Victoria Oil & Gas plc: Honestly, We'll Get There Soon

Victoria Oil & Gas customer site

Victoria Oil & Gas is using its producing Cameroon gas field, Logbaba, to create a gas supply network for industry in the Doula region of Cameroon, bypassing the country’s unreliable power grid and cutting customer costs (image copyright Victoria Oil & Gas)

Yesterday’s final results from Victoria Oil & Gas plc (LON:VOG) didn’t really contain any new information that wasn’t included in the firm’s trading update at the start of October, but I’ll recap the details, in case you missed the earlier update (which I failed to cover).

In essence, things are going well, but much, much more slowly than anticipated. The firm has hired several new in-country staff in Cameroon, to try and accelerate its pipeline roll-out and customer hookups, and the statistics suggest it might be succeeding, albeit still slowly.

This remains a big opportunity

I still agree with Victoria’s Chairman and interim-CEO Kevin Foo: the opportunity to become an incumbent gas-and-power supplier to many of Cameroon’s largest companies (some of which are global names, like SABMiller) is a valuable one. The question is whether the company can pull it off.

On the basis that its plans have recently become far more concrete, detailed and convincing, and should lead to the firm becoming operating cash flow positive in November, I’m going to keep the faith and hold my shares. The balance sheet shows £13m in cash and cash equivalents to fund ongoing capex, which suggests that Foo’s claim of an operational burn rate of $1.1m per month is plausible, given this year’s heavy capex and February’s £23m fundraising.

There’s also the faint promise that Victoria’s West Medvezhye asset in Siberia may come to something, although it’s slightly disappointing that the sale process for West Med, which started in February, has come to nothing as yet (Victoria says that several companies are still working with the West Med data).

One final point of interest is that the forthcoming judgement in the legal dispute with RSM Corporation is due by 31st October. RSM claims a 38% share of Logbaba, but according to Victoria, even if RSM is successful (unlikely) it would have to stump up the equivalent of $85m in costs and outstanding cash costs before it could see any profit from Logbaba.

What next?

As any experienced engineer will tell you, it’s not surprising that being the first mover in a business like this is turning out to be slower and more expensive than expected.

Victoria’s target of selling 12mmscf of gas per day by the end of this year has proved massively optimistic, but the firm does seem to be doing the right things and building an infrastructure which could become highly cash generative.

I remain bullish on VOG, but I wouldn’t bet the farm on it.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.