May 05

Oil and gas exploration company VOG (VOG) warned that further share dilution could be on the cards as it continues to pursue its drilling campaigns in Russia and Africa.

In a letter to shareholders on Wednesday morning, chairman Kevin Foo addressed investors’ fears at the level of dilution taking place.

In the last year, the group has raised $53 million through the issue of 926 million shares and Foo recognised shareholders’ fears as a “valid and important point” which undoubtedly contributed to a disappointing share price performance.

However, shares in the group tumbled a further 3.4% as it admitted that it would issue new shares for cash in the future as “such capital is the lifeblood of all growing companies.”

“We have some very attractive projects and until cash flow from Logbaba can cover our development costs we will pursue all financing options to avoid dilution. I want to assure shareholders that new share issues will only be approved by the Board if necessary to maintain schedule and when all other options have been eliminated,” Foo said.

In an effort to appease shareholders, the AIM-listed group said the last six months had been the most important in the company’s history as it battled to bring its flagship Logbaba project to fruition and assured investors that the steep drilling costs of the wells were now firmly behind it.

“We have faced and overcome some incredible challenges involving technical, operational and financing issues that at times have threatened the very existence of our Company. It is worth bearing in mind that one year ago, Logbaba was just a site in a region where no onshore drilling has taken place since the early 50’s, with no available infrastructure. Then, our budget to drill and complete the two wells was approximately $24 million and we anticipated that this would be done by the end of 2009. In fact, the total cost of the two wells and support in Cameroon has been about $49 million and only recently have we completed the second well.” Foo said.

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Drilling progress was also considerably slowed by the need for heavier mud weights, it added.

Tests have revealed La-105 to hold the capacity to serve demand from the group’s industrial customers after initial flow rates showed the equivalent of approximately 10,000 barrels of oil. Meanwhile, La-106 encountered in excess of 300 feet of gross pay in multiple gas bearing sands.

VOG anticipates first gas delivery to customers in the final quarter of this year.

“This has been a very successful campaign and we are expecting a substantial increase in Reserves and Resources from previously published figures of about 100 billion standard cubic feet of Proven plus Probable gas and condensate equivalent,” Foo said.

The group is now focusing on building gas production facilities and a pipeline at Logbaba.

Meanwhile, exploration activity has continued at the company’s West Medvezhye gas and condensate field in Russia. It is still aiming to collect as much information on unexplored areas as possible to ensure future wells will successfully supplement the existing discovery at well 103. Surveys commissioned on the area should be completed by the end of this month and its licence requirement calls for it to drill two new wells by the end of 2012.

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