Valeura Energy (TSE VLE): Positive drilling results unlock additional resources and delay decommissioning

• The A28 and A28-ST1 wells encountered 72 ft and 75 ft of net oil pay respectively in deeper reservoir sections (2.0 and 2.1) at Wassana.
• The A28 well results proved the presence of oil down to 5,594 ft TVD, 77 ft below previous the estimate of 5,517 ft, which was the depth that was used to estimate reserves. A28 also encountered a thicker package of reservoir sands and new oil-filled sands that have not been previously developed.
• The A28-ST1 well confirmed the presence of oil in an untested area south of the main producing part of the field.
• The results of the two wells are expected to trigger a material increase in the recoverable volumes estimates at Wassana. An additional ~20 wells could be required to develop the resources. Assuming EUR of 0.25-0.50 mmbbl per well would lead to a potential increase of 5-10 mmbbl (15-30% of the existing 2P total corporate reserves).
• Wassana is expected to return to production during 4Q23 with the restart of the MOPU but the increased volumes are expected to require additional surface and wellhead infrastructure. This could result in increased production and an extension of the field’s economic life well into the 2030s. This is important for decommissioning considerations, as the decommissioning costs at other fields (as they are shutdown) would provide a tax shelter (CT rate of 50%) for the extended cashflow of Wassana.
• We have increased our target price from C$6.10/sh to C$6.40/sh as we incorporate the risked value of the new Wassana resources. We continue to believe that the confirmation that the ~US$300 mm of tax losses associated with Wassana can be applied to the other fields could be a rerating event.

Potentially unlocking new areas of the licence
The deeper sands at Wassana are much more laterally extensive that the shallower sands, on which the initial development was based upon. This means that the infrastructure required to develop these deeper sands could also allow the development of the Niramai and Mayuira 2C resources accumulations (~9 mmbbl – Unrisked NAV of ~C$1.70/sh).

Valuation
We have increased our ReNAV from ~C$6.10 to ~C$6.40/sh as we have included the risked value of 5 mmbbl additional resources at Wassana (40% Chance of Development). At US$95/bbl over 2H23 and 2024, we forecast that the company could hold >US$210 mm in net cash at YE23 (slightly above the current market cap) increasing to ~US$535 mm at YE24 (>2x the current market cap).