Valeura Energy (TSX: VLE/OTCQX: VLERF): Lower capex, lower opex and potentially more reserves

• 2Q23 production and net cash at the end of June had already been reported.
• The drilling programmes at various fields have delivered positive results, unlocking further drilling campaigns to extend production and delay decommissioning. At Nong Yao, following the 2Q23 drilling programme, Valeura is progressing plans for further infill drilling on the already-producing Nong Yao accumulations aimed at enhancing production and minimising the effect of natural declines. Positive ongoing performance of the new Jasmine infill wells has led to the development of a further infill drilling programme, which is now in the planning phase. At Manora, the results of the three new wells indicate the potential for further development opportunities (the incremental production particularly includes dry oil contributions from bypassed oil, which is rare in such a mature field), which are likely to form the basis of further infill drilling campaigns in 2024 and 2025, which could add reserves.
• As we were anticipating, the use of only one rig in 2023 has resulted in savings and the capex programme has been reduced by US$25 mm to US$155-175 mm. The FY23 operating costs guidance has also been reduced by US$20 mm to US$200-220 mm as Valeura operates more efficiently. With more drilling taking place at Nong Yao and Jasmine (and probably less at Wassana), the FY23 production guidance of 20-22.3 mbbl/d is unchanged.
• We have increased our target price from C$6.00/sh to C$6.10/sh. We continue to believe that the confirmation that the ~US$300 mm of tax losses associated with Wassana can be applied to the other fields could be a rerating event. It would materially offset the tax bill due in relation to profits made in 2023.

Potential additional resources at Wassana
At Wassana, Valeura has also identified the potential for additional oil accumulations in a downdip portion of a fault block to the north of the main field. Two new pilot wells will assess the potential volumes associated with that area. These are not included in the reserves/resources estimates yet.

Valuation
We have increased our Core NAV and ReNAV from respectively ~C$5.50 and ~C$5.70/sh to ~C$5.95 and C$6.15/sh. Our Core NAV and ReNAV @ US$85/bbl Brent flat are C$6.25 per share and C$6.45 per share. At US$85/bbl over 2H23 and 2024, we forecast that the company could hold >US$195 mm in net cash at YE23 (slightly above the current market cap) increasing to ~US$450 mm at YE24 (>2x the current market cap).