INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 NOVEMBER 2011
Victoria Oil & Gas Plc (AIM: VOG), the AIM quoted oil and gas exploration and production company with assets in Cameroon and the FSU, is pleased to announce its unaudited interim results for the six months ended 30 November 2011.
Highlights for the period ending 30 November 2011:
- Increase in prospective resources by over 300 million barrels of oil equivalent ("boe") to 1.4 billion boe at West Med
- Increase in the Company's working interest to 95 per cent. at Logbaba
- Equity placings of £10.1 million
- Macquarie Capital (Europe) Limited appointed as a joint broker to the Company
Highlights post period end:
- VOG becomes the first onshore gas and condensate producer in Cameroon supplying the industrial market in December 2011
- Second phase of pipeline expansion to central Douala under construction, and expected to be completed in early Q2 2012
- Over 1 million standard cubic feet a day ("mmscf/d") of production anticipated from May 2012, expected to rise to 8 mmscf/d by December 2012 and 40 mmscf/d by late 2014
- Completion of first 34 km of gas distribution network anticipated by Q3 2012
- Positive cashflow from operations expected by June 2012
- Tender process for drilling design contracts underway at West Med
- US$8 million debt facility in place
For further information, please contact:
Victoria Oil & Gas Plc - Tel: +44 (0) 20 7921 8820
Kevin Foo / Martin Devine
Macquarie Capital (Europe) Limited Tel: +44 (0) 20 3037 2000
Jeffrey Auld / Steve Baldwin / Nicholas Harland
Fox-Davies Capital - Tel: +44 (0) 20 3463 5010
Daniel Fox-Davies/ Richard Hail
Strand Hanson Limited - Tel: +44 (0) 20 7409 3494
Simon Raggett / Angela Peace
Tavistock Communications - Tel: +44 (0) 20 7920 3150
Ed Portman/ Paul Youens
Chairman's Report and Financial Information for the period ended 30 November 2011
Operational and Corporate Review
In the second half of 2011, our focus was on delivering first gas production at Logbaba. This was realised on the 17 December 2011. This was a very significant milestone for the Company because it signalled our move into being a producer. Passing this milestone within three years of first entering Cameroon was an outstanding result and this also demonstrates to the investment community that Cameroon is a country that is open for business. We could not have done this without the active support of the Government of Cameroon and our partner, Societe Nationale des Hydrocarbures, ("SNH").
In H2 2011, VOG achieved the following major operational milestones:
i. flow testing and commissioning of both production wells, La-105 and La-106;
ii. commissioning of the process plant by introducing gas into the plant, testing and fine tuning all equipment and flaring gas;
iii. introducing gas to the distribution pipeline for purging the 4 km initial section and packing the pipeline with gas; and
iv. commissioning the first 4 km of pipeline to the first industrial hub located at the Magzi Industrial Estate ("Magzi") and delivering gas to our first customers.
We have made the first onshore discovery of commercial hydrocarbons in Cameroon and are the only onshore gas and condensate producer in the country. Since the award of our Exploitation Licence in April 2011, we have logged over 23,000 man days with only one minor lost-time incident.
Our 2012 work programme involves completing the planned 34 km distribution network. We also plan to secure all major thermal customers in Douala and install the first gas fired power generator during the second half of 2012. This will showcase the economic benefits of this energy solution to all large domestic industrial consumers.
By Q2 2012, we expect to have laid and commissioned all pipeline to central Douala where the majority of our thermal customers are located. Although Magzi represents a large energy demand centre for power, there are currently only two customers connected to the pipeline and they have minor and intermittent thermal requirements. However, in central Douala, we anticipate an increase in production levels from a minimum of 1 mmscf/d rising to 8 mmscf/d across the network by the end of the year. To date, the Company has signed fifteen Gas Sales Agreements, ("GSAs") and anticipates signing in excess of twenty GSAs by the end of 2012.
We have installed approximately 9 km of the total 11.8 km pipeline required to supply gas to and around central Doula. With four pipeline crews in operation, rates of installation and backfill have reached up to 120 m per day. Completion of the distribution network to south east and west Douala is anticipated during Q3 2012.
As previously announced, we are selling gas at US$16 per million British thermal units (ca. US$16 per thousand cubic feet) to customers, which is the oil equivalent of US$96 per barrel. This price is fixed for five years. In addition, the contracts enable the Company to be the sole provider of gas to these industrial clients over a 20-year term. By delivering a reliable energy supply to our customers at these prices, we are providing energy savings of 20-40 per cent. over current costs with liquid fuels while management estimates of operating costs provide attractive netbacks to the Company.
We believe that Logbaba is an exceptional gas project where all aspects of the business combine to provide a very satisfactory situation. The project has substantial reserves located at the industrial heart of an energy hungry region and the Company controls the entire supply chain from the wellheads to the customer. We anticipate generating positive cash flow from our Logbaba operations from June 2012. Once our 8 mmscf/d target production rate is achieved by the end of the year, gross revenues of US$1 million per week can be expected. Looking to 2013, the Company expects greater gas demand and our target production is 20 mmscf/d and combined usage from thermal and power demand is expected to reach 40 mmscf/d by late 2014.
With gross proved and probable (2P) reserves sufficient to supply an average 30 mmscf/d for the next 20 years and prospective resources of over one trillion cubic feet of gas, we believe that Logbaba represents a very sound cash source for the future. We have a captive market that is eager to take our gas as it provides cleaner, more reliable energy and significant savings to alternative fuels.
West Medvezhye, Russia
Our 100 per cent. owned West Medvezhye ("West Med") block is located near the Yamal Peninsula, north west Siberia, in one of the most prolific oil and gas producing areas in the world, adjacent to the giant Medvezhye and Urengoy fields. We hold a 20-year exploitation licence for West Medvezhye covering 1,224 km2, and a discovery well, Well 103, has "C1 plus C2" reserves of 14.4 million boe under the Russian resource classification system.
In September 2011, following a seismic reprocessing and geological modelling study, the Company reported that independent reserve auditors, Mineral LLC, ("Mineral") had confirmed a 300 million boe increase in gross prospective resources to 1.4 billion boe, comprising 670 million barrels of oil and 730 million boe of gas & condensate.
We are pursuing an integrated exploration and appraisal work programme incorporating drilling, seismic, and advanced direct hydrocarbon technologies. This programme was presented to the Yamal District regional petroleum authorities in Salekhard on the 15 February 2012. The programme was approved by the authorities and a two well drilling campaign is provisionally planned to start by the end of 2012. These wells will target the Jurassic discovery horizons successfully encountered by Well 103 and also new hydrocarbon potential horizons in the Achimov layers identified as part of the study carried out by Mineral.
Our Nadym-based team is currently tendering the drilling design contracts for the planned wells. Three companies with a successful track record of working in the region have been shortlisted. Our technical team are in advanced discussions with these companies to determine the scope of work to include detailed well design as well as studies of the terrain, soil mechanics, access and ecological issues.
Conceptual screening and development studies are in progress to monetise West Med's large prospective resources and to exploit the Well 103 discovery to generate cash flow. In February 2012, VOG contracted an experienced local company, LLC Nefteproject, based in Tyumen, to develop a project plan for an early production scheme for the West Med discovery area. Preliminary work on the Well 103 discovery indicates first oil sales could occur in 2015.
The Company is planning to farm-out a portion of its interest in West Medvezhye to help fund the development and drilling programmes.
The Company has invested approximately US$85 million of shareholders funds in the Logbaba project and it has secured this funding in very challenging capital markets. During the financial period, the Company raised £10.1m via equity placings. The Board and I are very conscious that the share issues, which have been essential to the progression of our projects, have also been dilutive.
The Directors believe that the Logbaba project has now been substantially de-risked. Consequently, routes to alternative sources of capital, other than conventional equity, have opened up for the Company.
The Company recently concluded a 12 month Loan Note facility for US$8 million for its capital programme at Logbaba. An initial tranche of US$4 million has been drawn and the remaining US$4 million may be drawn subject to mutual consent. The Loan Note bears a 9 per cent. coupon and is expected to be repaid by cash flow from operations at Logbaba. We are also currently in discussions with several parties in relation to a larger debt facility and reserve based lending facility, both with attractive terms. The appointment of Macquarie Capital (Europe) Limited as a joint broker with Fox Davies Capital has also strengthened the Company's advisory team.
I believe that 2012 will be a year of major developments for the Company as we make the transition from explorer to producer and generate positive cash flows. To equip us for the future, we are strengthening our management with experienced oil and gas professionals and senior executives.
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