In July 2012, the Company signed a definitive agreement with PETRONAS CARIGALI OVERSEAS SDN BHD for the purchase of a 31% working interest in Block P, located offshore Equatorial Guinea at a cost of $10.0 million. The acquisition was completed on November 1, 2012. There is no obligation to drill any wells to maintain this interest, but two exploration wells are expected to be drilled on this block in 2013. A subsidiary, VAALCO Energy (EG), Inc., was formed in association with the acquisition.

Drilling of the N’Gongui 2 well on the onshore Gabon Mutamba Iroru block commenced in October 2012 resulting in an oil discovery. Sidetracks to appraise the discovery commenced in late October 2012 in an effort to quantify the discovery and determine commerciality.

On November 1, 2012, the Company’s Board of Directors approved a one-time payment to the Company’s United States based employees to settle an employee benefit policy. In eliminating this benefit, compensation expense of $1.0 million will be recorded in the fourth quarter of 2012 in addition to the $2.6 million previously expensed. The payments that will be made in December 2012 are estimated to be $3.6 million net to the Company.