VOG.L Regulatory News (VOG)

 VICTORIA OIL AND GAS PLC

('VOG' or the 'Company')

INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 NOVEMBER 2011

Victoria Oil & Gas Plc (AIM: VOG), the AIM quoted oil and gas exploration and production company with assets in Cameroon and the FSU, is pleased to announce its unaudited interim results for the six months ended 30 November 2011. 

Highlights for the period ending 30 November 2011:

·; Increase in prospective resources by over 300 million barrels of oil equivalent ("boe") to 1.4 billion boe at West Med

·; Increase in the Company's working interest to 95 per cent. at Logbaba

·; Equity placings of £10.1 million

·; Macquarie Capital (Europe) Limited appointed as a joint broker to the Company

Highlights post period end:

·; VOG becomes the first onshore gas and condensate producer in Cameroon supplying the industrial market in December 2011

·; Second phase of pipeline expansion to central Douala under construction, and expected to be completed in early Q2 2012

·; Over 1 million standard cubic feet a day ("mmscf/d") of production anticipated from May 2012, expected to rise to 8 mmscf/d by December 2012 and 40 mmscf/d by late 2014

·; Completion of first 34 km of gas distribution network anticipated by Q3 2012

·; Positive cashflow from operations expected by June 2012

·; Tender process for drilling design contracts underway at West Med

·; US$8 million debt facility in place

For further information, please contact:

Victoria Oil & Gas Plc - Tel: +44 (0) 20 7921 8820

Kevin Foo / Martin Devine

Macquarie Capital (Europe) Limited Tel: +44 (0) 20 3037 2000

Jeffrey Auld / Steve Baldwin / Nicholas Harland

Fox-Davies Capital - Tel: +44 (0) 20 3463 5010

Daniel Fox-Davies/ Richard Hail

Strand Hanson Limited - Tel: +44 (0) 20 7409 3494

Simon Raggett / Angela Peace

Tavistock Communications - Tel: +44 (0) 20 7920 3150

Ed Portman/ Paul Youens

Chairman's Report and Financial Information for the period ended 30 November 2011

Operational and Corporate Review

Logbaba, Cameroon

In the second half of 2011, our focus was on delivering first gas production at Logbaba. This was realised on the 17 December 2011. This was a very significant milestone for the Company because it signalled our move into being a producer. Passing this milestone within three years of first entering Cameroon was an outstanding result and this also demonstrates to the investment community that Cameroon is a country that is open for business. We could not have done this without the active support of the Government of Cameroon and our partner, Societe Nationale des Hydrocarbures, ("SNH").

In H2 2011, VOG achieved the following major operational milestones:

i. flow testing and commissioning of both production wells, La-105 and La-106;

ii. commissioning of the process plant by introducing gas into the plant, testing and fine tuning all equipment and flaring gas;

iii. introducing gas to the distribution pipeline for purging the 4 km initial section and packing the pipeline with gas; and

iv. commissioning the first 4 km of pipeline to the first industrial hub located at the Magzi Industrial Estate ("Magzi") and delivering gas to our first customers.

 We have made the first onshore discovery of commercial hydrocarbons in Cameroon and are the only onshore gas and condensate producer in the country. Since the award of our Exploitation Licence in April 2011, we have logged over 23,000 man days with only one minor lost-time incident.

Our 2012 work programme involves completing the planned 34 km distribution network. We also plan to secure all major thermal customers in Douala and install the first gas fired power generator during the second half of 2012. This will showcase the economic benefits of this energy solution to all large domestic industrial consumers.

By Q2 2012, we expect to have laid and commissioned all pipeline to central Douala where the majority of our thermal customers are located. Although Magzi represents a large energy demand centre for power, there are currently only two customers connected to the pipeline and they have minor and intermittent thermal requirements. However, in central Douala, we anticipate an increase in production levels from a minimum of 1 mmscf/d rising to 8 mmscf/d across the network by the end of the year. To date, the Company has signed fifteen Gas Sales Agreements, ("GSAs") and anticipates signing in excess of twenty GSAs by the end of 2012.

We have installed approximately 9 km of the total 11.8 km pipeline required to supply gas to and around central Doula. With four pipeline crews in operation, rates of installation and backfill have reached up to 120 m per day. Completion of the distribution network to south east and west Douala is anticipated during Q3 2012.

As previously announced, we are selling gas at US$16 per million British thermal units (ca. US$16 per thousand cubic feet) to customers, which is the oil equivalent of US$96 per barrel. This price is fixed for five years. In addition, the contracts enable the Company to be the sole provider of gas to these industrial clients over a 20-year term. By delivering a reliable energy supply to our customers at these prices, we are providing energy savings of 20-40 per cent. over current costs with liquid fuels while management estimates of operating costs provide attractive netbacks to the Company.

We believe that Logbaba is an exceptional gas project where all aspects of the business combine to provide a very satisfactory situation. The project has substantial reserves located at the industrial heart of an energy hungry region and the Company controls the entire supply chain from the wellheads to the customer. We anticipate generating positive cash flow from our Logbaba operations from June 2012. Once our 8 mmscf/d target production rate is achieved by the end of the year, gross revenues of US$1 million per week can be expected. Looking to 2013, the Company expects greater gas demand and our target production is 20 mmscf/d and combined usage from thermal and power demand is expected to reach 40 mmscf/d by late 2014.

With gross proved and probable (2P) reserves sufficient to supply an average 30 mmscf/d for the next 20 years and prospective resources of over one trillion cubic feet of gas, we believe that Logbaba represents a very sound cash source for the future. We have a captive market that is eager to take our gas as it provides cleaner, more reliable energy and significant savings to alternative fuels.

West Medvezhye, Russia

Our 100 per cent. owned West Medvezhye ("West Med") block is located near the Yamal Peninsula, north west Siberia, in one of the most prolific oil and gas producing areas in the world, adjacent to the giant Medvezhye and Urengoy fields. We hold a 20-year exploitation licence for West Medvezhye covering 1,224 km2, and a discovery well, Well 103, has "C1 plus C2" reserves of 14.4 million boe under the Russian resource classification system.

In September 2011, following a seismic reprocessing and geological modelling study, the Company reported that independent reserve auditors, Mineral LLC, ("Mineral") had confirmed a 300 million boe increase in gross prospective resources to 1.4 billion boe, comprising 670 million barrels of oil and 730 million boe of gas & condensate.

We are pursuing an integrated exploration and appraisal work programme incorporating drilling, seismic, and advanced direct hydrocarbon technologies. This programme was presented to the Yamal District regional petroleum authorities in Salekhard on the 15 February 2012. The programme was approved by the authorities and a two well drilling campaign is provisionally planned to start by the end of 2012. These wells will target the Jurassic discovery horizons successfully encountered by Well 103 and also new hydrocarbon potential horizons in the Achimov layers identified as part of the study carried out by Mineral.

Our Nadym-based team is currently tendering the drilling design contracts for the planned wells. Three companies with a successful track record of working in the region have been shortlisted. Our technical team are in advanced discussions with these companies to determine the scope of work to include detailed well design as well as studies of the terrain, soil mechanics, access and ecological issues.

Conceptual screening and development studies are in progress to monetise West Med's large prospective resources and to exploit the Well 103 discovery to generate cash flow. In February 2012, VOG contracted an experienced local company, LLC Nefteproject, based in Tyumen, to develop a project plan for an early production scheme for the West Med discovery area. Preliminary work on the Well 103 discovery indicates first oil sales could occur in 2015.

The Company is planning to farm-out a portion of its interest in West Medvezhye to help fund the development and drilling programmes.

Corporate

The Company has invested approximately US$85 million of shareholders funds in the Logbaba project and it has secured this funding in very challenging capital markets. During the financial period, the Company raised £10.1m via equity placings. The Board and I are very conscious that the share issues, which have been essential to the progression of our projects, have also been dilutive.

The Directors believe that the Logbaba project has now been substantially de-risked. Consequently, routes to alternative sources of capital, other than conventional equity, have opened up for the Company.

The Company recently concluded a 12 month Loan Note facility for US$8 million for its capital programme at Logbaba. An initial tranche of US$4 million has been drawn and the remaining US$4 million may be drawn subject to mutual consent. The Loan Note bears a 9 per cent. coupon and is expected to be repaid by cash flow from operations at Logbaba. We are also currently in discussions with several parties in relation to a larger debt facility and reserve based lending facility, both with attractive terms. The appointment of Macquarie Capital (Europe) Limited as a joint broker with Fox Davies Capital has also strengthened the Company's advisory team.

I believe that 2012 will be a year of major developments for the Company as we make the transition from explorer to producer and generate positive cash flows. To equip us for the future, we are strengthening our management with experienced oil and gas professionals and senior executives.

Kevin Foo

Chairman

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE HALF YEAR ENDED 30 NOVEMBER 2011

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE HALF YEAR ENDED 30 NOVEMBER 2011

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETAS AT 30 NOVEMBER 2011

 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR ENDED 30 NOVEMBER 2011

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

FOR THE HALF YEAR ENDED 30 NOVEMBER 2011

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2011

1. PRINCIPAL ACCOUNTING POLICIES

The annual financial statements of Victoria Oil & Gas Plc are prepared in accordance with International Financial Reporting Standards (IFRS) and in accordance with International Accounting Standard 34 'Interim Financial Reporting'.

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 May 2011.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual consolidated financial statements as at 31 May 2011.

Adoption of new and revised Standards:

The following new and revised Standards have been mandatorily adopted by the Group during the period. Their adoption is not expected to have any material impact on the Group.

Improvements to IFRSs (2010) - The improvements in this amendment clarify the requirements of IFRSs and eliminate inconsistencies within and between Standards. The improvements did not have any impact on the current or prior periods financial statements.

At the date of these interim financial statements the following Standards were effective but not relevant to the Group

IAS 24 (Revised 2010) Related Party Disclosures (effective for accounting periods beginning on or after 1 January 2011)

IAS 32 (amended) Classification of Rights Issues (effective for accounting periods beginning on or after 1 February 2010)

2. SHARE OPTION EXPENSE

The fair value of warrants issued by the Company in respect of fees for share placings has been offset against Share Premium. The amount for the 6 months to 30 November 2011 was $256,000 (6 months to 30 November 2010 and 12 months to 31 May 2011: $580,000).

The warrants have been fair valued using a Black-Scholes option pricing model. The inputs into the Black-Scholes model were as follows:

The expected volatility was determined based on the historical movement in the Company's share price over a period equivalent to the option period. 

3. LOSS PER SHARE

Basic earnings or loss per share is computed by dividing the profit or loss after tax for the year available to ordinary shareholders by the weighted average number of ordinary shares in issue and ranking for dividend during the year, excluding those held by the ESOP Trust. Diluted earnings or loss per share is computed by dividing the profit or loss after taxation for the financial year by the weighted average number of ordinary shares in issue, each adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.

Loss Per Share (continued):

The following table sets forth the computation for basic and diluted loss per share.

Basic and diluted loss per share are the same, as the effect of the outstanding warrants is anti-dilutive and is therefore excluded.

4. SEGMENTAL ANALYSIS

The Group operates in one class of business being the exploration for, development and production of oil and gas and in three geographical segments, namely the Russian Federation, Republic of Cameroon and the Republic of Kazakhstan.

The analysis by geographical segment is shown below:

Segmental Analysis (continued):

EXPLORATION AND EVALUATION ASSETS

The movement on exploration and evaluation assets, which relate to oil and gas interests, during the period was:

Oil and gas interests at 30 November 2011 represent exploration and related expenditure on the Group's licences & permits in the geographical areas noted above. The realisation of these intangible assets by the Group is dependent on the discovery and successful development of economic reserves and the ability of the Group to raise sufficient funds to develop these interests. Should the development of economic reserves prove unsuccessful, the carrying value in the statement of financial position will be written-off.

The Directors have considered whether facts or circumstances exist that indicate that exploration and evaluation assets are impaired and considered that no impairment loss is required to be recognised as at 30 November 2011. Exploration and evaluation assets have been assessed for impairment having regard to the likelihood of further expenditures and ongoing appraisal for each geographical area.

During the period, amounts previously included in other receivables were transferred to exploration and evaluation assets following the withdrawal of RSM Production Corporation from the Logbaba gas development. (See Note 10.)

Segmental Analysis (continued):

Subsequently exploration and evaluation assets of $97.1m associated with the Logbaba gas and condensate project in Cameroon were transferred to property, plant and equipment as in the opinion of the Directors the project has now achieved technical feasibility and commercial viability following commencement of commissioning of the production facilities and the gas pipeline network .

PROPERTY, PLANT AND EQUIPMENT

The movement on property, plant and equipment, which principally relates to oil and gas interests, during the period was:

5. OTHER GAINS

6. FINANCE COSTS

Interest payable relating to the convertible loans includes both the stated and effective interest charge.

7. INCOME TAX EXPENSE

At the balance sheet date, the Group has unused tax losses of $43.1m (30 November 2010: $38.0m; 31 May 2011: $40.8m) available for offset against future profit. No deferred tax asset has been recognised in either year due to the unpredictability of future profit streams in the companies that have accrued tax losses. Accordingly, at the year end, deferred tax assets amounting to $11.5m (30 November 2010: $10.7m; 31 May 2010: $10.6m) have not been recognised.

8. PROPERTY PLANT AND EQUIPMENT

Property, plant and equipment (continued):