As the flow of gas builds from its Logbaba field in Cameroon, Victoria Oil & Gas, which has produced zero revenues in the past three years combined, could be generating $55m (£35m) of revenue in 2012-13 alone. Meanwhile, by the end of the year Victoria could begin exploratory drilling of two wells in West Medvezhye in Russia, where it hopes to find the equivalent of over 1bn barrels of oil.
- Production in Cameroon set to soar
- Selling gas at attractive prices
- Substantial gas resources
- Russian interests could transform Victoria
- Cameroon licence could be challenged
- Russian financing required
Victoria became the first onshore gas producer in Cameroon when it started selling gas last December from the Logbaba project to industrial users in Douala, the west African republic's largest city. Output is expected to build to over 1m cubic feet a day from May, rising to 8m cubic feet by the end of the year.
Victoria's bosses expect Logbaba to be generating cash from June. Industrial customers will initially use gas as a substitute for expensive liquid fuels to produce heat. Longer term, Victoria plans to feed its gas to customers' power generators to provide cheaper, more reliable power than Cameroon's grid. It may also become a power generator in its own right.
One great advantage of Logbaba is that some 85 per cent of the industrial market lies within a six-mile radius, which minimises the cost of pipelines. The company expects to complete the pipeline to central Douala by the middle of the year.
Victoria has signed 15 gas-sales agreements and expects to have 20 by the end of the year. These fix the gas price for five years and contract Victoria to be the sole gas provider for a 20-year period. The contracts set the gas price at an attractive $16 per thousand cubic feet. That's high compared with other parts of the world; for example, in the US prices are currently around $2.50 per thousand cubic feet.
| VICTORIA OIL & GAS (VOG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 3.73p | MARKET VALUE: | £96m | |
| TOUCH: | 3.53-3.73p | 12-MONTH HIGH: | 7.75p | LOW: 2.05p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 7 | |
| NET ASSET VALUE: | 4p | NET CASH: | $6.1m | |
| Year to 31 May | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | nil | -42.4 | -11.9 | nil |
| 2010 | nil | -6.1 | -0.6 | nil |
| 2011 | nil | -4.7 | -0.3 | nil |
| 2012* | 1.4 | -7.3 | -0.3 | nil |
| 2013* | 55.6 | 33.6 | 0.8 | nil |
| % change | +3871 | - | - | - |
Normal market size: 67,000 Matched bargain trading Beta: 1.2 *Daniel Stewart estimates £1=$1.594 | ||||
Victoria owns 95 per cent of the Logbaba licence after it served a notice of forfeiture on its former partner, RSM Production, which held 38 per cent but failed to meet its project-funding obligations. There is a risk, albeit small, that RSM will challenge the forfeiture. Cameroon's national oil and gas company, SNH, plans to take a 5 per cent interest in the Logbaba licence and will pay its share of development costs.
If all goes to plan, Logbaba could be producing some 40m cubic feet per day by late 2014, which is around management's estimate of the size of the industrial market in Douala. Logbaba's gas reserves of 212 billion cubic feet are enough for daily production of 30m cubic feet for almost 20 years. On top of that, management has cautiously determined 'prospective resources' of over 1 trillion cubic feet. So much gas far exceeds possible demand from Douala, so turning those resources into money would involve building an electricty grid, over which management has been in discussions with Cameroon's government.
Elsewhere, Victoria owns 100 per cent of an attractive prospect in Siberia, the West Medvezhye gas field, where resources have been independently estimated at 1.4bn barrels of oil equivalent. The regional petroleum authorities have approved the company's exploration programme and Victoria will start drilling two wells by the end of the year. Success on either could transform Victoria's prospects even more than Logbaba. However, the scale of the project will require substantial development costs, so Victoria would look to find a partner.
