On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company has analyzed the different aspects of the CARES Act and is implementing the applicable provisions, which have no impact on the Company.

For interim reporting periods, the Company determines its tax expense by estimating an annual effective income tax rate based on current and forecasted business results and enacted tax laws on a quarterly basis and applies this tax rate to the Company’s ordinary income or loss to calculate its estimated tax expense or benefit. The tax effect of discrete items is recognized in the period in which they occur at the applicable statutory tax rate.

The income tax provision for VAALCO consists primarily of Gabonese and United States income taxes. The Company’s operations in other foreign jurisdictions have a 0% effective tax rate because the Company has incurred losses in those countries and has full valuation allowances against the corresponding net deferred tax assets.

Provision for income tax expense (benefit) related to income from continuing operations consists of the following:

The Company’s effective tax rate for the three months ended March 31, 2020 and 2019 was (68%) and 77%, respectively. For the three months ended March 31, 2020, the Company’s overall effective tax rate was impacted by non-deductible items associated with operations and deducting foreign taxes rather than crediting them for United States tax purposes. The effective tax rate was also impacted by a change in current year expectations caused by lower crude oil prices from the collapse in crude oil demand due in part to the world-wide economic impact of the COVID-19 pandemic as well as the failure of OPEC and Russia to agree on reductions in production in order to avoid excessive oversupply of crude oil. Primarily as a result of lower crude oil prices, the Company decreased its estimate for future taxable income, and the deferred income tax expense for the three months ended March 31, 2020 included a

$23.1 million charge to increase the valuation allowances on U.S. and Gabonese deferred tax assets. Further, the increase in the valuation allowance relating to a change in expectations in future periods was treated as a discrete item for the three months ended March 31, 2020. The Company recorded a deferred income tax expense of $12.3 million to reduce the benefit from the Gabonese deferred tax asset related to the difference between VAALCO’s Cost Account and the book basis of the Etame Marin block. Additionally, we recorded a deferred income tax expense of $11.5 million to reduce the benefit from the U.S. deferred tax asset related to the basis differences in fixed assets and net operating loss carryforwards.

The Company files income tax returns in all jurisdictions where such requirements exist, with Gabon and the United States being its primary tax jurisdictions.