TIDMVOG
RNS Number : 1028F
Victoria Oil & Gas PLC
12 November 2020
12 November 2020
Victoria Oil & Gas Plc
("VOG", the "Company" or the "Group")
Settlement of litigation with CHL and the termination of the CHL
Royalty Agreement
Well La-108 Remediation and Initial Testing
Highlights
Settlement of Cameroon Holdings Limited ("CHL") Litigation
-- A settlement agreement has been entered into with CHL to
cease all legal action (the "CHL Litigation") and cancel the CHL
royalty agreement (the "CHL Royalty Agreement") (the "Settlement
Agreement")
-- The settlement results in a valuable net revenue increase to
GDC on a monthly basis from December 2020
-- Significant legal costs are also avoided and management can
focus on value-adding activities
-- The settlement amount of, in aggregate, US$12.5 million (the
"Settlement Amount"), can be paid out over many years, or sooner
without penalty
La-108 Remediation and Initial Testing (details below)
-- We are pleased to confirm that the fishing operation in well
La-108 has been successful and the well was cleaned out to below
the target perforation intervals
-- Following the perforation of 2 of the sand intervals in the
Upper Logbaba formation, an initial clean-up flow test was
commenced on 11 November 2020
-- These operations were conducted safely, with sensitivity to
environmental impact, and with frequent consultation with local
communities
-- The well was opened up on a 16/64" choke and was beaned up to
32/64", and as of 5 p.m. GMT yesterday was flowing approximately 19
MMscf/d with a Flowing Well Head Pressure (FWHP) of 3,580 psig. The
full potential of the well is highly likely to exceed the capacity
of the plant, which is 20 MMscf/d
Settlement of CHL Litigation
The Company is pleased to announce that its wholly owned
subsidiary Gaz du Cameroun S.A. ("GDC"), a BVI company, and VOG
have entered into a confidential Settlement Agreement with CHL,
terminating the litigation with CHL and terminating the CHL Royalty
Agreement.
As previously disclosed in the Annual Report and Accounts to 31
December 2019, since January 2019 the Company had ceased making
payments under the CHL Royalty Agreement. CHL commenced legal
proceedings against both VOG and GDC concerning the payments that
CHL claimed it was entitled to under the CHL Royalty Agreement.
The Company is pleased to announce that the parties have agreed
not only to a full and final settlement of all claims, but also the
termination of the CHL Royalty Agreement. The material terms of the
Settlement Agreement are set out below.
The Settlement Amount agreed takes into consideration the past
unpaid royalties up to the date of the agreement, disclosed in the
Interim Financial Statements as at 30 June 2020 as a contingent
liability of US$4.9 million and management's forecast of the
present value of the estimated cash flows due under the CHL Royalty
Agreement. In addition, the Company considered the future cost of
this litigation including damages, the huge drain on management
resources and the distraction from focusing on value enhancing
activities.
The Settlement Amount will be paid monthly over many years
unless it is satisfied earlier by other means, including the
realisation of cash from certain trade receivables, which have been
fully provided in the Company's accounts, active and planned claims
(insurance and legal) and the sale of one of the Group's non-core
assets (the "Alternative Assets"). The Company can pay down the
Settlement Amount earlier without a redemption penalty. The monthly
payment commences at US$90,000 from 31 December 2020 for four
months rising to US$100,000 thereafter. In the event that gas sales
commence from La-108 and certain prescribed threshold gas sales are
achieved from the Logbaba field, then monthly payments will
increase to US$150,000. The monthly payments cease once the
Settlement Amount has been satisfied and the Company and the
Company will pay interest of 5 per cent on any balance outstanding
after 2 years. The Company and GDC have provided a charge, with
customary terms, over the Alternative Assets, and CHL will be
entitled to receive varying portions of the proceeds of any future
realisation of such assets while the Settlement Amount is
outstanding and these amounts will reduce the balance
outstanding.
La-108
Well La-108, drilled in 2017, reached a depth of 2,865m measured
depth following two sidetracks. The well encountered gas in six
sands within the Upper Logbaba and three sands in the Lower Logbaba
formation. However, during the initial perforating of the Lower
Logbaba sands, a spent perforating gun and some wire were stuck in
the well. The perforating gun and most of the wire were retrieved
in 2019 but unfortunately a new fish was left in the well. The
workover rig (a snubbing unit) plus crew returned with a heavier
workstring in March of this year, only to be interrupted by
COVID-19 restrictions.
The crew returned in mid-September and recommissioned the rig.
Fishing operations commenced in early October and the fish was
recovered, the well was cleaned out, and six sets of perforations
were shot across a total estimated gross pay interval of 86m. The
well was opened up on 11 November 2020 to a flare and achieved a
flowrate of just under 20 MMscf/d with a FWHP of 3,580 psig on a
32/64" choke. The theoretical AOF (Absolute Open Flow) potential of
La-108 is estimated to be 50 MMscf/d (though this is to be
confirmed following analysis of all the test data) . In addition,
four more Upper Logbaba sands in La-108 remain available for
perforation in the future, as required by production.
This operation has been conducted with no major Lost Time
Incidents to report to date, bearing in mind that we were somewhat
blind to what lay below the fish and how and where we would
encounter what is an over-pressured reservoir. Whilst we loathe the
flaring of gas, a vital resource to Cameroon, we have a
dispensation to do this for a relatively short time to establish
the nature of produced fluids, productivity, contaminants, and so
on, before we hook the well up to the permanent facility.
Furthermore, we are conscious that we are on the outskirts of a
major city, and we have attempted to keep out operational footprint
as low as possible during this operation, working with local
communities, authorities and businesses prior to the opening of the
well and at every step.
Commenting today Roy Kelly, CEO of VOG, said :
"The two items addressed in this RNS hopefully demonstrate that
the Company is proactively and decisively dealing with intractable
legacy issues. Firstly, the settlement of this long-standing legal
dispute removes financial uncertainty and ongoing costs which could
have run to a final hearing in 2022, with potentially negative
consequences. The termination of the CHL Royalty Agreement as part
of the Settlement is a considerable benefit to shareholders in
terms of future cashflow. Without the distraction of expensive
legal proceedings and the considerable drain on management
resources, we can now focus on value accretive activities.
Lastly, we are extremely pleased to have safely remediated
La-108 and to have tested it at excellent flowrates. The complexity
of this project in a deep, high pressure well was exacerbated by
the remoteness of our operation meaning lead times for spares or
new equipment can be several weeks or months as there are no other
upstream onshore operations in the country. This took meticulous
planning and execution by the team and its subcontractors. As to
the additional gas sales potential this well provides, we maintain
a "hopper" of additional gas sales opportunities, including new and
existing customers, power and thermal use, and we will now pursue
these earnestly.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014
For further information, please visit www.victoriaoilandgas.com or contact:
Victoria Oil & Gas Plc
Roy Kelly/Rob Collins Tel: +44 (0) 20 7921 8820
Strand Hanson Limited (NOMAD)
Rory Murphy/James Dance/Jack Botros Tel: +44 (0) 20 7409
3494
Shore Capital Stockbrokers Limited (Joint Broker)
Mark Percy / Toby Gibbs (corporate advisory) Tel: +44 (0) 207
408 4090
Jerry Keen (corporate broking)
Camarco (Financial PR)
Billy Clegg Tel: +44 (0) 20 3772 2499
Nick Hennis Tel: +44 (0) 203 781 8330
Sam Metcalfe, the Company's Subsurface Manager has reviewed and
approved the technical information contained in this announcement
in his capacity as a qualified person under the AIM Rules. Sam has
over 30 years of industry experience, and has an MSc in Petroleum
Engineering from The University of Texas at Austin.
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