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Results for the year ended 31 May 2015

28 Oct 2015

Dear Shareholder,

I am pleased to report progress for this financial year and to share some of our objectives for the immediate future. In the year ended 31 May 2015, Victoria Oil & Gas Plc (“VOG” or “the Company”) realised outstanding production growth as new markets in Cameroon, particularly supplying gas to generate grid power, were opened up to Gaz du Cameroun S.A. (“GDC”).

A Notable Year

At the end of the financial year, VOG had accomplished the following operational advances:

  • A 356% increase in financial year-end monthly average gas production from 2.72mmscf/d in May 2014 to 12.39mmscf/d in May 2015;
  • Reached an agreement with ENEO Cameroon S.A. (“ENEO”), Cameroon’s national electricity generating company, to provide gas to installations at the Bassa and Logbaba power stations in Douala via take-or-pay contracts that secured substantial revenue for at least the next two years;
  • Delivered first gas to provide 50MW of capacity to the Cameroon grid through ENEO;
  • Completed the main Douala pipeline network, successfully crossing the Wouri River to the Bonaberi shore, opening up new markets in this growing area; and
  • Purchased the Logbaba gas processing plant and commenced planning for expansion to double capacity to approximately 40mmscf/d.

As a gas production utility supplying energy to the industrial port city of Douala, our core business has been somewhat insulated from the effects of the major shift in oil pricing, which has seen one of the worst downturns in twenty years. During the year our business withstood the competitive price pressure of heavy fuel oils (“HFO”). GDC’s gas products are more attractive than HFO due to zero storage costs, transparency, cleanliness (emissions and equipment deterioration) and reliability.

The oil downturn has affected us in equity markets, where VOG’s share price has suffered somewhat, in line with its peer group in the exploration and production sector. Our response is to continue building our business, increasing cash flow and improving margins. We continue to work hard to ensure that the market recognises the distinction between our cash generating assets and riskier exploration and production companies.

Our operations are funded by Group cash, modest bank financing and from our concession partner, RSM Production Corporation (“RSM”). We have not sought shareholder equity finance since February 2013.

One of our core focuses during the year was to bring online new product applications for GDC gas. The most obvious usage was that of power, with existing thermal customers in the private sector requesting GDC to apply our gas for an electricity generation solution.

The ENEO agreement, which was completed in late December 2014, is an excellent example of how three diverse companies, ENEO, GDC and Altaaqa Alternative Solutions Projects DWC- LLC (“Altaaqa”), the modular generator supplier, can work together to achieve impressive results. All companies took considerable risks engaging in the first major gas to power project in Cameroon and successfully supplied power to the grid within 90 days of signing agreements. Working in Africa sometimes presents challenges but this project demonstrates that working with the right partners, with the right business model can realise real value for shareholders. The model that has evolved for GDC is to focus on gas supply only, and to keep it simple.

As a result of the Government of Cameroon’s full support of our activities, we have been able to work in a commercial environment without the restrictive price regulating practices which hamper power development and stifle economies in some other African countries. Douala is now a port city that is becoming the primary investment destination for many international companies seeking a regional hub.


The financial accounts for the twelve months ending 31 May 2015 state a loss on ordinary activities after taxation of $50.8 million, and revenue of $27.9 million. The loss is primarily due to a $49.8 million impairment charge relating to the Group’s Russian asset West Medvezhye. For the same financial year, our operations in the Group’s Cameroon segment reported a profit after tax of $5.4 million.

The impairment of the Russian asset was included in of the Interim Results for the six months ended 30 November 2014. The Directors continue to pursue ways to derive value from the asset through farm-out, joint venture or sale, however this has been challenging due to the state of relations between Russia and the West, combined with the low oil price, and so the asset continues to be carried fully impaired.

Ahead of the projected production expansion at GDC in the first half of 2015 the Company decided to undertake a capital reorganisation and share consolidation. Following shareholder approval at the 2014 AGM, every 40 existing ordinary shares of 0.5 pence became one consolidated ordinary share of 20 pence (“Consolidation”). Immediately following the Consolidation, each of the consolidated ordinary shares was sub-divided into one new ordinary share of 0.5 pence and one new deferred share of 19.5 pence. The reorganisation was carried out following feedback from major investment groups who viewed the pre-existing market price of VOG shares at around a penny as being too low. VOG now has a share price level appropriate to a revenue producing utility company while maintaining high liquidity.

During the year Numis Securities Ltd (“Numis”) was appointed as sole broker to the Company. Following announcement of the ENEO terms in December 2014, Numis published new research and guidance on the Company incorporating the first minimum take-or-pay commitments into their forecasts. VOG is committed to delivering operational success within the framework of a detailed financial analysis of the Company by an established UK broker.

Continuing VOG’s ongoing commitment to strengthening the Board, two Independent Non-Executive Directors were appointed. James McBurney joined the Board in June 2014. John Bryant was appointed to the Board in December 2014.

I am also delighted that Ahmet Dik has agreed to join us as a Director of VOG and Chief Executive Officer (“CEO”) of GDC. Ahmet has worked by my side for the last two years and is instrumental in delivering major technical and commercial success from our gas operations in Cameroon. Ahmet’s all round project development, legal and leadership skills make him an excellent person to have on both the VOG and GDC Boards as we move into the next stage of development. In time it is our intention that Ahmet will become CEO of VOG, which will enable me to relinquish the role of interim CEO and focus on strategy and growth plans for the Company.

Operations Review

The beginning of the year saw GDC demonstrate its ability to supply gas for electric power use, with connection of the first gas-fired electricity generation sets (“Gensets”) to customer sites within Douala. The four sites connected were all existing thermal customers who needed a consistent supply of electric power to overcome regular grid blackouts. Through an agreement with a third-party, GDC leased 1.5MW Gensets and installed them at Camlait (dairy), Icrafon (plastic mouldings), SCTB (flour mill) and the Guinness Brewery. Despite import related delays in delivering this new product line during the previous year, once released by port authorities the Gensets were installed and running at the customer sites within a month.

Our retail power customers immediately received the benefits of a consistent supply of power with a stable load, no outages or downtime costs and no material wastage. The installation of the Gensets also provided GDC with the first new derivative product from Logbaba gas in addition to thermal combustion. The retail power model demonstrated “proof of concept” and was a key factor in our negotiations with ENEO. Now that the concept has been proven, the four retail power customers are expected to take over Genset rental contracts directly from the supplier and GDC will be gas supplier only to these customers.

Work on the spur pipeline to the Dangote Cement Plc (“Dangote”) cement works was also completed early in 2015. The $115 million Dangote plant, a 1.0 MMTPA, clinker grinding and bagging facility located at Douala port, was commissioned in early June 2015 and has been a consistent and slowly increasing consumer of GDC gas since this time. GDC also successfully completed connections on the Douala main shore to customers such as Socapursel, a food manufacturing business and SOTEX, a textile manufacturer.

With the main Douala network firmly established, a key task for GDC was to establish a presence on the Western Bonaberi shore across the Wouri estuary. This area hosts a number of potential customers but also has the space for industrial developments requiring port access. I am particularly proud that GDC, under its new outsourced contracting system, laid 678 metres of 400mm gas pipe 15 metres under the Wouri River in October 2014. Crossing the river onto the Bonaberi shore was completed despite a technically difficult sub-surface pipe ‘shot’ exercise. In addition, some 1,129 metres of branch lines were established in the Bonaberi-Magzi Estate area with the first customers connected within five weeks of crossing following successful safety checks and flow testing. New Bonaberi thermal customers were Sopriacam, a cooking oil and soap refinery, New Foods, a biscuit manufacturer and Sasel, a salt manufacturer. These three customers are now consuming gas on the Bonaberi side and we are confident of adding at least eight more in 2016.

Other than the newly commissioned Dangote plant all new thermal customers were previously using HFO for boilers driving mechanical plant and processes. The GDC marketing and engineering teams worked with the senior management of these businesses to demonstrate the cost savings expected to occur following conversion to gas from HFO and then implemented individual engineering solutions that ensured an efficient conversion for these customers.

On 29 December 2014, the Company announced that GDC had signed a legally binding term sheet with ENEO, Cameroon’s integrated electricity company, to supply gas to two power stations located in the city of Douala. The Bassa Power Station was located 0.3km from the GDC existing northern pipeline and the Logbaba Power Station was located 1.3km along the proposed eastern leg of the main line. ENEO needed to produce a total of 50MW of power from the two stations.

The agreement with ENEO was a significant gas supply contract for VOG in terms of scale and revenue generation, with guaranteed minimum take-or-pay gas consumption at a fixed $9/mmbtu over the two year contract term. The contract can be extended by mutual agreement. The take-or-pay element gave GDC the necessary incentives to allocate significant levels of gas to a single customer. The ENEO deal significantly increases production and secures GDC revenues under the fixed take-or-pay conditions. The minimum take-or- pay levels are 9mmscf/d in the January-June dry season and 3mmscf/d in the July-December wet season. GDC anticipates actual demand from ENEO will be higher than the minimum take-or-pay levels during both seasons with ENEO advising GDC of their need to supply 50-80MW of additional power to the Douala grid for each of the next five years. Altaaqa was engaged to provide power generation equipment to the project and took responsibility for importing and installing the Gensets at the Douala power stations.

On 23 March 2015, the Company announced the first supply of 4.5mmscf/d of gas to the sixteen Altaaqa Gensets installed at Bassa Power Station. Following the pipeline connection to Bassa by GDC and the successful installation of the Gensets by Altaaqa, 20MW of gas generated power was being fed into the grid for the first time. Shortly afterwards on 23 April 2015, it was announced that the Logbaba power station project was online and delivering 30MW to the grid. This meant that the 50MW target under the ENEO agreement and GDC’s responsibilities to deliver gas to both stations had been met. This principal delivery factor triggered the take-or-pay conditions in the contract with ENEO. The total project was delivered within four months of contract signing.

On 27 May 2015, the Company announced that it had made payment in full for the purchase of the Logbaba gas processing plant (“the Plant”) from Expro. The Plant has been purchased from Expro for $2.58 million, using cash generated from GDC operations and contributions from RSM. Ownership of this plant has significantly reduced monthly operating costs at Logbaba.

Looking Forward

The Logbaba gas and condensate project is a rare and successful example of profitable onshore gas monetisation in Sub-Saharan Africa. Demand for gas in Cameroon for thermal and power generation is estimated by GDC to be in excess of 150mmscf/d. We need to grow production to meet this demand.

We have an established cash generative business in Cameroon, with the GDC team now considering a series of new supply opportunities within the local market. The task now is to ensure that we have the reserves and capacity to be able to deliver new allocations of gas to new customers and markets. Consequently, we are actively planning to drill two new wells at the Logbaba concession site. These wells are primarily twins of wells completed in the 1950s, which produced good gas flows. Spudding of the first well will be in the first half of the calendar year 2016. We plan to fund the drilling of these wells from internal cash flow, bank finance and partner contributions and at this stage do not expect the need to seek shareholder funding.

GDC is currently the only supplier of natural gas to Douala. It owns and manages the whole value chain from the wellhead to customer connection. We are well insulated from oil price fluctuations because GDC has completed long-term supply contracts with customers at prices from $9/mmbtu to $16/mmbtu and we are an emerging and important gas utility in Cameroon. GDC’s gas price is not subject to regulation.

VOG intends to maintain its position as a dominant gas supplier to industry in Douala. It will leverage its advantage by using its experience in gas treatment and pipeline assets to be a ‘gas consolidator’ in the region and beyond.

With our existing customers and growing demand from the power sector it is important that we maintain a balanced revenue contribution of gas customers and markets with new private sector sales opportunities. Compressed Natural Gas and dedicated small power users can all be allocated gas supply in addition to maintaining our supply to the regional electricity generator.

We have also begun to look at other opportunities within Cameroon to take advantage of our proven ability to monetise gas and have been in discussions with several participants in the sector about possible joint ventures and farm-in projects.

Finally, I would like to thank my fellow Directors, the management team and, especially, our shareholders for their support over what has been an incredibly positive year for the Company.

Kevin Foo

Executive Chairman

Date: 27 October 2015


See attached for Financial Statements



1.    Publication of non-statutory accounts

The financial information, for the year ended 31 May 2015, set out in this preliminary announcement does not constitute statutory accounts. This information has been extracted from the Group's 2015 statutory financial statements upon which the auditors' opinion is unqualified. However, the auditors report made reference to the Company’s disclosures regarding the recoverability of the exploration assets as disclosed in the financial statements.

2.    Basis of preparation

The financial information, for the year ended 31 May 2015, set out in this preliminary announcement, has been:

  • computed in accordance with International Financial Reporting Standards (“IFRSs”), however this preliminary announcement does not contain sufficient information to comply with IFRSs. The IFRS compliant Consolidated Financial Statements will be published in the Annual Report for the year ended 31 May 2015;
  • prepared on the basis of the accounting policies as stated in the Annual Report for the year ended 31 May 2014, with the exception of those changes required in the application of new and revised IFRSs, none of which has a material impact on the Group.

3.    Annual Report

The Annual Report and the Notice of the Annual General Meeting for the year ended 31 May 2015 will be available on the Company's website at by no later than 6th November 2015. These documents will also be posted to those shareholders that requested it. The Annual General Meeting of the Company will be held on 30 November 2015 at the Coin Street Neighbourhood Centre, South Bank Room 1, 108 Stamford Street, South Bank, London SE1 9NH at 11.00am.