Victoria Oil and Gas: Interim Financial Report to 30 November 2011
Victoria Oil & Gas Plc, the AIM quoted oil and gas exploration and production company with assets in Cameroon and the FSU, is pleased to announce its unaudited interim results for the six months ended 30 November 2011.
Highlights for the period ending 30 November 2011:
• Increase in prospective resources by over 300 million barrels of oil equivalent (“boe”) to 1.4 billion boe at West Med
• Increase in the Company’s working interest to 95 per cent. at Logbaba
• Equity placings of £10.1 million
• Macquarie Capital (Europe) Limited appointed as a joint broker to the Company
Highlights post period end:
• VOG becomes the first onshore gas and condensate producer in Cameroon supplying the industrial market in December 2011
• Second phase of pipeline expansion to central Douala under construction, and expected to be completed in early Q2 2012
• Over 1 million standard cubic feet a day (“mmscf/d”) of production anticipated from May 2012, expected to rise to 8 mmscf/d by December 2012 and 40 mmscf/d by late 2014
• Completion of first 34 km of gas distribution network anticipated by Q3 2012
• Positive cashflow from operations expected by June 2012
• Tender process for drilling design contracts underway at West Med
• US$8 million debt facility in place
West Medvezhye, Russia
Our 100 per cent. owned West Medvezhye (“West Med”) block is located near the Yamal Peninsula, north west Siberia, in one of the most prolific oil and gas producing areas in the world, adjacent to the giant Medvezhye and Urengoy fields. We hold a 20-year exploitation licence for West Medvezhye covering 1,224 km2, and a discovery well, Well 103, has “C1 plus C2” reserves of 14.4 million boe under the Russian resource classification system.
In September 2011, following a seismic reprocessing and geological modelling study, the Company reported that independent reserve auditors, Mineral LLC, (“Mineral”) had confirmed a 300 million boe increase in gross prospective resources to 1.4 billion boe, comprising 670 million barrels of oil and 730 million boe of gas & condensate.
We are pursuing an integrated exploration and appraisal work programme incorporating drilling, seismic, and advanced direct hydrocarbon technologies. This programme was presented to the Yamal District regional petroleum authorities in Salekhard on the 15 February 2012. The programme was approved by the authorities and a two well drilling campaign is provisionally planned to start by the end of 2012. These wells will target the Jurassic discovery horizons successfully encountered by Well 103 and also new hydrocarbon potential horizons in the Achimov layers identified as part of the study carried out by Mineral.
Our Nadym-based team is currently tendering the drilling design contracts for the planned wells. Three companies with a successful track record of working in the region have been shortlisted. Our technical team are in advanced discussions with these companies to determine the scope of work to include detailed well design as well as studies of the terrain, soil mechanics, access and ecological issues.
Conceptual screening and development studies are in progress to monetise West Med’s large prospective resources and to exploit the Well 103 discovery to generate cash flow. In February 2012, VOG contracted an experienced local company, LLC Nefteproject, based in Tyumen, to develop a project plan for an early production scheme for the West Med discovery area. Preliminary work on the Well 103 discovery indicates first oil sales could occur in 2015.
The Company is planning to farm-out a portion of its interest in West Medvezhye to help fund the development and drilling programmes.
The Company has invested approximately US$85 million of shareholders funds in the Logbaba project and it has secured this funding in very challenging capital markets. During the financial period, the Company raised £10.1m via equity placings. The Board and I are very conscious that the share issues, which have been essential to the progression of our projects, have also been dilutive.
The Directors believe that the Logbaba project has now been substantially de-risked. Consequently, routes to alternative sources of capital, other than conventional equity, have opened up for the Company.
The Company recently concluded a 12 month Loan Note facility for US$8 million for its capital programme at Logbaba. An initial tranche of US$4 million has been drawn and the remaining US$4 million may be drawn subject to mutual consent. The Loan Note bears a 9 per cent. coupon and is expected to be repaid by cash flow from operations at Logbaba. We are also currently in discussions with several parties in relation to a larger debt facility and reserve based lending facility, both with attractive terms. The appointment of Macquarie Capital (Europe) Limited as a joint broker with Fox Davies Capital has also strengthened the Company’s advisory team.
I believe that 2012 will be a year of major developments for the Company as we make the transition from explorer to producer and generate positive cash flows. To equip us for the future, we are strengthening our management with experienced oil and gas professionals and senior executives.