Victoria Oil & Gas’s (LSE: VOG) shares are heading higher this morning after the company announced that gas supply to customers from its Wouri River pipeline had begun. In particular, the company has successfully completed the first three thermal gas connections to customers from the company’s gas pipeline under the Wouri River, into Bonaberi Cameroon.
Two of the customers have already started receiving gas from the pipeline with deliveries to the third customer expected to start soon. This landmark development comes just five weeks after the company completed the extension of its gas supply network under the Wouri River to the Bonaberi shore.
The three businesses involved are all consumer businesses manufacturing cooking oil, biscuits and salt. So, demand for gas from these three companies should be relatively stable and predictable.
A fourth business, SOTEX, a textile manufacture has also been connected to Victoria’s Douala city gas network.
Commenting today Kevin Foo, Chairman, said:
“These first gas connections in Bonaberi, whilst relatively small in volume are an important milestone for GDC as the network expansion under the Wouri River now becomes a reality. Bonaberi is an important new market for our gas and we shall be updating the market on our production rates in due course…”
Gaining traction
Victoria is firing on all cylinders as the company expands its gas delivery and supply network across Cameroon. And customers continue to sign up for the company’s services, yet another positive development in Victoria’s transformation, which has taken place over the past 15 months.
Indeed, Victoria has transformed itself over the past 15 months from an exploration and production company, into an integrated utility company. This transformation has allowed the company to exploit its first mover advantage within Cameron. There are few competitors that provide the same service.
Unfortunately, there are no City analysts that cover Victoria, so it’s difficult to try and put a valuation, or price target on the company’s shares.
Nevertheless, according to the company, its wholly owned subsidiary, Gaz du Cameroun S.A, achieved operational break-even on a cash flow basis in February 2014. Gaz du Cameroun’s gas production hit 3.2mmscf/d during February and the company has plenty of customers to sell this gas to. Additionally, as Victoria connects customers to its key Bonaberi pipeline, cash generation and profitability should only increase.
For example, earlier this year I predicted that Victoria could break even, or even report a profit next year. This forecast was based on the fact that Victoria reported a pre-tax loss of $4.7m for its 2014 financial year, while gross profit for the period was $4.5m. Soon after reporting results, the company outsourced its pipeline laying activities, to cut costs, and now gas deliveries have commenced, revenue should start to tick higher.
Plenty more to come
So, Victoria’s costs are falling, production is rising and the company is starting to sign up customers. Based on these factors, 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.
