LONDON (Alliance News) - Victoria Oil and Gas PLC Thursday said it produced more gas and condendsate in the third quarter of 2015 than it expected as it continues to progress its expansion plans.
The oil and gas producer in Cameroon implemented a major supply deal with ENEO Cameroon SA, the country's national electricity company, to provide gas to the Bassa and Logbaba power stations in Douala through a take-or-pay contract during the third quarter.
Victoria said the third quarter was the first full period covering the wet season in Cameroon since its subsidiary, Gaz du Cameroun SA, signed that deal with ENEO.
"Across all of the Gaz du Cameroun gas supply markets [the] third quarter is the lowest demand period primarily due to the seasonal increase in power output from Cameroon's hydroelectric dams," said Victoria.
"Gaz du Cameroun's existing take-or-pay terms in place with ENEO, split minimum payment levels between distinct six month demand periods covering higher dry (January-June) and lower wet (July-December) seasons," it added.
As a result, production and sales both fell quarter-on-quarter, but were both considerably higher compared to a year earlier.
Daily gas production averaged 8.2 million standard cubic feet of gas in the third quarter, which was down from 12.6 million standard cubic feet in the previous quarter but was more than double the 4.0 million standard cubic feet being produced daily a year ago.
That brought total gas sold in the third quarter to 718.0 million standard cubic feet of gas, down from 1.12 billion standard cubic feet of gas in the second quarter of 2015 but up from the 368.0 million standard cubic feet of gas sold in the third quarter of 2014.
Condensate sales followed, falling quarter-on-quarter to 10,878 barrels from 13,445 barrels, but still almost double the 5,667 barrels sold a year earlier.
The company generated USD8.1 million from the sale of its gas and condensate in the third quarter, which is down from USD9.8 million in the second quarter.
Although production and sales fell quarter-on-quarter as expected due to the wet season, Victoria said it sold more than expected during the third quarter because ENEO took 32% more gas in the quarter than the minimum amount it was required to take under the take-or-pay quota.
"As anticipated, the quarterly differential is primarily due to the seasonal effects of increased hydroelectric power being made available via the grid; reduced demand from ENEO and other seasonal factors from some thermal and dedicated power customers. Despite the seasonal impact, the 8.2 million standard cubic feet per day average production for the third quarter is higher than expected because ENEO exceeded its take-or-pay minimum quota for the period by 32%," it said.
For the first nine months of 2015, Vicoria has sold 2.24 billion standard cubic feet of gas which is already way ahead of the 1/27 billion standard cubic feet produced in the whole of 2014. The ENEO deal is the main cause for the substantial year-on-year rises in sales and production.
"The next quarter will see the tailing off of the wet season in terms of production and expected increased production," said the company.
Operationally, Victoria said it has commissioned a design study to double the capacity of the Logbaba gas plant to 40.0 million standard cubic feet per day after Victoria purchased the plant from its previous owner Expro Worldwide BV. Victoria paid USD2.6 million in cash for the plant back in May.
The plant currently processes gas extracted from the GDC wells, producing condensate which is sold to a local refinery and clean natural gas which is distributed to customers through the 33 kilometre pipeline network in Douala.
Victoria said it has continued to assess the investment case to expand that pipeline into the Bonaberi area, giving it a larger market to target and potential new customers.
On top of that potential expansion, Victoria is looking at the possibility of expanding its hydrocarbon sales by selling compressed natural gas. The company said it is in talks with a "preferred partner" which would fund the capital and operational costs of getting that operation up and running.
Compressed natural gas can be used in place of petrol, diesel fuel and propane or liquefied petroleum gas. Victoria did not reveal the name of its "preferred partner."
As that partner is expected to fund the work needed, there will be "minimal capital requirement" for Gaz du Cameroun and the sales expansion will enable customers within a 250 kilometre radius of Douala to buy compressed natural gas.
Victoria said a "high margin business for 'gas only' supply model" will allow it to focus on gas sales rather than downstream development. Back in October, Victoria had stressed it was trying to improve its margins.
In the second half of 2016, Victoria plans to conduct further drilling at Logbaba and it has hired SPD Ltd, a subsidiary of fellow London-listed Petrofac Group PLC, to undertake well planning and project management of the drilling campaign, which will comprise of two new wells, La-107 and La-108.
La-107 is to twin the existing La-104 well which was drilled back in 1957. Victoria is aiming to develop the upper Logbaba reserves that were found in La-104, as well as proving the lower Logbaba reserves in the well.
The La-108 well is a step-out well into the 2P, or proven plus possible reserves, area of the Logbaba field.
"We intend to fund the wells from internal cash flow, bank finance and partner contributions and at this stage do not expect the need to seek shareholder funding," said the company.
At the end of September, Victoria reported a cash balance of USD12.8 million, down from USD14.2 million at the end of June after the company reduced its debt by USD2.4 million in the period.
Victoria shares were down 3.3% to 55.34 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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