Valeura Energy Inc. (TSX:VLE, LON:VLU), an upstream oil and gas company with deep tight gas assets in the Thrace Basin of Turkey, is pleased to provide a trading update.
Financial Position and Royalty
As of December 31, 2021, Valeura had no debt and held cash and cash equivalent resources totalling US$40.8 million, before accounting for anticipated receivables relating to Q4 2021. Upon selling its shallow gas producing business in Turkey in May 2021, Valeura retained a royalty on ongoing production to capture potential price upside for the benefit of shareholders. The Company has been notified by the buyer that it will receive a total of US$780,000 in royalty payments for Q4 2021. Further, Valeura expects that it will ultimately receive total royalty payments of US$2.5 million under this arrangement, representing the maximum possible royalty payment under its contractual arrangements with the buyer, and that based on current gas prices and estimated production, the remainder of this amount should be fully recovered by the end of 2022.
During 2021, Valeura reshaped its organisation structure and downsized to best support its forward strategy, resulting in a significant reduction in corporate costs. In Q4 2021, the combined effect of reduced ongoing corporate costs together with anticipated royalty payments resulted in net cash consumption of just over US$400,000 for that quarter.
Valeura’s 20 Tcfe unrisked mean prospective resource deep tight gas appraisal play in Turkey remains a core part of the Company’s portfolio and represents a significant source of potential long term value. Given the continued historically high gas prices in Europe and Turkey, Valeura has resumed its search for a suitable farm-in partner for the tight gas appraisal play and has re-engaged a London-based advisor to assist in the search. The Company believes securing a partner is the most prudent first step before committing significant capital to the next phase of appraisal drilling. Valeura is poised to resume deep drilling operations rapidly upon securing a partner, with several locations in the advanced permitting stage.
As a result of the ongoing COVID-19 situation in Turkey, local regulators have extended both the current phase of exploration licences and the timeline to fulfil licence commitments, including drilling obligations, by one year. The current phase of the Company’s exploration licences will now expire on June 27, 2023, after which the Company has the option to apply for two additional two-year exploration periods. In particular, this extension provides additional flexibility with respect to Valeura’s obligations to drill two Banarli exploration wells and one West Thrace exploration well to maintain its deep gas rights, meaning the Company will have no material capital commitments until mid 2023.
In the nearer-term, Valeura Energy intends to leverage its strong financial position toward growing by way of mergers and acquisitions (“M&A“). The collective international experience of the Company’s management and board defines a broad focus area, including jurisdictions with significant deal flow and expected relatively low competition for assets. Valeura is actively pursuing several M&A opportunities, targeting near-term production and cash flow, plus follow-on investment opportunities to enable mid-term growth. The Company is currently in discussions on several opportunities, and will disclose further details on these transactions in due course as appropriate.