Victoria Oil & Gas : Annual Report & Accounts to 31 December 2019

Victoria Oil & Gas Plc Annual Report & Accounts to 31 December 2019

Victoria Oil & Gas Annual Report & Accounts to 31 December 2019

Victoria Oil & Gas Plc

Victoria Oil & Gas Plc ("VOG") is a fully-integrated onshore gas producer and distributor through its operations located in the port city of Douala, Cameroon, and also has legacy assets in the FSU.

The Company is focused on providing a cleaner and more efficient energy alternative to diesel and heavy fuel for the Douala region of Cameroon through the safe and reliable supply of its natural gas. Through the Company's wholly-owned subsidiary, Gaz du Cameroun S.A. ("GDC"), VOG has developed a cash generative business that delivers fully integrated, indigenous gas to local industry and communities. GDC has delivered gas to grid power, thermal and industrial power customers using safe, consistent and scalable solutions since 2012 via its now 51 km gas distribution pipeline network from the Logbaba Project.

Through the direct and indirect employment of people within the region, investment in local communities and its development of industry expertise and infrastructure, VOG is committed to ensuring a long-term energy future for the Douala region in Cameroon, where demand for power remains high.

Victoria Oil & Gas Plc is listed on the AIM market of the London Stock Exchange under the ticker VOG.L.

Victoria Oil & Gas Plc	"Victoria Oil & Gas", "VOG", the "Company"
The Group	"Victoria Oil & Gas Plc and its subsidiaries"
Gaz du Cameroun S.A.	100% owned subsidiary, "GDC", "Gaz du Cameroun"
EBITDA	Earnings before interest, taxes, depreciation and amortisation
ENEO Cameroun S.A.	Cameroon's national electricity generating company, "ENEO"
Logbaba	Logbaba Project, 20 km2 hydrocarbon licence in Cameroon
Matanda	Matanda Block, 1,235 km2 hydrocarbon licence in Cameroon

Please refer to full glossary, abbreviations and definitions section on page 94.

Contents

Strategic Report

1. Year in Review
2. Chairman's Letter/Operational Review

1. Financial Review

1. Principal Risks and Uncertainties

1. Operations and Customers

1. Reserves and Resources

1. Strategic Summary

1. Corporate Social Responsibility Report

Corporate Governance

1. Directors & Other Information

1. Corporate Governance Statement

1. Directors' Report

1. Directors' Remuneration Report

1. Statement of Directors' Responsibilities

Financial Statements

1. Independent Auditor's Report

1. Consolidated Income Statement

1. Consolidated Statement of Comprehensive Income
2. Consolidated Statement of Financial Position
3. Consolidated Statement of Changes in Equity
4. Consolidated Cash Flow Statement

55 Notes to the Consolidated Financial Statements

1. Parent Company Statement of Financial Position
2. Parent Company Statement of Changes in Equity
3. Notes to the Parent Company Financial Statements

94 Definitions, Abbreviations & Glossary

Year in Review

Victoria Oil & Gas Plc Annual Report & Accounts to 31 December 2019 1

REPORT STRATEGIC

Key Events

• Equity raise of US$16.8 million net of expenses.
• 93% increase in net revenue over 2018.
• 110% increase in daily average gross gas sales to 8.13 mmscf/d over 2018.

Post Year End

• Termination of ENEO contract.
• Appointment of Chief Executive Officer and Chief Financial Officer.
• Proven 1P reserves written down to 19 Bcf.

Daily Average Gross Gas Sales (mmscf/d)

2019

8.13

2018

3.86

2017

10.09

8.13 mmscf/d

110% increase from 2018

Annual Gross/Net Gas Sold (mmscf)

2019

Net 1,691

Gross 2,967

2018

Net 804

Gross 1,410

2017

Net 2,163

Gross 3,684

2,967 mmscf

110% increase from 2018

Thermal (Gross)

Industrial Power (Gross)

Grid Power (Gross)

1,505 mmscf

98 mmscf

1,364 mmscf

(YE 2018: 1,311 mmscf)

(YE 2018: 74 mmscf)

(YE 2018: 25 mmscf)

15% increase from 2018

33% increase from 2018

Revenue (US$ million)

2019

20.8

2018

10.8

2017

23.5

US$20.8 million

93% increase from 2018

STATEMENTS FINANCIAL GOVERNANCE CORPORATE

2 Victoria Oil & Gas Plc Annual Report & Accounts to 31 December 2019

Chairman's Letter

Dear Shareholders,

I assumed the role of Executive Chairman in April 2019 with the mandate to install a new senior management leadership team and tackle, if not resolve, the legacy issues facing Victoria Oil & Gas Plc ("VOG", "the Company"). 2019 was, and 2020 continues to be, a year of transition as we only welcomed Roy Kelly as the Chief Executive Officer of VOG in late March 2020. Bridging this transition to the Company's future, I will provide the sole commentary in this Annual Report.

Financial Performance

Having secured an extension of the ENEO contract late in 2018, revenue for 2019 of US$20.8 million was almost double the US$10.8 million attained in 2018.

Adjusted EBITDA for the year, which excludes depreciation, impairments and the state royalty provision for the operating loss, reflected a profit of US$4.0 million (2018: loss of US$0.5 million).

However, impairments and State Royalty provisions had a significant, and one-time impact, on the Company's profitability.

The Group is reporting a loss after tax of US$110.3 million for the year ended 31 December 2019 (2018: loss of US$8.5 million). The principle reasons for this significant loss are as follows:

• The Q2 2020 Operational Update advised shareholders that the proven ("1P") reserves for Logbaba had been revised downwards effective 1 January 2020. The stated reserves at 31 December 2019, which included production for the year, was 65 Bcf, which was revised to 19 Bcf. This is discussed in more detail later in this letter and further in the Reserves and Resources section on page 22. The reserves revision precipitated a non-cash impairment charge on the Logbaba assets of US$90.3 million (2018: Nil).
• The ongoing legal action against Cameroon Holdings Limited ("CHL"), which involves a dispute over royalty payments, has resulted in a non-cash impairment of the Group's investment in an associate of US$5.6 million (2018: Nil).
• Post year-end a decision was taken by the Logbaba partners crystallising a royalty obligation to the State of Cameroon, which back-dates to the inception of the project. The dispute surrounding this royalty has previously been disclosed as a contingent liability, and as a result of the decision a current liability of US$9.6 million has been

raised for the Gaz du Cameroun S.A. ("GDC") share of the obligation (2018: contingent liability of US$8.0 million).

• ENEO ceased consuming gas in September 2019. Following protracted efforts to effect payment from ENEO, GDC terminated the Gas Sales Agreement ("GSA") with ENEO in July 2020. The invoicing from September 2019 through to the date of termination was based on take-or-pay provisions in the GSA. Owing to uncertainty over the timing of the recovery of the take-or-pay invoices, management has raised a provision for expected credit loss against these invoices and certain other customers at 31 December
  2019 amounting to US$3.8 million (2018: reversal of US$0.7 million). The termination of the ENEO contract mid-2020 will have a material impact on revenues and performance during 2020.

Whilst these impairments and provisions are significant, the Board believes that it has fully accounted for the known matters and, with the exception of the disclosed contingent liabilities (Finance Review and Note 27), does not anticipate further material write-downs.

Loss per share, which includes the items listed above, was 48.2 cents (2018: loss of 5.8 cents).

The Directors have given careful consideration to the appropriateness of the going concern basis in the preparation of the Financial Statements. Whilst there are material uncertainties, the Directors have concluded that it is appropriate to prepare the Financial Statements on a going concern basis (see Note 3).

My Chairman's Statement in the 2018 Annual Report & Accounts brought to the forefront the key challenges for management. These same issues continued to be our strategic focus throughout 2019, as well as other matters detailed below.

Single Asset Risk (Upstream)

Logbaba wells are complex with commensurate operational risk

This risk was exemplified during the drilling of well La-108 in 2017. The well required two sidetracks and subsequent remediation efforts (of which further details below). So, mindful of capital preservation and risk, coupled with projections of demand growth, we will continue to utilise the existing well stock, though we realise this impacts our proved reserves.

This decision does not mean we don't envisage a fuller field development at a future stage given the large in-place resources in Logbaba,

"REVENUE FOR 2019 WAS ALMOST DOUBLE YEAR-ON-YEAR AND ADJUSTED EBITDA REFLECTED A PROFIT OF US$4.0 MILLION.

"