Valeura Energy (TSX: VLE): Another good quarter. Re-iterating FY23 guidance
• 3Q23 production of 19,961 bbl/d and net cash at the end of September of ~US$103 mm had already been announced.• The company has re-iterated its FY23 guidance of 20.0-22.3 mbbl/d production with US$200-220 mm opex and US$155-175 mm capex.
• At Jasmine, two new wells were brought into production in October and delivered initial flow rates above expectations. Current aggregate production from these two wells is ~1,600 bbl/d, which will support production from the field in 4Q23. One of two sidetracks drilled from one of the boreholes (before the well was completed) encountered oil-bearing reservoir. This has potentially positive implications for further development locations and reserves.
• Using US$85/bbl for Brent, no cash tax during the quarter (+US$29 mm vs 3Q23, everything else being equal), lower 4Q23 capex and a normal lifting schedule (positive working capital movement vs 3Q23 for the liftings of early October), we forecast that Valeura will generate ~US$65 mm free cash flow in 4Q23 leading to net cash of ~US$170 mm at YE23.
• The FY23 activity programme at Nong Yao, Jasmine and Manora is expected to have replaced a large proportion of the reserves produced in 2023. The new resources encountered at Wassana would be additive.
• In 2024, Valeura will drill high impact wells that could add reserves including at Wassana North, Jasmine and Nong Yao. Pending details on the FY24 guidance expected around YE23, we re-iterate our target price of C$6.40 per share.
New large and strategic shareholder
Thoresen Thai Agencies (TTA) has bought ~10.14% of Valeura’s share capital on the open market, becoming the second largest shareholder. TTA is a Thailand-based strategic investment holding company that is listed on the Stock Exchange of Thailand. The company holds a diverse portfolio of interests covering the shipping, offshore service, agrochemical, and food & beverage industries, and have been known to invest in various facets of the oil & gas industry. The family of Prayudh Mahagitsiri, one of Thailand’s richest men, is the largest shareholder of TTA. We view this development as a validation of Valeura’s business model.
Valuation
We have trimmed our 4Q23 assumption for Brent from US$90/bbl to US$85/bbl. Our ReNAV has therefore been marginally reduced from ~C$6.30 per share to ~C$6.10 per share. We estimate that the YE23 net cash of Valeura will represent >55% of its current market cap. Our YE24 estimated net cash (>US$460 mm) represents ~1.5x 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.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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