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Q4 2016 Operations Update

3 Feb 2017

Victoria Oil & Gas Plc, a Cameroon energy utility, provides an update on the Group's operations for the fourth quarter 2016; ended 31 December 2016.

 

Highlights

 

  • Increase in average gas production to 7.64mmscf/d in Q4 2016 (Q4 2015: 7.14mmscf/d)
  • 4.5% increase in gross Logbaba gas sales of 654mmscf for the quarter (Q4 2015: 626mmscf)
  • 24% increase in gross Logbaba gas sales of 3,566mmscf for the year (FY 2015: 2,868mmscf)
  • Logbaba drilling programme progress to 31 December 2016:
    • o Rig spudded at both twin and step out wells
    • o La-107 at 1,618m; La-108 at 1,173m
    • o Deployment of Managed Pressure Drilling technology
    • 15km pipeline commissioned as part of the Bonaberi extension
    • Three new thermal customers on the new Bonaberi extension were commissioned and consuming gas in Q4
    • Q4 (unaudited) financial highlights:
    • o $4.6 million revenue (Q3 2016: $4.7million)
    • o $15.8 million cash balance as at 31 December 2016 ($14.1 million as at 30 September 2016)
    • o Net cash position of $1.3 million ($2.3 million as at 30 September 2016)
    • o Current undrawn credit lines of approximately $16.0 million

 

Note: Net cash is defined as cash equivalents less borrowings, where cash equivalents exceed borrowings

 

Ahmet Dik, Chief Executive Officer of VOG, commented:

“The Bonaberi pipeline extension provides gas to the western industrial area of Douala, which is fast becoming a new hub for future developments looking to access Douala's port, power and road networks. We have established ourselves as a vital part of the energy infrastructure for the city and the region. I am particularly pleased that year on year gas sales for 2016 has increased by 24% and a monthly production record has been set this January.  Our drilling programme has progressed well and we are reaching an exciting phase as the wells descend into the Logbaba Formation. We look forward to providing further updates in the coming months.” 

 

 

Operational update

 

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

 

 

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Gas sales (mmscf)

 

 

 

 

 

Thermal

292

175

290

174

214

181

250

236

Retail power

16

10

31

18

27

24

37

79

Grid power

346

208

309

186

910

791

844

311

Total (mmscf)

654

392

630

378

1,151

996

1,131

626

Average gas production (mmscf/d)

7.64

7.14

13.04

13.16

7.14

Condensate sold (bbl.)

7011

4,207

6,786

4,072

12,457

10,826

13,591

8,608

 

* 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 italics. Prior to Q2 2016 gross and attributable sales were the same. Going forward the Group will report on an attributable basis.

 

The annualised production results were:

 

 

FY2016

FY2015

% increase

Gross Gas Sold (mmscf)

3,566.42

2,867.84

24.3

Production Average (mmscf/d)

10.23

8.13

25.8

 

Customers and Pipeline

 

Thermal gas sales were in line with Q3 2016 and were a 24% increase on Q4 2015. Phases II & III of the Bonaberi pipeline extension programme were successfully completed, with 15km of new pipeline commissioned during the quarter. Total commissioned pipeline is now 49.6km across the entire network. Three new customers began consuming GDC gas during December after the Bonaberi extension. GDC has commissioned the pipeline extension up to the Pressure Reduction Metering System at a several new customers and is now waiting for these customers to connect to their operations.  The impact of the new gas supply and the increased ENEO consumption, as the dry season starts, has already been seen during January. GDC has set a record in monthly supply figures averaging 14.5mmscf/d and peaking at 17.1mmscf/d up to 31 January 2017.

 

Grid power sales for the quarter were 12% up on Q4 2015 following increased usage by state power operator, ENEO, for electricity generation supplying Douala. The ENEO contract is a two-year gas supply agreement, which will expire during Q2 2017. Negotiations are underway with ENEO and Altaaqa to renew the contracts for the supply of gas to the electricity generation sets, installed at the Logbaba and Bassa power stations in Douala.

 

The reduced consumption from GDC’s Retail power consumers is a result of the termination of the lease period of the generators used by these customers to generate electrical power for their operations. These generators were initially brought into the country by GDC to prove the concept of gas-to-power, which resulted in GDC being awarded the initial ENEO contract. The customers are individually in the process of purchasing their own generators, which are sized appropriately and significantly more energy efficient, and we expect to have them consuming GDC gas again in the future. 

 

 

Logbaba Drilling Programme

 

Drilling operations on wells La-107 and La-108 in the Logbaba Gas Field commenced on 1 November 2016. The Savannah Komako 1 drilling rig commissioning, inspection and certification programmes were completed in October 2016. The independent rig audit was performed by Bureau Veritas, who certified the rig as fit to operate. GDC’s internal rig acceptance criteria were met and signed off on 1 November 2016, prior to well spud on the same day.

 

The Logbaba 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. In addition to developing the gas reserves in the Logbaba Formation, one of the wells, La-107, has an additional contingent objective of an ‘exploration tail’ with a terminal depth at 4,200m to test the hydrocarbon potential of the Lower Cretaceous Mundeck Formation. This horizon had gas shows and a significant gas kick in La-104 (which is currently being twinned by La-107). Execution of the exploration tail is dependent on well conditions, which will be established during the drilling programme.

 

At the end of Q4, 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 has been drilled to its target depth of 1,618 m.

 

Since 1 January 2017, the 9⅝” casing has been run and cemented in La-107 in preparation to drill the 8½” hole section through the objective Logbaba gas-bearing reservoir sections. 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 will be employed during the drilling of the over-pressured Logbaba Formation. This is the first time that a DDV has been deployed in sub-Saharan Africa.

 

After setting the 9⅝” casing in La-107 the rig was skidded to the La-108 well and has drilled the La-108 12¼” hole section to its target depth of 1,953m MD (measured depth). The 9⅝” casing, including the installation of a DDV as in La-107, has been run and cemented.  We are currently rigging up the MPD surface equipment in preparation for drilling the La-108 8½” hole section to its target depth of 3,563m.

 

MPD and the insertion of a DDV, both of which are expected to produce higher quality wells and reduce failure risk in the high pressure/high temperature environment under which these wells are being drilled, has added to the initial estimated budget. In addition, higher than expected Non-Productive Time (NPT) related to various operational issues has increased the schedule.  The revised budget range for the two well programme, without the exploration tail has now been increased by 10-20% above the previous estimate of $40m to $44-48M.

 

Approximately $23m has been spent to date on the project, so the balance of GDC’s $13-15m share of the two well programme of will be funded by cash generated from operations and existing debt facilities. The net cash position of the Group at the end of the quarter was $1.3m (cash position of $15.8m). The group has remaining credit on its Cameroonian debt facility of $16m.

 

Process plant expansion

 

The gas processing plant expansion, which aims to increase the plant's processing capacity from 20mmscf/d to 25mmscf/d, is progressing with the preliminary engineering phase being worked into the pending new flow line works to tie in the new wells. Alternative scenarios for the gas plant expansion are also being engineered to increase the processing capacity up to 40mmscf/d.  A final decision on this will be dependent on the drilling programme results.

 

This announcement contains inside information.