Calgary, April 28, 2022: Valeura Energy Inc. (TSX:VLE, LSE:VLU) (“Valeura” or the “Company”) is pleased to announce that it has entered into a Sale and Purchase Agreement with KrisEnergy (Asia) Ltd (the “Seller”) to acquire all of the shares of KrisEnergy International (Thailand) Holdings Ltd. (the “SPA”), which holds an interest in two operated licences offshore Thailand for total initial cash consideration of US$3.1 million, plus certain contingent payments of up to a further US$7.0 million relating to future development milestones. Separately, Valeura has agreed to purchase an onsite Mobile Offshore Production Unit (“MOPU”) from Nora Limited, for consideration of US$9.2 million (the “MOPU Purchase”) which will be phased over approximately 14 months. Valeura expects to fund both the SPA and the MOPU Purchase (together the “Acquisition”) from cash on hand and from initial cash flows generated by the assets.
- A new operating presence for the Company in Thailand, a country with a long history of oil and gas development, attractive fiscal terms, and well-defined cost structures for production and development activities;
- Acquisition of working interests (“WI”) in two shallow water Gulf of Thailand licences: G10/48 licence (89% operated WI) presenting a near-term production reactivation opportunity of the Wassana oil field, and the G6/48 licence (43% operated WI) containing the undeveloped but fully appraised Rossukon oil field;
- Near-term cash flow from the developed Wassana oil field re-activation, with anticipated rates of approximately 3,000 bbls/d (net), expected starting in Q4 2022;
- Anticipated net cash flows of approximately US$9 million per quarter upon reactivation of Wassana field, based on current benchmark commodity prices;
- Total proved and probable (2P) reserves of approximately 4.0 mmbbls of oil;
- Growth opportunities starting in 2023 through access to an additional aggregate 13.3 mmboe of 2C contingent unrisked resources including 5.0 mmbbls of oil at the undeveloped Rossukon oil field, pending the final investment decision;
- Purchase of the MOPU located on the Wassana oil field, expected to enable lower cost operations and potentially extending field life; and
- Immediate bolt-on of an experienced operating team in Thailand and management team in the region through the formation of a Valeura-controlled company.
Unless otherwise noted, all production, reserves and resource estimates in this announcement are presented on a net WI acquired basis. Reserves and resource estimates are based on the Company’s internal assessment (non-independent) effective December 31, 2021. See “Oil & Gas Advisories” below.
Sean Guest, President and CEO of Valeura commented:
“I am delighted to announce the first transaction in our new growth strategy as we evolve Valeura into a geographically diverse oil and gas business that generates near-term cash flow and provides built in upside opportunities. The Acquisition will mark a new beginning for all our stakeholders, who will benefit from an immediate addition of value at very attractive acquisition metrics without the need for external financing.
The Acquisition will rapidly transform Valeura into a significant licence holder and new oil producer in Thailand, and in doing so will establish a platform for our goal to acquire further high-value cash flowing assets in the region. I am pleased to be working again in Southeast Asia and to add a regionally experienced leadership team with decades of experience in addition to a very capable local operating unit in Thailand. The team has direct history with the acquired assets, which I expect will help to ensure seamless continuity and ongoing stewardship of these important fields.
Our commitments toward safe and sustainable oil and gas operations remain unchanged by the Acquisition. We intend to pursue our business in Thailand with the same world class environmental and social priorities we have always done in our operations elsewhere, and will bolster this by working with a team that has compatible governance and leadership values.
Upon completion of the Acquisition, we will begin work to re-activate production from the Wassana oil field. The critical path toward first oil is to complete a re-certification of the MOPU and to conclude the lease of a suitable production storage vessel, which together are forecast to take approximately six months from closing. Once on production, we anticipate near-term cash flows of approximately US$9 million per quarter based on current benchmark prices, which underscores the highly accretive nature of the deal to Valeura’s value. In addition, we are eager to re-invigorate the development of the Rossukon oil field, which we believe has the potential to more than double overall production from these assets.
In keeping with our strategy, we expect that the Acquisition will evolve Valeura into a cash-flow generating oil producer with exposure to international oil prices and opportunities for further growth in Southeast Asia in the near term, while maintaining substantial potential upside value in the longer-term through our tight gas appraisal play in Turkey.”
The Seller’s assets are being acquired out of a receivership where, after an extended period of low oil prices, the Seller filed a winding up petition in June 2021. The SPA effects the purchase of certain of the Seller’s assets in Thailand, which are being re-organised by the receiver into a single corporate entity for purchase.
To facilitate the Acquisition, Valeura has formed Panthera Resources Pte. Ltd., a Singapore-domiciled special purpose vehicle company (“SPV”) to serve as the buyer entity under the SPA and for the MOPU Purchase. Valeura will hold an 85% interest in the SPV, with the remainder held by Panthera Thailand Pte. Ltd. (“Panthera”). The relationship between Valeura and Panthera as shareholders of the SPV is governed by a shareholder agreement which includes, among other things, provisions for the funding of the SPA and MOPU Purchase on a 100% basis by Valeura, and the ongoing engagement of certain Panthera individuals as part of Valeura’s regional leadership team (the “Panthera Agreement”). Panthera’s indirect interests will thereafter be identified by Valeura as a minority shareholder interest, in accordance with International Financial Reporting Standards. The Panthera individuals expected to be employed by the SPV comprise a senior leadership team with multiple decades of experience in the Southeast Asia region, and a direct history with the acquired assets.
The SPA has an effective date of January 1, 2022 and is subject to Valeura lodging a parent company guarantee with the Thailand regulator relating to performance of licence obligations. Valeura anticipates the Acquisition will close in Q2 2022.
Valeura has paid initial cash consideration of US$3.1 million which includes the purchase price and compensation for maintenance and administrative costs incurred since the effective date, as adjusted for working capital. Valeura will pay contingent consideration of US$2.0 million 90 days after first oil has been delivered from the next infill development drilling programme on the Wassana field, notionally planned for Q2 2023. Further contingent consideration of US$5.0 million will become due 90 days after first production through a permanent production facility on the Rossukon field.
Through the MOPU Purchase, also out of receivership, the SPV will acquire the MOPU Ingenium for a total consideration of US$9.2 million, which is expected to be paid in installments over 14 months.
Valeura intends to fund the Acquisition entirely from cash resources on hand and, insofar as contingent consideration and deferred payments for the MOPU Purchase are concerned, through cash flows generated from the assets.
Licence G10/48: Production Reactivation Asset
The SPV will acquire operatorship and an 89% WI in block G10/48, which is located in the Gulf of Thailand, approximately 115 km offshore in 48 metres of water depth. The block contains the developed Wassana oil field and several undeveloped discoveries. The Wassana field was developed by way of production wells drilled from the MOPU and started production in 2015. Peak oil production was 7,700 bbls/d (gross) in 2016. The field was shut-in temporarily in 2020 amidst a challenging economic climate due to low benchmark oil prices. At that time, the leased Floating Storage and Offloading vessel (“FSO”) went off contract and departed the field, while the wells and MOPU production facility were actively maintained in a dormant state and remain in good working order.
Based on the Company’s internal assessment effective December 31, 2021, block G10/48 contains approximately 4.0 mmbbls of 2P oil reserves and 7.4 mmbbls of 2C contingent (unrisked) oil resources net to the SPV. See “Oil & Gas Advisories” below.
Valeura intends to restart production operations as soon as practicable after the Acquisition closes. Oil production is expected approximately six months after close and the Company anticipates production rates of approximately 3,000 bbls/d, net to the SPV, based on the existing production at the time the field was temporarily shut in. Oil will be offloaded to an FSO and then exported by shuttle tanker.
The primary scope of work involved in restarting Wassana production is to complete a recertification of the MOPU and to bring an FSO on site, under the terms of a long-term lease. Planning for the MOPU recertification is underway and a new FSO has already been identified via tendering, with commercial agreements to be executed once the Acquisition closes. Thereafter, the Company anticipates that production operations can be restarted without any need for service rig interventions.
Valeura anticipates that the combination of owning, rather than leasing, the MOPU and establishing more favourable FSO lease rates will result in a materially lower cost base for the Wassana field than under the previous operator. The Company expects field operating costs to be approximately US$10 million per quarter net to the SPV, equating to approximately US$36/bbl. Wassana’s production is medium gravity, sweet crude oil, which has historically sold at a discount of approximately US$6/bbl to Brent crude oil benchmark prices. At current Brent benchmark prices of approximately US$100/bbl, Wassana’s near-term production is expected to generate net cash flows of approximately US$9 million per quarter.
Valeura’s 2P reserves estimate for the Wassana field includes drilling of five horizontal infill wells into additional oil-bearing reservoir sands that were identified on 3D seismic, drilled, and shown to be productive prior to the field being shut-in, but have not been fully developed. The Company envisages an initial five-well infill drilling campaign in the field in 2023 at an estimated cost of US$30 million to access these sands, with details and timing to be finalised in due course. In its 2C resource estimate, the Company has identified 10 further infill wellsto be drilled in subsequent years at similar costs to further increase recovery from the Wassana field reservoirs. The Company’s 2C resource estimate also includes two discovered but undeveloped fields which are well-imaged on 3D seismic but are unclarified and non-commercial at this time. In addition to the resource estimates, the Company has identified several exploration prospects which are well-imaged on 3D seismic and will be reviewed further. The Company believes that collectively, these provide further value upside opportunities.
Reserves and resources associated with block G10/48 are in the process of being updated by the incumbent independent petroleum engineering firm, Netherland, Sewell & Associates, Inc. (“NSAI”) and will be published by the Company in due course.
Licence G6/48 Development Asset
The SPV will also acquire the G6/48 block located approximately 195 km offshore in the Gulf of Thailand in 53 metres water depth. This includes operatorship and a 43% WI in the fully-appraised Rossukon oil field with recoverable 2C resources of 5.0 mmbbl of oil, net to the SPV as of December 31, 2021, as estimated by management.
The Rossukon oil field has a regulator-approved development plan which contemplates peak oil production rates of 12,000 bbls/d gross (5,160 bbls/d net to the SPV) and sets a first-oil requirement by November 2023. Once the SPV assumes operatorship of the block, Valeura will commence discussions with partners and regulators to agree the development scenario that best meets stakeholder objectives with regard to timing and resource delivery. As an alternative to the approved development plan, a reduced scope early development plan is under review which could yield production sooner and with lower capex in 2023, but with a lower and flatter production profile.
Until such time as the final development plan has been mutually agreed, Valeura regards the Rossukon field as a source of potential upside, with recoverable volumes, classed as 2C contingent (unrisked) resources, comprised of 5.0 mmbbls of oil and 5.7 bcf of gas, based on the development scenario contemplated in the regulator-approved development plan. See “Oil & Gas Advisories” below.
Resources associated with block G6/48 are in the process of being updated by NSAI and will be published by the Company in due course.
The SPA is structured as a purchase of the shares in a corporate entity, and accordingly, includes that entity’s historical tax losses, which can be applied to future taxable earnings in Thailand.
In keeping with Valeura’s strategy, the Company intends to continue pursuing inorganic growth, and is evaluating opportunities for further acquisitions in Thailand with synergies to the acquired assets and the tax losses.
As part of the Acquisition, the Company intends to employ the Seller’s Thailand workforce, comprising approximately 30 individuals. This is expected to add a capable and experienced local operating unit to Valeura, as well as an office in Bangkok.
Separately, through the Panthera Agreement, the SPV will engage individuals from the Panthera organisation to fill key regional leadership roles. These individuals have direct experience with the assets being acquired and will form the core of the regional leadership team.
Effect on London and Toronto listings
Following consultation with the Financial Conduct Authority (“FCA”), the Company has been advised that the Acquisition, should it close, will constitute a reverse takeover for the purposes of the Listing Rules of the FCA. Therefore, the Company was required to request a suspension of the listing of its common shares (“Common Shares”) on the standard segment of the Official List and trading in its Common Shares on the Main Market of the London Stock Exchange has been suspended as of today.
The Common Shares will continue to trade as normal on the Toronto Stock Exchange. Interests in the Company’s shares purchased on the London Stock Exchange are fully fungible and can be transferred from the UK depositary to the Canadian depositary to be traded on the Toronto Stock Exchange. Shareholders interested in transferring their shares should contact their broker or nominee to coordinate such a transaction with the Company’s registrar.
Valeura’s management team will host an investor and analyst webcast today, Thursday April 28, 2022 at 09:00 Calgary / 16:00 London / 22:00 Bangkok / 23:00 Singapore to discuss the Acquisition. The live audio and video feed and Q&A portal can be accessed via the Microsoft Teams link below. Attendees are advised to ensure they have the Microsoft Teams app installed in advance.
Click here to access the webcast, or copy-paste the following link into your browser:
An audio only feed of the event is available by phone using the Conference ID and dial-in numbers below and the related presentation will be made available on the Company’s website at https://www.valeuraenergy.com/investor-information/presentations/.
Conference ID: 169 831 496#
Canada: (833) 845-9589
Singapore: +65 6450 6302
Thailand: +66 2 026 9035
UK: 0800 640 3933
USA: (833) 846-5630
For further information, please contact:
Valeura Energy Inc. (General Corporate Enquiries) +1 403 237 7102
Sean Guest, President and CEO
Heather Campbell, CFO
Valeura Energy Inc. (Capital Markets / Investor Enquiries) +1 403 975 6752
Robin James Martin, Investor Relations Manager +44 7392 940495
Auctus Advisors LLP (Corporate Broker to Valeura) +44 (0) 7711 627 449
CAMARCO (Public Relations, Media Adviser to Valeura) +44 (0) 20 3757 4980
Owen Roberts, Monique Perks, Hugo Liddy, Billy Clegg
Oil and Gas Advisories
Reserves and contingent resources disclosed in this announcement are based on an internal evaluation (non-independent) conducted by Valeura with an effective date of December 31, 2021. Reserves and resources are in the process of being updated by the incumbent independent petroleum engineering firm, NSAI, and will be published by the Company in due course. The reserves and contingent resources estimates disclosed in this announcement are estimates only and there is no guarantee that the estimated reserves and contingent resources will be recovered.
Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies are conditions that must be satisfied for a portion of contingent resources to be classified as reserves that are: (a) specific to the project being evaluated; and (b) expected to be resolved within a reasonable timeframe. Specific contingencies which prevent the classification of the contingent resources disclosed in this announcement as reserves are: the uncertainty in performance of additional future G10/48 Wassana infill drilling locations; the current non-commercial nature of the two G10/48 undeveloped discoveries; the uncertainty of the G6/48 Rossukon final development scope and timing; and the pending G6/48 Rossukon development partner and government approvals.
Contingent resources are further classified in accordance with the level of certainty associated with the estimates and may be sub‐classified based on a project maturity and/or characterised by their economic status. There are three classifications of contingent resources: low estimate, best estimate and high estimate. Best estimate is a classification of estimated resources described in the Canadian Oil and Gas Evaluation Handbook as the best estimate of the quantity that will be actually recovered; it is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the best estimate. All of the Company’s contingent resources disclosed in this announcement are best-case estimates.
The project maturity subclasses include development pending, development on hold, development unclarified and development not viable. All of the Company’s contingent resources disclosed in this announcement are classified as either development on hold or development unclarified. Development on hold is defined as a contingent resource where there is a reasonable chance of development, but there are major non‐technical contingencies to be resolved that are usually beyond the control of the operator. Development unclarified is defined as a contingent resource that requires further appraisal to clarify the potential for development and has been assigned a lower chance of development until commercial considerations can be clearly defined.
Chance of development is the probability of a project being commercially viable. The estimates of contingent resources referred to in this announcement are unrisked and therefore have not been risked for the chance of development.
The development of the contingent resources referred to in this announcement is dependent upon the following factors: the performance of the initial G10/48 Wassana infill drilling campaign; further appraisal of the two G10/48 undeveloped discoveries and their cost of development; the G6/48 Rossukon final development scope, cost and timing; and the pending G6/48 Rossukon development partner and government approvals.
There is uncertainty that it will be commercially viable to produce any portion of the contingent resources disclosed in this announcement.
Barrels of Oil Equivalent
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.
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: the anticipated benefits of the Acquisition and associated benefits to Valeura’s stakeholders; the completion of the Acquisition and the timing thereof; the total cash consideration including contingent payments and the timing thereof; the receipt of regulatory approvals and other governmental authorisations; statements with respect to the SPV’s net working interest reserves and resources in the acquired assets; statements with respect to NSAI updating the reserves and resources associated with respect to the Acquisition; the individuals expected to be employed by the SPV; funding the Acquisition from cash on hand and future cash flows; development plans and production start-up timelines in the Wassana field, including expected field operating costs, anticipated quarterly net cashflows of US$9 million at current benchmark commodity prices and infill drilling extent and timing; regulatory and partner approvals for a new reduced scope early development plan for the Rossukon field; expected pricing of Wassana oil sales; anticipated quarterly cash flows; the ability of the MOPU to result in lower cost operations and potentially extending field life; the production capacity of the Rossukon oil field; statements with respect to the Company’s continued inorganic growth strategy, and evaluation of further opportunities to expand in Thailand to achieve synergies; utilisation of tax losses; statements with respect to employing the Seller’s Thailand workforce; and statements with respect to the tight gas appraisal play in Turkey remaining as a core part of Valeura’s portfolio. In addition, statements related to “reserves” and “resources” are deemed to be forward-looking information as they involve the implied assessment, based on certain estimates and assumptions, that the resources can be discovered and profitably produced in the future.
Forward-looking information is based on management’s current expectations and assumptions regarding, among other things: the ability to close the Acquisition and to fund it from cash on hand and future cash flow; the ability to successfully re-start production from the Wassana field in Q4 2022; the ability to achieve a materially lower cost base for the Wassana field in the order of US$36/bbl through the MOPU purchase and other new facility leasing contracts; continued Brent benchmark pricing; the ability to achieve oil sales from Wassana at a discount of approximately US$6/bbl to Brent benchmark pricing and generate net cashflows at current commodity prices; the ability to fully identify and execute infill drilling opportunities in the Wassana field; the ability to achieve regulatory and partner approvals for a new development plan in the Rossukon field; the ability to successfully pursue further opportunities in Thailand and achieve synergies including utilisation of tax losses; 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; 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 for onshore and offshore operations, 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 and resources 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 ability of management to execute its business plan or realise anticipated benefits from the Acquisition; the risks of further disruptions from the COVID-19 pandemic; the risks of currency fluctuations; changes in oil and gas prices and netbacks in Thailand and Turkey; potential changes in joint venture partner strategies and participation in work programmes; potential assertions of pre-emptive rights by a partner or potential disputes with a partner in connection with the Acquisition; uncertainty regarding the contemplated timelines and costs for offshore development plans in Thailand and the deep tight gas play evaluation in Turkey; the risks of disruption to operations and access to worksites; potential changes in laws and regulations, and 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”) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. 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.
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