Valeura Energy (TSX: VLE): Wassana: strong performance and accelerated drilling programme. Cost reduction at Nong Yao
• The first two wells of the Wassana drilling programme have exceeded the company’s expectations with production from the field now over 4,000 bbl/d.• With a third well expected to boost production further in the next few days, production from the field could be higher than the target of 4.5 mbbl/d.
• The company has decided to extend the current drilling programme at Wassana by adding two wells (from 3 to 5). These additional wells were previously expected to be drilled later in 2024. Drilling the two additional wells immediately after the first three wells could both have a positive impact on the FY24 production guidance and also be source of cost optimization.
• Valeura is acquiring the Nong Yao’s Aurora FSO for US$19 mm. The Aurora FSO is currently being leased on the field. Buying the FSO will allow Valeura to reduce its opex for the field. We have provisionally assumed payback on the investment within 24-36 months.
• We have left our production forecast for 2024 unchanged for the time being. As we incorporate the acquisition of the Aurora FSO and the resultant lower opex and revisit the mechanics of the potential tax restructuring, we re-iterate our target price of C$6.40 per share.
• We continue to anticipate that Valeura will replace an significant proportion of its production in 2023.
Revisiting tax restructuring mechanics
The tax restructuring in Thailand could be effective around mid 2024. Tax losses from Wassana could therefore be applied to Nong Yao and Manora from that time. Given the fact that the tax on 2H24 profits would be only payable in 2025, we are now assuming that the Wassana tax losses would reduce cash tax on Nong Yao and Manora only in 2025 (we previously assumed that they would have an impact on cash tax from 2H24).
Valuation
Our new YE24 net cash that incorporates our new cash tax assumptions, the acquisition price of the Aurora FSO and marginally higher production now stands at ~US$275 mm, which is above the current market cap. Overall our Core NAV and ReNAV now stand at respectively C$5.55/sh and C$6.34/sh.
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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