Valeura Energy Inc. T.VLE

From Malcom Shaw today

[happygal17]

Last night after the market closed, long time Hydra hopeful Valeura Energy (VLE.TO, last $0.68) gave an update from its high-impact deep gas drilling program in Turkey's Thrace Basin where to company is trying to prove up a multi-TCF basin-centred gas accumulation (BCGA) with its partner, Statoil. Believe it or not, there was a time not that long ago when Valeura's news would have had the company pushing a $250+ million market cap (that would be close to $4/share) at this stage. Look/remember back to the days of Falcon Oil and Gas in Hungary, or BNK Petroleum in Poland if you don't believe me. Both Falcon and BNK got into the $500+ million market cap club without breaking much of a sweat at all. Instead, VLE limps along at a valuation that ascribes no value to the BCGA option despite a farm-in by a super major and data that is as encouraging as one could hope for at this early stage. So what gives?

In my view, the markets apparent unwillingness to ascribe any "risked value" for Valeura's BCGA is a perfect illustration of the two dark market forces of history and sentiment. For one, there's definitely a "been there, done that" attitude with respect to chasing tight gas in Europe given the difficulties that other operators have had in establishing tight gas plays in other countries. And then there's the fact that "energy" (i.e., oil and gas) is pretty much a dirty word  for many a retail investor and portfolio manager these days. Oddly, this market sentiment seems to pretty much ignore regional markets, like Turkey, where the traditional energy sector can still be very profitable due to strong local pricing.

Valeura's press release ticks all the boxes that anyone could hope to see from a mid-program update on the first true test of Valeura's BGCA concept. There is evidence of a thick overpressured section (1,300 metres thick), there is evidence of rocks with gas saturations and porosities that meet pre-determined cutoffs that are deemed to make them worthy of testing, and there are "encouraging" gas shows (i.e., the well pushed gas back into the wellbore during drilling) throughout the interval of interest. These indications of gas are seen completely outside of any structural closure, which is exactly what you would expect to see in a BCGA and it is exactly what makes the potential so large. With Valeura having seen pervasive gas saturations and shows throughout the overpressured interval, it is strongly suggestive that the gas accumulation could be extensive below the regional pressure seal, covering a large portion of the VLE/Statoil lands. When you start thinking about the areas and thicknesses involved, I believe that the multi-TCF prize is very much in play here... moreso than it has ever been before.

The testing program is expected to start late this quarter, so I would expect actual flow results 30-60+ days after testing begins. In the meantime, investors can look forward to VLE's next update in the second week of August where I'm hopeful that an update on the shallow program will show some success with drill bit in order to keep VLE's production growth projections intact.

Given that I've made it this far, I can't imagine not sticking around to see what Yamalik-1 test results look like... and probably another well after that. Valeura and Statoil are seeing and saying everything they should at this stage in the program. If I had never owned VLE before today and was just starting to look at the company I can guarantee that I would still see VLE as having an embedded long-tail call option that could be worth multi-dollars per share. In light of that, I suspect that Valeura has seen its lows for the year barring any major geopolitical or broader market crisis, but as always, time will tell.