2010 Annual Report - VAALCO Energy, Inc.

• Undeveloped oil and gas reserves. Undeveloped oil and gas reserves are reserves of any category thatare expected to be recovered from new wells on undrilled acreage, or from existing wells where arelatively major expenditures is required for recompletion.(i)(ii)Reserves on undrilled acreage shall be limited to those directly offsetting development spacingareas that are reasonably certain of production when drilled, unless evidence using reliabletechnology exists that establishes reasonable certainty of economic producibility at greaterdistances.Undrilled locations can be classified as having undeveloped reserves only if a development planhas been adopted indicating that they are scheduled to be drilled within five years, unless thespecific circumstances, justify a longer time.(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage forwhich an application of fluid injection or other improved recovery technique is contemplated,unless such techniques have been proved effective by actual projects in the same reservoir or ananalogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence usingreliable technology establishing reasonable certainty.• Unproved properties. Properties with no proved reserves.Terms which describe the productive life of a property or group of properties• Reserve life. A measure of the productive life of an oil and gas property or a group of oil and gasproperties, expressed in years. Reserve life for the years ended December 31, 2010, 2009 or 2008 equalthe estimated net proved reserves attributable to a property or group of properties divided byproduction from the property or group of properties for the four fiscal quarters preceding the date as ofwhich the proved reserves were estimated.Terms used to describe the legal ownership of the Company’s oil and gas properties• Royalty interest. A real property interest entitling the owner to receive a specified portion of the grossproceeds of the sale of oil and natural gas production or, if the conveyance creating the interestprovides, a specific portion of oil and natural gas produced, without any deduction for the costs toexplore for, develop or produce the oil and natural gas. A royalty interest owner has no right to consentto or approve the operation and development of the property, while the owners of the working interestshave the exclusive right to exploit the minerals on the land.• Working interest. A real property interest entitling the owner to receive a specified percentage of theproceeds of the sale of oil and natural gas production or a percentage of the production, but requiringthe owner of the working interest to bear the cost to explore for, develop and produce such oil andnatural gas. A working interest owner who owns a portion of the working interest may participateeither as operator or by voting his percentage interest to approve or disapprove the appointment of anoperator and drilling and other major activities in connection with the development and operation of aproperty.Terms used to describe seismic operations• Seismic data. Oil and gas companies use seismic data as their principal source of information to locateoil and gas deposits, both to aid in exploration for new deposits and to manage or enhance productionfrom known reservoirs. To gather seismic data, an energy source is used to send sound waves into thesubsurface strata. These waves are reflected back to the surface by underground formations, where theyare detected by geophones which digitize and record the reflected waves. Computers are then used toprocess the raw data to develop an image of underground formations.5