Valeura loses $17.56-million in 2013 Valeura Energy Inc (2) (C:VLE)
Shares Issued 57,906,135
Last Close 3/11/2014 $0.47
Tuesday March 11 2014 - News Release
Mr. Jim McFarland reports
VALEURA ANNOUNCES FOURTH QUARTER 2013 FINANCIAL AND OPERATING RESULTS AND YEAR-END 2013 RESERVES
Valeura Energy Inc. has released highlights of its unaudited financial and operating results for the three-month period ended Dec. 31, 2013, audited results for the year ended Dec. 31, 2013, year-end 2013 reserves, and an update on subsequent developments. The complete quarterly reporting package for the Corporation, including the audited annual financial statements and associated management's discussion and analysis ("MD&A") and the 2013 Annual Information Form ("2013 AIF"), have been filed on SEDAR at www.sedar.com and posted on the Corporation's website at www.valeuraenergy.com. Q4 2013 RESULTS AT A GLANCENet sales 1,191 boe/d, up 18% from Q3 2013
Funds flow from operations $3.8 million, up 24% from Q3 2013
Operating netback $43.25 per boe
1P reserves 1.8 MMboe and 2P reserves 5.8 MMboe at year-end 2013, up 55% and 16%, respectively, from year-end 2012
Replaced 280% of corporate production at the 1P level and 326% of production at the 2P level in 2013
1P reserves value $46 MM or $0.80 per share; 2P reserves value $130 MM or $2.24 per share (NPV10 before tax)
9 additional re-entry fracs completed in new Mezardere slope fan play
Drilled and fracked a third horizontal tight gas well with IP30 of 2.0 MMcf/d (gross)
(See below for definitions and advisories)
OPERATIONAL HIGHLIGHTS
Net corporate petroleum and natural gas sales in the fourth quarter of 2013 averaged 1,191 barrels of oil equivalent per day ("boe/d"), which was 18% higher than sales in the third quarter of 2013. Net sales in Turkey in the fourth quarter of 2013 averaged 1,149 boe/d, including 6.8 million cubic feet per day ("MMcf/d") of natural gas and 14 barrels of oil per day ("bopd"). Net sales in Canada in the fourth quarter of 2013 averaged 42 boe/d.
Net corporate petroleum and natural gas sales to date in the first quarter of 2014 have averaged approximately 1,300 boe/d reflecting continued growth in gas production from the Thrace Basin in Turkey.
Thrace Basin - TBNG JV (Valeura 40%)
Completed 232 square kilometres of new 3D seismic in the Osmanli area at a cost of $2.3 million (net) on joint venture lands acquired from Thrace Basin Natural Gas (Turkiye) Corporation ("TBNG") and Pinnacle Turkey Inc. ("PTI") (the "TBNG JV") (Valeura 40%). The Osmanli area is located to the north and west of the Tekirdag area, where the bulk of the natural gas development has occurred on the TBNG JV lands. The new seismic is expected to provide additional drilling opportunities in both the target Osmancik shallow gas reservoirs and Mezardere and Teslimkoy tight gas reservoirs.
Drilled and fracked the third horizontal well BTD-5H in the horizontal drilling pilot in the Tekirdag area. The BTD-5H well was drilled to a vertical depth of 975 metres into the Teslimkoy Formation with a horizontal section of 403 metres and was completed with a 3-stage frac in late December 2013. Over the first 30 days after tie-in, the BTD-5H well flowed at an average restricted rate of 2.0 MMcf/d (gross) ("IP30") through a 30/64" choke. The cost to drill, frac and tie-in the BTD-5H well was under budget at approximately $2.1 million (gross). (Note that the initial production rates stated throughout this press release are not necessarily indicative of long term performance or ultimate recovery).
Completed nine well re-entry fracs in the fourth quarter of 2013 in the Mezardere Formation, increasing the 2013 well total to 17. The average per well IP30 on 13 wells with 30 days of on-stream history is approximately 1.1 MMcf/d.
In a subsequent development in the first quarter of 2014, drilled two additional horizontal wells BTD-2H and TDR-11H into the Mezardere Formation to follow-up on the successful 2013 re-entry frac program in this formation. The BTD-2H well was fracked on March 4, 2014 and is tied-in and flowing at a restricted rate of approximately 1.8 MMcf/d (gross) through a 28/64" choke. The BTD-2H well is continuing to clean up with only 25% of the completion load fluid recovered to date. It is expected that the TDR-11H well will be completed with a 10-stage frac before the end of March.
Thrace Basin - Banarli Exploration Licence (Valeura 100%) Valeura is continuing to seek a joint venture partner to participate in funding an exploration program on the 100% owned and operated Banarli Exploration Licence 5104. The Company has recently engaged Moyes & Co., an internationally active acquisition and divestment firm, to assist in the farm-out process.
Anatolian Basin
Valeura sold its 27.5% interest in two Karakilise Licences 2674 and 2677 in the Anatolian Basin, which included two marginal oil wells producing in aggregate less than 10 bopd (net). Both licences were near expiry at the end of their 11-year term, requiring applications for production leases and relinquishment of the residual exploration areas by May 2014. The Corporation assessed that there was limited upside potential in retaining these licences.
FINANCIAL HIGHLIGHTS
Funds flow from operations of $3.8 million in the fourth quarter of 2013 was up 24% from the third quarter of 2013 due primarily to higher sales volumes, partially offset by slightly lower natural gas price realizations in Turkey. Funds flow from operations in the fourth quarter of 2013 was up 40% from the same period in 2012 due to higher sales volumes and higher natural gas price realizations in Turkey. Funds flow from operations in 2013 of $10.2 million was 14% lower than 2012 due primarily to lower volumes, partially offset by higher natural gas price realizations in Turkey. (See discussion below regarding non-IFRS measures).
Capital expenditures of $5.8 million in the fourth quarter of 2013 were down 32% from the third quarter of 2013 and down 7% from the same period in 2012 reflecting lower drilling expenditures. Capital expenditures of $27.0 million in 2013 were also down 14% from 2012 reflecting lower drilling expenditures.
The Corporation's gas sales are priced in Turkish Lira linked to reference prices posted by Boru Hatlari ile Petrol Tasima Anonim Sirketi ("BOTAS"), which buys most of the imported gas in Turkey for re-sale to distribution companies. Natural gas price realizations in Turkey in the fourth quarter of 2013 averaged $9.93 per Mcf, which were down 2% from the third quarter of 2013 due primarily to a weakening of the Turkish Lira ("TL"), and up 2% from the same period in 2012 due to improvements in gas sales contract terms, partially offset by the weakening of the TL. The TL continued to weaken in early 2014, which reduced the average natural gas price realization in Turkey to $9.57 per Mcf in January 2014 at an exchange rate of $1.00 = 2.03 TL.
The corporate average operating netback of $43.25 per boe in the fourth quarter of 2013 was down 4% from the third quarter of 2013 due primarily to lower natural gas price realisations and higher unit operating costs, and up 11% from the same period in 2012 due primarily to lower unit operating costs and higher natural gas price realisations. (See discussion below regarding non-IFRS measures).
As at December 31, 2013, the Corporation had a working capital surplus of $6.8 million, including cash and cash equivalents of $6.5 million. This compares to a working capital surplus of $24.2 million as at December 31, 2012.
Additional financial and operating results are summarized in the Table 1 below.
Financial Results Summary (thousands of Canadian dollars, except share and per share amounts) Three months ended Three months ended Year ended Three months ended Year ended Dec. 31, 2013 Sept. 30, 2013 Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2012 Financial Petroleum and natural gas revenues 6,556 5,749 22,050 5,409 24,942 Funds flow from operations 3,789 3,067 10,218 2,700 11,816 Net loss (9,888) (4,632) (17,566) (12,110) (15,905) Operations Sales Crude oil and NGLs (bbl/d) 44 48 49 61 63 Natural Gas (Mcf/d) 6,883 5,778 5,589 5,682 7,206 BOE/d (@ 6:1) (2) 1,191 1,011 980 1,008 1,264
RESERVES
The Corporation has completed its independent reserves evaluations for Turkey and Canada as at December 31, 2013. These evaluations were conducted by DeGolyer and MacNaughton ("D&M") of Dallas, Texas for the Corporation's properties in Turkey in its report dated March 11, 2014 (the "D&M Reserves Report") and GLJ Petroleum Consultants Ltd. ("GLJ") of Calgary, Alberta for the Canadian properties in its report dated February 26, 2014 (the "GLJ Report"). These evaluations were prepared using guidelines outlined in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and are in accordance with National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additional reserves information as required under NI 51-101 is included in the 2013 AIF filed on SEDAR.
Total Company Reserves Summary
The following tables 2 and 3 summarize and compare total company reserves in Turkey and Canada and associated net present value discounted at 10% ("NPV10") before tax at December 31, 2013 and December 31, 2012 using forecast prices.
Table 2 Company Gross Reserves Volumes (Mboe) (1) RESERVES CATEGORY 2013 2012 %CHANGE TURKEYCANADA TOTALTURKEYCANADATOTAL Proved Developed producing 746 55 801 328 65 393 +104 Developed non-producing 318 80 398 304 78 382 +4 Undeveloped 584 - 584 374 - 374 +56 Total Proved (1P) 1,648 135 1,783 1,006 1431,149 +55 Probable 3,680 323 4,003 3,480 3583,838 +4 Total Proved Plus Probable (2P) 5,328 458 5,786 4,486 5014,987 +16 Possible (2) 4,971 - 4,971 4,705 -4,705 +6 Total Proved Plus Probable Plus Possible (3P) (2)10,299 45810,757 9,191 5019,692 +11
Table 3 Net Present Value at 10% Before Tax ($ Millions - $MM) (1)(2)(3)(4) RESERVES CATEGORY 2013 2012 %CHANGE TURKEYCANADATOTALTURKEYCANADATOTAL Proved Developed producing 30.0 1.1 31.1 8.0 1.1 9.1 +241 Developed non-producing 8.8 0.4 9.2 8.4 0.4 8.8 +5 Undeveloped 6.3 - 6.3 1.0 - 1.0 +530 Total Proved (1P) 45.1 1.5 46.5 17.5 1.5 19.0 +144 Probable 80.1 3.2 83.3 70.3 3.8 74.1 +123 Total Proved Plus Probable (2P) 125.2 4.7129.9 87.7 5.3 93.0 +39 Possible (5) 117.1 -117.1 105.1 -105.1 +11 Total Proved Plus Probable Plus Possible (3P) 242.3 4.7247.0 192.8 5.3198.1 +24
Turkey
The following tables and commentary summarize information contained in the D&M Reserves Report for Turkey.
D&M evaluated reserves as at December 31, 2013 on the TBNG JV lands (40% working interest), the Edirne Licence in the Thrace Basin (35% working interest) and the Gaziantep Licence 4076 in the Anatolian Basin (26% working interest). The reserves are primarily natural gas but small oil volumes are assigned to the Bati Kazanci-4 well (40% working interest) in the Thrace Basin and the Alibey-1 horizontal well (26% working interest) in the Anatolian Basin.
The assessment encompassed shallow gas reserves in the Danismen and Osmancik formations and certain deeper, tight gas reserves in the underlying Mezardere, Teslimkoy and Kesan formations. The results are summarized in Table 4 below.
Table 4 Turkey 2013 Year-end Company Gross Reserves Volumes and Values (1)(2) RESERVESCATEGORY LIGHT/MEDIUM OIL(Mbbl)NATURAL GAS(Bcf) Proved 86 9.4 Probable 50 21.8 Total proved plus probable 136 31.2 Possible 78 29.4 Total proved, probable and possible 214 60.5 RESERVESCATEGORY TOTAL OIL EQUIVALENT(Mboe)NPV10 BEFORE TAX (US$MM) Proved 1,648 42.4 Probable 3,680 75.3 Total proved plus probable 5,328 117.7 Possible 4,971 110.1 Total proved, probable and possible10,299 227.8
Contingent Resources
The Corporation has not updated the contingent resources assessment for the Thrace Basin carried out by D&M as at December 31, 2012, which was summarized in Valeura's 2012 Annual Information Form. Any decision to update D&M's contingent resources assessment will be dependent on further results from horizontal drilling on the TBNG JV lands and potential exploration drilling on the Banarli Licence 5104 in 2014.
Canada
The following table and commentary summarize information contained in the GLJ Reserves Report for Canada.
GLJ evaluated the Corporation's reserves in Canada, which consist of light and medium oil, heavy oil, natural gas liquids and natural gas as summarized in Table 5 below.
Table 5 Canada 2013 Year-end Company Gross Reserves Volumes and Values (1)(2) RESERVESCATEGORY OIL (3)(Mbbl)NATURAL GAS(Bcf)NATURAL GAS LIQUIDS(Mbbl) Proved 63 0.4 14 Probable 113 0.9 54 Total proved plus probable 176 1.3 68 RESERVESCATEGORY TOTAL OIL EQUIVALENT(Mboe)NPV10 BEFORE TAX ($MM) Proved 135 1.5 Probable 323 3.2 Total proved plus probable 458 4.7
OUTLOOK
The Corporation expects to execute a capital expenditure budget of up to $14 to 17 million (net) in Turkey in 2014, focused on natural gas development in the Thrace Basin, and contingent on the level of operating cash flow. The work program and budget aims to achieve the following key objectives in 2014, as outlined in the Corporation's January 9, 2014 operational update and 2014 guidance press release:
Offset natural declines and achieve 5 to 10% annualized production growth from trailing quarter rates with a natural gas development program on the TBNG JV lands funded by available cash and operating cash flow, focused primarily on exploiting tight gas reservoirs with horizontal and vertical wells completed with multi-stage fracs
Expand the tight gas development area on the TBNG JV lands from the Tekirdag area to other areas in Osmanli and Hayrabolu, which are also covered with 3D seismic
Test for the presence of a basin-centred gas accumulation on Valeura's 100% owned Banarli Licence, subject to obtaining a partner or other financing
The planned work program on the TBNG JV lands in 2014 includes up to 12 horizontal and vertical wells (gross) utilizing a single drilling rig. Of this total, up to eight new drill wells with multi-stage frac completions are planned targeting tight gas reservoirs in the Mezardere and Teslimkoy Formations and up to four wells targeting conventional shallow gas reservoirs. Up to an additional 13 well re-entry fracs (gross) are also planned, primarily targeting the Mezardere Formation.
To date in 2014, two horizontal wells BTD-2H and TDR-11H have been drilled in the Mezardere Formation. An additional 25 potential horizontal drilling locations in the Mezardere Formation have been identified within the Tekirdag field alone.
A key focus in 2014 will be to further improve capital efficiency, particularly through the reduction of drilling costs, building on analogue experience in North America and recent drilling efficiency improvements achieved by the operator on the TBNG JV lands. The Corporation is targeting an average cost in 2014 of $3.0 million (gross) to drill a typical horizontal well to a vertical depth of 1,000 metres with an 800 metre horizontal leg and to complete it with a 10-stage frac. These horizontal wells are expected to be longer with more frac stages compared to the initial five wells drilled in 2013 and early 2014. The cost to drill a vertical well to a depth of 1,400 metres and to complete it with a 4-stage frac is targeted at $1.9 million (gross). The typical cost for well re-entry frac is estimated at $0.5 million (gross).
Good progress is already being made on drilling efficiency and cost, which provides increasing confidence that the target costs described above can be achieved or bettered in 2014. In particular, the BTD-5H horizontal well was drilled to a measured length of 1,519 metres in 15 days and fracked (3-stage) for a total cost of $2.1 million (gross) in late December 2013. The next horizontal well BTD-2H well was drilled to a measured length of 1,246 metres in 13 days and fracked (8-stage) for a total cost of $2.1 million (gross) in early March 2014. Similar drilling times of 11 days were achieved in the most recent horizontal well TDR-11H, which was drilled to a measured length of 1,291 metres and rig released in early March, and is expected to be fracked later this month.
ADOPTION OF AMENDED AND RESTATED BY-LAWS
Valeura is also pleased to report that the board of directors has approved the adoption of an amended and restated by-law no. 1 (the "Amended and Restated By-Laws") which, among other things, incorporates advance notice provisions with respect to director nominations. The advance notice provisions set a deadline by which shareholders must notify the Corporation in writing of an intention to nominate directors prior to any meeting of shareholders at which directors are to be elected and set forth the information that the shareholder must include in the notice for it to be valid. The Amended and Restated By-Laws, including the advance notice provisions, are effective immediately and will be subject to shareholder approval at the annual and special meeting of shareholders to be held on May 15, 2014. The full text of the Amended and Restated By-Laws is available under Valeura's profile on SEDAR at www.sedar.com.
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