Victoria Oil & Gas Plc, the Cameroon energy utility company, today announces its unaudited interim results for the six months ended 30 November 2014.
Revenue for the period of $11.6 million (six months to 30 November 2013: $6.0 million; twelve months to 31 May 2014: $14.7 million)
EBITDA net of RSM arbitration/impairment adjustments of $1.4 million (six months to 30 November 2013: $0.2 million; twelve months to 31 May 2014: $5.8 million loss)
Revenue during the period was derived from the Logbaba gas and condensate field in Cameroon:
- gas sold was 716mmscf (six months to 30 November 2013: 323mmscf; twelve months to 31 May 2014: 809mmscf)
- condensate produced was 13,221bbls (six months to 30 November 2013: 5,335bbls; twelve months to 31 May 2014: 14,107bbls)
Capital Reorganisation, including 40 to 1 share consolidation
West Medvezhye – decision taken to fully impair asset, write down of $49.8 million
Operational Highlights for Accounting Period and to Present
Gas to power proof of concept established – first customer installations June 2014
Pipe laying and network infrastructure work outsourced under a cost per metre fixed price agreement from July 2014
Completions of first thermal gas connections on the Bonaberi shore in December 2014 after the gas pipeline network was extended under the Wouri River
Legally binding term sheet signed with ENEO Cameroon S.A. (“ENEO”) to supply two major power stations under a two year minimum ‘take-or-pay’ contract at a fixed price of $9/mmbtSuccessful remediation of Well La-106 and perforation in the upper horizons of Well La-105
Gas pipeline to two ENEO power stations completed and successfully tested
Total pipeline laid in Douala to date 31.3km
$17.0 million of cash received from RSM Production Corporation post period end
Appointment of two Independent Non-Executive Directors with significant industry experience
Appointment of Numis Securities as sole broker
Kevin Foo, Executive Chairman, said: “The VOG and GDC teams excelled during 2014 and achieved all our stated objectives. I am proud to confirm that GDC has substantially completed its scope of work for the ENEO project construction phase and safely built and tested gas pipelines to both stations. We have issued a completion certificate for the Bassa power station and expect to complete the Logbaba power station within two weeks. The project is scheduled to be online by the end of Q1 2015 and if this is achieved, as we expect, it will represent a remarkable success for the GDC, ENEO and Altaaqa teams. Progressing from signing legally binding terms sheets in late December 2014 to delivering 50MW to the grid approximately three months later is outstanding.
Concerning our 100% owned Russian property, West Medvezhye, we have continued to pursue ways to derive value for this asset, through farm-out, joint venture or sale. West Medvezhye has significant gas and gas condensate reserves but the current state of relations between Russia and the West, combined with a low oil price, makes near-term development of the asset challenging and we believe divestiture is a more prudent course. With our focus on Cameroon, the Board has taken the decision to fully impair the Russian asset, writing it down by $49.8 million. We shall of course continue to seek partners to derive full value from the asset.”
On behalf of the Board I am pleased to report our unaudited results for the six months to 30 November 2014 and to update you on company developments beyond the financial period.
During the six months to 30 November 2014, the Group’s objectives were to:
Increase gas production and to make Gaz du Cameroun S.A. (“GDC”) operationally cash positive;
Strengthen our Board and corporate profile;
Stabilise operations and processes and develop our people within the Group;
Build strong working relationships with our Logbaba partners RSM Production Corporation (“RSM”) and Société Nationale des Hydrocarbures (“SNH”);
Secure major new supply contracts involving power generation for the National Grid in Cameroon.
The management teams of Victoria Oil & Gas Plc (“VOG” or “the Company”) and GDC excelled during 2014, meeting all of the above objectives for the reporting period and delivering positive results in the areas of engineering, sales and corporate developments.
Logbaba Gas Project, Cameroon
Following extensive planning and negotiations during the reporting period, GDC signed a legally binding term sheet with ENEO Cameroon S.A. ("ENEO"), Cameroon's integrated utility company, in late December 2014, to supply gas to two power stations, located in the city of Douala. Logbaba and Bassa power stations will generate up to 50MW from Gensets, supplied by Altaaqa Alternative Solutions Projects DWC‑LLC (“Altaaqa”). The agreement includes ‘take-or-pay’ consumption rates and allows GDC to establish a secure level of gas sales at an attractive price of $9/mmbtu. The power stations’ minimum gas consumption will be approximately 9mmscf/d in the January-June dry season and 3mmscf/d in the July‑December wet season. The contract is for two years and extendable by mutual agreement. This project could treble GDC’s current gas production. We expect average annual production for the 2015 calendar year to be about 10.4mmscf/d.
In the release of our 2014 Annual Report we quoted our 7 day week July 2014 production of 3.9mmscf/d at GDC. Since then, from August 2014 to January 2015 inclusive, our monthly average daily rate based on a 7 day week has ranged from 3.9 to 4.4mmscf/d. For the same period our monthly average daily rate based on a 5 day working week has ranged from 4.1 to 4.6mmscf/d and the monthly daily peak production rates have ranged from 4.5 to 5.3mmscf/d.
I am proud to report that GDC has substantially completed its scope of work for the ENEO project construction phase and safely built and tested gas pipelines to both stations. We have issued a completion certificate for the Bassa station and expect to complete the Logbaba station within two weeks. The project is scheduled to be online by the end of Q1 2015 and if this is achieved, as we expect, it will represent a remarkable success for the GDC, ENEO and Altaaqa teams. Progressing from signing legally binding terms sheets in late December 2014 to delivering 50MW to the grid approximately three months later is outstanding.
The period was not without its challenges, such as securing the release of gas-fired electricity generations sets (“Gensets”) from the local customs and the delay on the Wouri River crossing. However GDC now has access to a wide base of thermal gas customers on the Bonaberi side of the river. GDC is also in the process of making final connections to the Dangote cement plant, a business located on the Douala shore and a major thermal supply customer. Total pipe laid to date in Douala is now 31.3km.
During the period, VOG maintained a good working relationship with Logbaba Field development partners RSM and SNH. Following a settlement agreement between VOG and RSM in January 2014, a cost review process overseen by Akintola Williams Deloitte, Nigeria was undertaken to look at retrospective development expenditure. The review resulted in RSM paying significant development contributions ($10.1 million) and both companies are now working together to unlock the full potential of the Logbaba Field. An additional $6.9 million was received from RSM in February 2015.
One of the most important tasks undertaken during 2014 was the development of our people. At the beginning of the reporting period, we appointed a business-training company, Gallop Solutions International Ltd, to work with us to create an effective workforce with the right skill sets to deliver value for VOG. Our teams within VOG and GDC are now a cohesive, effective team working to build cash flow and a brand synonymous with safe, reliable gas supply.
Post period, in January 2015, the GDC subsurface team successfully conducted a rigless workover of Well La-106. The work utilised specialist coiled tubing, high-pressure pumping and wireline equipment to perform cement remediation work on the well. Initial well flow-tests of Well La-106 were at 5 to 6mmscf/d and the well can provide back-up for Well La-105.
In February 2015, we took the opportunity to utilise the specialist equipment and personnel used on the Well La-106 workover to add perforations to Well La-105. We perforated the sands above the Upper Logbaba D Sand, which has been our main producing reservoir in La-105 since start-up. In total, 57 metres of additional perforations were shot. After shooting the perforations, a production log was run in Well La‑105 to determine the contributions of the new zones to flow and a baseline for future logs. The newly perforated zones are performing well and will significantly contribute to production in the future as the lower sands deplete.
The Company is also making plans for the drilling of future wells at Logbaba that are aimed at increasing reserves and production to meet the growing gas demand in Cameroon.
In operations, VOG will make a number of key decisions over the next six months concerning where best to allocate gas supply. With strong increased demand rates expected in the first half of 2015, through the ENEO deal, the Board is now looking at the most effective ways to increase both margin and consumption within GDC.
In addition to developing our operational capabilities, we have taken significant steps to enhance our corporate structure and profile.
VOG strengthened its Board of Directors with the appointment of James McBurney who joined the Board as an independent Non-Executive Director in June. James has over 25 years' experience advising many of the U.S.'s largest power and gas companies. John Bryant was also appointed as an independent Non‑Executive Director in December 2014. John has commercial and financial experience in developing and managing new businesses with over 40 years' experience in the oil, gas and energy services, both in the U.S. and the U.K. These appointments give the VOG Board important and valuable independent guidance.
During October 2014, Numis Securities Ltd (“Numis”) was appointed as sole broker to VOG. Numis is one of the premier broking houses in London and we are working closely with their team to provide the market with guidance on VOG, with the intention of building further investor support as we expand operations. After consulting with Numis and a number of other advisors and institutional investors we took the decision to conduct a 40 to 1 share consolidation in the Company’s equity. Following the fundraisings from 2011 to 2013, which were needed to support the commercialisation of the Logbaba project, VOG had over four billion shares on issue and this was felt to be unattractive to potential investors. We implemented the consolidation and sub-division of the Company’s share capital effective 27 November 2014, following shareholder approval granted at the AGM.
Since then, the Company has announced consistent positive news flow and our share price has performed solidly despite very challenging equity markets.
West Medvezhye, Russia
The Company has continued to pursue ways to derive value for its 100%-owned West Medvezhye field, Russia, through farm-out, joint venture or sale. West Medvezhye has significant gas and gas condensate reserves but the current state of relations between Russia and the West, combined with a low oil price, makes near-term development of the asset challenging and divestiture is a more prudent course. With our focus on the expanding operations in Cameroon, the Board has taken the decision to fully impair the Russian asset, writing it down by $49.8 million. The Company will continue to seek partners to derive value from the asset.
I would like to thank the Board and our teams for their work and also our shareholders who have been supportive, allowing us to drive the Group forward to where it is today. I believe 2015 will be a year when GDC is able to expand its gas sales within a region in great need of reliable sources of energy.
27 February 2015
Revenue and Results
The Group’s revenue for the period was $11.6 million, compared to $6.0 million for the six months to 30 November 2013 and adjusted EBITDA (shown below) increased by $1.2 million. In all relevant periods, the revenue was derived from the Logbaba gas and condensate field in Cameroon. The primary revenue stream was gas sold to industrial customers for thermal energy production and electricity generation, with revenue also generated from the sale of condensate, a by-product from gas production and processing.
The total gas sold during the period was 716mmscf, and 13,221bbls of condensate were produced. While gas prices remained unchanged throughout the period because of the fixed price contracts we have with our customers, the global downturn in oil prices has negatively affected the condensate sales price, as this is linked directly to the price of Brent Crude.
The loss on ordinary activities after taxation of the Group for the six months to 30 November 2014 amounted to $53.4 million (six months to 30 November 2013: $2.5 million profit; year ended 31 May 2014: $1.7 million loss). The current period loss includes an impairment charge of $49.8 million against the Group’s Russian asset, discussed in more detail below and in Note 5.
It should also be noted that the comparative period results included historical adjustments as a consequence of the decision in the arbitration between the Group and RSM Production Corporation (“RSM”). The adjustments reflect RSM’s share of prior period operating expenses, as the arbitration decision was that RSM had not forfeited its 40% interest in the Logbaba gas and condensate project. The Directors believe that EBITDA (net of this adjustment and the impairment provision) provides context for the results in the current period and comparative periods.
EBITDA net of RSM arbitration and impairment adjustments
Impairment of Russian Asset (West Medvezhye)
At the end of the current period, the Directors took the decision to fully impair the Group’s exploration and evaluation asset, being the Russian West Medvezhye (“West Med”) asset. The impairment increased the loss for the period by $49.8 million, with corresponding balance sheet reductions of the same value. The impairment provision was made as it was considered that the political issues in Russia, combined with the weakness in the world price of oil, make realising the carrying value of the asset through the current marketing process significantly more difficult.
The West Med exploration and evaluation asset was fully impaired at the end of the period, as described above and in Note 5.
The movement in unlisted investments relates to the repayment to the Company of loans that were acquired as part of the original investment.
Deferred tax assets
As a result of the taxable profits generated by the Cameroon segment during the period, the deferred tax asset was reduced by $1.6 million and a corresponding debit to income tax expense was recorded on the income statement.
Trade and other receivables
Trade and other receivables at 30 November 2014 included $18.2 million due from RSM. This relates to RSM’s funding obligation for its 40% participating interest in the Logbaba Concession. It reflects RSM’s share of all assets, liabilities and costs relating to the Logbaba concession in the post-exploration period. Following the end of the period, $17.0 million was received from RSM. The period end receivable balance includes a further $1.2 million, which remains outstanding at the date of publication of these results. Further details are provided in the ‘Cash Flow’ section below and in Note 10.
The devaluation of the Russian Rouble resulted in an $8.3 million movement in the translation reserve. The translation reserve movements arose because the financial accounts of the Group’s Russian subsidiary are maintained in Russian Roubles.
The Group’s operations in Cameroon are conducted through a joint operation with RSM. During the period under review, RSM did not make any payments for its 40% share of project expenditures, with all such payments from RSM suspended pending the issue of a final report by Akintola Williams Deloitte, Nigeria (“Deloitte Nigeria”) (refer Note 10). The Group was required to fund 100% of the operational cash flows, and therefore the cash used in operating activities was substantially more than the Group’s share. As reported in Note 10, the claim against RSM was resolved subsequent the end of the period, and RSM settled the amounts owing for the period covered by Deloitte Nigeria’s report ($10.1 million). An additional $6.9 million was received from RSM in February 2015 for its share of incurred expenses subsequent to the period covered by Deloitte Nigeria’s report. The period end receivable balance includes a further $1.2 million, which remains outstanding at the date of publication of these results.
Investing activities related primarily to the expansion of the pipeline network in Cameroon, with payments of $3.7 million for property, plant and equipment (six months to 30 November 2013: $9.5 million).
Additionally, the Company received $1.4 million from its unlisted investments, in the form of loan repayments.
Financing cash flows in the period related solely to the repayment of debts.
The Directors are satisfied that the Group has sufficient resources to continue operations for the foreseeable future, being a period of not less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial information.
27 February 2015