Valeura Energy (TSX: VLE): Higher flow rates than expected and potential reserves upside at Jasmine
• Production at Jasmine has increased to 9,8mbbl/d over the last seven days following the drilling of five new infill wells. This is higher than we expected and represents an increase of >2 mbbl/d.• Corporate production in September and October was already at ~26.4 mbbl/d. Even after allowing for production declines, the strong production at Jasmine gives us confidence in the 4Q24 26 mbbl/d production guidance.
• One of the new Jasmine wells evaluated several secondary appraisal targets, resulting in five further zones being completed as future producing reservoirs. The well encountered several additional oil-bearing intervals which may be the subject of further infill development drilling. This is expected to contribute to the YE24 reserves replacement ratio being greater than 100%. This figure does not include the expected reserves booking when FID is taken for the redevelopment of Wassana (1Q25).
• We have not changed our target price of C$10.00 per share ahead of the publication of the FY25 production and capex budget and confirmation of the >100% reserves replacement ratio expected in 2024.
Implications of achieving 100% reserves replacement ratio
We currently forecast ~24 mbbl/d in 2025 followed by a sharp decline in the following years and Manora and Jasmine being progressively decommissioned. Achieving 100% reserves replacement in 2024 implies adding >8 mmbbl 2P reserves during 2024. This is expected to have a material impact on future production. As an illustration, producing these 8 mmbbl over 3-4 years represents incremental production of ~5.5-7.0 mbbl/d over this period (=23-30% of FY24 production). Maintaining our FY25 production forecast at ~24 mbbl/d in 2026 and 2027 (which represents a reserves addition of only ~3 mmbbl) would increase our forecast YE27 net cash by US$70 mm assuming US$100 mm incremental capex and US$70/bbl for Brent. This represents ~C$0.95 per share of additional value for just 3 mmbbl reserves addition. Deferring decommissioning would add further value.
Valuation
We have adjusted our Core NAV for the company (based on the YE23 2P reserves only) and ReNAV from respectively C$7.18 per share and C9.64 per share to C$7.38 per share and C$9.82 per share. We forecast that Valeura will hold ~US$390 mm in net cash at YE25.
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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