Victoria Oil & Gas hits “watershed” 50MW target

After a number of slow years as it battled the realities of building a gas-based infrastructure from scratch in Cameroon, momentum is really building at Victoria Oil & Gas, with the shares having surged more than 100 per cent since early December.

The AIM-quoted company has been steadily building supplies from its Logbaba gas-condensate field to the industrial port city of Douala. Industrial customers are supplied with gas via a 31.3 km pipeline network built by VOG’s 100 per cent owned subsidiary Gaz du Cameroun (GDC), offering heavy end-users a more reliable, cheaper and cleaner source of energy than the alternatives, such as expensive heavy fuel oil or seasonal hydroelectricity.

The last four months, however, have seen an acceleration in the roll-out of VOG’s strategy as it worked to meet the terms of a new 50 MW gas-to-power deal with local partners, an agreement that executive chairman Kevin Foo rightly called “game-changing”. Last week, the London company hit this target when it began supplying the 30 MW Logbaba power station under the contract with ENEO Cameroun.

This, plus the recently announced 20 MW to Bassa power station, meets the 50 MW target of VOG’s deal with ENEO, triggering take-or-pay conditions in the contract. That deal, signed at the end of 2014, saw VOG commit to supply gas to generate 50 MW, which draws on 10.1 million cf/d of gas, of which the minimum take or pay component is 90 per cent in the dry season and 30 per cent in the wet season.

Since the 50 MW came online, production from the field has averaged 14.5 million cf/d, with a daily peak of 15.3 million cf/d. Under the terms of the contract, the gas sells at a fixed price of US$9/mmbtu.

Foo pointed out it had taken less than four months to get from contract signing to delivery of 50MW to the grid. “Average production levels have risen to 14.5 million cf/d, three times higher than levels at the end of 2014, which underlines this transformational agreement for VOG and give us confidence GDC can meet its average production target of 10.4 million cf/d for calendar year 2015,” he said.

This is important – in the past VOG serially missed its production targets – and not just for the turned-around AIM company; it is also a significant milestone for Cameroon’s economic development, which has been hamstrung by a significant power deficit.

Analysts at SP Angel Corporate Finance said last week’s 50 MW goal marked a “significant watershed” for the company, which now looks to be cash flow positive.

“This is not to be sniffed at, as it means that the Company is now in charge of its own future,” said the analysts, noting that after a period of consolidation and cash-build it may be time to look at ways to unlock the value in the midstream business by splitting the upstream and downstream businesses.