TIDMVOG
RNS Number : 0633A
Victoria Oil & Gas PLC
24 May 2019
24 May 2019
Victoria Oil & Gas Plc
("VOG", "Company" or the "Group")
Preliminary Results for the year ended 31 December 2018
The Company is pleased to announce the financial information for
the year ended 31 December 2018.
Year in Review
-- Grid Power customer, ENEO, ceased consumption in January 2018
-- 62% decrease in annual gas sold - Gross 1,410 mmscf /Net 804
mmscf (2017: Gross 3,684 mmscf /Net 2,163 mmscf)
-- 66% decrease in average daily gas production 3.75mmscfd (2017: 10.98mmscfd)
-- Attributable revenue of $10.8 million (2017: 23.5 million),
EBITDA a loss of $0.53 million, (2017: $4.59 million), Loss before
tax $8.3 million, (2017: $10.7 million)
-- Cost cutting programme commenced - 24% reduction year-on-year
-- 8 additional customers consuming gas with 39 customers at year end
-- On 21 December 2018, ENEO entered into a three-year binding
term sheet with GDC for gas to power supply to 30MW Logbaba Power
Station
o peak delivery of 6.1mmscfd on an 80% minimum Take or Pay basis
- a minimum gas supply of 4.88mmscfd
o initial gas sale price of $6.75/MMBtu to increase over the
three-year term of the agreement by $0.10/MMBtu annually
Post period-end Highlights
-- Board strengthened:
o Roger Kennedy appointed Executive Chairman following the
retirement of Kevin Foo
o John Knight and John Daniel appointed Independent
Non-Executive Directors
-- $17.7 million (gross) raised through the issuance of
104,357,488 new Ordinary Shares at 13 pence per share
-- Board reviewing CHL Logbaba royalty and has suspended payments until review is completed
-- Operating cost reduction programme continued to improve operating margins
-- Q1 2019 average gas production rate increased by 127% during
the period to 10.10mmscfd (Q4 2018: 4.45mmscfd)
-- ENEO gas consumption consistently over 5.5mmscfd during the
Quarter having recommenced on 22 December 2018
Roger Kennedy, Chairman, said:
"The Company is for the first time in many years on the right
track with lower costs, a better defined strategy, and the
leadership to deliver value to shareholders. 2018 was a difficult
year accentuated by past mistakes; however, the events since the
year end, with the injection of new capital by significant
shareholders backing our business model, Board and Management
changes, production levels increasing, and a strengthened financial
position, ensures that the future looks brighter for
shareholders."
Chairman's Letter
Dear Shareholders,
This is my first Letter to the Shareholders as Executive
Chairman. I will begin by reiterating that the recent changes in
significant shareholders and the Board, along with the realignment
of management, mark a "a positive, new beginning for Victoria Oil
& Gas Plc ("VOG")". Let me be more precise as we look back at
the past year's achievements, challenges and mistakes, and look
forward to how we can make VOG into a sustainable growth story in
Cameroon and potentially other parts of Africa.
What first drew my interest to VOG was the business model and
its applicability to the rest of Africa and to developing economies
globally. The supply of energy in Africa is some of the most
expensive and unreliable in the world. Although many countries have
seasonal hydro and dirty coal power plants, most are chronically
short of power and rely on expensive diesel fuels to help power
their communities and businesses between blackouts and brownouts.
There is an abundance of stranded gas deposits throughout Africa.
While many may criticise the environmental impact of natural gas
and its exploitation, its usage is cleaner than the burning of coal
or oil, emitting far less carbon dioxide. VOG is one of a handful
of companies that has been able to successfully explore, develop
and commercialise gas in an environmentally friendly manner,
resulting in a reliable, economic power supply and blue skies in
Douala.
The development and implementation of the VOG business model in
Cameroon through its wholly owned subsidiary Gaz du Cameroun S.A.
("GDC") was commendable, and credit has to be given to those who
successfully implemented the strategy and built the company. The
story of VOG is not of your typical AIM natural resources company:
it has successfully explored for and commercialised gas, has
financed and constructed a processing facility and 50 kms of
pipeline to provide gas to clients, and is a fully operational
business in Africa. That statement in itself is exceptional, and I
have reminded many of you of the unique story of VOG.
The challenge has been and continues to be making the model
sustainable. Historical mistakes at VOG have accentuated this
challenge, and the impact on VOG's share price has been
considerable. Let me highlight the larger issues and later in this
letter provide you with an explanation of how we will address each
of these issues:
1. Single Asset Risk: The Logbaba Project is the only operating
field in our Company. As the gas from each well at Logbaba
depletes, to maintain resources and reserves we have to drill new
wells periodically. Drilling for gas in the Douala region is deep,
the geology is challenging and the costs per well have proven to be
high. Technical problems during our last drilling programme only
served to highlight the risk.
2. Customer Concentration: The Company had 39 customers at the
end of 2018; however, one, ENEO Cameroon S.A. ("ENEO"), accounted
for the majority of total revenue in the three years during which
it consumed gas.
3. Inability to Manage Operating Margins: The Cameroon Holdings
Limited ("CHL") royalty structure attached to Logbaba is more of a
revenue sharing arrangement, not netting out costs of production
and has paid out 15% of all revenue produced at Logbaba to third
parties. The operating expenses in both London and Douala have
scope for further reductions, which along with ENEO's postponement
of the renewal of its contract in 2018, have made the operational
results of VOG less than stable.
4. Not Separating Logbaba into Upstream and Downstream
Businesses: The Government of Cameroon has historically requested
the separation of our business to comply with the country's
Petroleum and Gas Codes. This is a major task and management is
working with Société Nationale Hydrocarbures ("SNH") to achieve
this. Achieving compliance in this regard will deliver clarity on
the downstream fiscal arrangements in Cameroon.
5. Establish Strategic Identity: VOG started off as an oil
exploration company in Russia. Over the years it ventured into
Kazakhstan and other countries. After it successfully developed the
Logbaba project in Cameroon, VOG called itself an oil and gas
exploration company when in fact it is both a successful upstream
gas and a gas utility company. The vision of how to grow VOG
outside of Logbaba and Cameroon, particularly after the setbacks of
2018, is a work in progress by both the new Board and
management.
None of these matters have proven fatal. Thanks to you our
shareholders, who have believed in our company's business model and
have supported us, we have a chance to immediately address and
remedy them. The new injection of capital and realignment of the
Board and management completed on 3 April 2019 allows us to take
decisive actions to develop VOG into a long-term, profitable and
sustainable business. Let me outline how.
First, GDC received on 17 December 2018 the Presidential Decree
confirming the transfer of the interest in the Matanda Production
Sharing Contract ("Matanda PSC") assigned from Glencore, securing
GDC's 75% ownership and operatorship. Matanda is a large block
adjacent to Logbaba, which at 1,235km(2) ("Matanda"), is over 60
times the area of the Logbaba licence with significant
prospectivity. Management has commenced planning to meet our
obligations under the PSC, including reappraisal of historic
seismic completed by Glencore and others and drilling of at least
one well by end 2020.
At Logbaba, the planning for the remediation work on well La-108
has commenced, specifically the extraction of the perforating gun
stuck in the production tubing, the remaining perforation and
subsequent well testing. This work is projected to be completed in
Q4 2019. Based on the successful completion of well La-108, we will
seek to obtain an independent third party reserve and resource
report. Simultaneously, management has initiated engineering works
to commercially optimise the Logbaba processing facility.
The combined field work at Matanda and Logbaba will move VOG
away from single asset risk and is expected to significantly
increase our reserves and resources and position VOG to not only
supply gas to existing industrial and grid power demand, but also
to prospective Independent Power Producers ("IPPs") that have
expressed interest in developing new, demand intensive power
projects in the Douala area.
The Government of Cameroon ("Government") has stated that it
requires additional grid power to meet the growing power demand in
the Douala region. Several IPPs have contacted GDC for the purpose
of supplying gas for power generation equipment. The Company has
and will continue to actively engage with these IPPs to achieve gas
sale agreements.
On existing and new clients, let me clarify one point and
explain our strategy to mitigate our customer concentration risk.
First, for the initial contract which ended 31 December 2017, ENEO
has paid all of its invoices to GDC. It was clear to us, and power
users in Douala throughout 2018, that the Government needed to add
more grid power. After months of negotiations between the
Government and ENEO, a new 10-year extension of its concession was
signed by ENEO on 11 November 2018. Subsequently, ENEO recommenced
acquiring gas from GDC on 22 December 2018 based on a binding term
sheet executed between the parties, the terms of which we announced
to the market. We are now in the process of completing a fully
termed gas supply agreement with ENEO. Many of you have voiced
doubts on ENEO paying us, particularly as they have yet to pay us
for gas consumed in the first quarter of 2019. Let us remember that
ENEO only had their concession extended at the end of 2018. They
have in the past paid in full for the gas that was supplied to them
by GDC. VOG and GDC have a firm expectation that ENEO will honour
their contractual commitment and pay their invoices.
Second, apart from increased demand from ENEO and prospective
demand from IPPs entering the market, we have another 38 paying
industrial customers and we are confident that we can secure
additional customers, particularly customers using gas for
industrial power as we concurrently work to establish additional
long-term reserves and production from Logbaba and Matanda.
As promised to you in our announcement of the last capital
raise, management has been and continues to be focused on
substantially cutting operating costs and improving operating
margins. The programme commenced in 2018 will continue throughout
2019, reducing headcount, salaries and non-necessary cost items in
both London and Douala, while actively working to increase
production and revenue, thus enhancing productivity. As of the
writing of this letter, management has successfully extinguished
the major trade payables relating to our last drilling programme,
with the exception of Weatherford Services and Rental Limited
("Weatherford"), with whom we have a recently reached agreement in
principle to settle their outstanding debt. This settlement brings
all GDC creditors to within agreed trading terms.
VOG today is in a much improved financial and operational
position. Q1 2019 results showed a strong set of production figures
and we look to emulate and better those figures in the remaining
quarters of 2019. Our goal is to make VOG profitable for full year
2019 and in the years to come. To assist in meeting this objective,
as noted in our Q1 2019 operations update, the VOG Board has taken
steps to review the CHL royalty and has suspended payments until
such review is completed. The validity of this suspension is
disputed by CHL.
The newly constituted VOG Board has further agreed that:
1. We cannot work under the historical assumption or expectation
that the insurance claim relating the La-108 well incident will be
paid. The insurance claim has been declined by the insurer based on
their opinion that there was insufficient evidence of an
underground blow-out as defined in the insurance policy. Expert
technical advisors to the Company have produced information
contrary to what the insurer has put forward and the Board proposes
to pursue the claim through litigation in Cameroon; and
2. All costs relating to non-core assets, namely the West
Medvezhye project in Russia, will be reduced solely to maintain the
licenses and work towards achieving a sale or exit. A new
realistic, focused sales process will be commenced and concluded as
soon as practicable.
The Company is in ongoing negotiations with SNH regarding the
mechanism for splitting the Logbaba activities into the upstream
and downstream components to determine, amongst other items: the
potential participation of SNH in the downstream activities; the
allocation of assets, liabilities, revenues and costs; the
associated transfer pricing mechanisms; and the net settlement
required by SNH to take ownership of their entitlement.
In terms of Strategy, we first have to get VOG right in
Cameroon. We believe that the Government, ENEO, prospective IPPs,
and industrial clients will establish for us the natural ceiling of
the gas market in Cameroon. GDC is a gas production and gas utility
company. As I stated earlier, all other assets that do not fit this
strategy will be disposed. VOG has built a company in Cameroon that
is recognised as an outstanding entrepreneurial example of creating
a cash generating business from stranded gas deposits. It is a
model that under the right conditions can be replicated across
Africa's many stranded gas deposits. The Board will explore
strategic opportunities, development of profitable downstream
operations, and farm-ins to other potential blocks in Cameroon and
other parts of Africa.
While we are restructuring our finances and refocusing our
operations and strategy, we will look to strengthen our technical
abilities and management.
The Company has restructured and strengthened our Board, with
the appointment of two Independent Non-Executive Directors: John
Knight, appointed Senior Independent Director, and John Daniel,
both bringing with them a wealth of experience and expertise to
VOG. Apart from the Audit Committee, now led by John Knight, and
the Remuneration Committee under the continued leadership of John
Bryant, a new Technical Committee has been established under the
oversight of John Daniel, which will assist management in the
planning of all future exploration and field development.
The changes implemented at VOG on 3 April 2019 and the steps
taken since the end of 2018 are meant to stabilize and grow the
company and restore investor confidence in VOG. We are confident
that we have identified all the substantive issues that need to be
tackled by the Board and will work methodically to resolve each of
them. This process will take time and I will make a personal
commitment to you our shareholders that we will remain transparent
in our reporting as we progress. In our opinion VOG's share price
is massively undervalued. We understand that to rebuild the trust
of investors and the value of the company we will have to not only
clear operational milestones in Cameroon, but successfully execute
a strategic plan for growing the company outside of Cameroon in the
long term. We thank our shareholders for their continued support
and patience. Thanks are also given to the management and employees
for their continued dedication, our independent Non-Executive
Directors for their ongoing guidance, and our partners; RSM
Productions Corporation ("RSM"), AFEX Global Ltd ("AFEX") and
SNH.
Roger Kennedy
Executive Chairman
23 May 2019
Chief Executive Officer's Review of Operations
2018 in Overview
-- Grid Power Customer, ENEO ceasing consumption
-- Resulting year of consolidation and cost reduction
-- Customer diversification strategy
-- Non-essential capital projects put on hold to preserve cash
-- 8 additional customers consuming gas during the year
Key Statistics/Events
-- 62% decrease in annual gas sold
Gross 1,410 mmscf /Net 804 mmscf
(2017 Gross 3,684 mmscf /Net 2,163 mmscf)
-- 66% decrease average daily gas production 3.75mmscfd (YE 2017: 10.98mmscfd)
-- La-108 wireline cutting
Operations Review
2018 was a challenging year with the non-renewal of the Gas
Sales Agreement with Eneo Cameroon S.A ("ENEO") in January forcing
a change in plans. Management responded rapidly to readjust the
Company and its costs to do all that it could to remain a going
concern through 2018. A number of positive things have come out of
the situation including management's focus being shifted to
increase the diversification of customers and its revenue base for
the Company by seeking higher value for its gas from industrial
power customers. The focus on industrial power customers has
generated a lot of interest and GDC has secured a number of signed
gas sales agreements.
Alongside seeking higher value gas and additional revenue, given
the reduced revenues for 2018, cost cutting became a major focus
for GDC and the Company. This was achieved successfully and is more
likely to see a larger impact in the financials for 2019. I am
pleased to report a reduction of operating costs by 24% year on
year.
With ENEO resuming gas consumption, the company anticipates much
better results in 2019.
I want to thank shareholders for their patience and support
throughout 2018. Further detail on some of the specific topics are
noted below.
Grid Power
Due to circumstances beyond the control of GDC, ENEO did not
renew their gas sales agreement in January 2018. Whilst the
situation that ensued was challenging for all involved, the
management team remained confident that a resolution would be
reached and worked tirelessly in trying to achieve it. Once ENEO
was awarded its 10-year concession extension, GDC and Altaaqa were
awarded contracts for gas to power supply which resumed on 22
December 2018.
During 2018 all outstanding payments due on invoices issued to
ENEO under the previous Gas Sales Agreement were settled in
full.
GDC remains an integral part of the power solution for Douala;
made evident by the increased power black outs that the city
experienced during 2018 when the gas was not being consumed for
generation of power by ENEO.
GDC entered into a binding term sheet with ENEO on the 21
December 2018 to resume gas supply to the 30MW Logbaba Power
Station. Gas supply and power distribution commenced on 22 December
2018. 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/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.
ENEO has consistently consumed gas from GDC in excess of
5.5mmscfd since resuming consumption, which is above the minimum
contracted consumption volume.
Whilst the expectation was to have Fully Termed Agreements
completed in Q1 2019, the parties are working closely to have these
finalised shortly and ensure the provision of appropriate security
for payment guarantees. The invoices for gas consumed in 2019,
totalling approximately $3.6 million (net), remain outstanding.
Management expect payment shortly and is actively engaging with
ENEO to resolve this.
We wish to thank the Government of Cameroon, Ministry of Water
& Energy, ENEO, SNH and His Excellency the President for
entrusting GDC and Altaaqa with such an important project for the
Republic of Cameroon and its people.
Further Grid Power Demand
There is no doubt about the current deficit in grid power supply
which is only increasing as a result of the growing demand for
power by Cameroonians and Cameroon businesses. Hydro power projects
are being implemented nationally at a grand scale, but these will
take a number of years to be commissioned. We are aware that the
government roadmap for power generation includes at least 30% of
its power to be from thermal sources to ensure consistency at times
of reduced rainfall. As the only onshore gas supplier, GDC is well
positioned to deliver gas for power projects.
A number of internationally reputable power generation companies
have expressed their interest to supply 100MW - 150MW each and are
in advanced discussions with the Government of Cameroon and ENEO to
further these projects. GDC is engaging in discussions on these
projects with the aim of progressing to gas sales agreements with
these parties to secure gas offtake for grid power projects.
Thermal and Industrial Power Customers
By the end of 2018 eight additional customers were consuming
gas; five for thermal use (three being new customers and two
reconnections) and three for power use (two being new customers and
one a reconnection). This brings the total number of consuming
customers (excluding ENEO) at the year end to 38. Gas for Thermal
use sales increased by 5% to 1,311mmscf (YE 2017: 1,249mmscf) and
Industrial Power sales by 12% to 74mmscf (YE 2017: 66mmscf).
In particular, the sales team focused on the power requirements
of existing and new customers. GDC explored a number of financing
solutions for the capital expenditure required for the gas fired
generators (gensets). With the completion of the recent fundraising
and strengthening of the Company's Balance Sheet, GDC is reviewing
these financing options to progress the industrial power project
further. During the year, 3 customers that were on or close to
existing pipeline purchased their own generators and were consuming
gas by the year end. There are two further customers who have
signed GSA's for industrial power, one of which is expected to be
online in Q4 2019.
The Sales team is actively pursuing customers who are based in
potential pipeline extension areas for both thermal and industrial
power uses for our gas. Non-essential capital expenditure projects
were put on hold during 2018, which delayed some of the decisions
for industrial power projects. However, given the recent
fundraising and consumption of gas by ENEO, the economics for these
projects are being reviewed and may form part of the capital
expenditure programme for 2019.
Compressed Natural Gas ("CNG")
The Company announced in June 2018 that GDC had entered into an
exclusive agreement to partner with Naturelgaz Sanayi ve Ticaret
A.S. ("Naturelgaz"), Europe's largest CNG supplier and distributor.
The purpose of this long-term partnership was to:
-- Design, build and operate CNG infrastructure and solutions
for customers who need mobile energy, initially in GDC's home
market of Cameroon with the intention of rolling this out into
other African countries
-- Market CNG products, including bulk CNG and gas-to-power to
industry and businesses which require reliable off-grid /
off-pipeline energy solutions, as well as Auto CNG for alternative
mobility solutions
-- Phase 1 agreed between the parties is a 2mmscfd CNG plant and
customer distribution project currently in the design stage.
Marketing studies by GDC and Naturelgaz 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 indicated 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, more than 10 customers have expressed interest in CNG within
a 60 km radius of Douala.
Design, engineering and cost estimation was completed, which
demonstrates feasibility for an initial project to build a 2mmscfd
CNG plant in Douala for CNG distribution. The Board believes that
CNG will compete strongly against diesel and heavy fuel oil which
are currently priced in Cameroon at an equivalent of approx.
$25/MMBtu and $15/MMBtu respectively.
The project will be able to progress following completion of
remediation works of La-108, plant optimisations at Logbaba and the
conclusion of GSA's with sufficient customers, thereby establishing
a viable business operation.
Energy Wells
There are a number of additional gas sales opportunities for
GDC. Whilst some time was spent on the Energy Well concept during
2018, management has decided to focus on the industrial and grid
power opportunities which could potentially include CNG in the
future. This project may be revisited in the future but no
resources have been allocated to it for 2019.
Delivery and Infrastructure
Pipeline
During the current year, as mentioned previously, non-essential
capital expenditure was put on hold. No extensions to the 50km
pipeline network were made during the year.
Facilities Enhancement Project
In December 2018, the VOG Board approved engineering and
execution planning to upgrade the Logbaba Gas Plant to enable
production at a lower wellhead pressure than it is currently
designed, maximising the value of the gas deliverability from the
wells. Once the project is complete, it will result in significant
increase in hydrocarbon recovery from existing and future wells. A
further benefit of the project is that it will enhance the
reliability of the Logbaba Gas Plant as GDC production increases
during 2019 and 2020. The project will be delivered as a two-stage
project. The Front-End Engineering Design (FEED) will be delivered
in Stage 1; and once accurate costing and scheduling have been
determined and approved by the Board, the procurement of materials,
fabrication and installation (Stage 2) will commence. Stage 1 is
expected to be completed in 2019.
Upstream
La-108
At the end of the La-108 the well testing operations in December
2017, a spent perforating gun was stuck in the production tubing at
a depth of 895m, with a wireline cable extended from the stuck gun
to surface. The only material capital project that was carried out
during the financial year for GDC was in relation to La-108. 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 to be retrieved at a later
date.
As a result of increased production, planning has commenced for
works to recover the perforating gun and conduct further
perforating and flow testing to complete well La-108.
Logbaba La-108 Insurance Claim
The insurance claim to recover the costs associated with the
La-108 well control event has been declined by the insurer based on
their opinion that there was insufficient evidence of an
underground blow-out as defined in the insurance policy. Expert
technical advisors to the Company have produced information
contrary to what the insurer has put forward and the Board believes
it has reasonable prospects of success in pursuing the claim
through litigation in Cameroon. The parties relating to the Logbaba
Project are evaluating their options.
Trade Indebtedness
In Q1 2019, GDC received a statutory demand in the BVI from
Weatherford Services and Rental Ltd ("Weatherford") for payment of
invoices relating to various services provided by Weatherford for
the La-107 and La-108 drill program for a gross amount of
approximately $2.9m. The Company contends that this matter was in
dispute prior to service of the statutory demand and has made an
application to have the statutory demand set aside. The Company has
also formally disputed that the full funds demanded were due. The
Company and Weatherford now have an agreement in principle to
extinguish the outstanding debt and to withdraw the statutory
demand which is expected to be formalised in the near term. The
Company has, since year end, settled the remaining creditors from
the drilling program and now trades with its remaining creditors
within trading terms.
ISO Certification
GDC has worked on International Organization for Standardization
Compliance ("ISO") 9001, 14001 & 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 with certifications expected to be issued by end of Q2
2019. This achievement is evidence that Gaz du Cameroun 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.
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 complaint 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. We are engaging
with the NCP in relation to progressing to mediation with the aim
of addressing the concerns of the residents involved.
Logbaba Reserves and Resources Update
The Group had previously reported the reserves and resources on
the entire Logbaba Field contained within the original 64km(2) PH79
Exploration licence. Discussions with SNH and the Government of
Cameroon are continuing regarding the terms on which the
relinquished portion of the PH79 Exploration licence (the 44km(2) )
will be made available to the Logbaba Concession partners. The
reserves and resources have been updated to reflect only the
reserves and resources contained within the C38 Exploitation
licence, which has an area of 20km(2) . A further update will be
provided once negotiations are concluded on the PH79 Exploration
Licence.
Matanda Update
Regarding Matanda Block, 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 1,235km(2) , is over 60 times the
area of the Logbaba concession. The proposed minimum work program
obligation of one exploration well, plus seismic reinterpretation
is ongoing and expected to be completed in the first two years
following the date of the Presidential Decree.
I want to extend my thanks gratitude to our teams in London,
Cameroon and Russian and thank them for their hard work, loyalty
and support throughout the years and look forward to achieving
success in 2019 and beyond.
Ahmet Dik
Chief Executive Officer
23 May 2019
Financial Review
The year ended 31 December 2018 ("current year") was a
challenging year for VOG. The non-renewal of the ENEO contract on 1
January 2018, in conjunction with an overhang of outstanding
partner receivables and supplier payables relating to the Logbaba
drilling programme, set the tone for a year of rationalisation and
stringent capital management.
Despite rigorous cash management, a restructuring of the BGFI
debt facility, a reduction in total operating and G&A costs,
and efforts to expand sales of thermal and industrial power
applications, the Board felt that the Group's balance sheet
required an injection of funding and looked to raise capital. On 5
April 2019 the Group completed an equity placing and subscription,
raising gross proceeds of $17.7 million. The net proceeds of the
fundraising will enable the Group to:
-- maintain and expand its existing operations in Cameroon, with
a focus on securing new customers and increasing revenue;
-- complete well La-108 and certain process plant enhancements
at Logbaba and fund the ongoing development of the Matanda project,
a key focus for the Group;
-- continue to implement its cost reduction programme in both
the London and Cameroon operations;
-- restructure and reduce the Group's existing bank and trade indebtedness; and
-- fund its working capital requirements.
On 12 June 2017, the Group formalised a participation agreement
entitling The National Hydrocarbons Corporation of Cameroon ("SNH")
to a 5% participating interest in the upstream operations of the
Logbaba Project with an effective date on the commencement of
exploitation activities at the Logbaba Project in early 2011. As a
result, the Group's participating interest in the upstream
activities of the Logbaba Block has reduced from 60% to 57% to
accommodate SNH's interest. The Company is in ongoing negotiations
with SNH regarding the mechanism for splitting the Logbaba
activities into the upstream and downstream components to
determine, 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 in taking ownership of their
5% participating interest. The Company discloses that it has a
contingent liability regarding the payment of state royalty on the
Logbaba Block. The resolution of the state royalty matter is
included in these negotiations. 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.
31 December 31 December
2018 2017
$'000 $'000
---------------------------------------- ------------ ------------
Gas sales (mmscf) - Gross 1,410 3,684
Gas sales (mmscf) - Attributable 804 2,163
Condensate sales (bbls) - Attributable 8,309 18,892
Revenue ($m) - Gross 18,596 40,613
Revenue ($m) - Attributable 10,796 23,471
Net royalties ($m) 1,145 2,609
EBITDA ($m) (529) 4,593
Loss before tax ($m) (8,302) (10,724)
Loss after tax ($m) (8,521) (10,134)
Basic loss per share (cents) (5.79) (8.86)
Operating cash flow before working
capital ($m) (1,487) 5,683
Cash working capital movement
($m) 1,367 (1,999)
Capital invested ($m) 3,363 39,752
Net debt ($m) (17,440) (13,061)
---------------------------------------- ------------ ------------
Statement of Comprehensive Income
In the year ended 31 December 2017 ("prior year"), grid power
sales accounted for 64% of gas sales in the year. Having ceased
taking gas on 1 January 2018, the binding term sheet with ENEO was
signed on 21 December 2018 and the Logbaba power plant resumed
consumption on 22 December 2018, resulting in grid power gas sales
accounting for only 2% of gas sales in the current year, and
accounting for the $12.7 million decline in attributable revenue.
Revenue in the current year was $10.8 million (2017: $23.5
million).
The binding term sheet to supply gas to the Logbaba 30MW Power
Station contained the following provisions:
-- 3-year contract term;
-- Peak quantity delivery of 6.1mmscfd to be made available to
the Logbaba Power Station site
-- Minimum base load 80% (4.9mmscfd) of peak quantity "Take or Pay" throughout the year
-- Gas price range from $6.75 to $6.95 per MMBtu over contract
term, an annual increase of $0.10 per MMBtu
The parties agreed to execute a fully termed agreement,
including the provision of an appropriate payment guarantee. The
Company is working with ENEO to have the agreement and guarantee in
place as soon as possible. Whilst the Company is experiencing
payment delays from this customer, with net receivables of $3.6
million at the time of publishing this report, it is noted that
ENEO has in the past paid all amounts owing and management believe
that the current delays will be rectified in the near term.
Net royalties, being the royalties paid less the Group's share
of profit from associate (which represents the Group's 35% interest
in Cameroon Holdings Limited ("CHL"), which in turn earns a royalty
from GDC), was 10.6% of attributable revenue for the current year
(2017: 11.1%). Since January 2019 the Company has ceased to make
any payments under the CHL royalty agreement. The Board is in the
process of reviewing the governing documents regarding the payment
of royalties to CHL and until the process is completed the Company
will not be making any further payments under the CHL royalty
agreement. CHL disputes the validity of suspension of the royalty
payments.
Operating costs (being Other cost of sales plus Administrative
expenses excluding depreciation and amortisation) decreased by $3.5
million to $11.0 million in the current year (2017: $14.5 million)
demonstrating the Company's efforts to reduce costs in an
environment of reduced revenues. The Company will continue to
reduce operating costs at both the operating and corporate levels
in 2019.
31 December 31 December
2018 2017
$'000 $'000
---------------- ------------ ------------
Operating loss (6,336) (10,158)
Depreciation 5,807 14,751
---------------- ------------ ------------
EBITDA (529) 4,593
================ ============ ============
Depreciation for the current year was $5.8 million (2017: $14.8
million), which is both variable and associated with the volumes of
gas produced and related to the increase in reserves used to
determine the unit-of -production depreciation charges.
Despite efforts to reduce operating costs, EBITDA, which removes
depreciation from the reported operating loss, was a loss of $0.5
million (2017: gain of $4.6 million) reflecting the impact of the
reduction in revenues.
The Group produced a loss before tax of $8.3 million (2017:
$10.7 million), and a loss after tax of
$8.5 million (2017: $10.1 million). The basic and diluted loss
per share was 5.79 cents (2017: 8.86 cents).
Statement of Financial Position
Intangible assets of $30.4 million (2017: $54.2 million)
represent the costs incurred on well La-108. Works to recover the
perforating gun lost down-hole and to conduct further perforating
and flow testing to complete well La-108 will be performed in 2019.
When feasible these costs will be transferred to oil and gas assets
within property, plant and equipment.
Well La-107 was transferred to oil and gas assets within
property, plant and equipment during the year. On 4 June 2018,
following the completion of the 2017 drilling campaign on wells
La-107 and La-108, the Group announced a significant increase in
the proved developed reserves for the Logbaba Field in Cameroon.
Following the announcement, the proved developed reserves used in
the calculation of unit-of-production depreciation increased from
21.1 billion cubic feet ("bcf") to 69bcf (2017: 21.1bcf) in the
Logbaba Field.
The decrease in trade receivables to $8.7 million (2017: $13.5
million) is due to a $3.5 million reduction in attributable trade
receivables (reflecting the lower revenue levels and full
collection of outstanding ENEO debt) and a $2.5 million reduction
in partner receivables being RSM's share of drilling costs and
SNH's receivable following their participation.
Trade and other payables of $10.8 million (2017: $14.3 million)
reduced as a number of residual drilling contractor obligations
were settled during the year. Drilling related trade payables at 31
December 2018 amounted to $3.9 million, all of which has been
settled post year end. In Q1 2019, GDC received a statutory demand
in the BVI from Weatherford Services and Rental Ltd ("Weatherford")
for payment of invoices relating to various services provided by
Weatherford for the La-107 and La-108 drill program for a gross
amount of approximately $2.9m. The Company contends that this
matter was in dispute prior to service of the statutory demand and
has made an application to have the statutory demand set aside. The
Company has also formally disputed that the full funds demanded
were due. The Company and Weatherford now have an agreement in
principle to extinguish the outstanding debt and to withdraw the
statutory demand which is expected to be formalised in the near
term. The Company has, since year end, settled the remaining
creditors from the drilling program and now trades with its
remaining creditors within trading terms.
Cash and cash equivalents of $3.5 million (2016: $11.5 million).
Borrowings reduced to $20.9 million (2017: $24.5 million). During
the year the Company successfully restructured the BGFI debt
facility. At 31 December 2018, the loan has a 6-month interest only
period, followed by 48 monthly repayments of principle and
interest. Interest is payable at 7.15% p.a. The loan is secured by
a pledge over the revenue stream of certain customers, a pledge
over attributable gas production volumes equivalent to the monthly
instalments and the ceding of GDC's right to future insurance
claims for the tenor of the loan. The Company has provided a letter
of support to BGFI to support the facility.
Net debt and liquidity
31 December 31 December
2018 2017
$'000 $'000
------------------------------------- ------------ ------------
Cash and cash equivalents 3,467 11,476
Borrowings: Current liabilities (4,109) (3,174)
Borrowings: Non-current liabilities (16,798) (21,363)
------------------------------------- ------------ ------------
Net debt (17,440) (13,061)
===================================== ============ ============
Net debt of $17.4 million (2017: $13.1 million) reflects the
liquidity position of the Group. The Group has no further available
credit facilities.
The Company raised $17.7 million gross proceeds in an equity
placement in April 2019.
Cash Flow Statement
Operating cash utilised, prior to the effects of working capital
movements, was $1.5 million (2017: cash generated $5.7 million),
reflecting the reduced revenues and EBITDA.
Working capital decreased $1.4 million (2017: increased $2.0
million) owing to cash collections from customers and partners, set
off against payments made to drilling suppliers.
Capital investment in 2018 was reduced to only the essential
spending and committed costs. The Company's capital investment was
reduced to $3.4 million (2017: $39.8 million). In 2019 the Company
will complete well La-108 and perform certain process plant
enhancements and optimisation at Logbaba.
There were no funds raised during the current year, with capital
investments and cash utilised in operations being funded from
existing cash reserves (2017: $23.7 million net proceeds from the
equity placement and $15.2 million proceeds from borrowings).
Repayment of capital on borrowings was $2.8 million (2017: $7.8
million).
Commitments
The Logbaba Concession does not contain any work programme
obligations.
The Presidential Decree conferring title to its 75%
participating interest in the Matanda Block was signed on 17
December 2018. GDC's share of the Matanda work programme, which the
Company will have two years to execute from the date of the
Presidential Decree, is $11.3 million.
Insurance claim
The insurance claim to recover the costs associated with the
La-108 well control event has been declined by the insurer based on
their opinion that there was insufficient evidence of an
underground blow-out as defined in the insurance policy. Expert
technical advisors to the Company have produced information
contrary to what the insurer has put forward and the Board believes
it has reasonable prospects of success in pursuing the claim
through litigation in Cameroon. The parties relating to the Logbaba
Project are evaluating their options. It was not considered
appropriate to continue reflecting the insurance claim as a
contingent asset as disclosed in 2017.
Subsequent Events
On 3 April 2019, Kevin Foo resigned as Executive Chairman of the
Company and Roger Kennedy assumed the role of Executive Chairman in
his stead.
On 3 April 2019, John Knight and John Daniel were appointed as
Independent Non-Executive Directors' of the Company.
On 5 April 2019, the Company issued 104,627,488 new Ordinary
Shares at a subscription price of 13 pence per share which
generated gross proceeds of $17.7 million and net proceeds of $16.1
million. We thank our new and existing shareholders for the
confidence that they have shown in the Company.
Going Concern
The Directors have given careful consideration to the
appropriateness of the going concern basis in the preparation of
the Financial Statements. There are a number of uncertainties which
may affect the Group's ability to continue operating as a going
concern, these are disclosed in note 3 of the Financial Statements
of the full Annual Report and Accounts.
The Company successful raised $16.1 million net proceeds in an
equity placement in April 2019. The Directors have reviewed
operating and cash forecasts in respect of the operating activities
and planned work programmes of the Group's assets and believe that
the available funds are sufficient to enable the Company to
continue meeting it's obligations and develop operations for a
period of at least twelve months from the date of approval of these
Financial Statements.
On this basis, the Directors have concluded that it is
appropriate to prepare the Financial Statements on a going concern
basis. Accordingly, these Financial Statements do not include any
adjustments to the carrying amount or classifications of assets and
liabilities that may arise if the Group was unable to continue as a
going concern.
Andrew Diamond
Finance Director
23 May 2019
Consolidated Income Statement
For the year ended 31 December 2018
2018 2017
$'000 $'000
------------------------------------ -------- --------
Continuing operations
Revenue 10,796 23,471
Cost of sales (12,021) (22,200)
Production royalties (1,675) (3,699)
Other cost of sales (10,346) (18,501)
------------------------------------- -------- --------
Gross (loss)/profit (1,225) 1,271
Sales and marketing expenses (1) (79)
Administrative expenses (6,461) (10,708)
Other gain/(losses) 821 (1,732)
Share of profit of associate 530 1,090
Operating loss (6,336) (10,158)
Finance costs (1,966) (566)
------------------------------------- -------- --------
Loss before tax (8,302) (10,724)
Tax (charge)/credit (219) 590
------------------------------------- -------- --------
Loss for the year - attributable to
shareholders of the parent (8,521) (10,134)
------------------------------------- -------- --------
Cents Cents
------------------------------------ -------- --------
Loss per share - basic & diluted (5.79) (8.86)
------------------------------------- -------- --------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
$'000 $'000
----------------------------------------------------- ------- --------
Loss for the year (8,521) (10,134)
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of foreign
operations 78 (27)
------------------------------------------------------ ------- --------
Total comprehensive loss for the year - attributable
to shareholders of the parent (8,443) (10,161)
------------------------------------------------------ ------- --------
Consolidated Statement of Financial Position
At 31 December 2018
31 December 31 December
2018 2017
$'000 $'000
--------------------------------- ----------- ------------
Assets:
Non-current assets
Intangible assets 30,445 54,223
Property, plant and equipment 91,087 70,911
Investment in associate 5,556 5,429
Deferred tax assets - 916
---------------------------------- ----------- ------------
127,088 131,479
--------------------------------- ----------- ------------
Current assets
Inventories 18 24
Trade and other receivables 8,666 13,545
Cash and cash equivalents 3,467 11,476
12,151 25,045
--------------------------------- ----------- ------------
Total assets 139,239 156,524
---------------------------------- ----------- ------------
Liabilities:
Current liabilities
Trade and other payables 10,800 14,330
Provisions 199 1,855
Borrowings 4,109 3,174
---------------------------------- ----------- ------------
15,108 19,359
--------------------------------- ----------- ------------
Net current (liabilities)/assets (2,957) 5,686
---------------------------------- ----------- ------------
Non-current liabilities
Borrowings 16,798 21,363
Deferred tax liabilities 2,030 2,846
Provisions 1,597 3,106
20,479 27,315
--------------------------------- ----------- ------------
Net assets 103,652 109,850
---------------------------------- ----------- ------------
Equity:
Called-up share capital 1,130 1,095
Share premium 26,254 24,218
ESOP Trust reserve (4) (4)
Translation reserve (17,634) (17,712)
Other reserves 401 248
Retained earnings 93,505 102,005
---------------------------------- ----------- ------------
Total equity 103,652 109,850
---------------------------------- ----------- ------------
The financial statements of Victoria Oil & Gas Plc,
registered number 5139892, were approved by the Board of Directors
on 23 May 2019.
Roger Kennedy Andrew Diamond
Executive Chairman Finance Director
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share Share ESOP Translation Other Retained
Trust
capital premium reserve reserve reserves earnings Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
------------------------- -------- --------- ------- ----------- -------- --------- --------
For the year ended 31 December 2017
At 31 December 2016 34,251 230,436 (843) (17,685) 66 (151,258) 94,967
Shares issued 228 24,417 - - - - 24,645
Vesting of share options - - - - 228 - 228
Shares granted to ESOP
members - - 2 - - 249 251
Warrants expired - - - - (46) 46 -
Effects of movement in
foreign exchange - - (80) - - - (80)
Cancellation of Share
Capital (33,384) (230,635) 917 - - 263,102 _
Total comprehensive loss
for the year - - - (27) - (10,134) (10,161)
------------------------- -------- --------- ------- ----------- -------- --------- --------
At 31 December 2017 1,095 24,218 (4) (17,712) 248 102,005 109,850
------------------------- -------- --------- ------- ----------- -------- --------- --------
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
------------------------- -------- --------- ------- ----------- -------- --------- --------
Consolidated Cash Flow Statement
For the year ended 31 December 2018
2018 2017
$'000 $'000
--------------------------------------------------------------- -------- --------
Cash flows from operating activities
Loss for the year (8,521) (10,134)
Adjustments for non-cash and other items:
Tax 219 (590)
Share of profit in associate (530) (1,090)
Finance costs 1,966 566
Depreciation and amortisation 5,807 14,751
Other (gains)/losses (821) 1,732
Shares vested by ESOP Trust - 249
Share-based payments 393 199
--------------------------------------------------------------- -------- --------
(1,487) 5,683
Movements in working capital
Decrease/(Increase) in trade and other receivables 4,998 (4,263)
Decrease/(Increase) in inventories 6 (14)
(Decrease)/Increase in trade and other payables and provisions (3,637) 2,278
--------------------------------------------------------------- -------- --------
Net movements in working capital 1,367 (1,999)
Tax paid (119) (258)
Interest paid (1,920) (1,668)
--------------------------------------------------------------- -------- --------
Net cash (used)/generated from operating activities (2,159) 1,758
Cash flows from investing activities
Payments for intangible assets (1,889) (34,710)
Payments for property, plant and equipment (1,467) (5,042)
Proceeds from disposal of property, plant and equipment - 882
Loan repayments received - 94
Dividends received from associate 403 1,047
--------------------------------------------------------------- -------- --------
Net cash used in investing activities (2,960) (37,729)
Cash flows from financing activities
Proceeds from borrowings - 15,153
Repayment of borrowings (2,809) (7,763)
Finance costs paid - (606)
Net cash generated from equity raise - 23,728
--------------------------------------------------------------- -------- --------
Net cash (used)/generated by financing activities (2,809) 30,512
--------------------------------------------------------------- -------- --------
Net decrease in cash and cash equivalents (7,928) (5,459)
--------------------------------------------------------------- -------- --------
Cash and cash equivalents - beginning of year 11,476 16,261
Effects of exchange rate changes on the balance of cash
held in foreign currencies (81) 674
--------------------------------------------------------------- -------- --------
Cash and cash equivalents - end of year 3,467 11,476
--------------------------------------------------------------- -------- --------
Notes
1. Publication of non-statutory accounts
The financial information, for the year ended 31 December 2018,
set out in this preliminary announcement does not constitute
statutory accounts. This information has been extracted from the
Group's 31 December 2018 statutory financial statements upon which
the auditors' opinion is unqualified. 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 2018,
set out in this preliminary 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 will be
published in the Report and Accounts for the year ended 31 December
2018;
-- 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. Annual General Meeting and Report and Accounts
The Annual General Meeting of the Company will be held on 27
June 2019 at Kerman & Co LLP. 200 Strand, London WC2R 1DJ at
3.00p.m. The Annual Report and Accounts and the Notice of a General
Meeting to consider these accounts, together with an explanation of
the resolutions to be proposed at this meeting, will be available
on the Company's website www.victoriaoilandgas.com in due course.
These documents will also be posted to those shareholders that
requested it.
Sam Metcalfe, the Company's Subsurface Manager has reviewed and
approved the technical information contained in this
announcement.
This announcement contains inside information.
For further information, please visit www.victoriaoilandgas.com
or contact:
Victoria Oil & Gas Plc
Ahmet Dik / Kate Baldwin Tel: +44 (0) 20 7921 8820
Strand Hanson Limited (Nominated and Financial Adviser)
Rory Murphy / James Dance / Jack Botros 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 / Hugh Sanderson 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
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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