Victoria Oil and Gas has announced that its wholly owned subsidiary Gaz du Cameroun S.A. (GDC), a BVI company, and VOG have entered into a confidential Settlement Agreement with Cameroon Holdings Limited CHL, terminating the litigation with CHL and terminating the CHL Royalty Agreement.
Victoria had ceased making payments under the CHL Royalty Agreement. CHL commenced legal proceedings against both VOG and GDC concerning the payments that CHL claimed it was entitled to under the CHL Royalty Agreement.
The material terms of the Settlement Agreement are set out below:
The Settlement Amount agreed takes into consideration the past unpaid royalties up to the date of the agreement, disclosed in the Interim Financial Statements as at 30 June 2020 as a contingent liability of US$4.9 million and management’s forecast of the present value of the estimated cash flows due under the CHL Royalty Agreement. In addition, the Company considered the future cost of this litigation including damages, the huge drain on management resources and the distraction from focusing on value enhancing activities.
The Settlement Amount will be paid monthly over many years unless it is satisfied earlier by other means, including the realisation of cash from certain trade receivables, which have been fully provided in the Company’s accounts, active and planned claims (insurance and legal) and the sale of one of the Group’s non-core assets (the “Alternative Assets”).
The Company can pay down the Settlement Amount earlier without a redemption penalty. The monthly payment commences at US$90,000 from 31 December 2020 for four months rising to US$100,000 thereafter. In the event that gas sales commence from La-108 and certain prescribed threshold gas sales are achieved from the Logbaba field, then monthly payments will increase to US$150,000. The monthly payments cease once the Settlement Amount has been satisfied and the Company and the Company will pay interest of 5 per cent on any balance outstanding after 2 years. The Company and GDC have provided a charge, with customary terms, over the Alternative Assets, and CHL will be entitled to receive varying portions of the proceeds of any future realisation of such assets while the Settlement Amount is outstanding and these amounts will reduce the balance outstanding.
Well La-108, drilled in 2017, reached a depth of 2,865m measured depth following two sidetracks. The well encountered gas in six sands within the Upper Logbaba and three sands in the Lower Logbaba formation. However, during the initial perforating of the Lower Logbaba sands, a spent perforating gun and some wire were stuck in the well. The perforating gun and most of the wire were retrieved in 2019 but unfortunately a new fish was left in the well. The workover rig (a snubbing unit) plus crew returned with a heavier workstring in March of this year, only to be interrupted by COVID-19 restrictions.
The crew returned in mid-September and recommissioned the rig. Fishing operations commenced in early October and the fish was recovered, the well was cleaned out, and six sets of perforations were shot across a total estimated gross pay interval of 86m. The well was opened up on 11 November 2020 to a flare and achieved a flowrate of just under 20 MMscf/d with a FWHP of 3,580 psig on a 32/64″ choke. The theoretical AOF (Absolute Open Flow) potential of La-108 is estimated to be 50 MMscf/d (though this is to be confirmed following analysis of all the test data) . In addition, four more Upper Logbaba sands in La-108 remain available for perforation in the future, as required by production.
This operation has been conducted with no major Lost Time Incidents to report to date, bearing in mind that we were somewhat blind to what lay below the fish and how and where we would encounter what is an over-pressured reservoir. Whilst we loathe the flaring of gas, a vital resource to Cameroon, we have a dispensation to do this for a relatively short time to establish the nature of produced fluids, productivity, contaminants, and so on, before we hook the well up to the permanent facility. Furthermore, we are conscious that we are on the outskirts of a major city, and we have attempted to keep out operational footprint as low as possible during this operation, working with local communities, authorities and businesses prior to the opening of the well and at every step.