9.       SUBSEQUENT EVENTS

Gabon

In October 2014, the Company shut-in production from the Ebouri 2-H well due to a pressure communication issue.  The Company is performing diagnostic work to determine the cause and the resolution of the issue. The well was producing approximately 2,500 BOPD on a gross basis (700 BOPD net to the Company).

In October 2014, the Company received a provisional audit report related to our Etame Marin block operations from the Gabon Taxation Department as part of a special industry-wide audit of business practices and financial transactions in the Republic of Gabon.  With limited information pertaining to the report, the Company currently cannot reasonably estimate a range of potential loss, if any, as a result of the audits.  While the ultimate outcome of the claim and impact on VAALCO cannot be predicted, management believes that the claims are unfounded.  In November 2014, the Company responded to the Gabon Taxation Department requesting joint meetings to advance the resolution of this matter.

Angola

In October 2014, the Company entered into the Subsequent Exploration Phase (“SEP”) together with its working interest partner, Sonangol P&P, as provided for in the Production Sharing Agreement signed in 2006 with the Republic of Angola. The Company entered into the SEP due to uncertainty that the primary term of the exploration license would be extended by the Republic of Angola before the November 30, 2014 expiration date. The SEP requires the Company and its partner to acquire 3D seismic covering six hundred square kilometers and to drill two additional exploration wells.  

By entering into the SEP, the Company is now required to drill a total of four exploration wells during the exploration extension period.  The four well obligations include the two well commitments under the primary exploration period that carries over to the SEP period.  A $10.0 million dollar assessment ($5.0 million dollars net to VAALCO) applies to each of the four commitment exploration wells, if any, that remain undrilled at the end of the exploration period in November, 2017. Restricted cash of $10.0 million for the two new commitment wells will be recorded in the fourth quarter of 2014.

The Company has already satisfied the seismic obligation with the purchase of 3D seismic in the outboard segment of the block which is currently being processed and will continue into 2015.

A drilling rig contract was signed in July 2014 for a semi-submersible rig to drill the exploration well on the Kindele prospect, a post-salt objective. The well is expected to begin drilling in December 2014. Drilling this well will satisfy one of the four exploration well obligations and release $5.0 million of the $10.0 million recorded as restricted cash at September 30, 2014 by the Company.