VICTORIA OIL ORD 0.5P (LSE:VOG)

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Share placing sends Victoria Oil and Gas to all-time low

Shares in Victoria Oil and Gas (VOG) fell 15% on news that it had placed almost 1.465 billion new ordinary shares at 1.6p per share to raise £23.4 million before expenses.

The proceeds raised from the placing, together with a $15 million (£9.6 million) reserve-based lending facility announced in January, will be used to fund the execution of its downstream strategy at the Logbaba gas and condensate project in Cameroon as the company increases production and sales.

Victoria Oil and Gas believes it is now fully funded to meet its "long-term corporate objectives, to monetise the Logbaba gas discovery and to meet its production target for 2013". The company said it did not envisage any further equity funding, stressing that future development drilling, increases in power generation and potential pipeline expansion could be financed from cash flow and debt financing.

"[The] fundraising by Victoria Oil and Gas alleviates one of the last issues relating to the company - the question [of] how it funds it future development in Cameroon," commented analysts at FoxDavies.

A revised production target of 12 million standard cubic feet per day (mscfpd) by the end of December has been set, comprising of 6.5 mscfpd of thermal and 5.5 mscfpd of power production.

Pure Africa-focused play?

The oil and gas company is also seeking to divest or spin out its Russian assets to become a pure Africa-focused production company and natural gas utility.

Victoria owns West Medvezhye, into which it said it would not invest further capital beyond licence maintenance expenditure.

"While the company continues to feel strongly that there is considerable value in West Med, this move will allow management to focus fully on implementing the utility-led growth strategy in Cameroon," it stated.

Gas production at Logbaba

Victoria, through its 100%-owned subsidiary Rodeo Development (RDL) holds a 95% interest in, and is operator of, the Logbaba Field, which owns and controls its own pipeline and distribution infrastructure from the well-head to the customer.

At the end of January, the company reported a further four customers had been commissioned and were consuming gas. In total, RDL now has 15 contracted customers taking gas at rates of 2.8 mscfpd during a standard operating week. Additionally, a further 10 contracted customers are awaiting conversion of their facilities to take gas.

All existing contracted customers are utilising gas for their thermal requirements. They have contracted gas at $16 per million British thermal units for a five-year non-negotiable term, exclusive for 20 years. 2.8 mscfpd equates to $18 million of revenue per annum under current contracts.

RDL has identified over 60 prospects for gas and/or on-site gas-fired power demand along existing and planned pipeline routes. The gas to power market represents two-thirds of the company's total thermal and power market estimated to total approximately 20 mscfpd by July 2014, assuming adequate capital availability.

To date, RDL has signed seven letters of intent for on-site gas-fired power and anticipates a total of between 30 and 40 megawatts of gas-fired power generation equipment in operation by December 2013. RDL estimates total gas demand in excess of 40 mscfpd over the medium term.

Interactive Investor view

The company is making headway - plans to strengthen the board are in progress, including the appointment of a chief executive to implement the production and revenue phase of the company's growth.

"The incoming chief executive will also help restore confidence that the management will remain focused on the delivery of the projects," echoed FoxDavies.

Additionally, the company is delivering gas to a hungry market. The Logbaba field lies in the heart of a city of three million people that is the industrial hub of central Africa, with a rapidly increasing demand for energy and power.

The company has already gone from a standing start of zero customers on gas production seven months ago to 15 industrial customers purchasing a total of 2.8 mscfpd, with another 10 clients waiting to be connected.

And demand is likely to increase given that Victoria is the only gas alternative to the incumbent energy providers, providing both heat generation and reliable power on a more cost-efficient basis.

Shares in the company have lost about half of their value over the past year, and are currently languishing at their all-time low.