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Results for year ended 31 May 2014

23 Oct 2014


Dear Shareholder

I am pleased to report progress made by the Group this reporting year and to share our expectations for the immediate future.

I will begin by listing some of the key advances made by Victoria Oil & Gas Plc (“VOG” or “the Company”) and its wholly owned subsidiary, Gaz du Cameroun S.A. (“GDC”) during the financial year ended 31 May 2014 in which we:

  • Initiated major changes to the management team in October 2013;
  • Reversed the declining supply rate and delivered a 60% mmscf/d increase in gas supply;
  • Increased production levels from a seven day average of 2.0mmscf/d to 3.2mmscf/d during the period;
  • Rolled out the first gas-fired electricity generation sets (“Gensets”) to industrial customers;
  • Signed supply agreements with major new customers;
  • Commenced negotiations for GDC to supply gas to the national electricity generator, ENEO Cameroon (“ENEO”);
  • Completed company-wide management training; and
  • Improved the financial position of the Group.

Moving Forward

In the 2013 Chairman’s Statement, I gave details of the changes being made so that our energy supply operations in Cameroon could start delivering real value to shareholders. I believe that these changes have led to tangible improvements and the process continues.

When I undertook the dual role of Chairman and acting CEO in September 2013, I implemented fundamental changes within the Group to secure near term revenues and gas supply contracts. 

One of the key drivers for change over the first part of this financial year was to ensure that shareholder capital invested to date was utilised efficiently to support GDC’s operations. Specifically this meant increasing our cash flow to avoid having to return to the equity market for additional funds. I am pleased to say we have been successful in meeting that objective and that no shareholder dilution has occurred since the last equity issue in February 2013.

Our principal focus has been to move away from being an exploration and production company, to an integrated energy utility company with products to deliver into a new and growing African market.

GDC is meeting the challenge of becoming a utility company, selling gas that competes against established and much more expensive fuels such as diesel, Heavy Fuel Oil (“HFO”) and Light Fuel Oil (“LFO”).

The changes within VOG were achieved by recognising the unique position we have in Cameroon and the first mover advantages that we enjoy, but at the same time understanding our market, our customers’ real needs and the company structure and approach to business that we had applied, often with mixed success. Strong guidance in this rebuilding was provided by business management consultants, Gallop Solutions International Limited of Australia, and I can report that I am very pleased with the management, workforce and our overall business strategy in Cameroon.

Logbaba Gas Project, Cameroon

(60% owned by GDC, a VOG subsidiary, and 40% by RSM Production Corporation (“RSM”) of Denver Colorado)

In November 2013 we were greatly honoured when the Head of State, His Excellency President Paul Biya, officially opened our gas plant and pipeline network. This event, attended by over 5,000 delegates from all over Cameroon was a solid endorsement by the President of Cameroon and his government of our work in the country and the success we have achieved to date.

GDC achieved operational break-even on a cash flow basis in February 2014, with an average 3.2mmscf/d production rate achieved. The production rate was reached upon successful connection of SOCAVER.

By early July 2014, GDC had reached a 3.9mmscf/d seven-day average and rolled out its first Gensets to major customers in Douala. A key element of our business strategy is to support electric power supply to Cameroon businesses, through small-scale Genset installations.

To balance this, we are fully engaged in a process to become a key energy provider to the country’s national electricity generator, working with ENEO (formerly Actis-Sonel), the private-public partnership that operates Cameroon’s national electricity network.

We have achieved a lot. We have a secure customer base and hungry markets to sell gas to. Opportunities on the Bonaberi shore will open up with the crossing of the Wouri River. Discussions have progressed with new partners to help us grow the Genset business and we are looking to supplying the national utility company with gas. I am also excited by the prospect of developing a Compressed Natural Gas (“CNG”) business which would allow us access to a much wider geographical range of customers.


VOG is now a very different company compared to the one it was in May 2013. Changes at board and executive level, and more effective sales, engineering, finance and consultancy teams are working together to bring new customers online and to progress our long-term goals. We are focused on effective and safe use of resources as well as on increasing cost efficiency and cash flow.

Following the arbitration decision handed down in December 2013, VOG received $20.4 million from RSM in part payment of their share of Logbaba post-exploration costs and RSM agreed that any balance payable would be determined by an independent process managed by Akintola Williams Deloitte, Nigeria, a member firm of the global professional services firm Deloitte Touche Tohmatsu Limited.

In January 2014, GDC secured a XAF 4.0 billion ($8.3 million) loan facility with BGFIBank (“BGFI”), an African bank with operations in Cameroon, to help fund our capital projects. Funds from the loan facility were used to complete the Dangote pipeline and installation of Gensets at customer sites.  A further XAF 0.8 billion ($1.7 million) customs bond was provided by BGFI to support the temporary import of the Gensets.  An agreement with the Customs Agency of Cameroon was concluded to ensure no duty was to be paid on the Gensets for a 12-month period and at the end of the 12-month period an automatic one year extension can be requested or the equipment can be re-exported with no customs duties payable. 

We are also strengthening the Board of VOG and in June 2014 we welcomed James McBurney as an independent Non-Executive Director to the Company. In his career, James has headed up the European Natural Resources investment banking group at Bank of America Securities in London, which followed his role as a Managing Director with Merrill Lynch & Co. Inc.'s Energy & Power Group in New York. We are looking to make additional appointments to the Board in the near future.

The Company has been working to enhance our corporate profile and recognition in the equity markets. This work comprises of two initial key elements: appointing a new broker and a capital reorganisation. Numis Securities Limited (“Numis”) is one of the UK's leading independent institutional stockbrokers and corporate advisors and has been appointed as a broker to VOG. With the support of Numis through their institutional research, sales and corporate finance teams we shall look to build real value for shareholders from future operational achievements.

In addition to the usual business being dealt with at the annual general meeting (“AGM”) this year, the Company is seeking shareholder approval for a capital reorganisation, comprising a consolidation and a sub-division of shares. Following a period of consultation with constituents of the UK equity investment community, a consolidation is proposed by the Board in order to set the number of shares in issue that better reflects the Company’s profile as an established revenue-generating supplier of gas listed on AIM. The Board believes that the capital reorganisation will support the Company’s corporate profile in terms of delivering shareholder value. Accordingly, a consolidation of every 40 existing ordinary shares into one new consolidated ordinary share is proposed.

The AGM of the Company will be held on 26 November 2014 and a formal notice of the meeting as well as a detailed explanation of the capital reorganisation and each resolution to be proposed at the AGM is provided in the shareholder circular which will be distributed to all shareholders on 31 October 2014.

I would like to thank shareholders for their support through a year of substantial change in which we have made real progress. My belief is that VOG’s next challenge will be to manage delivery of significant levels of gas to major new customers and markets.


Logbaba Gas Project, Cameroon

The period under review began with pipeline infrastructure being rolled out across Douala to establish the core gas distribution network. The work completed by GDC enabled us to understand the seasonal supply trends within the regional energy market and the real motivating factors which were driving customers to transfer from HFO for thermal needs. Usage of GDC thermal gas depends on customers having a consistent supply of electricity and customers who relied on the grid for electricity were unable to utilise thermal gas during the frequent brownout and blackout periods.

Observing the grid power supply issues Douala faced, coupled with requests from existing customers to provide electricity solutions, GDC began development of a gas-to-power strategy, as a result of which we decided to provide small-scale Gensets to facilitate the self-generation of electricity at selected customer sites.

In July 2013, a contract was signed with Energyst International France SAS ('’Energyst’') for the operation and maintenance of six 1.5MW uniform Caterpillar generation units. The units were rented, therefore alleviating import duty on shipment into Cameroon. This approach was initially disputed by Cameroon customs and the first Gensets were held at the port of Douala for over six months before being released in early 2014. These first Gensets were used to prove the concept of the power generation model and following its success we now plan to source bespoke sized Gensets for future customers.

During the first part of the financial year, pipeline expansion was seen as a priority for GDC and a 100 tonne horizontal directional drilling unit was purchased to pursue this objective. An operations supervision contract was also signed with Britanica Horizontal Directional Drilling Ltd (“Britanica”), initially for the river-bed drilling project under the Wouri River.

In October 2013, GDC operational priorities were reviewed and a decision was made to concentrate on near-term customer connections and to utilise the existing pipeline infrastructure more economically. As part of this review, a further economic analysis was undertaken of all existing gas supply agreements and new pipeline work was prioritised only if it could rapidly connect customers.

During January 2014, the Group made significant operational progress on a number of fronts. Pursuing the grid power supply strategy, GDC signed a collaboration agreement with ENEO, the private-public partnership that operates Cameroon’s national electricity network, to examine ways of increasing power supply by the use of Logbaba gas.

Our first project involves working with ENEO and selected Genset providers to connect gas to rented Gensets for power generation at two power stations, Bassa and Logbaba in Douala. Currently these stations use HFO and by installing rented units for an initial two year period, it will allow ENEO time to determine longer term solutions. The rental units are expected to have a peak capacity of approximately 50MW. We expect to finalise contracts with ENEO soon and begin the roll out of power in early 2015.

Significant gas supply agreements were signed in January 2014, with Dangote for the provision of gas to a major cement plant under construction in Douala, and SOCAVER, the bottling plant operated by Société Anonyme des Brasseries du Cameroun ("SABC").

Post Period

Following the period ending 31 May 2014, GDC has continued to make significant progress. All six Gensets were installed at customer sites with successful connections to the GDC gas supply network and Socapursel, a food manufacturing business, was also connected for thermal gas usage. The pipeline to the Dangote construction site has been completed, ready for gas connection which is expected to occur in late 2014.

A re-negotiated agreement was signed with Energyst in July 2014 covering the supply of any future Gensets, giving GDC the flexibility to propose outright purchase or sale-and-leaseback arrangements to new customers as well as the existing rental model. GDC is now working to deliver the next phase of Gensets to other thermal supply clients and new customers.

All pipe-laying operations have now also been outsourced to contractor, Britanica. The new Britanica contract is a fixed cost-per-metre agreement with all work approved by GDC management.

In July 2014, we announced a seven-day week average of 3.9mmscf/d and a 4.5mmscf/d average was established for the five-day working week when most GDC customers are at peak demand.

Condensate production increased during the period as higher levels of gas were produced for delivery through the pipeline infrastructure.  In total 14,107bbls (2013: 7,774bbls) of condensate was produced at the well head to be sold to a local refinery.

The Wouri River crossing, connecting the Bonaberi shore to the main Logbaba gas pipeline, commenced in July 2014.  Installation of 678m of 400mm gas pipe 15m under the Wouri River bed will extend the reach of the GDC gas supply network to a new major industrial area within Douala. In anticipation, we have laid 1.5km of pipeline on the North shore to three customers ready for connection to the main pipeline when it is completed.

A CNG project is also being evaluated. CNG would be transported by road tanker or rail from a compressor station to customers without the capital-intensive requirement of a pipeline. CNG enables gas to be sold economically to businesses via a ‘virtual pipeline’ within a 200km radius of our operations, therefore increasing our customer reach considerably.  

West Medvezhye, Russia

Our 100%-owned West Medvezhye ("West Med") field has C1 plus C2 reserves of 14.4mmboe (under the Russian resource classification system, analogous to proven and probable reserves under Western conventions), from its discovery Well-103. In addition, our best estimate prospective resources of 1.4bboe have been calculated comprising 722mmbbl of oil and condensate and 695mmboe of gas.

The West Med block, which covers 1,224km², is located in North-Western Siberia, in one of the most prolific oil and gas producing areas in the world. Administratively, the block is located in the Nadym sub-district of the Yamal-Nenets Autonomous District of Tyumen and our block neighbours are Gazprom’s giant Medvezhye field and Urengoy gas and condensate fields. The main productive horizon in Western Siberia is the vast Bazhenov Shale, shown in recent studies to be geologically very similar to the liquids-rich Bakken Shale in the United States. A recent study estimated the Bazhenov resource at two trillion barrels of oil in place, around five times larger than the Bakken, and recoverable resources are believed to represent around 40% of all U.S. shales combined.

During the period, parties were engaged to investigate possible divestment or joint venture partnership opportunities in relation to further development of the West Med block and the Company continues to pursue options for our Russian assets.

During 2014, Russia has seen deterioration in diplomatic relations with other G8 regions primarily due to the Ukrainian situation and the destruction of a Malaysia Airlines plane over eastern Ukraine on 17 July. VOG continues to monitor both the situation and the sanctions targeted towards Russian companies and individuals, primarily enforced by the US and the EU, to assess potential implications for the Company’s Russian assets. To date, gas supplies from Russia to regions including the EU remain unaffected by any sanctions, with measures mostly restricted to individual travel bans, loan agreements, arms sales, and the supply of certain technologies and services relating to the oil industry.


Kevin Foo

Executive Chairman

Date: 22 October 2014


See attached for Financial Statements



1.     Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts.

The Balance Sheet as at 31 May 2014 and Income Statement, Cash Flow Statement and associated Notes for the year ended 31 May 2014 have been extracted from the Group's 2014 statutory financial statements upon which the auditors' opinion is unqualified.

2.     Annual Report


The Annual Report and Accounts and the Notice of the Annual General Meeting for the year ended 31 May 2014 will be available on the Company's website at by no later than 4 November 2014. These documents will also be posted to those shareholders that requested it. The Annual General Meeting of the Company will be held on 26 November 2014 at the Coin Street Neighbourhood Centre, South Bank Room 1, 108 Stamford Street, South Bank, London SE1 9NH at 11.00 am.

Results for year ended 31 May 2014449.52 KB