Victoria Oil & Gas(LSE: VOG)shares have jumped today after the company announced that construction of akeypipeline, under theWouri River to the northern Bonaberi shore in Douala, Cameroons major industrial city, has been completed.
The pipeline will be tested over the next ten days and once approved, the pipeline will be connected to the companys customers withinBonaberi.
Rapid progress
Victorias pipeline under theWouri River is the latest development in the companys rapid expansion plan that has taken place over the past year or so.
Indeed, the past 13months have been key for Victoria and the companys new Chairman and CEO,Kevin Foo, who took over control of the company during September 2013.
Since taking over, Kevin Foo has transformed Victoria from an exploration and production company into an integrated utility company, which has been able to exploit its first mover advantage within Cameron.
For example, Victorias wholly owned subsidiary,Gaz du Cameroun S.A,achieved operational break-even on a cash flow basis in February 2014, a goal that few Aim companies have been able to achieve. Gaz du Camerouns gas production hit 3.2mmscf/d during Februaryand the company has plenty of customers to sell this gas to. The crossing of the Wouri River has only opened up an additional market for the company.
Falling costs
Unfortunately, according to the companys results for year ended 31 May 2014, Victoria is not yet profitable, despite reaching break even on a cash flow basis.Whats more, no City analysts cover the company, as a result there are no City forecasts to help investors place a value on Victorias shares.
However, according to my figures, theres a real possibility that Victoria could break even, or even report a profit next year. In particular, Victoria reported a pre-tax loss of $4.7m for its 2014 financial year, gross profit for the period was $4.5m.
But soon after results were compiled for the 2014 financial year, Victoria outsourced its pipeline laying activities,to contractor, Britanica. The new Britanica contract is a fixed cost-per-metre agreement, which should help push down Victorias costs as the company expands.
Additionally, after the results were complied, Victoria reported that condensate production almost doubled and gas production increased to 3.9mmscf/d by July.
Plenty more to come
So, Victorias costs are falling, the companys production is rising and the construction of the Wouri River pipeline will allow Victoria to expand its customer base.
All in all, its reasonable to assume that Victorias revenue will surge higher over the next few months and as cost fall, the company should be set to report a profit next year. With that firmly in mind, now could be the time to buy Victoria, before the company reports its maiden profit next year.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
