TIDMVOG
RNS Number : 5129A
Victoria Oil & Gas PLC
30 September 2020
30 September 2020
Victoria Oil & Gas Plc
("VOG", "Company" or the "Group")
Audited Results f o r the year end ed 31 December 2019
Victoria Oil & Gas Plc, whose wholly owned subsidiary, Gaz
du Cameroun S.A. ("GDC"), the onshore gas producer and distributor
with operations located in the port city of Douala, Cameroon, is
pleased to announce the publication of the financial information
for the year ended 31 December 2019.
2019 Key Events
-- Equity raise of US$16.8 million net of expenses
-- 93% increase in net revenue over 2018 of US$20.8 million (2018: US$10.8 million)
-- 110% increase in daily average daily gas sales to 8.1 mmscf/d versus 2018
-- Adjusted EBITDA reflected a profit of US$4.0 million (2018: loss of US$0.5 million)
-- Loss after tax of US$110.3 million (2018: loss of 8.5
million), principal reasons for which are set out below
-- New strategy being implemented for growth of high value customer base
Post Year End
-- Appointment of Roy Kelly as Chief Executive Officer and Rob
Collins as Chief Financial Officer
-- Termination of ENEO contract and vigorous pursuit of receivables
-- Proven 1P reserves written down to 19 Bcf at 1/1/2020,
estimates of substantial in-place resources unchanged
The Annual Report may be viewed on the Company's website by
clicking on the following link:
https://www.victoriaoilandgas.com/investor-relations/reports-presentations/#annual-reports
Roger Kennedy, Chairman of VOG said:
" I assumed the role of Executive Chairman in April 2019 to
install a new senior management leadership team and to resolve the
legacy issues facing Victoria Oil & Gas Plc. Whilst this
journey continues to be one of transition, I believe we are making
strong progress and have made key strategic and corporate decisions
that will benefit the future of this Company. I am confident that
under Roy's leadership, and with the addition of our new CFO, Rob
Collins, the Company will be set in a new direction to ensure
enhanced shareholder value. They themselves will communicate their
plans in due course and will have my continued input and backing
."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014
CHAIRMAN'S LETTER
Dear Shareholders,
I assumed the role of Executive Chairman in April 2019 with the
mandate to install a new senior management leadership team and
tackle, if not resolve, the legacy issues facing Victoria Oil &
Gas Plc ("VOG", "the Company"). 2019 was, and 2020 continues to be,
a year of transition as we only welcomed Roy Kelly as the Chief
Executive Officer of VOG in late March 2020. Bridging this
transition to the Company's future, I will provide the sole
commentary in this Annual Report.
Financial Performance
Having secured an extension of the ENEO contract late in 2018,
revenue for 2019 of US$20.8 million was almost double the US$10.8
million attained in 2018.
Adjusted EBITDA for the year, which excludes depreciation,
impairments and the state royalty provision for the operating loss,
reflected a profit of US$4.0 million (2018: loss of US$0.5
million).
However, impairments and State Royalty provisions had a
significant, and one-time impact, on the Company's
profitability.
The Group is reporting a loss after tax of US$110.3 million for
the year ended 31 December 2019 (2018: loss of US$8.5 million). The
principal reasons for this significant loss are as follows:
-- The Q2 2020 Operational Update advised shareholders that the
proven ("1P") reserves for Logbaba had been revised downwards
effective 1 January 2020. The stated reserves at 31 December 2019,
which included production for the year, was 65 Bcf, which was
revised to 19 Bcf. This is discussed in more detail later in this
letter and in the Reserves and Resources section in the Annual
Report and Accounts. The reserves revision precipitated a non-cash
impairment charge on the Logbaba assets of US$90.3 million (2018:
Nil).
-- The ongoing legal action against Cameroon Holdings Limited
("CHL"), which involves a dispute over royalty payments, has
resulted in a non-cash impairment of the Group's investment in an
associate of US$5.6 million (2018: Nil).
-- Post year-end a decision was taken by the Logbaba partners
crystallising a royalty obligation to the State of Cameroon, which
back-dates to the inception of the project. The dispute surrounding
this royalty has previously been disclosed as a contingent
liability, and as a result of the decision a current liability of
US$9.6 million has been raised for the Gaz du Cameroun S.A. ("GDC")
share of the obligation (2018: contingent liability of US$8.0
million).
-- ENEO ceased consuming gas in September 2019. Following
protracted efforts to effect payment from ENEO, GDC terminated the
Gas Sales Agreement ("GSA") with ENEO in July 2020. The invoicing
from September 2019 through to the date of termination was based on
take-or-pay provisions in the GSA. Owing to uncertainty over the
timing of the recovery of the take-or-pay invoices, management has
raised a provision for expected credit loss against these invoices
and certain other customers at 31 December 2019 amounting to US$3.8
million (2018: reversal of US$0.7 million). The termination of the
ENEO contract mid-2020 will have a material impact on revenues and
performance during 2020.
Whilst these impairments and provisions are significant, the
Board believes that it has fully accounted for the known matters
and, with the exception of the disclosed contingent liabilities,
does not anticipate further material write-downs.
Loss per share, which includes the items listed above, was 48.2
cents (2018: loss of 5.8 cents).
The Directors have given careful consideration to the
appropriateness of the going concern basis in the preparation of
the Financial Statements. Whilst there are material uncertainties,
the Directors have concluded that it is appropriate to prepare the
Financial Statements on a going concern basis.
My Chairman's Statement in the 2018 Annual Report & Accounts
brought to the forefront the key challenges for management. These
same issues continued to be our strategic focus throughout 2019, as
well as other matters detailed below.
Single Asset Risk (Upstream)
Logbaba wells are complex with commensurate operational risk
This risk was exemplified during the drilling of well La-108 in
2017. The well required two side-tracks and subsequent remediation
efforts (of which further details below). So, mindful of capital
preservation and risk, coupled with projections of demand growth,
we will continue to utilise the existing well stock, though we
realise this impacts our proved reserves.
This decision does not mean we don't envisage a fuller field
development at a future stage given the large in-place resources in
Logbaba, necessarily preceded by a modern seismic survey to better
image the reservoir and optimise the locations of new wells. Such a
survey would of course require a new Environmental and Social
Impact Assessment ("ESIA").
Added Matanda
To diversify risk, GDC received the Presidential Decree that had
been signed by H.E. Biya on 17 December 2018 authorising the
transfer of the interest in Matanda. The Production Sharing
Contract ("PSC") was entered into in early 2016 with GDC having a
75% working interest and Operatorship along with partner AFEX
Global Ltd ("AFEX") with a 25% working interest. SNH (Société
Nationale des Hydrocarbures, in English: The National Hydrocarbons
Corporation of Cameroon) has the right to back into a 5% to 25%
working interest post exploitation licence (progress detailed
below).
Letter of Intent signed with New Age
Discussions during the period resulted in the Company announcing
in February 2020 a non-binding letter of intent ("LOI") for the
supply of natural gas from the Etinde Field, offshore Cameroon. The
project, and in particular the upstream development, has many
conditions that have to be met before it becomes a reality.
The Etinde owners (New Age, AIM-listed Bowleven, and Lukoil)
have stated publicly that they hope to make a Final Investment
Decision on the offshore development in the next six to nine
months. In this case, the upstream joint venture partners will be
taking the subsurface geological risk, drilling operational risk,
and will have significant capital at risk.
Customer Concentration (Downstream)
Firstly, what we do in Cameroon
Through our wholly-owned subsidiary, GDC, we reliably and safely
supply cleaner fuel to the greater Douala area in Cameroon.
Since 2012, the Company has been supplying natural gas, by far
the cleanest burning fossil fuel, to numerous customers in the
Douala area for a variety of uses. Many of our customers have
converted diesel or heavy fuel oil equipment to run on natural gas
as fuel. Diesel and fuel oils are largely imported in Cameroon and
suffer supply interruptions. Liquid fuels are priced significantly
higher than our gas. Furthermore, compared with diesel, natural gas
represents the following reductions in emissions:
- a 25% reduction in carbon dioxide (CO (2) );
- an 80% reduction in nitrogen oxide (NOx); and
- a 97% reduction in carbon monoxide (CO) emissions.
The combustion of natural gas does not emit soot, dust or fumes.
Natural gas also generates 30% less CO (2) than fuel oil and 45%
less than coal, with a twofold reduction in N0x emissions and
almost no environmentally damaging sulphur dioxide (SO (2) )
emissions.
Grid Customer ENEO
Having not consumed gas throughout most part of 2018, ENEO
Cameroun S.A. ("ENEO") signed a new, binding term sheet in December
2018 to resume gas consumption at the 30 MW Logbaba Power Station
at a price of US$6.75 per MMBtu. Gas sales recommenced on 22
December 2018.
The issues with settlement of aged debt by ENEO has been much
reported by the Company to date. In September 2019, Alternative
Solutions Projects DWC-LLC ("Altaaqa"), the generator supplier to
ENEO, suspended operations at ENEO's Logbaba site due to
non-payment of invoices by ENEO. Consequently, GDC has not been
able to provide gas to ENEO since that date, but continued to
invoice ENEO based on take-or-pay provisions as per the binding
term sheet. At 31 December 2019, the outstanding balance due from
ENEO was US$10.3 million (US$6.2 million net to GDC, against which
the Group raised a provision for expected credit loss of US$3.0
million for a disclosed receivable of US$3.2 million). Post-period,
ENEO arranged payment of invoices for May, June, July and August
2019, totalling US$5.1 million via four promissory notes (akin to
post-dated cheques), which were used as collateral for a bridging
facility with BGFIBank Cameroon ("BGFI"). The promissory notes have
subsequently been honoured and the bridging facility with BGFI has
been settled.
Absent any offer of payment or payment plan for the aged debt,
the Company announced in July 2020 the termination of the agreement
to supply gas to ENEO. Despite ENEO's poor payment record, GDC had
supplied natural gas to ENEO at its Logbaba power plant since April
2015. The Company made repeated requests in writing and in person
to the senior management of ENEO to discuss a method of settlement
of its burgeoning debt, which stood at US$20 million receivables
(US$12 million net to GDC) at the time of termination. Furthermore,
the fully termed agreement and payment guarantee that were supposed
to quickly follow the binding term sheet had not been forthcoming.
As a result of this untenable situation, GDC served a notice of
Event of Default on ENEO pursuant to the binding term sheet on 2
June 2020, which included a 30-day remedy period. At the expiry of
this period, GDC had no alternative but to terminate the gas supply
agreement with immediate effect. The Company will now rigorously
pursue this unpaid debt via the legal channels available to it,
including interest, and a penalty payment of three months' fees as
a result of termination as per the binding term sheet.
Industrial Customers
During 2018, when GDC made limited gas sales to grid power
customer ENEO, there was a large drive to grow the Company's
Industrial customer base resulting in eight new customers connected
in 2018. The results of these new customers were seen in the
increased gas sales in these sectors (as detailed below). Whilst
ENEO has been the largest off-taker (when it was online) in 2019,
it has been paying the lowest gas price amongst our large customer
base. With the gas supply headroom resulting from ENEO's non
consumption of gas, GDC management is able to actively pursue the
higher value, largely private, credit-worthy customers, near our
infrastructure in the first phase, followed by similar customers in
clusters requiring more capital to tie-in (expanded on below).
Other Independent Power Producers - AKSA
In July 2019, the Company and Aksa Enerji Uretim A.S. ("AKSA")
signed a term sheet for the sale of approximately 25 mmscf/d of gas
(the precise volume will depend on the calorific value of the gas
and the genset specification) to AKSA's proposed 150 MW Douala
Power Station (Bekoko). The term sheet is subject to various
conditions precedent, including government approvals and the
signing of a Power Purchase Agreement with an electricity
distributor. On 2 July 2019, the Minister of Water Resources and
Energy of Cameroon, on behalf of the Government of the Republic of
Cameroon, and AKSA, entered into a Memorandum of Understanding to
develop a 150 MW of power plant project at Bekoko, subject to
receipt of the requisite approvals and licenses. The location of
the proposed power plant is expected to be near the existing Bekoko
substation, not far from GDC's existing gas pipeline network.
New Opportunities:
The installation of a major gas pipeline network from Limbe to
Bekoko (part of the Etinde Project, operated by New Age) could
provide numerous additional opportunities to GDC, which otherwise
would have been deemed uneconomic. This pipeline may allow GDC to
be in a position to supply gas to smaller towns along the route
into Douala, such regions and towns as Ombe, Mutengene, Tiko and
Buea, and provide much needed power using smaller gas-fired power
plants.
Contingent Liabilities
CHL
In the first quarter of 2019, GDC ceased paying the CHL Royalty
and initiated a review of the underlying documentation. In July
2019, CHL commenced proceedings against both GDC and VOG with
regard to payments CHL believes it is entitled to under the Royalty
Agreement. The Company is vigorously defending the claim. Whilst
the Company owns 35% of CHL, the Company has not accrued for CHL
royalties during 2019 and has fully impaired this investment,
resulting in an impairment charge of US$5.6 million during 2019. In
the event that the legal proceedings result in GDC being obliged to
continue paying royalty payments, the Group's liability at 31
December 2019 would be US$3.0 million (2018: US$0.3 million).
Requirement to separate Upstream and Downstream
The separation of the business into upstream and downstream
business units is a requirement of the Petroleum and Gas Codes in
Cameroon, and is an industry norm.
Operationally, the separation and a downstream framework makes
sense for the Company as the Logbaba Field depletes over time and
the Company seeks to source other gas for the pipeline network. In
order to comply with the Gas and Petroleum Codes in Cameroon, the
Logbaba partners are working with the Cameroonian Government to
separate the business into its upstream and downstream components.
The parties are in ongoing negotiations with SNH regarding the
mechanism and fiscal arrangements for, amongst others: the
potential participation of SNH in the downstream activities; the
allocation of assets, liabilities, revenues and costs, and the
associated transfer pricing mechanisms; and the net settlement
required by SNH to take ownership of their entitlement. One of the
matters under negotiation has been the parties' obligation to pay
state royalties. In prior years this potential liability was
disclosed as a contingent liability. Following a GDC decision post
year-end, the royalty liability has now been crystalised and the
Company has accordingly provided US$9.6 million at 31 December
2019; however, GDC has requested to "net out" against amounts that
may be owed by SNH. The presentation of the consolidated Financial
Statements has required management's judgement with regard to the
outcome of these negotiations to ensure that the Financial
Statements present a fair and reasonable view of the financial
position and results of the Company.
RSM
RSM has instituted an arbitration in Texas, USA under ICC rules
in which it is asserting material claims primarily related to final
invoices for the drilling of the two wells, La-107 and La-108, and
certain audit exceptions raised by RSM following audits of the
Logbaba operations between 2015 and 2018. RSM has made two attempts
to obtain interim rulings which GDC has successfully defended and
the substantive matter is currently scheduled for hearing at the
end of January 2021.
Separately, on 3 February 2020, RSM filed an arbitration
application under UNCITRAL Rules pursuant to a Participation
Agreement for the project. Much of the relief sought in this second
arbitration duplicates the claims in the ICC arbitration save that
it also challenges the validity of cash calls GDC issued in
November 2019 for RSM's share of expenses in relation to the La-108
well remediation (in aggregate US$2.9 million) and raises issues
relating to the primacy of the underlying governing documents
relating to the Logbaba Project, and the process of approvals for
certain actions of GDC as the Operator on the Logbaba Project.
This arbitration will be heard in London under Cameroon Law.
Arbitrations under ICC and UNCITRAL rules are con dential
processes. VOG is not permitted to provide detailed comments on
them, beyond saying that it continues to vigorously defend the
claims raised by RSM.
Equity Raise
In March 2019 the Company announced an equity raise which was
completed following a General Meeting of the Shareholders in early
April 2019. US$16.8 million net of expenses was raised. 104,627,788
new Ordinary Shares were issued at 13 pence per share. The Company
used the proceeds of the Fundraising to continue to invest in its
Logbaba and Matanda projects in Cameroon.
Board Changes
Changes to Senior Management commenced in April 2019 and have
been completed in 2020. There have been many Board changes during
and post period to ensure the Company has a balanced, independent
and dedicated core of Directors to provide oversight and advice to
the Senior Management on operations and strategy and guard the
interests of shareholders and stakeholders.
As previously mentioned, with the new Senior Management in
place, I plan to step back from the Executive to a Non-Executive
Chairman position following the General Meeting to be held on 29
October 2020 as the Company neither needs the cost nor role of an
Executive Chairman.
During the period:
April 2019 -- Kevin Foo - Executive Chairman retired
-- Roger Kennedy - Change from Non-Executive Director ("NED") to
Executive Chairman
-- John Knight - Appointed NED and Senior Independent
Director
-- John Daniel - Appointed NED
July 2019 -- John Bryant - Resigned NED
Nov 2019 -- John Knight - Resigned NED
Post period:
Feb 2020 -- Robert Collins - Appointed NED and Senior Independent Director
Mar 2020 -- Roy Kelly - Appointed as CEO
-- Ahmet Dik - Resigned as CEO
May 2020 -- Andrew Diamond - Resigned as Finance Director
Aug 2020 -- Robert Collins - Changed from NED to Chief Financial
Officer. Ceased to be Senior Independent Director.
I would like to take this opportunity to thank the former
Directors for their contribution to the Company during their
appointments and wish them well in their future endeavours.
Review of Operations
Key Events
-- Grid Power Customer ENEO consumed gas from January to mid-September 2019
-- 110% increase in gross annual gas sold of 2,967 mmscf (2018: 1,410 mmscf):
Gross 2,967 mmscf/Net 1,691 mmscf
-- Daily average gross gas sold 8.13 mmscf/d (2018: 3.86 mmscf/d)
Logbaba - Upstream:
Reserves & Resources
Following a thorough review of field and well performance data,
and recognising there are no short-term plans for further drilling
at this time, management has reduced its estimated Proved Reserves
("1P") for the Logbaba Field. Other categories of reserves remain
unchanged at this time, as do other classifications (e.g.
Contingent and Prospective Resources). The Reserves reduction is
accompanied by a non-cash impairment charge of US$90.3 million
discussed in the Financial Review.
All nine penetrations of the primary reservoir in the Logbaba
Field have encountered mobile gas in reservoir quality sands in
what is undoubtedly a significant in-place resource, and we are not
downgrading previous estimates of gas in place. Our reduction in
Proved Reserves at this time reflects our finite well stock, an
assessment of the La-107 performance which did not meet our
pre-drill expectations, and recognition that the project was
designed to be a staged development, involving more wells drilled
over time and in line with an improved understanding of the
reservoir and growth in demand. As mentioned above, we don't
propose to drill more capital-intensive and operationally risky
wells at this time. Given a successful remediation of La-108, the
Proved Reserves level would support sustained production at current
demand levels (which excludes grid power) for several years.
Additional wells in previously undrilled areas of the field would
immediately add to the Proved Reserves.
It was previously determined that the acquisition of new seismic
data using modern technology and methods over the Logbaba field
would de-risk the block and identify prospective new well
locations. To this end, a feasibility study was carried out in the
downtown Douala area by a seismic specialist in April 2019 to
ascertain whether a seismic survey could be acquired in an urban
area. It was concluded that a full-fold 3D survey over the C38
block would be possible with suitable equipment and crew. Absent of
the requirement for new wells, this work has been put on hold given
the drive to conserve capital.
La-108 Remediation Project
At the end of the La-108 well testing operations in December
2017, a spent perforating gun was stuck in the production tubing at
a depth of 895 m, with a wireline cable extended from the stuck gun
to surface. In April 2018, the cable was cut downhole at a depth of
about 700 m.
The cut wire was recovered from the hole, leaving the
perforating gun and about 200 m of cable in the hole. Gas
consumption levels were low during 2018 and due to cash constraints
the Company decided to put this project on hold until a later date.
Production increased in 2019 and planning commenced for works to
recover the perforating gun, conduct further perforating, and flow
testing to complete well La-108. The work was to be performed using
a hydraulic work-over unit. A clean out of the wellbore (tubing and
lining) was to then be carried out, followed by perforation of the
Upper Logbaba Sands. On completion, the La-108 well will then be
tied-back to the existing flowline and the flowline made permanent.
In the first half of 2019, the service provider tendering was
carried out, contracts put in place, preparations on site
completed, long-lead items ordered, and the work commenced in
August 2019. The tool string and a large proportion of the wire
were retrieved, and operations continued to retrieve the remaining
wire. The wireline tool string and 130 m of wire was recovered. A
clean out assembly was run to recover the remaining 50 m of wire
and clean the hole, but this became stuck in the tubing at
approximately 900 m. Operations were suspended at the end of
October 2019 to mobilise additional equipment to complete the
remediation programme. Prior to suspending operations, GDC used the
available equipment on site to successfully perform additional
perforations in well La-107. The remediation work on well La-108
was expected to commence during April 2020 upon the arrival of the
additional equipment which was sourced to perform the project. The
equipment is now on site, however, due to safety concerns related
to measures taken in-country regarding Covid-19, the snubbing rig
contractor evacuated their personnel.
Processing Facilities Enhancements
In December 2018, the VOG Board approved engineering and
execution planning to upgrade the Logbaba Gas Plant to enable
production operations at lower pressures, increasing the value of
the gas deliverability and ultimately recovery from the wells. The
objective of the planned enhancements at the Logbaba Process Plant
is to maximise hydrocarbon recovery from existing and future wells
by lowering the minimum gas inlet pressure to the plant.
Modifications made to the Logbaba Process Plant since its
commissioning in 2012 have resulted in the two process trains
having different configurations and capabilities. The configuration
of both trains needs to be optimised to ensure maximum production
availability which, in turn, should increase recovery of
hydrocarbons. The project will include the installation of a feed
gas chilling system to ensure continued gas and condensate export
at lower wellhead pressures, whilst maximising recovery from all
wells. It should also provide operational flexibility and increased
reliability by enabling both high-pressure and low-pressure wells
to be produced concurrently, thereby potentially extending the life
of the wells at the Logbaba Field. A further benefit of the project
is that it will enhance the reliability of the Logbaba Gas Plant as
GDC production increases. The project is being delivered in two
stages. Stage 1, which was completed in September 2019, comprised
the following Front-End Engineering Design ("FEED") work:
engineering design, cost estimation and execution planning for
implementation of the selected process configuration; and Stage 2,
focuses on execution, which at the time of writing, has commenced,
and includes detailed engineering, design, equipment and materials
specification, procurement, fabrication, shipping, construction and
commissioning. Post reporting period, we carried out low pressure
trials on the plant without any major modifications, assessing in
particular whether the gas will stay within export specification,
and the results suggested this was possible. We are thus able to
slowly reduce the operating pressure of the plant with the full
expenditure of the enhancement project deferred until such time
that it becomes necessary.
Pipeline
During 2019, 1.09 km of service lines were laid and the total
pipeline network at the year-end was 51.09 km.
Industrial Customers
The focus continues to be to improve our customer
diversification.
During 2019, three new thermal customers (ACI, CCC and CIMAF)
commenced consuming gas. The efforts in 2018 on industrial customer
growth were reflected in 2019 gas sales with a 15% increase in
gross thermal gas sales to 1,505 mmscf and a 33% increase in
industrial gas for power consumption with 98 mmscf gross
consumed.
Post year-end, a further customer has been connected to the
network with another two due to be commissioned by the end of 2020.
As is normal, we have also seen five customers cease consumption
during the period for various reasons. At the time of writing we
have 36 consuming customers.
Post Period
Covid-19 has had a limited and difficult-to-quantify effect on
gas demand as borders have closed, the supply of raw materials was
interrupted, and demand for customers' products fell off slightly.
Crew mobilisation restrictions have led to delays to La-108
remediation work. However, at the time of writing, lockdown
restrictions have been relaxed and consumption has increased again,
but the impact on gas consumption has not been material.
La-108 Insurance Claim
The Company continues to pursue its claim and, post period, has
employed industry claim specialists to assist in this matter.
OECD Claim
Following a complaint to the Organisation for Economic
Co-operation and Development ("OECD") in 2018 and various
communications with the UK National Contact Point ("NCP") for
promotion of the OECD Guidelines for Multinational Enterprises (the
"Guidelines"), the Company participated in mediation in late 2019
with the aim of addressing the concerns of the residents involved
and this is ongoing although meetings have been postponed due to
Covid-19 restrictions. The Company does not expect any economic
costs resulting from this claim.
ISO Certification
GDC has worked on International Organization for Standardization
Compliance ("ISO") 9001, 14001 and 45001 ISO since 2017. It has
developed and implemented its Integrated Management System ("IMS")
based upon the requirements of these international standards. We
were pleased to announce in May 2019 that following an audit by an
external certifying authority, GDC has successfully completed the
audit process for ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018.
This achievement is evidence that GDC has established management
systems for Quality, Environmental and Occupational Safety and
Health, which conform to international ISO standards. This
accomplishment demonstrates our continued commitment to providing a
high-quality product and delivering a consistent service in a safe
and environmentally conscience manner to all our clients, alongside
the investment of time and money into new technology, staff,
processes and procedures by the Company.
Matanda
GDC received the Presidential Decree that had been signed by
H.E. Biya on 17 December 2018 authorising the transfer of the
interest in Matanda from Glencore resulting in GDC holding a 75%
interest and operatorship and AFEX holding the remaining 25%. SNH
have a right to back in up to 25% post exploitation licence. The
agreed obligation for this work programme was one exploration well
plus reprocessing of existing seismic in the first two-year period
of the PSC.
The next phase of subsurface work on the block involved
completion of the evaluation of the prospectivity and de-risking of
existing prospects. The evaluation of so-called Area 2 of the
Matanda Block (in between the Logbaba and North Matanda fields) has
been completed and numerous Tertiary and Cretaceous prospects and
leads have been identified. This work concluded Phase One of the
Work Programme and the evaluation of the Matanda Block's
prospectivity.
Phase Two of the Matanda Work Programme commenced in early June
2019 with a risk mitigation workflow. The initial stages of this
work flow include an analysis of the gathered data over each
prospect. The aim of this work is to refine the understanding of
the risk of the identified prospects which will lead into the next
phase of the work flow: detailed well planning to geological
prognosis.
Alongside the above workstreams, the scope for the Environmental
and Social Impact Assessment ("ESIA") was finalised to ensure that
all aspects of risks to the environment and social factors have
been assessed and necessary precautions taken, in accordance with
the requisite rules and regulations, to ensure there is minimal
impact on the environment ahead of drilling preparation. The ESIA
is ongoing.
West Medvezhye ("West Med")
A third-party Technical Report has been completed by a
specialist Russian consultancy on the Company's 100% owned Western
Medvezhye Licence in the prolific West Siberian basin, containing
the 2006 oil discovery. Based on this Technical Report, the Company
has commenced a formal process to divest the Western Medvezhye
Field and is in discussions with potential buyers of the field.
Whilst a prospective buyer is conducting due diligence, the Company
expects an extended sales process due to the Covid-19 crisis and
the volatility of crude prices. This asset has previously been
fully impaired.
As this report covers a period of time that preceded Roy Kelly's
appointment as CEO, I am going to personally refrain from detailing
the future strategy of the Company. Roy is a CEO of the calibre
that does not need an Executive Chairman. His appointment
predicated my announcement to step down to a Non-Executive Chairman
role after the publication of this Report and our General Meeting
in October 2020. I am confident that under Roy's leadership, and
with the addition of our new CFO, Rob Collins, the Company is in
good hands and will be set in a new direction to ensure shareholder
value. They themselves will communicate their plans in due course
and will have my continued input and backing. In the coming weeks
the Company will be releasing its Q3 20 Operational Update and the
Interim Results to the end of June 2020.
It goes without saying that the Company is grateful for the
commitment of all management and staff. I would like to thank our
operational partners, stakeholders in the Projects, and, of course,
our shareholders for their continued support and patience.
Roger Kennedy
Executive Chairman
29 September 2020
FINANCIAL REVIEW
The year ended 31 December 2019 ("current year") was a
challenging year for VOG. The renewal of the gas supply contract
with ENEO on 22 December 2018 provided great hope of a successful
2019, following a difficult year in 2018 ("prior year").
Unfortunately that hope soon dissipated when the ongoing
difficulties in the Cameroonian energy sector resulted in delayed
and sporadic payments for gas provided to ENEO. In September 2019
the generator provider shut down the generators at ENEO's Logbaba
Power Station citing non-payment by ENEO. Eventually, despite
tireless efforts to recover amounts due, GDC terminated the Gas
Sales Agreement ("GSA") with ENEO on 2 July 2020 and is currently
using all means available to recover the outstanding amounts from
ENEO.
The working interests in the upstream operations of the Logbaba
Project are as follows:
-- GDC (operator) 57%
-- RSM Corporation ("RSM") 38%
-- National Hydrocarbons
Corporation of Cameroon ("SNH") 5%
A down-grading of the Group's Proven ("1P") Reserves on the
Logbaba Project, in conjunction with the deteriorating grid power
outlook for Cameroon, have resulted in a US$90.3 million impairment
of the Group's Logbaba tangible and intangible assets. This is
discussed in more detail below.
31 December 31 December
2019 2018
Gas sales (mmscf) - Gross 2,967 1,410
Gas sales (mmscf) - Attributable 1,691 804
Condensate sales (bbls) - Attributable 12,641 8,309
Revenue (US$'000) - Gross 35,793 18,596
Revenue (US$'000) - Attributable 20,822 10,796
Net royalties (US$'000) 9,324 1,145
Impairment of tangible and intangible 90,289 -
assets (US$'000)
Impairment of investment in associate 5,556 -
(US$'000)
----------------------------------------- ------------ ------------
Impairment charges (US$'000) 95,845 -
Adjusted EBITDA (US$'000) 3,991 (529)
Loss before tax (US$'000) (111,952) (8,302)
Loss after tax (US$'000) (110,280) (8,521)
Basic loss per share (cents) (48.2) (5.8)
Operating cash flow before working
capital (US$'000) (4,267) (1,487)
Cash working capital movement (US$'000) 3,942 1,367
Capital invested (US$'000) 7,710 3,363
Net debt (US$'000) (10,685) (17,440)
----------------------------------------- ------------ ------------
The Logbaba Project has operated as an integrated upstream and
downstream operation since inception. In order to comply with the
Gas and Petroleum Codes in Cameroon, the parties are working with
the Cameroonian Government to separate the business into its
components. The parties are in ongoing negotiations with SNH
regarding the mechanism and fiscal arrangements for, amongst
others: the potential participation of SNH in the downstream
activities; the allocation of assets, liabilities, revenues and
costs, and the associated transfer pricing mechanisms; and the net
settlement required by SNH to take ownership of their entitlement.
One of the matters under negotiation has been GDC's obligation to
pay state royalties. In prior years this potential liability was
disclosed as a contingent liability. Following a GDC decision post
year-end, the royalty liability has now crystalised and the Company
has accordingly provided US$9.6 million at 31 December 2019. The
presentation of the consolidated Financial Statements has required
management's judgement with regard to the outcome of these
negotiations to ensure that the Financial Statements present a
fair, balanced and understandable view of the financial position
and results of the Company.
The Company completed a fundraise of US$16.8 million net of
expenses in April 2019 to strengthen the Company's nancial position
and provide a stable growth platform for the business. The net
proceeds of the fundraising enabled the Company to, amongst other
things, initiate the remediation project on well La-108 at Logbaba.
The remediation works, which were performed during H2 2019 were
partially successful in that the perforating gun, which was
previously stuck, was retrieved and removed. Unfortunately, in the
process of cleaning out residual wireline the toolstring became
stuck and operations were suspended to bring additional tooling in
country. The tooling arrived in March 2020, and just as the team
were gearing up to restart operations Covid-19 struck and the rig
contractor deemed the conditions and local lockdown procedures
unsuitable to continue with the operations and repatriated the
crew. It is anticipated that the remediation of La-108 will
continue in Q4 2020.
Since January 2019, the Company has ceased making payments under
the CHL Royalty Agreement. CHL has commenced proceedings against
both GDC and the Company regarding payments CHL believes it is
entitled to under the Royalty Agreement. The Company is defending
such claims and the matter is progressing towards an interim court
hearing expected in November 2020. The Company has not accrued for
CHL royalties in the current year, and has reversed the accrual
relating to the royalty from the prior year of US$0.3 million.
Furthermore, as the investment in associate relates to the Group's
35% interest in CHL, the Company has fully impaired this
investment, resulting in an impairment charge of US$5.6 million in
2019.
Statement of Comprehensive Income
The strong gas sales and revenue growth in the current year
(93%) is largely attributable to the renewal of the ENEO binding
term sheet. Grid sales in the current year amounted to US$8.0
million (2018: US$0.1 million). Despite not providing gas to ENEO
since September 2019, when the generator provider ceased
operations, GDC has invoiced ENEO monthly on a take-or-pay basis in
accordance with the GSA. GDC continued to invoice ENEO on this
basis until June 2020, at which point the GSA was terminated.
Shareholders should be aware that revenue for grid power in 2020
will only reflect January to June 2020 invoicing.
Excluding grid revenue, thermal and industrial power revenue
contributed US$12.0 million (2018: US$10.1 million), a healthy 19%
increase, and reflective of the efforts made by the GDC sales team
to expand the customer base in the prior year when ENEO was not
consuming gas. Condensate revenue of US$0.8 million (2018: US$0.6
million) reflects the increased volumes of gas sold, but has also
suffered as a result of the fire at the Sonara refinery, following
which GDC was forced to seek an alternate condensate off-taker at
less advantageous pricing.
Net royalties consist of an accrual of US$9.6 million (2018:
contingent liability of US$8.0 million), being GDC's share of the
current and past state royalties. The Logbaba Project incurs state
royalties at 8% of hydrocarbon production, and it is anticipated
that this royalty will be levied on upstream revenues going
forward. State royalties for downstream operations in Cameroon,
according to the Gas Code, attract royalty at 5% of revenues. The
current year royalties balance includes a US$0.3 million reversal
of an accrual for CHL royalties from the prior year (2018: CHL net
royalty charges of US$1.1 million).
The increase in unit of production depreciation, which amounted
to US$7.3 million (2018: US$5.0 million) reflects the increased
gross gas sales. When unit of production depreciation and net
royalties are stripped out of cost of sales, the remaining costs of
sales combined with other administrative costs amounted to US$18.4
million (2018: US$11.9 million). The reasons for this increase,
during a period when the Group was actively trying to reduce costs,
are as follows:
-- A non-cash increase of US$3.7 million in provision for
expected credit losses (2018: reversal of US$0.7 million). The
increase relates principally to ENEO take-or-pay invoices which,
although contractual, may be slow to recover, and an additional
provision for expected credit losses of US$0.8 million due to a
fire which destroyed the Sonara refinery in Limbe, Cameroon. Sonara
declared force majeure, however GDC continues to seek payment for
condensate delivered prior to the fire;
-- Non-cash cost of US$1.0 million associated with the issuance
of share options to directors and employees pursuant to the
Long-Term Incentive Plan ("LTIP"). These options were issued with a
strike price of 14p, 1p higher than the shares issued in the
fundraise in April 2019;
-- Significant legal fees of US$0.6 million incurred in
defending the RSM arbitrations and CHL litigation;
-- Termination costs of US$0.5 million (2018: Nil) paid to the Company's former; and
-- Following a plethora of various fiscal audits, in common with
many businesses in Cameroon, GDC was required to make additional
customs, and various social tax payments, including penalties and
interest, of US$0.5 million.
Impairments raised in the current year consist of an impairment
of the Logbaba tangible and intangible assets of US$90.3 million
(2018: Nil), and a further US$5.6 million (2018: Nil) impairment of
the Group's investment in associate CHL. Impairment indicators,
namely the downward revision of the Group's Logbaba 1P Reserves,
termination of the ENEO GSA and the deteriorating conditions in the
Cameroonian energy sector, were identified and an impairment review
was performed on a value-in-use basis. A discounted cashflow model
was based on management's best estimates for the Logbaba Project,
including the aforementioned indicators and other key assumptions.
The results of the review concluded that the assets required
impairment and accordingly wells La-105, La-107 and La-108 as well
as the pipeline infrastructure in Douala have had their carrying
values reduced by US$90.3 million in 2019.
31 December 31 December
2019 2018
US$'000 US$'000
------------------------------- ------------ ------------
Operating loss (110,101) (6,336)
Depreciation 8,609 5,807
Provision for state royalties 9,638 5,807
Impairment charges n 95,845 5,807
Adjusted EBITDA 3,991 (529)
=============================== ============ ============
Adjusted EBITDA, which removes depreciation and significant
one-off charges (provision for current and historic state royalties
and impairment charges in the current year) from the reported
operating loss, was a gain of US$4.0 million (2018: loss of US$0.5
million) reflecting the impact of the increased revenues. The
result would be even better if the non-cash ENEO and Sonara
expected credit loss provision increases of US$4.5 million were
excluded.
The Group produced a loss before tax of US$112.0 million (2018:
US$8.3 million), and a loss after tax of US$110.3 million (2018:
US$8.5 million). The basic and diluted loss per share was 48.2
cents (2018: loss of 5.79 cents).
Statement of Financial Position
Intangible assets consist mainly of the costs incurred on well
La-108 less impairment charges. Works to remediate the well
amounting to US$6.7 million were capitalised in 2019 (2018: Nil)
and succeeded in recovering the stuck perforating gun. Further
remediation work will be performed in 2020 to recover a stuck
section of drill string, clean out the well and conduct further
perforating and flow testing to complete the well. When feasible
these costs will be transferred to oil and gas assets within
property, plant and equipment. Intangible assets were impaired by
US$27.4 million (2018: Nil), with a residual carrying value of
US$8.6 million (2018: US$30.4 million).
Property, plant and equipment was impaired by US$62.9 million
(2018: Nil), being the full impairment of well La-107, a partial
impairment of well La-105, and a partial impairment of the pipeline
infrastructure. The remaining carrying value was US$20.6 million
(2018: US$91.1 million).
The increase in net trade receivables to US$13.7 million (2018:
US$8.7 million) is largely due to the increased receivables due
from ENEO at 31 December 2019 of US$3.2 million (2018: US$0.3
million). As mentioned above, GDC terminated the GSA with ENEO on 2
July 2020 following multiple contractual breaches, including
non-provision of payment security and non-timely payment of
invoices. At the termination date ENEO was charged interest on all
late and outstanding payments as well as a contractual termination
penalty of three months of take-or-pay invoices, a total
outstanding balance of US$20.4 million (US$11.6 million net to
GDC). An increase of US$3.0 million (2018: reduction of US$3.2
million) was recorded in respect of amounts owed by operating
partners on the Group's Cameroonian assets. This increase relates
principally to the disputes with RSM which are discussed below.
Trade and other payables of US$9.3 million (2018: US$10.8
million) reduced as the residual drilling contractor obligations
were settled during the year.
Cash and cash equivalents of US$7.2 million (2018: US$3.5
million). Borrowings reduced to US$17.9 million (2018: US$20.9
million). Provisions of US$11.7 million (2018: US$1.9 million)
includes a US$9.6 million provision for the payment of state
royalties on the Logbaba Project. As noted above, this provision
arises from a decision taken by GDC post year end which will result
in the state royalty becoming payable to SNH. The provision was
raised in 2019 as the matter had previously been disclosed as a
contingent liability. GDC continues to negotiate with SNH to
resolve the separation of business and to recover SNH's
contribution for past exploitation costs on the project. The level
of past costs is uncertain pending the negotiated settlement with
SNH regarding SNH's level of participation in the downstream
operations. Whilst there is no legal right to set amounts owed by
SNH off against the royalty amounts due and payable, the parties
are working to ensure that any settlement is done on a net basis to
minimise cash outflows to the Company.
Net debt and liquidity
31 December 31 December
2019 2018
US$'000 US$'000
------------------------------------- ------------ ------------
Cash and cash equivalents 7,237 3,467
Borrowings: Current liabilities (5,969) (4,109)
Borrowings: Non-current liabilities (11,953) (16,798)
------------------------------------- ------------ ------------
Net debt (10,685) (17,440)
===================================== ============ ============
Net debt of US$10.7 million (2018: US$17.4 million) reflects the
liquidity position of the Group. The Group has no further available
credit facilities.
The Company raised US$16.8 million net proceeds in an equity
placement in April 2019.
Cash Flow Statement
Operating cash utilised, prior to the effects of working capital
movements, was US$4.3 million (2018: US$1.5 million). The increase
in receivables was offset by the increased provision for state
royalties resulting in a working capital movement of US$3.9 million
(2018: US$1.4 million). Net cash utilised in operations was US$2.5
million (2018: US$2.2 million).
Capital investment in 2018 was reduced to only the essential
spending and committed costs. The Company's capital investment
increased to US$8.2 million (2018: US$3.4 million). The majority of
the investment was on the remediation of well La-108. Fundraising
generated net cashflows of US$16.8 million in 2019 (2018: Nil).
Repayment of capital on borrowings was US$2.6 million (2018: US$2.8
million).
Commitments
The Logbaba Concession does not contain any work programme
obligations.
GDC's work programme on the Matanda Block is US$11.25 million,
which should be executed prior to December 2020. However, following
delays in obtaining PSC amendments, security concerns and Covid-19
interruptions, GDC is unlikely to complete the required work
programme on time and is currently in the process of making an
application for an extension.
Share or option issuances
Following the fundraise in April 2019, there were 255,073,945
Ordinary Shares in issue.
On 31 May 2019, 961,546 Ordinary Shares were allotted to
employees in lieu of cash bonuses at 13p per share, 152,088
Ordinary Shares were allotted to a former consultant at 22.84p per
share, and 240,482 Ordinary Shares were issued to Kevin Foo, former
Chairman, pursuant to the exercise of nil-cost options.
On 5 August 2019, options totalling 13 million Ordinary Shares
were granted to Directors and employees pursuant to the LTIP. The
options were granted with a strike price of 14p, with a five-year
exercise period. Mr Ahmet Dik, former CEO, was issued 433,735
Ordinary Shares on 5 August 2019 pursuant to the exercise of
nil-cost options.
The number of Ordinary Shares in issue at the date of this
report was 256,861,796.
Arbitrations
On 22 July 2016, RSM filed a request for arbitration with the
International Chamber of Commerce ("ICC") pursuant to the Operating
Agreement between the parties regarding the rig and drilling
contractor selected by GDC to conduct the drilling of two new wells
at the Logbaba project. In January 2019, the subject of the claim
was withdrawn on condition that RSM pay GDC's costs, which it
did.
In another ICC arbitration filed in October 2018, which RSM
amended in August 2019, RSM is asserting material claims primarily
related to final invoices for the drilling of the two wells, La-107
and La-108, and certain audit exceptions raised by RSM following
audits of the Logbaba operations between 2015 and 2018. RSM has
made two attempts to obtain interim rulings which GDC has
successfully defended and the substantive matter is currently
scheduled for hearing at the end of January 2021.
Separately, on 3 February 2020, RSM filed an arbitration
application under UNCITRAL Rules pursuant to a Participation
Agreement for the project. Much of the relief sought in this second
arbitration duplicates the new claims in the ICC arbitration save
that it also challenges the validity of cash calls GDC has issued
for RSM's share of expenses in relation to the La-108 well
remediation and raises issues relating to the primacy of the
underlying governing documents relating to the Logbaba Project, and
the process of approvals for certain actions of GDC as the Operator
on the Logbaba Project. This arbitration will be heard in London
under Cameroon Law and is scheduled for hearing at the end of
September 2021.
Arbitrations under ICC and UNCITRAL rules are con dential
processes. The Company is not permitted to provide detailed
comments on them, beyond saying that the claim and counter-claim
amounts are material and that it continues to vigorously defend the
claims raised by RSM.
Subsequent Events
Mr Robert Collins was appointed as a Non-Executive director of
the Company on 10 February 2020. Mr Roy Kelly was appointed CEO of
the Company on 23 March 2020. Mr Ahmet Dik stepped down as CEO on
20 March 2020. Mr Andrew Diamond resigned as Finance Director on 15
May 2020. Mr Robert Collins was appointed CFO on 11 August
2020.
The Company held its Annual General Meeting ("AGM") on 29 June
2020. All of the resolutions proposed and voted on at the AGM were
approved. The Company obtained Companies House and AIM approval to
extend the filing date of the Annual Report until not later than 30
September 2020. The Company will hold a General Meeting on 29
October 2020 for the Shareholders to receive the Annual Report.
On 3 July 2020, GDC terminated the GSA with ENEO, as discussed
earlier.
Directors' Statement under Section 172 (1) of the Companies Act
2006
Section 172 (1) of the Companies Act obliges the Directors to
promote the success of the Company for the benefit of the Company's
members as a whole. This section specifies that the Directors must
act in good faith when promoting the success of the Company and in
doing so have regard (amongst other things) to:
a) the likely consequences of any decision in the long term,
b) the interests of the Company's employees,
c) the need to foster the Company's business relationship with
suppliers, customers and others,
d) the impact of the Company's operations on the community and
environment,
e) the desirability of the Company maintaining a reputation for
high standards of business conduct, and
f) the need to act fairly as between members of the Company.
The Board of Directors is collectively responsible for
formulating the Company's strategy which is the appraisal and
exploitation of the assets currently owned.
1. The decision to progress with the remediation of La-108;
2. The decision to terminate the ENEO Gas Sales Agreement in
July 2020.
The Directors believe this key strategic decision will generate
value for our shareholders in the long term. In executing the
Company's strategy, the Directors remain focused on responsible and
ethical business practices, and the Company strives to be a
responsible corporate citizen in all its territories of
operation.
The Board places equal importance on all shareholders and
strives for transparent and effective external communications
within the regulatory confines of an AIM-listed company. The
primary communication tool for regulatory matters and matters of
material substance is through the Regulatory News Service, ("RNS").
The Company's website is also updated regularly, and provides
further details on the business as well as links to helpful content
such as our latest investor presentations.
Further detail illustrating how Directors adhere to the
requirement set out in Section 172 (1) a to f above, are included
in the Corporate Governance Report.
The Directors believe they have acted in the way they consider
most likely to promote the success of the Company for the benefit
of its members as a whole, as required by Section 172 (1) of the
Companies Act 2006.
Roger Kennedy
Executive Chairman
29 September 2020
Consolidated Income Statement
For the year ended 31 December 2019
2019 2018
US$'000 US$'000
------------------------------------ --------- --------
Continuing operations
Revenue 20,822 10,796
Cost of sales (18,403) (10,117)
------------------------------------- --------- --------
Gross profit 2,419 679
Administrative expenses (16,615) (8,366)
Other (losses)/gains (60) 821
Share of profit of associate - 530
Impairment of assets (95,845) -
------------------------------------- --------- --------
Operating loss (110,101) (6,336)
Finance costs (1,851) (1,966)
------------------------------------- --------- --------
Loss before tax (111,952) (8,302)
Tax credit/(charge) 1,672 (219)
------------------------------------- --------- --------
Loss for the year - attributable to
shareholders of the parent (110,280) (8,521)
------------------------------------- --------- --------
Cents Cents
------------------------------------ --------- --------
Loss per share - basic & diluted (48.20) (5.79)
------------------------------------- --------- --------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
2019 2018
US$'000 US$'000
----------------------------------------------------- --------- -------
Loss for the year (110,280) (8,521)
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of foreign
operations (91) 78
------------------------------------------------------ --------- -------
Total comprehensive loss for the year - attributable
to shareholders of the parent (110,371) (8,443)
------------------------------------------------------ --------- -------
Consolidated Statement of Financial Position
At 31 December 2019
31 December 31 December
2019 2018
US$'000 US$'000
------------------------------ ----------- -----------
Assets:
Non-current assets
Intangible assets 8,620 30,445
Property, plant and equipment 20,606 91,087
Investment in associate - 5,556
29,226 127,088
------------------------------ ----------- -----------
Current assets
Inventories 12 18
Trade and other receivables 13,711 8,666
Cash and cash equivalents 7,237 3,467
20,960 12,151
------------------------------ ----------- -----------
Total assets 50,186 139,239
------------------------------- ----------- -----------
Liabilities:
Current liabilities
Trade and other payables 9,272 10,800
Provisions 9,638 199
Borrowings 5,969 4,109
------------------------------- ----------- -----------
24,879 15,108
------------------------------ ----------- -----------
Net current liabilities (3,919) (2,957)
------------------------------- ----------- -----------
Non-current liabilities
Borrowings 11,953 16,798
Deferred tax liabilities - 2,030
Provisions 2,037 1,651
13,990 20,479
------------------------------ ----------- -----------
Net assets 11,317 103,652
------------------------------- ----------- -----------
Equity:
Called-up share capital 1,826 1,130
Share premium 42,817 26,254
ESOP Trust reserve - (4)
Translation reserve (17,725) (17,634)
Other reserves 1,093 401
Retained (losses)/earnings (16,694) 93,505
------------------------------- ----------- -----------
Total equity 11,317 103,652
------------------------------- ----------- -----------
The Financial Statements of Victoria Oil & Gas Plc,
registered number 5139892, were approved by the Board of Directors
on 29 September 2020.
Roger Kennedy John Daniel
Executive Chairman Non-Executive Director
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
ESOP Retained
Share Share Trust Translation Other (losses)/
capital premium reserve reserve reserves earnings Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------- ------- ------- ------- ----------- -------- ---------- -------
For the year ended 31 December 2018
At 31 December 2017 1,095 24,218 (4) (17,712) 248 102,005 109,850
Shares issued 35 2,036 - - - - 2,071
Vesting of share options - - - - 174 - 174
Warrants expired - - - - (21) 21 -
Total comprehensive loss
for the year - - - 78 - (8,521) (8,443)
------------------------- ------- ------- ------- ----------- -------- ---------- -------
At 31 December 2018 1,130 26,254 (4) (17,634) 401 93,505 103,652
------------------------- ------- ------- ------- ----------- -------- ---------- -------
For the year ended 31 December 2019
At 31 December 2018 1,130 26,254 (4) (17,634) 401 93,505 103,652
Shares issued 685 16,067 - - - - 16,752
Share-based payments 11 496 - - (308) - 199
Vesting of share options - - - - 1,000 - 1,000
Shares granted to ESOP
members - - 4 - - 81 85
Total comprehensive loss
for the year - - - (91) - (110,280) (110,371)
------------------------- ----- ------ --- -------- ----- --------- ---------
At 31 December 2019 1,826 42,817 - (17,725) 1,093 (16,694) 11,317
------------------------- ----- ------ --- -------- ----- --------- ---------
Consolidated Cash Flow Statement
For the year ended 31 December 2019
2019 2018
US$'000 US$'000
----------------------------------------------------- --------- --------
Cash flows from operating activities
Loss for the year (110,280) (8,521)
Adjustments for non-cash and other items:
Tax (1,672) 219
Share of profit in associate - (530)
Impairment of assets 95,845
Finance costs 1,851 1,966
Depreciation and amortisation 8,609 5,807
Other losses/(gains) 60 (821)
Other non-cash items 40 -
Shares vested by ESOP Trust 81 -
Share-based payments 1,199 393
----------------------------------------------------- --------- --------
(4,267) (1,487)
Movements in working capital
(Increase)/decrease in trade and other receivables (5,160) 4,998
Decrease in inventories 6 6
Increase/(decrease) in trade and other payables
and provisions 9,096 (3,637)
----------------------------------------------------- --------- --------
Net movements in working capital 3,942 1,367
Tax paid (358) (119)
Interest paid (1,738) (1,920)
----------------------------------------------------- --------- --------
Net cash utilised operating activities (2,421) (2,159)
Cash flows from investing activities
Payments for intangible assets (6,673) (1,889)
Payments for property, plant and equipment (1,037) (1,474)
Dividends received from associate - 403
----------------------------------------------------- --------- --------
Net cash utilised in investing activities (7,710) (2,960)
Cash flows from financing activities
Repayment of borrowings (2,563) (2,809)
Net cash generated from equity raise 16,752 -
----------------------------------------------------- --------- --------
Net cash generated by/(utilised in) financing
activities 14,189 (2,809)
----------------------------------------------------- --------- --------
Net increase/(decrease) in cash and cash equivalents 4,058 (7,928)
----------------------------------------------------- --------- --------
Cash and cash equivalents - beginning of year 3,467 11,476
Effects of exchange rate changes on the balance
of cash held in foreign currencies (288) (81)
----------------------------------------------------- --------- --------
Cash and cash equivalents - end of year 7,237 3,467
----------------------------------------------------- --------- --------
N ot e s
1. Publication of no n-statutory accounts
The f inancial information, for the year ended 31 December 2019,
set out in t h is announ cem ent does not const i tute s t atu tory
accounts. This information has be en extracted from the Group's 31
December 2019 statuto ry f inanci al statements upon w h i ch t he
a uditors' op inion is unqu a li f i ed. However, the auditors'
report highlights material uncertainty relating to going concern
and includes the following additional key audit matters:
-- Recoverability of exploration and evaluation assets;
-- Recoverability of property, plant and equipment and other assets, Group and Parent.
2. Basis of preparation
The financial information, for the year ended 31 December 2019,
set out in this announcement, has been:
-- presented 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 is
published in the Report and Accounts for the year ended 31 December
2019, available on the Company's website;
-- prepared on the going concern basis, however the Directors
have highlighted a number of uncertainties which may affect the
Company's ability to continue operating as a going concern; and
-- prepared on the basis of the accounting policies as stated in
the Report and Accounts for the year ended 31 December 2018, 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. Going Concern Note
The Directors are required to give careful consideration to the
appropriateness of the going concern basis in the preparation of
the Financial Statements.
Revenue for the year was US$20.8 million (2018: US$10.8
million). The Group raised impairment charges of US$95.8 million
(2018: Nil). The Group incurred a loss of US$110.3 million for the
year ended 31 December 2019 (2018: loss of US$8.5 million).
Adjusted EBITDA, which excludes impairment charges and the state
royalty provision, for the year was a profit of US$4.0 million
(2018: loss of US$0.5 million). At year-end the Group had cash and
cash equivalents of US$7.2 million (2018: US$3.5 million) in
addition to borrowings of US$17.9 million (2018: US$20.9 million).
Net cash utilised in operating activities for the year was US$2.4
million (2018: cash utilised US$2.2 million). The Consolidated
Statement of Financial Position shows that the Group had net
current liabilities of US$3.9 million at the year-end date (2018:
net current liabilities of US$3.0 million).
Since year end the Group has implemented cost reduction
measures, including headcount reductions and the removal of
non-essential capital spend. Operating and capital costs are being
monitored very closely in order to maximise cash preservation.
In their consideration of the appropriateness of applying the
going concern assumption the Directors have prepared cash flow
forecasts for the period to 31 December 2021, the factors,
estimates and assumptions included in the forecasts and the related
sensitivities. Future outcomes may differ materially from these
estimates.
The significant factors, estimates and assumptions applied in
the cash flow forecast are as follows:
Grid power and recovery of receivable amounts
In September 2019 the generator supplier to ENEO suspended
operations at ENEO's Logbaba site due to non-payment of invoices by
ENEO. Consequently, GDC has not provided gas to ENEO since that
date, but has continued to invoice ENEO based on a take-or-pay
basis in accordance with the GSA. In June 2020, GDC issued a notice
of Event of Default to ENEO, which included a 30-day remedy period.
On 2 July 2020, with ENEO having failed to remedy the breaches
identified in the notice of Event of Default, GDC issued a notice
of termination to ENEO.
At 31 December 2019, the gross amount owing by ENEO to the
Logbaba Project was US$10.4 million (net: US$6.2 million), and at
the date of termination the gross amount outstanding, including
interest and termination charges was US$20.2 million (net: US$12.1
million). Subsequent to year end $3.2 million was received from
ENEO in respect of 2019 invoices. Included in the cash flow
forecast is an assumption that the remaining amount of $3.0 million
owed by ENEO in respect of 2019 invoices will be received within
the next twelve months. The timing of the recovery of the remaining
amounts is uncertain.
Failure to recover amounts outstanding by ENEO and any other
significant debtors, would jeopardise the Group's ability to fund
expansion projects, in particular the La-108 intervention and would
have a material impact on the Group's financial position.
Cameroonian State royalty obligation
Following a protracted negotiation with the State of Cameroon,
in August 2020 the Group has concluded a long-standing dispute
regarding the Logbaba Concession agreement, and in so doing has
crystalised a liability to pay back-dated royalties to the
Cameroonian State in the amount of US$9.6 million (net amount). GDC
and its joint venture partner are seeking to ensure that the
royalty amounts payable are netted against amounts due by the
Cameroon State for their participating interest in the Logbaba
Project and accordingly the Directors have included an assumption
in their forecast that the amount of US$9.6 million will not be
paid within the next twelve months as discussions continue in
relation to the State's participating interest in the Logbaba
Project. There is no guarantee that the State of Cameroon will
accede and any requirement to pay the royalty in the short term
would have a material impact on the Group's ability to continue as
a going concern.
Debt
The Group ended the year with cash and cash equivalents of
US$7.2 million (2018: US$3.5 million) and in a net debt position of
US$10.7 million (2018: US$17.4 million). The Group had borrowings
of US$17.9 million (2018: US$20.9 million), approximately $6.0
million of which is due within 12 months from the date of approval
of the Financial Statements. The Group has no available headroom on
any of its current credit facilities. The Group is actively seeking
additional debt facilities with financial institutions. Should the
Group not succeed in securing additional facilities, this
potentially will have a material impact on the Group's ability to
continue as a going concern.
New funding
In 2019 the Group raised funds with net proceeds of US$16.8
million. There is significant uncertainty regarding the ability of
the Group to raise further funds in the current market conditions
due to the Covid-19 pandemic and the depressed oil price and the
impact of both of these factors on investor sentiment towards
funding further development in the oil and gas sector. These
factors may result in the Group having to raise funds at whatever
terms are available at the time, which, at the Group's current
share price, could lead to significant shareholder dilution.
Other items
Contingencies
The Group is exposed to further contingent liabilities. The
amounts concerned in each of these matters is material, and an
adverse finding would have material impacts on the Group's ability
to continue as a going concern.
Covid-19
In response to Covid-19, we are complying with all the
instructions and guidance issued by the authorities in each of the
jurisdictions in which we operate. At the time of writing, Cameroon
remains relatively free of operating restrictions, however, we
remain cognisant that this position may change at any point which
may impact GDC staff, GDC's ability to produce and sell gas, our
customers ability to purchase gas, and/or our suppliers ability to
deliver the services procured.
Available gas reserves and the La-108 intervention
With effect of 1 January 2020, the Group has revised the Logbaba
proved developed reserves ("1P") from 69 Bcf to 19 Bcf. The
successful completion of the La-108 intervention, the funding of
which is dependent on the recovery of amounts owed to GDC by ENEO,
or by alternative funding arrangements, is fundamental to GDC's
ability to recover the revised 1P Reserves and its continuing
ability to provide gas to customers. As with any such operation,
the outcome of the La-108 intervention has typical geological and
operational uncertainty. Should the outcome be at the lower end of
expectations, this would shorten the life of the Logbaba Field. The
Group is actively pursuing other sources of gas to mitigate this
risk.
Conclusion
These conditions indicate the existence of a material
uncertainty in relation to the Group and the Parent Company's
ability to continue as a going concern.
The Directors have reviewed operating and cash forecasts in
respect of the operating activities and planned work programmes of
the Group's assets. The expected cash flows, plus available cash on
hand, after allowing for funds required for administration and
development costs, working capital improvement and debt servicing,
are expected to cover these activities.
Based on the cash flow forecasts prepared the Directors are of
the view that the Group and the Parent Company is sufficiently
funded for the twelve-month period from the date of approval of
these Financial Statements. However, the Directors note that there
are material uncertainties as listed above, which if any should
eventuate, would require them to raise additional funds in
2021.
Although the Directors consider the likelihood of these
uncertainties eventuating to be remote, they are confident
additional funding can be accessed should it be required.
On the basis of the considerations set out above, the Directors
have concluded that it is appropriate to prepare the Financial
Statements on a going concern basis. These Financial Statements do
not include any adjustments to the carrying amount and
classification of assets and liabilities that may arise if the
Group or the Parent Company was unable to continue as a going
concern.
4. General Meeting and Report and Accounts
The General Meeting ("the Meeting") of the Company will be held
on 29 October 2020 at Kerman & Co LLP, 200 Strand, London WC2R
1DJ at 11.00a.m. to consider the 2019 Annual Report and
Accounts.
The following documents are now available on our website at
https://www.victoriaoilandgas.com/investor-relations/shareholder-meetings/
-- 2019 Annual Accounts
-- Shareholder Circular including the Notice of General Meeting
-- Proxy Form
Copies of the above-mentioned documents have been posted to the
Company's shareholders as per individual request.
Due to the Coronavirus (COVID-19) pandemic and the restrictions
imposed by the Government on public gatherings, it will not be
possible for the Shareholders to attend the Meeting in person. We
are disappointed that these measures have to be adopted and
appreciate our Shareholders' understanding during these
extraordinary circumstances. The Meeting will take place with
presence of a minimum quorum arranged by the Company and will be
facilitated in line with the Government's strict social distancing
advice. At the Meeting, only formal business of the meeting as set
out in the Notice will be covered.
The Directors are mindful that Shareholders have not been able
to have a direct dialogue with management or directors of the
Company at Shareholder meetings this year due to the severe but
understandable restrictions placed upon us by the Covid-19
pandemic. As a result, we propose to invite questions from
Shareholders in advance of the Meeting on the 2019 Annual Accounts.
A response to these questions will be published before the Meeting
and additional information about this process will be available on
our website. All questions should be sent directly to the Company
by close of business on 22 October 2020 either via email to
compliance@victoriaoilandgas.com or by post to Victoria Oil &
Gas Plc, Scott House, Suite 1, The Concourse, Waterloo Station,
London, SE1 9LX and include your Shareholder registration number or
registered Shareholder details and address.
As there will be no Shareholder presence at the meeting other
than the minimum quorum as arranged by the Company,
the resolution to be considered at the Meeting will be voted on
by poll. The Board encourages Shareholders to vote electronically
at www.investorcentre.co.uk/eproxy and to appoint the Chair of the
meeting as their proxy. All valid proxy voting instructions,
whether submitted electronically or in hard copy form, received no
later than 11.00 a.m. on 27 October 2020 will be included in the
poll to be taken at the meeting.
5. Interim Results to 30 June 2020
VOG announces that, pursuant to the guidance issued by AIM
Regulation in the Inside AIM notification dated 9 June 2020, the
Company is utilising the one month extension to the date by which
it is required under AIM Rule 18 to publish its interim results for
the six-month period ended 30 June 2020. Accordingly, the Company
will be publishing its 2020 interim results by 31 October 2020.
For further information, please visit www.victoriaoilandgas.com
or contact:
Victoria Oil & Gas Plc
Roy Kelly Tel: +44 (0) 20 7921 8820
Kate Baldwin
Strand Hanson Limited (Nominated and Financial Adviser)
Rory Murphy / James Dance / Jack Botros Tel: +44 (0) 20 7409 3494
Shore Capital Stockbrokers Limited (Broker)
Mark Percy / Toby Gibbs (corporate advisory) Tel: +44 (0) 20 7408 4090
Jerry Keen (corporate broking)
Camarco (Financial PR)
Billy Clegg Tel: +44 (0) 20 3757 4983
Nick Hennis Tel: +44 (0) 20 3781 8330
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September 30, 2020 02:00 ET (06:00 GMT)
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