Valeura Announces Fourth Quarter 2019 Financial and Operating Results, Year-end 2019 Reserves

Source Company Press Release
Company Valeura Energy Inc.
Tags Corporate: Corporate Results, Guidance, Overview/Strategy, Country: Canada, Turkey, Financial - Costs & Metrics: Capital Expenditures
Date March 13, 2020

Valeura Energy Inc. (TSX:VLE, LSE:VLU) (“Valeura” or the “Company”), the upstream natural gas company focused on the Thrace Basin of Turkey, reports its financial and operating results for the three month period ended December 31, 2019 and the year ended December 31, 2019, and year-end 2019 reserves.

The complete quarterly reporting package for the Company, including the audited financial statements and associated management’s discussion and analysis (“MD&A”) and the 2019 annual information form (“AIF”), are being filed on SEDAR at and posted on the Company’s website at At year end 2019, Valeura changed its reporting currency to US dollars and, unless noted, all references to currency are now US dollars.

Financial and Operating Results Highlights

  • Q4 2019 average production of 646 boe/d, up 22% from Q3 2019;
  • Q4 2019 average realised gas prices of $7.44/Mcf and operating netback of $24.53/boe, relatively unchanged from the prior quarter;
  • Net working capital surplus at year-end of $37.6 million, including cash of $36.1 million;
  • Total Proved Plus Probable Reserves of 7,936 Mboe at year end, up 8% from the prior year;
  • Total Proved Plus Probable Reserves before tax net present value of $91.9 million, up 43% from the prior year;
  • Proved Reserves replacement ratio of 250% in 2019;
  • Two deep unconventional appraisal wells drilled safely in 2019 with five production tests on stimulated zones all yielding stabilised gas flow; and
  • Subsequent to year end 2019, Equinor Turkey B.V. (“Equinor”) provided notification in February 2020 of their intent to withdraw from the appraisal of the deep unconventional play in the Thrace Basin.

Valeura’s ongoing revenue generation remains unimpeded by current volatility in global oil prices.  The Company’s gas is sold at fixed prices which are not oil-price linked, and remain unchanged from Q4 2019.  In addition, the Company remains in a strong financial position, with a working capital surplus of $37.6 million at year end and no debt, which affords the Company significant flexibility as it looks toward the forward plan.

Sean Guest, President and CEO commented:

“We have continued to realise strong gas prices and generate strong netbacks from our shallow conventional gas business. Our 2019 work programme of selective workovers and well interventions has yielded both an up tick in production and a marked increase in both reserves volumes and value, as assessed by our third party reserves evaluator at year-end.

“Our team remains committed to the ongoing appraisal of our deep tight gas play. The substantial data gathered through our 2019 appraisal programme has furthered our understanding of key subsurface characteristics of this gas accumulation, and these learnings will help inform our next steps to appraise this material resource, which we will communicate to the market as soon as possible. 

“Valeura remains in a strong financial position, and we intend to keep it that way. We are a cash flow generating business, with a balance sheet that is debt-free and has working capital resources of over $37 million. Raising our sights to 2020 and beyond, our Company is well-positioned to unlock value for shareholders, both through the deep tight gas play, and through our conventional gas production, where we continue to enjoy gas prices that remain unchanged and not directly linked to volatility in global oil price benchmarks.”

Table 1 Financial and Operating Results Summary

  Three Months Ended December 31, 2019  Three Months Ended September 30, 2019  Year ended December 31, 2019  Three Months Ended December 31, 2018  Year ended December 31, 2018 
(thousands of US$ except share amounts) 
Petroleum and natural gas revenues  2,653  2,166  10,177  2,384  9,249 
Adjusted funds flow (1)  1,595  1,032  3,741  2,330  2,789 
Net loss from operations  (735)  (166)  (4,815)  (481)  (5,519) 
Exploration and development capital  3,669  809  11,801  2,739  6,144 
Banarli Farm-in proceeds (2)  –  –  (1,452)  –  – 
Net working capital surplus  37,645  39,869  37,645  43,884  43,884 
Cash  36,111  38,487  36,111  45,993  45,993 
Common shares outstanding Basic
Share trading (CDN$ per share) High
 Crude oil (barrels (“bbl”)/d)  –  18 
Natural Gas (one thousand cubic feet (“Mcf”)/d)  3,877  3,078  3,907  3,689  4,257 
 boe/d  646  531  660  623  717 
Average reference price Brent ($ per bbl)
BOTAS Reference ($ per Mcf) (3) 
Average realised price Crude oil ($ per bbl)
Natural gas ($ per Mcf) 
Average Operating Netback
($ per boe) (1) 
24.53  25.02  24.00  24.57  19.93 
See the Company’s 2019 Management’s Discussion and Analysis for the three months and years ended December 31, 2019 and 2018 filed on SEDAR 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 Company’s AIF filed on SEDAR for further discussion.

Net petroleum and natural gas sales in Q4 2019 averaged 646 boe/d, which was 22% higher than Q3 2019. This continued increase in production primarily reflects the impact of successful well workovers in late 2019. Workover operations have continued into 2020 further increasing production above Q4 2019 resulting in average Q1 2020 production expected to exceed 700 boe/d.

Production revenue in Q4 2019 was $2.7 million, an increase of 22% over Q3 2019 due to the higher production in Q4, coupled with gas prices and operating netbacks remaining stable.

Exploration and development capital spending was $3.7 million in Q4 2019, increased from $0.8 million in the prior quarter, reflecting spending related to the Company paying its 31.5% working interest share of the completion and production testing of the Devepinar-1 well.

As of December 31, 2019, the Company had a net working capital surplus of $37.6 million, of which $36.1 million was cash.


Production Operations

Valeura generates cash flow from the direct sale of petroleum and natural gas from its operated production assets to approximately 55 light industry customers. Gas prices remain high in Turkey and the Company’s production generates strong operating netbacks, most recently in excess of $24/boe. This generates operating income for the business and also underscores the long-term potential value of the Company’s unconventional gas resource.

In Q1 2020, the Company is continuing with selective low-cost production well workovers throughout its conventional operations. This has recently yielded an increase in production, which is more than offsetting natural declines from the existing fields. This programme has been both technically and financially successful as individual well projects have generally delivered payback on the order of a few weeks or a few months. These workover operations are expected to continue throughout much of 2020 incorporating results from the current programme to guide future activities.

In addition, the Company commenced a study in mid-2019 to assess the potential for further exploitation of its conventional play by converting reserves into production. The Company plans to drill two shallow exploration wells on the West Thrace exploration licence during Q2 2020 which will target the Osmancik and Mezardere Formations and will fulfil the remaining work obligations in the current term of this licence.  The anticipated aggregate capital spending for these wells is approximately $1.5 million.

Deep Unconventional Gas Play

In 2019, the Company successfully drilled two deep appraisal wells, including Inanli-1 drilled to 4,885 metres and Devepinar-1 drilled to 4,765 metres. Both drilling operations were conducted as planned, safely, and under budget, with much of the cost for the operation carried by the Company’s joint venture partner, Equinor. The wells, which are 20 km apart, both encountered the objective reservoir section as prognosed, encountering highly over-pressured, gas-bearing sands.

On Inanli-1, approximately 1,600 metres of potential gas reservoir was identified, and four intervals were stimulated and tested over a depth range of approximately 3,680 and 4,284 metres. All four intervals produced gas at stabilised rates, and the results provided valuable insight into the variability of product composition across the vertical expanse of the play, with relatively dryer gas encountered deeper in the reservoir. On Devepinar-1, the deepest zone of interest was stimulated from 4,640 metres to 4,765 metres and flowed for several weeks. Interpretation of the Devepinar-1 test data suggests vertical connectivity across the more than 100 metres accessed, a key observation that will factor into future well planning for potential horizontal wells.

Both 2019 deep wells have been suspended and left in a state to enable re-entry in the future to conduct additional work. Notably, longer term flow testing of these wells is required to fully demonstrate sustainability of flow and commerciality from the best zones.

In February 2020, Equinor provided notice to the Company of their intent to withdraw from all production leases and exploration licences where they hold rights in the deep unconventional gas play. Valeura, Equinor and Pinnacle Turkey Inc. are finalising commercial agreements to effect the withdrawal of Equinor from the production leases and exploration licences. Valeura is seeking routine government approval for the transfer of Equinor’s 50% interest to the remaining joint venture partners, and in Q2 2020, will be filing the first two-year extension application for each of the three exploration licences, including two at Banarli and one at West Thrace, which if approved will extend the licences until June 26, 2022.

Valeura remains committed to the ongoing appraisal of the deep unconventional gas play. The Company’s immediate priority is to complete the commercial arrangements whereby Equinor’s 50% working interest will be returned to the remaining joint venture partners. Valeura will communicate an update on its rights and on plans for the deep play in the coming weeks.


The Company has completed its independent reserves evaluation as at December 31, 2019. This evaluation was conducted by DeGolyer and MacNaughton (“D&M”) in its report dated February 25, 2020 (“D&M Reserves Report”).

Table 2 summarises the Company’s reserves in Turkey and the before tax net present value discounted at 10% (“NPV10”). D&M evaluated reserves as at December 31, 2019 on the Company’s Banarli licences (100% working interest shallow/50% deep) and TBNG JV production leases and exploration licences (81.5% working interest shallow / 31.5% deep in West Thrace and 81.5% in all horizons in South Thrace).

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

  RESERVES (Mboe)  Before Tax NPV10 ($ MILLIONS – $MM) 
2019  2018  % CHANGE  2019  2018  % CHANGE 
  Developed producing  526  502  5%  9.5  7.0  35% 
  Developed non-producing  477  204  134%  10.2  3.0  240% 
  Undeveloped  1,300  1,256  4%  12.7  9.3  37% 
Total Proved (1P)  2,303  1,962  17%  32.4  19.3  68% 
Probable  5,633  5,388  5%  59.5  44.8  33% 
Total Proved Plus Probable (2P)  7,936  7,350  8%  91.9  64.1  43% 
Possible  4,441  4,213  5%  55.1  44.7  23% 
Total Proved Plus Probable Plus Possible (3P)  12,377  11,563  7%  147.0  108.8  35% 
(1) See Oil and Gas Advisories and Reserves Definitions below.
(2) Due to rounding, summations in the table may not add.

The forecast prices used in the D&M Reserves Report to calculate value are $7.53/Mcf for natural gas and $65.77/bbl for light and medium crude in 2020, and these prices both escalate at 2% per year going forward. This natural gas price forecast is for the TBNG assets, and the realised price for the Banarli assets is approximately 97% of this price. More details on prices are included in the AIF filed on Sedar.

The reserves are almost wholly natural gas, but small oil volumes are assigned to a number of wells. The 2019 year-end reserves by principal product type are summarised in Table 3.

Table 3 2019 Year-end Company Gross Reserves Volumes by Principal Product Type (1)

Proved  16  13.7  2,303 
Probable  33.8  5,633 
Total Proved Plus Probable  22  47.5  7,936 
Possible  12  26.6  4,441 
Total Proved Plus Probable Plus Possible  34  74.1  12,377 
(1) See Oil and Gas Advisories and Reserve Definitions below.

Table 4 sets forth a reconciliation of reserves changes in 2019.

Table 4 2019 Year-end Company Gross Reserves Reconciliation

CHANGES  1P (Mboe)  2P (Mboe) 
At December 31, 2018  1,961  7,349 
  Technical Revisions  532  764 
  Discoveries  56  69 
  Acquisitions  –  – 
  Economic Factors  –  – 
  Production  (246)  (246) 
At December 31, 2019  2,303  7,936 


Valeura will hold its annual and special meeting of shareholders on May 13, 2020. The meeting materials will be mailed in the first part of April 2020.

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