Shares in Cameroon-focused energy minnow Victoria Oil & Gas (AIM:VOG) have slumped by around 10pc since the firm launched a $25m fundraise in October. But with Victoria planning to use its freshly topped-up coffers to fund rapid expansion into the energy market, while also looking set to unveil a strong set of drill results later this month, it could be worth striking while the iron is hot.
Following a general meeting last week, Victoria successfully placed around 35m new shares on the market at 57p each, a 12pc discount to their market price, raising more than $25m. While most of these shares were issued as part of a traditional placing, Victoria also placed more than 3m shares in an open offer to existing shareholders, acknowledging what it calls their ‘continued support’.Despite Victoria’s promising set of interims released in September, where it reported a 11.4pc year-on-year jump in production at its Logbaba field, shares fell from 66p to 57p following news of the placing.
They have continued to languish at this level since, sitting at 55.8p at the time of writing. A downward share price movement following a placing announcement is not at all uncommon; for many investors the short-term losses created by share price dilution outweigh any potential long-term gains. Indeed, with Victoria estimating that the new shares will represent a considerable 22pc of its enlarged share capital, the reactionary drop is hardly surprising, especially in the drama-hungry AIM market.
But with boss Ahmet Dik claiming the fundraise forms a ‘significant step’ towards Victoria’s gas production goal of 100 million standard cubic feet per day by 2021, the potential for strong long-term returns is clearly the real story here. Through its wholly-owned subsidiary, Gaz du Cameroun, Victoria plans to use the capital to complement existing operations in its natural gas supply business with an expansion into Cameroon’s power sector. According to Victoria, Cameroon’s current power demand comes in at 3,000MW, vastly overshadowing its current supply of just 1,300MW.
By cutting costs and ramping up production, Victoria hopes to supply gas to power stations owned by local, independent power producers green-lighted by Cameroon’s government to help reduce the power deficit. ‘[We are] well placed to support such power demand with the supply of gas,’ the company claims. Although these plans are likely to take some time to implement, a particularly punchy drilling update released earlier this month adds further fuel to the argument for buying Victoria stocks while they remain cheap.
Victoria said analysis of its LA-108 well, conducted after drilling to target depth, had found better-than-expected gas sands which ‘significantly’ exceed those at its La-107 well, which began production in September. Shares rose by just 2.8p on the news, but with flow tests planned and La-108 expected to be a producing well by the end of November, shrewd punters may find it is worth getting in before the rest of the market cottons on.
Disclosure: The author of this piece does not own shares in the company written about above nor has he been paid by the company to write this article