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Victoria Oil & Gas hit as major gas customer deal expires

“VOG believes this is a temporary issue and expects a resolution in the short to medium term.”
oil and gas operations
VOG is now reviewing its capital programme

Victoria Oil & Gas plc (LON:VOG) said in a statement after market close on Friday that an arrangement with one of its gas customers in Cameroon has expired.

The company told investors that ENEO Cameroon informed VOG subsidiary Gaz du Cameroun (GDC) that it is not currently in a position to extend a gas supply agreement which expired at the end of 2017, and as such the customer has stopped receiving gas from the company.

READ: Victoria Oil & Gas continues negotiations with Bowleven over Bomono project

“ENEO is actively discussing potential solutions to this situation with the Government of Cameroon and the Power Regulator in Cameroon,” VOG explained.

“VOG believes this is a temporary issue and expects a resolution in the short to medium term.”

“ENEO has advised the company that it faces considerable uncertainties in terms of generation costs that can be passed on as tariffs to end users, large payment arrears from the Cameroon Government and doubts over long term power payment security.”

VOG added that it does not believe ENEO will be able to underwrite the financial aspects of a contract extension at this time.

ENEO had been taking some 53% of the gas from VOG’s Logbaba field, and as such the AIM-quoted company noted that the suspension of supply to ENEO would “clearly directly affect GDC in the short term.”

It added, however, that its remining customer base is diverse and it continues to work with those customers to place newly available gas.

VOG has been advancing new drilling to expand its supply capacity in Cameroon, with the recent La-108 well at Logbaba beating expectations.

The company added that ENEO currently owes GDC some US$8.7mln gross, and it said it expect to be paid in due course.

It is now anticipated that VOG will immediately carry out an assessment of the Company's capital projects and its wider budget and cash flow forecasts, in light of the ENEO news.

READ: Victoria Oil & Gas boosted by new customer sign-ups

VOG told investors that it will update on its 2017 performance and its strategy for 2018 later in the current quarter.

Ahmet Dik, VOG chief executive, said: “Cameroon has a very important industrial hub in Douala that has seen significant growth and cross border investment over the last five years, both into manufacturing and the power sector.

“We remain confident that ENEO and the Government will rapidly find a solution that will allow GDC to continue to supply gas to ENEO and to build on the relationships we have developed with all stakeholders over the past three years.”

Dik added: “Cameroon is an area that is in critical need of more power, with an estimated demand in excess of 150mmscf/d of gas in the Douala basin. 

“We remain focused on increasing thermal customer demand in Douala whilst also continuing to supply gas to our 30 other customers, building non-grid solutions for its industrial customers and advancing the compressed natural gas business whilst maintaining our strong position as the sole provider to the region."

VOG shares opened around 15% lower on Monday, trading at 33.4p in early deals.

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