REG - Valeura Energy Inc. - FIRST QUARTER 2022 RESULTS
09/05/2022 07:00
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RNS Number : 7014K Valeura Energy Inc. 09 May 2022
FIRST QUARTER 2022 RESULTS
Calgary, May 9, 2022: Valeura Energy Inc. (TSX:VLE, LSE:VLU) ("Valeura" or the
"Company"), an upstream oil and gas company with assets in the Thrace Basin of
Turkey and an announced acquisition in the offshore Gulf of Thailand, reports
its unaudited financial and operating results for the three month period ended
March 31, 2022.
Highlights
· Strong financial position, including cash of US$39.8 million at March
31, 2022;
· Royalty payments of US$2.1 million collected in Q1 2022, with a further
US$0.4 million due and invoiced;
· Acquisition announced subsequent to end of the quarter to acquire
certain Gulf of Thailand assets with a focus on near-term production and cash
flow and further growth in 2023; and
· Continuing strategic focus on inorganic growth in Southeast Asia in
addition to seeking a suitable partner to farm in to the Company's Turkish 20
Tcfe unrisked mean prospective resource tight gas appraisal play.
Sean Guest, President and CEO of Valeura commented:
"We have carefully preserved our strong financial position, resulting in
nearly $40 million in cash resources at the end of Q1 2022, which was
bolstered by incoming royalty payments. This has facilitated our announced
Gulf of Thailand acquisition without any share dilution to our shareholders.
We expect to close the deal in Q2 2022 and our management and our new team in
Thailand are looking forward to returning to active operations. We are already
progressing the key commercial arrangements and procurement work streams
required to bring the Wassana oil field back to production later this year, at
an expected rate of 3,300 bbls/d gross.
This acquisition is bringing balance into our portfolio by providing strong
near-term cash flow and further organic growth opportunities for 2023. At the
same time our strategy remains unchanged and we are evaluating further M&A
opportunities while continuing to seek out a suitable partner for our deep gas
play in Turkey which provides very significant upside potential."
Financial Position
As of the end of Q1 2022, Valeura had cash and cash equivalent resources
totaling US$39.8 million, and no debt. The cash position reflects having spent
approximately US$1 million of initial cash consideration paid for the
Acquisition (defined below), and US$1.2 million incurred in transaction costs
during Q1 2022.
Associated with the sale of its conventional gas producing business in 2021,
Valeura is due a royalty of up to $2.5 million. Given the recent high price of
gas in Turkey, the Company received US$2.1 million in royalty payments by end
Q1 2022, and has invoiced the remaining US$0.4 million, which is now due and
expected to be collected in Q2 2022.
Acquisition and near-term priority
Subsequent to the end of Q1 2022, on April 28, 2022, Valeura announced that it
had entered into an agreement to acquire all of the shares of KrisEnergy
International (Thailand) Holdings Ltd. (the "SPA") which holds an interest in
two operated licences offshore Thailand - licence G10/48 (89% working
interest) and licence G6/48 (43% working interest) in the Rossukon oil field -
for total initial cash consideration of US$3.1 million, plus contingent
payments of up to a further US$7.0 million relating to future development
milestones. Separately, Valeura agreed to purchase the mobile offshore
production unit located on the Wassana oil field in the G10/48 licence 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. The Acquisition is expected to close in Q2
2022.
Based on the Company's internal assessment (non-independent) effective
December 31, 2021, the Acquisition includes total proved and probable (2P)
reserves of 4.0 mmbbls of oil and an aggregate 13.3 mmboe of 2C contingent
unrisked resources, net to the working interests being acquired.
In parallel with preparations to close the Acquisition, Valeura is already
working with the local operating team in Thailand to prepare for the restart
of production operations from the Wassana field in the G10/48 licence. The
Company is currently pursuing all key commercial arrangements and procurement
work streams required for production operations to resume as soon as
practicable after the Acquisition closes. Oil production is expected in Q4
2022 and the Company anticipates initial production rates of approximately
3,300 bbls/d gross.
Valeura anticipates making additional announcements during Q2 2022 on closing
the Acquisition and thereafter on the award of contracts for the restart of
production operations at Wassana.
Ongoing Strategy
With the Company's continued strong financial position, even considering the
funds required for the Acquisition, Valeura has created a foundation in the
Southeast Asia region and is well positioned to grow further by way of mergers
and acquisitions. This capability is further bolstered by the addition of an
experienced operating team in Thailand and a leadership team experienced
across the Southeast Asia region. As such, the Company is continuing to
evaluate additional targets that will further bolster near-term cashflow while
providing opportunities for additional medium-term re-investment to generate
value through further growth.
Valeura's 20 Tcfe prospective resources tight gas appraisal play in Turkey
represents a significant source of potential long-term value. Valeura is
continuing its search for a suitable farm-in partner for the tight gas
appraisal play. The Company believes securing a partner is the most prudent
first step before committing significant capital to the next phase of the
appraisal drilling. Valeura is poised to resume deep drilling operations
rapidly upon securing a partner, with several locations already in the
advanced permitting stage.
Annual Meeting
Valeura has scheduled its annual meeting of shareholders for June 23, 2022.
Meeting materials will be mailed in the middle of May.
About the Company
Valeura Energy Inc. is a Canada-based public company currently engaged in the
exploration, development and production of petroleum and natural gas in
Turkey, and is pursuing inorganic growth in Southeast Asia.
Oil and Gas Advisories
Reserves and contingent resources disclosed in this announcement in respect of
the Acquisition 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, Netherland Sewell & Associates ("NSAI"), and
will be published by the Company in due course. The reserves and contingent
resources estimates disclosed in this announcement in respect of the
Acquisition are estimates only and there is no guarantee that the estimated
reserves and contingent resources will be recovered.
Prospective resource disclosure in this announcement in respect of the
Company's tight gas appraisal play in Turkey is based on an independent
resources evaluation as at December 31, 2018 conducted by DeGolyer and
MacNaughton 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 National Instrument 51-101 - Standards of Disclosure for Oil
and Gas Activities, as adjusted to reflect Equinor's withdrawal from the tight
gas appraisal play in Q1 2020.
Contingent Resources
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 associated with the Acquisition
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.
Prospective Resources
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 disclosed
in this announcement 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 disclosed in this
announcement. Additional resources information is included in the Company's
annual information form for the year ended December 31, 2018.
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 for the Acquisition, including contingent payments
and the timing thereof; the Company's ability to fund the Acquisition from
cash on hand and future cash flows; statements with respect to the 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 and the Company publishing such updates; development plans and
production start-up timelines in the Wassana field; the Company's ability to
secure all required key commercial agreements and procurement work streams to
resume production operations following the Acquisition; expected production
from the Wassana field; successful integration of the operating and leadership
team in Thailand by Valeura following the Acquisition; statements with respect
to regulatory and partner approvals for a development plan for the Rossukon
field being pending; statements with respect to the Company's continued
inorganic growth strategy, and evaluation of further opportunities to expand
in Thailand to achieve synergies; the Company's ability to collect the
outstanding $0.4 million in royalties the Company has invoiced; statements
with respect to the tight gas appraisal play in Turkey remaining as a core
part of Valeura's portfolio; the Company's ability to find another partner for
the tight gas appraisal play and the Company's ability to resume deep drilling
operations upon finding another partner for the tight gas appraisal 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 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 successfully pursue further opportunities in Thailand; 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; the timing of royalty payments; the
prospectivity of the tight gas appraisal play; future sources of funding;
future economic conditions; future currency exchange rates; the ability to
meet drilling deadlines and fulfil commitments under licences and leases 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: inability to
close the Acquisition in Q2 2022; the ability of management to execute its
business plan or realise anticipated benefits from the Acquisition; inability
to integrate the Acquisition if it closes; inability to secure a new partner
for the tight gas appraisal play and execute potential mergers and
acquisitions; evolving impacts of the COVID-19 pandemic including disruptions
in global supply chains; the Company's ability to manage growth; the Company's
ability to manage the costs related to inflation; uncertainty in capital
markets and ability to raise debt and equity, as required, particularly for
companies with a small market capitalisation; the ability to finance future
development and/or inorganic growth; 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 tight gas appraisal play evaluation in
Turkey; the risks of disruption to operations and access to worksites
(including the impact of the COVID-19 pandemic); the ability of the Company to
maintain its directors, senior management team and employees with relevant
experience; potential changes in laws and regulations, and the uncertainty
regarding government and other approvals; counterparty risk; the ability of
the Company to maintain effective ICFR; 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 Company's annual information form for the year ended December 31, 2021
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
(https://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00014898)
.
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.
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.
For further information, please contact:
Valeura Energy Inc. (General Corporate
Enquiries)
+1 403 237 7102
Sean Guest, President and CEO
Heather Campbell, CFO
Contact@valeuraenergy.com (mailto:Contact@valeuraenergy.com)
Valeura Energy Inc. (Capital Markets / Investor
Enquiries) +1 403 975 6752
Robin James Martin, Investor Relations Manager
+44 7392 940495
IR@valeuraenergy.com (mailto:IR@valeuraenergy.com)
Auctus Advisors LLP (Corporate Broker to Valeura)
+44 (0) 7711 627 449
Jonathan Wright
Valeura@auctusadvisors.co.uk (mailto:Valeura@auctusadvisors.co.uk)
CAMARCO (Public Relations, Media Adviser to Valeura)
+44 (0) 20 3757 4980
Owen Roberts, Monique Perks, Hugo Liddy, Billy Clegg
Valeura@camarco.co.uk (mailto:Valeura@camarco.co.uk)
Condensed Interim Consolidated Statements of Financial
Position
(thousands of US Dollars, unaudited) March 31, 2022 December 31, 2021
Assets
Current Assets
Cash and cash equivalents $ 39,775 $ 40,826
Restricted cash 16 16
Accounts receivable (note 9) 583 586
Royalty receivable (note 9) 407 2,315
Prepaid expenses and deposits 559 260
41,340 44,003
Non-Current Assets
Deposits (note 11) 966 -
Exploration and evaluation assets (note 3) 1,333 1,174
Property, plant and equipment (note 4) 46 46
$ 43,685 $ 45,223
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities (note 10) $ 1,778 $ 341
1,778 341
Decommissioning obligations (note 5) 1,638 1,752
3,416 2,093
Shareholders' Equity
Share capital (note 6) 179,717 179,717
Contributed surplus 22,830 22,706
Accumulated other comprehensive gain (loss) 10,634 10,146
Deficit (172,912) (169,439)
40,269 43,130
$ 43,685 $ 45,223
Subsequent events (note 11)
See accompanying notes to the condensed interim consolidated financial
statements.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
For the three months ended March 31, 2022 and 2021
(thousands of US Dollars, unaudited) March 31, 2022 March 31, 2021
Revenue
Petroleum and natural gas sales $ - $ 2,086
Royalties - (279)
Other Income 25 129
25 1,936
Expenses and other items
Production 45 770
General and administrative 1,590 1,658
Severance - 146
Transaction costs 1,223 44
Accretion on decommissioning liabilities (notes 5) 79 277
Foreign exchange (gain) loss 445 744
Share-based compensation (note 6) 113 (76)
Change in estimate on decommissioning liabilities (note 5) (5) (709)
Depletion and depreciation (notes 4) 8 7
3,498 2,861
Loss for the period before income taxes (3,473) (925)
Income taxes
Current tax expense - 22
Deferred tax expense (recovery) - 114
Net loss (3,473) (1,061)
Other comprehensive income (loss)
Currency translation adjustments 488 (727)
Comprehensive loss $ (2,985) $ (1,788)
Net loss per share (note 6)
Basic $ (0.04) $ (0.01)
Diluted $ (0.04) $ (0.01)
Weighted average number of shares outstanding (thousands)
Basic 86,585 86,585
Diluted 86,585 86,585
See accompanying notes to the condensed interim consolidated financial
statements.
Condensed Interim Consolidated Statements of Cash Flows
For the three months ended March 31, 2022 and 2021
(thousands of US Dollars, unaudited) March 31, 2022 March 31, 2021
Cash was provided by (used in):
Operating activities:
Net income (loss) for the period $ (3,473) $ (1,061)
Depletion and depreciation (note 4) 8 7
Share-based compensation (note 6) 113 (76)
Accretion on decommissioning liabilities (note 5) 79 277
Change in estimate on decommissioning liabilities (note 5) (5) (709)
Foreign exchange loss (gain) 380 755
Deferred tax expense (recovery) - 114
Change in restricted cash - (2)
Change in non-cash working capital (note 8) 1,155 247
Cash (used in) provided by operating activities (1,743) (448)
Financing activities:
Principal payments on lease liability - (28)
Cash used in financing activities - (28)
Investing activities:
Property and equipment expenditures (note 4) (3) -
Exploration and evaluation expenditures (note 3) (275) (68)
Assets held for sale expenditures - (72)
Royalty receivable (note 9) 1,908 -
Change in non-cash working capital (note 8) (968) (172)
Cash used in investing activities 662 (312)
Foreign exchange gain (loss) on cash held in foreign currencies 30 29
Net change in cash and cash equivalents (1,051) (759)
Cash and cash equivalents, beginning of period 40,826 30,143
Cash and cash equivalents, end of period $ 39,775 $ 29,384
See accompanying notes to the condensed interim consolidated financial
statements.
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity
For the three months ended March 31, 2022 and
2021
(thousands of US Dollars and thousands of shares, unaudited) Number of common shares Share Capital Contributed Surplus Deficit Accumulated Other Comp. Income/(loss) Total Shareholders' Equity
Balance, January 1, 2022 $ 179,717 $ 22,706 $(169,439)
86,585 $ 10,146 $ 43,130
Net loss for the period - - - (3,473) - (3,473)
Currency translation adjustments - - -
- 488 488
Share-based - 124 - - 124
Compensation -
March 31, 2022 86,585 $179,717 $ 22,830 $(172,912) $ 10,634 $ 40,269
(thousands of US Dollars and thousands of shares, unaudited) Number of common shares Share Capital Contributed Surplus Deficit Accumulated Other Comp. Loss Total Shareholders' Equity
Balance, January 1, 2021 86,585 $ 179,717 $ 22,410 $ (104,889) $ (55,288) $ 41,950
Net loss for the period - - - (1,061) - (1,061)
Currency translation adjustments - - -
- (727) (727)
Share-based - (59) - - (59)
Compensation -
March 31, 2021 86,585 $ 179,717 $ 22,351 $(105,950) $ (56,015) $ 40,103
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 and development of
petroleum and natural gas in Turkey. Valeura is incorporated in Alberta,
Canada and has subsidiaries in the Netherlands 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, 2021. 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, 2021
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.
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, 2021 financial statements.
The unaudited condensed interim consolidated financial statements were
authorised for issue by the Board of Directors on May 6, 2022.
(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, 2021 audited consolidated financial statements.
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.
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 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
Northern Hunter Energy Inc. Canadian Dollars
Valeura Energy (Netherlands) BV Turkish Lira
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 realised 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.
3. Exploration and Evaluation Assets
Cost Total
Balance, December 31, 2021 $ 1,174
Additions 275
Capitalised share-based compensation 10
Effects of movements in exchange rates (126)
Balance, March 31, 2022 $ 1,333
4. Property, Plant and Equipment
Cost Total
Balance, December 31, 2021 $ 8,824
Additions 3
Effects of movements in exchange rates (910)
Balance, March 31, 2022 $ 7,917
Accumulated depletion and depreciation Total
Balance, December 31, 2021 $ 8,778
Depreciation expense 8
Effects of movements in exchange rates (915)
Balance, March 31, 2022 $ 7,871
Net book value Total
Balance, December 31, 2021 $ 46
Balance, March 31, 2022 $ 46
The depreciation expense recorded in 2022 relates to the Company's corporate
assets.
(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.
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.
5. Decommissioning Obligations
March 31, 2022
Decommissioning obligations, beginning of period $ 1,752
Change in estimates (5)
Accretion of decommissioning obligations 79
Effects of movements in exchange rates (188)
Balance, March 31, 2022 $ 1,638
The Company's decommissioning obligations result from its ownership interest
in oil and natural gas assets. The total decommissioning obligation is
estimated based on the Company's net ownership interest in all wells,
estimated costs to reclaim and abandon these wells and facilities and the
estimated timing of the costs to be incurred in future years. The change in
estimate is mainly due to a change in the risk-free interest rate and
inflation in Turkey. The change in estimate has been recorded on the
statement of loss and comprehensive loss as the Company has no asset related
to the decommissioning liability.
6. Share Capital
(a) Issued
Common shares Number of Shares Amount
Balance, March 31, 2022 and December 31, 2021 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 months ended March 31, 2022 is 86,584,989 (March 31,
2021 and December 31, 2021 - 86,584,989). The weighted average number of
common shares outstanding was not increased for the three month period ended
March 31, 2022, and 2021, for outstanding stock options, as the effect would
be anti-dilutive.
(c) Stock options
Valeura has an option programme that entitles officers, directors, employees
and consultants to purchase shares in the Company. Options are granted at
the market price of the shares at the date of grant, have a seven-year term
and vest in thirds over three years.
The number and weighted average exercise prices of share options are as
follows:
Number of Options Weighted average exercise price
(CAD)
Balance outstanding, December 31, 2021 6,667,666 $ 0.48
Balance outstanding, March 31, 2022 6,667,666 0.48
Exercisable at March 31, 2022 4,289,345 $ 0.50
The following table summarises information about the stock options outstanding
at March 31, 2022:
Exercise prices (CAD) Outstanding at March 31, 2022 Weighted average remaining life (years) Weighted average exercise price (CAD) Exercisable at March 31, 2022 Weighted average exercise price
(CAD)
$0.25 - $0.51 2,310,000 5.0 $ 0.26 1,523,338 $ 0.25
$0.52 - $0.53 2,262,500 6.0 0.52 754,174 0.52
$0.54 - $0.74 1,141,833 1.6 0.62 1,058,500 0.62
$0.75 - $0.80 953,333 1.9 0.76 953,333 0.76
6,667,666 4.3 $ 0.48 4,289,345 $ 0.50
No options were granted during Q1 2022. In 2021, the fair value, at the
grant date, 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):
Assumptions March 31, 2022 December 31, 2021
Risk free interest rate (%) - 0.8
Expected life (years) - 4.5
Expected volatility (%) - 99.0
Forfeiture rate (%) - 11.0
Weighted average fair value per option - $ 0.37
7. Credit Facilities
The Company's APSG facility with Export Development Canada ("EDC") is
effective from June 16, 2021 to May 31, 2022 with a limit of $0.25 million and
can be renewed on an annual basis. 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, with a limit of $0.25 million and can be renewed on an
annual basis. The Company has issued approximately $0.15 million in letters
of credit under the APSG facility at current exchange rates.
8. Supplemental Cash Flow Information
Three months ended March 31, 2022 March 31, 2021
Change in non-cash working capital:
Accounts receivable $ 3 $ 112
Prepaid expenses and deposits (1,265) (233)
Inventory - -
Accounts payable and accrued liabilities 1,437 439
Assets held for sale - 3,425
Liabilities directly associated with the asset held for sale - (1,875)
Movements in exchange rates 12 (1,793)
$ 187 $ 75
The change in non-cash working capital has been allocated to the following
activities:
Operating 1,155 247
Investing (968) (172)
$ 187 $ 75
9. 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:
March 31, 2022 December 31, 2021
Joint venture receivable from partners $ 29 $ 25
Retention receivable 310 310
Taxes receivable 227 205
Other 17 46
Accounts receivable $ 583 $ 586
Royalty receivable $ 407 $ 2,315
Trade and other receivables:
The Company's accounts receivables consist of a retention receivable amount
related to the 2021 Disposition which is a portion of the purchase price held
in escrow for one year and taxes receivable from the Turkish Government (VAT
receivable). The royalty receivable relates to the 2021 Disposition. As at
March 31, 2022, $2.1 million of the $2.5 million royalty receivable has been
collected.
Receivables from partners are related to the Company's remaining licences in
Turkey. Other receivables are related to an insurance premium refund.
(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 maximising the Company's return.
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 and interest rates on cash balances are at historic lows. Market
interest rates currently affect the present value of the Company's
decommissioning liability.
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 operating and capital expenditures.
Capital management:
The Company's capital structure includes working capital and shareholders'
equity. Currently, total capital resources available are working capital and
the Company has a significant cash and cash equivalents balance of $39.8
million. 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. Valeura has not utilised bank loans or debt capital to finance
capital expenditures to date.
Fair value of financial assets and liabilities:
The Company's fair value measurements are classified as one of the following
levels of the fair value hierarchy:
Level 1 - inputs represent unadjusted quoted prices in active markets for
identical assets and liabilities. An active market is characterized by a high
volume of transactions that provides pricing information on an ongoing basis.
Level 2 - inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. These
valuations are based on inputs that can be observed or corroborated in the
marketplace, such as market interest rates or forecasted commodity prices.
Level 3 - inputs for the asset or liability are not based on observable market
data.
The Company aims to maximise the use of observable inputs when preparing
calculations of fair value. Classification of each measurement into the fair
value hierarchy is based on the lowest level of input that is significant to
the fair value calculation.
The fair value of cash and cash equivalents, accounts receivable, royalty
receivable, and accounts payable and accrued liabilities approximate their
carrying amounts due to their short terms to maturity.
10. Accounts payable and accrued liabilities
The majority of the accounts payable and accrued liabilities balance is
comprised of legal transactions costs related to the share purchase agreement
disclosed in note 11 and business development costs.
11. Subsequent events
As announced on April 28, 2022, the Company 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 in shallow water offshore Thailand
for total initial cash consideration of $3.1 million (refundable if certain
conditions are not met), plus certain contingent payments of up to a further
US$7.0 million relating to future development milestones and an estimated $1.6
million for maintenance and administrative costs between the signing of the
SPA and the anticipated close. As at March 31, 2022, $1.0 million of the cash
consideration was paid and recorded as a non-current deposit (refundable if
certain conditions are not met). Separately, Valeura has agreed to purchase
an onsite Mobile Offshore Production Unit (asset acquisition) from Nora
Limited, for cash consideration of $9.2 million (the "MOPU Purchase"), which
will be phased over approximately 14 months. The SPA has an effective date of
January 1, 2022 and Valeura anticipates the deal closing within the first half
of 2022.
To facilitate the SPA, Valeura, with an 85% interest, and Panthera Resources
PTY Ltd (a Singapore-based geo-technical consulting firm, "Panthera"), with a
15% interest, have created a Singapore-domiciled special purpose vehicle
company ("SPV") Panthera Resources Pte. Ltd, to serve as the buying entity
under the SPA. 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 purchase 100% by Valeura, and
the ongoing engagement of certain Panthera individuals as part of the Valeura
management team.
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