Firstly a little bit of background on me to keep things in context. I?ve been trading for 3 years while still working full time, made mistakes along the way and am still very much learning. Vog caught my eye early 2009 and I first bought, in April 09 as I believed in the Vog story, I?ve been buying ever since and now have well over 2 million, hence my comment about this now getting to scary levels for me. I?ve met a couple of the directors at Vog HQ and I am a declared Vog bull, but try to post balanced info and opinions. Most of my investments are for the medium to long term, Vog is still long term for me although I will take small 5% top slices along the journey.
Vog Assets
60% of Logbaba, Cameroon,
Vog have signed contracts with local industrials at $16/mcf and should be selling gas via it?s wholly owned gas supply network in Q1 2011. Seismic survey in early 2010 shows a very large anomaly which may have 1TCF of gas or possibly it could be oil. The oil speculation is based on geology, oil seeps, Elf drilling for oil here in the 50?s and the seismic survey, however probably better to assume it?s gas for now. Vog are awaiting a production licence (PL) so we can sell the gas and also permits to start installing the gas pipe network. Installing the whole initial 12km network could take 2 or 3 months but Vogs nearest customers are only a couple of KM away so we could be selling to them a month after work starts. Initial sales expected to be 8mmcf/d by end 2011 but this may be lower if there is a significant delay in getting licence and permits. It could also be higher if the gas take up grows rapidly and I think there is a good chance of the latter.
West Med (WM), Russia,
100% owned and could/should have 5TCF of gas, highly prospective hydrocarbon area. Vog need to drill two holes by end 2012. They carried out a seismic survey early this year but we haven?t seen the results, although ?3 new structures? were identified. It probably wont figure too much in 2011 as I think the company will still be focused on Logbaba and Vog will be spending time locating the best possible places to drill the wells in 2012. Definitely a lot to come from WM late next year and 2012.
Kemerkol (Kem), Kazakhstan,
was a producing oil field for Vog in 2008 but a legal challenge over ownership has seen production suspended. It?s value of £35million has been written off in the accounts but our MD Kevin Foo (KF) is still going thru the legal system to get it regain ownership. This case is likely to be concluded one way or another by year end. If Vog lose they may well be able to sue for damages against the vendor for $8million. There is perhaps a 40 to 50% chance we will get Kem back which may add a penny or two to the SP.
Potential Assets,
Falcon, Ethiopia and Mali
Licence block has visible surface oil seeps and Vog have an option to acquire Falcon?s acreage, probably for an amount in the region of $12million, of which no more than 20% will be in cash. I?ll speculate a 130 ? 180million share dilution to acquire Falcon but the higher our SP the less dilution we?ll have.
Liberia
Vog have applied for 5 ?off-shore? licence blocks and should hear of the outcome by year end. Long-term project for BoD if we win any blocks and shows company ambitions.
Vog history in a nutshell,
They started off slow but had a fantastic run up with a great deal of interest in West Med and Kem pushing the SP well in the mid £2.00?s in 2006, unfortunately poor drill results soon deflated the SP and with ever more dilution and losing Kem, plus a massive over spend on the Logbaba drills 105 and 106, the SP plunged to a low of 2.55p this Sept.
Add to this a Cameroon government official reported that Hyundai were to build a power plant close to Logbaba which Vog referred to in presentations, this later proved to be fictitious. Also allegations that Vogs MD was ?lining his and his friends? pockets over a deal done with Cameroon Holdings saw many personal attacks on him and the company as a whole. I personally can understand the grievances re the former but do not accept the latter, just my take so each to their own. On top of this communication with the company was perceived by many to be quite poor, however since the appointed of Jonathan Scott Barret (JSB) as a communications Director things in this department have improved.
My Latest Revenue Projection (others may disagree)
I?m being cautious here and using 6mmcf/d as an average in 2011
We need to keep in mind Vog will receive 100% of revenue to recover exploration cost before partner RSM receives their share, and also Cameroon Holdings have 7% of Vogs share as part of an expensive (for Vog) deal they did to secure funding and a rig last year.
As exploitation cost are tax deductable, no tax is likely to be paid before 2012.
I?ve estimated $4.3million for cost of production:
With sales of 6mmcf/d
$16 minus Cost of Production (estimate $2/mcf) = $14
Minus Government Royalty 8%
& CH 7% Royalty
& RSM 2% Royalty
& RRI 1.2% Royalty = $11.45
Minus Taxes 38% = Initially N/A
Minus RSM 40% = Initially N/A
so gas sales revenue in 2011 could be:
$11.45 x 6000 = $78.7k / day
Or $25.07 million / year
On top of this we can reasonably expect 150bbls of condensate a day which equates to
150 x 75 x 365 = $4.1million / year
In 2012 if we could increase average sales to 12mmcf/d we get
$11.45 x 12000 = $137400/day
Or $50million / year + maybe $6million condensate sales
Any increases in sales after that are likely to be offset by RSM starting to take their 40% and the taxes, however if we get to 15, 20 or 25mmcf/d sales through thermal and local power generation then revenue will be very significant.
It?s important to remember Vog now have 1.84 BILLION shares in issue, compared to just a few 100million before, so we are NOT going to see the £££?s hey days again, or at least not for very many years! Brokers have a price target of 12p so talk of anything more than this in the short term is probably a of bit wishful thinking, but with sentiment and if all goes to plan who knows.
Vogs Future ?.
Is imo, very much tied up with success at Logbaba and as said the company are hoping to increase gas sales greatly by offering local industrials the chance to generate their own electricity on site. Also as Logbaba has far too much gas to sell just to industrials, hopefully sales to power plants can be achieved but the $ price /mcf will not be anywhere near $16 so this aspect wont be very lucrative, however large gas sales will produce large amounts of condensate which would be very profitable. Looking forward, with drilling the anomaly and West Med in 2012 things could turn very bright for Vog, especially if Logbaba is up and running, plus we may get some great seismic readings out of the Falcon acreage and possibly Kem back on our books. However all these things do not come cheap so more dilution could very well happen if we can?t get enough bank financing, don?t complain when/if it does happen. Also I?d expect a 10 for 1 consolidation to occur at some point, maybe H1 next year?
Talk of a takeover seems premature. I?ve not heard of any such rumour and I know the company have shown no interest in this or even in farming out the northern anomaly. WM may be farmed out but imo the company would prefer to go it alone here if at all possible
All in all I believed in the Vog story from the my first research and even when looking at a £30k paper loss, which is now a very respectable paper profit ,I bought many more shares. Eventually this long-term plan is paying off and only after nearly two years of fighting Vogs corner against the whingers and de-rampers , am I beginning to sit back, relax and enjoy the ride. Of course things can always take a turn for the worse as well as well as for the better, so until the licence is approved we can?t take Logbaba for granted yet, but it?s highly unlikely that the licence will be refused.
All the above is just my opinion and based on mine and others research. Please do your own.
Regards
Temujiin
PS Am getting off the comp for now but will probably re-post on Monday if it gets lost in back pages
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