Valeura Energy (TSX: VLE): Three exploration wells deliver three discoveries

• The Nong Yao-13 exploration well in the new Nong Yao D area that was targeting multiple zones has encountered >30 feet of new oil play across several new shallow intervals which have not been produced elsewhere on the concession. These reservoirs are believed to be recurring across the Nong Yao D area.
• The drilling result confirms that oil has successfully migrated into this area of the block (a factor that was seen to be a risk in the Nong Yao D area) and open the opportunity for further appraisal and exploration drilling in the vicinity to derisk sufficient volumes to justify a future development.
• Ahead of further updates, we have increased our chance of success for the area from 35% to 50% with a trimmed volume estimate (mid case) of 6 mmbbl (8 mmbbl previously).
• The Niramai-4 well at the North of Wassana and ~1 km north east of the Niramai-1 oil discovery has encountered 90 feet of new oil pay across two reservoirs. The well was then sidetracked into the Wassana North prospect where ~40 feet of new oil pay was encountered. The deepest oil-bearing zone is of particular interest in that the wellbore intersected the reservoir significantly downdip of the crest but did not encounter the oil-water contact. This indicates further potential, both deeper than penetrated, and more laterally expansive in the updip portion of the structure.
• When combined with the pre-existing Niramai volumes, the total encountered volumes in the area could already justify a separate development in addition to the planned redevelopment of Wassana. This could extend the economic life of the concession, which would reduce further the NPV of the decommissioning costs.
• Niramai and Mayura are known additional fields on the Wassana block which were previously deemed to be too small to justify development in themselves, but with additional volumes now identified in the Niramai area (including Wassana North), ahead of further information from the company, we are assuming there potential for a future development of ~ 5 mmbbl with a 50% chance of development.
• We have increased our target price of from C$9.00 to C$9.30 per share to incorporate the impact of the exploration drilling. The story continues to be about strong free cashflow generation, reserves growth and exploration upside.

Valuation
Our forecasts and our Core NAV of C$7.22/sh are unchanged. We have increased our ReNAV from C$9.04/sh to C$9.36/sh. Assuming US$85/bbl for Brent in 2024, 2025 and 2026, our YE26 net cash forecast would be US$670 mm at YE26. This compares with a current market cap of ~US$410 mm.