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Preliminary Results for the year ended 31 December 2016

26 May 2017

Comparative Periods

The audited financial amounts for the year ended 31 December 2016 (the “current period”, “period” or “reporting period”) are compared to the audited seven-month period ended 31 May 2015 (“prior period”) unless otherwise stated.


Operational Highlights

  • 24% increase in gas sales: 3,566mmscf gross gas sold (12 months/2015: 2, 868mmscf)
  • 10.23mmscf/d average gas production (12 months/2015: 8.13mmscf/d)
  • 15km pipeline laid as part of Bonaberi extension - 50km total network
  • Matanda licence 75% interest in 1,235km2 Matanda Block assigned to the Company, adding 2.8tcf net prospective resources in Northern Matanda Field
  • Logbaba drilling programme commenced targeting additional gas reserves


Financial Highlights

  • $32.8 million revenue (prior period: $21.4 million)
  • Production milestone (“Payout”) reached whereby GDC farm-in partner received 40% of revenues as of 1st June 2016
  • $30.0 million group loss before tax ($1.6m profit prior period), including a $22.7 million write down of Logbaba well La-106 at 31 December 2016
  • $13.1 million Underlying EBITDA (prior period: $8.5 million)
  • $1.8 million net cash position at year end (prior period: $6.0 million)
  • $27 million capital investment on drilling programme and pipeline expansion (prior period: $1.2 million)
  • BGFI Bank debt facility of $26.0 million equivalent signed. Headroom of $14.4 million at 31 December 2016
  • Termination of 1.2% royalty and reserve bonus following mediated settlement


Corporate Highlights

  • Executive Director changes: Robert Palmer and Grant Manheim retired from Board, Andrew Diamond appointed as Finance Director and Roger Kennedy appointed as Independent Non-Executive Director
  • Proposed capital reduction


Post Period

  • 80% participating interest in Bomono Block secured, subject to regulatory approval



Kevin Foo, Chairman, of Victoria Oil & Gas said:

"I believe that the assignment of majority interests in the Matanda and Bomono licenses, coupled with our expanding Logbaba operations and gas market will prove to be the transformational events for 2016 and early 2017. As sole gas supplier to the Douala region, which we estimate demand of more than 150mmscf/d of gas, I envisage that the new areas will help us become the dominant player in the Douala Basin.”


Ahmet Dik, CEO, of Victoria Oil & Gas said: 

“Following a particularly successful year at the operating level, with Underlying EBITDA at $13.1 million, the Logbaba drilling programme is nearing conclusion which, following an upgrade to the gas processing plant, will allow us to advance on the growing Douala market.

We achieved a 24% increase in gross gas sales in 2016, which I think is an outstanding result. Even at record production levels, we meet less than 10% of local demand as the city's industrial economy grows.

We have now recouped our first stage development capital expenditure, with revenues from Logbaba now reflecting our 60% participating interest. The operating loss of $30.0 million includes the non-cash impairment of Logbaba well La-106 and other provisions which will enable future accounts to more truly reflect the outstanding performance of your Company.

Looking forward, reprocessing and interpretation of existing seismic and well data from across  the combined area of 3,500km2 throughout Logbaba, Matanda and Bomono blocks focuses on increasing gas reserves and production to supply an energy hungry and growing industrial market further gas to power projects.” 


Chairman’s Statement


I am pleased to report to shareholders on the excellent progress that your Company achieved during 2016.


We changed the Company’s accounting reference date in 2015, so this report and financial statements covers the calendar year to 31 December 2016. The prior period covers the seven-month period to 31 December 2015.


I believe that the transforming event that frames 2016 and early 2017 was the assignment of majority interests in the Matanda and Bomono licences.  Whilst the Bomono assignment is pending regulatory approval, we believe that these additions present VOG with the opportunity to build significant long-term gas reserves in lower pressure formations than at Logbaba, resulting in more cost effective drilling and production programmes.


We have now taken a major step to secure VOG’s future by assembling over 3,500km2 of highly prospective land, surrounding the Logbaba operating field and our pipeline network that further establishes our presence in the Douala Basin in the Republic of Cameroon.


Sales Increased by 24%


At the beginning of 2016, we set a target of a 30% increase in gross gas sales against the calendar year to 31 December 2015. We achieved a 24% increase to 3.6bcf (2015: 2.9bcf), which I think is an outstanding result. This was anchored by gas sales to two Douala power stations and our expanding thermal gas customer base, especially on the Bonaberi side of the Wouri River. Looking back, our strategic decision to lay almost 1km of pipeline under the Wouri River in 2014, to be prepared for the expected industrial expansion in Bonaberi, was prescient. Many industries are now being established in this area and we are ready to supply gas to them.


Financial Highlights


During 2016, the Logbaba Project reached a production milestone (“Payout”) after which GDC will now share 40% of revenues generated by the Project with its partner, RSM Production Corporation of Denver, USA (“RSM”).   Attributable revenue for the year of $32.8 million compares to $21.4 million for the prior period. Underlying EBITDA for the period was a record $13.1 million and this reflects the strong fundamentals in the business we have built.


One of the Logbaba wells, La-106, has not produced to its potential because of mechanical and borehole damage at the bottom of the well which has continued to date. Despite remediation efforts, which concluded in 2016, the well is now seen as an occasional producer for short periods of time when well La-105 is undergoing maintenance. Accordingly the Board has decided to write down the $22.7 million carrying cost of this well. I would point out to shareholders that this has a non-cash impact on the Company.


In addition to the La-106 write down, the 2016 financial statements also reflect a one-off settlement of a historical reserve bonus and a 1.2% royalty held by one of the original licensees of Logbaba, prior to GDC’s entry into the Project. We have also made a provision for a land claim at Logbaba which we had previously disclosed as contingent.


The net loss of $31.1 million for the year, or 28.74 pence per share (prior period: profit of $0.2 million; earnings of 0.1 pence per share), primarily reflects these write downs and provisions. It does however, “clear the decks” to enable our future accounts and balance sheet to more truly reflect the outstanding performance of your Company.


At a cash flow and liquidity level, the Group finished the year in a strong position, with sufficient cash and headroom on debt facilities to cover its commitments on the Logbaba drilling programme. 


What our Business is and what it can be


Shareholders and investors often ask me what our business is. This is not an easy question to answer, as we have some of the characteristics of an energy utility, but we also need to drill gas wells to add to reserves and enable production build out. We also control the full value chain from well head to customer gas meters. 


I believe VOG is a unique company that has shown very special skills and considerable determination in developing a small, traditionally “stranded” gas deposit, installing a gas distribution network extending 50km into and around Douala to deliver gas to over 25 customers and securing long-term contracts at free market prices for this gas. So, in many respects it is not a question of what we are but a question of what we have done.  The challenge we now face is building our fledgling business into one of four to five times our current size. I believe that this growth is achievable within five years.


We will require greater gas reserves and a growing demand for that gas. GDC is very well positioned, as the only onshore gas supplier in Cameroon, to meet this demand, which we believe is greater than 150mmscf/d of natural gas in the Douala region alone. Whilst our average daily production in 2016 was about 10mmscf/d, we are aiming to capture 100mmscf/d of this market by 2021. This production cannot be met by the Logbaba Field alone, so we have long planned to have access, one way or the other, to gas resources on both the Matanda and Bomono Blocks as they were explored, appraised and developed by their previous owners.


We estimate that over $350 million has been spent on Matanda and Bomono since 2010, three wells have been drilled (all tested gas), and 650 line-km of 2D seismic and 203km2 of 3D seismic has been acquired, therefore de-risking the projects substantially and to VOG’s advantage. 


As events have unfolded, we are now in a very strong position, with majority stakes in three contiguous blocks, Logbaba, Matanda and Bomono (subject to approvals), and control of over 3,500km2 of prime gas exploration and development territory, covering most of the onshore Douala Basin. These assignments, which cost the Company very little, will be seen in the future as “game changers” that allowed VOG to expand its business and maintain its position as a leading energy provider in Cameroon.  I believe that the prospective resources in these blocks, coupled with the outstanding Logbaba production facilities and our existing gas distribution network, underpins our potential to achieve the 100mmscf/d production target. We are truly becoming a fully integrated gas company.


Our subsurface technical team is in the process of assessing all the data across the three blocks and I am very excited with the potential of the onshore prospects, which have never been assessed as a “whole” before. Work is currently underway to identify drillable targets in the Matanda and Bomono Blocks by the end of 2017, with a view to drilling wells in 2018-2019. 


Among the prospects that have been identified internally is one with un-risked prospective resources of approximately 1tcf of gas in the onshore Matanda Cretaceous Logbaba Formation in a large structure near the Missellele-1 well. This structure is only some 8.7km from the current western leg of our pipeline on the Bonaberi side. There is still more work to do in identifying and evaluating further prospects on the blocks and I am very confident that as the sub-surface team continues its work more prospects of this quality and size will be identified.


The Logbaba Engine Room


We have built this Company on the Logbaba gas deposit and for the near future Logbaba will still be the “engine room”.  Our focus in 2016 was to significantly increase production - this was achieved.  Each year more than a hundred thousand new connections are made onto the power grid in Douala to satisfy the demands of people and businesses. This growth is not stopping, so last year we committed to drill two more development wells at Logbaba with the aim of increasing our Proven (1P) Reserves and to create two additional production wells. Drilling is ongoing, with target depths of both wells at the base of the Logbaba Formation, some 3,200m below surface. 


The Logbaba drilling programme, which experienced a delayed start, is progressing, despite some challenges. These are complex, high temperature, high pressure wells.  However, we are very excited that over 125m of gross gas bearing sands have been encountered in La–108. This is significantly more than the 85m of gross pay found in La-105 in 2010. When the wells are completed we expect to be transferring a portion of our Probable Reserves into the 1P category.  The completion of the drilling programme will also trigger our processing plant expansion project to double the plant capacity to 40mmscf/d. This will enable us to supply more gas and take advantage of some of the bigger and longer term supply opportunities in the region.


In 2016, GDC’s gas distribution network grew 15km into the expanding Bonaberi industrial area of the city.  Early this year, we reached the 50km milestone of pipe laid, an outstanding credit to the Company and in particular our 100% Cameroonian pipeline team.  Additional thermal customers along this extension were commissioned pre and post year-end.  Douala’s economy continues to grow and our gas network contributes to the attractiveness of the port city to new industrial businesses. We are witnessing this first-hand through our sales enquiries in GDC.


The uninterrupted gas supply to ENEO’s two power stations over the course of the first two-year contract has been a successful milestone for GDC.   The renewal negotiations are ongoing and ENEO continues to consume GDC gas at normal consumption rates for this time of year given the demand for power in Douala.  Once results for the drilling programme are known, GDC will then be in a position to commit to negotiations that have been ongoing for some time with additional larger gas-to-power projects.


What we continue to achieve in Cameroon is exceptional.  


Corporate Highlights


We continue to seek a buyer or partner for the West Medvezhye Project in Russia. A technical and economic review was carried out during 2016 which has identified that the block has significant oil potential based on the 103 well drilled in 2006, which has enabled a new project development plan to be prepared. With recovering oil prices, and improved investment climate in Russia, the sale potential has increased and initial marketing approaches have begun to potential buyers. We will continue to seek a solution that is in the best interests of the shareholders. 


The Company announced the departure of Grant Manheim, Deputy Chairman and Robert Palmer, Finance Director in May 2016.  Andrew Diamond was appointed Finance Director on 30 June 2016; the first full time Finance Director in the Company’s history.  In the same month Ahmet Dik assumed the role of CEO.  Finally, with the appointment of our third Non-Executive Director, Roger Kennedy, in July 2016, the Company believes that it has strengthened its corporate governance over the course of the year.  


During 2016, the Company’s share price remained relatively static and did not reflect the excellent progress being made in Cameroon.  However, the market responded positively in early 2017 and at the date of reporting our market capitalisation has increased by more than 70% since 31 December 2016.  During the year we appointed new brokers; GMP First Energy and Shore Capital. These companies work closely with us and have provided active research coverage. 


The Annual General Meeting will be held on 28 June 2017. At this meeting, shareholder approval will be sought for a capital reduction, comprising cancellation of the deferred shares and a reduction of the Company’s share premium account. The Board considers it desirable to effect the capital reduction to be in a position to make dividend payments or other distributions to Shareholders as and when suitable circumstances arise.  Further details regarding this are provided in the shareholder circular to be distributed by 2 June 2017. A copy will also be available on our website


I would like to thank our partners, in particular RSM, for their ongoing support on the Logbaba Project, and The National Hydrocarbons Corporation of Cameroon (“SNH”) for their invaluable in-country support.


As is always the case none of these achievements are gained without the hard work and commitment of the whole team.  I would especially thank Ahmet Dik and Andrew Diamond, our key Executive Directors, Eric Friend, Managing Director of GDC and the Board of Directors, management and all our employees for their continued support.


With the drilling programme concluding, an expanding energy market in Douala, and the outstanding potential that Matanda and Bomono offer us, 2017 looks set to be an exciting year for the Company. I believe that the resources in these three blocks, coupled with the Logbaba production facilities and gas distribution network will underpin our growth in gas reserves and production to meet or exceed the 100mmscf/d target by 2021.  We are becoming a fully integrated gas company with massive growth opportunities.



Kevin Foo

Executive Chairman

25 May 2017



Chief Executive Officer’s Review of Operations



I am pleased to report outstanding progress during 2016. We still have some way to go, but our achievements have positioned the Group extremely well for the future.


During 2016 GDC progressed from planning for gas sales expansion in 2015 to delivering a 24% increase in sales over a 12-month period. Any expansion of our business will also require an increase in gas reserves and processing capacity and by drilling two development wells, we expect to increase our resource base. 


During the year, the Logbaba Project sold 3,566mmscf of gas (2,868mmscf for the 12-months to 31 December 2015). The average daily sales rate of gas for the year was 10.23mmscf/d (8.13mmscf/d for the comparable 12-months to 31 December 2015). Condensate sold during the period was 39,844bbls (42,298bbls for the 12-months to 31 December 2015). By any measure, Logbaba operations have had an outstanding year.


Growing Supply


The increased production is pleasing, but to take advantage of our unique position within this market the Group needs to expand its reserves and recoverable gas supplies. Once these are in place we then need to increase our gas production capability. 

To this end the Group has:


  • Spudded and is drilling two development wells on Logbaba;
  • Acquired a 75% participating interest in the Matanda Block;
  • Post year-end acquired an 80% participating interest in the adjacent Bomono Block, the completion of which is subject to Government and regulatory approvals; and
  • Extended our subsurface expertise and initiated seismic reprocessing of the Logbaba, Matanda and Bomono fields with the objective of identifying target areas for future drilling.


Logbaba Drilling Programme


The 2016/2017 drilling programme was designed for two wells: La-107 and La-108 in the onshore Cameroon Logbaba Field to supplement the two existing Logbaba production wells: La-105 and La-106. The new Logbaba wells are required to meet the growing market demand for gas, develop Logbaba reserves and to move some of our Probable reserves into the 1P (Proven) reserve category. One of the wells, La-107 is a twin to the La-104 well drilled in 1957; the other well, La-108 is a ‘step-out’ well that is being drilled into a target location within the area of the Logbaba Field, that is considered to contain Probable gas reserves. Both wells are being drilled directionally from a drilling pad adjacent to the Logbaba gas plant and they are to be tied into our production facilities immediately after they are drilled and completed. La-107 is almost vertical; the La-108 ‘step-out’ well is being drilled to intersect a target that is about 1,000m to the south-east of the Logbaba drilling pad.


Both wells are intended to be production wells completed in the Upper Cretaceous (Campanian and Santonian) Logbaba Formation, which is a thick sequence of interbedded sands and shales found at depths between 1,700m and 3,200m below the surface. 


A contract was signed with Savannah Oil Services Cameroon to provide a 1,500 HP Komako 1 Train Rig for the Project and the rig arrived in Cameroon in June 2016. The rig is mounted on tracks, allowing efficient batch drilling to be undertaken by moving the rig back and forth between the two wells.


Despite initial delays, on completion of a comprehensive Control of Well Review by an independent engineer on behalf of the insurance underwriter and a Comprehensive Rig Audit and Rig Acceptance Test by Bureau Veritas, drilling commenced and La-107 and La-108 spudded on 1 and 12 November respectively.


By 31 December 2016, La-108 had been drilled and cased to 1,173m where the 13⅜” casing has been set. The 12¼” hole section on well La-107 had been drilled to its target depth of 1,618 m.


Since year-end significant gas-bearing sands have been identified in the La-108 8½” hole section using Logging While Drilling (LWD) equipment and by monitoring formation gases encountered whilst drilling. Approximately 125m of gross gas-bearing sands were encountered between the top of the Logbaba Formation at 1,670m TVD (Total Vertical Depth) and 2,702m TVD . The La-108 well, once completed, is expected to contribute to an increase in Proven (1P) reserves by promoting some of the Logbaba Field Probable Reserves into the Proven category. For comparison, the main production well at Logbaba, La-105 encountered 85m of gross gas bearing sands when drilled in 2010. 


La-107 is a twin of the Serepca La-104 well drilled in 1957 into an area that has proven gas in the Logbaba field and is intended to develop some of the Proven (1P) reserves. 


Post year-end, the 9⅝” casing has been run and cemented in La-107 in preparation to drill the 8½” hole section through the Logbaba gas-bearing reservoir sands. The 9⅝” casing run into La-107 included a DDV (Downhole Deployment Valve), which was successfully set with the casing to assist in the MPD (Managed Pressure Drilling) technology that has been employed during the drilling of the over-pressured Logbaba Formation. This is the first time that a DDV has been successfully deployed in Sub-Saharan Africa.  


After setting the 9⅝” casing in La-107 the rig was skidded to the La-108 well and the La-108 12¼” hole section was drilled to its target depth of 1,953m MD (Measured Depth). The 9⅝” casing, including the installation of a DDV as per La-107, was run and cemented in La-108.  MPD equipment was rigged up and the La-108 8½” hole section was drilled through the Logbaba Formation to a depth of 3,076m MD (2,702m TVD). At that point, a mechanical problem with the drill string led to a gas kick and a well control incident. While the well was being brought under control, the drill pipe became differentially stuck in the well and the drill team was unable to retrieve it.


In late March 2017, a cement plug was placed in the La-108 8½” hole and engineering commenced to sidetrack the well. Whilst engineering work was carried out on the La-108 sidetrack the rig was skidded over to La-107 to drill the 8½” hole section, which is ongoing.


The well control and drill pipe issues, coupled with the planned La-108 sidetrack have resulted in a schedule slippage and an estimated budget increase of approximately $8 million, taking the expected cost to complete both wells to approximately $56 million. Planned completion of the wells is now Q3 2017, but it is expected that the wells will be under test before this. GDC’s share of well costs will be covered by cash generation, existing cash and credit facilities.


Installation of temporary flow lines to connect La-107 and La-108 to the Logbaba processing facility on completion of the well testing are almost complete. Detailed design work has been completed for the permanent flowlines. Construction of the permanent flowlines will commence once the rig is removed.


Expansion of our gas processing facility is contingent on the results of the drilling programme. The engineering packages for different expansion scenarios are completed and are ready for quotations. This work will be carried once we have a clear indication of the production capability of the new wells.


Matanda and Bomono


As stated in the Chairman’s Statement, we believe that the assignment of majority interests in Matanda and Bomono will prove to be transformational for the Group. 


In February 2016, the Company announced a 75% interest assignment of Logbaba’s neighbouring licence area, the 1,235km2 Matanda Block from Glencore. Three wells drilled in the North Matanda Field and extensive 2D and 3D seismic data show a strong geological continuation between the Logbaba and North Matanda fields. Work is ongoing to evaluate the gas potential of the block. The primary objective of this work was to identify drilling prospects with a high chance of success which can be brought rapidly into production. 


Post the reporting period, the Company announced on 6 March 2017 that it had entered into a Farm-Out Agreement with EurOil Limited (a Bowleven Plc subsidiary) in relation to the Bomono production sharing contract (“PSC”). The assignment is still subject to Government approvals but once completed will result in the Group having an 80% working interest in the 2,237km2 licence. During 2016, Bowleven completed extended flow tests on the Moambe well that exceeded 7mmscf/d. The intention is for gas produced from the Bomono PSC to be fed into GDC’s pipeline network. GDC’s current pipeline infrastructure is only 8.7km away from the Bowleven drilled wells. 


During 2016, the Company strengthened our in-house subsurface technical expertise and this team has been reprocessing and interpreting existing seismic data from across all three blocks. This work is benefiting from the proximity of the Logbaba, Matanda and Bomono licence areas and the experience gained from operating the Logbaba field, allowing for the first time, a fully integrated analysis on the whole Douala Basin.


We are most encouraged by the exciting onshore prospects in the Northern area of the Matanda license, near the boundary with Bomono, in structures like the Missellele and the Moambe discovery. There is also significant on-shore potential on the trend between the North Matanda discovery and the producing Logbaba field. 


Meeting Demand of a Growing Market


During 2016, GDC added 15km to the Bonaberi line. GDC’s pipeline network in Douala is now 50km, which is a real credit to our operating team. The earthworks for the Bonaberi extension were outsourced to a company contracted by the Government of Cameroon to lay bitumen along the main road through Bonaberi. By contracting their services to carry out the trenching work simultaneously with the construction work on the major road, a significant cost and time saving was achieved.


The investment case for the Bonaberi extension was supported by the demand from the industrial customers in the area. An additional benefit is that the extended line stretches closer to the Moambe well on the Bomono Block, which aligns with our strategy of bringing Bomono gas into the GDC pipeline network in the future.


Thermal Customers

Prior to the end of the reporting period three new thermal customers were consuming gas along this extension.  Branch lines were commissioned up to Pressure Reducing Metering Systems (“PRMS”) units to four additional customers. Post year-end three of these customers have completed their downstream installations and are now consuming gas. Further customers along the line are at varying stages of readiness to consume our gas soon.


Encouragingly, our sales team at GDC is receiving new enquiries from businesses looking to move into the less densely populated Bonaberi area, which is currently the fastest growing industrial area in Douala. The availability of our gas from the pipeline network along the newly constructed road is an influencing factor in the attractiveness of this area. Additionally, there are positive signs of economic growth in the region as several of our existing customers are considering expansion of their operations in the near term. 


Grid Power

The completion of a further calendar year of uninterrupted gas supply to our grid power customer ENEO has been a notable achievement for GDC. The Logbaba and Bassa power stations have consumed gas in accordance with the seasonal take-or-pay levels set out in the initial two-year contract. This contract expired on 22 April 2017. Negotiations for the renewal of this contract, in conjunction with Altaaqa Alternative Solutions Projects DWC-LLC, the provider of the gas fired generators, have progressed well, but at date of reporting had not been concluded. The parties have agreed to continue trading on the current terms until the negotiations are concluded.  GDC continues to sell gas from Logbaba to ENEO at normal consumption rates for this time of year given the demand for power in Douala.


Retail Power

GDC continues to seek solutions to the power generation requirements of its industrial customers. Those who were party to the original GDC retail power contracts that included the rental of Gensets have now sourced or are in negotiations for their own generators and GDC will continue to supply gas. Whilst power provision in the city has improved, large manufacturers still suffer power outages from the grid which can be very costly to businesses and so alternative solutions remain in demand and dedicated gas to power generation continues to offer advantages to the heavy fuel oil alternative.


The Company has held discussions with additional potential large off-takers and other grid power producers. GDC needs to increase its reserves to supply these large customers before long-term supply contracts can be agreed.


Financial Performance


Revenue from attributable gas and condensate sales was $32.8 million (prior period: $21.4 million). Underlying EBITDA for the Group of $13.1 million reflects a strong positive cash contribution, which is an encouraging reflection of the cash generative nature of the underlying business.


During 2016, the Logbaba Project reached a production milestone (“Payout”) after which GDC will now share 40% of revenues generated by the Project with its partner, RSM.


GDC has two production wells at Logbaba, La-105 and La-106. La-106 has for some time under-performed and despite remediation steps, the well can no longer generate the volumes of gas that are expected from it. The Board of Directors has decided it is appropriate to write down the $22.7 million carrying costs of this well. 


The Group has a 60% participating interest in the Logbaba Project, however the concession agreement governing the Logbaba Block grants the Cameroonian State an option to acquire a 5% participation. When the Cameroonian State formalises its option to participate in the Logbaba Project, the Group’s interest will be reduced to 57%.




We pride ourselves on being more than just investors into the Cameroonian market place. Producing and selling gas safely is the cornerstone of all that we do, and I am pleased to report that the Company had another strong performance in our safety metrics. We continue to apply the highest safety standards in our operations and reinvest in training of our people, our customers, our suppliers and those in the communities in which we operate to ensure a culture of safe operating is expected and adhered to.


We are employers of 134 Cameroonians, providing healthcare to our employees and some 300 additional family members. We are large contributors to the local economy, contributing some $12.5 million in 2016 through direct and indirect taxes in Cameroon. 


We make every effort to work with, employ and support the local communities amongst whom we operate. Our efforts are set out in more detail in the CSR report in the full Report & Accounts.


West Medvezhye Project Update


I am pleased to report some positive developments at our Russian West Medvezhye Project. Whilst this project is written down in our accounts we have actively sought ways to attract a buyer or an investment partner. During 2016 we conducted a thorough technical review of the resource base and its prospectivity which concluded:-

  • The proven and probable resources in the 103 well which flowed oil from the Jurassic base were confirmed as 11.8mmbbls.
  • The contingent resources for a development centred on the 103 discovery were estimated at 25mmbbls based on a P50 case for structural mapping and reservoir parameters.
  • The upside P10 resource case would lead to 53mmbbls of oil reserves.
  • We identified prospective un-risked resources in the Block of 722mmbbls oil and 3.9 tcf gas. The risked prospective resources based on prospect chance of success are estimated at 200mmbbl oil and 1.2tcf gas respectively.
  • Based on project investment to date of $78.4 million, economic evaluation of the discovered resource base; (25mmbl case) at a $50/bbl (Brent) produced an NPV of $81 million which achieves pay back from investment to date on a nominal basis.
  • Upside cases lead to strongly positive NPVs.

Based on this analysis, a new sales document has been prepared with the updated technical information and efforts increased to attract interest. 


The operational achievements during the year are, as always, a product of the commitment and dedication of the Group’s management and employees.





Ahmet Dik

Chief Executive Officer


25 May 2017



Financial Review


The Group has had a number of positive strategic and operational successes during 2016, but these have not been reflected in financial performance for the year. Gas produced and sold at Logbaba increased significantly during the year. Underlying EBITDA and operating cash flows were strong. Drilling of the new wells at Logbaba commenced during 2016, and the pipeline pushed out a further 15km bringing new customers onto the network. The Matanda assignment in 2016 and the recent Bomono assignment are transformational plays that will provide the opportunity to increase gas reserves to supply gas to an expanding gas market.


In November 2015 the Group elected to change its accounting reference date to 31 December and as a result the comparative period is for the seven-month period ended 31 December 2015 (“prior period”). The current period is for the year ended 31 December 2016 (“current period”).


A cost recovery milestone was reached on Logbaba on 31 May 2016 after which revenues are shared in accordance with the participating interests (“Payout”). GDC previously received 100% of Logbaba revenue as a recovery mechanism for costs incurred during the exploration phase of the Project. Post Payout GDC accounts for 60% of Project revenues. Aside from incurring 100% of the initial exploration costs, GDC contributes 60% towards all exploitation costs incurred on the Project. Whilst the attainment of this milestone should be viewed as a positive in terms of the development of the Project, Payout has had a significant impact on the Group’s revenue, performance and cash generated for the year.


GDC has two production wells at Logbaba, La-105 and La-106. La-106 has for some time under-performed, and despite remediation steps, the well can no longer generate the volumes of gas that are expected from it. The Board of Directors has decided it is appropriate to impair this well and has accordingly written off the remaining $22.7 million carrying costs of the well at 31 December 2016. The well had not previously been impaired.


Despite the impact of Payout and the impairment recorded in the current period, the Underlying EBITDA reflects a strongly positive cash contribution, which is an encouraging reflection of the cash generative nature of the underlying asset.


On a positive note, the Group has previously mentioned that it would fund an ambitious 2016 investment plan, including the drilling programme and pipeline extension with operating cash and debt. The pipeline extension was completed during the year, and at year end the Group’s cash and available debt facilities were sufficient to complete the outstanding work on the $56 million drilling programme at Logbaba. 


Statement of Comprehensive Income


At a gross level the gas sold for the year of 3,566mmscf is a 24% increase on the 2,868mmscf sold in the full year 2015. After Payout, the attributable gas sold for the current period was 2,897mmscf (prior period: 1,736mmscf). Attributable gas sold for the current period was 81% of gross gas sold owing to the timing of Payout. Going forward attributable sales will be 60%, subject to the Cameroonian State formalising its option to participate in the Logbaba Project, in which case the Group’s interest will be 57%.


The global recovery of the oil price has resulted in reduced pricing pressure as competitive energy alternatives have increased in price, and has also resulted in improved pricing on our condensate sales, which is linked to the price of Brent Crude. The average gas sales price for the current period was marginally lower than the prior period owing to the larger proportion of revenue generated by ENEO, GDC’s grid power customer.


Revenue from attributable gas and condensate sales was $32.8 million (prior period: $21.4 million). The pipeline extension in Bonaberi was commissioned in Q4 of 2016, with new customers being connected late in the year and early in 2017. These new customers, mainly thermal customers, are expected to generate additional revenue going forward.



Net royalties, being the royalties paid less the Group’s share of profit of associate (which represents the Group’s 35% interest in the Cameroon Holdings Limited, which in turn earns a royalty from GDC) was 11.5% of attributable revenue for the current period (prior period: 12.0%). The decrease is a result of the following factors:


  • Once Payout occurred, the Group was no longer obliged to pay a 0.8% royalty to RSM; and
  • In August 2016 the Group reached a mediated settlement of the disputed reserve bonus. The settlement included the termination of the 1.2% royalty which had been payable prior to that.


We are pleased to report that the reduction in fixed costs and overheads reflects management’s efforts to reduce costs in the business. This positive result has been assisted by the capitalisation of costs incurred on capital projects (notably the two-well drilling programme and the 15km of pipeline extension during 2016), but has also been adversely affected by:


  • Reserve bonus and 1.2% royalty settlement. In the prior period the Group raised a provision for $5.0 million for the reserve bonus payment and disclosed a contingent liability for an additional $5.0 million pending the outcome of the mediation. The mediated settlement, which included the termination of the 1.2% royalty, resulted in a final liability of $11.2 million, with $5.0 million having been paid during 2016 and the balance due over the next two years. This resulted in a profit and loss impact in the current year of $2.6 million.
  • The Group disclosed a contingent liability of $1.6 million in the prior period relating to a land claim submitted in Cameroon. This matter has not been finally resolved, but developments in-country has led management to raise a provision for $0.9 million in the current period. A further $0.7 million remains contingent on the outcome.


Depreciation for the current period was $18.7 million (prior period: $7.5 million), which is largely variable and associated with the volumes of gas produced. The impairment of La-106 resulted in a non-cash charge of $22.7 million in the current period (prior period: Nil), and will affect a revision of the basis for the unit-of-production depreciation on the oil and gas assets going forward.


Underlying EBITDA, which removes depreciation and impairment charges from the reported operating (loss)/profit, of $13.1 million (prior period: $8.5 million) reflects the strong underlying performance of the Logbaba Project. 


The Group produced a loss before tax of $30.0 million (prior period: profit of $1.6 million), and a loss after tax of $31.1 million (prior period: profit of $0.2 million).


The diluted loss per share was 28.74 cents (prior period: earning of 0.14 cents).


Statement of Financial Position


Intangible assets of $17.6 million (prior period: $0.7 million) represent the costs incurred on the Logbaba drilling programme. Upon successful completion of the wells, the costs will be transferred to oil and gas assets within property, plant and equipment.


Trade receivables of $8.8 million (prior period: $14.5 million) benefitted from receipt of RSM partner contributions and only accounting for 60% of trade receivables from Logbaba following Payout.


Trade and other payables of $12.8 million (prior period: $3.5 million) increased as a consequence of increased expenditure on the drilling programme, and inclusion of the reserve bonus settlement obligation, which had previously been disclosed under provisions.


Cash and cash equivalents of $16.3 million (prior period: $13.2 million) and net cash of $1.8 million (prior period: $6.0 million) reflects the positive liquidity position of the Group, despite the capital costs incurred during the year. $10 million of funding has been drawn down against the new facility arranged with BGFI during the year. The headroom on the debt facilities at year-end was $14.4 million (prior period: Nil).




Cash Flow Statement


Operating cash inflows, prior to the effects of working capital movements, was $12.7 million (prior period $9.3 million), reflecting the impact of the revenue sharing post Payout.


Working capital decreased $10.3 million (prior period: increase of $7.2 million) owing to partner receipts, the sharing of trade receivables and larger drilling related payables and accruals. 


Capital investment of $27.0 million (prior period: $1.7 million) relates mainly to spending on the drilling programme and pipeline expansion. As the CEO has explained in the Review of Operations, the drilling programme has encountered a number of geological and operational challenges, some of which have resulted in increases to the programme budget. The latest budget for the entire drilling programme is $56 million, of which GDC will participate $33.6 million. Having spent $16.7 million to the end of 2016, the anticipated spend on the drilling programme in 2017 is $16.9 million. At year end the Group had cash and cash equivalents and debt headroom of $30.8 million (prior period: $13.2 million).




The Group finalised its assignment of a 75% participation in the Matanda Block in April 2016. GDC’s share of the Matanda work programme of $7.1 million covers the period to mid 2018. The Logbaba Concession does not contain any work programme obligations. The Logbaba drilling programme gives rise to commitments during 2017 estimated at $5.8 million at 31 December 2016.


Subsequent Events


Post the year-end the Group acquired an 80% participating interest in the Bomono PSC. The Bomono Block neighbours the Group’s Logbaba and Matanda Blocks, and has the existing Moambe well which exceeded 7 mmscf/d during well flow tests which were carried out in early 2016. Bowleven Plc will remain as the operator and 20% participation holder. The deal is subject to various conditions precedent, including the granting by the Cameroonian state of a two-year provisional exploitation licence and various regulatory approvals required to formalise the transfer of the assignment. The deal includes:

  • GDC installing a pipeline connection from the Moambe well to the existing GDC pipeline network, and the completion of civil engineering works at the Moambe wellhead necessary for the gas processing plant installation. The estimated capital cost of these works is $6.0 million;
  • A 3.5% royalty from GDC Bomono’s production share of hydrocarbons, with an aggregate cap limiting the total royalty payments to US$20 million; and
  • £100,000 worth of the Company’s ordinary shares.

The Bomono work programme, which includes the drilling of one well during the period of the provisional exploitation licence, commits GDC to an estimated $8.0 million.



Reduction in Capital


The Company will be seeking shareholder approval at the AGM for a capital reduction, comprising the cancellation of the Company’s deferred shares and a reduction of the Company’s share premium account from $230.4 million to nil.  The amount by which the share capital is reduced will be offset against the Company’s retained deficit and there will be no change to the net assets of the Company, or the number of ordinary share in issue of the rights attached to the ordinary shares.


The deferred shares to be cancelled were a by product of the Company’s capital reorganisation, which took place in 2014.  The deferred shares carry no value or voting rights.  The share premium reduction will enable to Company make dividend payments or other distributions to Shareholders as and when suitable circumstances arise.


Should the resolutions for these actions be approved, the proposal requires sanction from the High Court to ensure the protection of creditors.


Looking Ahead


The Matanda and Bomono assignments provide a great opportunity to make inroads into the Douala energy market.  Successful completion of the Logbaba drilling programme will lead to production capacity expansion and the opportunity to have meaningful discussions with prospective customers.  Bomono, once completed, could allow the addition of gas into the pipeline network in relatively short order.  Work towards developing the Matanda Field has already commenced.


Maintaining sufficient liquidity and funding headroom will allow the Group to dictate the pace of these growth initiatives.  Managing our finances, while at the same time striving to achieve our ambitious growth objectives makes for an exciting 2017.


Andrew Diamond

Finance Director

25 May 2017