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Victoria Oil & Gas (VOG)

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Friday 28 September, 2018

Victoria Oil & Gas

Half-year Report

RNS Number : 3410C
Victoria Oil & Gas PLC
28 September 2018
 

 

 

 

 

 

 

28 September 2018

 

Victoria Oil & Gas Plc

("VOG", "Group" or the "Company")

 

INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

Victoria Oil & Gas Plc, the integrated natural gas producing utility, today announces its unaudited interim results for the six months ended 30 June 2018.

 

 

Operational Highlights

·          Average daily Logbaba field gross production rate fell to 3.40mmscf/d (six months to 30 June 2017: 14.6mmscf/d). 650mmscf of gross gas sold from Logbaba (six months to 30 June 2017: 2,345mmscf), reflecting the non-renewal of the grid power gas sales agreement

·          Gaz du Cameroun S.A. ("GDC") added three new thermal and industrial power generation customers to the pipeline network in the six months to 30 June 2018

·          CNG agreement to partner with Naturelgaz Sanayi ve Ticaret A.S. announced on 26 June 2018 provides GDC with opportunities to reach customers beyond the current pipeline infrastructure

·          GDC remains confident that a resolution with ENEO Cameroon SA ("ENEO") with regards to the grid power supply issue will be agreed in the near term

 

Logbaba Subsurface Highlights

·          Subsurface reinterpretation complete and new subsurface model developed integrating re-processed seismic and new well data with historic field mapping

·          Proved reserves (1P) defined by connected volumes to all the wells drilled into Logbaba increased 73% to 69bcf (internal estimates)

·          Field remaining 2P reserves revised to 309bcf, an increase of 106bcf (52%) (internal estimates)

·          Reserves / production ratio (2P) increased to 10yrs at 90mmscfd which supports growth in the Douala market and is expected to underpin new long-term gas contracts

 

Financial Highlights

·          $5.0 million Revenue (six months to 30 June 2017: $15.4 million)

·          $0.03 million EBITDA (six months to 30 June 2017: $4.4 million)

·          $18.6 million Net Debt position (at 31 December 2017: $13.1 million)

·          BGFI Bank debt successfully restructured with 12 months interest only payments

 

 

 

Sam Metcalfe, the Company's Subsurface Manager has reviewed and approved the technical information contained in this announcement, in his capacity as a qualified person under the AIM Rules. Mr. Metcalfe is a graduate in BA Geology, BSc Civil Engineering, and MSc Petroleum Engineering.

 

This announcement contains inside information.


 

For further information, please visit www.victoriaoilandgas.com or contact: 

 

Victoria Oil & Gas Plc

Kevin Foo / Ahmet Dik                                                                                      Tel: +44 (0) 20 7921 8820

 

Strand Hanson Limited (Nominated and Financial Adviser)

Rory Murphy / Stuart Faulkner / Ritchie Balmer                                        Tel: +44 (0) 20 7409 3494

 

Shore Capital Stockbrokers Limited (Joint Broker)

Mark Percy / Toby Gibbs (corporate finance)                                             Tel: +44 (0) 207 408 4090

Jerry Keen (corporate broking)

 

FirstEnergy Capital LLP (Joint Broker)

Jonathan Wright/David van Erp                                                                     Tel: +44 (0) 207 448 0200

 

Camarco (Financial PR)

Billy Clegg                                                                                                           Tel: +44 (0) 203 757 4983

Nick Hennis                                                                                                        Tel: +44 (0) 203 781 8330

 


 

 

 

 

 

 

 

 

 

Victoria Oil & Gas Plc

 

Unaudited Interim Condensed Consolidated Financial Statements

For the six months to 30 June 2018

 

 


CHAIRMAN'S LETTER

 

Dear Shareholder,

 

On behalf of the Board, I set out below our unaudited interim results for the six months to 30 June 2018 ("H1 18", "reporting period") and update you on the Company's progress. 

 

Victoria Oil & Gas Plc ("VOG", the "Company" or the "Group") currently generates revenue through its 57% participating interest in the Logbaba Project in Douala, Cameroon, which is held by its 100% owned subsidiary Gaz du Cameroun S.A. ("GDC").

 

Overview

Having completed close to three years of continuous gas supply to the two ENEO Cameroon S.A ("ENEO") owned power stations, Logbaba and Bassa, it was a setback when ENEO elected not to renew the gas sales agreement at the start of the year when the agreement extension expired on 31 December 2017. The Government of Cameroon, ENEO, Altaaqa Global ("Altaaqa"), the gas genset providers, and GDC continue to seek a resolution.

 

The non-renewal of the ENEO gas sales agreement, especially during the peak dry season has had a significant impact on the revenues and results of the Company during the reporting period. The shortfalls in power supply in Cameroon continue, with hydroelectric schemes not meeting the current demand. I believe the current difficulties are a temporary headache and anticipate returning to a more structured and investor-friendly development landscape in the near term.

 

Due to the current power shortages in Douala, several existing and new customers have expressed interest in the industrial power generation solutions which GDC is offering. We currently have three industrial power generating customers and expect to have several more signed up by year end ready for consumption of gas for power generation. GDC is expediting its support to manufacturers and producers in Douala by providing bespoke gas fired power generation for individual customers or groups of customers. As most of these proposed power customers are already connected to the gas pipeline network, adding a gas to power generation solution would increase gas consumption with minimal capital costs for GDC.

 

The power shortages in Douala highlight the long-term need and viability of grid power systems in Cameroon, and Africa in general. This is a fundamental issue that requires a sustainable solution. My own view is that grid power in Africa has a place but is not the ultimate answer. I believe that alternative local solutions are key to solving this problem and the use of Compressed Natural Gas ("CNG") as a virtual pipeline to local renewable power schemes, be they solar, wind or mini-hydro, supported by modern battery technology, deserves serious attention. We shall inform shareholders of developments in this area when appropriate.

 

The Company is actively developing "non-grid" energy solutions and on 26 June 2018 the Company announced an agreement to partner with Naturelgaz Sanayi ve Ticaret A.S. ("Naturelgaz") on CNG projects. Naturelgaz is Europe's largest CNG supplier and distributor and brings valuable expertise within this field to support GDC. The project will afford GDC the opportunity to reach larger customers beyond the pipeline infrastructure and aims to replace relatively expensive diesel and heavy fuel oils in a variety of applications. As part of a customer diversification strategy, active discussions are underway with several such potential customers. GDC and Naturelgaz have completed a feasibility study and a third party has completed a market review in Cameroon with pleasing results.

 

 



 

Logbaba Operations Update

The sales figures from the Logbaba Project in Cameroon are as follows:

 


6 months ended

6 months ended


30 June 2018

30 June 2017


(mmscf)

(mmscf)

Gas sales - Thermal Power

619

662

Gas sales - Industrial Power

31

27

Gas sales - Grid Power

0

1,656

Gas sales - Total

650

2,345

Attributable gas sales - Total

372

1,400

Average daily gas production (mmscf/d)

3.4

14.6




Condensate sold (bbls)

5,807

17,963

Attributable condensate sold (bbls)

3,311

10,727

 

The table refers to gross Logbaba Project sales, unless specified as attributable to VOG representing its 57% interest in the project.

 

Gas was produced and delivered to our customers in Douala on an uninterrupted basis during the reporting period without any significant safety incidents, underlining our commitment to operate in a safe and environmentally friendly manner.

 

 

Reserves Update

A material development for this reporting period was the Logbaba Field Reserves Update, based on internal estimates, reporting a 73% increase in the Proved Reserves (1P) to 69bcf and 52% increase in the Field remaining 2P reserves to 309bcf, which was announced on 4 June 2018. This evaluation was based on the completion of a new full field subsurface model incorporating interpretations from reprocessed seismic data together with the well data from La-107 and La-108 following the completion of the drilling campaign, which led to a material upgrade in the reserves of the Logbaba Field as follows:

 

Basis

Field Position at 1/1/17

Field Position at 1/1/18


Initial Reserves

Cum Prod'n

Remaining reserves

Initial Reserves

Cum Prod'n

Remaining Reserves

VOG Net Reserves

Proved (1P)

49

9

40

82

13

69

40

Proved+ Probable (2P)

212

9

203

322

13

309

176

Proved+ Probable+ Possible (3P)

350

9

341

548

13

535

305









All volumes are bcf and do not include condensate volumes

Position at 1/1/17 based on Blackwatch report from August 2016

Position at 1/1/18 based on integrated reservoir study post La-107 and La-108 development drilling

 

The new proven + probable (2P) reserves will support a production rate of 90mmscf/d for 10 years therefore supporting the business as it looks to increase the gas market in Cameroon by providing the reassurances required by potential large gas-off-takers.

 

This evaluation supersedes the Blackwatch Report of August 2016 and is based on a new full field subsurface model incorporating interpretations from the reprocessed seismic together with the well data from La-107 and La-108. The work has been managed by VOG supported by independent external consultants who have provided subsurface expertise and modelling capability to produce the updated development plan for the field. This work will now enable selection of locations for future development wells, commencing with La-109, to continue development of the Logbaba Field in line with demand growth in Douala, Cameroon.



 

Financial Results

The impact of the non-renewal of the grid power gas sales agreement has resulted in revenue for the reporting period declining from $15.4 million in the six-month period ended 30 June 2017 to $5.0 million. Despite efforts to reduce costs in all areas, and restricting capital expenditure to only those required to maintain existing operations or connect new customers, the results and cash flows from operations have deteriorated.

 

Cash levels are being closely monitored. In addition to negative operating cashflows, the repayment of drilling contractors and debt has consumed cash during the reporting period. Whilst borrowings reduced to $21.8 million (31 December 2017: $24.5 million), net debt increased to $18.6 million (31 December 2017: $13.1 million).

 

As announced on 14 June 2018, the BGFI Bank debt facility was restructured during the period to extend the repayment term and to provide a short-term principal repayment holiday to allow GDC to connect new customers and increase its revenue. The Group does not have any further credit facilities available at 30 June 2018.

 

The Company is pursuing a $24.5 million gross insurance claim in relation to a well control incident which occurred during the drilling programme on La-108. During the reporting period the Company has completed several technical reviews to support the technical merits of this claim. As is common in these situations, the outcome and timing of the claim is not certain.

 

The Directors have given careful consideration to the appropriateness of the going concern basis in the preparation of the unaudited interim condensed consolidated financial statements. Further details of our current financial position and uncertainties which may affect the Company's ability to continue operating as a going concern are to be found in the Financial Review and in Note 3 of the unaudited interim condensed consolidated financial statements set out below.

 

Corporate

At the Board level, after two and a half years of service to the Company, Iain Patrick resigned as an independent Non-Executive Director on 23 April 2018. I would like to thank Iain for his sound contribution to the Board. At that time, we reviewed our Board Committee appointments and as a result I stood down from the Remuneration Committee and Roger Kennedy was appointed as our Senior Independent Non-Executive Director and Chair of the Audit Committee. We will endeavour to appoint a suitable third Non-Executive Director in due course.

 

In accordance with AIM Rule 26, the Company will be adopting the QCA Guidelines on Corporate Governance and will update its website accordingly.

 

Outlook

GDC remains confident that a resolution with ENEO will be agreed in the near term. In the meantime, we are focused on expanding the thermal, industrial power and CNG segments. Discussions with other independent power producers to expand the grid power segment are ongoing. There remains a shortfall in power supply in Cameroon, with hydroelectric schemes not meeting current demand and GDC remains the only domestic gas producer.

 

I would like to thank our shareholder base for your extreme patience and resilience through this difficult period. I can assure you that your Company and its management team are working tirelessly to deliver the value that you expect.

 

 

 

Kevin Foo

Executive Chairman

28 September 2018

 



 

Financial Review

 

The interim report for the six-month period ended 30 June 2018 ("reporting period" or "H1 18") is compared to the six-month period ended 30 June 2017 ("prior period" or "H1 17") as required by International Financial Reporting Standards ("IFRS").

 

The non-renewal of the grid power gas sales agreement at the end of December 2017 has had a significant impact on the revenues and operating results generated by the Group in H1 18. The first six months of the calendar year is the dry season in Cameroon, during which the requirement for gas-powered electricity generation is at its greatest. This seasonal demand is reflected in the reporting period gross production figures of 650mmscf compared to the prior period's production of 2,345mmscf. GDC remains engaged with ENEO and anticipates a return to gas consumption in the near term.

 

The increase in reserves at Logbaba, announced on 4 June 2018, has enabled the Group to enter negotiations for long-term, high volume gas supply agreements with electricity producers and other industries within Douala, which provides potential to grow the business and generate profits in the future.

 

Revenue and Results

 

For the six-month period ended

30 June 2018

$000

30 June 2017

$000




Performance



Revenue

5,014

15,420

 

Operating loss

 

(2,746)

 

(4,446)

Depreciation

2,773

8,866




EBITDA

27

4,420




Loss per share - basic and diluted (cents)

(2.28)

(4.11)

 

Operational - Logbaba production



Gas sales (mmscf) - gross

650

2,345

                                 - attributable

372

1,400

Condensate sales (bbls) - gross

5,807

17,963

                                           - attributable

3,311

10,727







 

As at

30 June 2018

$000

31 December 2017

$000




Financial Position



Net debt position

(18,604)

(13,061)

 

Performance

The Group's revenue for the reporting period was $5.0 million, approximately $10.4 million lower than the prior period (H1 17: $15.4 million). Revenue is derived entirely from the Logbaba Project in Cameroon. Gas is sold to customers for thermal energy production and electricity generation, with revenue also generated from the sale of condensate, a by-product from gas production and processing.

 

In addition to efforts to add thermal and industrial power generation customers, the Group has also partnered with Naturelgaz to implement a CNG strategy to provide gas powered energy solutions to customers beyond the existing pipeline network. Whilst these solutions take time to implement, the margins on these lines of business are better than the margins for traditional grid power solutions and would therefore improve the Group's profitability.



 

Cost of sales of $6.0 million (H1 17: $12.4 million) included $0.8 million (H1 17: $2.3 million) of production royalties, $2.6 million of depreciation linked to revenue generating assets (H1 17: $8.9 million) and $2.6 million of other production related expenditure (H1 17: $1.2 million). Production royalties are a variable cost associated with GDC's share of revenue relating to the attributable volumes of gas produced during the period. The reduction in royalties is directly linked to the reduction in attributable hydrocarbon revenues. Depreciation is a variable cost associated with the gross volumes of gas produced during the period.

 

EBITDA, a non-IFRS measure which excludes depreciation from operating profit prior to financing charges and tax, reflects earnings of $0.03 million (H1 17: $4.4 million). The loss after taxation of the Group for the six months to 30 June 2018 amounted to $3.3 million (H1 17: $4.5 million). Loss per share for the reporting period was 2.28 cents (H1 17: 4.11 cents).

 

 

Financial Position

 

Intangible Assets

The increase in intangible assets during the period of $2.5 million, of which $2.0 million represents GDC's additional drilling costs, related to wells La-107 and La-108.

 

Property, plant and equipment

Additions during the period were predominantly pipeline related and amounted to $0.5 million (H1 17: $0.3 million).

 

Oil and gas assets, which include the Logbaba wells and the pipeline assets, are depreciated on a 'unit of production' basis. The decreased gross production during the reporting period resulted in a unit of production depreciation charge of $2.3 million (H1 17: $8.5 million).

 

Trade and other receivables

Trade receivables have decreased $3.1 million from 31 December 2017 due to ENEO settling most of their outstanding receivables a, with a net amount of $0.8 million outstanding at the date of reporting, and a reduction in amounts due from JV partners of $2.0 million.

 

Cash and cash equivalents

Available cash at 30 June 2018 was $3.2 million (31 December 2017: $11.5 million).

 

Trade and other payables

Trade and other payables have decreased by $4.7 million from 31 December 2017 to $9.6 million as drilling contractors were paid. As announced on 5 July 2018, a further $1.8 million was settled after the reporting period date via an issuance of new ordinary shares in the Company. The Company has negotiated extended payment terms with the remaining significant suppliers.

 

Borrowings

Total borrowings of $21.8 million compares to $24.5 million at 31 December 2017. 

 

The Company successfully achieved a restructuring of the BGFI facility (see Note 11). The terms of the restructuring allow the Company to extend the tenor of the existing capital balance for a period of five years from July 2018 to June 2023. The restructured agreement contains a principal repayment holiday for the first 12 months from July 2018 to June 2019. All other terms of the loan agreement remain unaffected, with the exception of additional pledges of security to replace the existing pledge over ENEO receivables, and recourse to related gas production volumes in the event of default.

 

Net Debt

The Group was in a net debt position of $18.6 million at 30 June 2018 (31 December 2017: $13.1 million). The increased net debt position is a result of the repayment of accounts payable and the funding of operational activities.

 



 

Statement of Changes in Equity

The condensed consolidated statement of changes in equity reflects the capital reorganisation programme approved and implemented in the second half of 2017.

 

Cash Flow

Operating activities

The Group utilised cash for operating activities of $1.3 million during the period (prior period: generated cash of $5.5 million). Working capital increased by $2.1 million (prior period: $16.0 million), mainly due to the reduction of trade payables, resulting in net cash utilised in operating activities of $3.3 million (prior period: $10.4 million).

 

Investing activities

Drilling and pipeline activities resulted in capital cash costs of $2.4 million during the period (prior period: $15.2 million).

 

Financing activities

$3.1 million was paid in interest and capital repayments (H1 17: $4.9 million). $22.2 million was drawn down against the BGFIBank facility during the prior period. The Group does not have any further available credit facilities.

 

 

Commitments

The Logbaba Concession does not contain any work programme obligations.

 

The Group awaits the Presidential Decree to formalise its assignment of a 75% participation in the Matanda Block. The block has two two-year exploration periods (total of 4 years) of which GDC's share of the Matanda work programme, commencing from the date of the Presidential Decree, is anticipated to be $11.25 million.

 

 

Subsequent Events

On 10 July 2018, the company issued 4,814,815 new ordinary shares to a supplier in lieu of a cash payment.

 

 

Going Concern

The Directors have given careful consideration to the appropriateness of the going concern basis in the preparation of the interim financial statements. There are a number of uncertainties which may affect the Company's ability to continue operating as a going concern, these are disclosed in Note 3 of the unaudited interim condensed consolidated financial statements.

 

The non-renewal of the grid power contract and the outstanding liabilities associated with the drilling programme that overran its budget have stretched the Company's available resources.

 

Having restructured the BGFI loan and taken further measures to preserve available cash resources and being reasonably assured of the ability to raising additional funding when required, the Directors are of the opinion that the Company will be able to continue operating for a period of at least 12 months after the date of reporting.

 

 

Looking Ahead

Company is focused on securing thermal and industrial power customers to increase gas sales. There remains a shortfall in power supply in Cameroon, with hydroelectric schemes not meeting current demand and GDC remains the only domestic gas producer to supply natural gas to grid power producers. Advanced discussions with a number of customers is expected to lead to signing of industrial power gas sales agreements in the near future.

 

Maintaining sufficient liquidity and meeting the Group's obligations as they fall due will enable the Group to remain in position to benefit from the considerable upside potential which exists in the Cameroonian energy market.

 



 

 

Principal Risks and Uncertainties

The Board determines the key risks for the Group and monitors mitigation plans and performance on a monthly basis. The principal risks the Group has identified for the next six months are summarised as follows:

·       Operational risk: Inability to sign grid power gas sales agreement with ENEO or other power generating companies

·       Other operational risks: HSE and security incidents, title and licence risks, well/process plant/pipeline integrity risks, reliance on key customer risk

·       Financial risk: Ability to fund the Company with available funds, debt, operational cash flows and other sources

·       External risks: Capital constraints, global economic volatility, commodity price risk, legal compliance regulatory or litigation risk, adverse market sentiment, political and country risk

·       Strategic risks: Investment decisions, inadequate resources and reliance on key personnel

·       Other financial risks: Funding risk, counterparty credit risk, management of costs and capital spending, tax risk

A more detailed listing of risks and uncertainties facing the Group's business is listed on page 24 of the Report & Accounts to 31 December 2017, which is available on the Victoria Oil & Gas Plc website: www.victoriaoilandgas.com.

 

 

Directors' Responsibility Statement

The Directors confirm that to the best of their knowledge that the unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'.

Movement in Directors during the period is discussed in the Corporate section of the Chairman's letter. A list of the current Directors is available on the Company's website: www.victoriaoilandgas.com.

 

 

Andrew Diamond

Finance Director

28 September 2018

 



 

Condensed Consolidated Income Statement

 

 

For the six-month period ended



30 June 2018


30 June 2017




Unaudited


Unaudited


Note


$000


$000






Continuing operations






Revenue



5,014


15,420

Cost of sales



(5,990)


(12,374)

Production royalties



(773)


(2,313)

Other cost of sales



(5,217)


(10,061)

Gross (loss)/profit



(976)


3,046







Sales and marketing expenses



-


(39)

Administrative expenses



(3,164)


(6,834)

Other gains/(losses)



1,135


(1,150)

Share of profit of associate



259


531

Operating loss



(2,746)


(4,446)

Finance costs



(1,082)


(124)

Loss before tax


(3,828)


(4,570)

Tax



531


69

Loss for the period - attributable to shareholders of the parent



(3,297)


(4,501)















Cents


Cents






Loss per share - basic & diluted

5


(2.28)


(4.11)

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income

 

 

For the six-month period ended


30 June 2018

30 June 2017



Unaudited

Unaudited



$000

$000





Loss for the period


(3,297)

(4,501)

Exchange differences on translation of foreign operations


40

(25)

Total comprehensive loss for the period - attributable to shareholders of the parent


(3,257)

(4,526)

 



 

Condensed Consolidated Statement of Financial Position

 

 

As at


30 June 2018

31 December 2017



Unaudited

Audited


Notes

$000

$000





Assets:




Non-current assets




Intangible assets

6

56,763

54,223

Property, plant and equipment

7

68,686

70,911

Investment in associate


5,445

5,429



130,894

130,563





Current assets




Inventories


26

24

Trade and other receivables

8

10,479

13,545

Cash and cash equivalents

12

3,231

11,476

Deferred tax assets


916

916



14,652

25,961

Total assets


145,546

156,524





Liabilities:




Current liabilities




Trade and other payables

9

9,628

14,330

Provisions

10

1,855

1,855

Borrowings

11,12

2,224

3,174



13,707

19,359

Net current assets


945

6,602





Non-current liabilities




Borrowings

11,12

19,611

21,363

Deferred tax liabilities


2,259

2,846

Provisions

10

3,287

3,106



25,157

27,315

Net assets


106,682

109,850









Equity:




Called-up share capital


1,095

1,095

Share premium


24,218

24,218

ESOP Trust reserve


(4)

(4)

Translation reserve


(17,672)

 (17,712)

Other reserve


316

248

Retained earnings


98,729

 102,005

Total equity


106,682

109,850

 

 

 



 

Condensed Consolidated Statement of Changes in Equity

 

 







Retained



Share

Share

ESOP Trust

Translation

Other

earnings/



capital

premium

reserve

 reserve

reserves

(deficit)

Total


$000

$000

$000

$000

$000

$000

$000









For the six months ended








30 June 2017 (Unaudited)








At 31 December 2016

34,251

230,436

(843)

 (17,685)

66

(151,258)

94,967

Shares issued

2

199

-

-

-

-

201

Shares granted to ESOP members

-

-

2

-

-

251

253

Effects of movement in foreign exchange

-

-

(32)

-

-

-

(32)

Transfer to retained earnings

-

-

-

-

(56)

56

-

Total comprehensive loss for the period

-

-

-

(25)

-

(4,501)

 (4,526)

At 30 June 2017

34,253

230,635

(873)

(17,710)

10

(155,452)

90,863









For the six months ended








30 June 2018 (Unaudited)








At 31 December 2017

1,095

24,218

(4)

 (17,712)

248

102,005

109,850

Share-based payments

-

-

-

-

89

-

89

Warrants expired

-

-

-

-

(21)

21

-

Total comprehensive loss for the period

-

-

-

40

-

(3,297)

(3,257)

At 30 June 2018

1,095

24,218

(4)

(17,672)

316

98,729

106,682



 

Condensed Consolidated Cash Flow Statement

 

For the six-month period ended

30 June 2018

30 June 2017


Unaudited

Unaudited


$000

$000




Cash flows from operating activities



Loss for the period

(3,297)

 (4,501)

Adjustments for non-cash and other items:



Tax

(531)

(69)

Share of profit in associate

(259)

(531)

Finance costs

1,082

124

Depreciation and amortisation

2,773

8,866

Other (gains)/losses

(1,135)

1,206

Share-based payments

89

453


(1,278)

5,548

Movements in working capital



Decrease/(increase) in trade and other receivables

2,898

(13,111)

Increase in inventories

(2)

(25)

Decrease in trade and other payables and provisions

(4,953)

(2,824)

Net movements in working capital

(2,057)

(15,960)

Net cash used in operating activities

(3,335)

(10,412)

 

Cash flows from investing activities



Payments for intangible assets

(1,893)

(14,844)

Payments for property, plant and equipment

(529)

(346)

Proceeds from disposal of property, plant and equipment

16

-

Loan repayments received

-

50

Dividends received from associate

243

531

Net cash used in investing activities

(2,163)

(14,609)

 

Cash flows from financing activities



Proceeds from borrowings

-

22,222

Repayments of borrowings

(2,233)

(4,213)

Finance costs paid

(846)

(639)

Net cash (used)/generated from financing activities

(3,079)

17,370

Net decrease in cash and cash equivalents

(8,577)

(7,651)




Cash and cash equivalents - beginning of period

11,476

16,261

Effects of exchange rate changes on the balance of cash held in foreign currencies

332

20

Cash and cash equivalents - end of period

3,231

8,630

          



 

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

 

1.  GENERAL INFORMATION AND BASIS OF PREPARATION

 

The unaudited interim condensed consolidated financial statements of Victoria Oil & Gas Plc and its subsidiaries ("the Group") for the six months ended 30 June 2018 have been prepared in accordance with International Financial Reporting Standards ("IFRS") and in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting.

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's consolidated financial statements for the twelve-month period ended 31 December 2017. The Group's presentation currency is the US Dollar and amounts are rounded to the nearest thousand dollars ($000) except as otherwise indicated.

 

The unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, under the historical cost convention, except for the revaluation of certain financial instruments.

 

 

2.  ACCOUNTING POLICIES

 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's consolidated financial statements for the year ended 31 December 2017 except as set out below.

 

New amended standards adopted by the group

IFRS 15 Revenue from Contracts with Customers became applicable in the current reporting period. The adoption of this standard did not require any restatement of prior year comparatives as the application of these standards did not have a material impact on the financial report.

 

Disclosure of disaggregated revenue information consistent with the requirement included in IFRS 15 is presented in note 4.

 

Critical Accounting Judgements

In the process of applying the Group's accounting policies, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements.

 

Going concern

The assessment of the Group's ability to execute its strategy by funding future working capital requirements involves judgement.

The Directors monitor future cash requirements and are confident that the Group is able to continue as a going concern and no adjustment is required to the financial statements. Further information regarding going concern is outlined in Note 3.

As part of the assessment, management reviewed budgets and cash flow forecasts and compared the requirements to available resources, existing funding facilities and potential sources of additional funds.

 

Unit-of-production depreciation method

The Group's policy is to use the unit-of-production method of depreciation based on proved developed reserves for depreciation and amortisation of its oil and gas assets. These calculations require the use of estimates and assumptions and significant judgement is required in assessing the amount of estimated reserves. Estimates of oil and gas reserves are inherently imprecise, require the application of judgement and are subject to future revision. Changes in proved developed reserves will prospectively affect the unit-of-production depreciation charges to the Income Statement. Proved developed reserves used in the calculation of unit-of-production depreciation were 21.1 billion cubic feet ("bcf") (prior period: 24.6bcf) in the Logbaba Field. This applies only to well La-105 which was the only well used in production during the period. Well La-106 was transferred from intangible assets to oil and gas assets at the end of the period and the unit-of production depreciation will be revised to the updated reserves published by the Group on 4 June 2018. The unit-of-production depreciation charged to the Income Statement, which was calculated, based on these reserves, was $2.3 million (prior period: $8.5 million). If the reserves were to vary by plus 10%, the unit-of-production depreciation for the reporting period would have decreased by $0.3 million and if they were to vary by minus 10% the unit-of-production depreciation for the reporting period would have increased by $0.3 million.

 

Accounting for joint operations

During the prior period, Société Nationale des Hydrocarbures ("SNH") exercised its right to participate in the Logbaba Project, namely 5% of the Upstream operations of the Logbaba Project. This participation is retrospective and therefore they are deemed to have participated since first production. The net share of this venture that has been included in these financial statements is 57% of the upstream operations and 60% of the downstream operations.

 

The unaudited interim condensed consolidated financial statements are prepared on the basis that downstream operations charge cost plus 15% to the upstream operations as a fee for marketing the gas. Shared services have been allocated between upstream and downstream operations based on the activity during the period.

 

Deferred tax assets

The assessment of availability of future taxable profits involves judgement. A deferred tax asset is recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised. A deferred tax asset of $0.9 million has been recognised in the reporting period (prior period: $0.9 million) in relation to the Group's operations in Cameroon as it is considered likely that the operations will generate future taxable profit against which the unused tax losses will be able to be applied. No deferred tax asset has been recognised in the reporting period in relation to the Group's other operations due to the unpredictability of future profit streams in the companies that have unutilised tax losses.

 

Key Sources of Estimation Uncertainty

The preparation of unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the Balance Sheet date and the amounts reported for revenues and expenses during the period. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial period are consistent with those disclosed in the Group's consolidated financial statements for the year ended 31 December 2017, namely the potential effects of the risks associated with operating in Cameroon, Russia and Kazakhstan; the uncertainties surrounding the determination of various provisions; and considerations regarding the impairment of the Group's assets.

 

 

3.  GOING CONCERN

 

The Directors are required to give careful consideration to the appropriateness of the going concern basis in the preparation of the unaudited interim condensed consolidated financial statements.

 

Revenue in the reporting period was $5.0 million (prior period: $15.4 million). The decrease relates to the impact of ENEO Cameroon S.A. ("ENEO") ceasing to consume gas effective 1 January 2018 (discussed below). Underlying EBITDA for the period of $0.03 million (prior period: $4.4 million) reflecting the reduced revenues. The Group consumed cash of $8.6 million during the period (prior period: $7.7 million).

 

These conditions indicate the existence of a material uncertainty. In their consideration of the appropriateness of applying the going concern assumption the Directors have considered the following factors, estimates and assumptions which are considered to be relevant. Future outcomes may differ from these estimates.

 

Grid power gas sales agreement

The ENEO contract extension expired on 31 December 2017 and consumption of gas has not been renewed to date.

 

The Government of Cameroon, ENEO, Altaaqa Global ("Altaaqa"), the genset providers to ENEO which consume GDC's gas, and GDC continue to seek a resolution to the suspension of electricity generation at the ENEO owned Logbaba and Bassa power stations in Douala. The shortfalls in power supply in Cameroon continue, with hydroelectric schemes not meeting the current demand. As a consequence, GDC remains confident that a solution will be found as all parties are actively engaged in the various steps involved that will result in ENEO resuming the consumption of Logbaba gas.

 

The ongoing power shortage in Cameroon continues to provide opportunities in the grid power sector.

 

The GDC sales team is also aggressively seeking to expand gas sales in Cameroon in the thermal, industrial power generation and CNG sectors. Industrial power generation, in particular, offers significant opportunity as customers look for energy security. With two gensets in commissioning and a number of further prospective customers, GDC believes this is a sector which could generate significant cash for the Group. For customers beyond the reach of the pipeline network, GDC is exploring CNG solutions, and the Group announced on 26 June 2018 that GDC had entered a partnership with Naturelgaz Sanayi ve Ticaret A.S. (Europe's largest CNG supplier and distributor) to further this development.

 

Debt

The Group ended the period with cash and cash equivalents of $3.2 million (prior period: $8.6 million) and in a net debt position of $18.6 million (prior period: $25.2 million). The Group had borrowings of $21.8 million (prior period: $33.8 million). The Group has no available headroom on any of its current credit facilities.

 

The Company has successfully achieved a restructuring of the BGFI facility (see note 11). The terms of the restructuring allow the Company to extend the tenor of the existing principal balance for a period of five years from July 2018 to June 2023. The restructured agreement contains a principal repayment holiday for the first twelve months from July 2018 to June 2019. All other terms of the loan agreement remain unaffected, with the exception of additional pledges of security to replace the existing pledge of ENEO receivables, and recourse to related gas production volumes in the event of default.

 

The potential for industrial power generation for individual customers is being actively pursued. The Company has made application to several credit providers for funding to be made available for asset backed finance arrangements with qualifying customers who have signed suitable Gas Sales Agreements (GSAs) with take-or-pay type arrangements to secure the funding. The Directors conclude that this is an acceptable form of financing to generate additional revenues from new and existing customer bases.

 

Drilling programme

The successful completion of wells La-107 and La-108 in December 2017 significantly reduces the sustainability risk under which the Group had previously operated owing to the Douala operations being dependent on a single producing well (La-105). In addition, the increase in reserves resulting from La-107, and La-108, once the perforating gun is removed, and that the Upper Logbaba Sands have been perforated and tested, have enabled the Group to enter negotiations for a number of long-term, high volume gas supply agreements with electricity producers and other industries within Douala.

 

The final cost of the drilling programme, excluding capitalised interest costs, was $87.0 million (gross). At 30 June 2018, the outstanding attributable accounts payable and accruals relating to the drilling programme was $5.6 million (net), with $1.8 million (net) settled shortly after the reporting period via an issuance of new ordinary shares in the Company. The Company has negotiated extended payment terms with the remaining suppliers.

 

Aside from minor costs spent on the wells and flowlines during 2018, there are no further significant capital costs anticipated or committed on wells La-107 and La-108 during 2018. Should the Company sign GSAs requiring gas in volumes exceeding the production capabilities of La-105 and La-107, then remediation work on La-108 would be considered.

 

Cost reductions, limited capex

With the reduction of revenue in 2018 resulting from grid power consumption having ceased, the Company has implemented cost reduction measures, including headcount reductions and the removal of non-essential capital spend. Operating and capital costs are being monitored very closely in order to maximize cash preservation.

 

New funding potential

The Company has lodged an insurance claim with the Company's insurers to cover the substantial and material costs associated with a well control incident on well La-108 and the consequential schedule and cost overruns. The gross amount of the claim submitted is $24.5 million. As is common in these situations, the outcome of our claim is not certain. The claim has been disclosed as a contingent asset in Note 15.

 

The Company raised $23.7 million in net proceeds via an equity placement in November 2017. The Directors are exploring various alternatives to raising additional funds for ongoing operations of the business. The Directors believe that the Company will be able to raise sufficient capital to continue in operation.

Conclusion

The Directors have reviewed operating and cash forecasts in respect of the operating activities and planned work programmes of the Group's assets. In the case that either the consumption of gas pursuant to a grid power GSA does not resume or a settlement of the insurance claim is not completed, additional finance will be required and, in this event, the Directors believe that they will be able to access additional financing in order to continue to meet obligations and develop operations for a period of at least twelve months from the date of approval of these unaudited interim condensed consolidated financial statements. 

 

On this basis the Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis. Accordingly, these financial statements do not include any adjustments to the carrying amount and classification of assets and liabilities that may arise if the Group was unable to continue as a going concern.

 

 

4.  SEGMENTAL ANALYSIS

 

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about the Group that are regularly reviewed by the chief operating decision maker. The Board is deemed the chief operating decision maker within the Group. The Group has one class of business: oil and gas exploration, development and production and the sale of hydrocarbons and related activities. This is analysed on a location basis. Only the Cameroon segment is generating revenue, which is from the sale of hydrocarbons. For the purposes of segmental reporting, the Russia and Kazakhstan segments have been combined as the assets of these segments have both been fully impaired. The accounting policies of the reportable segments are the same as the Group's accounting policies.

 

The following tables present revenue, loss and certain asset and liability information regarding the Group's business segments:



Russia and




Cameroon

Kazakhstan

Corporate

Total

Six months to 30 June 2018 (Unaudited)

$000

$000

$000

$000






Revenue





Gas Sales - thermal power

4,607

-

-

4,607

Gas Sales - industrial power

155

-

-

155

Gas sales - grid power

-

-

-

-

Gas Revenue

4,762

-

-

4,762

Condensate sales

252

-

-

252

Total Revenue

5,014

-

-

5,014






Segment result

(1,555)

(238)

(953)

(2,746)

Finance costs

(991)

(21)

(70)

(1,082)

Loss before tax

(2,546)

(259)

(1,023)

(3,828)

Tax

(55)

-

586

531

Loss for the period

(2,601)

(259)

(437)

(3,297)

Total assets

137,934

80

7,532

145,546

Total liabilities

(36,366)

(488)

(2,010)

(38,864)

 

Other segment information





Capital expenditure:





Intangible assets

2,580

-

-

2,580

Property, plant and equipment

529

-

-

529

Depreciation and amortisation

2,743

-

30

2,773



 

 



Russia and




Cameroon

Kazakhstan

Corporate

Total

Six months to 30 June 2017 (Unaudited)

$000

$000

$000

$000






Revenue





Gas Sales - thermal power

5,388

-

-

5,388

Gas Sales - industrial power

173

-

-

173

Gas sales - grid power

9,357

-

-

9,357

Gas Revenue

14,918

-

-

14,918

Condensate sales

502

-

-

502

Total Revenue

15,420

-

-

15,420

Segment result

(2,222)

(318)

(1,906)

(4,446)

Finance costs

(49)

(11)

(64)

(124)

Loss before taxation

(2,271)

(329)

(1,970)

(4,570)

Income tax expense

69

-

--

69

Loss for the period

(2,202)

(329)

(1,970)

(4,501)

Total assets

129,068

78

12,858

142,004

Total liabilities

(47,737)

(547)

(2,855)

(51,139)

 

Other segment information





Capital expenditure:





Intangible assets

15,381

-

-

15,381

Property, plant and equipment

340

-

6

346

Depreciation and amortisation

8,855

-

11

8,866

 

 





5.  LOSS PER SHARE

 

Basic loss per share is computed by dividing the loss after tax for the period available to ordinary shareholders by the weighted average number of ordinary shares in issue and ranking for dividend during the period, excluding treasury shares held by the ESOP Trust. Diluted loss per share is computed by dividing the profit or loss after tax for the period by the weighted average number of ordinary shares in issue, each adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the period. If potential ordinary shares are anti-dilutive, they are excluded from the diluted loss per share calculation.

 

The following table sets forth the computation for basic and diluted loss per share.

 

For the six-month period ended

30 June 2018

30 June 2017


Unaudited

Unaudited


$000

$000




Loss for the period

(3,297)

(4,501)





Number

Number

Number of shares



Weighted number of ordinary shares - basic and diluted

144,497,228

109,596,483





Cents

Cents




Loss per share -basic and diluted

(2.28)

(4.11)

 



 

6.  INTANGIBLE ASSETS

 


Exploration and




evaluation assets

Software

Total

Six months to 30 June 2018 (Unaudited)

 $000

$000

$000





Cost




Opening balance

129,412

371

129,783

Additions

2,563

17

2,580

Effects of movement in foreign exchange

(1,403)

-

(1,403)

Closing balance

130,572

388

130,960





Accumulated amortisation and impairment




Opening balance

75,445

115

75,560

Charge for the period

-

40

40

Effects of movement in foreign exchange

(1,403)

-

(1,403)

Closing balance

74,042

155

74,197

Carrying amount 30 June 2018

56,530

233

56,763

 


Exploration and




evaluation assets

Software

Total

Twelve months to 31 December 2017

 $000

$000

$000





Cost




Opening balance

91,413

323

91,736

Additions

37,468

57

37,525

Disposal

(859)

(9)

(868)

Effects of movement in foreign exchange

1,390

-

1,390

Closing balance

129,412

371

129,783





Accumulated amortisation and impairment




Opening balance

74,055

43

74,098

Charge for the period

-

72

72

Effects of movement in foreign exchange

1,390

-

1,390

Closing balance

75,445

115

75,560

Carrying amount 31 December 2017

53,967

256

54,223

 

The remaining exploration and evaluation assets relate to the Logbaba drilling programme. During the period Well La-107 was transferred to oil and gas assets.

 

Recoverability of exploration and evaluation assets is dependent on the successful development of reserves, which is subject to a number of uncertainties including the ability of the Group to access financial resources to develop the projects and bring the assets to economic maturity and profitability.

 



 

7.  PROPERTY, PLANT AND EQUIPMENT

 


Plant and

Oil and gas

Assets under



equipment

interest

construction

Total

Six months to 30 June 2018 (Unaudited)

$000

$000

 $000

$000






Cost





Opening balance

40,829

72,213

6,589

119,631

Additions

511

-

18

529

Disposals

(58)

-

-

(58)

Closing balance

41,282

72,213

6,607

120,102






Depreciation





Opening balance

5,426

43,294

 -

48,720

Disposals

(37)

-  

-

(37)

Charge for the period

418

2,315

-

2,733

Closing balance

5,807

45,609

-

51,416

Carrying amount 30 June 2018

35,475

26,604

6,607

68,686

 


Plant and

Oil and gas

Assets under



equipment

interest

construction

Total

Twelve months to 31 December 2017

$000

$000

 $000

$000






Cost





Opening balance

41,180

72,725

1,796

115,701

Additions

84

67

4,883

5,034

Disposals

(435)

 (579)

(90)

 (1,104)

Closing balance

40,829

72,213

6,589

119,631






Depreciation





Opening balance

4,237

30,030

 -

34,267

Disposals

 (56)

(170)

-

(226)

Charge for the period

1,245

13,434

-

14,679

Closing balance

5,426

43,294

-

48,720

Carrying amount 31 December 2017

35,403

28,919

6,589

70,911

 

Production wells, which are included in oil and gas assets, are depreciated on a unit-of-production basis.

 

Assets under construction comprise mainly of expenditure on the uncompleted sections of the pipeline network and pipeline purchased in advance of network development in Douala, Cameroon.

 

The realisation of property, plant and equipment of $68.7 million is dependent on the continued successful development of economic reserves, which is subject to a number of uncertainties including the Group's ability to access financial resources to continue to successfully generate revenue from the assets.



 

8.  TRADE AND OTHER RECEIVABLES

 

As at

30 June 2018

31 December 2017


Unaudited

Audited


$000

$000




Trade receivables

4,303

6,197

Other receivables

6,176

7,348


10,479

13,545

 

Other receivables includes amounts due from joint ventures partners (RSM and SNH) of $3.7 million (31 December 2017: $5.7 million). This relates to their funding obligation for their share of their combined 43% participating interest in the Logbaba Project.

 

The carrying value of trade and other receivables approximates to fair value.

 

9.  TRADE AND OTHER PAYABLES

 

As at

30 June 2018

31 December 2017


Unaudited

Audited


$000

$000




Trade payables and accruals

6,491

11,114

Other payables

3,137

3,216


9,628

14,330

 

The carrying value of trade and other payables approximates to fair value.

 

10.     PROVISIONS

 

As at

30 June 2018

31 December 2017


Unaudited

Audited


$000

$000




Decommissioning provisions

2,383

2,318

Production bonus provision

778

788

Provision for litigation

1,855

1,855

Other provisions

126

-


5,142

4,961

 

The provision for litigation includes a provision of $1.5 million in relation to the land claim relating to the Logbaba Project. This provision is disclosed as a current liability.

 

11.     BORROWINGS

 

As at

30 June 2018

31 December 2017


Unaudited

Audited


$000

$000




Loans - repayable in one year

2,224

3,174

Loans - repayable in two to five years

19,611

21,363


                                21,835

24,537

 

The outstanding balance on the BGFI loan facility at 30 June 2018 was $20.4m (31 December 2017: $22.8 million). The loan terms were restructured in June 2018. The restructured loan has a term of five years commencing July 2018, an unchanged interest rate of 7.15%, and an initial 12-month interest only period. The loan is secured by a pledge over the revenue stream of certain customers, a pledge over attributable gas production volumes equivalent to the monthly installments and the ceding of GDC's rights to insurance claim for the tenor of the loan.



 

12.     NET DEBT

 

As at

30 June 2018

31 December 2017


Unaudited

Audited


$000

$000




Cash and cash equivalents

3,231

11,476

Borrowings: Current liabilities

(2,224)

(3,174)

Borrowings: Non-current liabilities

(19,611)

(21,363)


(18,604)

(13,061)

 

 

13.     RELATED PARTY TRANSACTIONS

 

Cameroon Holdings Limited ("CHL") is held jointly by Victoria Oil & Gas Plc (35%) and Logbaba Projects Limited (65%). HJ Resources Limited ("HJR") has a 67% interest in Logbaba Projects Limited. Kevin Foo (Executive Chairman) and certain members of his family are the potential beneficiaries of a discretionary trust that owns HJR. CHL is entitled to a production royalty based on GDC revenue. The details of the royalty are set out in the Group's Report and Accounts to 31 December 2017. During the period, royalties of $0.8 million accrued to CHL by GDC. Dividends of $0.3 million were paid by CHL to Victoria Oil & Gas Plc and are reflected as 'dividends received from associate' in the cash flow statement.

 

No further related party transactions have taken place during the six-month period ended 30 June 2018 which have materially affected the financial position or the performance of the Group during that period. The nature and amounts of related party transactions in the first six months of the current financial year are consistent with those reported in the Group's Report and Accounts to 31 December 2017.

 

 

14.     COMMITMENTS

 

Subject to the Groups participation in the Matanda Project being formalized by a Presidential decree in Cameroon, GDC would have work programme commitments for its 75% interest in the project amounting to $11.25 million, to be spent within two years of the date of the Presidential decree.

 

 

15.     CONTINGENT ASSETS AND LIABILITIES

 

Contingent Liabilities

The Groups royalty obligations, and contingent obligations, are unchanged from those disclosed in the Group's Annual Report & Accounts to 31 December 2017.

 

Our JV partners in the Logbaba project, RSM and SNH, are both conducting audits on costs relating to years prior to the balance sheet date. At the date of signing these financial statements the outcome of these audits is unknown, however any findings from the audits could have an impact on the results.

 

Contingent Asset

During the drilling of well La-108 on Logbaba there was a well control event which was the main cause of the delay and cost overruns. An insurance claim has been lodged with the Company's insurers to cover the substantial and material costs associated with this event and the consequential schedule and cost overrun. As is normal in these situations, the outcome of our claim is not certain. The gross amount of the claim submitted is $24.5 million.

 

No asset has been recognised in the unaudited interim condensed consolidated Statement of Financial Position as the amounts and timing of the claim outcome are uncertain.

 



 

16.     POST BALANCE SHEET EVENTS

 

On 10 July 2018, the Company issued 4,814,815 Ordinary shares to a supplier in lieu of a cash payment.

 

 

17.     SEASONALITY

 

Revenues and operating profits for all customers are evenly spread between the two half years.

 

 

18.     APPROVAL OF INTERIM FINANCIAL STATEMENTS

 

The unaudited interim condensed consolidated financial statements were approved by the Board of Directors on 28 September 2018.

 

Copies of the Interim report are available by download from the Company's website at: www.victoriaoilandgas.com

 

 


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