Valeura Energy Inc T.VLE

Shaw update today

[happygal17]

Valeura Energy
 
All eyes and ears were on Valeura Energy yesterday as the company provided an operational update on its Thrace Basin BCGA project where it is partnered with the company formerly known as Statoil (i.e., Equinor). As readers know, Valeura and Equinor are targeting a combined prospective recoverable resource in the 20 TCF range, which is just a mammoth prize sitting at the crossroads of gas and energy trade between Europe, the Middle East, and Asia. With the Lira in free-fall and Turkish debt and equity markets under pressure, I’m not sure the overall market attitude towards Turkey could get much worse and yet VLE seems to be holding up okay. Maybe it’s because Valeura is fully funded for the foreseeable future ($60mm cash on hand with Equinor paying 100% of the upcoming Inanli-1 well costs) and shareholders realize that an asset of this scale isn’t about “Turkey”, it’s about the whole region. Europe is desperate for alternative gas sources, Turkey needs domestic energy sources to address its persistent current account deficits, China wants to project its influence westwards with its Belt and Road initiative, and the Qatari’s are planning to plow billions of dollars into apetrochemical complex practically on top of the Thrace Basin. Currency crises come and go, but the Thrace BCGA will outlast many a crisis and many a leader and as it stands, Valeura is keeping its head down as it methodically derisks the play. 
 
The start of the commingled in-line test of Yamalik-1 is either imminent or underway and will provide valuable information with respect to reservoir performance, frack propagation, and pressure declines. All of these are key data points required for the long-term development of the play. On yesterday’s conference call, Valeura’s management rightly pointed out that Yamalik-1 was not designed as a production well, but rather as a true exploration/evaluation well. Fracks were smaller than they would be in development mode, less than half of the pay was completed and tested, and the well has been sitting shut-in for six months – all of which handicap what the well is capable of doing. Indeed, one of the reasons why Valeura had such a big price move on the back of Yamalik-1 well results was that despite the fact that the well was just an evaluation well, the well still tested at an aggregate rate of nearly 3 mmcf/d (plus 20-80 bbls/mmcf of condensate) from four different zones within a gigantic, overpressured, gas-charged section. That’s an impressive result from a well that was “tickled” with fracks (i.e., small fracks) in less than half of its pay. If you get the sense that I’m also trying to temper flow rate expectations from Yamalik-1, you’re right. Yamalik-1 has already done its job… it has proven the persistence of significantly overpressured gas and condensate charge over a huge vertical thickness and has established reservoir properties and productivity that put it right up there with known tight gas fields like Jonah and Pinedale. If Yamalik-1 sees an aggregate rate greater than the initial flow tests, great, but, to be absolutely clear, the “rate” of the extended flow test is not as important as the reservoir engineering data that will be gained from it.
 
Ianali-1 however, is due to spud in late September will likely be completed with bigger fracks, over longer intervals, and will also be drilled to evaluate deeper potential down to 5,000 metres. The well is also being drilled in an area with the potential for increased natural fracturing, which may translate into higher deliverability and it is expected to take 70-80 days to drill. Testing will likely follow in Jan-Feb 2019 after which the third well Devepinar-1 will be drilled and tested (currently planned to be about 18 km west of Yamalik-1). Approvals are in place for all of these operations as well as seven additional possible locations for future drilling.
 
As the Thrace BCGA continues to take shape, it will only don on more and more people that there is a massive gas resource in play here that may be one of the most strategic and well located finds in the history of the region. As long as the data remains supportive, industry players are likely to recognize it well before the market does, which makes the 5+ million share short position on the stock even more insane to me. As a friend of mine likes to say, the shorts are walking down the train tracks into a tunnel and there’s a train coming the other way, but its lights are off.  It should make for quite a show as we head into Inanli-1 results and I still think that the shorts would be crazy to ride their positions that long. Tick tock.