Valeura Energy Inc (TSX:VLE) Chief Executive Officer Sean Guest caught up with DirectorsTalk for an exclusive interview to discuss the completion of the transformative Gulf of Thailand acquisition, third party reserves assessment and 2023 guidance.
Q1: When we last spoke, you’d just announced a transformative acquisition in the Gulf of Thailand, where you were buying three producing oil fields. Now that you’ve closed the deal, I wonder if you could talk us through your recent update regarding the closing numbers?
A1: Yes, we announced the deal in early December of buying the three fields from Mubadala Energy, and the effective date at that time was August 31st and we just closed the deal on March 22nd, so we had a 7-month interim period there.
During that period, we were very pleased, we saw that the production was averaging at 20,600 barrels a day, and that generated $363 million in revenue, during that period. When we did the deal back in December, we said we expected about $30 million in cash flow pre-tax and that’s really what we’ve seen from these assets.
So, we’ve seen a really good test of the cash flow and the production that we expected from the assets, which really when you brought that to close so when we took over the company on March 22nd, there was $243 million in cash in the company. When you take into account other assets, payables, also liabilities lie the tax that had to be paid, it was actually a net working capital gain to Valeura Energy, at that time, of about $105 million.
So, we were very pleased with that number, to see it and I think with the analysts I think it’ll beat expectations as well.
Q2: You’ve also announced a third party reserves assessment, what are the numbers telling us, are there any surprises there?
A2: No, it was really in line with what we expected so it came out with the total 2P reserves for the company now of 29.1 million barrels.
Really, the interesting thing when you look at these assets is they’re always showing to have a short reserve life index of approximately 3 years but every year when you do the reserves, the reserves don’t decline.
So, what that’s telling you is you’re continuing to see a reserve replacement ratio of near 100% on the assets. Everyone’s always quite concerned when they look at it and say well it’s a short reserve life and yet every year, for the past 6 years, we can show data that shows that you pretty well have a 100% reserves replacement ratio.
That’s the story we’re really trying to tell with these assets so yes, there’s great production in them but by drilling and more workovers, you’re able to replace those reserves almost 100% each year. That high cash flow that you get from the production just is a benefit to your company that keeps coming and you defer the abandonment.
Q3: A big focus from your announcement yesterday is Valeura Energy’s guidance for 2023, could you talk us through the highlights?
A3: So, it’s quite an active work programme that we’ve got set up for this year. We’re looking at really an average production for the full year of somewhere between 20,000 barrels a day, on the low side, and 22,300 on the upside. Again, that’s all oil that’s priced at about brand pricing.
The operating costs associated with that are between £229 to £240 million, and that gives us about $30 a barrel operating cost which for us we believe is very good in our offshore environment and quite competitive.
Now, the other element to our guidance that we put out is capex. We see the capex for this year is between $180 to $200 million, for these assets that’s at the high end but we are going into quite a heavy work programme. We’re going to be having one rig working for the full year and then we have another rig coming in for about a third of the year just to drill on our Wassana field, which we’ve talked about in the past.
So, it’s a high capex for the year but we see that is the opportunity to deliver a production increase when we look out about a year from now when we’ve brought on a new project on the Nong Yao fields, and we’ve also done the infill drilling in the Wassana field to increase that production.
The capex is not just about maintaining the production, it’s also about looking at growth, and growth in that production and cash flow.
