Oil and gas Plant

Yaounde, Cameroon Africa(Cameroon News) -

A lot of big names in the oil and gas exploration sector is looking at strong prospects in Cameroon.

Oil and gas exploration in Africa is not a new thing what with counties like Nigeria and Angole being prospected strongly by oil and gas biggies. But the latest to join the list are less prominent countries like Cameroon which are slowly turning into the apple of the eye o investors across the globe.

Cameroon, which has a coastline that runs between Nigeria and Gabon has hogged the limelight in the recent past as a plethora of companies are planning to discover the unexploited potential of the country.

Cameroon’s oil production plummeted further in the first quarter of the year to 5.26 million barrels from 5.58 million barrels in the last quarter of 2010,which was mostly attributed to the maturing oilfields and absence of new wells.

Chairman of Cameroon-focused Victoria Oil and Gas (VOG), Kevin Foo, stated in an interview that Cameroon continues to be an unexplored gem: “Cameroon has been massively overlooked and has traditionally been seen as a dropping off point for other parts of Central and Western Africa.”

However, the latest developments in technology which span across deepwater drilling to 3D seismic, along with a sudden improvement in the sector marked by the foray on newer players who are willing to take more risks that their conventional counterparts have resulted in the sector once again slowly moving up.

While state oil company National Hydrocarbons Corporation predicts production to dip for the remaining part of this year, a rebound is anticipated in 2012 when new wells might start their production. The new players might make use of this golden chance for exploration which in turn could set the pace for important developments for those companies which put forth stakes to take acreage positions.

Potential instability

The positive aspects of exploration are however nullified by the potential fiscal and political unstability that is inherent to the region.

Cameroon carries the risk of a political drama which could be fuelled by violent protests as the country and its opposition parties get ready to topple the existing Paul Biya regime.

In spite of having a long coastline, the country’s ports are also not safe. In fact the country’s busiest port of Douala has also been attacked in the recent past by armed militants and the coast is quite in famous for its innumerable pirate attacks.

But , Kevin Foo says that Cameroon is still a “dream place to operate in”.

“The people are very laid-back and well educated. All but one of our employees are locals and we’ve found it to be a very stable environment in which to operate,” he said.

Victoria Oil & Gas makes a mark

Victoria Oil & Gas has been able to find out that the government is indeed receptive, as they came up recently with the announcement that it obtained a decree signed by the President offering it a 25-year exploitation license with the added capability of an extension of another 10 years.

The company has in fact just announced that it would be making its first gas sales to industrial users from its Logbaba gas project by the end of this year.

In spite being dormant for almost half a century, the comeback of Victoria to the area has reinvigorated onshore oil and gas exploration and production activity in the area.

Though gas had been discovered in many of the wells in the 1950’s nothing more happened because there was no local market to support the discovery and the wells had to be closed. However, the country is now climbing the steps of development and the commercial growth in the country has created a demand for gas and the condition has now changed.

“The government of Cameroon intends to triple power generation in the next 10 years and much of that will be generated by gas. We intend to prove ourselves as a reliable energy supplier,” Foo said.

The company has already entered into 12 gas sales agreements and executed another 10, and is totally focused on luring in new customers.

Victoria Oil, which has a market capitalisation of £122 million, said it had sufficient cash to take it through to first gas slated for the end of this year. Though the company had to face a lot of share dilution to get together the necessary capital in the past, the company has no doubt that it would face no more issues in the future with regard to the capital.

Ever since it took hold of its stakes in the concession two years ago, it has been able to enhance its proved reserves by five times and presently has doubled proven reserves and the company is looking to drilling more wells in the Logbaba gas field to take care of future demand in the next one to two years off.

“Ultimately, gas supply to a large independent power producer or a third-party LNG facility, such as that being considered by GDF SUEZ, is most likely required for Victoria to capitalise on the full productive potential of Logbaba. However, contracts with industrial consumers, where higher sales prices are achievable, will continue to provide significant value,” said oil and gas analyst David Hart at Westhouse Securities.

As it takes a look at the future, the company said it was also sizing up other opportunities in the region, stating that it could not remain “stagnant” as it expects an influx of company interest after it announces the details of its first gas sales.

Bowleven is lucky

Victoria’s counterpart Bowleven (BLVN) also has a similar story to narrate having made a mark in the country. The company, whose shares have risen by 182% over the past year, recently announced positive results in its drilling making investors happy. This is after investors had almost written it off assuming that it was gas prone.

Melanie Savage, analyst at UBS, said the Sapele findings had “extended the Cretaceous play fairway offshore and hints at further upside elsewhere in Bowleven’s acreage and in other parts on the Douala basin.”

Michael Alsford, analyst at Citigroup,was highly appreciative of the results – which still need testing to afcertain the potential – as “clearly encouraging” and said there is important potential in the Tertiary and Cretaceous plays.

“We have included 110p per share risked for the Lower and Deep Omicron at Sapele-1 in the base net asset value of 500p per share and 33p per share risked for the Sapele-2 well. However, further upside could be delivered from positive test results from Sapele-1 and Sapele-2. We believe Sapele-2 could be worth up to 13 1p per share if the discovery is up to 70 million barrels of oil equivalent,” said Alsford.

While Bowleven did not delve into more details on their future programme after the testing of Sapele-2, Alsford assumes the company could drill up to two more wells this year to look at the upside potential, assuming there to be significant potential in the Tertiary and Cretaceous plays across licences MLHP 5,6 and 7.

At the end of the year 2010, Bowleven had $189 million of cash and should obtain proceeds of $35 million this year from the sale of its EOV asset in Gabon. This money should be good enough to cover an 18 month exploration campaign, the cost of which is approximated at $180-220 million, according to analysts.

“We remain positive on Bowleven’s Cameroon drilling programme. With the pullback in the shares following the disappointing Sapele-1 results, we believe the pullback offers a good entry point into one of the highest impact drilling campaigns in 2011 in our coverage universe,” Alsford added.

Moreover, the Cretaceous well proposed for the third quarter of this year will permit the company to secure a broader understanding of the Cretaceous horizon and target follow-on prospects.

On the basis of a similar prospect size to the pre-drill P10 expectation in the Cretaceous of 3.7 billion barrels, UBS adopts a risked NAV of 620p, with 373% upside.

“We believe that while the basin had been written off as gas-prone by many of the majors exploring in the shallower waters, the play-opening Sapele well drilled by Bowleven has demonstrated the oil potential of the Cretaceous. Although little is known about the source rock at depth, we believe that the company has made what will be the first of some significant oil discoveries,” said Melanie Savage, analyst at UBS.