Victoria Oil & Gas (LSE: VOG) shares have jumped today after the company announced that construction of a key pipeline, under the Wouri River to the northern Bonaberi shore in Douala, Cameroon’s major industrial city, has been completed.
The pipeline will be tested over the next ten days and once approved, the pipeline will be connected to the company’s customers within Bonaberi.
Rapid progress
Victoria’s pipeline under the Wouri River is the latest development in the company’s rapid expansion plan that has taken place over the past year or so.
Indeed, the past 13 months have been key for Victoria and the company’s new Chairman and CEO, Kevin Foo, who took over control of the company during September 2013.
Since taking over, Kevin Foo has transformed Victoria from an exploration and production company into an integrated utility company, which has been able to exploit its first mover advantage within Cameron.
For example, Victoria’s wholly owned subsidiary, Gaz du Cameroun S.A, achieved operational break-even on a cash flow basis in February 2014, a goal that few Aim companies have been able to achieve. Gaz du Cameroun’s gas production hit 3.2mmscf/d during February and the company has plenty of customers to sell this gas to. The crossing of the Wouri River has only opened up an additional market for the company.
Falling costs
Unfortunately, according to the company’s results for year ended 31 May 2014, Victoria is not yet profitable, despite reaching break even on a cash flow basis. What’s more, no City analysts cover the company, as a result there are no City forecasts to help investors place a value on Victoria’s shares.
However, according to my figures, there’s a real possibility that Victoria could break even, or even report a profit next year. In particular, Victoria reported a pre-tax loss of $4.7m for its 2014 financial year, gross profit for the period was $4.5m.
But soon after results were compiled for the 2014 financial year, Victoria outsourced its pipeline laying activities, to contractor, Britanica. The new Britanica contract is a fixed cost-per-metre agreement, which should help push down Victoria’s costs as the company expands.
Additionally, after the results were complied, Victoria reported that condensate production almost doubled and gas production increased to 3.9mmscf/d by July.
Plenty more to come
So, Victoria’s costs are falling, the company’s production is rising and the construction of the Wouri River pipeline will allow Victoria to expand its customer base.
All in all, it’s reasonable to assume that Victoria’s revenue will surge higher over the next few months and as cost fall, the company should be set to report a profit next year. With that firmly in mind, now could be the time to buy Victoria, before the company reports its maiden profit next year.
