Calgary, October 20, 2020: Valeura Energy Inc. (TSX:VLE, LSE:VLU) (“Valeura” or the “Company”), an upstream natural gas company with assets in the Thrace Basin of Turkey, is pleased to announce that it has executed a Share Purchase Agreement (the “Agreement”) to sell its producing shallow conventional gas business to TBNG Limited (the “Buyer”) for a cash consideration of US$15.5 million, plus royalty payments of up to an additional US$2.5 million.
Proceeds from the deal will add to Valeura’s strong net cash position, which as of September 30, 2020 was approximately US$31 million. Upon completion of this transaction, the incremental cash will bolster the Company’s ability to execute its growth strategy through mergers and acquisitions and further appraisal of its deep gas play. This value-driven M&A strategy aims to add near-term/mid-term production growth and cash flow by focusing on cash flow-generating opportunities, with follow-on growth potential. Valeura remains debt free and in a strong position to negotiate future opportunities.
The Company’s interest in its 20 Tcfe unrisked mean prospective resource deep, tight gas play in the Thrace Basin will be unaffected by this transaction, and Valeura will remain the operator of record for all subject leases and licences. Valeura will also retain access to local gas markets via the existing gas transportation and processing infrastructure under the Agreement, for use in its ongoing deep gas appraisal activities.
Sean Guest, President and CEO commented:
“I am pleased to announce the pending sale of our mature, conventional gas business as a way to strengthen our balance sheet and increase our cash to pursue higher-value growth opportunities. Our objective has been to maximise the value of these mature assets, and today’s monetisation agreement is a key step towards accomplishing that goal. We have re-tooled Valeura into a lean, shrewd, debt-free machine, focused on value growth. To that end, the other pillars of our strategy remain unchanged. We are pursuing near/mid-term opportunities through the mergers and acquisition market intended to add significant growth potential and at the same time, we are continuing in our commitment to Turkey, as we appraise our 20 Tcfe unrisked mean prospective resource deep tight gas play. In all instances, our priority is to add cash-flow generation to the portfolio, along with opportunities for smart re-investment to generate incremental value for shareholders.”
Overview of the Transaction
The Agreement includes headline cash consideration of US$15.5 million, to be paid to Valeura upon closing, subject to normal closing adjustments and based on an economic effective date of July 1, 2020. In addition, Valeura will be entitled to royalty payments over a five-year period, tied to local gas prices, and ranging in total from a minimum of US$1.0 million and capped at US$2.5 million.
The transaction is structured as a sale of the shares of Thrace Basin Natural Gas (Turkiye) Corporation and Corporate Resources B.V., both wholly owned subsidiaries of Valeura which, following a recent internal re-organisation, are the entities which collectively hold the Company’s conventional, gas producing business. Deal completion is subject to customary termination rights and a number of closing conditions including, but not limited to, regulatory approvals and other governmental authorisations. Valeura anticipates closing the deal in Q1 2021.
The sale price, including royalty payment ranges represents a multiple of 1.1x to 1.2x the assets’ proved developed reserves value, as evaluated at December 31, 2019, and based on the higher gas prices prevailing at that time. Valeura also anticipates forward general and administrative cost savings of at least US$1.0 million per year as a result of this sale. In accordance with Turkish regulations, all decommissioning and abandonment liabilities associated with the conventional gas business will be assumed by the Buyer.
Valeura remains committed to its ongoing business in Turkey and continues to hold its long-standing relationships with Turkish authorities in the highest regard. This transaction is another example of Valeura bringing new foreign investment into Turkey’s upstream sector and places the conventional producing assets in capable hands, while maintaining its position within the country. The Buyer, TBNG Limited, is a private UK registered company whose shareholders are Mr. Ian Hannam and its management team. Mr. Hannam is the founder of Hannam & Partners, a leading investment bank with extensive expertise in the global natural resource sector, including Turkey. He is financing TBNG Limited through a UK holding company.
The management team will host an investor and analyst call and question session later today, at 09:00 Calgary / 11:00 Toronto / 16:00 London, Tuesday, October 20, 2020 to discuss the transaction. A live audio feed of the call will be available via the webcast link below, and those interested in participating in the question session should use the dial-in numbers below. Please register approximately 15 minutes prior to the start of the call.
Event title: Valeura Energy Management Briefing
Webcast link: https://produceredition.webcasts.com/starthere.jsp?ei=1388367&tp_key=09c7ff5fda
Calgary dial-in: +1 587 880 2171
Toronto dial-in: +1 416 764 8688
North America toll-free: +1 888 390 0546
UK toll-free: +44 0800 6522 435
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
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
Reserves and Resources
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 US$7.53/Mcf for natural gas and US$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 is included in the Company’s annual information form for the year ended December 31, 2019.
Resource disclosure in this announcement is based on an independent resources evaluation as at December 31, 2018 conducted by D&M in its report dated March 13, 2019, which was prepared using guidelines outlined in the Canadian Oil and Gas Evaluation Handbook and in accordance with NI 51-101, as adjusted to reflect Equinor’s withdrawal in Q1 2020. Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. The unrisked estimates of prospective resources referred to in this announcement have not been risked for either the chance of discovery or the chance of development. There is no certainty that any portion of the prospective resources will be discovered. If a discovery is made, there is no certainty that it will be developed or, if it is developed, there is no certainty as to the timing of such development or that it will be commercially viable to produce any portion of the prospective resources. Additional resources information is included in the Company’s annual information form for the year ended December 31, 2018.
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 completion of the transaction, statements with respect to the Company’s continued access to local gas markets, the total headline cash consideration, the Company’s entitlement to contingent payments over a five-year period, receipt of regulatory approvals and other governmental authorisations relating to the transaction, anticipated timing to close the transaction, anticipated general and administrative cost savings from the transaction and the other anticipated benefits from the transaction, statements with respect to the Company’s growth strategy, statements with respect to the Buyer, and the timeline associated with the process to seek a partner in the deep gas play. 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 products can be produced profitably in the future.
Forward-looking information is based on management’s current expectations and assumptions regarding, among other things: the ability to close the transaction on the terms described herein; 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; 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, including those required for the transaction; 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.
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