VOG 2005 New Thread

(For those that missed this article previously posted)

Hargreaves Lansdowne, One of five stock picks for 2006......

December 2005, price at publication 100p. Victoria Oil & Gas

Victoria Oil & Gas sprang into life last month, more than tripling its value inside three days following a big resource confirmation at its key West Medvezhye gas and condensate project. The announcement prompted a swell of activity in the group’s shares as investors were excited about the potential for further success from three other wells planned for next year, which the company believes have at least equal promise.

Independent specialists confirmed a half a trillion cubic feet (Tcf) recoverable gas resource from the first discovery well at the Western Siberia site, although it estimates a maximum of 2.3 Tcf. Victoria has a 74.8% stake in the project located in a region of Russia that already contributes around 20% of the world’s annual gas production.

Executive director William Kelleher’s is well placed to understand Victoria’s chances of success. As vice president for Central Asia at Yukos Oil, once Russia’s biggest oil producer, the 46-year old was responsible for managing and developing its exploration and production companies in Kazakhstan and Central Asia. Bullish chairman Kevin Foo is already speculating that the West Med discovery could transform the company.

In October, Victoria also secured 35m barrels of proven and probable oil reserves at the Kemerkol field in Kazakhstan, with production due at the start of next year. “Kemerkol has the potential to become a significant cash generator,” said Kelleher.

Four wells at Kemerkol should start producing up to 500 barrels of oil per day (bopd) in the first quarter of 2006; while a further seven new wells have the potential to take production up to 1,800 bopd by the end of the year.

The group also drilled the first of four exploration wells at the Tamdykol oil project in Kazakhstan.

Zac Phillips at broker Ambrian Partners remains upbeat on prospects, putting a fair value of 306p on the shares following the West Med news. Phillips believes potential reserves of 4.4 Tcf at West Med could place Victoria firmly among the larger Russian and Former Soviet Union players such as Sibir and JKX.

The shares soared on the back of the West Med update, although news of fresh fundraising has deflated the advance and an element of political risk still remains. But with oil prices expected to hold up, President Nazarbayev’s success in the recent Kazakhstan elections, three more discovery wells to be drilled at West Med and production starting at Kemerkol, Victoria is likely to remain one to watch over the next 12 months.

This is the most speculative of the five picks for 2006. The shares have already risen sharply but there does appear to be more to go for. Consider as a speculative buy.