Valeura Energy Inc (LON:VLU), an upstream oil and gas company with assets in the Thrace Basin of Turkey, has reported its unaudited financial and operating results for the three month period ended June 30th, 2021.
• Shallow sale – The Company closed the sale of its conventional gas business on May 26, 2021 and received net sale proceeds of US$16.85 million in cash (including closing working capital and effective date adjustments) plus deferred cash consideration valued at US$1.0 million;
• Financial position – Cash position of US$42.6 million at June 30, 2021;
• Strategy – Continuing to pursue near-term inorganic growth opportunities and seeking a suitable partner to farm-in to the Company’s 20 Tcfe unrisked mean prospective resource deep, tight gas play.
Sean Guest, President and CEO commented:
“Our second quarter results reflect the close-out operating results from our conventional gas production and financial impact of having completed the sale. In addition to the immediate growth in our cash position to US$42.6 million, with the sale completed we are now entitled to future royalty income and are able to pursue our growth-oriented strategy as a smaller and leaner organisation. This structure sets us up well to evaluate new business opportunities with minimal strain on the balance sheet.
“We continue to be active in evaluating mergers and acquisitions opportunities. Our remit includes an expanded geographic scope, with a focus on regions where the experience of our management team and board gives us a competitive advantage. In all instances, we are committed to only doing transactions which bring near term cash flow, plus the opportunity for material value generation. At the same time, our efforts to find a suitable partner for our deep tight gas appraisal play are continuing, and we believe the 20 Tcfe unrisked mean prospective resource in this play will serve to generate value for shareholders in the longer term.”
Shallow Sale Completion
Valeura’s sale of the conventional gas producing business closed on May 26, 2021 and the Company’s Q2 2021 financial results still include production revenue and costs up to that date.
The Company’s sale of its conventional gas producing business has resulted in a gain on disposal of US$6.1 million. Valeura received net sale proceeds of US$16.85 million, being the headline purchase consideration of US$15.5 million, as adjusted to reflect working capital adjustments at closing, in addition to the economic impact of production dating back to the sale’s effective date of July 1, 2020.
The Company has also recorded US$1.0 million in deferred consideration on its balance sheet, in recognition of the present value of the future royalty payments, to which it is entitled as part of the sale transaction.
With the close of the sale and disposition of subsidiary companies, Valeura is required to reclassify its non-cash accumulated foreign exchange losses which had been recorded on its balance sheet as Accumulated Other Comprehensive Income or Loss since the original asset acquisition in 2011. Due to the significant decline in the value of the Turkish Lira over the past decade, the AOCI due to currency translation, amounting to a loss of US$67.0 million, is transferred to retained earnings through the Statement of Profit and Loss. This, combined with the gain on disposal of US$6.1 million are the main drivers for the quarter’s Net loss of US$61.5 million.
With the conclusion of the shallow sale Valeura has a strong financial position including US$42.6 million in cash resources at the end of Q2, no debt, and an internationally experienced management team and board, Valeura is well positioned to grow by way of mergers and acquisitions. In addition, as a leaner organisation carrying a lower G&A burden plus the expectation of future incoming royalty payments, the Company can pursue its evaluation work without placing significant strain on its financial resources. Valeura is progressing on several M&A targets that provide near-term cashflow, plus the opportunity for medium-term re-investment to generate material value through growth. The Company takes an uncompromising approach to these screening criteria and is squarely focussed on only executing transactions that will lead to significant value growth for shareholders.
In the longer term, Valeura intends to deliver value from its deep, unconventional tight gas play in the Thrace Basin. Its three exploration licences in the core of the Deep Gas Play are valid up to June 27, 2022, and 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, which do not require material near term cost outlays, prior to converting the exploration licences to longer term production leases. With the easing of COVID-related travel restrictions, the Company is pursuing a plan to farm out a portion of its interest in the Deep Gas Play in order to jointly pursue the next phase of appraisal work.
Additional information and commentary on the three months ended March 31, 2021, is included in the Company’s management’s discussion and analysis, which is available on the Company’s website and on ww.sedar.com.