CAMEROON: Victoria Oil & Gas Provides Q4 2020 Operational Update

SUMMARY 

·    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 and we can conduct operations and projects pretty much as normal, but a restrictive lockdown persists in the YaNAO region of the FSU where our West Medvezhye asset is located, though we have no near-term operations. 

·    Average daily gross gas sales rate for the quarter of 5.1 MMscf/d (Q3 20: 4.7 MMscf/d) of natural gas plus gross 3,109 bbls (Q3 20: 2,438 bbls) condensate was produced safely and sold to industrial customers. 

·    La-108 Remediation work was completed mid November 2020 and during initial testing the well flowed at the 19 to 20 MMscf/d limit of the surface equipment, with a Flowing Well Head Pressure (FWHP) of 3,580 psig.  The full potential of the well is highly likely to exceed the capacity of the plant, which is 20 MMscf/d. 

·    A settlement was reached with Cameroon Holdings Limited to cease all legal action and cancel the CHL royalty agreement . 

·    Gaz du Cameroun S.A. received, as operator, approval from the Minister of Mines, Industry and Technological Development for the extension of the Matanda Block licence and we have commenced well planning. 

Roy Kelly, CEO of the Company, commented:

“We are very pleased with the resilience our Cameroon business has shown yet again under the challenges and restrictions posed by the pandemic. Looking ahead, we are delighted to have a number of growth opportunities to increase gas sales in Cameroon which remains resource rich but energy poor, especially around Douala, the country’s largest city and the economic engine of the country. 

The flowrate of the La-108 well obtained on short-term test was excellent, but such short-term deliverability is no measure of either long-term deliverability, or the ultimate reserves that may be recovered by the well, as the variations in the performance of the other wells has illustrated. We therefore require a period of sustained production from La-108 to determine how we can best use the well to serve the growing demand in the area. 

Finally, we are also pleased to have received an extension to the Matanda license for which we thank the relevant Government of Cameroon departments and we have started the well planning process for a shallow well to target one of the many Tertiary prospects, most of which are within a few kilometres of existing GDC infrastructure.

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 burned diesel or fuel oil, with liquid fuels. At the time of writing, diesel is currently selling for more than twice the average cost of gas, and the difference in emissions is well documented.  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%)):

Gas Demand 

The increase in gas sales over Q3 is a combination of seasonal swing and a recovery from COVID-19 affected operations.

Post-period: at the time of writing, one of our larger customers is commissioning additional power and thermal equipment which will increase consumption by approximately 0.56 MMscf/d once at full capacity.  Looking further ahead, towards the middle of the year, two other existing customers will be increasing consumption, adding another 0.95 MMscf/d of additional demand.  The beauty of such organic growth is that little or no capital is required to capture it, and the direct operating cost of the Logbaba field is largely fixed so increased sales go straight to the bottom line.

The company is also in discussions with new customers in the Douala area for further thermal and power projects representing significant energy demand requirements.

 

La-108 Remediation

During the period fishing operations commenced on well La-108, the fish was recovered, the well was cleaned out, and six sets of perforations were shot across a total estimated gross pay interval of 86m.  The well was opened up on 11 November 2020 to flare and achieved a flowrate of just under 20 MMscf/d with a FWHP of 3,580 psig on a 32/64″ choke.  Post-period: the well has been tied back to the processing plant and, at the time of writing, final electrical and control work is underway to complete prior to La-108 being put into production (expected in early February). 

MATANDA UPDATE

 Gaz du Cameroun S.A. (GDC) received, as operator, approval from the Minister of Mines, Industry and Technological Development for the extension of the Matanda Block licence.  The exploration phase of the licence has been extended by one year from 17 December 2020. This has been approved by the Minister and a Presidential Decree will follow in accordance with the regulations in due course. 

Work on the Environmental and Social Impact Assessment (ESIA) was finalised during the quarter.  Post-period: the report is being finalised prior to issue to the relevant authorities and well planning has begun.  

Settlement of Cameroon Holdings Limited Litigation

A settlement agreement was entered into with CHL in November 2020 to cease all legal action (the “CHL Litigation”) and cancel the CHL royalty agreement (the “CHL Royalty Agreement”).  The quantum of the legal costs in favour of CHL under the terms of the Settlement Agreement is the subject of ongoing discussions, and such costs are included in the Settlement Amount.  The settlement results in a valuable net revenue increase to GDC on a monthly basis from December 2020. 

RSM Litigation

An ICC Arbitration panel will hear the substantive matters raised by RSM, and GDC’s counterclaims,  some time in the coming months (this was scheduled for end-January but has been postponed). The UNCITRAL arbitration will be heard in London under Cameroon Law and is scheduled for hearing at the end of September 2021. 

Arbitrations under ICC and UNCITRAL rules are confidential processes. The Company is not permitted to provide detailed comments on them, beyond saying that the amounts of claims and counterclaims are material to the Company and that it continues to vigorously defend the claims raised by RSM. Our expectation is that each panel would take several months to deliberate and issue their rulings.