CAMEROON: Victoria Oil & Gas Provides Q2 2020 Operational Update

 ·    The Company remains vigilant in relation to the Covid-19 pandemic and adherent to the authorities’ guidelines in the jurisdictions in which it works: the lockdown in Cameroon was eased in May 2020, but a restrictive lockdown persists in the YaNAO region of the FSU where our West Medvezhye asset is located. 

·    Daily average gross gas sales rate for the quarter of 4.6 mmscf/d (Q1 20: 5.1 mmscf/d) of natural gas plus gross 3,548 bbls (Q1 20: 1,343 bbls) condensate was produced safely and sold to industrial customers, resulting in net revenues of US$6.8 million (unaudited) (Q1 20:  US$5.3 million). 

·    The grid power customer ENEO Cameroon S.A. (“ENEO”) was served notice of termination, having been given further opportunities to clear its debts. 

·    In the short-term, we have lined up sales to replace over 30% of the grid power customer’s Take-or-Pay volumes at a higher price margin via increased demand from existing customers, and at least 2 new customers expected to be tied in within the next 3 months. These increased sales already represent replacement of over 50% of the revenue lost through the termination of the ENEO contract. 

·    Following an analysis of the current well stock, and recognizing there are no short-term plans for further drilling at this time, management has reduced its estimated Proved Reserves (“1P”) for the Logbaba Field. 

·    The large, in-place resource estimate remains unchanged, and the revised 1P Reserves, without additional drilling, still provide for several years of supply with or without the grid power demand. 

·    Following an extensive prospect evaluation and derisking of the Matanda Licence, management has materially increased its estimate of Prospective Resources for the Onshore part of the Licence, which is contiguous with Logbaba.         

·    The Matanda partners, GDC and Afex Global Ltd, continue discussions with the Government in Cameroon and remain optimistic of obtaining an extension as previously guided.

 Roy Kelly, Chief Executive of the Company, commented:

“We are pleased with the resilience the Cameroon business has shown through recent times and the early strides made to replace the gas sales volumes previously allotted to ENEO. The Logbaba reserves reduction reflects adjustments based on the current well stock but leaves the Company with years of supply with or without the grid power demand even without further development drilling.  The work programme on Matanda has yielded encouraging and significant prospectivity on the licence, in what is a rich hydrocarbon province. We are also encouraged by the unsolicited interest in the SGI asset.” 

LOGBABA UPDATE 

Quarterly Production 

GDC continues to safely produce and sell natural gas to a variety of customers in the Douala area, most of whom would have previously burnt diesel or fuel oil, with liquid fuels currently selling at twice the price of our gas.  Quarterly gross and net gas and condensate sales at Logbaba are as follows (amounts in bold are net gas and condensate sales attributable to GDC (57%)):

 

	Q2 2020		Q1 2020
Gas sales (mmscf)
Thermal	224	394	250	438
Industrial power	13	22	15	26
Grid power	0	0	0	0
Total (mmscf)	237	416	265	464
Daily average gross gas sales rate (mmscf/d)	4.6		5.1
Condensate sold (bbls)	2,022	3,548	766	1,343

 

Customer Base

 

Absent ENEO, we continue to supply gas continuously to 30 or more customers.  In addition, now that we do not have to reserve gas for ENEO, we are able to grow demand in a step-wise fashion: 

·    Stage I: increase supply to those existing customers who have requested more gas; Company is currently in receipt of several such requests;

·    Stage II: tie-in new customers near our infrastructure. We expect to tie in 2 new customers between now & September; and

·    Stage III: look to tie in customers some distance from our infrastructure in clusters to justify the expenditure. 

GDC has some 10 km of pipeline in stock, along with the necessary valves & fittings, plus the operational skills to carry out much of this work itself. 

This short-term increase in supply should amount to an incremental 1.5 mmscf/d or so, or 31% of the ENEO Take-or-Pay levels, notwithstanding any natural swings in demand.  This increase represents over 50% of the revenue lost through the termination of the ENEO contract.

 Beyond this, we continue to pursue the “low hanging fruit” type opportunities of high value, tie-back opportunities to satisfy a growing energy demand for natural gas, which remains both cleaner and cheaper than liquid fuel options such as imported, carbon-emitting heavy fuel oil or diesel 

Capital Projects 

La-108 Remediation: We await the return of the workover crew, noting that some scheduled flights to Cameroon have just recommenced. 

Facilities Enhancement Project: Design of the project continues, and lower pressure tests of the plant have been successful in terms of maintaining the sales gas specification at lower process operating pressures. 

Reserves 

The Company has carried out a review of the 1P reserves on the Logbaba Field and given the analysis of the well stock and recognising that there are no plans to drill further wells at present, the Company has reduced estimates of its 1P Reserves per the table below. The overall Resource estimates remain unchanged as the Company has not amended the volumetrics from the previous third party report.

 

	Bcf, 100% Basis
As At 1/12019	68
2019 Production	-3
Adjustment	-46
As At 1/1/2020	19

 

All nine penetrations of the primary reservoir in the Logbaba field have encountered mobile gas in reservoir quality sands in what is undoubtedly a significant in-place resource.  Our reduction in Proved reserves at this time reflects our finite well stock, an assessment of the La-107 performance which did not meet our pre-drill expectations, and recognition that the project was designed to be a staged development involving more wells drilled through time in line with improved understanding of the reservoir and growth in demand.  The Proved reserves level would support sustained production at current demand levels (which excludes grid power).  Additional wells in previously undrilled areas of the field would immediately add to the Proved Reserves. 

MATANDA UPDATE 

We are pleased to report a material increase of management’s estimate of Prospective Resources onshore Matanda, with gross unrisked, mean Prospective Resources increased to 1,196 Bcf in the Matanda Licence (onshore) from the previously reported 903 Bcf (ERCL Consultants Evaluation: ‘Prospectivity and Volumetrics Report, Matanda Block, Cameroon’, 2017).  This increase is the result of a detailed internal prospect evaluation which has identified 19 gas prospects in shallower Tertiary-aged reservoirs, plus 7 prospects in deeper, Cretaceous-aged prospects.  The Company believes the larger of these prospects has mean unrisked, Prospective Resources of over 65 Bcf, with geological Chance of Success estimated at better than 40%.  This acreage is contiguous with the greater Logbaba license, offering an easy monetisation route for gas discoveries. 

GSAs with Aksa Enerji Uretim A.S. and New Age (African Global Energy) Ltd. 

Aksa is progressing its in-country applications and agreements for the power plant to be located at Bekoko, a brownfield site which is already equipped with a high voltage substation on the outskirts of Doula.  

New Age and the other Etinde licence owners continue to progress their development towards Final Investment Decision and have stated publicly that they are targeting FID in the next 9 months