Valeura Energy (TSE VLE): ~20 mbbl/d production in 2Q23
• 2Q23 production was 19,961 bbl/d with the difference to our forecast mostly reflecting the timing of drilling. Wassana (1.6 mbbl/d production during 2Q23) was offline in 3Q23.• Valeura made a Petroleum Income Tax payment of US$29 mm during 3Q23.
• Net cash (based on cash minus debt and excluding any current receivables, current payables and inventories) at the end of September was US$103.4 mm. This excludes liftings that occurred in early October.
• Over 3Q23, Valeura has generated US$15.7 mm free cash flow. Including the late liftings and grossing for the tax payment would lead to ~US$70 mm pre-tax free cashflow over 3Q23.
• We forecast ~21 mbbl/d production in 4Q23. On US$90/bbl for Brent, no cash tax during the quarter (+US$29 mm vs 3Q23, everything else being equal) and a normal lifting schedule (positive working capital movement vs 3Q23 for the liftings of early October), we forecast that Valeura will generate ~US$85 mm free cash flow in 4Q23 leading to net cash of ~US$190 mm at YE23.
• We re-iterate our target price of C$6.40 per share.
Overriding royalty at Rossukon
The operator of Rossukon is reported to expect production to start during the first week of November. US$5 mm is payable to Valeura at that time. In addition, Valeura will earn an overriding royalty of 2% of gross production (10-12 mbbl/d with the potential to increase to 15-20 mbbl/d in late 2024). At US$80/bbl for Brent, this represents additional pre tax free cash flow of US$6-12 mm per year.
Valuation
We are now assuming that the tax restructuring will only be effective from the end of 1H24, reducing the company’s tax bill only from that time (from early 2024 previously). We have also marginally reduced our FY23 production profile to incorporate the reported production in 3Q23. We have reduced our Brent price forecast for 4Q23 to US$90/bbl from US$95/bbl. Our ReNAV has therefore been marginally reduced from ~C$6.40 per share to C$6.30 per share. We estimate that the YE23 net cash of Valeura will represent >70% of its current market cap. Our YE24 estimated net cash (~US$450 mm given the late tax restructuring) represents 1.6x the current market cap of the company.
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.
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