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Victoria Oil & Gas announces gas market study on Logbaba gas field endorses business strategy

Thursday, Nov 15, 2012

Victoria Oil & Gas Plc (AIM: VOG), the oil and gas exploration and production company with assets in Cameroon and the FSU, is pleased to announce publication of a Gas Market Study (“GMS”) compiled by a leading petroleum advisory and consultancy group, Challenge Energy Limited (“Challenge”) on the existing and potential market for natural gas relating to the Logbaba gas field in Cameroon, together with an update on customers.

Overview

The GMS was commissioned by VOG to assess the existing and potential market for natural gas in the industrial city of Douala in Cameroon with a principal emphasis on the market for thermal and power generation from the perspective of supply and demand variables. The GMS was also commissioned in connection with a senior secured credit facility that VOG is currently negotiating with a top tier financial institution.

The GMS concludes that VOG is well positioned to benefit from increasing demand for pipeline gas in preference to alternative energy sources, with limited future potential competing supply and no alternative gas supply currently existing in Douala. Challenge has forecast annual projected sales growing on a CAGR of over 100% over the period 2012 to 2017.

Sales of gas are anticipated to increase rapidly as the continuing connection of new thermal customers to the pipeline network is combined with first supply to the on-site industrial power generation sector. The GMS suggests that matters of logistics and interactions with stakeholders are consistent with a nascent industry but successful implementation stories in analogous sub-Saharan African countries strongly endorse the business strategy. Challenge believes that VOG’s strategy of displacing refined products consumed by industrial customers for thermal heat generation and substituting unreliable grid power in the major industrial centre of Douala is both robust and reasonable with few material risks.

Supply

With regard to supply, Challenge is of the view that VOG has the distinct advantage that it controls all aspects of the natural gas delivery chain, from well head to customer meter. The GMS also endorsed the fact that there is ample capacity in the gas supply chain for customer requirements in the short/medium term. Furthermore, Challenge believes that the existing capacity of the gas processing and downstream distribution networks could both be expanded within six to twelve months.

A review of potential competing supply was also undertaken by Challenge. They concluded that natural gas activity in Cameroon is either at an early exploration stage or more advanced projects outside of Douala have committed gas reserves to particular downstream projects and as such there is no existing and limited potential for future competing supply in VOG’s target market.

Demand

The GMS provides confirmation of clear economic drivers and a robust market which support VOG’s business strategy and provides a base case with projected annual sales indicating a CAGR of over 100% over the period 2012 to 2017.

In respect of the thermal market, the Company enters into 20 year Gas Sales Agreements (“GSAs”) for the supply of natural gas to a customer’s premises at a fixed price of US$16 per million British thermal units for the first five years, which represents a substantial saving for industrial customers when compared to existing heavy fuel oil pricing. The GMS estimates that industrial customers are economically incentivised to take gas over competing liquid fuels when the Brent crude oil price is greater than or equal to US$63 per barrel.

Source: Victoria Oil & Gas Plc

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