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Chairman's Letter to Shareholders

9 Sep 2011

The following letter to shareholders in the Company has been released today:


  • Logbaba development on schedule for Q4 2011
  • Logbaba participation increased to ninety-five per cent.
  • Acquired one third of Cameroon Holdings Limited adding substantial value to the Company
  • Logbaba internally estimated base case economic value increased by US$270m to US$676m
  • Prospective resources at West Medvezhye increased to 1.4 billion barrels of oil equivalent including increased oil prospectivity of 670 million barrels of oil
  • Early production scheme feasibility study for West Medvezhye commenced


Dear Shareholder,

It is my pleasure to provide you with an update regarding our Company's activity since my last update in May. I have great pleasure in announcing the very good progress we are making at Logbaba and also sharing some excellent news from West Medvezhye.

Logbaba Operations, Cameroon

The President of Cameroon, Paul Biya, signed our Exploitation Decree in Q2 2011, awarding the exploitation rights to and appointing Rodeo Development Limited ('RDL'), VOG's wholly owned subsidiary, as operator of the Logbaba gas and gas condensate field.

We subsequently initiated the work programme for the downstream elements of the project, which involves taking high pressure gas from the well, processing it to clean it, removing condensate and then distributing it through a low pressure pipeline network to our customers. Within those overall tasks are thousands of engineering hours, construction jobs, well preparation procedures and pipe laying, welding and testing procedures. Despite this being the Cameroon Wet Season, with 1,600mm of rain in July and 900mm of rain in August, our staff and contractors have worked very hard seven days a week andare maintaining our schedule of first gas sales in Q4 2011. 

In my last quarterly update, I highlighted four key tasks for the execution of the Logbaba gas and gas condensate field development as being:

  • re-opening the wells;
  • trenching, jointing, installation and commissioning of the gas pipeline network;
  • installation and commissioning of the process plant; and
  • installation of pressure reduction and metering stations and boiler conversions on customer premises.

Production trees assembly for the wells is now complete. This work included stripping, inspecting and reassemblingof all valves on La-105 and La-106 wellheads.  The trees were then successfully hydro-tested for any potential leaks. Calliper surveys and production logs work will be carried out on the wells this month.

Substantial progress has been achieved on the gas pipeline network, the area the most at risk from the weather. Please take the opportunity to look at the Logbaba monthly progress reports available for download from our website, where you will get a real sense of progress.

Out of a total pipeline distance of 4.5km to our first customers in Central Douala, 1.2km of pipeline has been installed, backfilled and successfully pneumatically tested, with a further 0.3km of pipeline jointed and awaiting installation. We anticipate that the entire section of pipeline to first customers on the Magzi Industrial Estate will be installed within approximately one month, after which the whole network will be pneumatically tested again for leaks as part of the commissioning process. We will be able to supply gas to Magzi customers while the rest of the pipeline is under construction.

At the site itself, drilling of all 36 of the piles is complete to a depth of 10 metres and concrete has been poured. Our gas plant contractor, Expro, is testing process plant vessels, flow lines and equipment at their base in Douala.

All of the large vessels will be skid mounted and delivered to our site as the concrete pads are completed. The process plant de-sander units have been delivered and the high pressure pipes from the production trees to the units are being welded for connection. In addition, the gas cooler plinths have been completed and these vessels have also been delivered to site.

Specifications for Pressure Reduction and Metering Stations ('PRMS's) have been prepared for more than 20 of our customers and the first nine units have been ordered.

We sponsored a Logbaba Gas Usage conference in July to outline boiler conversion and upgrade works so that customers are ready to receive gas in Q4 2011. This was very well received by our customers. We arranged presentations from three providers of dual fuel burners, three gas generator providers and our preferred contractor for onsite steel work from the custody transfer point at the plant gate to the burner tip.

In summary, despite the difficulties associated with construction operations during the Wet Season, we have made excellent progress on all fronts and we remain confident of delivering first gas sales on schedule.

The Company currently has 12 signed and executed gas sales agreements ('GSAs') and a further 10 GSAs which have been commercially agreed. All contracts will be signed at a price of US$16 per million British Thermal Units ('mmbtu'), fixed for 5 years from the date of first gas delivery.

The existing proved and probable reserves of 212 billion cubic feet at Logbaba are sufficient to satisfy an average production of 30 mmscf/d for the next 20 years and are supported by the local supply contracts.

The market appetite for our gas is very strong and we believe will grow rapidly. The Board believes that we have substantial upside in reserves and resources and we are well on the way to delivering an integrated gas supply chain right from the well head to the burner tip. I am very excited about the future of the Logbaba project.

Logbaba Commercial Developments, Cameroon

In July 2011, the Company announced an increased share of RDL in the Logbaba project to 95 per cent. This was a result of RSM Production Corporation's payment default under its cash call obligations leading to the forfeiture of its equity participation under the terms of the Joint Operating Agreement and other agreements with RDL.

In August 2011, the Company announced the acquisition from PR Marriott, our drilling contractor on wells LA105 and LA 106, of a one third interest in Cameroon Holdings Limited, ('CHL'), for a total consideration, including cash and equipment, of US$6 million. CHL owns a royalty over the Logbaba field calculated on a sliding scale averaging 6.8 per cent. of project revenues over a 20 year anticipated project life.  The Board anticipates a significant return on this acquisition cost over the life of the project.

Further to these events, the Directors wish to report substantially improved internal forecast estimates of economic returns for the Logbaba project. The post tax net present value discounted at 10 per cent. ('NPV10') and 15 per cent. ('NPV15') net to VOG for various categories of reserves and resources at Logbaba are:

Logbaba Economics Net to VOG:


NPV10 discount rate

NPV15 discount rate

Proved  (1P)



Proved & Probable  (2P)



Proved, Probable and Possible   (3P)



3P plus Prospective Resources  




West Medvezhye Project, Russia

VOG's wholly owned subsidiary, ZAO Sever Gas-Invest (SGI), holds a 20-year Exploitation Licence for West Medvezhye ('West Med') covering 1,224 km2. The block is located in the Yamal Peninsula in the Nenets region of Siberia with independently assessed total prospective resources of approximately 1.1 billion barrels of oil equivalent (boe) assessed by DeGolyer and MacNaughton ('D&M').

In our last update to the market on West Med in July 2011, we informed you that the Company had commissioned a seismic reprocessing and geological modelling study to be carried out on West Med by an independent Russian geoscience consulting institute, Mineral LLC ('Mineral'), incorporating the passive seismic survey results, gas tomography and conventional 2D seismic. This work is now complete and a technical workshop was held in Tyumen, Russia in August to review the work and its conclusions.

Mineral has prepared structure maps and seismic attributes anomaly maps for all the prospective formations in the West Med block. These were integrated with the Company's passive seismic, gas tomography and geochemical studies to define/rank leads and prospects and to further assess the 103 discovery. The relevant technical details are currently under review by the technical team at SGI/VOG/Blackwatch Petroleum Services Limited ('Blackwatch') and Mineral is compiling a detailed report of their findings.

I am very pleased to announce that, on the basis of their independent assessment received at the end of August, Mineral has concluded West Med prospective resources are now in excess of 1.4 billion boe including increased oil prospectivity of approximately 670 million barrels of oil in the Lower Cretaceous Neocomian-Achimov and Jurassic formations. These results exceed the previous estimate by D&M by more than 300 million boe and our team continue their assessment and will submit an application later this month to the Russian authorities requesting approval of our proposed drilling location.

West Med Current Reserves & Resources Estimates




C1 + C2 Reserves


Russian Classification

C3 Resources


Russian Classification

Prospective Resources


Independently Assessed by D&M

Updated Prospective Resources


Independently Assessed by Mineral

(1)       Million barrels of oil equivalent

Mineral are the leading consultants in Russia for this specialised geological work and have an excellent proven track record in Siberia where our West Med block is located. We believe that their updated assessment of over 1.4 billion boe is of major significance and demonstrates the very real potential of our West Med block.

In the meantime, our technical consultant, Blackwatch, has been carrying out integrated appraisal and development studies. The principal objective of the 2011 work program has been to assess and plan for the commercialisation of the large prospective resources and to explore ways to exploit Well 103 with an early production scheme to generate early cashflows. Specific appraisal and development work carried out on the Well 103 area and the prospective resources has included:

  • drilling and well engineering design, costing & scheduling;
  • surface facilities and infrastructure conceptual design, operational strategy and HSE considerations;
  • downstream options;
  • economic modelling and valuation parameters; and
  • option screening.

Preliminary development assessment work on the Well 103 discovery indicates that we will plan for first oil sales in 2015 subject to further refinement and screening. We shall update you on our West Med programme as the results of our feasibility studies emerge. Valuation parameters under various conceptual development schemes for Well 103 and the prospective resources will also be highlighted once feasibility studies have been completed.


The Board makes every effort to maximise shareholder returns on considering optimal capital structures for the Company and financial solutions for its ongoing capital requirements. The Company constantly reviews investment opportunities that will increase our exploration and production asset portfolio and will target value accretive acquisitions which may require additional funding in the future.

I have always set very aggressive project goals for our staff and contractors and will continue to do so. We are at a very exciting point in the history of our Company and I look forward with anticipation to the coming months.

VOG's asset portfolio provides us with a solid platform for future growth and shareholder returns. We have seen some dramatic developments at both an operational and corporate level over the past few months and I am delighted with where we are heading. While the markets in general have been in turmoil, I remain very confident that new and existing shareholders will appreciate the real value potential that lies within the Company as we move ever nearer to first gas sales at Logbaba and continue our excellent progress at West Med.

Yours sincerely

Kevin Foo    



Mr Radwan Hadi, Chief Operating Officer of the Company, has reviewed and approved the technical information contained within this announcement in his capacity as a qualified person, as required under the AIM rules. Mr Hadi is a petroleum/reservoir engineer with over 30 years experience in oil and gas exploration and production.


For further information, please contact:


Victoria Oil & Gas Plc -                                               Tel:  +44 (0) 20 7921 8820 

Kevin Foo / Martin Devine 


Strand Hanson Limited -                                               Tel:  +44 (0) 20 7409 3494 

Simon Raggett / Angela Peace


Fox-Davies Capital -                                                    Tel:  +44 (0) 203 463 5010

Daniel Fox-Davies/ Richard Hail


Tavistock Communications -                                         Tel:  +44 (0) 20 7920 3150

Ed Portman/ Paul Youens



Background Information on Victoria Oil & Gas Plc:


Victoria Oil & Gas is an independent oil and gas exploration and production company with projects in Africa and the FSU. The Company's principal assets are the 95% owned Logbaba gas and gas condensate project in Cameroon and the 100% owned West Medvezhye project in Siberia, Russia. Logbaba is located in Douala, the economic capital of Cameroon. The field was discovered in the 1950s and all four exploration wells encountered gas. The Company drilled two successful development wells in 2009/10.

West Medvezhye is situated in the prolific Yamal-Nenetsk hydrocarbon region in Siberia. The Company has a discovery well, 103, with C1 and C2 reserves, independently assessed under the Russian classification convention of 14.4 million boe and 170 mmboe  recoverable resources approved by the Russian Ministry of Natural Resources. Currently, integrated appraisal and development studies are in progress to commercialise the Well-103 discovery and prospective resources.