VOG.L Regulatory News (VOG)

18 July 2013

Victoria Oil & Gas Plc

('VOG' or 'the Company')

(AIM: VOG)

Chief Executive Officer's Letter to Shareholders

Logbaba Key Points:

·; Total gas production remains on schedule for 12 million standard cubic feet per day ('mmscf/d') by the end of December 2013 based on a revised operational execution schedule

·; 30 thermal Gas Sales Agreements ('GSAs') signed, an increase of four from our previous update

·; 17 customers have completed thermal customer conversions and are taking gas, an increase of two from our previous update

·; Continuous production operations at Logbaba on a seven day weighted average basis currently at approximately 2mmscf/d, 0.8mmscf/d down from our previous update

·; The thermal business is being impacted by power shortages in-country leading to enforced customer shutdowns. This can be remedied after installation of on-site power generation units as part of the Company's gas to power strategy from September 2013

·; A key operational change to our power strategy has been to defer the purchase of gas-fired generation units and opt initially for rental units and will seek to procure permanent generation units from 2014

·; Contract with Energyst Rental Solutions SAS ('Energyst') concluded in July 2013 for operations and maintenance of 14 new uniform Caterpillar generation units with a total capacity of 21MW. There is a phased delivery schedule throughout 2013 with an option for a further 21MW

·; First batch of 5 x 1.5MW (7.5MW) of power units being shipped to identified customers on 23 July 2013 from Antwerp for installation and commissioning in September 2013 leading to the Company's first gas to power operations

·; Phase 2 pipeline progress on schedule to complete in Q3 2013

·; Purchased second-hand 100 tonne horizontal directional drilling ('HDD') unit and signed an operations supervision contract with Britanica HDD Ltd ('Britanica') for river-bed drilling project across the Wouri River in Q3 2013. A third HDD unit secured in July 2013 for immediate deployment

·; Phase 3 pipeline operations to commence in 2014 and 100 tonne HDD unit to assist in operations

·; Re-prioritisation of new 'Phase 4' section of pipeline commencing this year due to higher density of thermal and power customer off-take in Bonaberi across the Wouri River

West Medvezhye Key Points:

·; Strategic review with Renaissance Capital completed

·; 'Limited Auction' process to selected parties now underway and progressing in a timely manner with positive indication of interest

Corporate Key Points:

·; Decision expected before the end of September 2013 concerning arbitration with RSM Production Corporation

·; Senior secured revolving credit facility progressing and expected to close after introduction of first gas to power operations in Douala

Dear Shareholder,

I would like to take this opportunity to update you on the Company's operations and share some initial observations.

Logbaba Gas: Pipeline, Thermal and Power Progress, Cameroon

Pipeline Construction

Since the last update in February 2013, construction operations at Logbaba have continued apace. Proceeds from the placing announced in the same month have enabled the Company to continue expansion of the pipeline network and deploy new equipment for horizontal drilling and customer conversions activity. Rodeo Development Limited ('RDL'), the Company's wholly owned subsidiary, commenced Phase 2 expansion of the pipeline at the end of February 2013. Total pipeline laid to date is 17.4km. On Phase 2, 4.2km has been installed to date of a total pipeline length of 9.6km. The Company remains on track to complete Phase 2 by the end of Q3 2013.

The Company also announces a re-prioritisation to the planned expansion of the pipeline network. RDL has negotiated a contract with Britanica HDD Ltd ('Britanica') for the design, project management and installation of a ca. 0.8km river-bed pipeline crossing under the Wouri River and Britanica has now mobilised to Cameroon. As part of these discussions, and with the assistance of Britanica, RDL has purchased a second-hand 100 tonne horizontal directional drilling ('HDD') unit and reclaimer to facilitate these activities. Britanica is a Nigerian company that has considerable experience of water-crossing operations, in particular in the Niger Delta region and has worked for a number of large operators including Total and Saipem.

RDL now plans to carry out test shots on land with the 100 tonne HDD unit, enabling Phase 2 pipeline operations to be accelerated before river-bed drilling operations commence in August 2013. The first land-based shot of 450m is planned for the end of this week. RDL has altered its pipeline expansion schedule as we now believe that there is a significant density of thermal and power customers in the Bonaberi area across the Wouri River. The Company will be now referring to pipeline expansion in Bonaberi as Phase 4. The current envisaged length of the Phase 4 pipeline is 14km of which 9km is expected to be completed by December 2013.

The second-hand 100 tonne HDD unit can be deployed in 2014 for the Phase 3 pipeline operations, large areas of which are quite swampy and would be challenging to drill with the existing Ditchwitch machine. RDL has also this week negotiated an agreement with Britanica for a third medium sized HDD unit which is ready for immediate deployment. It is worth noting that the application of greater HDD technology will greatly accelerate pipeline construction operations in the rainy season versus recorded rates in 2012.

Thermal Progress

Sales and marketing efforts for thermal production operations are on-going. Since our last update to the market, Doula's chronic power supply deficit has continued to hamper industry's ability to run their plant operations in an unconstrained manner. Additionally, there has been increased evidence of regional load shedding within Douala and un-planned outages over the period causing a good deal of disruption to our customer base. These unpredictable outages are of concern to the government of Cameroon and they are investigating options to improve the situation. This has had an effect on the Company's overall headline production number for sales to customers.

Based on recorded sales data, if all customers took their maximum 7 day consumption in the same week, this would comprise 3.1mmscf/d. However, current 7 day consumption is ca. 2mmscf/d and weekly consumption numbers throughout the period have reflected significant volatility. This has been a significant challenge but it also represents an opportunity as appetite for an alternative primary source of electrical power, via on-site gas fired power generation is increasing by the day.

The Company now has 30 thermal GSAs executed and 17 customers who have completed their conversion requirements and are taking gas, an increase of four and two respectively on our previous update. There are still in excess of 10 customers on the Phase 1 pipeline area that are yet to complete either conversion requirements or plant expansions leading to additional gas off-take. This is for a variety of reasons but in the majority of instances, this is due to the customers' lengthy internal approval procedures and lead-times on delivering and commissioning new capital equipment. We expect these conversions to come online in the coming months along with Phase 2 thermal customers who are eager to get hooked up to the network.

Power Progress

A key operational change to our power strategy has been to defer the purchase of gas-fired generation units and opt initially for rental units only under a large supply contract. Contracts offer a 12 month discounted price to the alternate grid supplier with a high take-or-pay component during the interim rental provision period.

In July 2013, the Company finalised an agreement with Energyst for the provision of 14 x 1.5MW new Caterpillar rental gas-fired generation units (21MW) with a phased delivery schedule throughout 2013 plus an option for a further 21MW. Following this, the supply contracts to our customers are anticipated to be executed in the coming weeks. Energyst is providing an in-country full service installation, commissioning, operations and maintenance service for the duration of the contract. There will be three shipping dates for delivery of units and associated equipment into Douala and the contract will run separately for 12 months from commissioning for each batch.

The first batch of 7.5MW of power units plus contingent equipment is being shipped on the 23 July 2013 from Antwerp for installation and anticipated commissioning in September leading to the Company's first gas to power operations. This will be a major milestone for the Company.

Short-term rental solutions will enable us to monitor customer data and operating behaviour over an extended period to allow for optimised engineering of a bespoke solution. Our plans remain to secure long-term take-or-pay contracts that optimise the conversion efficiency of gas to power for the customer.

The Company is also in advanced discussions with an alternative provider for the provision of a number of 1MW capacity generation units. It is expected that these units will also be operational in-country before the end of year. A different sized engine allows us to widen the rental offering to an increased customer base that would otherwise not meet our internal financial hurdle rate with the larger engine size. All of the engines to be deployed are from leading equipment manufacturers with 'world class' reputations.

The deployment of rental units is expensive and the operating profit per unit of energy will not be comparable to thermal during this introductory period. Longer-term, pricing will be bespoke and a function of each customer's operating regime but can be expected to compare with our thermal gas supply pricing. We consider this is the prudent way forward for the Company in order to forge positive long-term relationships with its customers.

We have significantly advanced the project during the period and can confirm that we are maintaining our year-end production forecast of 12mmscf/d for the end of December 2013 following a review and revision of the execution plan which includes some large-scale sales opportunities.

West Medvezhye, Russia

The West Medvezhye ('West Med') block is located near the Yamal Peninsula, North West Siberia, in one of the most prolific gas producing areas in the world, in close proximity to the giant Medvezhye and Urengoy fields. The Company holds 100% of an exploitation licence for West Medvezhye covering 1,224 km2, and has a discovery well, Well 103, with 'C1 plus C2' reserves of 14.4 million barrels of oil equivalent ('boe') under the Russian classification system.

On 27 February 2013, the Company announced the appointment of Renaissance Capital ('Rencap') to assist it in evaluating its various strategic options in relation to its 100% interest in the West Med oil, gas and condensate licence area in Russia. Having completed this exercise with Rencap, the Company has proceeded to run a 'limited auction' process to a selection of pre-screened companies.

A number of invited companies have proceeded to review the data. This was followed up by management and technical presentations and due diligence visits by interested parties. The Company believes this process is progressing in a timely manner and we remain positive with regard to a satisfactory outcome concerning value and deal structure before the end of December 2013.

Over the course of the last three years, the Company has also been pursuing an integrated exploration and appraisal work programme on West Med. Last year, the Company announced an increase in best estimate prospective resources from 1.1 billion boe to 1.4 billion boe from the work carried out by Mineral LLC, independent reserve auditors when it carried out a seismic reprocessing study on the block.

In preparation for drilling in the winter of 2013/2014, our updated work programme was presented to the Yamal District authorities on 20 February 2013 including preparation of a drilling design project, contracted to JSC TyumenNIPIneft, which is expected to be completed by October 2013.

In addition, SGI has recently completed all the necessary documentation to lease the drilling pad area and winter road. The documents are be submitted to the Land Registration Chamber by the end of July 2013.

The Company believes that there is considerable value in West Med with its highly prospective acreage. This value has been augmented by recently announced tax concessions which will significantly enhance the value of the asset and interest of other oil and gas companies to invest in the region.

For the time being, the Company is minimising further capital spend on the asset beyond licence maintenance expenditure.

Corporate, London

The hearings and various post-hearing submissions and replies in the arbitration with RSM Production Corporation were completed in June and July 2013 and we now await the judgement of the Tribunal. We anticipate a decision before the end of September 2013.

The senior secured revolving credit facility for US$30 million has been progressing and is expected to close after introduction of first gas to power operations in Douala when production levels meet a certain threshold. When available, this facility will allow us to expand our pipeline operations further and procure permanent generation units to come on stream from 2014.

CEO's Observations

VOG has a quality business opportunity in Cameroon and the ability to replicate it, in time, elsewhere in Africa. The domestic use of smaller gas deposits within Africa to replace expensive liquid fuels offers countries a quick win on many fronts such as reliability of supply, improved employment, taxes and balance of payments for host governments and cost savings for industrial customers. The use of such gas deposits is also allied to considerable environmental benefits compared to heavy fuel oil or diesel. Africa and Cameroon have well documented challenges with chronic power supply deficits, and the growth of diesel (or similar) generators are not the ideal solution.

Since the last update, we have brought on leading institutional shareholders who have seen the potential for our Company to build on Logbaba both in Cameroon and elsewhere in Africa through expansion and diversification of gas use. We have encouraged them to share our medium term vision and our expectation of shareholder returns based on expansion and access to GDP growth in Africa. We are particularly keen to build and maintain analyst coverage from a spread of brokers in addition to our house broker to widen the coverage of the VOG story.

In recent months, I have spent considerable time reviewing the business and considering how we can adapt plans to strengthen the delivery of our objectives. We shall continue to seek innovative ways to expand gas sales to support our existing and potential customer base. Initiatives to achieve this are on-going. The retention of our 12mmscf/d year-end target for 2013, following a thorough review and modification of the execution schedule, has been a major focus of my attention.

I wish to re-assure shareholders that I will be providing supportable production forecasts to the market. Beyond the regulatory requirements to release news to the market, I am keen to inform shareholders only once full clarity of execution exists and when we have sufficient understanding to predict an outcome. The certainty of delivery and greater timeliness, which should result, may reduce previous concerns regarding project delivery.

Key monitoring targets for me are pipeline progress and customer conversions in a timely manner as these are core drivers of our year-end production level. As the Company has consistently maintained, we are in the desirable position of being neither demand nor supply constrained until we reach our current existing processing capacity of 20mmscf/d.

Subject to contractual and close-periods in VOG and my previous employer and as soon as practicable, it is my intention to purchase VOG shares in 2013.

John Scott

For further information, please visit www.victoriaoilandgas.comor contact:

About Victoria Oil & Gas

Victoria Oil & Gas Plc is an emerging market natural gas utility and independent oil and gas exploration and production company with producing assets in Africa and exploration assets in the Former Soviet Union. The Company's principal assets are a 95% interest in the Logbaba gas and condensate project in Cameroon and 100% interest in the West Medvezhye project in Siberia, Russia. Logbaba is located in Douala, the largest city and industrial capital of Cameroon. The field was discovered in the 1950s when all four exploration wells drilled at the time encountered gas. The Company drilled two successful development wells in 2009/10 and was awarded an Exploitation Licence in April 2011.

The Company's Logbaba natural gas and condensate field is estimated to hold sufficient proven and probable reserves to supply an average of 30 mmscf/d for the next 20 years to industrial customers. Under current management projections, the Company forecasts industrial gas demand to rise to 44 mmscf/d along the current and planned pipeline expansion route. In the next 18-24 months, the Company will continue meeting the known demand of contracted customers and connecting them to the Company's infrastructure to generate increased sales and revenues. The Company has signed gas sales agreements with industrial customers to serve their energy requirements and anticipates in excess of 40 customers over the medium term. In the longer term, the Company will investigate the potential opportunity to supply natural gas to large gas-fired power stations connected to the grid, with VOG either investing in an independent power producer joint-venture or selling the gas to third parties.

West Medvezhye is situated in the prolific Yamal-Nenetsk hydrocarbon region in Siberia. An independent audit, carried out by Mineral LLC in 2011, estimated prospective resources for the area of over 1.4 billion barrels of oil equivalent ('boe'). The Company also has a discovery well, well-103, with C1 and C2 reserves, independently assessed under the Russian classification convention of 14.4 million boe as approved by the Russian Ministry of Natural Resources.

Development studies are in progress to commercialise the well-103 discovery and prospective resources and a detailed well design study for the upcoming drilling campaign has commenced. The Company is running a limited auction process which is progressing in a timely manner and the Company remains positive with regard to a satisfactory outcome before the end of December 2013.