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Victoria Oil & Gas looks to industrial power and non-grid to boost sales


GDC is working with Altaaqa and other equipment suppliers to fast track six generators

gas pipes

Quick facts: Victoria Oil & Gas PLC

Price: 3.195 GBX

Market: AIM
Market Cap: £8.21 m

Victoria Oil & Gas plc (LON:VOG) has started to grow sales again even though supplies to Cameroon power group ENEO have yet to resume.

The contract was suspended last December and executive chairman Kevin Foo said it was a shock when it was not renewed.

WATCH: Victoria Oil & Gas advancing its non-grid solutions as gas sales rise

Victoria seems to have been collateral damage in what is a much larger issue of power supply in Cameroon.

Thermal supply

Through its Gaz Du Cameroun subsidiary, Victoria was producing and supplying almost 15mmscf (million cubic feet) gross per day from the Logbaba field when the ENEO contract was at its height.

Second quarter 2018 sales however totalled 320mmscf (3.3mln per day), compared to 726mln seen in the fourth quarter of 2017.

Third quarter sales rose 11% at 356million cubic metres of gas or an average 3.72mln per day.

In the week to 19 October, however, sales were 4.6mln scf per day and by the end of the financial year are expected to be 5mlnscf daily.

GDC has a 57% stake in the field but even with rising sales financial results will be affected especially fixed costs are high.

Losses in 2017 were US$10.7mln after revenues dropped to US$23.5mln from US$32.8mln but since then production to ENEO has stopped completely.

50Mw contract

Foo hopes production will be approaching previous levels quickly once the ENEO situation is resolved.

The contract was to generate 50Mw of electricity and Foo hopes to be back' firing up 30Mw' when supply resumes with the other 20Mw to follow shortly thereafter.

ENEO had been taking some 53% of the gas from VOG’s Logbaba field and its Gaz Du Cameroun has seen sales more than halve due to the hiatus.

Decentralised power for Africa

Foo says even when supplies resume it will build a non-grid operation to reduce its reliance on large grid customers such as ENEO.

A recent collaboration with Turkey’s NaturelGaz will be used to establish a compressed natural gas operation (CNG) that can supply businesses and customers without the need for an expensive grid connection.

The two companies will set up a joint venture that will distribute CNG and provide power in a decentralised manner throughout Cameroon.

Gensets (generators) at the base at mobile phone towers can be micro grids or energy wells for villages- the ‘Energy Well’.

If that works, it might become a template for utilising stranded gas assets throughout Africa believes Foo.

“This model is going to work in Africa. Grid power is not going to.”

NaturelGaz will build the small compression plants, which can process 1-2mmcf (million cubic feet) per day, with the price of CNG expected to be much lower than diesel that powers generators used widely at present in Cameroon.

Foo said the first CNG plant might be in operation as early as the second quarter of next year.

Industrial Power

To boost gas consumption, Victoria Oil has also agreed on a finance package with local banks to install generators at the sites of industrial customers in return for a ten-year commitment with minimum agreed volumes.

Most of these power customers are already connected to GDC's gas pipeline, so adding a gas fired generator would involve minimal downstream costs.  

GDC is working with Altaaqa and other equipment suppliers to fast track six generators for customers that want to have power online this year.

Victoria believes these will initially consume over 1mmscf/d of gas at a price of $13 per MMBtu.

The target is to have over 18 gas to power customers online by end of 2019, consuming over 4.5mmscf/d of gas with no seasonality, in addition to the thermal demand.

All adds up to 70p says Shore

Shore Capital said the third quarter was a good production performance with sales agreements signed with four new industrial power customers during the quarter.

“VOG has also introduced its new ‘Energy Well’ concept which aims to provide power to people in Cameroon without access to grid power, and which we believe is another excellent initiative from the company.” 

Shore Capital kept with its published Risked NAV estimate of 70p/share, a target that reflects the reserves base and the significant market opportunity in the Douala region in Cameroon, where the company has a dominant market position.

Victoria Oil & Gas is valued at £42mln at 28.05p.


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