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Q3 2016 Operations Update

27 Oct 2016

Victoria Oil & Gas Plc provides an update on the Group's operations for the three-month period ended 30 September 2016 (the "quarter" or “Q3”). 

Highlights 

  • 7.14mmscf/d Q3 2016 average gas production (Q3 2015: 8.19 mmscf/d)
  • 12% decrease in gross Logbaba gas sales of 630mmscf (Q3 2015: 718mmscf)
  • Q3 unaudited financial highlights:
    • $4.7 million revenue (Q2 2016: $10.8 million)
    • $14.1 million cash position at quarter end (Q2 2016: $14.1 million)
    • $2.3 million net cash position at quarter end (Q2 2016: $1.9 million) *
  • Logbaba drilling programme:
    • Rig in final stages of commissioning and testing getting ready for spudding
  • 7.13km pipeline commissioned during the quarter as part of the Bonaberi expansion 
  • Resolution of dispute over reserve bonus and extinguishing 1.2% royalty

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

 

Operational update

The quarterly gross gas and condensate consumptions for the Logbaba Project are as follows (amounts in brackets are gas and condensate sales attributable to VOG*):

 

 

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q3 2015

Gas sales (mmscf)

 

 

 

 

 

 

 

Thermal

290

 (174)

214

(181)

250

236

267

Retail power

31

  (18)

27

 (24)

37

79

83

Grid power

309

(186)

910

(791)

844

311

368

Total (mmscf)

630

(378)

1,151

 (996)

1,131

626

718

Average gas production (mmscf/d)

7.14

13.04

13.16

7.14

8.19

Condensate sold (bbl.)

6,689 (4,013)

12,457 (10,826)

13,591

8,608

10,878

 

* After reaching a cost recovery milestone on the Logbaba Gas and Condensate Project during Q2 2016, whereby revenues are shared with VOG receiving 60% in accordance with its participating interest, the sales metrics are presented on a gross basis, with attributable gas sales shown in brackets. Prior to Q2 2016 gross and attributable sales were the same. Going forward the Group will report on an attributable basis.

Thermal sales generated good growth during the quarter from our existing customer base.  Progress on the pipeline extension, discussed below, is expected to generate further sales growth in the coming quarters as additional customers are added to the network.

Grid power sales for the quarter were down on Q2 2016 due to the onset of the wet season in Cameroon, at which point the ENEO consumption levels reduce as hydro power becomes more readily available.  Whilst lower than Q3 2015, grid power sales are above the contracted take-or-pay levels and are therefore in line with expectations.  The seasonal impact, in conjunction with the change to earning revenues in accordance with participating interests (i.e. revenues of 60% of the Logbaba Project’s gas and condensate sales to customers; previously 100%), has resulted in the decline in revenue reported in the quarter.

The cash and net cash positions of the Group at the end of the quarter are more favorable than at the end of the previous quarter.  This was due to outstanding receivables from the Logbaba concession partner being received, offset by payments made regarding the reserve bonus settlement agreement and the ongoing drilling programme funding requirements.

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 programme

The Savannah drilling rig was delivered from Douala Port in July and rig up commenced in August.  However, two lightning strikes on the derrick in August, within days of each other, caused significant damage to electrical circuits, electronic components and instrumentation and in some cases mechanical equipment.  Some of this damage was not readily apparent until various components were tested individually and in-situ during commissioning.  Almost all of the lightning related damage to the rig electronics and mechanical systems has now been repaired and replacement parts sourced and installed, tested, commissioned and certified. 

Key structural, mechanical and electrical components such as the derrick and substructure, draw works and top drive, mud pumps, generators, blow out preventer (BOP) and other critical components have all been inspected, tested, commissioned and passed.

Savannah drilling contractor training, safety critical equipment and management systems and work control processes are all in place. 

All of the well construction materials and all of the required third party contractor equipment is in- country.  Third party contractor teams have been mobilised and are rigging up, and the GDC rig supervisory personnel are in-country.

A comprehensive Control of Well Review was completed by an independent engineer on behalf of the insurance underwriters and re-insurers to assess the suitability of GDC’s well design and the drilling programme and Savannah's equipment and well control policies; this review recommended the well to insurers.

In addition, a comprehensive Rig Audit and Rig Acceptance Test has been conducted by an international independent global testing, inspection and certification service provider and this process is expected to be completed within 10 days.  Following completion of this test, it is expected that all equipment, procedures and personnel will be certified as fit for purpose, the rig can then be accepted by GDC to begin drilling. 

The contractual arrangements on the drilling programme are such that the Company only incurs major financial commitments once drilling commences.  Thus, whilst the delays in spudding have been frustrating, the Company is not expecting to suffer any significant cost increases.

 

Bonaberi shore pipeline extension

The 3.17km pipeline laid during the quarter, part of the Bonaberi expansion, brings the total pipe laid in 2016 to 12.25km.  Of this pipe laid, 7.13km was commissioned by quarter end, bringing GDC’s total commissioned pipeline network to 40.05km.  The remaining 5.12km was commissioned shortly after quarter end, bringing total pipeline laid by GDC and commissioned to 45km.  In Q4 2016 the team will focus on the branch lines to customers and installation of the PRMS units (pressure reducing/metering station) at customer sites, with the aim of bringing new customers online with gas before the end of the year.

 

Logbaba Gas Plant Capacity Expansion

Phase one of the gas plant expansion, which aims to increase the plant’s capacity from 20mmscf/d to 25mmscf/d, is progressing with the preliminary engineering phase.  Further phases of the gas plant expansion will depend on the drilling programme results.

 

VOG CEO Ahmet Dik said: “In this quarter we continued to deliver consistent gas sales to our customers while progressing the Bonaberi thermal expansion programme.  We will be soon approaching 50km of pipeline laid by GDC, which is a major milestone for our company. 

On the drill rig, all key assembly, testing and safety inspections have been completed and final independent inspections will be concluded next 10 days.  Although the lightning strikes delayed us about 6 weeks, we are now on schedule to commence spudding in November 2016.  We shall provide regular drilling updates over the next months.”