TIDMVOG
RNS Number : 3204N
Victoria Oil & Gas PLC
17 January 2019
17 January 2019
Victoria Oil & Gas Plc
("VOG" or "the Company" or "the Group")
Q4 2018 Operations Update
Victoria Oil & Gas Plc, the Cameroon based gas and
condensate producer and distributor, provides an update on the
Group's operations for the three months ended 31 December 2018 ("Q4
18" or "the Quarter").
Highlights:
-- Following signature of a binding term sheet with ENEO for a
3-year contract to supply the 30MW Logbaba Power Station, sales to
ENEO recommenced on 22 December 2018
-- 2018 peak rate of 7.67mmscfd reached on 28 December 2018,
following resumption of sales to ENEO
-- Q4 Gross gas sales of 403.8mmscf +14% on Q3 (355.6mmscf)
-- Q4 Average gas production rate of 4.45mmscfd +20% on Q3 (3.72mmscfd)
-- Gross Gas sales for 2018 of 1,410.0mmscf (2017 3,683.6mmscfd; -62%)
-- Average production rate for 2018 of 3.75mmscfd (2017 10.98mmscfd; -66%)
-- Grid power sales decreased by 99% on 2017 due to ENEO
non-renewal of contract, announced on 5 January 2018
-- Thermal consumption increased 5% on 2017 with addition of 3 new customers and 2 reconnections.
-- Industrial power consumption increased 12% on 2017 with addition of 3 new customers
Post Period End:
-- Average production rate MTD for January 2019 of 7.8mmscfd as at 14 January 2019
-- Presidential Decree received on Matanda license assignment
Logbaba - Quarterly Production Update
The Q4 18 gross and net gas and condensate sales for Logbaba and
Gaz du Cameroun S.A., ("GDC"), are as follows:
Amounts in bold are gas and condensate sales attributable to GDC
(57%):
Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017
Gas sales (mmscf)
-------------- -------------- -------------- -------------- --------------
Thermal 200 352 194 341 174 305 179 313 177 312
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Industrial power 15 27 9 15 9 15 10 17 10 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Grid power 15 25 0 0 0 0 0 0 226 396
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total (mmscf) 230 404 203 356 183 320 189 330 413 726
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Average gas production
(mmscfd) 4.45 3.72 3.30 3.50 7.94
-------------- -------------- -------------- -------------- --------------
Condensate sold
(bbl.) 2,701 4,738 2,298 4,032 1,657 2,907 1,654 2,900 3,951 6,931
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Consumption Increased
Notwithstanding ENEO resuming gas consumption at the end of
December, the thermal and industrial power customers showed
encouraging consumption uplifts.
-- Q4 18 thermal customer usage increased by 3% on the previous
quarter (Q4 2018 increased by 5% on Q4 2017);and
-- Q4 18 industrial power customer usage increased by 80% on the
previous quarter (Q4 2018 increased by 12% on Q4 2017).
These increases reflect GDC management's focus on driving the
industrial customer growth, during the year, to diversify and
reduce the reliance on the grid power customers. In addition, an
existing Thermal customer, Agrocam, which had been connected for
power consumption in the previous quarter started consuming gas for
power on 2 October 2018.
The consumption levels post period end, as a result of ENEO
coming back online, are:
-- 7.67mmscfd to 14 January 2019
-- 9.19mmscfd peak reached to date in January 2019
Grid Power Update
The Company announced on 24 December 2018 that Gaz du Cameroun
("GDC") had entered into a binding term sheet on the 21 December
2018 with ENEO Cameroon SA ("ENEO") to resume gas supply to the
30MW Logbaba Power Station. Gas supply and power distribution
commenced 22 December 2018. The parties are committed to executing
Fully Termed Agreements and providing appropriate payment
guarantees during Q1 19.
The term sheet with ENEO sets out 3-year contract term with peak
delivery of 6.1mmscfd to be made available to the Logbaba station
on an 80% minimum Take or Pay basis throughout the year, which
equates to a minimum gas supply of 4.88mmscfd. This differs from
the previous contract, which contained a seasonal minimum take or
pay element of 90% during the January to June dry season and 30%
during the wet season July to December. The initial gas sale price
of $6.75 per MMBtu will increase over the three-year term of the
agreement by $0.10/MMBtu on each anniversary of the effective date
of the agreement.
Presidential Decree on Matanda Received
GDC received the Decree signed by H.E. President Paul Biya on
December 17, 2018, authorising the transfer of interest in the
Matanda Production Sharing Contract ("Matanda PSC") license
assigned from Glencore in early 2016. This secured GDC 75%
ownership and operatorship of the Matanda PSC, adjacent to its
Logbaba concession, which at 1,235 square kilometers, is over 60
times the area of the Logbaba concession.
The North Matanda offshore field contains estimated gross 2C
Contingent Resources of 150bcf of recoverable gas and 6 million
barrels of condensate, with an upside of 1Tcf of gas. The initial
focus, however, will be onshore exploration prospects close to
Logbaba gas pipeline network, where gross resource potential is
estimated at 1,303bcf of gas (Mean GIIP) contained in 23 prospects
and leads.
The existing GDC infrastructure, with proximity to Matanda, will
allow new discoveries to be delivered to industrial users
efficiently and promptly. A minimum work programme obligation of
one exploration well, plus seismic reprocessing is to be completed
in the first 2 years of the assignment following the Presidential
Decree.
Outlook for 2019
Grid Power
ENEO has expressed interest in increasing power generation
levels to include an additional 20MW from its Bassa Power Station
in due course. This would add an additional 4mmscfd to current
demand, if concluded.
Discussions continue with other IPP's who are evaluating
additional power supply options to meet the electricity shortfalls
that the city of Douala continues to experience. GdC is targeting
agreement with at least one of these IPP's, during 2019, to kick
off a new power project in Douala.
Non-Grid Business Development
Whilst gas supply for grid power to ENEO and to others will
always be a key strategy of the Group, the Board, as previously
announced, has identified that it is important to diversify the
customer base to reduce dependence on any single customer.
Rebalancing of Group customer consumption with an emphasis on
non-grid remains a major driver for 2019. The considerable reserves
upgrade announced in June 2018 provides the basis to seek long term
sales contracts for growth of both grid and non-grid sales. The key
focuses for management will be to:
-- Increase Thermal consumption by actively marketing the
benefits of natural gas over liquid fuels;
-- Accelerate the Groups gas to power programme for Industrial Power customers;
-- Leverage VOG's relationship with Naturelgaz, aimed at
bringing first CNG customers online in 2019; and
-- Examine potential rural energy needs using CNG as a key fuel
that allows integrated and distributed power solutions for
communities with no grid power access. The Group's "Energy Well"
solution.
Industrial Power
With ongoing power shortages in Douala, the Board expects
Industrial Power to yield substantial revenues over the next 10
years for GDC. Over 30 existing and new customers have expressed
interest in an industrial power solution; the GDC Industrial Power
Unit. As most of these proposed power customers are already
connected to GDC's gas pipeline, adding gas fired power generation
at these sites would increase gas consumption with minimal
downstream costs for GDC.
GDC has completed negotiations with and issued GSA's to 11
customers and signed GSA's with 4 customers. The Board expects a
further 7 customers to sign in the near term. GDC is working with
Altaaqa and other equipment suppliers to fast track generators for
customers. The target is to have a number of Industrial Power
customers online by end of 2019, consuming over 4.5mmscfd of gas
with no seasonality at prices of around US$13/MMBtu.
CNG Development
On 26 June 2018 the Company announced an agreement to partner
with Naturelgaz Sanayi ve Ticaret A.S.("Naturelgaz") on CNG
projects. Naturelgaz is Europe's largest CNG supplier and
distributor and brings valuable expertise within this field to
support GDC. The partnership will provide CNG infrastructure for
customers in and around Douala.
Marketing studies by GDC and Naturelgaz have concluded that five
types of customers would use CNG in Cameroon; thermal, off-grid
power generation, commercial trucking, public transportation, and
domestic transportation. The studies indicate the near-term
potential of the CNG market, within a 60 km radius of the Logbaba
facilities, is 2mmscfd thermal and 2mmscfd industrial power. To
date, 20 customers have expressed interest in CNG within a 60 km
radius of Douala.
Design, engineering and cost estimation has now been completed
which demonstrates feasibility for an initial project to build a
2mmscfd CNG plant in Douala for CNG distribution. Negotiations with
customers on offtake agreements are in progress which, on signature
will enable the project to kick off.
The Board believes that CNG will compete strongly against diesel
and heavy fuel oil which are currently priced in Cameroon at
$25/MMBtu and $15/MMBtu respectively.
The Energy Well Concept
Seventy four percent of the Cameroon population has access to
the National Grid and 86% of the population lives within 15km of
the power network. However, household electrification stands at
only 23% and there are approximately 8 million rural Cameroonians
who have no access to grid electricity. This situation is
replicated in many African nations, where less than 10% of the
rural population has access to reliable grid electricity. The
average rural household in Cameroon requires about 1kWh of energy
per day.
VOG is pursuing its 'Energy Well' system, utilising CNG, as the
bridge between traditional hydrocarbons and renewable energy to
provide a seamless, clean and reliable energy solution to regions
that are currently poorly served by conventional energy
sources.
GDC has teamed up with US company Blocksyte Inc on development
of the Blockchain elements of Energy Wells. The Company is working
with Blocksyte, Altaaqa and others to start field tests this year
on the key components of the business.
Logbaba La-108 Insurance Claim
The Company has now received a full independent technical
analysis, by an internationally respected group, of the drilling
operations on the Logbaba La-108 well in the aftermath of a drill
string washout on 7th March 2017. On the basis of this work, the
Company will continue to pursue the insurance claim to recover the
costs associated with the event. As is normal in these situations,
the outcome of the claim is not certain. The gross amount of the
claim submitted is $24.5 million.
Matanda
Having received the Presidential Decree conferring title to the
Matanda PSC, GDC will continue subsurface planning work for the
initial drilling programme at Matanda. The Company is continuing to
explore financing options for the drilling programme, including a
potential farm-down of the asset, to fund further development.
West Medvezhye ("West Med")
The Company has identified a number of potential buyers for the
West Med Asset in Russia. Negotiations are ongoing targeting a sale
in 2019.
OECD Instance
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 NCP has decided, on an "Initial Assessment" that
issues raised merit further examination (based on initial
information from both parties). The instance was made by the
association of residents of Ndogpassi I, II and II and the Good
Neighbours circle of Logmayangui in relation to the establishment
and operation of the Logbaba Project in Cameroon.
The Guidelines are principles for responsible business conduct
in areas including employment, human rights and the environment.
While the Board and GDC both strongly believes that the Company has
and has had the necessary policies and processes in place, we
welcome the opportunity to engage further with the complainants to
understand their concerns and to agree how we can advance
together.
The Initial Assessment, once published, will be accessible on
the OECD's website
https://www.gov.uk/government/publications/uk-ncp-initial-assessment-complaint-from-ahn-and-cbvl-against-victoria-oil-gas-plc-vog
. The NCP stresses in its report that its decision to examine
further the claim against VOG is not a finding against the
Company.
We look forward to engaging in NCP-facilitated mediation, which
the Company anticipates will take place over the coming months.
Further announcements will be made as and when appropriate.
This announcement contains inside information.
For further information, please visit www.victoriaoilandgas.com
or contact:
Victoria Oil & Gas Plc
Kevin Foo / Ahmet Dik Tel: +44 (0) 20 7921 8820
Strand Hanson Limited (Nominated and Financial Adviser)
Rory Murphy / Stuart Faulkner / Ritchie Balmer Tel: +44 (0) 20 7409 3494
Shore Capital Stockbrokers Limited (Joint Broker)
Mark Percy / Toby Gibbs (corporate finance) Tel: +44 (0) 207 408 4090
Jerry Keen (corporate broking)
FirstEnergy Capital LLP (Joint Broker)
Jonathan Wright / David van Erp Tel: +44 (0) 207 448 0200
Camarco (Financial PR)
Billy Clegg Tel: +44 (0) 203 757 4983
Nick Hennis Tel: +44 (0) 203 781 8330
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END
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