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WTI $40.63 -2c, Brent $43.10 -4c, Diff -$2.47 +32c, NG $1.83 +10c

Oil price

A quiet day in oil although equities, led by China, had big gains as more encouraging economic news filtered through. Oil is unlikely to make major gains while these virus numbers keep growing and keeping a lid on any demand drive, particularly in gasoline. On the subject of gasoline, the retail price too has taken a breather, at $2.177 per gallon across the USA it is up a fraction on the week but up 14.1c m/m and of course still down 61.8c y/y.

Victoria Oil & Gas

It had to happen, VOG has announced the termination of its agreement to supply gas to ENEO not before time in my opinion. GDC has continued to supply natural gas to ENEO through thick and thin since 2015 despite their poor payment record and repeated requests in writing and in person to settle the ‘burgeoning debt’ which now stands at $16m ($9m gross to GDC) at the end of June.

There has been no fully termed agreement, and payment guarantees that were due to quickly follow the binding December 2018 term sheet have not been forthcoming which is an ‘untenable’ situation. Accordingly, GDC served a notice of Event of Default on ENEO pursuant to the signed binding term sheet on 2 June 2020, which included a 30-day remedy period which has now expired.

As a result of this GDC has had no alternative but to terminate the GSA ‘with immediate effect’.  GDC is now ‘rigourously’ pursuing what is now an unpaid debt through the legal channels and includes a penalty payment of 3 months of fees as per the signed term sheet. It is worth noting that ENEO is majority owned by Actis LLP (51%), a London based investment company, with the Government of Cameroon owning 44%, and its employees owning the remaining 5%.

As for where VOG goes from here I was fortunate to have a lengthy interview with Roy Kelly the new-ish CEO yesterday and we touched on a number of key points. Firstly it is worth noting that whilst ENEO is the highest off-taker when it is online,it pays ‘by far’ the lowest gas price amongst VOG’s large customer base. Increasing non-ENEO clients will not take as much in the way of sales to make up the difference and the management team has clearly put a great deal of thought into the changed model.

‘The board of VOG has been reviewing strategy in light of the continued non-payment by ENEO and possible termination.  The Company’s strategy going forward will be to seek out replacement revenue in two phases: Phase 1 is to increase supply to existing customers, increases that can now be addressed as they are not reserving molecules for ENEO. Phase 2 is connection to maybe new,  high value, privately-owned, credit-worthy customers, near our infrastructure and followed by ‘similar customers in clusters requiring more capital to tie-in.’

I have been able to visit VOG in Cameroon and seen its client base in Douala, it is a sophisticated, mainly high end group and takes gas for thermal and power uses and as with the country in general there is a growing demand for power particularly out of the hydro-electric rainy season. GDC is the only onshore gas supplier and in my view it will be, at least in some times of the year the go-to gas company for guaranteed supply and attractive pricing.

The company also has worthy ‘green’ credentials, Logbaba has been for over 8 years displacing liquid fuels + displaced liquid fuels such as HFO which is largely imported and would be twice the price of GDC gas, dirtier and much more harmful to the environment. Also VOG is not all about Logbaba, the company operate adjacent and contiguous Matanda, they are also pursuing other nearby opportunities and of course still have the discovery in YaNAO, FSU in the heart of the oil industry there which has attracted potential attention.

Clearly the current situation had to change one way or another, I am convinced that Roy Kelly was hired in March in order to take some decisive action and this has most certainly happened. Why sell the gas with the lowest margin molecules to a customer that has continually not paid when smaller and medium size clients are available. It may be that in phase 2 GDC can offer capital investment in kit for clients and help them tie-in the company’s gas thus fulfilling the target to increase the higher margin sales.

So far so good, I have concluded that after many years of looking at VOG things are now changing and may be worth one more glance, it is after all a high growth, potentially high margin market with or without ENEO. I will leave the final word to Roy Kelly, CEO.

“Over the last few months, the management has conducted a thorough review of the business identifying key issues which need firm and decisive action. It is nonetheless regrettable that the Company has had to take this extreme action now, but all other approaches have failed to secure timely payment of aged debt, putting the company’s cashflow under pressure.”

Total Market Solutions

Yesterday I did a Podcast with Doc Holiday of Total Market Solutions and talked about the RockRose bid and its consequences as well as talking about these stocks: LBE, SLE, SQZ, CERP, BPC, SOU, JOG, IOG, SAVE, PRD, PPC and HUR.

And finally…

Last night in the Prem Spurs beat the Toffees 1-0, tonight sees Chelski at the Eagles the Hornets host the Canaries and the Gooners entertain the Foxes.