Valeura Energy Inc (TSX:VLE) is the topic of conversation when Auctus Advisors Co-Founder and Head of Research Stephane Foucard caught up with DirectorsTalk for an exclusive interview.
Q1: First off Stephane, could you just remind of the Valeura Energy story, what’s it all about?
A1: The company’s story is really about maximising the value of material assets in shallow water, offshore Thailand.
You might recall that about a year ago, the company was effectively a cash share, fast forward to today, the company holds about 30 million barrel of 2p reserve and produce over 3,5000 barrels per day of oil.
The assets were really acquired on the cheap, really on the cheap, from a seller who wanted out of oil so the acquisition was very well timed. The seller effectively paid Valeura over $100 million to take on the assets. The assets are highly free cash flow generative and the story is now about delaying decommissioning by adding reserves and by extending production plateau.
As of today the shares are very cheap, they offer a deep value, the net cash in the next 6 months is probably, of course on oil price, higher than the current market cap so it’s quite extraordinary.
Q2: How are the Thai assets performing since they’ve been acquired?
A2: It’s a key part of the story, of course, because the idea is the better the assets performed, the more the decommissioning would be delayed. So far, the assets have performed very very well since the acquisition was announced.
If you look just in 2022, pre-closing, the closing happened early Q1 2023, most of it was in 2022 production has already been replaced by reserve. The commissioning on one of the assets has already been pushed back by a few years.
The current production is already 1% above Q1 in 2023 so you can see good performance since acquisition was announced, good performance in Q1 and lastly, the well they have been drilling recently is actually being drilled quicker than expected.
What it means is that this year’s drilling programme, they might eventually only need one rig rather than two as they initially thought. That could be good news in regard to capex, they may actually for the same results, spend less.
Q3: Given that the delivery has been very good so far, why do you think the share price has been under pressure?
A3: I’ll start by saying I think there is a general sentiment that the entire oil and gas sector is down with oil price, and even more generally, you have cash outflow from the general equity market, so the market is difficult.
There have been more specifics factors for Valeura Energy but I think the results of misconception and even perhaps some confusion. The hope is that many of those, if not all of them, will be addressed in the coming months so quite soon.
The first point is there is some confusion around cash, working capital, cash flow and tax payable because there is a big tax that is being due to be paid in 2023 but for which the company has been basically provided with cash by the seller of the Thai asset. So, I think there is some double counting at the moment in the mind of some investors and I think as those taxes are being paid in Q2 & in Q3, that will resolve itself and people will start seeing the true value of the balance sheet.
The second point is there is a tax restructuring expected to take place by the end of the year and that tax restructuring is quite important because I think it would really reduce the amount of tax the company would have to pay in 2024 by a big amount. We expect to have some confirmation of those tax restructuring by the end of December.
Lastly, there is of course the decommissioning timing, and likewise as the company keeps delivering on production, there will be more confidence that those decommissioning are being pushed back which create additional value.
