Valeura Energy Inc. (TSX:VLE, OTCQX:VLERF), the upstream oil and gas company with assets in the Gulf of Thailand and the Thrace Basin of Turkey, has reported its unaudited financial and operating results for the three and nine month periods ended September 30, 2023.
Q3 2023 Highlights
· Oil production of 19,961 bbls/d;
· Average realised price of US$87.8/bbl;
· Oil sales of 1.7 million bbls, generating revenue of US$149.4 million;
· Opex per barrel of US$34.0/bbl(1);
· Capex of US$36.7 million(1);
· Adjusted cashflow from operations of US$33.9 million(1);
· Adjusted EBITDAX of US$67.2 million(1);
· Debt reduced to US$12.9 million at September 30, 2023, and subsequently to nil(1);
· Net cash balance of US$103.6 million(1); and
· All performance metrics in line with expectations resulting in re-iteration of guidance estimates.
Q3 2023 Key Achievements
· Successfully drilled a total of seven wells, on the Manora, Wassana, and Jasmine oil fields;
· Drilled two appraisal wells at the Jasmine oil field during Q3 2023 to gather data in support of future development activities. Also began a two-well infill development drilling programme during the quarter, which was completed in October 2023 with production rates contributing 1,600 bbls/d;
· Drilled three infill wells at the Manora oil field, which have collectively increased production rates and are expected to further extend the anticipated economic life of the asset;
· Implemented a precautionary suspension of production operations at the Wassana oil field to address safety concerns with a third-party contractor, operating the field’s floating storage and offloading vessel (“FSO”). Meanwhile, drilled two appraisal wells that confirmed the presence of significant additional undeveloped oil volumes in the field;
· Completed the construction of a three-kilometre pipeline at the Nong Yao field to tie existing infrastructure into a mobile offshore production unit, anticipated to be mobilised to the field in early 2024; and
· Appointed a Chief Operating Officer and made adjustments to the composition of its board of directors.
Sean Guest, President and CEO of Valeura commented:
“I am pleased to announce another stable quarter of production operations, which underscores the long-term, resilient asset base we have assembled in Thailand. Ongoing infill drilling is replenishing produced volumes and offsetting natural declines, resulting in oil production rates staying in the 20 thousand bbls/d range. As a result, we are today re-affirming our 2023 guidance estimates, unchanged.
Cash flow generation remains strong, and has provided us the ability to pay down debt, cover tax payments, fund the cost of ongoing operations, and still record an increase in our net cash position, which at the end of the quarter stood at US$104 million. We have continued paying down debt into Q4, and I am pleased to report that as of today we are entirely debt-free.
At the same time, a suite of organic growth opportunities is emerging too. New volumes identified this quarter at our Wassana field are leading to a complete re-imagining of the scale of the field, where we estimate there are at least 20 new development drilling targets. Meanwhile, we prepare for a major growth phase at our Nong Yao field, which is set to have new infrastructure installed in the early part of next year, leading to a planned 50% increase in production from the field.
We are continuing to pursue our growth-oriented strategy on all fronts, while adhering to our strict thresholds for value generation. The mergers and acquisitions market continues to present appealing opportunities and we feel it is prudent to ensure our balance sheet is robust, such that we can transact quickly once opportunities arise.
Operational excellence is a priority for us as well, and this quarter we have taken deliberate strides required to be a world-class operator. This includes having adjusted our team to add critical operational leadership capabilities, and taking tough decisions to intervene in our Wassana production operations, where safety practices did not meet our high standards. We will not compromise our approach to ensuring environmental, social, and governance responsibilities as we continue pursuing our strategy to add value through growth.”
Current Quarter Performance Summary Table
| Three Months Ending | ||
| September 30, 2023 | ||
| Oil Production | (bbls /d) | 19,961 |
| Oil Volumes Sold | (‘000 bbls) | 1,701 |
| Realised Price | (US$/bbl) | 87.8 |
| Oil Revenues | (US$’000) | 149,352 |
| Adjusted EBITDAX (1) | (US$’000) | 67,163 |
| Adjusted Cashflow from Operation (1) | (US$’000) | 33,853 |
| Opex (1) | (US$’000) | 62,410 |
| Capex (1) | (US$’000) | 36,721 |
| Net earnings/(loss) | (US$’000) | (6,813) |
| Weighted average shares outstanding – basic | (# ‘000) | 101,701 |
| As at | ||
| September 30, 2023 | ||
| Cash & Cash equivalent and Restricted cash | (US$’000) | 116,542 |
| Debt (1) | (US$’000) | 12,592 |
| Net Cash (1) | (US$’000) | 103,691 |
| Adjusted Net Working Capital Surplus (1) | (US$’000) | 110,258 |
(1) Non-IFRS financial measure (defined below) or non-IFRS ratio – see “Non-IFRS Financial Measures and Ratios” section within this news release.
Financial Update
The Company’s Q3 2023 financial performance was influenced by a higher volume of maintenance activity, well workovers, and drilling operations, as planned and included in the Company’s guidance estimates. This increased activity level applied to the entire portfolio, and included ongoing work at the Wassana oil field where production was offline for the majority of the quarter. Accordingly, the combined impact of reduced production revenues during a phase of higher planned spending has negatively influenced the Company’s Q3 financial performance. At the same time, however, the results of drilling activity conducted during Q3 points to significant future development potential, as more fully described below.
During Q3 2023, Valeura sold 1.701 million bbls of crude oil. The Company recorded oil revenues of US$149.4 million, versus nil in the same quarter of 2022, which was prior to the Company having active production operations. Sales included 0.777 million bbls of oil held as unsold crude oil inventory at the beginning of the quarter. As of the end of Q3 2023, the Company’s unsold oil inventory had increased to 0.901 million bbls. As all of Valeura’s producing assets are offshore and utilise floating storage vessels, oil is recorded as inventory until such time as it is periodically sold as discrete cargoes, and accordingly, sales volumes do not precisely match reported production volumes. Of this unsold inventory at the end of Q3 2023, approximately 0.34 million bbls was sold within the first ten days of Q4, for additional revenue of US$31.2 million, which will be recognised in Q4 2023.
Valeura’s average realised price for crude oil sales was US$87.8/bbl in Q3 2023, reflecting an average premium to the Brent crude oil benchmark of approximately US$1.3/bbl. While actual realised prices vary on a field-by-field basis, reflecting each field’s unique crude oil characteristics and market demand, average prices across Valeura’s portfolio are expected to continue to approximate the Brent crude oil benchmark. The Company currently has no hedging arrangements in place in respect of its crude oil sales.
Operating expenses increased in Q3 2023 largely due to a planned increase in the amount of well workovers and the volume of maintenance and inspection work performed across the portfolio. Valeura reported operating expenses of US$55.3 million in Q3 2023. Operating expenses include production operations at its Jasmine, Nong Yao, and Manora fields, as well as expenses relating to maintaining the Wassana asset during its precautionary suspension of production operations. Valeura calculates opex per barrel, a non-standardised measure, to provide a more consistent indication of the cost of field operations, as more fully described above. Opex during Q3 2023 was US$62.4 million (equating to opex per barrel of US$34.0/bbl), increased from the prior quarter (US$45.6 million, or US$22.7/bbl). As noted above, this increase was planned and was built into the Company’s guidance which remains unchanged from the reduced Opex provided with the Company’s Q2 2023 results. Opex, as opposed to operating expenses, excludes the impact of non-recurring, non-cash items including prior period adjustments relating to inventory movements, operating expenses capitalised to inventory, and adds back lease costs in relation to floating storage and other facilities.
During Q3 2023, the Company generated adjusted cashflow from operations of US$33.9 million. Valeura’s management believes adjusted cashflow from operations provides a consistent measure of the ongoing cash generative capacity of the business, and hence its ability to continue investing, by adjusting for non-recurring items and non-cash expenses.
Valeura generated adjusted EBITDAX of US$67.2 million in Q3 2023. Adjusted EBITDAX is a non-standardised variant of EBITDAX, adjusted to remove non-cash items as well as certain non-recurring costs including severance payments and other one-off items in relation to the Company’s recent acquisitions. The Company reported a comprehensive loss of US$6.8 million in Q3 2023, compared to a comprehensive loss of US$5.2 million in Q3 2022.
As of September 30, 2023, Valeura had cash and cash equivalents of US$116.5 million (including restricted cash of US$16.5 million), compared to US$22.4 million at September 30, 2022, reflecting an inflow of cash as a result of the acquisition of assets from Mubadala Energy just before the end of Q1 2023 in addition to net cash generated thereafter through ongoing production operations, as partially offset by cash tax payments in May and August of 2023.
Valeura incurred a tax expense of US$21.1 million during Q3 2023. This constitutes an initial installment on taxes payable in respect of its Thai III concessions (relating to the Nong Yao, Manora, and Wassana oil fields), for which petroleum income taxes are paid as an initial installment in August, with the balance due in May of the following year. Petroleum income taxes in respect of its Thai I concession (relating to the Jasmine oil field) have no preliminary installment requirement, and accordingly are payable in full, in May of the following year. The Company recorded a deferred tax recovery of US$7.7 million.
The Company had total debt of US$12.6 million (book value) as of September 30, 2023. The debt liability reflects the Company’s facility arrangements in connection with its Thailand acquisitions, which, as of the end of Q2 2023, totaled US$31.5 million. During Q3 2023, the Company repaid US$18.9 million of the facility. Subsequent to the end of Q3 2023, the Company has fully repaid the debt.
As at September 30, 2023, the Company had a net cash balance US$103.7 million which consisted of a cash balance of US$116.5 million and outstanding debt of US$12.9 million (after reversal of accounting provisions).
Operations Update
During Q3 2023, the Company had ongoing production operations on its Jasmine/Ban Yen, Nong Yao, and Manora oil fields, and production operations at the Wassana oil field for the first days of the quarter, prior to implementing a precautionary suspension on July 7, 2023. Aggregate production averaged 19,961 bbls/d during Q3 2023. One drilling rig was under contract for the duration of Q3 2023.
Production from the Jasmine/Ban Yen oil field, in Licence B5/27 (100% Valeura) averaged 9,040 bbls/d during Q3 2023. In September 2023, the Company mobilised its contracted drilling rig to the Jasmine D wellhead platform with the primary objective of drilling two infill wells to further develop the 700 and 680-1 reservoir sands in one of the field’s main fault blocks. Both wells were successful and, following their completion in October 2023, have resulted in initial flow rates exceeding expectations, with the wells currently contributing nearly 1,600 bbls/d to aggregate production, thereby largely offsetting natural declines. Prior to drilling the development targets, one of the wellbores was used to drill two sidetracks into appraisal targets to evaluate the potential for late life remaining oil accumulations in already developed reservoirs of other fault blocks in the field. These sidetracks were completed in Q2 2023, and, while only one of the sidetracks encountered oil-bearing reservoir, the data acquired from both are being incorporated into ongoing reservoir modelling to evaluate the potential for further development opportunities within the field. In the meantime, the Company has an inventory of approximately 15 additional drilling targets in the Jasmine field, which will be the subject of future drilling campaigns for 2024 and beyond.
Nong Yao oil field production, in Licence G11/48 (90% Valeura working interest) averaged 7,375 bbls/d during Q3 2023 net to Valeura’s interest. While no new wells were drilled on the Nong Yao oil field during Q3 2023, following the Jasmine drilling programme in October 2023, the rig was mobilised to the Nong Yao A platform where it is currently conducting an infill drilling campaign expected to continue through the remainder of the year. Separately, the Company is preparing for the expansion of the Nong Yao field, and has completed installation of a three-kilometre pipeline which will connect existing field production infrastructure to a mobile offshore production unit (“MOPU”), which will be used to develop an extension of the field known as Nong Yao C. Construction work on the MOPU is ongoing and the Company expects the MOPU to mobilise to the field in early Q1 2024 with development drilling planned thereafter. The Nong Yao C development project is targeting an increase in Nong Yao production from its current rates to approximately 11,000 bbls/d in mid-2024.
Production at the Manora oil field, in Licence G1/48 (70% Valeura working interest) averaged 3,427 bbls/d during Q3 2023 net to Valeura’s interest. During the quarter, the Company conducted a three well drilling programme which concluded in late July 2023 with all wells having met or exceeded their pre-drill volume estimates. The new wells are now all on production and are contributing approximately 1,400 bbls/d (net working interest basis). Importantly, the increased field output includes dry oil contributions from bypassed oil downdip of existing and currently producing wells in one of the field’s deeper reservoir intervals, as well as multiple other attic or bypassed accumulations in the shallower reservoirs. The results of these wells are being evaluated to assess the potential for further development opportunities. Accordingly, the Company anticipates that the enhanced volumes from the Manora oil field will result in a further extension to the field’s economic life.
There were only six days of production at the Wassana oil field, in Licence G10/48 (100% Valeura interest) during the period. The Company implemented a precautionary suspension of production operations on July 7, 2023 to address safety concerns on the field’s third-party operated FSO. Valeura is transitioning vessel management of the FSO to a new sub-contractor and anticipates restarting production in Q4 2023. While offline, Valeura conducted several well workovers and drilled two appraisal wells on the flanks of the field, targeting deeper portions of the reservoir as identified on recently reprocessed 3D seismic data. The wells were successful in proving the presence of oil deeper than previously demonstrated and as a result, the Company has commenced a review of development options to expand the production infrastructure, which could increase production and extend the field life beyond 2030. Valeura has commissioned a project team to select a suitable development concept for re-development of the field, and anticipates making a final investment decision in 2024.
During Q3 2023, Valeura continued its strong performance in health, safety, and environmental stewardship across its portfolio. The Company conducted major inspection works at its Jasmine, Manora, and Nong Yao fields, and recorded no material anomalies, thereby confirming that all facilities and subsea assets are in good working order and comply with the Company’s expectations for asset integrity. At the Wassana field, the Company remains committed to ensuring operations progress in accordance with its high standards for safe operations. The Company intends to disclose key metrics relating to its environmental, social, and governance performance as a component of an inaugural sustainability report in 2024.
The Company had no active operations in Turkey during Q3 2023 as it continued its search for a farm-in partner to pursue the next phase of work on its tight gas appraisal play in the Thrace basin, where it holds interests ranging from 63% to 100%.
Guidance update
The guidance estimates for the year 2023 are shown in the table below. The guidance remains unchanged, but the Company notes that capital spending is expected to be at the lower end or below the range.
| Category | 2023 Guidance (Full Year) |
| Production | 20,000 – 22,300 bbls/d |
| Price realisations | Approximately equivalent to the Brent crude oil benchmark |
| Operating costs* | US$200 – 220 million |
| Capex | US$155 – 175 million |
* Includes FPSO (defined below) and FSO lease costs
The Company intends to fund its operating costs and capex through cash generated from ongoing operations. For clarity, all production, operating costs, and capex estimates provided above relate to the full calendar year 2023, and accordingly, include amounts relating to the period prior to completion of the Company’s acquisition of assets from Mubadala Energy, which closed in March 2023.
Valeura intends to provide its guidance estimates for the year 2024 at approximately the end of 2023.
Valeura Energy Inc. is a Canada-based public company engaged in the exploration, development and production of petroleum and natural gas in Thailand and in Turkey. The Company is pursuing a growth-oriented strategy and intends to re-invest into its producing asset portfolio and to deploy resources toward further organic and inorganic growth in Southeast Asia. Valeura aspires toward value accretive growth for stakeholders while adhering to high standards of environmental, social, and governance responsibility.
