Valeura Energy (TSX: VLE): Operational blip offers an opportunity for investors
• Production at Wassana has been suspended following the discovery of a crack within one of the MOPU’s steel jack-up legs that could pose a risk to the structural integrity of the MOPU.• The company is conducting further inspections and analysis to plan next steps. Further visibility is expected in the coming weeks.
• Pending further details, we are assuming no production at Wassana during 2H24 (~4 mbbl/d previously).
• We are also reducing our opex forecast for 2H24 by US$12 mm (50% of US$24 mm during 2H24).
• Under a worst case scenario, production at Wassana will be restored when the extended Wassana field will be redeveloped (~2026-2027). It is worthwhile to note that the situation with the Wassana MOPU has no impact on the redevelopment plan of Wassana.
• We understand that the repair or the change of the MOPU are unlikely to be covered by insurance.
• We now forecast ~21.1 mbbl/d production in 2024 (23.2 mbbl/d previously). We reiterate our target price of C$9.30 per share that has been set in line with our new ReNAV.
• The story continues to be about strong free cashflow generation, reserves growth and exploration upside. We view the share price weakness as an opportunity.
Newsflow
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.
Valuation
We have reduced our Core NAV and ReNAV from respectively C$7.45 per share and C$9.59 per share to ~C$6.97 and C$9.33 per share. We estimate the company will hold ~US$235 mm at YE24 (US$285 mm previously). This represents >50% of the current market cap.
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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