Valeura Energy loses $2.22-million in Q2 2013 Valeura Energy Inc (2) (C:VLE)
Shares Issued 57,906,135
Last Close 8/12/2013 $0.44
Tuesday August 13 2013 - News Release
Mr. Jim McFarland reports
VALEURA ANNOUNCES SECOND QUARTER 2013 FINANCIAL AND OPERATING RESULTS
Valeura Energy Inc. has released highlights of its unaudited financial and operating results for the three- and six-month periods ended June 30, 2013, 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.
STRATEGIC DEVELOPMENTS
"The next phase of our program to de-risk and prove-up the most cost effective tight gas development program in the Thrace Basin has commenced with the completion of the first horizontal well in a planned two-well horizontal pilot in the Tekirdag area," said Jim McFarland, Valeura's President and CEO. "The first well has been fracture stimulated and is being production tested. The second horizontal well is drilling. With success in this pioneering pilot, we anticipate drilling up to two follow-up horizontal wells in 2013 to further delineate and high-grade the formations and intervals most amenable for horizontal well development."
"In another new development, a laminated sand/shale play in the Mezardere Formation is also being pursued through a well re-completion and fracture stimulation program, which has added sales volumes already and has expanded our exploitation and development portfolio."
"We are also pleased that the fracture stimulation program in the Thrace Basin has been successful in offsetting natural production declines since the start of the year and achieving a modest turnaround in volumes, which helped to boost funds flow from operations by 12% in the second quarter compared to the first quarter."
OPERATIONAL HIGHLIGHTS
Corporate petroleum and natural gas sales in the second quarter of 2013 averaged 862 barrels of oil equivalent per day ("boe/d") (net), which was ahead of sales in the first quarter of 2013 of 852 boe/d. Turkish net production in the second quarter averaged 815 boe/d, including 4.8 million cubic feet per day ("MMcf/d") of natural gas and 17 barrels of oil per day ("bopd") of crude oil. Canadian production averaged 47 boe/d.
The exit rate for the quarter, as measured by corporate petroleum and natural gas sales in June 2013, was 913 boe/d.
Thrace Basin - TBNG-PTI Joint Venture Lands (Valeura 40%)
Drilled the first well DTD-19H in a two-well horizontal drilling pilot in the Tekirdag area on joint venture lands acquired from Thrace Basin Natural Gas (Turkiye) Corporation ("TBNG") and Pinnacle Turkey Inc. ("PTI") (Valeura 40%). The well was drilled to a depth of approximately 1,100 metres into the Upper Kesan Formation with a horizontal section of 490 metres and was completed with a seven-stage frac. The well has been partially cleaned-out (frac balls, ball seats and sand) with available service rig equipment. The well is tied into the gathering system and has flowed up to 1.0 MMcf/d, likely from only a few of the fractured intervals, and continues to produce frac fluids. The operator plans to complete the clean-out of the well with a coiled tubing unit once it becomes available in early September to ensure all of the seven frac'd intervals are contributing to the flow.
Spudded the second horizontal well BTD-4H on July 20, which is expected to be drilled with an 850 metre horizontal section in the Teslimkoy Formation at a depth of approximately 1,000 metres and completed with up to a 10-stage frac. Results from BTD-4H well are expected in early September.
Initiated a new laminated sand/shale play in the Mezardere Formation in the Tekirdag area. In the second quarter, two existing wells ND-3 and TS-18 were re-completed in the Mezardere with relatively small one or two-stage fracs which yielded an aggregate initial seven-day on-stream rate of 2.1 MMcf/d (gross). The Corporation is encouraged that the same gross interval of 50 to 100 metres can be mapped over an extensive area based on well control. More than 20 existing wells may be candidates for similar re-entry fracs in the future to delineate a potentially larger follow-on development program. This Mezardere interval is also a candidate for horizontal drilling.
Acquired Licence 5151 (Valeura 40%) in May 2013, which encompasses lands previously relinquished in November 2012 at the end of the final exploration term (120,728 acres gross; 48,291 acres net). These are very prospective lands in the northern part of the joint venture area, which are partially covered by 3D seismic and hold a number of existing wells, including the Karanfiltepe-6 well drilled in 2012. This well was frac'd in the Lower Osmancik Formation in mid-July and yielded an initial seven-day on-stream rate of 2.3 MMcf/d.
Thrace Basin - Valeura 100% Lands
Shot 93 kilometres of new 2D seismic in June 2013 on the 100% owned and operated Banarli Licence 5104 to complement more than 200 kilometres of vintage 2D seismic on this licence. Processing and interpretation of the new seismic should be completed by late August aimed at maturing a number of exploration leads.
Acquired Licence 5147 (Valeura 100%) (20,668 gross acres) in July 2013 through a competitive licence application process. The licence is contiguous with the western part of the TBNG-PTI joint venture lands and is one of three licences the Corporation had applied for on a 100% basis in this area. Applications for the other two licences by Valeura and others remain under review by the government.
Anatolian Basin - Bostanci Licence
Completed a 20 kilometre, six-line 2D seismic program over the Bostanci oil exploration prospect in Licence 4985 (Valeura 100%) in southeast Turkey. The new seismic provides coverage up to the Syrian and northern Iraq borders. The seismic is currently being processed and interpreted, which should be finalized by late August. The Corporation is continuing to pursue a potential farm-in partner to fund an exploratory well to meet the spudding requirement of mid-October 2013 under an extension period granted from the original spudding deadline of mid-June 2013.
Anatolian Basin - Other
The Corporation is negotiating a potential farm-out arrangement for Licence 5052 (Valeura 100%) in the Karakilise area. A well must be spudded by mid-October 2013 to hold this licence under an extension period granted from the original spudding deadline of mid-June 2013.
FINANCIAL HIGHLIGHTS
Funds flow from operations of $1.8 million in the second quarter of 2013 was up 12% from $1.6 million in the first quarter of 2013 due primarily to higher sales volumes and lower operating costs, partially offset by slightly lower natural gas price realizations in Turkey due to exchange fluctuations. Funds flow from operations in the second quarter of 2013 was down 47% from the second quarter of 2012 due to lower sales volumes, partially offset by an increase in Turkish natural gas prices. (See discussion below regarding non-IFRS measures).
Capital expenditures in the second quarter of 2013 of $6.3 million were down marginally from $6.4 million in the first quarter of 2013. Capital expenditures in the second quarter of 2013 were down 41% from the second quarter of 2012 due primarily to a decrease in drilling expenditures.
Natural gas price realizations in Turkey in the second quarter of 2013 averaged $10.37 per thousand cubic feet ("Mcf"), which were down 3% from the first quarter of 2013 due primarily to a weakening of the Turkish Lira.
The corporate average operating netback of $41.16 per boe in the second quarter of 2013 was up 4% from $39.54 per boe in the first quarter of 2013 due primarily to lower unit operating costs in Turkey. The corporate average netback in the second quarter of 2013 was up 4% from the same period in 2012 due primarily to higher Turkish natural gas prices, partially offset by higher unit operating costs. (See discussion below regarding non-IFRS measures).
As at June 30, 2013, the Corporation had a working capital surplus of $14.7 million, including cash and cash equivalents of $16.7 million. This compares to a working capital surplus of $19.5 million as at March 31, 2013.
Additional financial and operating results are summarized in the Table 1 below.
Table 1 Financial Results Summary (thousands of Canadian dollars, except share or per share amounts) Three MonthsEndedJune 30, 2013 Three MonthsEndedMarch 31, 2013 Six MonthsEndedJune 30, 2013 Three MonthsEndedJune 30, 2012 Six MonthsEndedJune 30, 2012 Financial (CDN$ except share and per share amounts) Petroleum and natural gas revenues 4,897 4,848 9,745 6,864 13,674 Funds flow from operations (1) 1,775 1,587 3,362 3,373 6,312 Net loss (2,228) (818) (3,046) (752) (3,092) Capital expenditures 6,303 6,445 12,748 10,693 19,381 Net working capital surplus 14,735 19,457 14,735 16,853 16,853 Cash and cash equivalents 16,743 22,758 16,743 18,338 18,338 Common shares outstanding Basic 57,906,135 57,906,135 57,906,135 46,406,135 46,406,135 Diluted 79,040,602 79,040,602 79,040,602 65,731,102 65,731,102 Share trading High 0.93 1.15 1.15 2.11 2.89 Low 0.40 0.86 0.40 1.18 1.18 Close 0.42 0.88 0.42 1.48 1.48 Operations Production Crude oil + NGLs (bbl/d) 48 53 51 73 66 Natural Gas (Mcf/d) 4,882 4,787 4,835 7,605 8,340 boe/d (@ 6:1) (2) 862 851 856 1,340 1,456 Average reference price Edmonton light ($ per bbl) 92.55 88.16 90.36 83.92 88.05 AECO ($ per Mcf) 3.47 3.27 3.37 2.00 1.97 BOTAS Reference ($ per Mcf) (3) 11.21 11.37 11.29 10.20 9.34 Average realized price Crude oil ($ per bbl) 80.55 74.76 77.54 75.19 81.03 Natural gas - Turkey ($ per Mcf) 10.37 10.66 10.51 9.34 8.48 Natural gas - consolidated ($ per Mcf) 10.24 10.43 10.33 9.20 8.37 Average Operating Netback ($ per BOE @ 6:1) (1) (2) 41.16 39.54 40.35 39.72 36.18
Notes: (1) The above table includes non-IFRS measures, which may not be comparable to other companies. Funds flow from operations is calculated as net loss for the period adjusted for non-cash items in the statement of cash flows. Operating netback is calculated as petroleum and natural gas sales less royalties, production expenses and transportation costs. See MD&A for further discussion. (2) Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6.0 Mcf:1.0 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the well head. (3) Boru Hatlari ile Petrol Tasima Anonim Sirketi ("BOTAS") owns and operates the national crude oil and natural gas pipeline grids in Turkey. BOTAS regularly posts prices and its Industrial Interruptible Tariff benchmark is shown herein as a reference price. See the 2012 Annual Information Form for further discussion.
NEW TURKISH PETROLEUM LAW
The Turkish government approved a new petroleum law on May 30, 2013 after several years of review and significant input from the oil and gas industry's member organization in Turkey, known as PETFORM, of which Valeura is a member. Valeura views the new law as positive for the industry.
A number of attractive features of the current Turkish fiscal and royalty regime were maintained, including: a 12.5% royalty rate on oil and gas production; provision to extend the term of an exploration licence up to 11 years from the initial term of five years (four years currently), provided a discovery is made by the end of the ninth year; and, provision to extend a production lease up to 40 years from an initial term of 20 years.
The most significant change in the new law is the consolidation of 18 onshore petroleum districts into a single district and the elimination of prior limits on land holdings in each district, which were set at approximately 1.0 million acres (net). In some areas such as the Thrace Basin, which was encompassed by a single district, this change may facilitate consolidation of operations and increased running room for the pursuit of unconventional plays.
Other changes include the elimination of the statutory district drilling obligation, which required that a well must be spudded within six months of the rig release of an earlier well, once the drilling program commenced on a new licence, irrespective of the size of the work program that was bid to win the licence. A modest bond of up to 2% of the work and investment program must be submitted to the government to secure a new onshore exploration licence and for each subsequent extension, which can be drawn down as work progresses. No bonds are currently required.
Terms for existing licence and leases are preserved until expiry, although some reconfiguration of area boundaries may be required upon an extension application to align coordinates with a new international grid system that has been adopted. Also, holders of existing exploration licences will have the option within the next year to convert to the new licence terms.
OUTLOOK
Since the start of 2013, the Corporation has been able to stabilize production and funds flow from operations as a result of a successful fracture stimulation program in tight gas sands in the Upper Kesan and Teslimkoy Formations in the Thrace Basin and in a new laminated sand/shale play in the Mezardere Formation. To the end of the second quarter of 2013, the Corporation has drilled three new vertical wells and fracture stimulated seven new and existing vertical wells (nine separate frac intervals) in the Thrace Basin on the TBNG-PTI joint venture lands, which have contributed new production additions to offset natural production declines. The Corporation expects horizontal drilling to have more impact given the scale-up of the fracture stimulation program to seven to ten stages per well in selected tight gas sand intervals in the Teslimkoy and Upper Kesan Formations, and potentially in the new laminated sand/shale play in the Mezardere Formation.
To date in 2013, the Corporation has invested approximately $13 million (net) in Turkey and expects to invest up to $25 million (net) for the full year, more than 70% of which is expected to be directed to the TBNG-PTI joint venture lands (Valeura 40%). In the second half of 2013, the Corporation plans to spud up to three horizontal wells (including BTD-4H) and to fracture stimulate up to 20 wells on the TBNG-PTI joint venture lands, to be funded from cash flow and existing cash.
Interpretation of the new 2D seismic on the new 100% owned and operated Banarli Licence in the Thrace Basin is expected to be completed by late August, which will guide the program on this licence. Under the licence terms, a well must be spudded by early March 2014. The Corporation is seeking a joint venture partner to accelerate the exploration program on this large 185 square mile exploration licence (equivalent to 185 sections of land).
In southeast Turkey, the Corporation is seeking farm-in partners to drill a licence-preserving well by mid-October 2013 in both the Bostanci Licence 4985 and Karakilise Licence 5052.
We seek Safe Harbor.