"Ugh!" Shaw Sums it Up! Great summation of the Perfect Storm of Black Monday by Shaw!
Unforseen variables like algos, HFT, shorts, Trump and only decent news rather than record breaking discovery news can pummel stocks like this! Still a very viable and positive story! Hangin' on, and adding as I've been sub $1.00 before and watched it sky rocket before. See ya at $5!
Valeura (VLE.TO, last at $1.02) reported its final test result from the Inanli-1 well this morning before the testing equipment moves over to the Devepinar-1 well and the market is far from impressed, with the stock off 40% as I write this. The market, myself included, had held high hopes for this latest test at Inanli because it was expected to be in rock with a favourable combination of higher porosity and natural fracturing. Seeing the stock trade to $1 seems a little harsh given that the company has tested gas from every single well test they have carried out in the deep sands of the Thrace Basin, but go figure. There is no question about whether or not there is gas in the system. There is also now no question about whether or not there is free water in the system. Despite Valeura highlighting what the operating costs of water handling actually are (0.3 to 3% of gross revenue), I think that the market must be more concerned about the impact that pore water would/could have on 1) OGIP and 2) the long-term production profile of wells drilled in the play. Add in the negative Turkey headlines, tax-loss selling season, and overall fatigue (a lot of people were keeping a candle burning for this test in particular), and it's a full blown wash-out. Year-end cash was/is expected to be in the C$40 million range after Devepinar-1 testing (where they are moving equipment now) and the shallow gas business has a 1P post-tax NPV10 of C$20 million, with a 2P post-tax NPV10 of ~C$60 million. At $1.00 VLE has a market cap of $86 million. Cash value is about 50 cents per share and the shallow gas is worth an incremental 25-75 cents per share (likely at the low end of that range if you want to look at a scorched-earth number) based on the 2018 reserve report. That means that the Thrace BCGA option is valued around $25 million right now. Oh how things change. Meanwhile, the completion crews and equipment are moving over to Devepinar-1, where VLE will take another crack at impressing the market. Currently, I'm not sure what would have satisfied the market given general sentiment towards small caps, never mind a small cap Canadian energy company in Turkey, but that's beside the point. The point is that the market has decided to take VLE out behind the woodshed and bury it there. Correct or not, the test rates so far have been read by the market as mediocre to poor and the market determines the price, so here it sits at a buck. Today's news effectively caps another chapter in Valeura's history and this chapter goes definitively to the shorts. Devepinar is now essentially a full reset of the story. Sentiment has now so heavily discounted the value of the "BCGA option" such that any hint of positive surprise there could start the whole speculation cycle again. Devepinar-1 is on the west side of the Thrace basin, 20 kilometres from Inanli, and drilled 1,066 metres of gross gas-bearing column. My understanding is that the net-to-gross is lower on the west side of the basin (i.e., there are more interbedded muds/shales) and VLE reported that wireline logs and drilling penetration rates are suggestive of more porous reservoir over there.
So what's the deal with the gas and the water anyway? What does any of it mean? Are those rates any good? My two cents goes something like this. If you imagine the basin as a bowl, the BCGA is forming by the gas being generated at depth (likely in the underlying Hamitabat and/or from interbedded mudstones) moving up-dip, forcing water out as the gas "cell" expands. This would explain the apparent general trend of less free water in deeper tests. That means that the higher up in the well you go, the higher up into the transition zone you get, which is the zone where the gas hasn't completely displaced the water yet. In tight rock like this, the transition zone can easily cover hundreds of vertical metres. In better quality rock that transition zone may be thinner as the gas and water can move more easily, but that's an academic point. As it stands right now, I think that the concern is that the "best" zones (most porous) in Yamalik and Inanli seem to be up higher in the transition zone, which means they would have higher water saturations. Additionally, despite the test rates actually being right down the middle in terms of fracked rates from vertical unconventional new-play test wells, the market doesn't seem comfortable with what "stable flow" means (personally, I read that as meaning that the fractures clear out first, and the "stable flow" represents gas flow from the reservoir matrix porosity). Valeura said they remain optimistic, but the market disagrees. Pick a side. The company clearly highlighted how low the water disposal costs would/could be, so clearly just the mere presence of water isn't the concern. I think that the concern may be about how a horizontal well would fare in those upper zones in terms of an actual production profile. Will the water choke out the gas flow, either in the reservoir or in the wellbore? I think that in order to get that answer you would need to drill a horizontal, and given the low water rates seen in the deeper tests, I would think that's where Valeura and Equinor's attention would be turned if they were to choose Inanli as an initial horizontal well location. As for Devepinar, it's premature to say anything more about it, other than that it appears to be gas charged, more porous, and is located 20 km away from Inanli. A lot can change over 20 kilometres, so I will be looking at Devepinar as a "new hand" of poker. This time, the ante might be low enough that new money starts sniffing around, but that's only if Turkey can get out of the "Countries No One Wants to Touch Right Now" bucket. Ugh.