28 Jan 2016 07:00
28 January 2016
Victoria Oil & Gas Plc
("VOG" or "the Company")
Operations Outlook 2016
Victoria Oil & Gas Plc today provides a 2016 Operations Outlook for VOG and Gaz Du Cameroun S.A ("GDC") the Company's wholly-owned subsidiary and operator of the 60% owned Logbaba Gas Project in Cameroon. GDC has successfully developed the first industrial gas for sale into the Cameroon energy market and is now supplying a variety of different customers.
2015 was a successful year which saw GDC more than double 2014 production and become cash generative. GDC is beginning 2016 with average daily gas production rates in excess of 15mmscf/d and a primary objective to exceed 3.7 Bcf of annual production, which is a 30% increase over 2015 supply.
As a revenue generating, fully integrated gas utility, we are neither exploring for, nor producing oil as a primary product. We therefore believe we are well insulated from the turmoil in the oil market. GDC has maintained most customers at contract prices from $9 to $16 per mmbtu.
The key corporate and operational objectives for the Group for 2016 are to:
Enhance Production Capability
· Increase gas supply to customers by 30% over 2015 levels
· Successfully complete a two well drilling program for expansion of gas reserves
· Complete designs for increasing the gas treatment plant capacity to 40mmscf/d
Expand Customer Base for Increased Capacity
· Add over 13km to our pipeline network by building in new industrial areas such as Bonaberi and the Douala Port Area
· Progress new market products such as Compressed Natural Gas (CNG)
Corporate Objectives
· Continue to reduce production and overhead costs across the Group
· Consolidate our advantage as a fully integrated gas utility in Cameroon by actively seeking additional sources of gas via acquisition, joint ventures or corporate deals
· Fund capital projects through revenues, partner contributions and debt
· Expand business development efforts into other parts of Africa, leveraging the successful Cameroon model
· Distinguish the Groups business and operational successes from other companies in the oil and gas sector so that the Company attracts an appropriate equity market valuation
· Continue to enhance reporting, transparency and corporate governance
VOG Chairman Kevin Foo said:
"In 2015, VOG came of age in terms of operational and financial performance. In 2016 we are focused on exceeding the record production we achieved last year. Despite the massive fall in the price of oil, GDC has protected its customer base and maintained its gas prices at $9 to $16/mmbtu, which reflects the true value and convenience of Natural Gas. We expect success from the two well drilling programme this year and are very focused on continuing to build the Group as a significant energy provider in Cameroon and beyond."
Cameroon Energy Market
Cameroon continues to evolve as a key African economy with the industrial port of Douala a key import and export gateway for goods to most of Central and West Africa. Power deficits remain a major hindrance to Cameroon's economic expansion, with demand increasing 7% annually. Power remains high on the political agenda. Grid power is heavily reliant on seasonal hydroelectric dams to supply 75% of demand and the shortfall is made up from heavy fuel oil and gas. Gas is seen as a key element of the national energy strategy.
The Logbaba gas and condensate project is a rare example of successful onshore gas monetisation in Sub-Saharan Africa, with energy provision clearly aligned with the national interests: GDC has successfully unlocked Cameroon's gas for industrial use. GDC estimates demand for gas in the Douala area for thermal and power generation to be in excess of 150mmscf/d and is focused on growing production to help meet this demand.
2016 Operational Outlook
Expansion of gas reserves to feed expanding market
GDC will be drilling two new wells on the Logbaba concession in 2016, with spudding of the first well anticipated by mid-year. Both wells will be drilled on the current Logbaba site with well LA107 a twin of well LA104 (previously drilled in the 1950's) and well LA108 a step out well adjacent to known formations.
To supplement our in-house expertise, SPD Petrofac has been engaged as project consultants to help complete the well programme and planning is advanced with a suitable rig secured. Whilst drilling onshore Cameroon is more expensive than in established gas production regions, GDC is taking advantage of the current slump in the hydrocarbon services market to ensure the most cost effective and efficient programme is implemented. The insight and lessons learned from the 2009-2010 drilling programme were invaluable and this expertise has been used to design a programme that is both safe and maximises our chance of success. Our aim is to complete drilling by the end of 2016 and we expect to add new reserves as well as transfer 2P reserves to the 1P category. Further updates will be made as appropriate.
Plant expansion for higher levels of gas/condensate processing
In the first half of 2016, GDC proposes to finalise designs to expand the Logbaba gas processing plant to provide increased capacity. Expansion of the gas processing plant is necessary to allow us to process the increased production expected from the drilling programme and pipeline expansion into the Bonaberi area.
Expro International BV has been engaged to complete a study on the design and costs to increase the capacity of the processing plant over three stages to 40mmscf/day. Stage 1, which will expand capacity to 25mmsc/d, is expected to be completed in 2016. GDC has received the initial reports on the options available. The next phase is to provide a cost and schedule that ties into the expansion phase of the project from the gas supply side.
Expansion of the pipeline network into new commercial areas and customers
The expansion of the pipeline network into Bonaberi will allow us to access industries that need room to expand or build away from the crowded Douala environment.
Before the drilling program is completed, GDC expects to have Phase 2 (8km) commissioned and Phase 3 (5.5km) of the Bonaberi pipeline underway. This will provide access to a number of new customers and GDC has signed 12 new Gas Supply Agreements for businesses on the proposed pipeline. S.C.R. Maya & Cie (Maya Oil) are located at the end of the phase of this expansion and are expected to be a significant consumer of gas estimated at 0.3mmscf/d.
GDC continually engages with potential new users to ensure future growth and continues to monitor the market for opportunities to expand the distribution network and alternate delivery systems such as CNG.
Gas to Power
GDC will continue to build on its relationship with ENEO, Cameroon's national electricity generating company. GDC has been successfully providing gas to ENEO at the Bassa and Logbaba power stations in Douala since March 2015. Discussions are continuing with ENEO and others to supply additional gas to power projects.
Geographic Expansion
VOG is fully committed to expanding its business within the African continent. The success of GDC has demonstrated that monetisation can be achieved with the right model in place. The meeting of energy demands is a key building block towards successfully developing robust and stable economies. In 2016 VOG intends to implement a comprehensive strategic plan to target other jurisdictions within Africa.
Corporate
Our change in financial reporting period to end December will come into effect this year. Aligning our financial reporting to the calendar year is a more logical fit with our operational updates and the seasonality of demand.
During 2016, GDC will enter a new phase of the Logbaba Project where gas and condensate revenues, which to date have fully accrued to GDC, will be split in accordance with the participating interests.
We will continue to fund our capital projects via a combination of strong and established operational cash flows, partner contributions and debt.
Recently, the VOG Board made several organizational changes which will support the Company's vision for 2016 and beyond. Ahmet Dik joined the Board and will become the CEO of VOG in due course. Additionally, Iain Patrick was appointed as Non-Executive Director and the Company is in discussions with a potential third Non-Executive Director.
For further information, please visit www.victoriaoilandgas.com or contact:
Victoria Oil & Gas Plc
Kevin Foo / Laurence Read Tel: +44 (0) 20 7921 8820
Numis Securities
John Prior / Ben Stoop Tel: +44 (0) 207 260 1000
Strand Hanson Limited
Angela Hallett / Stuart Faulkner Tel: +44 (0) 20 7409 3494
Bell Pottinger
Daniel Thöle / Charles Stewart / Zara de Belder Tel: +44 (0) 20 3 772 2499
Notes to Editors
About Victoria Oil & Gas Plc
Victoria Oil & Gas (VOG.L) is a gas utility company with operations in the industrial port city of Douala in Cameroon, which is the business hub to Central Africa.
The Company's subsidiary, Gaz du Cameroun S.A. ("GDC"), supplies cost effective, clean and reliable gas to industries in the Douala region from its onshore Logbaba Gas Project. Industrial customers are supplied with gas through a 33km pipeline network built by GDC in Douala.
GDC's gas supply to the thermal, grid power and retail power markets in Douala, is helping to ensure that the Cameroon economy is underpinned with stable energy. By developing a fully integrated gas supply network, connected to wells located within the city itself, GDC has established an energy supply within Douala that is cost effective, reliable, safe and cleaner than liquid fuel alternatives.
The Group generates cash flow from the Logbaba Project which is 60% owned and managed by GDC, with RSM Production Corporation, an affiliate of Grynberg Petroleum Company of Denver, Colorado holding a 40% participating interest.
VOG also holds 100% of the West Medvezhye oil and gas exploration project near Nadym, Russia. The field has C1 plus C2 reserves of 14.4mmboe (under the Russian resource classification system, analogous to proven and probable reserves under Western conventions) in addition to best estimate prospective resources of 1.4bboe. Given the challenging economic environment in Russia, The Group has fully impaired the West Medvezhye assets and is seeking a farm in partner or sale of this asset.