Oil share analysis: Can Victoria Oil & Gas overcome problems?

by from interactive investor |

Financial markets analyst Rajan Dhall picks out the day's key industry news and runs the numbers to see what this share price might do next.

Oil markets are looking to see if Saudi Arabia will play ball this week. They have now formally admitted that journalist and critic Khashoggi died at the Saudi consulate in Istanbul, but have not released any details about the incident. 

Moving forward, all the cards seem to be in Turkish President Erdogan's hands. He said he will release the details of the death on Tuesday, but this could be a bargaining chip to use against the US who have been at odds with Turkey for some time. 

This is a political play that could have a major impact on the oil markets in the near future. Saudi Arabia could flood the market or even restrict output depending on the approach they want to take. 

President Trump has tweeted his condemnation of higher oil prices recently, but now the market is in the hands of Turkey and the Saudi's. Today, spot WTI hovers just under $70 per barrel and Brent crude is oscillating around the psychological $80 per barrel. 

Expect some fireworks tomorrow but, for now, price action will be tentative and static in anticipation of the Turkish PM's press conference. 

Victoria Oil & Gas 

This morning, Victoria Oil & Gas (VOG) provided their third-quarter update on operations and non-grid business developments. The Cameroon-based gas and condensate producer and distributor said there was some good progress, including gross gas sales up by 11% on the second quarter to 356 million standard cubic feet (mmscf) and average gas production up 12% to 3.72 mmscf per day (mmscf/d).

Gross gas sales for the past week were 4.6 mmcf/d with peak consumption of 5.6 mmcf/d. Estimates for production by year-end 2018 have been scaled back to 5 mmcf/d from 7.8 mmcf/d.

There's also an update on the situation with ENEO, Cameroon's power utility, which caused the suspension of sales to the ENEO-owned Logbaba and Bassa power stations in Douala. 

Gaz du Cameroun (GDC), a subsidiary of Victoria Oil, is confident a solution will be found, but progress has been delayed because of the recent Presidential elections in Cameroon. This is not welcome news as it leaves the project in limbo and its fate rests on an unstable situation. 

To try and bolster its gas consumption the company agreed on some financing with local banks to install generators at the sites of industrial customers, but they had to offer a 10-year commitment and minimum volumes to seal the deal.

"The peak gas sales of 5.6 mmcf/d is encouraging and the level of granularity provided on the power segment in 2019 is welcome," said analysts at GMP First Energy. "We continue to believe that the future share price performance will probably be closely tied to the outcome of the negotiations on the ENEO contract."

Chart analysis

Looking at the weekly chart, you can see that in recent weeks there has been a sharp sell-off. 

The low on the chart of 23.10p looks to be the main support level as it was used to good effect at the beginning of 2016. Since peaking in 2017, the price has sold off, but buyers have come in ahead of 25p to provide support. 

To confirm any kind of move higher, it's clear that the price would need to break the next major level of resistance at 44p, and the catalyst may be the elections in Cameroon. 

However, the trend on the stock is still down. A break of 23.10p would confirm the 'lower high, lower low' dynamic. 

Past performance is not a guide to future performance

Rajan Dhall is a freelance contributor and not a direct employee of interactive investor.

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