Victoria Oil & Gas shares boosted by Logbaba update

Victoria Oil & Gas (LON:VOG) shares were almost 4 per cent higher today following a positive update on the Logbaba project in Cameroon.

This morning the company told investors that it the project remains on schedule for first gas sales by year end, after it completed work on the production facilities at the site.

The production facilities will treat the gas from the wellheads and separate the gas and condensate. 

The company confirmed that pre-commissioning of the production facilities has started and about 80 per cent of all instrumentation loops have been tested. Additionally all power circuits are in place and have been tested. 

It also revealed that the pipeline has now been installed to the first customer hub, which is located on the Magzi industrial estate. 

VOG said that the total length of the pipeline installed and backfilled to and around Magzi is 5 kilometres.

It added that specialist hydraulic and pneumatic testing equipment has been used for pipeline pre-commissioning, which includes stress testing of the entire existing network. 

It is expected that this work will be completed within the next two weeks. After that the pipeline will be purged with gas for several days as part of the network commissioning process ahead of first gas production.

Customer conversion work has commenced on a number of sites on Magzi, said VOG.

The first customers are scheduled to accept gas before the end of December and more customers will come on stream thereafter. 

VOG expects sales to build steadily to around 20 customers by the end of the first year of operations, as the entire 34 kilometre pipeline network is completed.

In a note to clients today Fox-Davies analyst Shahin Amini repeated a ‘buy’ recommendation and a 13p price target.

“We had expected the gas production and first sales to be achieved by the end of this year and we are very encouraged by this operational update,” he said.

“The project is progressing on schedule and it appears that the final stages of pre-commissioning and commissioning can be completed during the next few weeks. 

The analyst added: “The Logbaba revenues will be transformational for Victoria. 

“We believe that the company is significantly undervalued and anticipate that start of gas sales and revenues could trigger a recovery in the share price.”

VOG owns 57 per cent of the Logbaba gas and gas condensate project. 

Management’s internal forecasts estimate the net present value of the proved, probable, possible and prospective resources to be US$1.164 billion, based on a 10 per cent discount rate.

Meanwhile, Logbaba's current proved and probable reserves of 212 billion cubic feet are put at US$406 million net to Victoria and are sufficient to supply average consumption of 30 million cubic feet a day for the next 20 years.

Already it has 11 firm gas sales agreements with local industrial users at $16 per British thermal unit (BTU) and another 10 which are agreed commercially subject only to legal due diligence. 

The demand is there because alternative fuels such as heavy fuel oils, butane and diesel are significantly more expensive.

The company hopes it can develop a track record for reliability that will encourage most of Douala’s potential local and blue-chip industrial users to make the switch.

The installation of high density polyethylene pipe will start before the end of this month, and will progress at a rate of 100 metres a day, though it may be possible to run at double that rate in “certain circumstances”, the company revealed.