VOG Secures Drilling Services, Funding Package for Logbaba Project
Victoria Oil & Gas announced that, through its subsidiary Rodeo Development Limited ("RDL"), it has signed agreements with a private company, Cameroon Holdings Limited ("CH"), for the provision of drilling services, local advisory services and funding ("the Transaction") for Logbaba.
Drilling Contracts and Funding Package for Logbaba Project, Cameroon
- Signing of agreements for the provision of drilling and other services for the Logbaba gas field in Douala, Cameroon
- Agreements will also provide for between US $4 million to US $10 million of additional project funding
- Mobilization of drilling rig to Douala commenced with arrival expected in mid-July
Logbaba is a proven discovery, with total independently assessed 2P reserves of 104 billion cubic feet of natural gas, located beneath the country's largest city, Douala. VOG has already signed gas off-take agreements for up to eight million cubic feet per day with some of the city's major industrial consumers and management believes that the first two wells will yield more than sufficient gas to service this initial market.
CH will undertake and manage the drilling of the first two wells at Logbaba, which will satisfy RDL's minimum requirements. The shareholders of CH are PR Marriott Ltd, an experienced UK-based drilling company, a highly respected Cameroonian manufacturing, construction and investment company and HJ Resources Ltd, a company owned by a discretionary trust connected to Mr. Kevin Foo, is also a shareholder.
As Mr. Foo is both the Chairman of the Company and connected to HJ Resources Ltd, the Transaction is classified as being related party under the AIM Rules. Accordingly, Mr. Foo has not participated in the Board's deliberations with regard to the Transaction.
The prime consideration of the Company is to fulfil its commitments to develop Logbaba, as this will provide positive cash flow in 2010. The Independent Directors have considered the terms of the Transaction, in consultation with the Company's nominated adviser Strand Partners, and consider that the terms of the Transaction are fair and reasonable in so far as Shareholders are concerned. In providing its advice to the Independent Directors, Strand Partners has taken into account the Independent Directors' commercial assessments in respect of the Transaction.
Under the terms of the Transaction, CH will provide a 1,000 horse-power drilling rig and drilling crew at a discounted operating rate and a minimum of US $4 million to a maximum of US $10 million in cash for well-site equipment. It will also provide in-country advisory services and assistance for the first 300 days of operation of the Project. As compensation, CH will receive an average royalty payment of approximately seven per cent. from RDL's share of gross revenue over the life of the Project.
CH also has the option of providing step-in finance should it be necessary to complete the development in the event that VOG requires additional funding. The Transaction provides for interest on the finance provided and security over the rights to the Project in the unlikely event that VOG defaults on its obligations.
The rig, which has been inspected, certified and packed in Portugal, is now en route by ship to Douala and is expected to arrive in mid-July. Once the rig is in place at the drilling location, the Logbaba exploration licence will be automatically extended until the first well is completed.
Commenting today on the signing of the agreements, Deputy Chairman Grant Manheim said, "Satisfying the technical requirements of this extraordinary project with the resources available to us has been VOG's priority since we acquired Logbaba in late 2008. The arrangements with CH, which we started negotiating in April, should allow us to fulfil our drilling requirement, which is a significant achievement.
"The arrangements with CH will provide VOG with a drilling rig, the team to operate it, at least US $4 million funding and the support and attention of an established local business. For these services, VOG pays nothing until work commences and CH shares the front-end geological risk in return for a production royalty. CH's return will not come until Logbaba commences commercial production. With CH as our partners and the rig on the water to Douala, the Project is now under way."
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