Valeura Energy (TSX: VLE): Working capital well ahead of expectations. Replacing >6.5 mmbbl 2P reserves during 2022

• At completion of the Mubadala Acquisition on 22 March, the acquired entity held cash and cash equivalent resources of ~US$243 mm. After accounting for inventories, accounts payable, and tax payable in May, the increase in Valeura’s adjusted net working capital position is estimated at ~$105 mm. This amount is also net of some of the tax payable in August associated with revenue in 2023 until completion.
• The adjusted working capital associated with the Mubadala Acquisition is well ahead of our forecasts. We were conservatively expecting only US$58 mm. We were also assuming that Valeura would have to pay >US$75 mm in cash tax outside of the working capital. We now estimate that the cash tax (including SRB) due in August and not captured in the adjusted working capital is less than US$30 mm.
• FY23 production (including the period before completion of the acquisition of the Mubadala Acquisition) is 20-22.5 mbbl/d. This assumes that Wassana starts production in May.
• Valeura has budgeted US$180-200 mm capex in 2023 including ~US$34 mm for 1Q23 activities and mostly occurring before the completion of the Mubadala Acquisition (and already netted off from the adjusted working capital).
• As we incorporate the adjusted working capital and the production and capex guidance, we are increasing our target price from C$5.20/sh to C$6.00/sh. The shares continue to offer deep value, production and cashflow growth and reserves upside.

Reserves and resources
At YE22, Valeura held 29.1 mmbbl of 2P reserves of which the ex-Mubadala assets represent ~23 mmbbl. At YE21, the same assets held 24.1 mmbbl. With ~7.7 mmbbl having been produced in 2022 (assuming ~21 mbbl/d production), the YE22 2P reserves position implies that the ~6.6 mmbbl of 2P reserves were replaced during 2022. The reserves addition has also positive implications for the timing of decommissioning. ~6 mmbbl 2C resources have also been estimated at the ex-Mubadala assets. We note that the reserves and resources were estimated by Mubadala rather than Valeura and we understand that the oil price assumptions were very low.

Valuation
Our Core NAV for Valeura based on its 2P reserves has increased from ~C$4.80/sh to ~C$5.70/sh. Our net cash forecast at YE23 is now >US$285 mm (~US$235 mm previously) at a Brent price of US$93/bbl (versus market cap of ~US$270 mm). Even at C$6.00/sh (our target price), our YE23 net cash would represent >50% of the market cap. At US$80/bbl for Brent, YE23 net cash would be US$225 mm.