Victoria Oil & Gas outlines next steps in developing Logbaba gas project

Victoria Oil & Gas PLC (LON:VOG) told investors that it anticipates no further delays in executing the Logobaba gas and gas condensate project in Douala, Cameroon, to cost, quality and schedule targets.

Earlier this month, the group received the news it had been waiting for: The government, by presidential decree, granted a 25 year exploitation licence with an option to extend for an additional 10 years.  It now intends to deliver first gas to industrial customers in the city of Douala in the fourth quarter 2011 and to build on its customer base.

The decree appointed wholly-owned subsidiary Rodeo Development Ltd (RDL) as oparator of the Logbaba field.

Under the terms of the Logbaba concession agreement signed in 2001, SNH (the state oil and gas company, Societe National des Hydrocarbures) has exercised its right to participate in the concession and will contribute its share of development costs.

Victoria's revised ownership of 57 percent remains the significant controlling stake, the group said.  It is also fully funded through to first gas from Logbaba.

There remain four key tasks to the execution of the Logbaba gas field development: re-opening wells La-105 and La-106; installation and commissioning of the leased process plant; trenching, jointing, installation and commissioning of the gas pipeline network; and arrangements on customer sites for installation of pressure reduction and metering stations and boiler conversions.

All of the equipment required to re-open the wells, and commission and install the process plant and pipeline is now located on-site in Douala. 

The civil engineering contracts for construction of the process plant plinths, bunding and installation of the gas pipeline network have been tendered and are ready for award to Cameroon civils contractors.

Mobilisation of these contractors will be completed by the end of May and construction work will begin immediately using double shifts working seven days per week. In addition, three construction teams will be utilised on the pipeline for trenching, jointing and installation.

Victoria currently has 11 gas sales agreements (GSAs) signed and executed together with a further 10 GSAs which have been contractually agreed subject to legal due diligence and signature approval.

All contracts will be signed at a price of US$16 per thousand cubic feet of gas, (US$96 per barrel of oil equivalent,) fixed for five years from the date of first gas delivery. Logbaba has proven and probable reserves of 212 billion cubic feet of gas (35.3 million barrels of oil equivalent).

The company is currently focused on gas sales to end users to replace alternative liquid fuels for industrial heat requirements.  However, the near term strategy is to serve three markets with the sale of natural gas, namely: the substitution of  heavy fuel oil (HFO), liquid petroleum gas (LPG)  and waste oil used by industrial customers; gas sales to industrial customers to supply their own gas fired generators; and on-site power generation to a group of customers to limit reliance on the grid.

The present market for substitution of existing customers' liquid fuels, is approximately 8 million cubic feet of gas per day (mmscf/d). This market has the capacity to treble over three years as RDL proves itself a reliable energy supplier and existing industrial customers are sufficiently confident to invest in new production lines and expand output, whilst attracting new customers.

The market for gas fired power generation on customer sites is estimated at 35 mmscf/d. This is more than the expected market for the substitution of liquid fuels. Given the higher capital requirement on the part of the customer to invest in gas fired generation and equipment lead times, the company expects this market to develop over the next couple of years.

In the longer term, as further reserves are proven, gas may be supplied to large gas fired power stations connected to the grid, with either RDL investing in an independent power producer joint venture or selling the gas to third parties.

Meanwhile, Victoria's activities on its West Medvezhye licence block in Siberia, Russia, have progressed on target and within budget.

Under the 2011 work programme, it is assessing alternative plans for the commercialisation of the large prospective resources and exploiting the well 103 discovery. To achieve this objective, integrated appraisal and development studies are being coordinated by Blackwatch Petroleum Services Ltd, which acts as consultants to the company.

Preliminary development assessment work on the well 103 discovery indicates that it is conceivable to plan for first oil sales in 2015 subject to further refinement and screening.

Chairman Kevin Foo said: “With the award of the Logbaba exploitation decree, the transformation of our company begins. We shall not stop there. I am very positive about future opportunities and look forward to providing regular updates.

“I should like to thank shareholders for their patience over the last months and assure them that the future looks bright.”