Valeura Energy (LSE: VLU): Short term inconsequential blip offers opportunity
• Valeura has decided to temporarily suspend production at the Wassana oil field following an operational mishap by the third party contractor. The floating storage and offloading vessel stationed at the Wassana oil field deviated from its intended position and contacted the field’s catenary anchor leg mooring (CALM) buoy.• This is a precautionary measure as no personnel were injured in the event, no hydrocarbons were discharged, and there was no damage to the vessel or the CALM buoy. This follows a previously reported incident by the same third party contractor that delayed first oil.
• Before restarting production, Valeura will review the safety and operating practices on the third-party operated FSO. This could lead to the replacement of the contractor as operator of the vessel, which could take a few weeks.
• As we account for a short production deferral, we now forecast 2,400 bbl/d at Wassana during 2Q23 (3,000 bbl/d previously). The drilling programme is unchanged with drilling expected to start at Wassana later this month.
• We view any weakness in the share price following this announcement as an opportunity. Since 7 June, Valeura’s share price has dropped ~10% while Brent price has been flat. We re-iterate our target price of C$6.00 per share (close to our ReNAV). Confirmation that the ~US$300 mm of tax losses associated with Wassana could be applied to the other fields could be a rerating event.
Valuation
Our Core NAV of ~C$5.60 per share and ReNAV of ~C$5.80 per share are unchanged. At the current Brent price of ~US$77/bbl over the balance of 2023 and 2024, YE23 net cash is ~US$170 mm (10% above the current market cap) and YE24 net cash is ~US$360 mm (2.5x the current market cap). Our Core NAV and ReNAV @ US$77/bbl Brent flat are C$4.25 per share and C$4.45 per share.
Valeura Energy is engaged in the exploration, development and production of petroleum and natural gas in Turkey and Western Canada. As of Dec 31 2010, proven gross reserves for light and medium oil was 116 thousand barrels (net reserves of 104 thousand barrels); proven gross reserves for heavy oil was 10 thousand barrels (net reserves of 9 thousand barrels); proven gross reserves for natural gas was 1,047 million cubic feet (net reserves of 938 million cubic feet); and proven gross reserves for natural gas liquids was 26 thousand barrels (net reserves of 19 thousand barrels).
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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