Victoria expands Cameroon industrial gas sales network

Victoria Oil & Gas PLC said that Logbaba gas-condensate field onshore Cameroon, operated by the company’s Rodeo Development Ltd. subsidiary, is estimated to hold sufficient proved and probable reserves to supply an average 20 MMscfd of gas to industrial customers until 2043.

In less than 4 years, the company told its shareholders Oct. 25, Victoria has drilled two complex wells, installed gas processing facilities, laid 22 km of pipeline, and is selling gas to 19 customers and collecting revenue.

The field has been supplying gas without interruption since July 2012. Rodeo is expected to be cash generative at an operating level by November, Victoria said. It is the sole onshore gas producer in Cameroon and the only independent company in central Africa that has brought a gas project from drill bit to burner tip.

Victoria said its objective is to build its business using the cash flow from Logbaba to fund further expansion and acquisitions in Africa.

Pipelaying behind schedule

Victoria said its pipelaying rate has been behind schedule in 2013 as it operates in Douala, an industrial city of 2.5 million people. In the previous financial year the company completed 13.2 km of 400-mm pipe: installed, tested, and capable of delivering gas into the primary target market areas of the Magzi estate and Bassa.

Activities this year moved into the center of urban Douala and more recently into the port area. A further 8.8 km of pipe has been laid since May 31, 2012, through the most densely populated part of the city, where a complex maze of subsurface utilities is already in place.

“Overcoming these conditions is complicated but to be expected, and our approximate average installation rate of 200 m/week was not adequate,” Victoria said. With the addition of two augurs, pipelaying has accelerated to 400 m/week, and a further 5.6 km of pipe is expected to have been laid by the end of 2013, bringing the total network to 27.6 km.

Gas sales, production

Gas sales have reached 2.4 MMscfd, up from 700 Mcfd a year ago. Scheduled deliveries are expected to increase to 3.6-4.8 MMscfd by yearend, but the company noted that its 12 MMscfd target will slip into 2014.

As production passes through 4.8 MMscfd, revenue will rise to about $1.8 million/month net of royalties, and with an average monthly operational “burn rate” of $1.1 million/month, RDL will become a cash generating business.

Completion of the construction and modification of a large foundry and cement plant on the south bank of the Wouri River will add 4.7 MMscfd in 2014.

A large increase in disruption and power outages has resulted in slower than anticipated utilization of gas for thermal generation. Rodeo’s customers often experienced forced outages as the grid operator attempted to manage demand on a rotating basis. Rodeo’s sales volumes fell as customers reduced production hours.

Rodeo has responded by deferring the purchase of gas-fired generation units and opted for rental units under a large supply contract that will enable customers to generate their own electricity. Five rental units will work 7 days/week, each consuming 200 Mcfd, and four more units are to be installed by yearend.

Although less profitable, this short-term solution is considered a prudent way forward in order to forge long-term relationships with customers and demonstrate the true economic value of a consistent supply of power, Victoria said.

A further 4.3 MMscfd could be brought online by supplying a 20-Mw power station less than 2 km from Rodeo’s plant. Discussions with government ministries and the operator have been in progress for the installation of 20 Mw of temporary power at this substation for 12 months while the existing underutilized diesel generating capacity is converted to gas, Victoria said Oct. 25.

This installation will result in cost savings for the operator and provide a quick increase in the country’s generating capacity ahead of the dry season ending in May. Given the existing infrastructure it should take 8 weeks to construct and commission, so there remains a chance that this project could be online by late 2013.

With respect to Logbaba field condensate, following installation of a tanker-loading facility in August 2012, RDL began transporting condensate to the Sonara refinery in Limbe, Cameroon. The 26 tanker loads shipped to date have totaled 7,784 bbl at Brent minus $1.50/bbl, or an average of $104.75/bbl.

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