Valeura Energy M&A is the right way to add near-term cash flow to portfolio

Valeura Energy Inc

Valeura Energy Inc. (LON:VLU), an upstream oil and gas company with assets in the Thrace Basin of Turkey, has reported its financial and operating results for the three month period ended December 31, 2020 and the year ended December 31, 2020, and year-end 2020 reserves. 

The complete quarterly reporting package for the Company, including the audited financial statements and associated management’s discussion and analysis and the 2020 annual information form, are being filed on SEDAR at and posted on the Company’s website at

Financial and operating results presented in this announcement, together with the financial statements, the MD&A, and the AIF, include results from assets associated with the Company’s shallow conventional gas business which are subject to a share purchase agreement announced on October 20, 2020.  Valeura and TBNG Limited are progressing to closing the Sale Transaction, however, until such time as the Sale Transaction is completed, these assets remain owned and operated by Valeura.  All assets associated with the shallow conventional gas business are identified as held for sale in this announcement and the Company’s associated reports, identified above. 


•     Full year 2020 average production of 650 boe/d, relatively unchanged from 660 boe/d in 2019;

•     Full year revenues of US$8.5 million, down 16% from the full year 2019, mainly due to lower realised gas prices;

•     Total Proved Plus Probable reserves of 7,798 Mboe at year end, down 2% from the prior year;

•     Cash position of US$30.1 million at year end; and

•     Positive progress toward closing the Sale Transaction for cash consideration of US$15.5 million, plus future royalty payments.

Sean Guest, President and CEO commented:

“The sale of our conventional gas business is progressing and has now obtained all but one remaining government consent to complete the transaction.  Both Valeura and the Buyer remain committed to the deal, with confidence on both sides stemming from a solid ongoing production performance which has delivered average full year volumes that are virtually unchanged from the prior year.

“Meanwhile, we are continuing in our efforts to farm out part of our interest in our deep tight gas play.  We believe the increasingly positive investment environment we see today should increase interest by potential partners and are therefore continuing the farmout process into 2021. 

“We are also pressing ahead on our evaluation of inorganic growth opportunities.  With our strong balance sheet and internationally-experienced team, we see M&A as the right way to add near-term cash flow to our portfolio.  While our team has been aggressively evaluating and advancing potential opportunities, we are maintaining discipline in these efforts and will only do deals where we have a clear line of sight to generating value for shareholders both through the deal itself and through follow-on investment thereafter.”

Table 1 Financial and Operating Results Summary

 Three Months Ended December 31, 2020Three Months Ended September 30, 2020Year ended December 31, 2020Three Months Ended December 31, 2019Year ended December 31, 2019
Financial(thousands of US$ except share amounts)     
Petroleum and natural gas revenues1,9781,8438,5472,65310,177
Adjusted funds flow (used) (1)(335)(1,210)(1,154)1,5953,741
Net loss from operations(15,294)(2,149)(19,534)(735)(4,815)
Exploration and development capital9342954,8453,66911,801
Banarli Farm-in proceeds (2)(1,452)
Net working capital surplus42,19032,18242,19037,64537,645
Common shares outstandingBasicDiluted 86,584,98992,221,822 86,584,98994,463,323 86,584,98992,221,822 86,584,98992,421,565 86,584,98992,421,565
Share trading (CDN$)HighLowClose 0.600.290.57 0.380.300.31 0.650.200.57 2.650.480.60 3.990.480.60
Crude oil (barrels (“bbl”)/d)16139
Natural Gas (one thousand cubic feet (“Mcf”)/d)4,1453,6903,8243,8773,907
Average reference priceBrent  ($ per bbl)BOTAS Reference ($ per Mcf) (3) 44.325.07 42.915.47 47.436.01 -7.54 64.37.13
Average realised priceCrude oil ($ per bbl)Natural gas ($ per Mcf) 43.485.02 -5.43 50.165.94 -7.44 64.906.98
Average Operating Netback($ per boe) (1)15.1711.6317.0424.5324.00


See the MD&A for further discussion.

(1)  The above table includes non-IFRS measures, which may not be comparable to other companies.  Adjusted funds flow is calculated as net income (loss) for the period adjusted for non-cash items in the statement of cash flows.  Operating netback is calculated as petroleum and natural gas sales less royalties, production expenses and transportation.

(2)  Proceeds received from Equinor to complete spending commitment for Phase 2 of the Banarli Farm-in.  Recorded in the financial statements as a reduction of exploration and evaluation assets.

(3)  BOTAS regularly posts prices and its Level-2 Wholesale Tariff benchmark is shown herein as a reference price.  See the AIF for further discussion.

Net petroleum and natural gas sales in Q4 2020 averaged 707 boe/d, which was 15% higher than Q3 2020. This increase in production primarily reflects the impact of successful well workovers.  Year on year, there was minimal change in production, even considering the significant reduction in gas demand in 2020 due to COVID-19 shutdowns and restrictions.

Production revenue in Q4 2020 was US$2.0 million, an increase of 7% over Q3 2020 due to the higher production in Q4 more than offsetting the impact of lower realised gas prices.  For the full year ended December 31, 2020, production revenue was US$8.5 million, a decrease of 16% from the prior year. 

Exploration and development capital spending was US$0.9 million in Q4 2020, reflecting increased spending related to well workovers.  The majority of the full year 2020 capital spending of US$4.8 million was on drilling two licence commitment exploration wells and workover programmes on the shallow, conventional gas production.

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As of December 31, 2020, the Company had US$30.1 million of cash and a net working capital surplus of US$42.2 million.  The increase in working capital at December 31, 2020 over the prior reporting period, and the primary difference between cash and working capital, is due to the inclusion of assets and liabilities associated with the Assets Held for Sale in working capital.  Please see the financial statements for details of the calculation.

The Company reported a net loss from operations of US$15.3 million in Q4 2020, which is primarily due to an impairment charge of US$13.4 million relating to removal of the property, plant and equipment associated with the Company’s deep, tight gas assets in the Thrace Basin.


Conventional gas business sale

Valeura has made good progress toward completing the Sale Transaction and both parties remain committed to concluding the deal as soon as possible.  The Sale Transaction has received one of two key government consents in January 2021, with only one approval outstanding before the transaction can be completed.

The Sale Transaction’s headline cash consideration price is US$15.5 million, and Valeura will receive royalty payments of up to an additional US$2.5 million thereafter.  The Sale Transaction is based on an economic effective date of July 1, 2020, meaning the purchase price will be adjusted at the time of closing to account for the net benefits of the assets accruing to the Buyer as of that time.

Deep Gas Play Farmout

Valeura views its Deep Gas Play as a core constituent of its portfolio and believes this play to be a material source of potential long-term value for shareholders.  In 2020, the Company confirmed its increased working interest in the Deep Gas Play and secured the first of three possible two-year extensions.  The three exploration licences in the core of the Deep Gas Play are now valid up to June 27, 2022.  Under Turkey’s licence terms, the Company has the ability to maintain these assets for up to approximately five more years through work programme commitments for each two-year extension period.  During the current two-year extension period, Valeura is required to drill one exploration well on each of the three exploration licences, for an estimated total net cost of  approximately US$1.6 million for the three wells combined.

Valeura initially planned to undertake a farm-out process starting in Q2 2020 aimed at identifying a new partner for the Deep Gas Play, however, the decision was taken to delay the process until Q4 2020 given the COVID-19 pandemic and resultant challenges in the oil and gas industry, which meant that fewer companies were seeking new opportunities.  The farm-out process was conducted in Q4 2020 and continues into 2021.  As of today, there is no agreement with a new party to farm in to the Deep Gas Play.  As commodity prices are now recovering, the Company anticipates an increase in appetite for opportunities of this type, and believes the Thrace basin is an appealing proposition, particularly as more companies are expressing a preference for gas-oriented opportunities and the potential for material upside. 

Growth Strategy

Following a very challenging year for the upstream industry as a whole, Valeura is in a uniquely strong financial position.  The Company has no debt, and US$30.1 million in cash.  This cash position is expected to be further bolstered upon completion of the Sale Transaction, which would contribute US$15.5 million in cash, subject to normal closing adjustments as detailed above, and supplemented further with ongoing royalty payments of up to US$2.5 million. 

Valeura’s strong balance sheet, coupled with its internationally experienced management team, positions it well to grow by way of mergers and acquisitions.  2020 was a year of historic lows for M&A transactions globally due to COVID-19 and the associated downturn in the industry.  The ability to transact has improved in 2021 as stability returns to the industry, and upon completion of the Sale Transaction, Valeura is well positioned to capitalise on its strengths. The Company remains actively engaged in evaluating inorganic growth opportunities while maintaining M&A screening criteria oriented toward assets that generate cash flow in the near term and provide opportunities for further cash flow growth through reinvestment.


The Company has signed an agreement to sell its entire shallow gas production business and these assets are reported in the Company’s financial results as assets held for sale. However, at year end the subject assets were still owned by Valeura and the Company is required to complete an independent reserves evaluation as at December 31, 2020. This evaluation was conducted by independent petroleum engineering consultants, GLJ Ltd. of Calgary Canada, and is presented in their report dated March 23, 2021. 

At December 31, 2020, all of the Company’s reserves are associated with gas production from the shallow assets in the Banarli exploration licences (100% working interest), the West Thrace production leases and exploration licences (81.5% working interest), and the South Thrace production leases (81.5% working interest). Table 2 summarises the Company’s reserves in Turkey and the before tax net present value discounted at 10%.

The forecast realised prices used in the GLJ Reserves Report to calculate value are US$5.38/Mcf for natural gas and US$47.93/bbl for light and medium crude in 2021, and these prices escalate at approximately 2% per year going forward. More details on assets and the commodity price assumptions are included in the AIF.

Table 2 Company Gross Reserves Volumes and Values (1)(2)

 Before Tax NPV10(US$ MILLIONS – $MM)
 Before Tax NPV10(US$ MILLIONS – $MM)
Before Tax NPV10(US$ MILLIONS – $MM)
Developed producing81152654%8.69.5(9%)
Developed non-producing356477(25%)4.310.2(58%)
Total Proved (1P)2,3932,3034%14.232.4(56%)
Total Proved Plus Probable (2P)7,7987,936(2%)32.091.9(65%)
Total Proved Plus Probable Plus Possible (3P)11,62512,377(6%)49.8147.0(66%)


(1)  See Oil and Gas Advisories and Reserves Definitions below.

(2)  Due to rounding, summations in the table may not add.

The reserves are almost wholly natural gas, but small oil and natural gas liquids volumes are assigned to a number of wells. The 2020 year-end reserves by principal product type are summarised in Table 3.

Table 3 2020 Year-end Company Gross Reserves Volumes by Principal Product Type (1)

Total Proved Plus Probable5646.57,798
Total Proved Plus Probable Plus Possible6969.311,625


(1)   See Oil and Gas Advisories and Reserve Definitions below.

(2)   Natural Gas Liquids have been included in Light and Medium Crude Oil

Table 4 sets forth a reconciliation of reserves changes in 2020.

Table 4 2020 Year-end Company Gross Reserves Reconciliation

At December 31, 20192,3037,936
Improved Recovery83
Technical Revisions30836
Economic Factors
At December 31, 20202,3937,798


Valeura will hold its annual and special meeting of shareholders on May 13, 2021 at 3:00 p.m. in Calgary. The Company continues to monitor the restrictions related to COVID-19 and will announce the format for the meeting when meeting materials are mailed in early April 2021, and in all instances, will provide an opportunity for shareholders to access the meeting remotely.

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Valeura Energy Inc

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