TIDMVLU
RNS Number : 8921V
Valeura Energy Inc.
12 August 2020
SECOND QUARTER 2020 RESULTS
Calgary, August 12, 2020: Valeura Energy Inc. (TSX:VLE, LSE:VLU)
("Valeura" or the "Company"), the upstream natural gas company
focused on the Thrace Basin of Turkey, reports its financial and
operating results for the three and six month periods ended June
30, 2020.
Highlights from Q2 2020
-- A safe quarter, with no serious incidents and no reported
cases of COVID-19 among Valeura personnel or contractors;
-- Resumption of normal office work and preparations underway to
resume field operations in Q3, as pandemic-related restrictions are
eased, but the Company remains vigilant to the COVID-19
situation;
-- A strong financial position, with net working capital surplus
of US$33.2 million at June 30, 2020 (including US$30.5 million
cash), and no debt;
-- Average Q2 2020 production of 561 boe/d which increased to at exit rate of 672 boe/d;
-- Realised prices unchanged on a Turkish Lira basis, equating to US$6.24/Mcf;
-- Revenue of US$1.9 million and average operating netbacks of
US$18.33 per boe (excluding one-off costs for testing Devepinar-1
from operating costs);
-- Completion of a thorough desktop study of opportunities in
the Company's conventional gas production business, with a
development drilling programme expected to commence late 2020/early
2021; and
-- Extension of Valeura's three exploration licences at Banarli
and West Thrace until June 27, 2022, and the engagement of Stellar
Energy Advisors Limited with a mandate to secure a partner for the
deep tight gas play.
Sean Guest, President and CEO commented:
"I am pleased to report a quarter that demonstrates the
resilience of our business. We exited Q2 with our conventional gas
production business ramping back up to volumes in the range of 672
Mcf/d, a continuing strong financial position, and fresh extensions
to our key exploration licenses.
Despite the challenging circumstances the global oil and gas
industry has faced during the last several months, our strategy
remains intact and poised to deliver value for shareholders. We are
resuming activities to improve the efficiency of our conventional
gas business and are focused on increasing production to maximise
value. We have a unique opportunity to layer inorganic growth into
our strategy and are actively pursuing opportunities to build
production growth from new sources. We continue to see our deep
tight gas play as a key part of our long-term value story and have
started our search for a new partner, while preparing in the
background to resume appraisal activities, with new well locations
selected, and extensions granted for our key exploration
licences."
Financial and Operating Results Summary
Three Three Six Months Three Six Months
Months Months Ended Months Ended
Ended Ended June 30, Ended June 30,
June 30, March 2020 June 30, 2019
2020 31, 2020 2019
Financial
(thousands of US$ except
share amounts)
------------- ------------- ------------- ------------- -------------
Petroleum and natural
gas revenues 1,918 2,808 4,726 2,440 5,358
------------- ------------- ------------- ------------- -------------
Adjusted funds flow (1) 339 52 391 774 1,115
------------- ------------- ------------- ------------- -------------
Net loss from operations (1,899) (192) (2,901) (1,603) (3,913)
------------- ------------- ------------- ------------- -------------
Exploration and development
capital 1,734 1,882 3,616 3,050 7,323
------------- ------------- ------------- ------------- -------------
Net working capital surplus 33,231 34,054 33,231 39,825 39,825
------------- ------------- ------------- ------------- -------------
Cash 30,469 32,554 30,469 38,536 38,536
------------- ------------- ------------- ------------- -------------
Common shares outstanding
Basic 86,584,989 86,584,989 86,584,989 86,584,989 86,584,989
Diluted 94,988,323 94,988,323 94,988,323 92,406,655 92,406,655
------------- ------------- ------------- ------------- -------------
Share trading (CDN$)
High 0.44 0.65 0.65 3.16 3.99
Low 0.23 0.20 0.20 2.09 2.09
Close 0.32 0.23 0.32 2.32 2.32
------------- ------------- ------------- ------------- -------------
Operations
------------- ------------- ------------- ------------- -------------
Production
------------- ------------- ------------- ------------- -------------
Crude oil (barrels ("bbl")/d) 18 17 17 - 10
------------- ------------- ------------- ------------- -------------
Natural Gas (one thousand
cubic feet ("Mcf")/d) 3,260 4,200 3,730 4,202 4,344
------------- ------------- ------------- ------------- -------------
boe/d 561 716 639 700 734
------------- ------------- ------------- ------------- -------------
Average reference price
Brent ($ per bbl) 29.70 50.44 40.24 - 66.07
BOTAS Reference ($ per
Mcf) (2) 6.37 7.17 6.76 6.49 6.79
------------- ------------- ------------- ------------- -------------
Average realised price
Crude oil ($ per bbl) 41.65 65.22 53.25 - 69.56
Natural gas ($ per Mcf) 6.24 7.08 6.71 6.38 6.65
------------- ------------- ------------- ------------- -------------
Average Operating Netback
($ per boe) (1) 15.27 24.95 20.70 21.34 23.40
------------- ------------- ------------- ------------- -------------
Notes:
See the Company's Management's Discussion and Analysis for the
three and six months ended June 30, 2020 and 2019 filed on SEDAR
for further discussion.
(1) The above table includes non- GAAP measures, which may not
be comparable to other companies. Adjusted funds flow is calculated
as net income (loss) for the period adjusted for non-cash items in
the statement of cash flows. Operating netback is calculated as
petroleum and natural gas sales less royalties, production expenses
and transportation.
(2) BOTAS regularly posts prices and its Level-2 Wholesale
Tariff benchmark is shown herein as a reference price. See the
Company's Annual Information Form for the year ended December 31,
2019 (the " AIF") filed on SEDAR for further discussion .
Net petroleum and natural gas sales in Q2 2020 averaged 561
boe/d, approximately 7% higher than the preliminary production
figure disclosed in the Company's July 13, 2020 trading update
announcement. Q2 production was 20% lower than Q2 2019, and 22%
lower than Q1 2020 as a result of reduced customer demand for
natural gas due to lower industrial activity caused by the COVID-19
pandemic and Turkish national holidays during the period.
Production volumes have since recovered as industrial activity in
Turkey normalises, resulting in an exit rate for Q2 of 672
boe/d.
Price realisations in Q2 2020 were effectively unchanged from Q1
2020 on a Turkish Lira basis. When expressed in US dollars this
equates to US$6.24/Mcf, which is 2% lower than in Q2 2019, and 12%
lower than the first quarter of 2020. Subsequent to the end of the
quarter, BOTAS lowered Turkey's natural gas reference price
(Turkish lira basis) by 10%, effective July 1, 2020.
Production revenue in Q2 2020 was US$1.9 million, a decrease of
21% relative to Q2 2019, and a decrease of 32% from Q1 2020. The
decrease reflects the combined impact of lower production during
the quarter and reduced gas price realisations, when expressed in
US dollars.
Exploration and development capital spending was US$1.7 million
in Q2 2020 comprised primarily of costs associated with drilling
two shallow exploration commitment wells, Kuzey Atakoy-4 and Bati
Sariyer-1 resulting in spending which was 8% less than the prior
quarter.
Valeura's reported average operating netback in Q2 2020 was
US$15.27/boe, which reflects the inclusion of one-off costs for
production testing of the Devepinar-1 well as an operating expense
(a requirement due to the well having associated proved plus
probable (2P) reserves). If the one-off costs for testing
Devepinar-1 were removed from operating costs, the Q2 2020 average
operating netback would have been US$18.33/boe, which is 14% lower
than Q2 of 2019, and 27% lower than Q1 2020, largely driven by the
reduction in the realised price.
As of June 30, 2020, the Company had a net working capital
surplus of US$33.2 million compared to US$34.1 million at March 31,
2020 primarily due to capital expenditure incurred in connection
with drilling two shallow exploration commitment wells.
Strategy Update
Valeura is pursuing a three-pronged strategy intended to
leverage the Company's assets, financial strength, and
differentiated capabilities, toward delivering shareholder value.
This strategy is crafted to provide immediate stability through the
conventional gas production business, near- and mid-term growth
through inorganic opportunities, and exposure to substantial
long-term upside through the Company's tight gas play.
Conventional gas production business
Valeura intends to maximise the efficiency and near-term value
of its producing conventional gas business through operations
focused at converting reserves into production.
The Company's efforts to maintain gas production over the last
two years has been both technically and commercially successful.
Prior to the impact of COVID-19 related restrictions, Valeura's
programme of well workovers and reperforations more than offset
natural declines and generated an increase in production.
Individual investments have generally delivered payback in the
order of a few weeks or months. With most personnel now returning
to normal work, the Company will resume this programme starting in
Q3 2020 and will also conduct production testing to confirm the
commerciality of its two recently drilled exploration wells.
The Company sees potential for further activity as it continues
to commercialise its 7.9 million boe of 2P reserves, the majority
of which relate to its conventional gas production business, and
which were valued at US$66.1 million (net present value of future
net revenue discounted at 10% after deducted taxes) as of December
31, 2019 by its external, independent reserves evaluator. During Q2
2020, Valeura completed a thorough desktop study of existing
opportunities in its conventional gas business, which confirmed an
inventory of 12 higher priority drilling locations that could be
drilled in the near term. Several of these near-term locations will
be submitted shortly to regulators for permitting, and the Company
anticipates resuming an active development drilling programme
around the end of 2020 or early 2021, subject to permits and
procurement of requisite equipment and services.
Inorganic growth
Valeura is actively seeking opportunities to grow its business
through the mergers and acquisitions market.
With an enviable financial position including US$33.2 million in
working capital and no debt, the Company has capacity to layer in
inorganic growth as part of its forward strategy. Valeura has
engaged RBC Capital Markets to support certain deal opportunities
and continues to believe conditions are favourable for the current
environment to continue generating a flow of potential M&A
targets.
In keeping with the management team's international expertise,
the Company is focusing on the greater Mediterranean region, and
has a strong preference for assets that generate near-term cash
flow and provide opportunities for further development to ensure
follow-on organic growth.
Deep gas upside
Valeura is continuing to pursue appraisal of its very large deep
tight gas play.
Management regards the tight gas play as a core constituent of
the Company's portfolio, and a material upside value proposition
for shareholders. The government has recently approved extensions
to its key exploration licences through to June 27, 2022, which
offers ample time for the next phase of appraisal that in turn
could position additional licence extensions of four years.
Valeura has a clear vision for how to execute the next phase of
appraisal after having now integrated the significant learnings
from the drilling and testing of the Inanli-1 and Devepinar-1
wells. The Company has observed that the best reservoir quality in
all wells is encountered in the upper few hundred metres of the
Kesan Formation. However, the best gas flow results have been
achieved deeper in the wells, where the gas is very dry and flows
without condensate and minimal water - as seen in the first
production test in Inanli-1 at approximately 4,275 metres. The next
appraisal wells will target sweet spots which have both of these
characteristics; in particular, locations that are closer to the
centre of the basin where the high quality reservoir at the top of
the Kesan Formation is deeper, and therefore within the dry gas
maturity window. Final well locations within this broader area will
then focus on regions of more intense natural fracturing, as
interpreted on 3D seismic data.
Well locations are currently being prepared for submission to
the government for environmental approval to allow for drilling in
the first half of 2021, along with joint venture partners.
Valeura intends to farm out a portion of its interest in the
deep gas play, and has engaged Stellar Energy Advisors Limited,
with a mandate to secure a partner with technical and commercial
expertise suited to a tight gas appraisal play of this magnitude.
The Company anticipates this process will run from late Q3 through
at least Q4 2020. With the addition of a new partner, Valeura will
be poised to resume appraisal activities rapidly.
Organisation Structure and COO Retirement
Valuera has adjusted its corporate organisation and reporting
structure to enhance the efficiency of its production operations by
delegating more autonomy to the in-country team. These changes are
intended to free up senior management resources and reduce costs at
the corporate centre, while equipping the local team to be nimble
and decisive in executing day-to-day operations. This adjustment
also creates a distributed organisational model which can be
replicated for other potential assets in the future.
In connection with these changes, the Company has appointed a
new Turkey Country Manager, and Valeura's Chief Operating Officer
("COO") Peter Sider, has opted to retire. Mr. Sider assumed the
role of COO in Q4 2019 in order to ensure smooth ongoing operations
during a busy phase of operations, after having previously held
other senior roles with the Company. His contribution has led to a
safe and reliable performance on both conventional production
enhancement activities as well as the technically challenging deep
unconventional testing programme. The directors and management team
are all greatly appreciative for Mr. Sider's tireless efforts.
Annual Meeting
Valeura will hold an annual and special meeting of shareholders
(the "Meeting") today, August 12, 2020 at 09:00 (Calgary time) in
the Calgary Petroleum Club, 319-5th Ave. S.W., Calgary, Alberta,
Canada. The meeting will include a business update presentation by
Sean Guest, President and Chief Executive Officer.
The Company will be following all public health recommendations,
including social distancing requirements at the Meeting due to the
ongoing COVID-19 pandemic. Physical access will be restricted to
registered shareholders and formally appointed proxyholders and any
others will not be permitted to attend (including beneficial
shareholders that hold their common shares through a broker or
other intermediary).
Rather than attending in person, shareholders are strongly
encouraged to listen to the Meeting proceedings via live webcast
using the following link:
https://produceredition.webcasts.com/starthere.jsp?ei=1341355&tp_key=64b800beb7
For further information, please contact:
Valeura Energy Inc. (General and Investor Enquiries) +1 403 237 7102
Sean Guest, President and CEO
Heather Campbell, CFO
Robin Martin, Investor Relations Manager
Contact@valeuraenergy.com , IR@valeuraenergy.com
Canaccord Genuity Limited (Corporate Broker) +44 (0) 20 7523 8000
Henry Fitzgerald-O'Connor, James Asensio
CAMARCO (Public Relations, Media Adviser) +44 (0) 20 3757 4980
Owen Roberts, Monique Perks, Hugo Liddy, Billy Clegg
Valeura@camarco.co.uk
Oil and Gas Advisories
A boe is determined by converting a volume of natural gas to
barrels using the ratio of 6 Mcf to one barrel. Boes may be
misleading, particularly if used in isolation. A boe conversion
ratio of 6 Mcf:1 boe is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. Further, a
conversion ratio of 6 Mcf:1 boe assumes that the gas is very dry
without significant natural gas liquids. Given that the value ratio
based on the current price of oil as compared to natural gas is
significantly different from the energy equivalency of 6:1,
utilising a conversion on a 6:1 basis may be misleading as an
indication of value
Reserves
Reserves disclosure in this announcement is based on an
independent reserves evaluation as at December 31, 2019 conducted
by DeGolyer and MacNaughton ("D&M") in its report dated
February 25, 2020, which was prepared using guidelines outlined in
the Canadian Oil and Gas Evaluation Handbook and in accordance with
National Instrument 51-101, Standards of Disclosure for Oil and Gas
Activities ("NI 51-101"). The forecast prices used to calculate
reserves value are $7.53/Mcf for natural gas and $65.77/bbl for
light and medium crude in 2020, and these prices both escalate at
2% per year going forward. This natural gas price forecast is for
the TBNG assets, and the realised price for the Banarli assets is
approximately 97% of this price. Additional reserves and pricing
information, as required under NI 51-101, is included in the
AIF.
The estimated future net revenues contained in this news release
do not necessarily represent the fair market value of the Company's
reserves.
Advisory and Caution Regarding Forward-Looking Information
Certain information included in this new release constitutes
forward-looking information under applicable securities
legislation. Such forward-looking information is for the purpose of
explaining management's current expectations and plans relating to
the future. Readers are cautioned that reliance on such information
may not be appropriate for other purposes, such as making
investment decisions. Forward-looking information typically
contains statements with words such as "anticipate", "believe",
"expect", "plan", "intend", "estimate", "propose", "project",
"target" or similar words suggesting future outcomes or statements
regarding an outlook. Forward-looking information in this new
release includes, but is not limited to: statements with respect to
the Company's conventional gas production business strategy,
including its ability to maximise the efficiency and near-term
value of its producing conventional gas business, the resumption of
its workovers and reperforation programme and the timing thereof,
the production testing of its most recently drilled exploration
wells and the resumption of its drilling programme and the timing
thereof, statements with respect to the Company's inorganic growth
strategy, including its ability to identify M&A targets and the
geographic area of focus, statements with respect to the Company's
deep tight gas play strategy, including management's belief that
the play represents a material value proposition for shareholders,
the sweet spots of the play, its ability to target these sweet
spots with the next appraisal well, and its ability to find another
partner for the play and the timing thereof, and management's
belief that its three-pronged strategy has the potential to deliver
shareholder value . In addition, statements related to "reserves"
are deemed to be forward-looking information as they involve the
implied assessment, based on certain estimates and assumptions,
that the reserves can be profitably produced in the future.
Forward-looking information is based on management's current
expectations and assumptions regarding, among other things: the
resumption of operations following the COVID-19 pandemic; political
stability of the areas in which the Company is operating and
completing transactions; continued safety of operations and ability
to proceed in a timely manner; continued operations of and
approvals forthcoming from the Turkish government in a manner
consistent with past conduct; future drilling activity on the
required/expected timelines; the prospectivity of the Company's
lands, including the deep potential; the continued favourable
pricing and operating netbacks in Turkey; future production rates
and associated operating netbacks and cash flow; decline rates;
future sources of funding; future economic conditions; future
currency exchange rates; the ability to meet drilling deadlines and
other requirements under licences and leases; the ability to
attract a new partner in the deep play; the ability to identify
attractive merger and acquisition opportunities to support growth;
and the Company's continued ability to obtain and retain qualified
staff and equipment in a timely and cost efficient manner. In
addition, the Company's work programmes and budgets are in part
based upon expected agreement among joint venture partners and
associated exploration, development and marketing plans and
anticipated costs and sales prices, which are subject to change
based on, among other things, the actual results of drilling and
related activity, availability of drilling, high-pressure
stimulation and other specialised oilfield equipment and service
providers, changes in partners' plans and unexpected delays and
changes in market conditions. Although the Company believes the
expectations and assumptions reflected in such forward-looking
information are reasonable, they may prove to be incorrect.
Forward-looking information involves significant known and
unknown risks and uncertainties. Exploration, appraisal, and
development of oil and natural gas reserves are speculative
activities and involve a degree of risk. A number of factors could
cause actual results to differ materially from those anticipated by
the Company including, but not limited to: the risks of further
disruptions from the COVID-19 pandemic; the risks of currency
fluctuations; changes in gas prices and netbacks in Turkey;
potential changes in joint venture partner strategies and
participation in work programmes; uncertainty regarding the
contemplated timelines and costs for the deep evaluation; the risks
of disruption to operations and access to worksites; potential
changes in laws and regulations, the uncertainty regarding
government and other approvals; counterparty risk; risks associated
with weather delays and natural disasters; and the risk associated
with international activity. The forward-looking information
included in this new release is expressly qualified in its entirety
by this cautionary statement. See the AIF for a detailed discussion
of the risk factors.
The forward-looking information contained in this new release is
made as of the date hereof and the Company undertakes no obligation
to update publicly or revise any forward-looking information,
whether as a result of new information, future events or otherwise,
unless required by applicable securities laws. The forward-looking
information contained in this new release is expressly qualified by
this cautionary statement.
Additional information relating to Valeura is also available on
SEDAR at www.sedar.com .
This Announcement contains inside information as defined in
Article 7 of the Market Abuse Regulation No. 596/2014 ("MAR"). Upon
the publication of this Announcement, this inside information is
now considered to be in the public domain.
This announcement does not constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction,
including where such offer would be unlawful. This announcement is
not for distribution or release, directly or indirectly, in or into
the United States, Ireland, the Republic of South Africa or Japan
or any other jurisdiction in which its publication or distribution
would be unlawful.
Neither the Toronto Stock Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the Toronto
Stock Exchange) accepts responsibility for the adequacy or accuracy
of this news release.
Condensed Interim Consolidated Statements of Financial
Position
(thousands of US Dollars, December 31,
unaudited) June 30, 2020 2019
--------------------------------- ---------------- ----------------
Assets
Current Assets
Cash and cash equivalents $ 30,469 $ 36,111
Accounts receivable (note
10) 5,265 5,590
Prepaid expenses and deposits 1,021 1,123
Inventory 204 214
36,959 43,038
Restricted cash (note 3) 273 258
Right of use lease asset 84 78
Exploration and evaluation
assets (note 4) 4,894 4,006
Property, plant and equipment
(note 5) 31,046 34,283
$ 73,256 $ 81,663
--------------------------------- ---------------- ----------------
Liabilities and Shareholders'
Equity
Current Liabilities
Accounts payable and accrued
liabilities $ 3,728 $ 5,393
Lease liability 75 69
Decommissioning obligations
(note 6) 9,328 8,181
Deferred taxes 1,482 1,702
Shareholders' Equity
Share capital (note 7) 179,717 179,717
Contributed surplus 21,726 21,229
Accumulated other comprehensive
loss (55,354) (49,273)
Deficit (87,446) (85,355)
---------------------------------- ---------------- ----------------
Total Shareholders' Equity 58,643 66,318
---------------------------------- ---------------- ----------------
$ 73,256 $ 81,663
--------------------------------- ---------------- ----------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Loss and
Comprehensive Loss
For the three and six months ended June 30, 2020 and 2019
Three Months Ended Six Months Ended
------------------------------------ ---------------------- ----------------------
(thousands of US Dollars, June 30, June 30, June 30, June 30,
except share and per share 2020 2019 (1) 2020 2019 (1)
amounts, unaudited)
------------------------------------ ---------- ---------- ---------- ----------
Revenue (note 8)
Petroleum and natural gas
sales $ 1,918 $ 2,440 $ 4,726 $ 5,358
Royalties (258) (329) (636) (717)
Other Income 101 344 369 965
------------------------------------ ---------- ---------- ---------- ----------
1,761 2,455 4,459 5,606
------------------------------------ ---------- ---------- ---------- ----------
Expenses and other items
Production 881 750 1,682 1,533
General and administrative 911 461 2,141 1,527
Severance - - 450 -
Transaction costs - 129 - 935
Accretion on decommissioning
liabilities (note 6) 241 398 459 777
Foreign exchange loss (gain) 815 543 (502) 892
Settlement income (note
5) (332) - (332) -
Share-based compensation
(note 7) 254 506 411 1,044
Depletion and depreciation
(notes 5) 944 1,229 2,222 2,626
3,714 4,016 6,531 9,334
Loss for the period before
income taxes (1,953) (1,561) (2,072) (3,728)
Income taxes
Current tax expense (recovery) - (93) - 15
Deferred tax expense (recovery) (54) 135 19 170
Net loss (1,899) (1,603) (2,091) (3,913)
------------------------------------ ---------- ---------- ---------- ----------
Other comprehensive loss
Currency translation adjustments (236) (664) (6,081) (1,326)
------------------------------------ ---------- ---------- ---------- ----------
Comprehensive loss $ (2,135) $ (2,267) $ (8,172) $ (5,239)
------------------------------------ ---------- ---------- ---------- ----------
Net loss per share
Basic and diluted $ (0.02) $ (0.02) $ (0.02) $ (0.05)
Weighted average number
of shares outstanding (thousands) 86,585 86,585 86,585 86,515
------------------------------------ ---------- ---------- ---------- ----------
(1) Presented in US Dollars to conform with current period
presentation (note 2b)
See accompanying notes to the condensed interim consolidated
financial statements
Condensed Interim Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2020 and 2019
Three Months Ended Six Months Ended
-------------------------------------- -------------------------- --------------------------
June 30, June 30, June 30, June 30,
(thousands of US Dollars, unaudited) 2020 2019(1) 2020 2019(1)
Cash was provided by (used
in):
Operating activities:
Net loss for the period $ (1,899) $ (1,603) $ (2,091) $ (3,913)
Depletion and depreciation
(notes 5) 944 1,229 2,222 2,626
Share-based compensation 254 506 411 1,044
Accretion on decommissioning
liabilities (note 6) 241 398 459 777
Unrealized foreign exchange
loss (gain) 853 109 (629) 411
Deferred tax expense (recovery) (54) 135 19 170
Decommissioning costs incurred
(note 6) (1) (111) (17) (119)
Change in non-cash working
capital (note 9) 854 (1,670) 1,629 (2,310)
-------------------------------------- ------------ ------------ ------------ ------------
Cash provided by (used in)
operating activities 1,192 (1,007) 2,003 (1,314)
-------------------------------------- ------------ ------------ ------------ ------------
Financing activities:
Payments on lease liability (17) (23) (41) (46)
Proceeds from stock options
exercised - - - 201
Cash provided by (used in)
financing activities (17) (23) (41) 155
Investing activities:
Exploration and evaluation
expenditures (note 4) (1,050) (2,020) (1,471) (5,475)
Property and equipment expenditures
(note 5) (684) (1,030) (2,145) (1,848)
Banarli Farm-in - - - 1,452
Change in restricted cash (1) (110) (15) (60)
Change in non-cash working
capital (note 9) (1,596) (5,298) (2,642) (854)
-------------------------------------- ------------ ------------ ------------ ------------
Cash used in investing activities (3,331) (8,458) (6,273) (6,785)
-------------------------------------- ------------ ------------ ------------ ------------
Foreign exchange gain (loss)
on cash held in foreign currencies 71 225 (1,331) 487
Net change in cash and cash
equivalents (2,085) (9,263) (5,642) (7,457)
Cash and cash equivalents,
beginning of period 32,554 47,799 36,111 45,993
-------------------------------------- ------------ ------------ ------------ ------------
Cash and cash equivalents,
end of period $ 30,469 $ 38,536 $ 30,469 $ 38,536
-------------------------------------- ------------ ------------ ------------ ------------
(1) Presented in US Dollars to conform with current period
presentation (note 2b)
See accompanying notes to the condensed interim consolidated
financial statements
Condensed Interim Consolidated Statements of Changes in
Shareholders' Equity
For the six months ended June 30, 2020 and 2019
(thousands of
US Dollars and
thousands of Accumulated
shares or Number Other
warrants, of Share Contributed Comp. Total Shareholders'
unaudited) Shares Capital Surplus Deficit Loss Equity
--------------- ------- ------------------------------ ----------------------------- --------------------------------- ------------ ------------------------------
Balance,
January
1, 2020 86,585 $ 179,717 $ 21,229 $ (85,355) $ (49,273) $ 66,318
Net loss for
the period - - - (2,091) - (2,091)
Currency
translation
adjustments - - - - (6,081) (6,081)
Share-based
compensation - - 497 - - 497
--------------- ------- ------------------------------ ----------------------------- --------------------------------- ------------ ------------------------------
June 30, 2020 86,585 $ 179,717 $ 21,726 $ (87,466) $ (55,354) $ 58,643
--------------- ------- ------------------------------ ----------------------------- --------------------------------- ------------ ------------------------------
(thousands of
US Dollars and Accumulated
thousands of Other
shares or warrants, Number Share Contributed Comp. Total Shareholders'
unaudited) of Shares Capital Surplus Deficit Loss Equity
-------------------------- ----------- ----------- ------------ ------------ ------------ --------------------
Balance, January
1, 2019 86,233 $ 179,384 $ 19,488 $ (80,540) $ (47,389) $ 70,943
Net loss for
the period - - - (3,913) - (3,913)
Shares issued 352 333 (132) - - 201
Currency translation
adjustments - - - - (1,326) (1,326)
Share-based compensation - - 1,093 - - 1,093
-------------------------- ----------- ----------- ------------ ------------ ------------ --------------------
June 30, 2019
(1) 86,585 $ 179,717 $ 20,449 $ (84,453) $ (48,715) $ 66,998
-------------------------- ----------- ----------- ------------ ------------ ------------ --------------------
(1) Presented in US Dollars to conform with current period
presentation (note 2b)
See accompanying notes to the condensed interim consolidated
financial statements
1. Reporting Entity
Valeura Energy Inc. ("Valeura" or the "Company") and its
subsidiaries (refer to note 2c) are currently engaged in the
exploration, development and production of petroleum and natural
gas in Turkey. Valeura is incorporated in Alberta, Canada and has
subsidiaries in the Netherlands, British Virgin Islands and Turkey.
Valeura's shares are traded on the Toronto Stock Exchange ("TSX")
under the trading symbol VLE and the Main Market of the London
Stock Exchange ("LSE"), under the trading symbol "VLU". Valeura's
head office address is 1200, 202 - 6 Avenue SW, Calgary, AB,
Canada.
2. Basis of Preparation
(a) Statement of compliance
These unaudited condensed interim consolidated financial
statements have been prepared in accordance with IAS 34 - Interim
Financial Reporting of the International Financial Reporting
Standards ("IFRS"). The attached unaudited condensed interim
consolidated financial statements should be read in conjunction
with Valeura's audited consolidated financial statements and
MD&A for the year ended December 31, 2019. The unaudited
condensed interim consolidated financial statements have been
prepared in accordance with IFRS accounting policies and methods of
computation as set forth in Valeura's audited consolidated
financial statements for the year ended December 31, 2019, with the
exception as noted below of certain disclosures that are normally
required to be included in annual consolidated financial statements
which have been condensed or omitted in the interim statements, and
the new accounting standard described in (e) below.
Operating, transportation and marketing expenses in profit or
loss are presented as a combination of function and nature in
conformity with industry practices. Depletion and depreciation and
finance expenses are presented in a separate line by their nature,
while net administrative expenses are presented on a functional
basis. The use of estimates and judgements is also consistent with
the December 31, 2019 financial statements.
The unaudited condensed interim consolidated financial
statements were authorised for issue by the Board of Directors on
August 11, 2020.
(b) Basis of measurement
These unaudited condensed interim consolidated financial
statements have been prepared on the historical cost basis except
for certain financial and non-financial assets and liabilities,
which have been measured at fair value. The methods used to measure
fair value are consistent with the Company's December 31, 2019
audited consolidated financial statements.
Effective December 31, 2019, the Company changed its
presentation currency from Canadian Dollars to US Dollars to better
reflect the Company's business activities, the needs of investors
and comparability to peers in the oil and gas industry. All
comparative amounts have been presented in US Dollars to conform
with current period presentation .
Subsequent to December 31, 2019, the global impact of the
COVID-19 pandemic as well as recent declines in spot prices for oil
and gas have resulted in significant declines in global stock
markets and has created a great deal of uncertainty as to the
health of the global economy. As a result, oil and gas companies
are subject to liquidity risks in maintaining their revenues and
earnings as well as ongoing and future development and operating
expenditure requirements. These factors are likely to have a
negative impact on the Company's ability to raise equity, if
required, in the near future or on terms favorable to the
Company.
The economic activity in Turkey in Q2 2020 slowed down resulting
in reduced gas demand from some of Valeura's light industrial
customers but towards the end of the quarter, economic activity and
gas demand started to ramp up as Turkey's lockdown restrictions
reduced. Valeura is adhering to advice provided by local and
international health authorities regarding social distancing and
increased hygiene practices. As a result, most of the Company's
production operations were able to proceed normally, however the
Company did suspend non-critical field work, including workovers
and redevelopment of existing wells, and implemented work-from-home
arrangements wherever possible during Q2 2020. Operations in Turkey
are returning to normal with COVID-19 related restrictions being
eased. Any shutdowns requested or mandated by government
authorities in response to the outbreak of COVID-19 may have a
material impact to the Company's planned operating activities,
however, no mandated shutdowns have affected operations to
date.
The COVID-19 pandemic is an evolving situation that may continue
to have widespread implications for the Company's business
environment, operations, and financial conditions. Management
cannot reasonably estimate the length or severity of this pandemic
and will continue to monitor the situation closely.
Estimates and judgments made by management in the preparation of
these condensed interim consolidated financial statements are
subject to a higher degree of measurement uncertainty during this
volatile period.
The Company's unaudited condensed interim consolidated financial
statements include the accounts of Valeura and its subsidiaries and
are expressed in thousands of US Dollars, unless otherwise
stated.
(c) Functional and presentation currency
The consolidated financial statements are presented in US
Dollars which is Valeura's reporting currency. Valeura's and its
foreign subsidiaries transact in currencies other than the US
Dollar and have a functional currency of Turkish Lira and Canadian
dollars as follows:
Company Functional Currency
Valeura Energy Inc. Canadian Dollars
--------------------
Valeura Energy (Netherlands) Turkish Lira
Cooperatief UA
--------------------
Valeura Energy (Netherlands) Turkish Lira
BV
--------------------
Corporate Resources BV Turkish Lira
--------------------
Thrace Basin Natural Gas Turkiye Turkish Lira
Corporation
--------------------
The functional currency of a subsidiary is the currency of the
primary economic environment in which the subsidiary operates.
Transactions denominated in a currency other than the functional
currency are translated at the prevailing rates on the date of the
transaction. Any monetary items held in a currency which is not the
functional currency of the subsidiary are translated to the
functional currency at the prevailing rate as at the date of the
statement of financial position. All exchange differences arising
as a result of the translation to the functional currency of the
subsidiary are recorded in earnings.
Translation of all assets and liabilities from the respective
functional currencies to the reporting currency are performed using
the rates prevailing at the statement of financial position date.
The differences arising upon translation from the functional
currency to the reporting currency are recorded as currency
translation adjustments in other comprehensive income or loss
("OCI") and are held within accumulated other comprehensive loss
until a disposal or partial disposal of a subsidiary. A disposal or
partial disposal will then give rise to a realized foreign exchange
gain or loss which is recorded in earnings.
(d) Use of estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. The ability to
make reliable estimates is further influenced by political and
economic factors. Management has based its estimates with respect
to the Company's operations in Turkey based on information
available up to the date these condensed interim consolidated
financial statements were approved by the Board of Directors.
Significant changes could occur which could materially impact the
assumptions and estimates made in these consolidated financial
statements. Changes in assumptions are recognised in the financial
statements prospectively .
(e) New accounting standard
The following amendment as issued by the IASB has been adopted
by the Company effective January 1, 2020 (see note 5).
IFRS 3 - Business Combinations sets out the principles in
accounting for the acquisition of a business. The amendments to
this standard include a change in the definition of a business and
the addition of an optional concentration test to determine if the
acquisition is a business.
The definition of a business under the amendment to IFRS 3 is
now that a business consists of inputs and processes applied to
those inputs that have the ability to contribute to the creation of
outputs. The three elements of a business are defined as
follows:
-- Input: any economic resource that creates outputs, or has the
ability to contribute to the creation of outputs, when one or more
processes are applied to it.
-- Process: any system, standard, protocol, convention or rule
that, when applied to an input or inputs, creates outputs or has
the ability to contribute to the creation of outputs.
-- Output: the result of inputs and processes applied to those
inputs that provide goods or services to customers, generate
investment income or generate other income from ordinary
activities.
The optional concentration test permits a simplified assessment
of whether an acquired set of activities and assets is in fact a
business. An entity may elect to apply, or not apply, the test. An
entity may make such an election separately for each transaction or
other event. If the concentration test is met, the set of
activities and assets is determined not be a business and no
further assessment is needed.
3. Restricted Cash
The Company has restricted cash in the amount of $0.3 million
(2019 - $0.3 million) that is securing licence deposits with the
General Directorate of Mining and Petroleum Affairs of the Republic
of Turkey ("GDMPA"). This restricted cash is held with National
Bank of Canada ("NBC") as security, along with the Account
Performance Security Guarantee ("APSG") facility described below,
for decommissioning or abandonment obligations and ongoing work
programmes on the Company's Turkish licences and as security for
third party gas purchase, as described in Note 8 - Revenue. As the
expected abandonment date and work programmes for these assets is
more than one year from June 30, 2020, this restricted cash and
deposit have been classified as non-current in the Company's
financial statements .
Effective March 17, 2020, the Company renewed its APSG facility
with Export Development Canada ("EDC"). The APSG facility, which
was issued to NBC allows the Company to use the facility as
collateral for certain letters of credit issued by NBC. The
facility is effective from March 17, 2020 to May 31, 2021 with a
limit of US$4.5 million and can be renewed on an annual basis. The
Company has issued approximately US$2.9 million in letters of
credit under the APSG facility at current exchange rates .
4. Exploration and Evaluation Assets
Cost Total
Balance, December 31, 2019 $ 4,006
Additions 1,471
Capitalised share-based compensation 86
Effects of movements in exchange rates (669)
----------------------------------------- --------------------------
Balance, June 30, 2020 $ 4,894
----------------------------------------- --------------------------
Exploration and evaluation ("E&E") assets consist of the
Company's exploration projects which are pending the determination
of proved or probable reserves. Additions represent the Company's
share of costs incurred on E&E assets during the period.
In circumstances where the Company has entered into farm-in
arrangements whereby the farm-in partner ("partner") will earn a
working interest on certain properties through payment of a
pre-determined portion of the costs of exploration or development
activities, Valeura recognises a disposal of the partner's working
interest once the commitment has been met and the difference
between the proceeds received and the carrying amount of the asset
are recognised as a gain or loss in earnings for Property, Plant
and Equipment assets and as a reduction of Exploration and
Evaluation Assets for instances where the farm-in is on undeveloped
land .
5. Property, Plant and Equipment
Cost Total
----------------------------------
Balance, December 31, 2019 $ 66,126
Additions 2,145
Change in decommissioning
obligations (note 6) 1,323
Effects of movements in exchange
rates (8,986)
Balance, June 30, 2020 $ 60,608
------------------------------------
Accumulated depletion and Total
depreciation
----------------------------------
Balance, December 31, 2019 $ 31,843
Depletion and depreciation
expense 2,178
Effects of movements in exchange
rates (4,459)
Balance, June 30, 2020 $ 29,562
------------------------------------
Net book value Total
----------------------------
Balance, December 31, 2019 $ 34,283
Balance, June 30, 2020 $ 31,046
------------------------------ ------------------
(a) Contingencies
Although the Company believes that it has title to its oil and
natural gas properties, it cannot control or completely protect
itself against the risk of title disputes or challenges.
(b) Depletion - future development costs
For the purposes of calculating depletion, petroleum and natural
gas properties in Turkey include estimated future development costs
of $115.1 million (December 31, 2019 - $114.6 million) associated
with development of the Company's proved plus probable
reserves.
The ultimate recovery of property, plant and equipment and
exploration and evaluation costs in Turkey is dependent upon the
Company obtaining government approvals, obtaining and maintaining
licences in good standing, the existence and commercial
exploitation of petroleum and natural gas reserves and undeveloped
lands, and other uncertainties.
(c) Equinor Exit
Effective April 2, 2020 the government of Turkey provided notice
that it had approved the transfer of Equinor's working interest and
rights to Valeura and Pinnacle Turkey ("PTI"). In the Banarli
exploration licences, Valeura now holds a 100% working interest,
and in the West Thrace Exploration Licence and production leases,
the Company's holdings increase to 63% working interest in the deep
rights. Valeura remains operator of all the blocks.
On April 2, 2020, when the licenses reverted back to Valeura an
election was made to apply the optional concentration test (note
2e) in relation to the assets acquired from Equinor which resulted
in the acquired assets being accounted for as an asset acquisition.
The acquisition resulted in an increase in PP&E of
approximately $0.4 million.
In June 2020 Valeura and Equinor negotiated a settlement whereby
the Company agreed to release Equinor of their future obligation to
fund their share of decommissioning obligations. This settlement
resulted in income of approximately US$0.3 million.
6. Decommissioning Obligations
Cost Total
Decommissioning obligations, December 31, 2019 $ 8,181
Acquired - Equinor exit (note 5) 830
Obligations settled (17)
Change in estimates 953
Accretion of decommissioning obligations 459
Effects of movements in exchange rates (1,078)
------------------------------------------------ ------------------
Balance, June 30, 2020 $ 9,328
------------------------------------------------ ------------------
The Company's decommissioning obligations result from its
ownership interest in oil and natural gas assets including well
sites and gathering systems. The total decommissioning obligation
is estimated based on the Company's net ownership interest in all
wells and facilities, estimated costs to reclaim and abandon these
wells and facilities and the estimated timing of the costs to be
incurred in future years.
The following significant assumptions were used to estimate the
decommissioning obligations:
June 30, 2019 December 31,
2019
Undiscounted cash flows $ 25,487 $ 23,432
Risk free rate - Turkey 11.5% 12.0%
Inflation rate - Turkey 12.6% 11.8%
Timing of cash flows 1-14 years 1-14 years
------------------------- ------------------------- ---------------------
7. Share Capital
(a) Issued
Common shares Number of Shares Amount
Balance, December 31, 2019 and June 30,
2020 86,584,989 $ 179,717
----------------------------------------- ----------------- --------------------
(b) Per share amounts
Per share amounts have been calculated using the weighted
average number of common shares outstanding. The weighted average
number of common shares outstanding for the three and six months
ended June 30, 2020 is 86,584,989 (June 30, 2019 - 86,584,989 and
86,514,649 respectively). The average number of common shares
outstanding was not increased for outstanding stock options as the
effect would be anti-dilutive.
(c) Stock options
Valeura has options outstanding that entitles officers,
directors, and employees to purchase shares in the Company. Options
have been granted at the market price of the shares at the date of
grant, have a 7 year term and vest over 3 years.
The number and weighted average exercise prices of share options
are as follows:
Weighted average
exercise price
Number of Options (CAD)
Balance outstanding, December 31, 2019 5,836,667 $ 1.97
Granted 3,045,000 0.27
Expired (240,000) 1.00
Forfeited/cancelled (238,333) 2.99
Balance outstanding, June 30, 2020 8,403,334 1.36
Exercisable at June 30, 2020 3,937,509 $ 1.54
---------------------------------------- ------------------ ------------------------------
The following table summarises information about the stock
options outstanding and exercisable at June 30, 2020:
Weighted
average
Outstanding remaining Weighted average Exercisable Weighted average
Exercise at June life exercise price at June exercise price
prices (CAD) 30, 2020 (years) (CAD) 30, 2020 (CAD)
$0.25 -
$0.40 2,795,000 6.71 $ 0.25 - $ -
$0.41 -
$0.66 1,402,500 2.24 0.59 1,152,500 0.60
$0.67 -
$0.78 1,621,667 3.44 0.74 1,621,667 0.74
$0.79 -
$3.81 1,685,000 5.60 2.69 545,004 2.38
$3.82 -
$4.62 899,167 4.76 4.62 618,338 4.62
8,403,334 4.90 $ 1.36 3,937,509 $ 1.54
The fair value, at the grant date during the period, of the
stock options issued was estimated using the Black-Scholes model
with the following weighted average inputs (weighted average fair
value per option in CAD):
June 30, 2020 December 31,
Assumptions 2019
-------------------------
Risk free interest rate
(%) 1.2 1.6
Expected life (years) 4.5 4.5
Expected volatility (%) 99.43 86.09
Forfeiture rate (%) 6.2 4.5
Weighted average fair
value per option $ 0.20 $ 1.84
--------------------------- -------------- -------------
8. Revenue
Under the contracts, the Company is required to deliver a
variable volume of natural gas to the contract counter party.
Revenue is recognised when a unit of production is delivered to the
contract counterparty. The amount of revenue recognised is based on
the agreed transaction price, whereby any variability in revenue
relates specifically to the Company's efforts to transfer
production or the customer's demand for natural gas, and therefore
the resulting revenue is allocated to the production delivered in
the period during which the variability occurs. As a result, none
of the variable revenue is considered constrained.
The Company's contracts have a term of one year or less, whereby
delivery takes place throughout the contract period. Revenues are
typically collected between the 12(th) and 25(th) day of the month
following production.
The Company produces a small amount of crude oil that is sold on
a spot basis as volumes warrant. Oil is delivered by truck to
customers and revenue is recognised in the period in which the
delivery occurs.
In addition to selling natural gas that the Company produces,
the Company sells natural gas that it purchases from other
producers in the area. This purchased natural gas is sold to the
same customers, using the same contracts, through the same
distribution network as natural gas the Company produces. The
Company purchases natural gas from other producers under contracts
that are typically one year or less in length at a discount of
between 12.5% and 15% to the BOTAS price. These contracts require
the Company to deliver the purchased natural gas to customers. The
Company does not have the right, nor the ability, to store the
purchased natural gas. Since the Company does not have the ability
to influence the decision making process for the purchased natural
gas volumes or the discretion to set prices, does not experience
any inventory risk, does not perform any processing of the product
and does not remit royalties to the Turkish government for the
product, it considers itself an agent in these transactions.
Revenue for this purchased gas is included net of purchase cost in
Other income.
Interest and other revenue is comprised mainly of interest on
cash in hand.
All of the Company's natural gas is sold in Turkey, in the
Thrace Basin, which is the same area in which it is produced.
Three Months ended Six Months Ended
-----------------------
June 30, June 30, June 30, June 30,
2020 2019 2020 2019
----------------------- ---------- --------- --------- ---------
Natural Gas $ 1,851 $ 2,440 $ 4,557 $ 5,235
Crude Oil 67 - 169 123
Petroleum and natural
gas sales $ 1,918 2,440 $ 4,726 $ 5,358
-------------------------
Three Months ended Six Months Ended
--------------------------
June 30, June 30, June 30, June 30,
2020 2019 2020 2019
-------------------------- ---------- --------- --------- ---------
Royalties - natural gas $ 231 $ 305 $ 569 $ 654
Crude oil 8 - 20 10
Gross overriding royalty 19 24 47 53
Royalties $ 258 329 $ 636 $ 717
----------------------------
Three Months ended Six Months Ended
----------------------------
June 30, June 30, June 30, June 30,
2020 2019 2020 2019
---------------------------- ---------- --------- --------- ---------
Third party natural gas
sales net of costs $ 24 $ 154 $ 125 $ 404
Interest and other revenue 77 190 244 561
Other income $ 101 344 $ 369 $ 965
------------------------------
9. Supplemental Cash Flow Information
Three Months ended Six Months Ended
----------------------------------
June 30, June 30, June 30, June 30,
2020 2019 2020 2019
---------------------------------- ---------- ----------- ----------- ----------
Change in non-cash working
capital:
Accounts receivable $ (727) $ 746 $ 785 $ 1,120
Prepaid expenses and deposits (33) (210) 102 284
Inventory 13 (22) 10 (43)
Deposits (non-current) - 4 - 9
Accounts payable and accrued
liabilities (54) (7,633) (1,665) (4,758)
Movements in exchange
rates 59 147 (245) 224
------------------------------------ ---------- ----------- ----------- ----------
$ (742) (6,968) $ (1,013) $ (3,164)
---------------------------------- ---------- ----------- ----------- ----------
The change in non-cash working capital has been allocated to the following
activities:
--------------------------------------------------------------------------------------
Operating 854 (1,670) 1,629 (2,310)
Investing (1,596) (5,298) (2,642) (854)
------------------------------------ ---------- ----------- ----------- ----------
$ (742) $ (6,968) $ (1,013) $ (3,164)
---------------------------------- ---------- ----------- ----------- ----------
10. Financial Risk Management
The Company's activities expose it to a variety of financial
risks that arise as a result of its exploration, development,
production, and financing activities such as:
-- Credit risk
-- Market risk
-- Liquidity risk
This note presents information about the Company's exposure to
each of the above risks, the Company's objectives, policies and
processes for measuring and managing risk, and the Company's
management of capital.
The Board of Directors oversees managements' establishment and
execution of the Company's risk management framework. Management
has implemented and monitors compliance with risk management
policies. The Company's risk management policies are established to
identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and
adherence to market conditions and the Company's activities.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the
Company's receivables from joint venture partners and oil and
natural gas marketers. The maximum exposure to credit risk is as
follows:
June 30, December
2020 31, 2019
------------------------------- ----
Joint venture receivable from
partners $ 1,513 $ 1,334
Revenue receivables from
customers 2,347 2,155
Taxes receivable 1,405 2,101
Accounts receivable $ 5,265 $ 5,590
--------------------------------------
Trade and other receivables:
Substantially all of the Company's petroleum and natural gas
production is marketed under standard industry terms that are
specific by country. The Company's policy to mitigate credit risk
associated with the balances is to establish marketing
relationships with credit worthy purchasers. The Company
historically has not experienced any collection issues with its
petroleum and natural gas purchasers. Joint venture receivables are
typically collected within one to three months of the joint venture
invoice being issued to the partner. The Company mitigates the risk
from joint venture receivables by obtaining partner approval of
significant capital expenditures.
Receivables from participants in the petroleum and natural gas
sector, and collection of the outstanding balances can be impacted
by industry factors such as commodity price fluctuations, limited
capital availability and unsuccessful drilling programmmes. The
Company does not typically obtain collateral from petroleum and
natural gas purchasers or joint venture partners; however the
Company can cash call for major projects and does have the ability,
in most cases, to withhold production from joint venture partners
in the event of non-payment, or withhold accounts payable
remittances.
(b) Market risk
Market risk is the risk that changes in market conditions, such
as commodity prices, foreign exchange rates and interest rates will
affect the Company's income or the value of financial instruments.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while
maximizing the Company's return.
Foreign currency exchange rate risk:
Foreign currency exchange rate risk is the risk that the fair
value of future cash flows will fluctuate as a result of changes in
foreign exchange rates. Historically, any devaluation in the TL has
been followed by an increase in the posted BOTAS Reference Price
for natural gas. However, devaluation of the TL without a
corresponding increase in the natural gas reference price will have
a negative impact on adjusted funds flow and could affect the
ability of the Company to fund its capital programme in the future.
Devaluation of the TL will also result in decreases in royalties,
and operating expenses, all other things being equal.
The Company's seismic and drilling operations and related
contracts in Turkey are predominantly based in USD for Deep
Unconventional Gas Play operations. Material increases in the value
of the USD against the TL will negatively impact the Company's
costs of drilling and completions activities. Future USD/TL
exchange rates could accordingly impact the future value of the
Company's reserves as determined by independent evaluators.
Changes to the TL/USD exchange rate would have had the following
impact on revenues, royalties and production costs for the three
and six months ended June 30, 2020:
Petroleum
+/- 5 percent change in realized and natural Production
TL/USD exchange rate gas revenues Royalties costs
------------------------------------
Three months ended June 30, 2020 $ 97 $ 13 $ 44
Six months ended June 30, 2020 $ 243 $ 32 $ 84
------------------------------------ ---------- -----------
The Company's drilling and seismic operations and related
contracts in Turkey are predominantly based in US Dollars. Material
changes in the value of the US Dollar against the Turkish Lira will
impact the Company's capital costs.
Changes to the TL/USD exchange rate, would have had the
following impact on capital expenditures for the three and six
months ended June 30, 2020:
+/- 5 percent change in realized TL/USD exchange rate, Capital
upon conversion to presentation currency expenditures
----------------------------------------------------------
Three months ended June 30, 2020 $ 18
Six months ended June 30, 2020 $ 78
----------------------------------------------------------
Interest rate risk:
Interest rate risk is the risk that future cash flows or
valuations of assets or liabilities will fluctuate as a result of
changes in market interest rates. The Company currently has limited
exposure to interest rate risk as it has no debt. Market interest
rates currently affect the present value of the Company's
decommissioning liability.
Commodity price risk:
Commodity price risk is the risk that future cash flows will
fluctuate as a result of changes in commodity prices. Commodity
prices for petroleum and natural gas are impacted by the
relationship between the Canadian Dollar and Turkish Lira, the
Canadian Dollar and United States Dollar, global economic events
and Turkish government policies.
The natural gas reference price in Turkey is in part correlated
to contract prices for natural gas imports into Turkey and also
government policy with respect to subsidies to consumers. Natural
gas sales for Valeura are under direct sales contracts to
industrial buyers and power generation companies in the area and
each contract is at a negotiated discount or premium to the BOTAS
benchmark price.
In the past two years, the government increased the BOTAS
reference price thereby offsetting the decline in the value of the
TL and reflecting the increase in regional gas prices, resulting in
five price increases since the beginning of 2018. The Company's
average realised natural gas price in Turkey for the three months
ended June 30, 2020 was $6.24/mcf which represents a 2.0% discount
to the BOTAS price. Effective July 1, 2020 the Government of Turkey
lowered the natural gas reference price by 10% (in TL).
Liquidity risk:
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with the financial
liabilities. The Company's financial liabilities consist of
accounts payable. Accounts payable consists of invoices payable to
trade suppliers for office, field operating activities and capital
expenditures. The Company processes invoices within a normal
payment period. Accounts payable have contractual maturities of
less than one year. The Company maintains and monitors a certain
level of cash which is used to finance all budgeted and approved
operating and capital expenditures.
Capital management:
The Company's objective when managing capital is to maintain a
flexible capital structure which allows it to execute its
growth strategy through expenditures on exploration and
development activities while maintaining a strong financial
position. The Company's capital structure includes working
capital and shareholders' equity. Currently, total capital
resources available include working capital and funds flow from
operations.
The Company's capital expenditures include expenditures in oil
and gas activities which may or may not be successful. The Company
makes adjustments to the capital structure in light of changes in
economic conditions and the risk characteristics of the underlying
petroleum and natural gas assets. In order to maintain or adjust
the capital structure, the Company may, from time to time, issue
shares, adjust its capital spending or issue debt instruments. The
Company is not currently subject to any externally imposed capital
requirements as it maintains operatorship over all of its lands in
the Thrace Basin.
The successful future operations of the Company are dependent on
the ability of the Company to secure sufficient funds through
operations, bank financing, equity offerings or other sources and
there are no assurances that such funding will be available when
needed. Failure to obtain such funding on a timely basis could
cause the Company to reduce capital spending and could lead to the
loss of exploration licences due to failure to meet drilling
deadlines, lower production volumes and associated revenues or
default under the Company's joint operating agreements. Valeura has
not utilised bank loans or debt capital to finance capital
expenditures to date.
As a result of Equinor's withdrawal on April 2, 2020, Valeura
retained operatorship and continues to have control and flexibility
in planning its capital spend. This also doubles Valeura's interest
in the Deep Gas play but may result in operation delays as the
Company searches for another partner to participate in the deep
unconventional gas appraisal programme.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EASPAFADEEEA
(END) Dow Jones Newswires
August 12, 2020 02:00 ET (06:00 GMT)
Valeura Energy (LSE:VLU)
Historical Stock Chart
From Apr 2024 to May 2024
Valeura Energy (LSE:VLU)
Historical Stock Chart
From May 2023 to May 2024