Valeura Energy (LSE: VLU): Very good execution in Thailand
• The two horizontal wells drilled at Nong Yao are producing at a combined rate of 1,350 bbl/d. The wells encountered respectively 1,000 ft and 700 ft of net oil pay, in line with pre-drill estimates.• Overall aggregate net oil production rates have averaged 23.7 mbbl/d during the first 11 days of June, up from 20.5 mbbl/d in 1Q23. We forecast 22.8 mbbl/d production in 2Q23.
• Net production at Nong Yao is ~8,000 bbl/d.
• The drilling rig is already on the Manora field to drill three wells to increase production. We currently assume flat net production of 3 mbbl/d in 2023 from this field.
• The drilling rig will then move to Wassana in early August to drill five wells.
• The company is delivering on its targets. 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.
Reflections on costs
Drilling has been quicker than expected and Valeura will need only one rig to execute its FY23 drilling plan. The PV1 drilling rig that had been earmarked for the Wassana programme has therefore been released. The Borr Mist rig currently on Manora will be used for Wassana instead. While it is still early days, the resulting improved drilling efficiency could potentially result in lower capex. An update on the programme is expected in August.
Valuation
We have further trimmed our Brent price for 2023 by ~US$1.5/bbl. Our Core NAV is ~C$5.60 per share with a ReNAV of C$5.80 per share. The shares continue to offer deep value. We forecast the company will hold US$235 mm in net cash (cash minus debt) at YE23. Even assuming only US$75/bbl over the balance of 2023 and 2024, YE23 net cash is ~US$165 mm (> the current market cap) and YE24 net cash is ~US$340 mm (>2x the current market cap).
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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