Valeura Energy loses $702,174 in Q3 VALEURA ANNOUNCES THIRD QUARTER 2012 FINANCIAL AND OPERATING RESULTS - POISED TO COMMENCE TIGHT GAS DEVELOPMENT DRILLING IN THRACE BASIN
Valeura Energy Inc. has released highlights of its unaudited financial and operating results for the three- and nine-month periods ended Sept. 30, 2012, and provided an update on subsequent developments. The complete quarterly reporting package for the Corporation, including the unaudited financial statements and associated management's discussion and analysis, has been filed on SEDAR at www.sedar.com and posted on the Corporation's website at www.valeuraenergy.com.
"The recent closing of a $15 million bought-deal financing and continued progress on the proof-of-concept program aimed at de-risking the tight gas play in the Thrace Basin of Turkey has now positioned the Corporation to commence a phased tight gas development program in the first quarter of 2013 on the TBNG-PTI lands", said Jim McFarland, President and Chief Executive Officer.
"The operator of the TBNG-PTI lands, TransAtlantic Petroleum, has announced plans for an initial 88-well development program for the Tekirdag field area, which is expected to extend over three years into 2015 utilizing two drilling rigs. We are excited about moving forward on this program after more than 16 months of technical work, fracture stimulation field trials and deeper exploration drilling."
"Natural gas price realizations in Turkey remained strong in the third quarter, which averaged $9.27 per thousand cubic feet ("Mcf") and contributed to a corporate average operating netback of $39.14 per barrel of oil equivalent ("BOE"). We are also pleased that these prices have further strengthened to $10.00 to 10.20 per Mcf as of October 1, 2012 in concert with a 10% increase in the BOTAS reference price."
OPERATIONAL HIGHLIGHTS
Corporate petroleum and natural gas sales in the third quarter of 2012 averaged 1,140 BOE per day ("BOE/d") (net), down 15% from the second quarter of 2012 due to natural declines and a slowing of the drilling and frac program in the Thrace Basin in order to evaluate the results of the initial deep well drilling carried out in the second quarter.
Turkish net production in the third quarter of 2012 averaged 1,079 BOE/d, including 6.4 million cubic feet per day ("MMcf/d") of natural gas at an average wellhead price of $9.27 per Mcf and 19 barrels of oil per day ("bopd"). Canadian production was 61 BOE/d.
Thrace Basin - Unconventional Tight Gas
Continued to progress the unconventional tight gas proof-of-concept fracing and deep drilling program, completing fracs on two new drill wells and three existing wells in the third quarter on the lands acquired from Thrace Basin Natural Gas (Turkiye) Corporation ("TBNG") and Pinnacle Turkey Inc. ("PTI") (Valeura 40%). Since the proof-of-concept frac program was initiated in July 2011, 28 wells have been frac'd in the Mezardere, Teslimkoy and Kesan formations, which has provided critical information in assessing the tight gas potential in the Thrace Basin.
Spudded the Kazanci-5 well in the third quarter on the TBNG-PTI lands targeting unconventional tight gas at a planned depth of 3,250 metres. The well is the first deep well to be drilled in the northern Hayrabolu area on new 3D seismic acquired in late 2011. To September 30, eight unconventional tight gas wells have been spudded on the TBNG-PTI lands of which four are on production, three are in various stages of evaluation, completing and fracing and one was drilling at the end of the third quarter.
The Viking International frac spread utilized in the Thrace Basin frac program was deployed to southeast Turkey in late August while the fracs completed to date were evaluated. The frac spread is expected to return to the Thrace Basin in early December 2012 to frac three deep exploration wells drilled earlier in the year, complete at least two well re-entry fracs and to track the ongoing deep appraisal and development drilling program.
Thrace Basin - Conventional Shallow Gas
Continued the workover and drilling program to mitigate natural declines in the conventional shallow gas business in the Thrace Basin, completing 12 workovers (gross) in the third quarter on the TBNG-PTI lands. On a year-to-date basis, 26 workovers (gross) have been completed.
Spudded the Atakoy-8 conventional shallow gas well in the third quarter on the TBNG-PTI lands, which is currently on production. To September 30, eight conventional shallow gas wells (gross) have been spudded of which four wells are on production, three wells have been cased and are in various stages of completion, and one well was drilled and abandoned.
Acquired 186 kilometres of new 2D seismic in the third quarter on the Copkoy Licence 3999 (Valeura 24%) in the western part of the Thrace Basin and spudded the Kavacik-1 well to satisfy the district drilling requirement on this licence. The well is targeting conventional shallow gas in the Osmancik formation at a total planned depth of 1,500 metres.
Anatolian Basin
Frac'd the Altinakar-1 well on Karakilise Licence 2674 (Valeura 27.5%) on September 3 aimed at improving the productivity of a relatively tight sandstone reservoir in the Bedinan formation. However, the frac was not successful in improving oil productivity on a sustained basis.
Completed the acquisition of 82 kilometres of new 2D seismic over the structure penetrated by the Karakilise-1 well on Licence 2677 (Valeura 27.5%) in order to assess the merits of additional appraisal drilling. The Karakilise-1 well is currently producing medium gravity oil at a rate of 20 to 30 bopd (gross). The exploration licence expires in November 2013 at the end of its 11th year, with the exception of any area carved-out as an approved production lease around the Karakilise-1 well.
FINANCIAL HIGHLIGHTS
Announced a $15 million bought deal financing on September 17 with a syndicate of underwriters led by Cormark Securities Inc. and including National Bank Financial Inc., Canaccord Genuity Corp., FirstEnergy Capital Corp., and Jennings Capital Inc. (the "Underwriters"). The financing closed on October 10 and 11.5 million common shares were issued at a price of $1.30 per common share for net proceeds after fees and expenses of approximately $13.8 million. The number of common shares outstanding has therefore increased to approximately 57.9 million.
Funds flow from operations of $2,803,187 in the third quarter of 2012 was down 17% from $3,373,244 in the second quarter of 2012 due primarily to a 15% decline in production volumes. Funds flow from operations was up 41% from the third quarter of 2011 due primarily to higher natural gas prices in Turkey and lower transaction costs, partially offset by lower production volumes.
Capital expenditures in the third quarter of 2012 were $5,642,479 compared to $10,693,263 in the second quarter of 2012 reflecting fewer drill wells and fracs in the Thrace Basin with the deployment of the frac spread to southeast Turkey. Capital expenditures for the first nine months of 2012 were $25,023,680.
The corporate average operating netback was $39.14 per BOE in the third quarter of 2012, essentially unchanged from the second quarter of 2012. This compares to an average operating netback of $25.00 per BOE in the third quarter of 2011 reflecting lower natural gas prices in Turkey.
At September 30, 2012, the Corporation had a working capital surplus of approximately $14.0 million, including cash and cash equivalents of $15.6 million. On a pro forma basis this working capital surplus would increase to approximately $28.0 million including the net proceeds from the bought deal financing, which closed on October 10.
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OUTLOOK
The Corporation continues to focus on three key objectives in Turkey:
Proving-up the potential of the tight gas play in the Thrace Basin;
Continuing to optimize the shallow gas business in the Thrace Basin; and
Fulfilling exploration-focused work programs on high potential farm-in acreage in the Thrace Basin (gas targets) and in the Anatolian Basin (oil targets).
The Corporation's outlook for capital expenditures in 2012 is in the range of $30 to $32 million of which $5 to 7 million is expected to be spent in the fourth quarter. This reflects continuing with a two-rig program in the Thrace Basin in the fourth quarter and the return of the frac spread to the Thrace Basin in early December.
The 2013 work program and capital budget is currently under development with partners.
Thrace Basin
The proof-of-concept program to de-risk the tight gas play in the Thrace Basin has continued to make encouraging progress. The Corporation expects to complete up to 18 well re-entry fracs (gross) on the TBNG-PTI lands in 2012, including 15 completed to September 30.
The Corporation is also targeting to spud 11 deep unconventional tight gas wells (gross) in 2012 at depths ranging from 1,500 metres to 3,755 metres in the Mezardere, Teslimkoy and Kesan units, including eight spudded to September 30, and for planning purposes, stimulating each of these with at least a single stage frac. In the fourth quarter, the Corporation expects to frac certain encouraging intervals in the deeper sections of Baglik-1 and Kayi Derin-1 wells, which were drilled to depths of 3,594 to 3,755 metres in 2012.
With respect to the shallow gas business on the TBNG-PTI lands, the 2012 budget outlook includes up to 35 recompletion workovers (gross), including 26 completed to September 30. The Corporation is budgeting to drill 10 conventional shallow gas wells (gross) in 2012, including eight spudded to September 30.
The pace of the program to manage water production from both shallow and deep wells on the TBNG-PTI lands is accelerating. A coiled tubing unit was commissioned in September to carry out a prioritized program to clean out those wellbores loaded with water that is negatively impacting natural gas flow rates. A program also commenced in late October to equip selected wells with plunger lift pumps to lift produced water on a continuous basis. It is expected that this program will be expanded with other forms of continuous pumping equipment in the fourth quarter.
Anatolian Basin
In the Anatolian Basin, the Corporation expects to complete and flow test the horizontal sidetrack in the Alibey-1 well (Valeura 26%) in the Gaziantep area. This 414 metre sidetrack was drilled in July 2012 and exposed more than 80 metres of horizontal porous section in the Mardin Group, which had tested heavy oil in the original vertical well.
The Corporation is also continuing to update its technical assessment of the Bostanci exploration prospect in Licence 4985 on the border with northern Iraq and Syria, and associated drilling costs, in preparation for the targeted spudding of a well late in the second quarter of 2013.
We seek Safe Harbor.