Megat2bucks vle...night reading...Youd have to be living in a cave to be unaware of the fact that the Turkish currency crisis is in full swing right now. The TRY:USD exchange rate is currently hovering around 7:1, a level at which some market observers believe that USD/EUR denominated corporate bond debt defaults start to become a serious possibility. On Friday, I thought my computer had gone haywire with all five top CNBC online headlines being about Turkeys lira crisis. Maybe Trumps boot standing on Turkeys neck was the last straw in breaking the currencys back, but by all accounts right now, the lira is in a full-blown crisis. At times like these, some thought processes go a little something like this, Turkey? Sell it. Any asset in Turkey is toxic, I dont care what it is. There is no weighing of the future prospects of the country, no consideration for what a bailout might look like and how long it might take, and no interest in a post-bailout economy that might be looking down the barrel of a recession afterwards. Turkey is going to zero. Thats the fear out there. Its a ridiculous mindset in the longer term, but in a headline driven world the majority rules and when it comes to Valeura Energy (VLE.TO, last at $3.14), the majority just doesnt care. Its as if the market thinks that the current lira exchange rate, or looming corporate debt defaults somehow might impact the business of the delineation and appraisal of the Thrace Basin BCGA. I find that hard to fathom. If Valeura was in need of money, I might worry about its cost of capital and its ability to fund the work, but as it stands VLE is funded into 2020 without raising another dime. Aside from the impact of TRY:USD rates on VLEs meager existing production and associated cash flow, I defy anyone to tell me how the currency crisis in Turkey actually effects the long-term economic value of the Thrace Basin BCGA and I would argue that the long-term is the only term that matters given that this is an asset whose development would span decades. In the meantime, Turkish natural gas prices to power plants and industrial users have been ratcheted higher, which at least shows acknowledgement by the powers that be of the problem. However, by the time any appreciable amount of gas is coming out of the Thrace, this currency crisis will have long since passed. As Ive said before, Id give it 12-18 months to sort out in a full-blown market meltdown based on the history of other similar crises. The Thrace BCGA is a 20 TCF-potential asset that happens to be in Turkey but the gas and condensate molecules are just the same as the ones that others cant ship fast enough to a gas-hungry Europe. These molecules will go first to the highest bidder in the upstream industry, and then later to the highest bidder(s) of all the downstream customers years from now. Am I to be worried about capital controls? Why would I be? Valeura and Equinor are putting money into Turkey, not trying to get it out. Am I worried about nationalization? Nationalization of what? Theres nothing but rolling hills with gas under them right now (some three kilometres deep) and Turkish Petroleum would have literally no idea how to actually get that gas out. It would be a tough sell to bring anyone else in Hey we just nationalized this asset. Will you come invest in in it now? Because we neither have a clue of how to develop it, nor the capital. At the end of the day, no one could possibly move faster than Equinor and Valeura to prove up those molecules for future development. What that development looks like, who buys the gas, and what price they pay are all commercial negotiations that will happen much farther down the road. None of this has any bearing on the TRY:USD exchange rate in the middle of a crisis like this, but people dont care at a time like this; they just sell Turkey. In that light, its impossible to predict where the floor is for VLE, as its being dictated by the rationality, or irrationality, of the market; which is not something that can be quantified. Sure, you could point to book value on a story like this, but the initial book value of any large discovery is always a fraction of its ultimate value, simply by the nature of the business. In an extreme case, imagine that you own an oil company that drilled a simple dome structure with 300 metres of oil pay in beautiful, clean sandstones that happened to be located under a regional oil transportation corridor. Seismic data clearly shows the structure and its easy to see that youve drilled into a major oil discovery of, say, a billion barrels. When was the last time an asset like that was eventually purchased at book value by a major? Ill tell you when never. But that wont stop people from running screaming out of the building in the meantime, and judging by VLEs $3.14 share price, theres an exodus going on regardless of whatever well-researched comparable value you want to use. The feeling of being a VLE shareholder right now is not unlike riding a rollercoaster through some kind of nightmare funhouse. I fully appreciate how and why some people just say Nope, not for me and get off the ride. Heck, the only reason that I stick around is because of what I think is on the table here based on years of research on this project. Of course my conviction was only strengthened when the prospective resource assessment from Degolyer and MacNaughton earlier this year showed an unrisked mean prospective recoverable resource of 10 TCF net to VLE, on just a portion of the total play. I have seen oil and gas deposits developed in just about every jurisdiction you can think of and Turkey is fairly tame when put on the list of jurisdictions on the global scene. Turkey is a large country, with 80 million people, and it is the physical buffer between the Middle East, Russia, and Europe, which makes it of vital importance to the stability of the region. It ranks around 10th in the world in terms of military strength and is not a jurisdiction to be taken lightly. The country has an old culture rooted trade and commerce and a regulatory framework that is very well defined. It is also currently hosting over 3 million Syrian refugees that would otherwise be bound for Europe if Turkey werent being so cooperative. In light of all that, I think the question is not Will the currency crisis be fixed, its Who will step in to fix it and what does that mean for the geopolitics of the region? From 30,000 feet, when you just look at where the Thrace Basin is relative to the markets and transportation infrastructure in the region, it seems kind of self evident to me that this is going to be a huge energy project if its even a fraction of what the D&M report outlined in terms of scale. Assuming of course that appraisal wells confirm the presence of thick intervals of overpressured, and producible, gas and condensate. If the Turkish currency crisis is allowed to spread through other emerging market economies and debt markets, then all bets are off, because that could trigger a much larger global equity event in its wake. At that point, thats not going to be a problem specific to little Valeura. Through all of it though, people everywhere will still light and heat their homes, watch their TVs, and go about their daily lives. Energy is a primary input to modern society. You can go without a new car or a new washing machine you cant go without heat and electricity. Thats why energy companies take such long term views of projects like thisbecause year, after year, after year, after year, modern society has an insatiable appetite for energy. Meanwhile, VLE is fully funded all the way through to 2020 and will have Inanli-1 results by the end of the year. Largely impervious from an operational standpoint to the storm around them, VLE and Equinor will simply go about their business, de-risking a project that is unquestionably part of the solution to the bind that Turkey finds itself in; persistent current account deficits, driven largely by energy imports. This is a classic example of what horrible sentiment can do to a speculative stock like this where peoples perceptions of value can change quickly despite no change in definable company/asset-specific fundamentals. Everyone and their dog has seen a Turkey headline (or five) by now and many are just hitting the exits in favour of other pastures. Thats a fair thing to do. I certainly wish Id sold my whole position at $6 so I could buy it all back on the cheap, but live and learn. As it stands today, Im not standing in the way of a market like this, though I would like to add to my position at some point of maximum pessimism. Im not sure what that looks like, but it doesnt seem like its that far off. I dont have to agree with Erdogans domestic policies to want to see his country develop its first-ever world-class gas resource. Owning Valeura right now is a bit like waking up one day and having everyone tell you that the person youve been dating is ugly, has cooties, and that their parents have a massive debt problem thats going to bankrupt them. Your sitting there thinking, Geez, Ive been dating this person for a long time, I think theyre really good looking, Im fairly certain they dont have cooties, and yeah, those parents are in some debt trouble, but they have a lot of rich people who want to be friends with them and loads of assets so I think theyll be okay. It doesnt change the fact that everyone is still saying nasty things about the object of your desire, but these people just keep popping out of the woodwork from new and interesting places. After a while, you might just want to dump the person and not have to deal with the drama. It all depends on how convinced you are and how much the current opinion (the share price) has to do with your long term view and whether or not you have the desire to see it through. All told, I dont have an answer as to what to do given the current headlines. Being invested in a country that finds itself in a currency crisis that is rooted in a structural issue with its current account is one thing, but being invested in a project that is potentially a significant part of the solution of that issue is another. All in all, what I do know is that I want to be there for Inanli-1 results and I honestly couldnt even begin to guess if the stock price will be higher or lower at that point, but for some reason Im okay with that. The path that Valeura and Equinor are on seems to me to be a good one based on all of the information thats come out of the project over the years and theres a lot more story yet to write. I still think I know how this story is going to end and its an ending that I think will be a happy one for those who have right-sized positions that dont make them lose sleep at night. Interesting times.