========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

4
VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)




Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------


REVENUES:
Crude oil sales ........................ $ 820 $ 292 $ 1,715 $ 2,163
Gain on sale of assets ................. 1 1,140 3,332 1,140
----------- ----------- ----------- -----------
Total revenues ....................... 821 1,432 5,047 3,303

OPERATING COSTS AND EXPENSES:
Production expenses .................... 515 209 872 1,431
Exploration costs ...................... 21 53 66 129
Depreciation, depletion and amortization
and impairment of properties ........... 268 23 302 618
General and administrative expenses .... 241 550 721 1,094
----------- ----------- ----------- -----------
Total operating costs and expenses ... 1,045 835 1,961 3,272
----------- ----------- ----------- -----------

OPERATING INCOME (LOSS) .................. (224) 597 3,086 31

OTHER INCOME (EXPENSES):
Interest income ........................ 18 22 20 71
Interest expense and financing charges . (19) (73) (116) (153)
Other, net ............................. 48 (94) 95 (130)
----------- ----------- ----------- -----------
Total other income (expenses) ........ 47 (145) (1) (212)
----------- ----------- ----------- -----------

NET INCOME (LOSS) ........................ (177) 452 3,085 (181)

Preferred dividends ...................... 0 (56) (56) (113)
----------- ----------- ----------- -----------

NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS .................... $ (177) $ 396 $ 3,029 $ (294)
=========== =========== =========== ===========

INCOME (LOSS) PER COMMON SHARE .......... $ (0.02) $ 0.04 $ 0.3 $ (0.03)
=========== =========== =========== ===========

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ............................ 8,865,469 8,865,469 8,865,469 8,865,469
=========== =========== =========== ===========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


5

VAALCO ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS OF DOLLARS)


Six Months Ended June 30,
----------------------------
1997 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:


Net income (loss) ............................................... $ 3,085 $ (181)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization .................... 302 618
Seismic and exploration costs ............................... 66 115
Gain on sale of assets ...................................... (3,332) (1,140)
Change in assets and liabilities that provided (used) cash:
Funds in Escrow ............................................. (8) --
Accounts with partners ...................................... (315) (1162)
Trade receivables ........................................... (1,352) (131)
Other receivables ........................................... 425 (156)
Crude oil inventory ......................................... -- 971
Materials and supplies ...................................... (64) 135
Prepaid expenses and other .................................. (25) 50
Accounts payable ............................................ 819 430
Accrued liabilities ......................................... (424) (387)
------- -------
Net cash used in operating activities ..................... (823) (838)
------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:

Seismic and exploration costs ................................... (66) (158)
Additions to property and equipment ............................. (108) (453)
Proceeds from sale of assets .................................... 4,672 1,825
Net cash provided by investing activities ................. 4,498 1,343
------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from borrowings ........................................ -- 1,000
Repayments of debt obligations .................................. (4,720) (700)
Advances from related parties (net) ............................. 1,424 3
------- -------
Net cash provided by (used in) financing activities ....... (3,296) 303
------- -------

NET CHANGE IN CASH AND EQUIVALENTS .............................. 379 808

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD ..................... 1,055 701
------- -------

CASH AND EQUIVALENTS AT END OF PERIOD ........................... $ 1,434 $ 1,509
======= =======


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash paid for interest .................................. $ 231 $ 158
======= =======
Depletion costs previously capitalized in crude oil inventory $ -- $ 533
======= =======

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

6
VAALCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)


1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of VAALCO Energy, Inc. and
Subsidiaries (collectively, "VAALCO" or the "Company"), included herein
are unaudited, but include all adjustments which the Company deems
necessary for a fair presentation of its financial position and results
of operations for the interim period. Such results are not necessarily
indicative of results to be expected for the full year. The Balance
Sheet at December 31, 1996 has been taken from the audited financial
statements at that date. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's Form 10-KSB for the year ended December 31, 1996.


2. CURRENT DEVELOPMENTS

In July 1997, the Company completed a private placement of four million
shares of common stock. Certain selling shareholders accounted for
500,000 of the private placement shares. The private placement resulted
in $3.2 million net proceeds to the Company. Concurrent with the private
placement of equity, the Company redeemed all of the issued and
outstanding shares of its 10% Cumulative Series A Preferred Stock.
Payment of the redemption price and payment of accrued and unpaid
dividends were satisfied by the issuance of an aggregate of 2,740,663
shares of Common Stock.

Also, in July 1997, the Company amended its Certificate of Incorporation
to increase the number of shares of Common Stock it is authorized to
issue. As a result of such amendment, the Company is authorized to issue
50,000,000 shares of Common Stock of which 15,466,527 shares were issued
and outstanding on August 11, 1997.

Effective August 1, 1997, Mr. Robert L. Gerry, III was elected Chairman
of the Board of the Company. Mr. Gerry was previously vice chairman of
Nuevo Energy Company. Mr. Gerry will also serve as the Company's Chief
Executive Officer. Mr. C. W. Alcorn resigned as Chairman of the Board
but will remain a director of the Company.

During 1997, the Company completed the restructuring of its
international assets. Certain marketable securities held by the Company
in Alcorn Petroleum and Minerals Corporation ("APMC"), a publicly listed
Philippines company were sold for a gain of $0.7 million. Proceeds of
$3.4 million were used to retire debt. In addition, the Company sold the
balance of its assets in India, consisting of a 4% net profit interest
in the PY-3 Field, and a 20% working interest in the Gulf of Cambay
Block CB-OS/1. The assets were sold to Hardy Oil & Gas (U.K.) Ltd. for a
gain of $2.5 million.

7




VAALCO ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)



In the Philippines, the Company announced a farmout in the fourth
quarter of 1996 which will result in a $7.0 million 3-D seismic survey program
over acreage held by the Company. The seismic acquisition commenced in February
1997 and at July 31, 1997 was 67% completed. See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

On April 4, 1997, in Gabon, the Company executed the previously announced
farm-in agreement with Western Atlas Afrique, Ltd. for the acquisition of
seismic and drilling of a well on the Etame Contract. See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations."


3. DEBT OBLIGATIONS

In December 1996, the Company issued $0.6 in debt associated with the
acquisition of certain properties in the Gulf of Mexico. The loan is secured by
an assignment of revenue interests ranging from 45% to 65% in certain
properties. The loan is recourse only to the assigned revenue interests, and is
not guaranteed by the Company. The balance on the note at June 30, 1997 was $0.2
million.

The Company retired certain debt of its Philippines subsidiaries in
April 1997.


EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings
Per Share". SFAS 128 established standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. This statement simplifies the
standards for computing EPS previously found in Accounting Principles
Board Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted. This statement
requires restatement of all prior-period EPS data presented. Considering
the guidelines as prescribed by SFAS 128, management believes that the
adoption of this statement does not have a material effect on EPS and thus
pro forma EPS, as suggested for all interim and annual periods prior to
required adoption, have been omitted.


8


VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

CAPITAL RESOURCES AND LIQUIDITY

Historically, the Company's primary source of capital resources has been
from its production operations in the Philippines, asset sales and the issuance
of debt. The Company continues to produce the Nido and Matinloc fields in the
Philippines at approximately 675 BOPD.

Through a diversification program undertaken by management, the Company
acquired producing assets in the Gulf of Mexico and two interests in Gabon. The
Company has also accumulated approximately 1,603 acres in the Wilcox trend of
Goliad County, Texas.

In order to execute the diversification program, the Company has, among
other activities, been actively seeking farmout partners to progress the
development of its prospects. In this regard, the Company has successfully
entered into farmout agreements in one of its Gabon blocks and in its
Philippines blocks in exchange for carried work programs. For the domestic
acquisition program, the Company has relied on the private placement of equity
and issuance of debt to raise capital for these acquisitions. A more detailed
description of the Company's activities is described below.

In July 1997, the Company completed a private placement of four million
shares of common stock. Certain selling shareholders accounted for 500,000 of
the private placement shares. The private placement resulted in $3.2 million net
proceeds to the Company. Concurrent with the private placement of equity, the
Company redeemed all of the issued and outstanding shares of its 10% Cumulative
Series A Preferred Stock. Payment of the redemption price and payment of accrued
and unpaid dividends were satisfied by the issuance of an aggregate of 2,740,663
shares of Common Stock.

Also, in July 1997, the Company amended its Certificate of Incorporation
to increase the number of shares of Common Stock it is authorized to issue. As a
result of such amendment, the Company is authorized to issue 50,000,000 shares
of Common Stock of which 15,466,527 shares were issued and outstanding on August
11, 1997.

United States

In December 1996, the Company issued $618,000 in debt associated with the
acquisition of certain properties in the Gulf of Mexico. The loan is secured by
an assignment of revenue interests in certain of the properties. The loan is
recourse only to the assigned revenue interests, and is not guaranteed by the
Company. The balance of the note as of June 30, 1997 was $199,000. The Gulf of
Mexico properties consist of interests in seven offshore fields in ten lease
blocks. Four of the platforms in three of the fields, High Island blocks A-313,
A-314 and A-280, are being operated by VAALCO. The balance of the package
consists of non-operated interests in the West Cameron, Vermilion and Ship Shoal
areas of the Gulf of Mexico. No significant capital expenditures are anticipated
in 1997 for these properties.

In October 1994, the Company acquired a working interest in approximately 1,200
acres in Goliad County, Texas, in exchange for cash and warrants to purchase
shares of the Company's Common Stock, $.10 par value per share (the "Common
Stock"). The warrants have a term of three years and will consist of the right
to purchase 200,000 shares of Common Stock at an exercise price of $2.50 per
share and 200,000 shares of Common Stock at an exercise price of $5.00 per
share, subject to the terms and conditions of the acquisition agreement. A
working interest in an additional 403 acres was acquired during 1996. The
Company has an average 76% net revenue interest in the acreage and plans to
analyze this property in 1997 for potential drilling locations. The three year
lease has no drilling obligation requirements. Capital expenditures for 1997
will depend upon the outcome of analysis currently being done on the area.

Gabon

In July 1995, the Company acquired two blocks offshore Gabon, the Equata block
and the Etame block. Both blocks contain previous discoveries that the Company
is currently evaluating to determine their commercial viability. The Company and
its partners have an obligation to the Government of Gabon to obtain
approximately 1,500 line kilometers of seismic data and to drill one well on the
Etame block during the three-year term of the license.

In April 1997, the Company entered into an agreement with Western Atlas Afrique,
Ltd., a subsidiary of Western Atlas, which will perform the required seismic
surveys and pay a disproportionate 80% of the cost, up to $4.7 million, of the
estimated $5.8 million (dry hole cost) commitment well to earn a 65% interest in
the concession. The Company and its partners will be responsible for 20% of the
cost (35% over $4.7 million) of the commitment well. VAALCO's share of the dry
hole cost of the commitment well is estimated to be $0.7 million. At June 1997,
the Company completed the above mentioned acquisition of seismic data over the
property. These data are currently being processed to determine the best
location for drilling a well. The Company has contracted a drilling rig for the
first quarter of 1998 to drill the well.

Philippines

In October 1996, VAALCO and the other Service Contract No. 14 and Service
Contract No. 6 consortium members entered into a farmout agreement wherein the
farmee, an Australian company, is required to shoot a $7.0 million 3-D seismic
program over the service contracts during 1997. The Australian farmee company
will earn a 35% interest in the blocks for performing the work. In addition, the
Australian company has the option to drill two wells, one on each Service
Contract, to earn up to an additional 25% interest in each Service Contract.
Seismic acquisition under the farmout agreement commenced in February 1997 and
was 67% completed at July 31, 1997. No significant capital expenditures are
anticipated by the Company in 1997 for the Philippines operations.

9




VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS




Other Activities

In March 1997, the Company sold its Gulf of Cambay concession and its 4% net
profits interest in the CY-OS/2 concession, both in India, to Hardy Oil & Gas
(UK) Limited for $2.5 million. The Company applied $1.0 million of the proceeds
from the sale to complete the payment of the non-recourse loan made to the
Company by Hardy in 1996. The remainder of the note was paid in April 1997.The
Company continues to seek financing to fund the development of existing
properties and to acquire additional assets. The Company will rely on the
issuance of equity and debt securities, asset sales and cash flows from
operations to provide the required capital for funding future operations. While
there can be no assurance that the Company will be successful in raising new
financing, management believes that the prospects the Company has in hand will
enable it to attract sufficient capital to fund required oil and gas activities.
Cash FlowsNet cash provided by investing activities for the six months ended
June 30, 1997 was $4.5 million, an increase of $3.2 million, as compared to $1.3
million for the same period in 1996. The 1997 amount reflects cash received from
the sale of marketable securities and the sale of the Company's interest in
India.Net cash used in financing activities for the six months ended June 30,
1997 was $3.3 million, as compared to net cash provided by financing activities
of $0.3 million for the same period in 1996. The 1997 amount reflects the
payment of the Company's long term debt.

Item 2 of this document includes forward looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Company believes that
the expectations reflected in such forward looking statements are based upon
reasonable assumptions, the Company can give no assurance that these
expectations will be achieved. Important factors that could cause actual results
to differ materially from the Company's expectations include general economic,
business and market conditions, the volatility of the price of oil and gas,
competition, development and operating costs and the factors that are disclosed
in conjunction with the forward looking statements included herein.




10




VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS




RESULTS OF OPERATIONS

Amounts stated hereunder have been rounded to the nearest $100,000, however,
percentage changes have been calculated using actual amounts.

THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996

REVENUES

Total crude oil and gas sales for the three months ended June 30, 1997 were $0.8
million, an increase of $0.5 million, as compared to $0.3 million for the same
period in 1996. The 1996 revenues relate to the Company's oil production in the
Philippines. The 1997 revenues include revenues relating to the Philippines, as
well as oil and gas revenues relating to the Company's Gulf of Mexico operations

The gain on sale of assets of $1.1 million, recognized in the three months ended
June 30, 1996, was associated with the sale of the Company's interest in the
PY-3 field in India.

OPERATING COSTS AND EXPENSES

Production expenses for the three months ended June 30, 1997 were $0.5 million,
an increase of $0.3 million, as compared to $0.2 million for the same period in
1996. The increase is primarily due to production costs incurred in 1997
relating to the Gulf of Mexico operations.

General and administrative expenses for the three months ended June 30, 1997
were $0.2 million, a decrease of $0.2 million, or 56%, as compared to $0.6
million for the same period in 1996. The decrease is primarily due to reduced
overhead costs in the Philippines and overhead reimbursements in Gabon and the
Gulf of Mexico.

No preferred dividends were paid or accrued in the three months ending June 30,
1997. As part of the agreement to redeem the preferred stock in July, the
preferred shareholders waived the right to preferred dividends beyond March 31,
1997.

Other net income increased by $0.2 million to $0.05 million for the three months
ending June 30, 1997 from a loss of $0.1 million for the comparable period in
1996. Certain inventory adjustments in 1996 accounted for the increase.

NET INCOME

Net loss attributable to common stockholders for the three months ended June 30,
1997 was $0.2 million, compared to net income attributable to common
stockholders of $0.4 million for the same period in 1996. The 1996 income
results from the recognition of a gain on the sale of assets associated with the
sale of the Company's interest in the PY-3 field in India.

11




VAALCO ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

REVENUES

Total crude oil and gas sales for the six months ended June 30, 1997 were $1.7
million, a decrease of $0.5 million, or 21%, as compared to $2.2 million for the
same period in 1996. The 1996 revenues relate to the Company's oil production in
the Philippines, and included a final crude oil sale from the West Linapacan "A"
Field. The 1997 revenues include revenues relating to the Philippines, as well
as oil and gas revenues relating to the Company's Gulf of Mexico operations.

The gain on sale of assets of $3.3 million, recognized in the six months ended
June 30, 1997, was associated with the sale of marketable securities and the
sale of the Company's interest in India. The gain on sale of assets of $1.1
million, recognized in the six months ended June 30, 1996, was associated with
the sale of the Company's interest in the PY-3 field in India

OPERATING COSTS AND EXPENSES

Production expenses for the six months ended June 30, 1997 were $0.9 million, a
decrease of $0.5 million, or 39%, as compared to $1.4 million for the same
period in 1996. The decrease is primarily due to reduced operating costs in the
Philippines, offset by production costs incurred in 1997 relating to the Gulf of
Mexico operations.

Depletion for 1997 relates to the Gulf of Mexico properties. No depletion
expense was recorded in 1997 for the Philippine properties, as the property was
fully depleted. The 1996 amount represents depletion of the Philippine
properties.

General and administrative expenses for the six months ended June 30, 1997 were
$0.7 million, a decrease of $0.3 million, or 34%, as compared to $1.1 million
for the same period in 1996. The decrease is primarily due to reduced overhead
costs in the Philippines and overhead reimbursements in Gabon and the
Philippines.

Preferred dividends decreased from $0.11 million to $0.06 million due to the
termination of dividend payments at March 31, 1997.

Other net income increased by $0.2 million to $0.0 million for the six months
ending June 30, 1997 from a loss of $0.2 million for the comparable period in
1996. Certain inventory adjustments in 1996 accounted for the increase.

NET INCOME

Net income attributable to common stockholders for the six months ended June 30,
1997 was $3.0 million, compared to net loss attributable to common stockholders
of $0.3 million for the same period in 1996. The 1997 income results from the
recognition of a gain associated with the sale of marketable securities and the
sale of the Company's interest in India



12








PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

In July 1997, the Company completed a private placement of four million shares
of common Stock at a price of $1.00 per share to certain accredited investors.
Certain selling shareholders accounted or 500,000 of the private placement
shares. The private placement resulted in $3.2 million net proceeds to the
Company. The Company also issued warrants to purchase 345,325 shares of Common
Stock at an exercise price of $1.00 per share to the placement agent for
services rendered in connection with the private placement.

Concurrent with the private placement of equity, the Company redeemed all of the
issued and outstanding shares of its 10% Cumulative Series A Preferred Stock.
Payment of the redemption price and payment of accrued and unpaid dividends were
satisfied by the issuance of an aggregate of 2,740,663 shares of Common Stock.

The Company claimed exemption from registration under the Securities Act of
1933, as amended, of such warrants and shares issued by the Company under
Section 4(2) of such Act as a transaction by an issuer not involving any public
offering.

In July 1997, the Company amended its Certificate of Incorporation to increase
from 15,000,000 to 50,000,000 the number of shares of Common Stock authorized
for issuance. See Item 4, "Submission of Matters to a Vote of Security Holders".

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

By written consent dated July 10, 1997, in lieu of a special meeting of
stockholders, holders of an aggregate of 6,042,750 shares of Common approved an
amendment to the Company's Certificate of Incorporation to increase from
15,000,000 to 50,000,000 the number of shares of Common Stock authorized for
issuance.

13









ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 3.1 Certificate of Amendments to Certificate of
Incorporation, dated July 14, 1997, of the Company.

Exhibit 3.2 Certificate of Amendments to Certificate of Designation of 10%
Cumulative Preferred Stock, Series A dated July 14, 1997, of the
Company.

Exhibit 10.1 Resignation Rights Agreement, dated July 28, 1997, by and among the
Company, Jefferies & Company, Inc. and the investors listed therein.

27. Financial Data Schedule

(b) Reports on Form 8-K
None.

14


SIGNATURES

In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

VAALCO ENERGY, INC.
(Registrant)



By /s/W. RUSSELL SCHEIRMAN
W. RUSSELL SCHEIRMAN, PRESIDENT,

Chief Financial Officer and Director



Dated August 13, 1997




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