News Release
Valeura estimates Q3 P&NG sales at 1,630 boe/d
Valeura Energy Inc (2) (C:VLE)
Shares Issued 46,406,147
Last Close10/11/2011 $1.69
Wednesday October 12 2011 - News Release
Mr. Jim McFarland reports
VALEURA PROVIDES QUARTERLY OPERATIONAL UPDATE
Valeura Energy Inc. has provided an update of its thirdquarter 2011 operational activities in Turkey and Canada and advises that itsproof-of-concept fracture stimulation (frac) program in the Thrace basin ofTurkey in tight gas sands in the Mezardere formation is yielding encouragingresults, although the program is at an early stage. The Corporation expects torelease its complete interim unaudited financial and operating results for thethird quarter of 2011 on November 15.
ESTIMATED PRODUCTION AND SALES VOLUMES
Valeura's estimated working interest share of petroleum andnatural gas sales was approximately 1,630 barrels of oil equivalent per day(BOE/d) in the third quarter of 2011. Volumes will be finalized for thequarterly release on November 15.
Estimated Turkish volumes (all natural gas) were approximately9.0 MMcf/d (1,510 BOE/d), including approximately 7.7 MMcf/d (1,290 BOE/d) fromValeura's 40% interest in onshore producing lands in the Thrace Basin acquiredfrom Thrace Basin Natural Gas (Turkiye) Corporation ("TBNG") and Pinnacle TurkeyInc. ("PTI") on June 8, 2011, and approximately 1.3 MMcf/d (220 BOE/d) fromValeura's 35% interest in the Edirne Licence in the Thrace Basin acquired onMarch 24, 2011. Estimated Canadian sales were 120 BOE/d.
Valeura's estimated sales volumes in Turkey in the thirdquarter of 2011 were down approximately 13% from proforma sales in the secondquarter of 2011 (assuming Valeura's share of TBNG-PTI volumes were booked forthe full second quarter). This reduction reflects the impact of natural declinesand deferral of almost all exploration drilling on the TBNG-PTI lands untilinitial interpreted results are available in December 2011 from new 3D seismiccurrently being acquired. Current production in Turkey is approximately 9.3MMcf/d (1,550 BOE/d) reflecting the tie-in of new wells.
BOTAS INCREASES BENCHMARK GAS PRICE BY 15%
Effective October 1, 2011, Boru Hatlari ile Petrol TasimaAnonim Sirketi ("BOTAS") has increased its Industrial Interruptible Tariffbenchmark gas price by 15% as quoted in Turkish Lira. BOTAS owns and operatesthe national crude oil and the natural gas pipeline grids in Turkey andpurchases the bulk of Turkey's large gas imports. Turkey imports about 98% ofits natural gas requirements by pipeline from the Russia Federation, Iran andAzerbaijan and in the form of LNG from Algeria and Nigeria. This change in thebenchmark price by BOTAS was driven primarily by the recent weakening of theTurkish Lira against the US dollar, which has widened the gap between its salesrevenues and cost of gas imports.
Gas prices under sales contracts for production from theTBNG-PTI lands and the Edirne licence are linked to the BOTAS benchmark priceand are expected to also increase by 15% in local currency, offsetting a portionof the recent weakening of prices in Cdn dollar terms. For example, the BOTASreference price averaged Cdn$7.47 per Mcf in the third quarter of 2011 comparedto Cdn$8.18 per Mcf in the second quarter of 2011, a decline of 8.8%.
FRAC PROGRAM IN MEZARDERE TIGHT GAS SANDS YIELDINGENCOURAGING RESULTS
The proof-of-concept frac program on the TBNG-PTI ThraceBasin lands in the deeper, undeveloped tight gas sands in the Mezardereformation commenced in late July. The Mezardere formation underlies theproducing shallow gas reservoirs in the Osmancik and Danismen formations.
The 2011 proof-of-concept program will target tight gas sandsat various geographic locations and depths in the Mezardere formation, which isup to 1,600 metres thick. The program will test a range of frac volumes and fracgeometries to build a learning curve and optimize the expected go-forwardprogram in 2012. An affiliate of TransAtlantic Petroleum Ltd. ("TransAtlantic")operates the onshore TBNG-PTI lands in close technical collaboration withValeura. A 12,000 horsepower frac spread has been contracted from VikingInternational, an affiliate of TransAtlantic, to execute the program. Theprogram is expected to include up to six well re-entries with at least asingle-stage frac and up to eight new drills and an associated frac.
Three fracs have been completed to date with encouragingresults, as described below.
Yazir-2 Well
As reported on August 25, 2011 the Corporation carried out atwo-stage frac on the Yazir-2 well on July 18 in two relatively tight Teslimkoysand intervals in the Mezardere formation at depths of approximately 1,100metres and 885 metres. Both fracs were mechanically successful.
After failing to establish early gas production from thefirst stage frac, albeit before all the frac fluids were recovered, testing ofthe shallower second stage frac was initiated. Well performance and temperaturelog data indicated that the second stage frac height was higher than planned andappeared to intersect a high pressure water zone above the targeted fracinterval. Only trace amounts of gas were produced.
Further clean-up of the first stage frac (70% of frac fluidsrecovered to date), which targeted a gross sand interval of 39 metres,established a gas flow rate of up to 175 Mcf/d. The well is now being tied-in tothe gathering system and the first stage frac interval will be placed onproduction by the end of October to complete the recovery of frac fluids and todetermine gas production potential.
Kayi-15 Frac
The second well re-entry and frac was carried out on theKayi-15 well on September 30. Based on the experience at Yazir-2, it was decidedto test a more directed, "limited entry" frac over five sets of perforationswithin a targeted gross sand interval of 129 metres in the Teslimkoy sands at adepth of approximately 1,260 metres.
Prior to carrying out the frac, each set of perforations wasindividually swabbed to establish some gas flow and the absence of anysignificant formation water flow. The perforations were then simultaneouslyfrac'd. The frac was mechanically successful and temperature logging indicatedthat the aggregate frac height was contained within the targeted gross sandinterval.
Clean-up operations are continuing at the well to recover allof the frac fluids. The well is flowing naturally and producing gas and fracfluids.
BTD-2 Well
The third well re-entry and frac was carried out on the BTD-2well on October 3. A relatively small single-stage frac was placed into aTeslimkoy gross sand interval of 29 metres in the Mezardere formation at a depthof approximately 980 metres.
The frac was mechanically successful and the well was swabbedto recover the frac fluids. Gas production was quickly established and asubsequent six-hour flow test yielded a stabilized gas flow rate ofapproximately 2,300 Mcf/d on a 32/64ths inch choke at a flowing wellheadpressure of 700 pounds per square inch ("psig"). The well is currently shut-infor a pressure build-up test.
The BTD-2 well is already tied-in to the gathering system,which operates at a pressure of approximately 50 psig or less, and is expectedto be placed on production and further tested before the middle of October.
SHALLOW GAS RECOMPLETION AND SELECTED DRILLING PROGRAMCONTINUING
TBNG-PTI Lands
Valeura participated in 12 workovers and recompletions(gross) on existing wells in the shallow Danismen and Osmancik formations duringthe third quarter and 35 in the six-month period ended September 30, 2011, ofwhich 15 were successful in increasing gas production rates. The aggregateinitial production rate for these 15 successful workovers and recompletions wasapproximately 11,900 Mcf/d (gross).
Two drilling rigs are currently active on the TNBG-PTI lands.The partners have elected to slow the pace of the drilling program, particularlyexploration drilling, until initial interpreted results from the new 3D seismicprogram are available in December 2011. Valeura participated in spudding fivewells (gross) on the TBNG-PTI lands in the third quarter of 2011, of which twoare currently on production and three are in various stages of completion andpotential tie-in. Two of these wells were drilled into the Mezardere formationto depths ranging from 2,000 to 2,300 metres.
For the six-month period ending September 30, 2011 Valeuraparticipated in spudding 13 wells (gross), of which three are currentlyproducing, eight are in various stages of completion and potential tie-in, andtwo were abandoned. Six of these wells were drilled into the Mezardereformation. The aggregate initial production rate of the three new producingwells was approximately 3,000 Mcf/d (gross).
Edirne Licence
Valeura participated in one workover and completion (gross)in the Edirne Licence in the third quarter and four in the six-month periodended September 30, 2011. The aggregate initial production rate from theseworkovers and recompletions was approximately 1,350 Mcf/d (gross).
There was no drilling in the Edirne Licence in the thirdquarter pending a reassessment of the 3D seismic interpretation. In thesix-month period ended September 30, 2011, two wells were drilled of which onewas cased as a potential producing well and one was abandoned. The successfulwell is being tied-in and is expected to produce at an initial rate ofapproximately 400 Mcf/d (gross).
461 KM2 3D SESIMIC PROGRAM ON TBNG-PTI LANDS NEARINGCOMPLETION
The acquisition phase of the 198 km2 Hayrabolu 3D seismicsurvey on the TBNG-PTI lands has been completed and fast-track processing of thesouthwest portion (44%) should be completed by mid-October. Acquisition of the263 km2 Tekirdag 3D seismic survey is approximately 80% complete and should befinished by late October. Fast track processing of the eastern portion (37%)should also be completed by mid-October. Targeted completion for all of theprocessing is early December.
Seismic interpretation for the selected fast-track areasshould be available by December 2011 and may firm up one or more drillinglocations that could be spudded before year-end 2011. These would be the firstlocations to be drilled on 3D seismic control on the TBNG-PTI lands.
PREPARING TO SPUD EVRENBEY-1 WELL ON FARM-IN LICENCE 4094 INTHE THRACE BASIN
Wellsite construction is underway on the Evrenbey-1exploration well location, which is expected to spud in late October on farm-inLicence 4094 in the Thrace Basin. This will be the first of two explorationwells to be drilled by Valeura to earn a 50% working interest in Licences 4094and 4532, which are currently held by an affiliate of TransAtlantic. TheEvrenbey-1 well is expected to be drilled to depth of approximately 1,700 metresinto the Mezardere formation. Targeted timing from spud to rig release isapproximately 15 days.
As a further earning commitment under the farm-in agreement,Valeura will fund an initial 2D seismic program of approximately 163 km on theMalkara Licence 4532, which is targeted to commence in November 2011.
A Valeura investment of US$3.0 million in 2D and 3D seismicand 100% funding of two exploration wells to a minimum depth of 1,500 metres arerequired under the farm-in agreement to earn a 50% interest in Licences 4094 and4532 (242,865 gross acres or 121,433 net acres).
KARAKILISE LICENCE 2674 GRANTED THREE YEAR EXTENSION
An application by Aladdin Middle East Ltd. ("AME") and GuneyYildizi Petrol Uretim Sondaj, Muteahhitlik ve Ticaret A.S. ("GYP") to extend theterm of the Karakilise Exploration Licence 2674 to May 30, 2014 has beenapproved by the General Directorate of Petroleum Affairs of the Republic ofTurkey ("GDPA"). The extension was granted on the basis of a heavy oil discoveryin the Mardin formation in the Altinakar-1 exploration well, which was funded ona 100% basis by Valeura as part of the earning program under the AME-GYPfarm-in.
In earlier discussions with AME-GYP and the GDPA, Valeura hadexpressed its intent to fund the deepening of the Altinakar-1 well in 2011 tothe primary exploration target in the Bedinan Formation if the licence term wasextended.
DISCUSSIONS UNDERWAY WITH AME-GYP TO CONFIRM VALEURA EARNINGUNDER FARM-IN AGREEMENT
By letter dated September 5, 2011, Valeura notified AME-GYPthat it had funded the minimum investment level of US$8.8 million under thefarm-in agreement and requested that AME-GYP initiate the transfer of a 25%interest in the Karakilise licences 2674 and 2677 to Valeura (the "FirstAssignment"). Valeura also indicated its intent to fund the deepening of theAltinakar-1 well as soon as possible.
After completing a well test program and geological andengineering studies of the Kahta heavy oil field, Valeura has decided not toproceed with a re-development program on the Kahta lease. Valeura was requiredto elect to participate in a re-development program by September 1, 2011 if itwas to earn any interest in the Kahta lease.
Discussions are continuing with both GYP and AME to seekagreement on the earning account, execute the First Assignment and proceed withthe deepening of the Altinakar-1 well.
We seek Safe Harbor.