Monteney tight gas play look like
VALEURA ENERGY (VLE on canadian stock market)
Country : Turkey
Geopolitical risk : Very low. As stable as any EU countries for oil and gas investment. Cormark Securities comment regarding Turkey “Turkey, one of the most attractive fiscal and political regimes in Europe/Asia,”
Oil & Gas fiscal Term : Top 5 best in the world (Royalty : 12.5% ; Corporate Tax : 20%)
Pipeline infrastructure : Well developed
Natural Gas price : $9.5m/mcf . 4.5 times better than in US. Equivalent to $58 a barrel. One of the highest NG price in the world.
Net back : very high around $40 a barrel ($9/mcf)
Producing : around 1'600boepd with a target to 3'800boepd by the end of next year
Cash : $24MM
Debt : 0
Cash flow expected for next year : around $45MM
Market Value (MV) : $50MM
Enterprise Value (EV) : $26MM (EV=MV-cash+debt)
Management ownership : 12.2% FD
Valuation : Priced at 1.5 times Cash Flow of next year and EV at 1 times the CF of next year (Just ridiculous)
The company has bought more than net 550'000 acres in the Thrace basin considered to be a Tight gas play comparable to the prolific Montney tight gas play in British Columbia (Canada) known as the best unconventional oil&gas play in all north America.
VLE has already drilled vertically more than 20 wells to test the best way to flow out the natural gas from the Mesaverde formation in the Thrace basin. All result to date looks promising with flow rate even better than simulating in their model. They are now implementing multi stage Frac to increase the flow rate and everything looks promising.
They are now producing more than 1'500boepd from those test wells with very hight net back ($40 per barrel equivalent.
They are now testing the deeper zone of the tight gas play formation. By the end of the year they will implement horizontal wells with multi stage Frac as it is done in the Montney tight gas play in Canada.
Recent transactions on the Montney tight gas play has been made at $18'000/acre (Mitsubishi's farm-in of the Montney play in Canada from EnCana implied a cost per undeveloped acre of just under $18,000).
If you consider than Natural gas price are 5 times higher in Turkey than in Canada and Fiscal term are 2 times better in Turkey than in Canada and the tight gas play is very similar. You can extrapolate than in 3-4 years time when the tight gas play in Turkey will be in full commercial production we will be way north of $18'000/acre
So now let's being conservative and using $18'000/ acre valuation it would be valued at $10 billion (150 times current market value).
Just remember we had been conservative and it has been proven this tight gas play flow gas at very good economic rate.
Jennings Capital Inc.has a target price of $8 for next year. It is the only broker that follows VLE
Jennings Capital inc last comment “Production profiles are starting to emerge on the unconventional gas – and they are better than we had previously assumed. Extended production data from the re-frac’ed wells (50 days+) indicates that individual zones should produce 3 MMcf/d. Each well could have 4 – 6 zones, although facility and reservoir constraints will likely prevent production from scaling up directly. We now expect each well to produce 5 Mmcf/d for several months before declines start to set in. Better production profiles should allow more production growth. With the higher IP rates and a flat initial period, we now expect that gas production will increase to nearly 23 Mmcf/d (3'800boepd) in 2013”
Jennings capital see potential recoverable natural gas at 3.7 TCF or 631 million barrel of oil equivalent net to VLE for its Thrace unconventional play or an unrisked value of $189.17 per share.
So both method use by me $18'000 acres for their land and Jennings method of Present value of the Natural gas extracted, value VLE Thrace play at around $10 billions or around 150 times current market value.
The potential is staggering and the risk is very limited as they already succeed to crack the code to make the gas flow out of the ground. They just need now to drill, drill and drill to increase their production.
Nevertheless VLE doesn't stop to the Thrace basin they also have net 193'000 acres in a oil shale in the south of the turkey that can be compared to Eagleford shale in US. Turkish Petroleum’s (TPAO) estimates of almost 37 MMB per section OIIP in the Dadas shale and use a very conservative 3-4% recoverable oil which should be increased over time as in all other shale in North America. So it gives a potential of more than 200 million barrel recoverable for VLE. Shell is grabbing land now on this new promising oil shale. Don't get me wrong there is a risk to the Dadas shale. The risk is they can't make flow the oil economically. I estimate the chance of success to crack the code here at around 25%. But this is just a free call option. They will frack and test the shale at the end of the year.
Cormark Securities comment “Based on initial data, the Dadas shale in Turkey compares positively with other North and South American shale oil plays, though with the benefit of being in one of the most attractive fiscal and political regimes in Europe/Asia”
The thrace play as already been derisked and worth way way more than today price.The Dadas shale is just a free bonus on this amazing story. Don't forget they can sell their oil at brent price in Turkey.