Natural gas price realizations are strong in Turkey and currently are about double those available in North America, which benefits Valeura Energy Inc (TO:VLE)
SmallCapPower | December 21, 2017: Valeura Energy Inc. (TSX:VLE) is a Canada-based company engaged in the exploration, development and production of petroleum and natural gas in Turkey. The Company is focused on its natural gas operations in the Thrace Basin in northwest Turkey. The Thrace Basin is located in an area west of Istanbul and extending to the borders with Greece and Bulgaria. The TBNG-PTI JV lands are located in the Thrace Basin. Natural gas is produced from both conventional and unconventional (tight gas) sandstone reservoirs in onshore leases and licenses on the TBNG-PTI JV lands. The Thrace Basin also includes Banarli exploration licenses. Since Valeura Energy was established in 2010, the Company has executed a number of transactions and currently holds interests in 21 production leases and exploration licenses in the Thrace Basin of Turkey totaling 0.53 MM acres (gross) or on a net basis 0.43 MM acres of shallow rights and 0.35 MM net acres of deep rights (net after the impact of the TBNG Acquisition and West Thrace Deep Rights Sale). The Company’s small legacy oil and gas properties in Canada were sold in the Q3 2014.
Investment Highlights
- Natural gas price realizations are strong in Turkey
- Recent positive production test results at Yamalik-1
Natural gas price realizations are strong in Turkey
Natural gas price realizations are strong in Turkey and currently are about double those available in North America. By applying 3D seismic, modern fracture stimulation technology and horizontal and deeper vertical well drilling, Valeura Energy is aiming to achieve commercial scale operations from this tight gas resource and expand conventional natural gas operations by applying new exploration concepts. This upstream program is complemented by ownership of gas gathering and sales infrastructure to support direct marketing of natural gas to end users.
Recent positive production test results at Yamalik-1 Well
Yamalik-1 is the first deep exploration well drilled under Phase 1 of the Banarli farm-in agreement with its partner Statoil (OL:STL) Banarli Turkey B.V. and is the Corporation’s first test of the deep, basin-centered gas potential in the Thrace Basin of northwest Turkey. The well was drilled through over-pressured formations below 2,500 metres to a total drilled depth of 4,196 metres. A comprehensive 60-day testing program commenced in early November 2017 comprising four planned production tests with two frac stages per test interval (eight stages in total), starting at the bottom of the well. This 44-hour flow period for the first production test was viewed as sufficient for preliminary internal evaluation purposes. As disclosed previously, if the aggregate production tests are sufficiently positive, it is planned to tie-in Yamalik-1 to Valeura’s existing pipeline and facility infrastructure to enable a long-term production test and to generate gas and liquids sales.
These positive interim production test results have increased the likelihood that Yamalik-1 will be tied in at the conclusion of the testing program. Accordingly, the Corporation is commencing engineering and design work to be positioned for a timely tie-in. Any future sales from Yamalik-1 will benefit from strong commodity prices in Turkey.
Financial Analysis
Revenues in the quarter increased due to the increased production partially offset by lower realized natural gas prices. Funds flow from operations for the quarter was an inflow of $1.2 million, compared to an inflow of $1.1 million for the prior-year period. The increase in funds flow from operations was due to higher volumes and lower transaction costs, partially offset by lower natural gas price realization, higher production costs and higher foreign exchange losses.
Sales volumes in the quarter almost doubled to 1,024 boe/d as compared with prior year period, due to additions from the TBNG Acquisition, workovers and recompletions and three new drills (one in each quarter of 2017) partially offset by natural declines on both the TBNG JV and Banarli Licences.
Outlook
Valeura Energy shares have surged over 300% after it released positive interim production test results at the Yamalik-1 exploration well in Turkey on November 27, 2017. This was the result of the first testing and there are three more to go, as when the Company releases positive news on this exploration project, its share price could increase further. With the recent surge in the oil prices after OPEC extended the production cut will further boost the Company’s revenues going forward.
Valeura Energy continues to be focused on growing its natural gas operations in the Thrace Basin, where natural gas prices remain robust compared to North America. The recently-announced Banarli Farm-in, the Offering, the West Thrace Deep Rights Sale and the TBNG Acquisition in 2016 and early 2017, have transformed the Company by increasing the size of the asset base, degree of operational control and financial capacity, and secured a large, well-respected partner to pursue a deep high impact exploration program. These transactions pave the way for a significant ramp-up in the exploration and development program in 2018 and future years.
Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in the company mentioned above.