Victoria Oil & Gas: Cameroon's emerging integrated utility

Victoria Oil & Gas is an AIM listed E&P with a 60% WI in the Logbaba field, Cameroon and an associated infrastructure network that supplies gas to the local market. The company acquired its interest in the Logbaba field in 2008 and drilled its first appraisal well (La-105) on the block in 2009, the first onshore well since the 1950s. First production commenced in 2012 with the roll-out of a distribution pipeline network in 2013 Victoria Oil & Gas is now transitioning away from a pure-play E&P to an integrated energy supplier in Cameroon. The next stage of the company’s strategy is to grow its gas-to-power business which supplies gas for power generation by industrial customers and also to the gas grid which feeds into regional power plants. The company also has a 100% WI in the West Medvezhye field in Russia with 2C resources of c.14.4mmboe; this asset is non-core and the company continues to seek options around a partial or full exit.

The Logbaba gas field is located in the Douala Basin, in the eastern suburb of Douala, Cameroon’s largest city. Victoria Oil & Gas has a 60% WI with the remaining 40% held by Grynberg Petroleum. Gross 2P reserves are estimated at 210bcf of gas plus 3.4mmbbl of condensates. Seismic data suggests there may be a larger reservoir c.4km north of Logbaba that could provide future upside. Production is currently from two wells La-105 and -106 which were drilled between 2009 and 2010, and is tied back to 40mmcf/d gas processing facilities that include a gas and condensate separator. These facilities are currently c.20% utilised. The gas is supplied through the company’s pipeline network to customers in the nearby Magzi industrial area and condensates are trucked to other parts of the country.

Victoria Oil & Gas operates its utility business in Cameroon through a wholly owned subsidiary, Gaz du Cameroun (“GDC”), which supplies gas and condensates to the local market. GDC commenced construction of a gas pipeline network in 2013 in Douala to enable the supply of gas to the region’s industrial customers. In 2014, GDC extended the pipeline across the Wouri River, opening up a new market; the pipeline network now extends over 25km. Gas is supplied for industrial processes and power generation. Gas for thermal use is sold at $16/mmbtu for the first 5 years of a 20 year supply contract with the price renegotiated at the end of the 5th year. Gas for power generation is sold at c.$12/mmbtu under a 10 year take-or-pay contract. In December 2014, GDC agreed the initial supply of gas to the domestic grid for power generation at $9/mmbtu. The company is currently evaluating the feasibility of supplying compressed natural gas which would allow the sale of gas outside of Douala by road; this could remove the capital requirements of establishing a pipeline distribution network.