Valeura Energy (TSX: VLE): Drilling success likely to add further resources
• Two wells recently drilled at Nong Yao are likely to add some reserves.• The 37H development well has been put on production from the primary reservoir at an initial flow rate of ~500 bbl/d net to Valeura’s WI. The well has also encountered 68 feet of net oil pay across eight separate appraisal target intervals. The volumes associated with these zones were not included in either the reserves or contingent resources categories and will now be further evaluated as targets for potential future development wells and may, once developed, add further producible volumes to the asset.
• The 38H development well has also been put in production from the H4.3 reservoir with a current flow rate of 1,000 bbl/d net to Valeura’s WI. The well has also encountered a thin oil-bearing sand in the shallower H2.0 sand interval that could add volumes. The potential associated resources are not currently included in either the reserves or contingent resources categories.
• The drilling results illustrate again the flexible business model of Valeura. While the volumes encountered by the 37H and 38H wells has not been confirmed yet, they could further contribute to the reserve replacement ratio at YE24.
• We reiterate our target price of C$9.30 per share. The key news flow for the balance of 2024 includes (1) Completing the Nong Yao C development to increase production from the field by ~50% to ~11 mbbl/d, (2) taking FID at the Wassana redevelopment project that should trigger the booking of additional reserves (we currently attribute an unrisked NAV of ~C$2 per share to the contingent resources at Wassana), (3) the drilling of the Ratree exploration well (at least 20 mmbbl prospective resources, C$2.35 per share unrisked NAV) and (4) the tax consolidation for Wassana, Nong Yao and Manora.
• The story continues to be about strong free cashflow generation, reserves growth and exploration upside.
Valuation
We have not changed our Core NAV and ReNAV of respectively C$7.45 per share and C$9.59 per share. Assuming US$80/bbl for Brent in 2024, 2025 and 2026, our YE25 and YE26 net cash forecast would be respectively US$420 mm and US$590 mm. This compares with a current market cap of ~US$410 mm.
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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