Valeura Energy (TSX: VLE): Operational blip offers an opportunity for investors
• • 2Q24 production was 21.1 mbbl/d, which was very close to our expectations (21.3 mbbl/d).• Production is expected to increase in 3Q24 with the start-up of production at Nong Yao C. Half of the planned drilling targets have already been drilled.
• At Wassana, the crack within a weld on one of MOPU’s three steel legs may be superficial and therefore may not indicate a risk to the structural integrity of the MOPU. If the upcoming underwater inspection confirms this view, production could restart in 3Q24.
• In any case, the worst case of Wassana production being potentially shut down for 18 months is now very unlikely as the company could instead fix the MOPU to restart production and keep the MOPU in operation while pursuing the redevelopment of the field, which we expect would involve adding additional production infrastructure. FID for the redevelopment of Wassana is expected to be taken around YE24.
• Pending further visibility, we have not changed our forecasts for Wassana with no production until YE24.
• We re-iterate our target price of C$9.30 per share in line with our 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.
Financials
Net cash at the end of June 2024 was US$145 mm. While this includes a payment of ~US$11.4 mm for tax obligations associated with 2018/2019 that we were not carrying in our forecasts, the net cash is ~US$10 mm above our expectations. This probably reflects continued high realizations with ~US$2.7/bbl premium to Brent. Crude inventories at the end of June continues to be high at 0.9 mmbbl (around the same level as at the end of March). Pending the publications of the 2Q24 accounts, we have not changed our forecasts.
Valuation
Our Core NAV and ReNAV are unchanged at respectively ~C$7 per share and C$9.40 per share. We estimate the company will hold ~US$235 mm at YE24. 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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