Valeura Energy Inc. T.VLE

Malcolm Shaw today

[happygal17]

Valeura Spuds Devepinar-1; Talks Testing at Inanli-1

This morning Valeura Energy (VLE.TO, last at $2.98) gave a brief update on its operations in the Thrace Basin in northwestern Turkey. The third well since Statoil/Equinor farmed in, Devepinar-1, is currently being drilled about 20 kilometers west of Inanli-1 in order to prove the continuity of the BCGA in the western reaches of Valeura’s acreage. Devepinar-1 is expected to cost C$25 million, of which Valeura will pay its 31.5% share (working and paying interest). With some ~C$50 million in the bank, VLE would seem to be funded well into 2020.
 
Valeura plans to start testing at Inanli-1 sometime in April once DFIT (a type of injection test which gives reservoir data that is key to frack design) data is acquired from the bottom of the well. The testing program is expected to evaluate at least four intervals of interest within the 1,615 metre-thick gross objective section that was reported in January. This time, Valeura and Equinor intend to employ production-logging techniques in order to determine fluid compostion and flow potential from each individual zone over longer periods than before. Individual flow tests may run for several weeks if warranted. That probably leaves the market waiting until late April or mid-May before Inanli-1 test data starts coming back, which is also right around the time that Devepinar-1 is expected to reach total depth. From that point on, news flow should be pretty regular for a couple of months from the two well sites. 
 
Meanwhile, be it copper, oil, gold, or weed, just about anything has been a better performer than VLE for a long time now. That can really weigh on investor sentiment as dreams of instant millions are replaced by more rational questions of capital exposure and opportunity cost. That’s not entirely a bad thing. I asked a friend a while ago what his VLE weighting was and he pegged it at around 65%. Sixty five percent!! Now, this was someone with a very low cost base, and I’m not talking about a huge number of shares, but that’s a ludicrous weighting. When a person is so heavily exposed to one stock, the risk level to one’s psychology and pocketbook are off the charts. Look, I love to swing for the fences as much as the next guy, but I never swing so hard that if I miss I’m going to take myself out of the game. Everyone has their own risk tolerances, but speculative stories like Valeura are driven by sentiment at least as much as they are by fundamentals and in that regard, Inanli-1 results will obviously be very important for sentiment going forward. Sure, it’s fun to dream of the day that VLE is acquired by a major oil company, but there are still general portfolio allocation rules that I think are starting to don on VLE holders. 
 
With Inanli-1 results probably 2-3 months out, longs have lots of time to have a heart to heart with themselves about exposure going into test results. By all indications, Inanli-1 would appear to have reservoir characteristics that are at least as good, or better, than Yamalik-1, which one would think should translate into higher flow rates. One would also think that a circa 10 TCF prize located where this one is would capture the imagination of the tight gas developers of the world should the vertical test data be as good or better than Yamalik. Large energy companies regularly spend US$75-100+ million dollars drilling deepwater offshore exploration wells in hopes of snagging a prize the size of what VLE and Equinor have identified in the Thrace. For that kind of money, these majors could drill 5-10 wells in the Thrace BCGA to unlock a prize with a much shorter timeline to development and much less upfront capital (think of what offshore production platforms and wells cost). First things first though, that Inanli test data needs to be sitting there on the table, not pie in the sky. Between now and then, it’s sure to be interesting as longs and shorts jostle to get position sizing right going into results because right now, it's anyone's guess as to what the future holds.
 
Time will tell.