Q3 2015 Operations Update
Victoria Oil & Gas Plc provides an update on the Company’s operations for the quarter ended 30 September 2015 (“the quarter” or “Q3”).
The third quarter was the first full period specifically covering the wet season in Cameroon since VOG’s operating subsidiary Gaz du Cameroun S.A. (“GDC”) started supplying gas to ENEO, the key power provider to the Douala grid. Across all of the GDC gas supply markets Q3 is the lowest demand period primarily due to the seasonal increase in power output from Cameroon’s hydroelectric dams. GDC’s existing take-or-pay terms in place with ENEO, split minimum payment levels between distinct six month demand periods covering higher dry (January-June) and lower wet (July–December) seasons.
- 8.2mmscf/d Q3 average gas production (Q2: 12.6mmscf/d)
- 105% increase in production compared to Q3 2014 (4.0mmscf/d)
- $8.1m cash received from gas and condensate sales during Q3 (Q2: $9.8m)
- 2,242mmscf of gas sold in nine months to 30 September 2015 (893mmscf for the nine months to 30 September 2014)
- ENEO consumption 32% above minimum take-or-pay wet seasons levels
- Well engineering underway for two wells scheduled for H2 2016
- New seismic programme underway initially focused on acquisition and reprocessing of historic data points
- $12.8m Group cash balance Q3 (Q2: $14.2m)
- $2.4m reduction of debt during the quarter
|Q3 2015||Q2 2015**||Q1 2015||Q4 2014||Q3 2014|
|Average daily gas production(mmscf/d)*||8.2||12.6||4.5||4.1||4.0|
|Total gas sold (mmscf)||718||1,120||405||374||368|
|Condensate sold (bbls)||10, 878||13,445||6,345||2,265||5,667|
* Average production numbers are based on a 7-day week
** ENEO gas supply to Bassa and Logbaba power stations on line during Q2 2015
Average daily gas production reduced by 35% for the period compared to Q2, with an average of 8.2mmscf/d. Gas production increased by 105% compared to Q3 2014. Production reached a peak of 15.2mmscf/d during the quarter, with an average 5-day working week output of 8.72mmscf/d. As anticipated, the quarterly differential is primarily due to the seasonal effects of increased hydroelectric power being made available via the grid; reduced demand from ENEO and other seasonal factors from some thermal and dedicated power customers. Despite the seasonal impact, the 8.2mmscf/d average production for Q3 is higher than expected because ENEO exceeded its take-or-pay minimum quota for the period by 32%.
Gas sold in nine months to 30 September 2015 of 2,242mmscf exceeds the 2014 full year gas sales of 1,273mmscf and the sales for the nine months to 30 September 2014 of 893mmscf. The increase was largely due to ENEO coming on line during 2015.
Group cash was $12.8m at quarter end, compared to $14.2m at the end of the second quarter. The reduction in cash was largely due to $2.4m of debt repayments made during the quarter.
In GDC, cash received from gas and condensate sales in Q3 was $8.1m compared to cash received in Q2 of $9.8m, representing a 17% reduction.
Having purchased the Logbaba gas production plant in the previous quarter from Expro, GDC has agreed terms for the operation and maintenance of the plant with Expro. GDC has also commissioned a design study with Expro for the expansion of the gas production plant from its existing 20mmscf/d level to up to 40mmscf/d.
During the quarter GDC continued to assess the investment case for potential pipeline expansion into the Bonaberi area and customer connections.
GDC has appointed SPD Ltd (“SPD”), a subsidiary of the Petrofac Group, to undertake well planning and project management of the upcoming Logbaba drilling campaign planned for 2016, which will target two new wells. SPD is an independent well engineering company with a wide range of experience in planning and managing well operations worldwide.
The GDC and SPD project team is in place and the planning, design, and procurement of services and materials for the next two Logbaba wells, La-107 and La-108, is progressing on schedule. La-107 is to be a twin of the La-104 well drilled in 1957. This well’s objectives include the development of the Upper Logbaba reserves identified in La-104, and to prove the Lower Logbaba resources that were found in La-104. The La-107 well design also encompasses an option to drill an ‘exploration tail’ below the base of the Logbaba Formation at about 3200m.
The second well being planned, La-108, is a step-out well into the 2P (Proven plus Possible Reserves) area of the Logbaba Field. The bottom hole location of La-108 will be about 1,100m to the South East of the drilling pad surface location and is intended to prove up our 2P Reserves in the vicinity of the well and to move those 2P Reserves into the 1PD, Proven Developed category.
We intend to fund the wells from internal cash flow, bank finance and partner contributions and at this stage do not expect the need to seek shareholder funding.
Compressed Natural Gas (“CNG”) update
VOG continues to look for opportunities to expand its hydrocarbon sales, in and around Douala, and further afield. CNG presents GDC with the opportunity to distribute gas from the Logbaba gas production plant to a wider network than the gas pipeline network currently offers. GDC is in discussions with a preferred partner who will fulfil all of the capital and operational requirements for the gas compression and distribution of CNG. This model will suit GDC’s strategy of concentrating on gas sales rather than downstream development.
The potential benefits of CNG are:
- Minimal GDC capital requirement;
- Enables customers up to 250km from Douala to be provided with GDC gas;
- High margin business for ‘gas only’ supply model allows focus on core competency;
- No additional capacity pressure on pipeline network; and
- CNG production can occur during off-peak periods to help maintain balanced gas production.
VOG Chairman Kevin Foo said: “The results from Q3 are notable as the period typically represents our lowest production period during the calendar year. Despite this we have still delivered an average of 8.2mmscf/d, a 105% increase in production for the same wet season period last year. If we look at the Q2 2015 average production rates of 12.5mmscf/d with ENEO only being commissioned part way through the period GDC is clearly delivering significant production growth. The next quarter will see the tailing off of the wet season in terms of production and expected increased production.”
GDC Chief Executive Officer and VOG Director Ahmet Dik said: “The next phase of GDC’s expansion involves us being able to supply significantly more gas to major customers. In order to facilitate this major production expansion strategy, 2016 will see us laying new pipelines to large customers, drilling two wells, increasing plant capacity and carefully selecting the best long term markets for us to sell our gas into. This is a hugely exciting time for GDC as we consolidate our first mover advantage and utilise our existing infrastructure to rapidly deliver gas to an energy hungry Cameroon market place.”