LOAN AGREEMENT

EXHIBIT 10.1

EXECUTION COPY

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INVESTMENT NUMBER 11090


LOAN AGREEMENT

between

VAALCO GABON (ETAME), INC.

and

INTERNATIONAL FINANCE CORPORATION

Dated April 19, 2002

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TABLE OF CONTENTS

Article or
Section Item Page No.
- ---------- ---- --------

ARTICLE I ........................................................1

Definitions and Interpretation ..................................1
Section 1.01. General Definitions ............................1
Section 1.02. Financial Definitions .........................23
Section 1.03. Financial Calculations ........................28
Section 1.04. Interpretation ................................29
Section 1.05. Business Day Adjustment .......................29

ARTICLE II ......................................................30

The Project, Project Cost and Financial Plan ...................30
Section 2.01. The Project ...................................30
Section 2.02. Project Cost and Financial Plan ...............30

ARTICLE III .....................................................31

The Loan .......................................................31
Section 3.01. The Loan ......................................31
Section 3.02. Disbursement Procedure ........................31
Section 3.03. Interest ......................................31
Section 3.04. Default Rate Interest .........................33
Section 3.05. Repayment .....................................33
Section 3.06. Prepayment ....................................34
Section 3.07. Fees ..........................................36
Section 3.08. Currency and Place of Payments ................36
Section 3.09. Allocation of Partial Payments ................37
Section 3.10. Increased Costs ...............................37
Section 3.11. Unwinding Costs ...............................37
Section 3.12. Suspension or Cancellation by IFC .............38
Section 3.13. Cancellation by Borrower ......................38
Section 3.14. Taxes .........................................39
Section 3.15. Expenses ......................................39

ARTICLE IV ......................................................41

Representations and Warranties .................................41
Section 4.01. Representations and Warranties ................41
Section 4.02. IFC Reliance ..................................45



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Article or
Section Item Page No.
- ---------- ---- --------

ARTICLE V .......................................................45

CONDITIONS OF DISBURSEMENT ......................................45

Section 5.01. Conditions of First Disbursement...............45
Section 5.02. Conditions of All Disbursements ...............48
Section 5.03. Borrower's Certification ......................50
Section 5.04. Conditions for IFC Benefit ....................50

ARTICLE VI ......................................................51

Particular Covenants ...........................................51
Section 6.01. Affirmative Covenants .........................51
Section 6.02. Negative Covenants ............................54
Section 6.03. Reporting Requirements ........................58
Section 6.04. Insurance .....................................63
Section 6.05. IFC Base Case .................................66

ARTICLE VII .....................................................66

Events of Default ..............................................66
Section 7.01. Acceleration after Default ....................66
Section 7.02. Events of Default .............................66
Section 7.03. Bankruptcy ....................................71

ARTICLE VIII ....................................................71

Miscellaneous ..................................................71
Section 8.01. Saving of Rights ..............................71
Section 8.02. Notices .......................................72
Section 8.03. English Language ..............................73
Section 8.04. Term of Agreement .............................73
Section 8.05. Applicable Law and Jurisdiction ...............73
Section 8.06. Disclosure of Information .....................75
Section 8.07. Successors and Assignees ......................75
Section 8.08. Amendments, Waivers and Consents ..............75
Section 8.09. Counterparts ..................................75
Section 8.10. Severability ..................................76
Section 8.10. Rights of Third Parties .......................76

ANNEX A .........................................................77

MINIMUM INSURANCE REQUIREMENTS .................................77

SCHEDULE 1 ......................................................85

FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY ................85


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Article or
Section Item Page No.
- ---------- ---- --------

SCHEDULE 2 ......................................................87

FORM OF REQUEST FOR DISBURSEMENT ...............................87

SCHEDULE 3 ......................................................92

FORM OF LOAN DISBURSEMENT RECEIPT ..............................92

SCHEDULE 4 ......................................................93

FORM OF SERVICE OF PROCESS LETTER ..............................93

SCHEDULE 5 ......................................................95

FORM OF LETTER TO BORROWER'S AUDITORS ..........................95

SCHEDULE 6 ......................................................97

FORM OF PROGRESS REPORT RE: PROJECT IMPLEMENTATION ............97

SCHEDULE 7 ......................................................98

INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF .................98
OPERATIONS .....................................................98



LOAN AGREEMENT

AGREEMENT, dated April ___, 2002, between:

(1) VAALCO GABON (ETAME), INC., a corporation organized and existing under
the laws of the State of Delaware, the United States of America (the
"Borrower"); and

(2) INTERNATIONAL FINANCE CORPORATION, an international organization
established by Articles of Agreement among its member countries
including the Republic of Gabon ("IFC").

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.01. General Definitions. Wherever used in this Agreement, the
following terms have the meanings opposite them:

"1818 Fund" 1818 Fund II, L.P., a limited partnership
organized and existing under the laws of
Delaware;

"1818 Fund Subordination
Agreement" the agreement entitled "Subordination and
Intercreditor Agreement" dated on or about
the date of this Agreement between the
Sponsor, the 1818 Fund and IFC;

"Accidental Discharge
Prevention and Oil Spill
Contingency Plan" an accidental discharge prevention plan and
an oil spill contingency plan to be prepared
by Tinworth Limited in accordance with the
FPSO Contract, and acceptable to IFC, to
prevent unintentional discharges of gas,
liquids and solids to the environment; and
that includes details of training and
drills;

"Accounting Principles" United States Generally Accepted Accounting
Principles (US-GAAP) promulgated by the
Financial and Accounting Standards Board,



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together with its pronouncements thereon
from time to time, and applied on a
consistent basis;

"Affiliate" in respect of any Person, any other Person
directly or indirectly Controlling,
Controlled by or under common Control with,
such Person;

"Affiliate Loans" any loan provided to the Borrower by any of
its Affiliates, including the Sponsor, each
of which loans shall be unsecured and
subordinated to the Loan on terms and
conditions satisfactory to IFC;

"Agreed Environmental
and Social Requirements" (i) the Environmental, Health and Safety
Guidelines;

(ii) the Environmental and Social Policies;

(iii) the Environmental Review Summary;

(iv) the Environmental Impact Assessment;
and

(v) the Environmental Plans, once such
plans have been prepared and submitted
to IFC in accordance with this
Agreement;

"Annual Monitoring
Report" the report to be submitted to IFC pursuant
to Section 6.03 (d) of this Agreement, in
the form provided by Patricia Miller of
IFC's Environment and Social Division, with
a cover letter dated November 9, 2001, and
as accepted by the Borrower, by the letter
of its President dated February 21, 2002,
which form is incorporated herein by
reference and which may be updated from time
to time in accordance with Section 6.01(r);

"Auditors" Deloitte Touche or such other firm that the
Borrower appoints from time to time as its
auditors pursuant to Section 6.01 (d)
(Affirmative Covenants);


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"Authority" any national, supranational, regional or
local government or governmental,
administrative, fiscal, judicial, or
government-owned body, department,
commission, authority, tribunal, agency or
entity, or central bank (or any Person,
whether or not government owned and
howsoever constituted or called, that
exercises the functions of a central bank);

"Authorization" any consent, registration, filing,
agreement, notarization, certificate,
license, approval, permit, authority or
exemption from, by or with any Authority,
whether given by express action or deemed
given by failure to act within any specified
time period and all corporate, creditors'
and stockholders' approvals or consents;

"Authorized Investments" (a) cash in hand and/or time deposits in
Dollars with the VAALCO Accounts Bank
or the Escrow Account Bank, as the
case may be;

(b) Dollar-denominated commercial paper
maturing in 270 days or less from the
date of issuance which at the time of
acquisition is rated A-1 or better by
Standard & Poor's Ratings Group or P-1
or better by Moody's Investor Service,
Inc.; and

(c) Dollar-denominated bank instruments
maturing within one year after their
acquisition, issued by Eligible Banks;

"Authorized Representative" any natural person who is duly authorized by
the Borrower to act on its behalf for the
purposes specified in, and whose name and a
specimen of whose signature appear on, the
Certificate of Incumbency and Authority most
recently delivered by the Borrower to IFC;

"Business Day" a day when banks are open for business in
New York, New York or, solely for the
purpose of determining the Interest Rate
other than pursuant to Section 3.03 (d) (ii)
(Interest), London, England;


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"CEMAC" the Central African Economic and Monetary
Community;

"Certificate of Incumbency
and Authority" a certificate provided to IFC by the
Borrower in the form of Schedule 1;

"Charter" (i) with respect to the Borrower, the
articles of incorporation and bylaws and/or
such other constitutive documents, howsoever
called, or (ii) with respect to any Person
(other than a natural person or the
Borrower), the articles of incorporation and
bylaws and/or such other constitutive
documents, howsoever called, of that Person;

"Coflexip Contracts" the Fabrication and Installation Contracts
(Flowlines/Connectors) between (i) the
Borrower and Coflexip Stena Offshore
International, and (ii) the Borrower and
Coflexip Stena Offshore Ltd, each of which
is dated as of February 19, 2002;

"Control" the power to direct the management or
policies of a Person, directly or
indirectly, whether through the ownership of
shares or other securities, by contract or
otherwise, provided that the direct or
indirect ownership of fifty-one per cent
(51%) or more of the voting share capital of
a Person is deemed to constitute control of
that Person, and "Controlling" and
"Controlled" have corresponding meanings;

"Crude Sharing Agreement" any agreement entered into between the
Operator and a Project Partner pursuant to
Section 6.01 (aa);

"Cuttings/Mud
Disposal Plan" a cuttings/mud disposal plan to be prepared
by the Drilling Contractor, and acceptable
to IFC, detailing how and where disposal
will take place;

"Debenture" the agreement entitled "Debenture" dated on
or about the date of this Agreement between
the Borrower and IFC;

"Delaware" the State of Delaware, United States of
America;


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"Derivative Transaction" any swap agreement, cap agreement, collar
agreement, futures contract, forward
contract or similar arrangement with respect
to interest rates, currencies or commodity
prices;

"Development Plan" the development and production program
relating to the EEA submitted by the
Borrower and approved by the GOG on November
8, 2001, providing for completion of three
of the four existing wells and the
construction of production facilities and
the installation of an FPSO;

"Disbursement" any disbursement of the Loan;

"Dollars" and "$" the lawful currency of the United States of
America;

"Drilling Contract" at any time, the agreement entered into by
the Borrower for drilling activities
conducted for the Project, the first of
which is dated February 25, 2002 and is
between the Borrower and TransOcean Offshore
International Ventures Ltd., which is duly
organized and existing under the laws of the
Cayman Islands;

"Drilling Contractor" at any time, the contractor under the
Drilling Contract then in effect;

"Eligible Bank" a bank in England, with an office in London,
having capital, surplus and undistributed
profits of at least US$500,000,000 (or the
equivalent thereof in any other currency)
and a long-term debt rating of A or better
by Standard & Poor's Ratings Group or A3 or
better by Moody's Investors Service, Inc.;

"Environmental Plans" the Accidental Discharge Prevention and Oil
Spill Contingency Plan, the Cuttings/Mud
Disposal Plan, the Hazardous Material and
Waste Management Plan and the Health and
Safety Plan for Drilling Activities;

"Environmental and


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Social Policies" IFC Operating Policy 4.01 Environmental
Assessment Policy (October 1998), IFC Policy
Statement on Child and Forced Labor (March
1998), and the Policy on Disclosure of
Information (September 1998), copies of
which have been delivered to, and receipt of
which has been acknowledged by, the Borrower
by letter dated October 8, 2001, which
policies are incorporated herein by
reference;

"Environmental, Health
and Safety Guidelines" Offshore Oil and Gas Guideline, December 22,
2000 and General Health and Safety
Guideline, July 1, 1998, copies of which
have been delivered to, and receipt of which
have been acknowledged by, the Borrower by
letter dated October 8, 2001, which policies
are incorporated herein by reference;

"Environmental Impact
Assessment" or "EIA" the Environmental Impact Assessment, Etame
Marine Permit, Gabon, September 2001,
prepared by Sound Environmental Solutions,
Inc. on behalf of the Borrower;

"Environmental Review
Summary" or "ERS" the Environmental Review Summary dated
October 15, 2001 prepared by IFC and
approved by the Borrower;

"Escrow Account
Agreement" an agreement dated on or about the date of
this agreement between IFC, the Sponsor and
the Escrow Account Bank called the "Escrow
Account Agreement" pursuant to which the
Sponsor Escrow Account will be established,
operated and maintained;

"Escrow Account Bank" JP Morgan Chase Bank, London Branch, with
which the Sponsor Escrow Account will be
established, operated and maintained under
the Escrow Account Agreement, or such
successor entity as may be appointed
pursuant to the Escrow Account Agreement;


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"Etame Accounts" the Etame Revenue Account, the Etame
Operating Account and the Tinworth Escrow
Account;

"Etame Accounts
Agreement" the agreement entitled the "Etame Field
Trustee and Paying Agent Agreement" dated on
or about the date of this Agreement, between
the Borrower and the Etame Accounts Bank,
pursuant to which the Etame Accounts will be
established, operated and maintained;

"Etame Accounts Bank" JP Morgan Chase Bank, London Branch, with
which the Etame Accounts will be
established, operated and maintained under
the Etame Accounts Agreement, or such
successor entity as may be appointed
pursuant to the Etame Accounts Agreement;

"Etame Field" the area 45 kilometers offshore of the
southern coast of Gabon identified as the
"Delimited Area" (Zone Delimitee) in the
PSC, which contains hydrocarbon
accumulations, in relation to which the EEA
has been granted by GOG;

"Etame Field Assets" all of the Borrower's right, title and
interest (except for those arising solely in
its capacity as the Operator) in the present
and future assets used in connection with
the development, maintenance and/or
operation of the Etame Field;

"Etame Operating
Account" an interest-bearing account to be
established, operated and maintained by the
Borrower with the Etame Accounts Bank, in
accordance with the Etame Accounts Agreement
into which from time to time amounts
remaining in Etame Revenue Account after
payment of the GOG's share shall be
deposited and from which the fees for the
Etame Accounts Bank shall be paid and
Tinworth Escrow Account shall be funded and
maintained, with the balance being
distributed to the Project Partners in
accordance with their pro rata shares under
the JOA;


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"Etame Revenue Account" an interest-bearing account to be
established, operated and maintained by the
Borrower with the Etame Accounts Bank, in
accordance with the Etame Accounts
Agreement, into which gross proceeds from
the export sales of oil from the Etame Field
shall be deposited and from which GOG's
share of such revenue shall be paid;

"Event of Default" any one of the events specified in Section
7.02 (Events of Default);

"Exclusive Exploitation
Authorization" or "EEA" the Exclusive Exploitation Authorization
granted to the Borrower with respect to the
Etame Field through an edict by the Minister
in charge of Mines, Energy, Petroleum and
Hydraulic Resources of Gabon on July 17,
2001, for a term of at least ten (10) years;

"Existing Assets" the value of assets listed in the Project
Cost Account up to a maximum of $9.36
million for the Borrower's share of costs
associated with the exploration and
development of the Etame Field;

"Financial Plan" the proposed sources of financing for the
Project set out in Section 2.02 (b) (Project
Cost and Financial Plan);

"First Sale of Production" the date on which proceeds from the sale of
production from the Etame Field are first
received in the Etame Revenue Account;

"Fiscal Quarter" any consecutive three-month period ending on
March 31, June 30, September 30 and December
31, which may be changed from time to time
as a result of permitted changes to the
Borrower's or Sponsor's respective Fiscal
Years, as the case may be;

"Fiscal Year" the accounting year of the Borrower or the
Sponsor, commencing each year on January 1
and ending on the following December 31, or
such other period as the Borrower or the
Sponsor, as the


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case may be, with IFC's consent, from time
to time designates as its accounting year;

"FPSO" a registered floating production storage and
offloading tanker facility and its mooring
system;

"FPSO Contract" the Contract for the Provision and Operation
of an FPSO for the Etame Field dated August
20, 2001;

"Fred. Olsen Guarantee" the Guarantee dated September 14, 2001,
issued by Fred. Olsen Energy ASA and Prosafe
ASA, jointly and severally, in favor of the
Borrower guaranteeing the obligations of
Tinworth Limited under the FPSO Contract;

"Full Field Development
Plan" the document prepared by the Borrower and
submitted to IFC for its approval prior to
date of this Agreement that describes the
activities of the full development of the
Etame Field;

"Gabon" Republic of Gabon;

"GOG" the government of the Republic of Gabon;

"Guarantee Agreement" the agreement entitled "Guarantee Agreement"
dated on or about the date of this Agreement
between the Sponsor and IFC;

"Hazardous Material and
Waste Management Plan" a hazardous material and waste management
plan to be prepared by Tinworth Limited in
accordance with the FPSO Contract;

"Health and Safety Plan
for Drilling Activities" health and safety plans to be prepared by
the Drilling Contractor in accordance with
the Drilling Contract;

"IFC's Base Case" the cash flow forecast calculated in
accordance with the financial model agreed
between the Borrower and IFC on April 1,
2002, which shall be updated by the Borrower
in accordance with Section 6.05;


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"Increased Costs" the net incremental costs of, or reduction
in return to, IFC in connection with the
making or maintaining of the Loan that
result from any change in any applicable law
or regulation or directive (whether or not
having force of law) or in its
interpretation or application by any
Authority charged with its administration
that, after the date of this Agreement,
imposes on IFC any condition regarding the
making or maintaining of the Loan;

"Increased Costs
Certificate" a certificate provided from time to time by
IFC certifying the amount of, and
circumstances giving rise to, the Increased
Costs;

"Independent Engineer" Netherland Sewell and Associates, Inc.
(NSAI) or other such independent reservoir
engineer based in the United States with a
good reputation in the international oil and
gas industry, as IFC may appoint from time
to time to carry out the Reserve
Certification and other services reasonably
required by IFC (the fees and expenses of
all of which services shall be for the
account of the Borrower);

"Interest Determination
Date" except as otherwise provided in Section 3.03
(d) (ii) (Interest), the second Business Day
before the beginning of each Interest
Period;

"Interest Payment Date" March 15, June 15, September 15 or December
15 in any year;

"Interest Period" each period of three (3) months, in each
case beginning on an Interest Payment Date
and ending on the day immediately before the
next following Interest Payment Date, except
in the case of the first period applicable
to each Disbursement when it means the
period beginning on the date on which that
Disbursement is made and ending on the day
immediately before the next following
Interest Payment Date;


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"Interest Rate" for any Interest Period, the rate at which
interest is payable on the Loan during that
Interest Period, determined in accordance
with Section 3.03 (Interest);

"Joint Operating
Agreement" or "JOA" the Joint Operating Agreement dated April 4,
1997, between the Borrower and the other
Project Partners, as amended January 15,
2001;

"LIBOR" the British Bankers' Association ("BBA")
interbank offered rates for deposits in
Dollars which appear on the relevant page of
the Telerate Service (currently page 3750)
or, if not available, on the relevant pages
of any other service (such as Reuters
Service or Bloomberg Financial Markets
Service) that displays such BBA rates;
provided that if BBA for any reason ceases
(whether permanently or temporarily) to
publish interbank offered rates for deposits
in Dollars, "LIBOR" shall mean the rate
determined pursuant to Section 3.03 (d)
(Interest);

"Lien" any mortgage, pledge, charge, assignment,
hypothecation, security interest, title
retention, preferential right, trust
arrangement, right of set-off, counterclaim
or banker's lien, privilege or priority of
any kind having the effect of security, any
designation of loss payees or beneficiaries
or any similar arrangement under or with
respect to any insurance policy or any
preference of one creditor over another
arising by operation of law;

"Loan" the loan specified in Section 3.01 (The
Loan) or, as the context requires, its
principal amount from time to time
outstanding;

"Marketing Contract" at any time, the agreement entered into by
the Borrower for the marketing and
transportation of the Borrower's share of
the oil produced from the Etame Field,
substantially in the form delivered to IFC
as a condition of Disbursement in accordance
with Section 5.01(a)(ii);


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"Material Adverse Effect" a material adverse effect on:

(i) the Borrower or the Sponsor or their
respective assets or properties;

(ii) the Borrower's or Sponsor's business
prospects or financial condition;

(iii) the implementation of the Project or
the Financial Plan; or

(iv) the ability of the Borrower or the
Sponsor to comply with their
respective obligations under this
Agreement or any other Transaction
Document or Project Document;

"Material Contracts" the PSC, the JOA, the FPSO Contract, the
Fred. Olsen Guarantee, the Marketing
Contracts in effect from time to time, the
EEA, the Drilling Contract and the Etame
Accounts Agreement;

"Minimum Escrow
Amount" on any calculation date, the aggregate
amount of all Disbursements made under the
Loan, including on the date of any
Disbursement, the amount of such requested
Disbursement;

"Minimum Retention
Amount" on any calculation date, the aggregate of
all scheduled amounts of principal, interest
and fees payable in respect of the Loan
during the next three (3) months or, if no
such payment is due, the aggregate of all
scheduled amounts of principal, interest and
fees payable on the next occurring scheduled
date for repayment of principal of the Loan;

"MOF Loan
Authorization" the Authorization of the Minister of Finance
of Gabon of the financing contemplated by
this Agreement, in form and substance
acceptable to IFC;


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"MOH Loan
Authorization" the Authorization of the Minister of Mines,
Energy, Petroleum and Hydraulic Resources of
Gabon of the financing contemplated by this
Agreement, in form and substance acceptable
to IFC;

"Non-Project Activity" any activity other than the Project, carried
on in Gabon or elsewhere by the Borrower
(either alone or in association with a third
party);

"Officer" any of the President, Chief Executive
Officer, Chief Financial Officer or Chief
Operating Officer (or their functional
equivalents) of the Borrower or the Sponsor,
as the case may be;

"Official" any officer of a political party or
candidate for political office in Gabon or
any officer or employee (i) of the GOG
(including any legislative, judicial,
executive or administrative department,
agency or instrumentality thereof), (ii) of
any local Authority in Gabon or (iii) of a
public international organization;

"Operator" the party designated as such pursuant to the
PSC and the JOA, which, as of the date of
this Agreement, is the Borrower;

"Person" any natural person, corporation, company,
partnership, firm, voluntary association,
joint venture, trust, unincorporated
organization, Authority or any other entity
whether acting in an individual, fiduciary
or other capacity;

"PanAfrican Gabon" PanAfrican Energy Gabon Corporation, a
company incorporated under the laws of
Delaware;

"Phase One
Completion Date" the last day of the month on which IFC
notifies the Borrower in writing that, based
on the Borrower's own certification and, if
IFC so requires, concurring certifications
from the Auditors (in the case of
subparagraph (g) below) and the Independent
Petroleum Engineer (in the case of


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subparagraph (c) below), IFC is reasonably
satisfied that the following are true:

(a) in accordance with the Development
Plan, the Borrower has properly
reentered and completed three (3) of
the four (4) existing wells and
constructed and/or installed all
associated facilities needed to
achieve the extraction of oil from the
Etame Field, and these facilities have
passed all relevant commissioning and
other tests in accordance with good
international oil industry practice
and are fully operational;

(b) the oil produced per day from such
three (3) wells has averaged 14,250
barrels for the previous 90 days and
oil sold per day from such three (3)
wells has averaged 9,500 barrels for
the previous 60 days;

(c) the Proved Reserves and Proved
Developed Reserves of Etame Field, as
certified by the Independent Engineer
are at least 30 million barrels and
16.5 million barrels, respectively,
each amount adjusted, if necessary, to
include any oil produced from the
Etame Field prior to date of such
Reserve Certification;

(d) there shall be no outstanding claims
by contractors for amounts which
payment is due and owing in respect of
the construction and installation of
the facilities described in the
Development Plan (other than claims
being contested in good faith and with
respect to which adequate reserves
have been set aside);

(e) all sites, equipment and facilities
described in the Development Plan have
been acquired, developed, constructed
and become fully operational in
accordance with the relevant
provisions of the Agreed


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Environmental and Social Requirements
in all respects;

(f) the Environmental Plans shall have
been implemented;

(g) the VAALCO Retention Account shall
have a balance equal to at least the
Minimum Retention Amount;

(h) all Authorizations required in the
reasonable opinion of IFC (including
the necessary approvals from the GOG
and/or CEMAC, if any) for the normal
operation of the Project and the
performance by each of the Borrower
and the Sponsor of their respective
obligations under the Transaction
Documents and the Project Documents
shall have been obtained and remain in
full force and effect;

(i) no Event of Default or Potential Event
of Default shall have occurred and be
continuing;

(j) the Minimum Levels for DSCR, LOL and
LOF for all years covered by the IFC
Base Case shall have been achieved;

(k) a Marketing Contract, satisfactory to
IFC, shall have been executed and be
in effect;

(l) all the Security shall have been duly
created and perfected at least one (1)
month prior to the First Sale of
Production and shall have remained
perfected;

(m) the Borrower shall have delivered a
notice, signed by an Authorized
Representative, certifying to IFC that
the requirements of paragraphs (a)
through (l) above have been fulfilled;
and if IFC so requires, at the
Borrower's cost and expense,
concurring certifications from the
Auditors (as to


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paragraph (g) and the Independent
Engineer (as to paragraph (c));

"Pledge of Shares" the agreement entitled "Pledge of Shares
Agreement" dated on or about the date of
this Agreement among the Borrower, the
Sponsor and IFC;

"Potential Event
of Default" any event or circumstance which would, with
notice, lapse of time, the making of a
determination or any combination thereof,
become an Event of Default;

"Production Sharing
Contract" or "PSC" the Exploration and Production Sharing
Contract dated as of July 7, 1995, between
the Government of Gabon and the Borrower and
PanAfrican Gabon (under its former name
VAALCO Energy (Gabon), Inc.), collectively
as the Contractor, as amended by an undated
agreement between the Government of Gabon
and the Borrower with retroactive effect to
July 7, 2001;

"Prohibited Payments" any offer, gift, payment, promise to pay or
authorization of the payment of any money or
anything of value, directly or indirectly,
to or for the use or benefit of any Official
(including to or for the use or benefit of
any other Person if the Borrower or Sponsor
knows, or has reasonable grounds for
believing, that the other Person would use
such offer, gift, payment, promise or
authorization of payment for the benefit of
any such Official), for the purpose of
influencing any act or decision or omission
of any Official in order to obtain, retain
or direct business to, or to secure any
improper benefit or advantage for, the
Borrower, its Affiliates or any other
Person; provided that any such offer, gift,
payment, promise or authorization of payment
shall not be considered a Prohibited Payment
if, in IFC's reasonable opinion, it (i) is
lawful under applicable written laws and
regulations or (ii) is made for the purpose
of expediting or securing the performance


- 17 -

of a routine governmental action (as such
term is construed under applicable law);

"Project" the project described in Section 2.01 (The
Project);

"Project Cost Account" the account of all recoverable costs as
permitted under Section 26.10 of the PSC
incurred by the Borrower in the development
of the Etame Field on or before September
30, 2001, and submitted to IFC on April 3,
2002;

"Project Documents" (a) the Production Sharing Contract;

(b) the Joint Operating Agreement;

(c) the FPSO Contract;

(d) the Fred. Olsen Guarantee

(e) the Purchase Order (subsea trees)
between the Borrower and Kvaerner
Oilfield Products dated October 10,
2001;

(f) the Coflexip Contracts;

(g) the Drilling Contract, in effect from
time to time;

(h) the Management Contract between the
Borrower and Mustang Engineering dated
August 8, 2001;

(i) the Marketing Contract, in effect from
time to time;

(j) the Etame Accounts Agreement;

(k) the Exclusive Exploitation
Authorization; and

(l) the Crude Sharing Agreements, in
effect from time to time, if any;


- 18 -

"Project Partners" at any time, the Borrower and the other
Parties (as such term is defined in the JOA)
under the JOA, which, as of the date of this
Agreement, are: PanAfrican Gabon, Sasol
Petroleum International (Pty) Ltd.,
PetroEnergy Resources Corporation, Nissho
Iwai Corporation, Western Atlas Afrique Ltd.
and the Government of Gabon/Energy Africa;

"Proved Developed
Reserves" at any date, those Proved Reserves that are
expected to be recovered from existing wells
and installed facilities within the Etame
Field;

"Proved Reserves" at any date, the estimated quantities of
hydrocarbons which geological and
engineering data demonstrate with reasonable
certainty to be recoverable in future years
from known reservoirs under existing
economic and operating conditions. Proved
Reserves are limited to those quantities of
hydrocarbons which can be estimated, with
reasonable certainty, to be recoverable
commercially at current prices and costs,
under existing regulatory practices and with
existing conventional equipment and
operating methods (taking into account
applicable laws and regulations to which the
Borrower is subject);

"Reserve Certification" the certification of the Etame Field's
Proved Reserves and Proved Developed
Reserves prepared from time to time by the
Independent Engineer, including projected
capital expenditures, operating expenses,
annual production profiles and the economic
life of the Etame Field;

"Restricted Payments" all payments, including interest and
principal, on Affiliate Loans, dividends,
transfers of funds and other distributions
on share capital (whether in cash, shares,
or in kind) and any purchase, redemption or
other acquisition of shares by the Borrower;

"Security" (a) a first ranking security interest in
all of the Borrower's proceeds and
receivables relating to and from the
sale of its share


- 19 -

(other than solely in its capacity as
the Operator) of oil production from
the Etame Field;

(b) a first ranking security interest in
the funds (including any Authorized
Investments made with such funds) held
from time to time in the VAALCO
Accounts;

(c) an assignment by way of security of
the Borrower's rights, title and
interest (other than solely in its
capacity as the Operator) in and under
the Material Contracts;

(d) a first ranking security interest over
any and all of the Borrower's rights,
title and interest (other than solely
in its capacity as the Operator) in
all other Etame Field Assets;

(e) a first ranking security interest over
the funds (including any Authorized
Investments made with such funds) held
in the Sponsor Escrow Account;

(f) an assignment by way of security of
all rights and claims to any
compensation or other special payments
in respect of the Etame Field other
than those arising in the normal
course of Etame Field operations which
are payable to the Borrower (other
than solely in its capacity as the
Operator) by the GOG or any of its
agencies or by any other party and for
whatever reason;

(g) assignment by way of security of all
rights, title and interest in and to
the Borrower's share (other than
solely in its capacity as the
Operator) of the Etame Field-related
insurance policies and any proceeds
thereof;

(h) a first ranking pledge by the Sponsor
of all its shares in the Borrower; and


- 20 -

(i) an assignment of all Affiliate Loans
by the Sponsor;

"Security Documents" the documents providing for the IFC Security
consisting of:

(i) the Debenture;

(ii) the Pledge of Shares;

(iii) a letter from the GOG consenting to
the creation of the Security; and

(iv) the 1818 Fund Subordination Agreement;

"Subordination and Share
Retention Agreement" the agreement entitled "Subordination and
Share Retention Agreement" dated on or about
the date of this Agreement between the
Borrower, the Sponsor and IFC;

"Sponsor" VAALCO Energy Inc., a corporation organized
and existing under the laws of Delaware;

"Sponsor Escrow Account" an interest-bearing account to be opened and
maintained in the Escrow Account Bank under
the Escrow Account Agreement, in which
account the Sponsor shall maintain a balance
equal to at least the Minimum Escrow Amount
as security for the obligations of the
Sponsor to IFC under the Guarantee
Agreement;

"Spread" 0.75% per annum until the Phase One
Completion Date and beginning on the Phase
One Completion Date and thereafter 4.25% per
annum;

"Subsidiary" with respect to any Person, any entity:

(i) over 50% of whose capital is owned,
directly or indirectly, by that
Person;

(ii) for which that Person may nominate or
appoint a majority of the members of
the


- 21 -

board of directors or such other body
performing similar functions; or

(iii) which is otherwise effectively
Controlled by that Person;

"Taxes" any present or future taxes, withholding
obligations, duties and other charges of
whatever nature levied by any Authority;

"Texas" the State of Texas, United States of
America;

"Tinworth Escrow Account" an interest-bearing account for the benefit
of Tinworth Limited, which shall not have a
balance of a principal amount in excess of
$2,500,000, to be established, operated and
maintained by the Borrower with the Etame
Accounts Bank, in accordance with the Etame
Accounts Agreement;

"Tinworth Limited" Tinworth Limited, a company incorporated
under the laws of Bermuda;

"Transaction Documents" (i) this Agreement;

(ii) the Guarantee Agreement;

(iii) the Security Documents;

(iv) the Subordination and Share Retention
Agreement;

(v) the VAALCO Accounts Agreement; and

(vi) the Escrow Account Agreement;

"VAALCO Accounts" the VAALCO Retention Account and the VAALCO
Operating Account;

"VAALCO Accounts
Agreement" the agreement entitled "VAALCO Accounts
Agreement" dated the date of this agreement,
between IFC, the Borrower and the VAALCO
Accounts Bank, pursuant to which the VAALCO


- 22 -

Accounts will be established, operated and
maintained;

"VAALCO Accounts Bank" JP Morgan Chase Bank, London Branch, with
which the VAALCO Accounts will be
established, operated and maintained under
the VAALCO Accounts Agreement, or such
successor entity as may be appointed
pursuant to the VAALCO Accounts Agreement;

"VAALCO Operating
Account" an interest-bearing account to be
established, operated and maintained by the
Borrower with the VAALCO Accounts Bank, into
which disbursements of the IFC Loan are to
be made and into which the Dollar proceeds
of the Borrower's share of the net proceeds
generated from the export sales of oil from
the Project will be deposited, minus the
payment of royalties to the GOG in
accordance with the PSC and any other
payments required in accordance with the
Etame Accounts Agreement;

"VAALCO Retention
Account" an interest-bearing account to be
established, operated and maintained by the
Borrower with the VAALCO Accounts Bank, in
which a balance equal to at least the
Minimum Retention Amount shall be
maintained;

"Western Atlas
Agreement" the Conveyance of Production Payment from
Western Atlas Afrique, Ltd. to Western Atlas
International, Inc. dated December 29, 2000,
and the Stock Purchase Agreement between
Western Atlas International, Inc., as
seller, and the Borrower, as purchaser,
dated January 4, 2001;

"World Bank" the International Bank for Reconstruction
and Development, an international
organization established by Articles of
Agreement among its member countries.


- 23 -

Section 1.02. Financial Definitions. (a) Wherever used in this Agreement,
unless the context otherwise requires, the following terms have the meanings
opposite them:

"Agreed Oil Price" as of any calculation date, the most
recently published World Bank oil price
forecast in constant dollars or, in the
absence thereof, any other oil price to be
agreed upon by the Borrower and IFC;

"Current Liabilities" with respect to the Borrower or the Sponsor,
the aggregate of all liabilities of the
Borrower or the Sponsor, as the case may be,
falling due on demand or within one year
(including the portion of Long-term Debt
falling due within one year);

"Debt" with respect to the Borrower or the Sponsor,
the aggregate of all obligations (whether
actual or contingent) of the Borrower or the
Sponsor, as the case may be, to pay or repay
money including, without limitation:

(i) all Indebtedness for Borrowed Money;

(ii) the aggregate amount then outstanding
of all liabilities of any party to the
extent the Borrower or the Sponsor, as
the case may be, guarantees them or
otherwise directly or indirectly
obligates itself to pay them;

(iii) all liabilities of the Borrower or the
Sponsor, as the case may be, (actual
or contingent) under any conditional
sale or a transfer with recourse or
obligation to repurchase, including,
without limitation, by way of discount
or factoring of book debts or
receivables; and

(iv) all liabilities of the Borrower or the
Sponsor, as the case may be (actual or
contingent) under its respective
Charter, any resolution of its
respective shareholders, or any
agreement or other document binding on
the Borrower or the


- 24 -

Sponsor, as the case may be, to redeem
any of its respective shares;

"Debt Service Coverage
Ratio" or "DSCR" (a) for any calculation date, the Current
Period DSCR shall be the ratio
obtained by dividing (i) the Net Cash
Flow of the Borrower for the four (4)
previous consecutive Fiscal Quarters
(provided that, for each of the first
three (3) Fiscal Quarters following
the First Sale of Production, the Net
Cash Flow shall be annualized from the
date of the First Sale of Production
through the subject Fiscal Quarter) by
(ii) the Borrower's aggregate
scheduled interest and principal
payments in respect of all Long-term
Debt (excluding any Affiliate Loans)
for same four (4) Fiscal Quarters;

(b) for any calculation date, the Future
Period DSCR shall be the ratio
obtained by dividing (i) the Net Cash
Flow of the Borrower for the four (4)
previous consecutive Fiscal Quarters
(provided that, for each of the first
three (3) Fiscal Quarters following
the First Sale of Production, Net Cash
Flow shall be annualized from the date
of the First Sale of Production
through the subject Fiscal Quarter) by
(b) the Borrower's aggregate scheduled
interest and principal payments in
respect of all Long-term Debt
(excluding any Affiliate Loans) for
the next succeeding four (4) Fiscal
Quarters;

(c) For the purposes of sub-paragraph
(a)(ii) and (b)(ii) above, for the
computation of interest payable during
any period for which the applicable
rate is not yet determined, that
interest shall be computed at the rate
in effect at the time of the relevant
date of calculation; and


- 25 -

(d) The term "DSCR" shall apply to both
the Current Period DSCR and the Future
Period DSCR;

"Discount Rate" ten per cent (10%) per annum;

"Indebtedness for
Borrowed Money " with respect to the Borrower or the Sponsor,
all obligations of the Borrower or the
Sponsor, as the case may be, to repay money
including, without limitation, with respect
to:

(i) borrowed money;

(ii) the outstanding principal amount of
any bonds, debentures, notes, loan
stock, commercial paper, acceptance
credits, bills or promissory notes
drawn, accepted, endorsed or issued by
the Borrower or the Sponsor, as the
case may be;

(iii) any credit to the Borrower or the
Sponsor from a supplier of goods or
services under any installment
purchase or other similar arrangement
with respect to goods or services
(except trade accounts that are
payable in the ordinary course of
business and included in Current
Liabilities);

(iv) non-contingent obligations of the
Borrower or the Sponsor to reimburse
any other Person with respect to
amounts paid by the Borrower or the
Sponsor, as the case may be, to that
Person under a letter of credit or
similar instrument (excluding any
letter of credit or similar instrument
issued for the benefit of the Borrower
or the Sponsor, as the case may be,
with respect to trade accounts that
are payable in the ordinary course of
business and included in Current
Liabilities);

(v) amounts raised under any other
transaction having the financial
effect of a borrowing


- 26 -

and which would be classified as a
borrowing (and not as an off-balance
sheet financing) under the Accounting
Principles including, without
limitation, under leases or similar
arrangements entered into primarily as
a means of financing the acquisition
of the asset leased;

(vi) the amount of the Borrower's or the
Sponsor's obligations, as the case may
be, pursuant to Derivative
Transactions which consist of swap,
collar and cap agreements entered into
in connection with other Debt of the
Borrower or the Sponsor, respectively,
provided that for the avoidance of
double counting and for so long as any
such swap, collar or cap agreement is
in effect, that Debt will be included
in Indebtedness for Borrowed Money
pursuant to the terms of the relevant
Derivative Transaction and not the
terms of the agreement providing for
that Debt when it was incurred; and

(vii) any premium payable on a mandatory
redemption or replacement of any of
the foregoing obligations;

"Life of Field Coverage
Ratio" or "LOF" for any calculation date, the ratio obtained
by dividing (i) the present value at the
Discount Rate of the projected Net Cash Flow
derived from the Proved Reserves of the
Etame Field as certified in the most recent
Reserve Certification and calculated using
the Agreed Oil Price, for the period
commencing on such calculation date through
the longest economic life of said field as
certified in such Reserve Certification; by
(ii) the aggregate amount of principal
outstanding and any overdue interest and
penalty charges owing on that date on all
Long-term Debt of the Borrower (excluding
any Affiliate Loans);

"Life of Loan Coverage


- 27 -

Ratio" or "LOL" for any calculation date, the ratio obtained
by dividing (i) the present value at the
Discount Rate of the projected Net Cash Flow
derived from the Proved Reserves of the
Etame Field as certified in the most recent
Reserve Certification and calculated using
the Agreed Oil Price, for the period
commencing on such calculation date through
the final scheduled maturity date of the
Loan; by (ii) the aggregate amount of
principal outstanding and any overdue
interest and penalty charges owing on that
date on all Long-term Debt of the Borrower
(excluding any Affiliate Loans);

"Long-term Debt" with respect to the Borrower or the Sponsor,
that part of the Debt of the Borrower or the
Sponsor, as the case may be, the final
maturity of which, by its terms or the terms
of any agreement relating to it, falls due
more than one year after the date of its
incurrence;

"Long-term Debt to
Equity Ratio" at any calculation date, with respect to the
Sponsor, the result obtained by dividing the
Sponsor's Long-term Debt by the Sponsor's
Shareholder Equity;

"Minimum Levels" at any date on or after the Phase One
Completion Date, shall be 1.5 with respect
to the DSCR, 1.8 with respect to the LOL and
2.0 with respect to the LOF;

"Net Cash Flow" or "NCF" for any calculation period, the sum of all
Shareholders' Equity contributions in cash
and all proceeds received from the sale of
the Borrower's share (other than solely in
its capacity as the Operator) of oil
production from the Etame Field, less the
Borrower's share (other than solely in its
capacity as the Operator) of operating
costs, transportation costs, cash fund
contributions as required under the PSC,
taxes, royalties and capital expenditures
paid for the same period in respect of oil
production, but before any payments in
respect of Debt (whether principal, interest
or other fees and charges) for the same
period; and


- 28 -

"Shareholders' Equity" with respect to the Borrower or the Sponsor,
the aggregate of:

(i) the amount paid up on the share
capital of the Borrower or the
Sponsor, as the case may be; and

(ii) the amount standing to the credit of
the reserves of the Borrower or the
Sponsor, as the case may be
(including, without limitation, any
share premium account, capital
redemption reserve funds and any
credit balance on the accumulated
profit and loss account);

after deducting from that aggregate (A) any
debit balance on the profit and loss account
or impairment of the issued share capital of
the Borrower or the Sponsor, as the case may
be (except to the extent that deduction with
respect to that debit balance or impairment
has already been made), (B) amounts set
aside for dividends or taxation (including
deferred taxation), and (C) amounts
attributable to capitalized items such as
goodwill, trademarks, deferred charges,
licenses, patents and other intangible
assets; and

"Short-term Debt" all Debt other than Long-term Debt.

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 which the Borrower is obligated to furnish to IFC under Section 6.03
(a) (Reporting Requirements) or, in the case of financial calculations related
to the Sponsor, the most recently quarterly financial statements which the
Sponsor is obligated to furnish under Section 16.04 (g) of the Subordination and
Share Retention Agreement.

(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.


- 29 -

(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.


- 30 -

ARTICLE II

THE PROJECT, PROJECT COST AND FINANCIAL PLAN

Section 2.01. The Project. The project to be financed consists of the
development of the Etame Field in the Etame Marin block, 45 km offshore of the
southern coast of Gabon. The project involves the re-entering and completing of
three existing wells, the drilling and completing of up to three additional
wells and installing of flowlines to connect the wells to a FPSO capable of
processing up to 30,000 barrels per day and storing up to 1.1 million barrels of
oil.

Section 2.02. Project Cost and Financial Plan.* (a) The total estimated
cost of the Project is approximately $123 million, of which approximately $37
million represents the Borrower's share of the costs, including funding for
working capital, interest during construction and approximately $9 million of
Existing Assets.