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Q2 2016 Operations Update

26 Jul 2016

 

Victoria Oil & Gas Plc ("VOG" or "The Company" provides an update on the Group's operations for the three-month period ended 30 June 2016 (the "quarter" or “Q2”). 

Overview

The quarter produced a strong gas sales performance from the Logbaba gas project, along with the completion of major work-streams within Cameroon that the Board believes will support the Company’s ability to expand customer supply and meet robust demand for its gas.

Phase II Bonaberi pipe-laying to the Maya Oil factory is now over 75% complete.  The 5.5km Phase III pipeline to Bekoko junction has also commenced.  Both Phase II and Phase III pipeline extensions will connect twelve new customers in Q4 2016.

The Logbaba drilling programme has progressed during Q2 with the completion of major site preparation work and the arrival of the drill rig in Douala, together with most of the long lead materials and equipment. The drill rig has been cleared through customs, transported to site and assembly is now underway. Drilling operations are expected to begin by end August 2016.

Highlights

  • 13.04mmscf/d Q2 2016 average gas production (Q2 2015: 9.91 mmscf/d)

  • 3% increase in gas sales to 1,151mmscf compared to Q2 2015 (1,120mmscf)

  • Initial Logbaba exploration investment recouped by the Company's subsidiary, Gaz du Cameroun S.A. ("GDC") from 100% receipt of total revenues

    • Logbaba’s concession partner, RSM Production Corporation (“RSM”), will now receive 40% of revenue after netting off its 40% of ongoing development costs and operational expenses

  • Q2 unaudited financial highlights:

    • $12.5m revenue (Q1 2016: $12.8m)

    • $13.9m cash position at quarter end (Q1 2016: $11.5m)

    • $1.7m net cash position at quarter end (Q1 2016: $4.6m) *

  • Logbaba Drilling Programme

    • Site preparation completed

    • 3 conductors driven

    • Long lead items, including wellheads, casing, consumables and other equipment have arrived

    • Drill rig arrived and offloaded at Douala port

    • Assembly of the rig and camp at site underway

  • Pipeline expansion progressing with 7km laid in the quarter

*Net cash is defined as cash equivalents less borrowings, where cash equivalents exceed borrowings.

Operational update

The quarterly gas and condensate consumption is as follows:






 

Q2

2016

Q1

2016

Q4

2015

Q3

2015

Q2

2015

Gas sales (mmscf)

 

 

 

 

 

Thermal

213.5

250.6

236.3

266.7

209.5

Retail Power

27.8

37.0

79.0

83.3

94.0

Grid Power

909.9

843.6

310.4

367.6

816.5

Total (mmscf)

1,151.2

1,131.2

625.7

717.6

1,120.0

Average gas production (mmscf/d)

13.04

13.16

7.14

8.19

9.91

Condensate sold (bbls)

12,457

13,591

8,608

10,878

13,467

The sales figures are in line with internal expectations as the quarter covered the second half of the dry season, where gas consumption by grid power is higher due to lower availability of hydroelectric power.

GDC achieves Payout with RSM Production Corporation

During the period, the Logbaba gas project reached a significant milestone in its development. GDC, which has a 60% participating interest in, and operates, the Logbaba gas project, agreed to fund the initial exploration costs at the time of the 2005 farm-in to the Logbaba Concession Agreement with its partner RSM. 

To enable recovery of the initial exploration costs by GDC, the parties agreed that GDC would be entitled to and has to date received 100% of the revenue from the Logbaba project (“Payout”) whilst contributing 60% to operating and capital costs. 

As of 1 June 2016 Payout has been achieved. RSM will now receive 40% of Logbaba revenues, which will be net of RSM’s 40% contribution to all operational and capital expenses. Operational and capital expenses include well drilling, pipeline construction, gas delivery and operating expenses.  Throughout 2016 it is expected that, together with partner contributions, all revenues from the Logbaba Project will be expended on operational and capital expenses, including the drilling program.

GDC has also secured a debt facility with BGFI Bank of up to US$26.0m which it can draw upon at any time, to fund ongoing operations. 

Uninterrupted Supply of Gas and Safety

Our operations maintained a 100% safety record and ensured an uninterrupted gas supply through our integrated network to all customers across thermal, power and condensate markets.

Logbaba drilling campaign

As previously reported, GDC will be drilling two wells to move some of our 2P (Proven plus Probable) reserves into the 1P (Proven) reserve category.  One of the wells to be drilled will twin the La-104 well drilled in 1957; the other well will be a ‘step-out’ well that will be drilled into a target that is intended to prove up more of our Probable reserves. 

Both wells are intended to be production wells from the Logbaba Formation at depths of up to 3,200m. A detailed budget for the two well drilling programme has been completed and is less than $40.0m.  

Details of the Logbaba Drilling Campaign can be found here:  http://www.victoriaoilandgas.com/investors/news/drilling-rig-arrival-dou...

The following is a specific update on the Logbaba Drill Program:

(i) Drill Rig – the rail mounted drilling platform has arrived in Douala and has been offloaded, cleared through customs, transported to site and assembly is now underway

(ii) Slope Stabilisation Project – a major task to remove the cliff at the end of the drill pad and stabilise the surface was completed at the drill site

(iii) Drill Pad, Cellars and Conductors – drill pad levelling and preparation was completed together with three cellars, one for each of the two wells plus a spare and conductors were also driven in preparation for spudding

(iv) Mud Storage and Cuttings Tanks –all storage tanks for mud and cuttings were established together with treatment pits

(v) Camp Areas – fly camp and main camp areas have been prepared and both camps were delivered to site and installation has been completed. 

(vi) Additional Infrastructure – new warehouse facilities, secure perimeter fencing and upgraded access controls for site have all been installed and completed.

The schedule for the two well full drill programme (including an optional 1,000m exploration tail) is expected to be 187 days from spudding.

Bonaberi shore pipeline extension

Significant progress was made on the 8.0km Phase II Bonaberi pipeline extension during the quarter, adding to the 2.1km of pipe laid in Q1 2016.  This follows successful commissioning of the Phase I expansion last year that currently supplies gas to three thermal customers. During the period, the Phase II pipeline was extended with a further 4.7km trench completed and pipe laid by SATOM.

Simultaneous to the Phase II pipeline extension, GDC has commenced the Phase III pipeline extension. Phase III Bonaberi pipeline is a 5.5km extension reaching out to Bekoko junction.  During the period 2.3km of trench was completed and pipe laid by SATOM for the Phase III Bonaberi pipeline extension.  

Phase II and Phase III pipeline extensions are on target for commissioning by the end of 2016 and  expected to connect a total of twelve additional customers who have already signed gas sales agreements.

VOG Chief Executive Officer Ahmet Dik said: “The period saw GDC complete a series of major workstreams that underpin our ability to expand our gas production and supply to the Cameroon energy market. All site preparations for the well drilling campaign were completed within the period and the new train rig is through customs and now being assembled on site for drilling operations to begin shortly. Whilst we are setting up for the drilling campaign, the pipeline extension into Bonaberi area progressed as planned and connection of the twelve new customers will be achieved in 2016 as previously announced.  With another quarter of strong gas supply reported, and in line with our internal expectations, we now look forward to expanding our supply capability to the next level to meet the ongoing strong demand for gas we are experiencing in Douala.”

This Regulatory News Announcement contains inside information.

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