Valeura Energy Inc (TSX:VLE) announced on 6 December 2022 the acquisition of the Thailand upstream oil producing portfolio of Busrakham Oil and Gas Ltd, a subsidiary of Mubadala Energy. DirectorsTalk interviewed Stephane Foucaud, Co-founder and Head of Research at Auctus Adivsors for his initial assessment of the transformative acquisition.
Stephane, can you provide more detail on the assets that Valeura Energy is acquiring in the Gulf of Thailand?
Valeura continues to execute on its acquisition strategy in Thailand. Valeura Energy Asia (85% owned by Valeura) is acquiring 3 shallow water licences (that include the Nong Yao, Jasmine/Ban Yen and Manora oil fields) in the Gulf of Thailand with total net oil production of 21.2 mbbl/d and net 2P reserves of 24.1 mmbbl (at YE21) from Mubadala Energy for just US$10.4 mm in cash. Additional consideration of up to US$50 mm is payable if the Dubai oil benchmark averages >US$100/bbl in 2022, 2023 or 2024.
With an effective date of 31/08/22 and ~US$12 mm post tax cash flow per month from the new assets, Valeura could receive >US$50 mm working capital on closing (assumed at the end of 1Q23).
The acquired assets consist of:
(1) 90% WI in the Nong Yao oil field with 12.4 mmbbl net 2P reserves and 8.4 mbbl/d net production that could grow to >11 mbbl/d by mid 2024,
(2) 100% WI in the Jasmine and Ban Yen oil fields with ~10 mmbbl net 2P reserves and 10.1 mbbl/d production, and
(3) 70% WI in the Manora oil field with 1.7 mmbbl net 2P reserves and 3.3 mbbl/d net production.
How are the fields performing?
As is often the case in the Gulf of Thailand, all these fields have vastly outperformed initial expectations and, with further infill drilling in new reservoirs, the various production profiles are expected to be extended with additional reserves potential and the postponement of decommissioning (currently 2025-2027). The 2022 programme appears to already have had a positive impact on reserves with successful infill wells at Manora and current production only 10% below 2021. With 25 mbbl/d production by YE22, Valeura is set to become one of the larger international producers listed on the TSX.
What are the current cash flow forecasts
Excluding Rossukon’s capex, we forecast operating cash flow of US$260 mm in 2023 with ~US$200 mm in free cash flow, representing ~2.5x the current market cap. Our net cash forecast at YE24 is ~US$355 mm. The magnitude of future cash balances creates the opportunity for potential shareholder distributions.
Has your target price changed?
Our target price increased from C$2.10 per share to C$4.50 per share.
Valeura Energy Inc (TSX:VLE) is an upstream oil & gas company, with a clear strategy to add value for shareholders. The Company has a strong balance sheet with no debt, positioning it for potential inorganic growth opportunities, and substantial upside potential through an operated deep, tight gas play.
