WTI $53.11 -29c, Brent $55.86 -37c, Diff -$2.75 -8c, NG $3.19 +4c

Oil price

Definitely a pre-holiday sort of day in crude markets yesterday, marked down from the start as traders were unwilling to carry too many long positions over the weekend, even the better than expected inventory stats couldnt revive the patient. An increase in US production started it all but this should be no surprise as we have weeks of warnings from the EIA and more importantly the rig count, also due today, one day early.

The EIA stats showed crude oil drawing 2.2m barrels vs a forecast of 772/- which should have been encouraging but the overall products news was even better falling by 4.1m b’s. Gasoline drew 3m and distillates 2.2m against expectations of a 1m fall for both, higher demand should be noted here and still no mention of you know what…

Victoria Oil & Gas

A Q1 2017 operational update today from VOG which has been a stellar performer of late as the market tags on to just how much the stock is undervalued. The key features are, production up, again, two Logbaba wells currently drilling, the Bowleven farm-in under way and initial positive news from Matanda where early seismic shows ‘considerable gas in place potential’.

So, Logbaba gas production is up 10.7%to 14.57 mmscf/d as the dry season continues and thus sales remain on an upward track. Drilling two new wells continues and La-108 has encountered gross pay of 125m of high permeability, high porosity gas bearing sands which should result in a ‘significant increase in proven reserves’. ( Bear in mind that the La-105 well pay was only 84m) The well has since been side-tracked after a ‘well control incident’ that was safely dealt with but will add around five weeks and $8m to the overall cost of the well but will be recouped from revenue. La-107 has been drilled and casing set to 1618m, both wells will be tested in Q2 and complete in Q3. A high pressure gas flowline is being installed to enable early production.

The Q1 revenue was $8.1m (Q4 4.6m) and the current cash position is $14.1m. With record gas sales in March one can remain genuinely optimistic about the future, especially as the company has completed phases 11 and 111 of the pipeline making 50km in total and added six new customers with two more waiting to tap in. This confirms that there is large, unsatisfied energy demand in Cameroon and VOG is very well placed to profit from it.

I have just returned from a visit to see VOG in Cameroon and its subsidiary Gaz du Cameroun (GDC) where I was extremely impressed by the set up and its local management. We visited the Logbaba gas project including seeing the two wells currently drilling and saw the pipeline from Logbaba all the way through Douala. In the process we saw a number of GDC’s key clients, including the ENEO power stations using GDC gas. ( a contract that is shortly due to expire but I am convinced will rollover as negotiations are ‘well advanced’)   Other clients we saw were a palm oil factory, two huge brewing operations at Guinness and SABC as well as Chococam which is part of Tiger Brands, chocolate and beer, what more could you ask for? Finally we visited Bomono which is intended to supply gas to the other end of the pipe in Douala where significant expansion is already under way. This would complete this part of the jigsaw and whilst subject to Government approval, should mean that either of the existing wells at Moambe and Zingana or even new wells, could supply gas to the rapidly expanding Douala customer base. The existing pipeline is only 9.5km away and most of the route could be constructed through a rubber plantation that has been untapped for several years making the infrastructure much easier.

The VOG format in Cameroon is rapidly becoming a significant money making operation, supplying gas to power projects and substantial commercial customers. There is no sign of any slowdown and the ‘cradle to grave’ utility model is proving to be a highly successful. Cameroon is seeing considerable inward investment, particularly from Chinese companies in the area and I see the total available market for gas to be growing faster than GDC can supply it. It would not be stupid to suggest that some such clients might even help finance the pipeline construction in order to be at the front of the queue for gas. Accordingly, providing the Bomono deal completes, then further gas supplies can be easily and cheaply brought on stream ensuring considerable increases in revenue and profitability. The longer term but potentially huge opportunities provided by the Matanda block can only add to the model which already looks in very good shape. Recent operational problems aside, I continue to view VOG as a significant opportunity and remain with my current target price of 200p.

Range Resources

A Q1 update from Range where all is continue to go as planned. Production is 567 b/d up 4% and the RRDSL RTO is continuing. Production is under way at the Beach Marcelle waterflood project at 60 b/d and Range has struck a deal with Petrotrin to use their water for injection here and at Morne Diablo when necessary. Whilst RRL is suspended for a while until the deal completes there seems still to be good things going on behind the scenes.

Ascent Resources

The flags are out at AST as first commercial production from Pg-10 in Slovenia has been announced. After 10 years and €45m it must surely be worth the wait but I congratulate Colin Hutchinson and team who certainly believed more than most in the project…

And finally…

Last night the Foxes went to Madrid and came away with a 1-0 only, might have been better but for a hooky pen but I suspect that they would have settled for that score, might have been half a dozen…

Tonight the Red Devils go to Anderlecht in the Boropa Cup but they might need it, the top of the Prem is very tight. At the weekend they also have the top tie as they welcome Chelski to the Theatre of Dreams. Also at the weekend the Noisy Neighbours go to the Saints, the HubCap Stealers are at the Baggies and Spurs host the Cherries.

In F1 it’s the Bahrain GP and for once, very open.

And some good rugby as we get to the vinegar strokes, best of them probably Saints v Sarries and Quins v the Chiefs.

And of course for the next 8 weeks its the Snooker World Championships……………

Enjoy the long weekend.