REG - Valeura Energy Inc. - FOURTH QUARTER 2021 RESULTS
31/03/2022 07:00
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RNS Number : 6803G Valeura Energy Inc. 31 March 2022
VALEURA ENERGY
FOURTH QUARTER 2021 RESULTS
Calgary, March 31, 2022: Valeura Energy Inc. (TSX:VLE, LSE:VLU) (the "Company"
or "Valeura"), an upstream oil and gas company with assets in the Thrace Basin
of Turkey, reports its financial and operating results for the three month
period ended December 31, 2021 and the year ended December 31, 2021.
The complete quarterly reporting package for the Company, including the
audited financial statements and associated management's discussion and
analysis ("MD&A") and the 2021 Annual Information Form ("AIF"), are being
filed on SEDAR at www.sedar.com (http://www.sedar.com) and posted on the
Company's website at www.valeuraenergy.com (http://www.valeuraenergy.com) .
HIGHLIGHTS
• Financial position - Cash position of US$40.8 million at December
31, 2021;
• Royalties - Valeura began receiving royalty payments in connection
with the sale of its conventional gas producing business in Turkey, amounting
to US$0.8 million being invoiced up to December 31, 2021; and
• Strategy - The Company continues to pursue near-term inorganic
international growth opportunities and is seeking a suitable partner to farm
in to the Company's 20 Tcfe unrisked mean prospective resource deep, tight gas
play in Turkey.
FINANCIAL POSITION AND ROYALTY
As of the end of Q4 2021, Valeura had cash and cash equivalent resources
totalling US$40.8 million and no debt.
Associated with the sale of its conventional gas producing business in Turkey
which closed in Q2 2021, Valeura became entitled to a royalty for up to the
next five years of a total amount between US$1.0 and US$2.5 million, tied to
local Turkish gas prices. As of December 31, 2021, the Company had invoiced
total royalty payments of US$0.8 million. Given the continued strong gas
prices in Europe and Turkey, Valeura expects to receive the maximum
outstanding royalties for the period of US$1.7 million in Q1 2022 with these
royalties recorded in accounts receivable.
STRATEGY
Valeura's 20 Tcfe(1) tight gas appraisal play in Turkey remains a core part of
the Company's portfolio and 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 and is working with a London-based
advisor to assist in the search. The Company believes securing a partner is
the most prudent first step before committing significant capital to the next
phase of appraisal drilling. Valeura is poised to resume deep drilling
operations rapidly upon securing a partner, with several locations already in
the advanced permitting stage.
Valeura's exploration licences remain in good standing and are scheduled to
expire on June 27, 2023 (after receiving a one-year extension from their
original expiration date of June 27, 2022 from the Turkish Government as a
result of COVID-19), after which the Company has the option to apply for two
additional two-year exploration periods, giving the Company the ability to
maintain these licences for up to approximately five more years through work
programme commitments. During the current extension period, the Company is
required to drill one exploration well on each of the three exploration
licences. The one-year extension Valeura received on the exploration licences
provides additional flexibility with respect to Valeura's obligations to drill
two Banarli exploration wells and one West Thrace exploration well to maintain
its deep gas rights, meaning the Company will have no material capital
commitments relating to its Turkey assets until mid 2023.
In the nearer-term, Valeura intends to leverage its strong financial position
toward growing by way of mergers and acquisitions ("M&A"). The collective
international experience of the Company's management and board defines a broad
focus area, including jurisdictions with significant deal flow and expected
relatively low competition for assets. Valeura is actively pursuing several
M&A opportunities, targeting near-term production and cash flow, plus
follow-on investment opportunities to enable mid-term growth. The company
remains in discussion on several opportunities and will disclose further
details in due course as appropriate. The company remains squarely focussed
on only executing transactions that will generate material value for
shareholders.
(1) Unrisked mean prospective resource
ANNUAL AND SPECIAL MEETING
Valeura has tentatively scheduled its annual and special meeting of
shareholders for June 23, 2022. Meeting materials will be mailed in April
2022.
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.
RESOURCE DISCLOSURE
Resource disclosure in this announcement 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 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 news 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 news release includes, but is not limited to: the
Company's expectations regarding the anticipated amount and timing of royalty
payments; statements with respect to the Company's deep tight gas play
strategy, including management's belief that the play represents a material
value proposition, its ability to find another farm- in partner for the play,
and its ability to resume appraisal drilling rapidly upon securing a partner;
and statements with respect to the Company's inorganic growth strategy,
including its ability to leverage its strong financial position and identify
and execute on M&A opportunities. In addition, statements related to
"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: stability of gas prices and
production from the shallow assets used to determine the amount of the royalty
payments; 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 play; future economic conditions; the ability to meet
drilling deadlines and other requirements under licences and leases; and the
ability to attract a new partner in the deep play; the ability to identify and
execute on attractive merger and acquisition opportunities to support growth.
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: reduction in gas prices or
production from the shallow assets that impacts the amount of the royalty
payments; the potential extension of the Company's exploration licences;
inability to secure a new partner for the deep play and execute potential
M&A transactions; inability to meet drilling deadlines to hold licences;
the risks of further disruptions from the COVID-19 pandemic; uncertainty
regarding the contemplated timelines and costs for the deep evaluation;
potential changes in laws and regulations, the uncertainty regarding
government and other approvals; counterparty risk or payment risk for the
royalty; and the risk associated with international activity. The
forward-looking information included in this news 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 news 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 news
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 EU Regulation No.
596/2014, part of UK law by virtue of the European Union (Withdrawal) Act
2018, and is in accordance with the Company's obligations under Article 17 of
that Regulation.
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)
MANAGEMENT'S REPORT
The management of Valeura Energy Inc. is responsible for the preparation of
all information included in the consolidated financial statements and
Management's Discussion & Analysis ("MD&A"). The consolidated
financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board ("IASB"). Financial information that is presented
in the MD&A is consistent with the consolidated financial statements.
In preparation of the consolidated financial statements, estimates are
sometimes necessary because a precise determination of certain assets and
liabilities is dependent on future events. Management believes such
estimates have been based on careful judgments and have been presented fairly
in all material respects.
Management maintains appropriate systems of internal control that provide
reasonable assurance that transactions are appropriately authorized, assets
are safeguarded from loss or unauthorized use and financial records provide
reliable and accurate information for the presentation of the consolidated
financial statements.
KPMG LLP, an independent firm of chartered professional accountants, was
appointed by the shareholders to audit the consolidated financial statements
of Valeura Energy Inc. and provide an independent professional opinion.
Their report is presented with the consolidated financial statements herein.
The Board of Directors, through its Audit Committee, has reviewed the
consolidated financial statements including notes thereto with management and
KPMG LLP. The Audit Committee is composed of independent directors.
Valeura Energy Inc.'s Board of Directors has approved the consolidated
financial statements based on the recommendation of the Audit Committee.
(signed) "Sean
Guest"
(signed) "Heather Campbell"
President and
CEO
CFO
March 30, 2022
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Valeura Energy Inc.
Opinion
We have audited the consolidated financial statements of Valeura Energy Inc.
(the Entity), which comprise:
· the consolidated statements of financial position as at December 31,
2021 and December 31, 2020
· the consolidated statements of loss and comprehensive income (loss)
for the years then ended
· the consolidated statements of changes in shareholders' equity for
the years then ended
· the consolidated statements of cash flows for the years then ended
· and notes to the consolidated financial statements, including a
summary of significant accounting policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all
material respects, the consolidated financial position of the Entity as at
December 31, 2021 and December 31, 2020, and its consolidated financial
performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described
in the "Auditors' Responsibilities for the Audit of the Financial Statements"
section of our auditors' report.
We are independent of the Entity in accordance with the ethical requirements
that are relevant to our audit of the financial statements in Canada and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements for the year
ended December 31, 2021. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
We have determined the matter described below to be the key audit matter to be
communicated in our auditors' report.
Evaluation of indicators of impairment for exploration and evaluation assets
Description of the matter
We draw attention to note 2(d), note 3(d) and note 7 to the financial
statements. At December 31, 2021, the Entity had exploration and evaluation
("E&E") assets of $1.172 million, which are assessed for impairment if
facts and circumstances indicate that the carrying amount may exceed its
recoverable amount. Judgement is required to assess whether internal or
external indicators of impairment exist. Indicators of impairment include, but
are not limited to:
· The right to explore in the specific area has expired during the
period or will expire in the near future, and is not expected to be renewed
· Substantive expenditure on further exploration for and evaluation
of mineral resources in the specific area is neither planned or budgeted
At December 31, 2021, the Entity determined that no indicators of impairment
existed with respect to the Entity's E&E assets.
Why the matter is a key audit matter
We identified the evaluation of indicators of impairment for exploration and
evaluation assets as a key audit matter. This matter represented an area of
significant auditor judgement required in evaluating the internal and external
factors included in the Entity's indicators of impairment analysis.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key
audit matter:
· Assessed the status of the Entity's rights to explore by
discussing with management if any rights were not expected to be renewed and
inspecting exploratory licenses and renewals
· Assessed if substantive expenditures on further exploration for
and evaluation of oil and natural gas resources in each area of interest are
planned or discontinued by inspecting internal communications and external
correspondence.
Other Information
Management is responsible for the other information. Other information
comprises:
· the information included in the Management's Discussion and Analysis
filed with the relevant Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information
and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit and remain alert for
indications that the other information appears to be materially misstated.
We obtained the information, included in Management's Discussion and Analysis
filed with the relevant Canadian Securities Commissions as at the date of this
auditors' report.
If, based on the work we have performed on this other information, we conclude
that there is a material misstatement of this other information, we are
required to report that fact in the auditors' report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the
financial statements in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board
(IASB), and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing
the Entity's ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Entity or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity's
financial reporting process.
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial
statements.
As part of an audit in accordance with Canadian generally accepted auditing
standards, we exercise professional judgment and maintain professional
skepticism throughout the audit.
We also:
· Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of
internal control.
· Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Entity's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
· Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast
significant doubt on the Entity's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw
attention in our auditors' report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our
auditors' report. However, future events or conditions may cause the Entity to
cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that
achieves fair presentation.
· Communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
· Provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
· Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group Entity to
express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
· Determine, from the matters communicated with those charged with
governance, those matters that were of most significance in the audit of the
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditors' report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our auditors' report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such
communication.
The engagement partner on the audit resulting in this auditors' report is
Jason Stuart Brown.
Chartered Professional Accountants
Calgary, Canada
March 30, 2022
Consolidated Statements of Financial
Position
(thousands of US Dollars) December 31, 2021 December 31, 2020
Assets
Current Assets
Cash and cash equivalents $ 40,826 $ 30,143
Restricted cash (note 5) 16 232
Accounts receivable (note 6 and 16) 586 199
Royalty receivable (note 6 and 16) 2,315 -
Prepaid expenses and deposits 260 330
Assets held for sale (note 6) - 22,032
44,003 52,936
Exploration and evaluation assets (note 7) 1,174 1,643
Property, plant and equipment (note 8) 46 278
$ 45,223 $ 54,857
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 341 $ 506
Liabilities directly associated with the assets held for sale (note 6) - 10,240
341 10,746
Decommissioning obligations (note 9) 1,752 2,161
2,093 12,907
Shareholders' Equity
Share capital (note 13) 179,717 179,717
Contributed surplus 22,706 22,410
Accumulated other comprehensive gain (loss) 10,146 (55,288)
Deficit (169,439) (104,889)
43,130 41,950
$ 45,223 $ 54,857
See accompanying notes to the consolidated financial statements.
Approved by the Board
("Tim Marchant")
("Russell
Hiscock")
Tim Marchant, Chairman, Director Russell
Hiscock, Director
Consolidated Statements of Loss and Comprehensive Income (Loss)
For the years ended December 31, 2021 and 2020
(thousands of US Dollars) December 31, 2021 December 31, 2020
Revenue (note 10)
Petroleum and natural gas sales $ 3,126 $ 8,547
Royalties (423) (1,152)
Other Income 291 615
2,994 8,010
Expenses and other items
Production 1,337 3,343
General and administrative (note 12) 4,793 4,417
Severance 206 580
Transaction costs 74 223
Accretion on decommissioning liabilities 554 913
Foreign exchange (gain) loss (443) 901
Settlement income - (332)
Share-based compensation (note 12 and 13) 246 1,032
Impairment - 13,445
Change in estimate on decommissioning liabilities 143 -
Depletion and depreciation (notes 8) 188 3,649
7,098 28,171
Gain (loss) for the period before other items (4,104) (20,161)
Gain on sale (note 6) 6,134 -
Gain on deferred consideration (note 6) 1,459 -
Currency translation on subsidiaries disposed and liquidated (note 6) (67,764) -
(60,171) -
Gain (loss) for the period before income taxes (64,275) (20,161)
Income taxes (note 11)
Current tax expense 41 265
Deferred tax expense (recovery) 234 (892)
Net loss (64,550) (19,534)
Other comprehensive income (loss)
Currency translation on subsidiaries disposed and liquidated (note 6) 67,764 -
Currency translation adjustments (2,330) (6,015)
65,434 (6,015)
Comprehensive income (loss) $ 884 $ (25,549)
Net income (loss) per share (note 13)
Basic and diluted $ (0.75) $ (0.23)
Weighted average number of shares outstanding (thousands) 86,585 86,585
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 2021 and
2020
(thousands of US Dollars) December 31, 2021 December 31, 2020
Cash was provided by (used in):
Operating activities:
Net income (loss) for the period $ (64,550) $ (19,534)
Depletion and depreciation (note 8) 188 3,649
Impairment - 13,445
Share-based compensation (note 13) 246 1,032
Accretion on decommissioning liabilities 554 913
Gain on deferred consideration (note 6) (1,459) -
Change in estimate on decommissioning liabilities (note 9) 143 -
Disposition (note 6) 60,871 -
Currency translation on subsidiary liquidated (note 6) 759 -
Unrealised foreign exchange loss (gain) (112) 233
Deferred tax expense (recovery) 234 (892)
Decommissioning costs incurred - (121)
Change in restricted cash - (232)
Change in non-cash working capital (note 15) (37) 1,362
Cash used in operating activities (3,163) (145)
Financing activities:
Principal payments on lease liability (28) (68)
Cash used in financing activities (28) (68)
Investing activities:
Property and equipment expenditures (note 8) (37) (3,130)
Exploration and evaluation expenditures (note 7) (225) (1,715)
Assets held for sale expenditures (163) -
Net cash received on disposition (note 6) 14,358 -
Royalty receivable (note 6) 185 -
Change in restricted cash 216 258
Change in non-cash working capital (note 15) (282) (447)
Cash provided by (used in) investing activities 14,052 (5,034)
Foreign exchange gain (loss) on cash held in foreign currencies (178) (721)
Net change in cash and cash equivalents 10,683 (5,968)
Cash and cash equivalents, beginning of period 30,143 36,111
Cash and cash equivalents, end of period $ 40,826 $ 30,143
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 2021 and
2020
(thousands of US Dollars and thousands of shares) Number of common shares Share Capital Contributed Surplus Accumulated Other Comp. Income/(loss) Deficit Total Shareholders' Equity
Balance, January 1, 2021 $ 179,717 $ 22,410 $ (55,288) $ (104,889)
86,585 $ 41,950
Net loss for the period - - - - (64,550) (64,550)
Currency translation adjustments - - -
65,434
- 65,434
Share-based - 296 - - 296
Compensation -
December 31, 2021 86,585 $ 179,717 $ 22,706 $ 10,146 $ (169,439) $ 43,130
(thousands of US Dollars and thousands of shares) Number of common shares Share Capital Contributed Surplus Accumulated Other Comp. Loss Deficit Total Shareholders' Equity
Balance, January 1, 2020 $ 179,717 $ 21,229 $ (49,273)
86,585 $ (85,355) $ 66,318
Net loss for the period - - - - (19,534) (19,534)
Stock options cancellation - - (14) - - (14)
Currency translation adjustments - - (6,015) -
- (6,015)
Share-based - 1,195 - - 1,195
Compensation -
December 31, 2020 $ 179,717 $ 22,410 $ (55,288)
86,585 $ (104,899) $ 41,950
See accompanying notes to the 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
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB") as at and for the years
ended December 31, 2021 and 2020 and have been prepared in accordance with the
accounting policies and methods of computation as set forth in note 3 below.
Operating, transportation and marketing expenses in the statement of loss and
comprehensive loss are presented as a combination of function and nature in
conformity with industry practices. Depletion, depreciation and finance
expenses are presented in separate lines by their nature, while net
administrative expenses are presented on a functional basis. Significant
expenses such as salaries and benefits and share-based compensation are
presented by their nature in the notes to the consolidated financial
statements.
The consolidated financial statements were authorized for issue by the Board
of Directors on March 30, 2022.
(b) Basis of measurement
The consolidated financial statements have been prepared using 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 discussed in note 4.
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 consolidated financial statements include the accounts of
Valeura and its subsidiaries and are expressed in 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
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 income or
loss ("AOCI") 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 and judgments
The preparation of consolidated 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. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the year in which the
estimates are revised and in any future years affected.
Critical judgments in applying accounting policies:
The following are the critical judgments that management has made in the
process of applying the Company's accounting policies and that have the most
significant effect on the amounts recognized in the consolidated financial
statements:
· Valeura's assets are aggregated into cash-generating units for the
purpose of calculating impairment. Cash generating units ("CGU" or "CGUs") are
based on an assessment of the unit's ability to generate independent cash
inflows. The determination of these CGUs was based on management's judgment
in regard to shared infrastructure, geographical proximity, petroleum type and
similar exposure to market risk and materiality.
· Judgments are required to assess when internal or external indicators
of impairment exist and impairment testing is required. In determining the
recoverable amount of assets or CGUs, in the absence of quoted market prices,
impairment tests are based on estimates of proved and probable reserves which
are dependent upon variables including forecasted oil and natural gas prices,
operating costs, royalties, production volumes, future development costs, and
other relevant assumptions all of which are subject to many uncertainties and
interpretations.
· Costs associated with acquiring oil and natural gas licenses,
carrying out seismic surveys and other technical studies and exploratory
drilling are accumulated as exploration and evaluation ("E&E") assets
pending determination of technical feasibility and commercial viability.
Establishment of technical feasibility and commercial viability is subject to
judgment and involves management's review of project economics, resource
quantities, expected production techniques, production costs and required
capital expenditures to confirm continued intent to develop and extract the
underlying resources. Management uses the establishment of commercial reserves
within the exploration area as the basis for determining technical feasibility
and commercial viability. Judgment is required in determining whether
indicators of impairment exist, including factors such as but not limited to,
the right to explore in the specific area has expired during the period or
will expire in the near future and is not expected to be renewed and
determination of whether substantive expenditures on further exploration for
and evaluation of mineral resources in specific areas will not be planned or
budgeted. Upon determination of commercial reserves, E&E assets
attributable to those reserves are tested for impairment and reclassified from
E&E assets to a separate category within property, plant and equipment
referred to as oil and natural gas properties.
Key sources of estimation uncertainty:
The following are key estimates and their assumptions made by management
affecting the measurement of balances and transactions in the consolidated
financial statements:
· Management's assumptions and estimates of future cash flows used in
the Company's impairment assessment of exploration and evaluation properties
are subject to risk and uncertainties, particularly in market conditions where
higher volatility exists, and may be partially or totally outside of the
Company's control. If an indication of impairment exists, or if an exploration
and evaluation asset is determined to not be technically feasible and
commercially viable, an estimate of a CGU's recoverable amount is calculated.
The recoverable amount is based on the higher of fair value less costs of
disposal and value in use, using a discounted cash flow methodology. The
impairment analysis requires the use of estimates and assumptions, such as
long-term commodity prices, discount rates, future capital expenditures,
exploration potential and operating costs. Fair value of exploration and
evaluation assets is generally determined as the present value of estimated
future cash flows arising from the continued use of the asset, which includes
estimates such as the cost of future expansion plans and eventual disposal,
using assumptions that an independent market participant may take into
account. Cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessment of the time value of
money and risks to the asset. If the Company does not have sufficient
information about a particular mineral resource property to meaningfully
estimate future cash flows, the fair value is estimated by management through
comparison to similar market assets and, where available, industry benchmarks.
· The Company estimates the decommissioning obligations for oil and
natural gas wells and their associated production facilities and pipelines.
In most instances, removal of assets and remediation occurs many years into
the future. Amounts recorded for the decommissioning obligations and related
accretion expense require assumptions regarding removal date, future
environmental legislation, the extent of reclamation activities required, the
engineering methodology for estimating cost, inflation estimates, future
removal technologies in determining the removal cost, and the estimate of the
liability specific discount rates to determine the present value of these cash
flows.
· The Company's estimate of share-based compensation is based upon
estimates of volatility and forfeiture rates.
· The deferred tax liability is based on estimates as to the timing of
the reversal of temporary differences, substantively enacted tax rates and the
likelihood of assets being realized.
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all
years presented in the consolidated financial statements and have been applied
consistently by the Company and its subsidiaries, except as described below.
(a) Basis of consolidation
(i) Subsidiaries:
Subsidiaries are entities controlled by the Company. Control exists when the
Company has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. In assessing control,
substantive potential voting rights are taken into account. The financial
statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control
ceases.
The acquisition method of accounting is used to account for acquisitions of
subsidiaries and assets that meet the definition of a business under IFRS.
The cost of an acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at the date of
exchange. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. The excess of the cost of acquisition
over the fair value of the identifiable assets, liabilities and contingent
liabilities acquired is recorded as goodwill. If the cost of acquisition is
less than the fair value of the net assets of the subsidiary acquired, the
difference is recognized immediately in earnings.
(ii) Jointly controlled operations and jointly controlled assets:
A portion of the Company's exploration and development activities are
conducted jointly with others. The joint interests are accounted for on a
proportionate consolidation basis and as a result the financial statements
reflect only the Company's proportionate share of the assets, liabilities,
revenues, expenses and cash flows from these activities.
Valeura's has one joint venture arrangements as follows:
Name of the joint arrangement Nature of the relationship Principal place of business Proportion of
with the joint arrangement of joint arrangement participating share
West Thrace Deep Joint Venture Operator Turkey 63% (all rights)
(iii) Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized income and expenses
arising from intercompany transactions, are eliminated in preparing the
consolidated financial statements.
(b) Financial instruments
(j) Non-derivative financial instruments:
Financial assets are classified in three principal classification categories:
measured at amortized cost, fair value through other comprehensive income
("FVOCI"), or fair value through profit or loss ("FVTPL"). Financial
liabilities are classified and measured at amortized cost or FVTPL.
Financial instruments are recognized initially at fair value, net of any
directly attributable transactions costs.
Where the fair value option is applied to financial liabilities, any change in
fair value resulting from an entity's own credit risks is recorded through
other comprehensive income or loss rather than net income or loss. The
classification of financial assets is generally based on the business model in
which a financial asset is managed and the characteristics of its contractual
cash flows.
A financial asset is measured at amortized cost if it meets both of the
following conditions: (a) the asset is held with a business model whose
objective is to hold assets to collect contractual cash flows; and (b) the
contractual terms of the financial assets give rise to cash flows on specified
dates that are solely payments of principal and interest on principal amounts
outstanding.
Financial assets that meet criteria (b) above that are held within a business
model whose objective is achieved by both collecting contractual cash flows
and selling financial assets is subsequently measured at FVOCI. All other
financial assets and liabilities are subsequently measured at FVTPL.
Accounts receivable, prepaid expenses and deposits, accounts payable and
accrued liabilities are measured at amortized cost.
Valeura does not currently have financial instrument contracts to which it
applies hedge accounting.
(ii) Share capital:
Common shares are classified as equity. Incremental costs directly
attributable to the issue of common shares and share options are recognized as
a deduction from equity, net of any tax effects.
(c) Property, plant and equipment and exploration and evaluation assets
(i) Recognition and measurement:
Exploration and evaluation expenditures:
Pre-licence costs are recognized in earnings as incurred. Exploration and
evaluation ("E&E") costs, including the costs of acquiring licences and
directly attributable general and administrative costs, are initially
capitalized as exploration and evaluation assets. The costs are accumulated
in cost centres by well, field or exploration area pending determination of
technical feasibility and commercial viability.
Exploration and evaluation assets are assessed for impairment if sufficient
data exists to determine technical feasibility and commercial viability, and
facts and circumstances suggest that the carrying amount exceeds the
recoverable amount. For purposes of impairment testing, exploration and
evaluation assets are allocated to cash-generating units. The technical
feasibility and commercial viability of extracting a mineral resource is
considered to be determinable when proved and/or probable reserves are
determined to exist. A review of each exploration CGU is conducted, at least
annually, to ascertain whether proved and/or probable reserves have been
discovered. Upon determination of proved and/or probable reserves, the CGU
within which the intangible exploration and evaluation assets attributable to
those reserves is first tested for impairment and then the applicable value is
reclassified from exploration and evaluation assets to property, plant and
equipment. Proceeds on E&E assets are recorded against the recognized
E&E balance, and no gain or loss is recognized.
Development and production costs:
Items of property, plant and equipment ("PP&E"), which include oil and gas
development and production assets, are measured at cost less accumulated
depletion and depreciation and accumulated impairment losses. Development
and production assets are grouped into CGUs for impairment testing. When
significant parts of an item of PP&E, including oil and natural gas
interests, have different useful lives, they are accounted for as separate
items (components).
Gains and losses on disposal of an item of property, plant and equipment,
including oil and natural gas interests, are determined by comparing the
proceeds from disposal with the carrying amount of PP&E and are recognized
in earnings.
(ii) Subsequent costs:
Costs incurred subsequent to the determination of technical feasibility and
commercial viability and the costs of replacing parts of PP&E are
recognized as oil and natural gas interests only when they increase the future
economic benefits embodied in the specific asset to which they relate. All
other expenditures are recognized in earnings as incurred. Such capitalized
oil and natural gas interests generally represent costs incurred in developing
proved and/or probable reserves and bringing in or enhancing production from
such proved and probable reserves, and are accumulated on a field or
geotechnical area basis. The carrying amount of any replaced or sold
component is derecognized. The costs of the day-to-day servicing of
property, plant and equipment are recognized in earnings as incurred.
(iii) Depletion and depreciation:
The net carrying value of development or production assets is depleted using
the unit of production method by reference to the ratio of production in the
year to the related proved and probable reserves, taking into account
estimated future development costs necessary to bring those proved and
probable reserves into production. Future development costs are estimated
taking into account the level of development required to produce the proved
and probable reserves. These estimates are reviewed by independent reserve
engineers at least annually.
Other corporate assets are recorded at cost on acquisition and amortized on a
declining-balance basis at rates of 20 percent to 50 percent per year.
(iv) Exploration and evaluation expense:
Upon determination that an exploration and evaluation CGU is impaired, the
Company will transfer costs associated with the applicable CGU to exploration
and evaluation expense in the period.
(v) Farm-in arrangements:
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 recognizes 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
recognized 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.
(d) Impairment
(i) Financial assets:
Loss allowances are recognized for expected credit losses ("ECL's) on its
financial assets measured at amortized cost. Due to the nature of the
financial assets, loss allowances are measured at an amount equal to expected
lifetime ECLs. Lifetime ECLs are the anticipated ECLs that result from all
possible default events over the expected life of a financial asset. ECLs
are a probability-weighted estimate of credit loss and are discounted at the
effective interest rate of the related financial asset.
(ii) Non-financial assets:
The carrying amounts of the Company's non-financial assets are reviewed at
each reporting date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable amount is
estimated through an impairment test. The recoverable amount of an asset or
a CGU is the greater of its value-in-use and its fair value less costs to
sell. Fair value less costs to sell is determined as the amount that would
be obtained from the sale of the assets in an arm's length transaction between
knowledgeable and willing parties.
E&E assets are assessed for impairment when they are reclassified to
property, plant and equipment, and also if facts and circumstances suggest
that the carrying amount exceeds the recoverable amount. For the purpose of
impairment testing, assets are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets, or CGUs.
In assessing value-in-use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or
CGU. Value-in-use is generally computed by reference to the present value of
the future cash flows expected to be derived from production of proved and
probable reserves. E&E assets are allocated to related CGUs when they
are assessed for impairment, both at the time of any triggering facts and
circumstances as well as upon their eventual reclassification to PP&E.
An impairment loss is recognized if the carrying amount of an asset or its CGU
exceeds its estimated recoverable amount. Impairment losses are recognized
in earnings. Impairment losses recognized in respect of CGUs are allocated
to reduce the carrying amounts of the assets in the unit (group of units) on a
pro-rata basis.
An impairment loss in respect of PP&E and E&E assets, recognized in
prior years, is assessed at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been
determined, net of depletion and depreciation or amortization, if no
impairment loss had been recognized.
(e) Share based payments
The grant date fair value of options granted to employees is recognized as
compensation expense, with a corresponding increase in contributed surplus
over the vesting period. A forfeiture rate is estimated on the grant date
and is subsequently adjusted to reflect the actual number of options that
vest.
(f) Provisions
A provision is recognized if, as a result of a past event, the Company has a
present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability. Provisions are
not recognized for future operating losses.
(i) Decommissioning obligations:
The Company's activities give rise to dismantling, decommissioning and site
disturbance re-mediation activities. Provision is made for the estimated
cost of site restoration and capitalized in the relevant asset category.
Decommissioning obligations are measured at the present value of management's
best estimate of expenditure required to settle the present obligation at the
statement of financial position date. Subsequent to the initial measurement,
the obligation is adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the
obligation. The increase in the provision due to the passage of time is
recognized as finance costs whereas increases/decreases due to changes in the
estimated future cash flows are capitalized. Actual costs incurred upon
settlement of the decommissioning obligations are charged against the
provision to the extent the provision was established.
(g) Revenue from contracts with customers
Valeura's petroleum and natural gas revenues from the sale of natural gas and
crude oil are based on the consideration specified in the contracts with
customers. For natural gas, pricing is linked to BOTAS benchmark pricing,
while crude oil pricing is linked to Brent benchmark pricing. Valeura
recognizes revenue when it transfers control of the product to the customer,
which is generally when legal title passes to the customer and collection is
reasonably assured.
Valeura evaluates its arrangements with third parties and partners to
determine if Valeura is acting as the principal or as the agent. Valeura is
considered the principal in a transaction when it has primary responsibility
for the transaction. If Valeura acts in the capacity of an agent rather than
as a principal in a transaction, then the revenue is recognized on a net
basis, only reflecting the fee, if any realized by Valeura from the
transaction.
(h) Finance income and expenses
Finance expense comprises interest expense on any borrowings, accretion of the
discount on provisions and impairment losses recognized on financial assets.
Borrowing costs incurred for the construction of qualifying assets are
capitalized during the period of time that is required to complete and prepare
the assets for their intended use or sale. All other borrowing costs are
recognized in earnings using the effective interest method. The
capitalization rate used to determine the amount of borrowing costs to be
capitalized is the weighted average interest rate applicable to the Company's
outstanding borrowings during the period.
Interest income is recognized as it accrues in earnings, using the effective
interest method.
(i) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is
recognized in earnings except to the extent that it relates to items
recognized directly in equity, in which case it is recognized in equity.
Current tax is the expected taxes payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to taxes payable in respect of previous years.
Deferred tax is recognized using the statement of financial position method,
providing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognized on the initial recognition of
assets or liabilities in a transaction that is not a business combination.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. Deferred tax assets
and liabilities are offset if there is a legally enforceable right to offset,
and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle
current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that
future taxable profits will be available against which the temporary
difference can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.
(j) Earnings per share
Basic per share amounts are calculated by dividing the net income or loss
attributable to common shareholders of the Company by the weighted average
number of common shares outstanding during the period. Diluted per share
amounts are determined by adjusting the net income or loss attributable to
common shareholders and the weighted average number of common shares
outstanding for the effects of dilutive instruments such as options granted to
employees.
(k) Assets held for sale
Non-current assets or disposal groups comprising assets and liabilities, are
classified as held for sale if it is highly probably that they will be
recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their
carrying amount and fair value less costs to sell. Any impairment loss on a
disposal group is allocated first to goodwill, and then to the remaining
assets and liabilities on a pro rata basis, except that no loss is allocated
to inventories, financial assets, deferred tax assets, which continue to be
measured in accordance with the Company's other accounting policies.
Impairment losses on initial classification as asset held for sale and
subsequent gains and losses on remeasurement are recognized in profit and
loss. Once classified as held for sale, property, plant and equipment are no
longer amortised or depreciated.
4. Determination of Fair Values
A number of the Company's accounting policies and disclosures require the
determination of fair value, for both financial and non-financial assets and
liabilities. Fair values have been determined for measurement and/or
disclosure purposes based on the methods described below. When applicable,
further information about the assumptions made in determining fair values is
disclosed in the notes specific to that asset or liability.
(i) Cash, deposits, accounts receivable, royalty receivable, accounts
payable and accrued liabilities:
The fair value of cash, deposits, accounts receivable, accounts payable and
accrued liabilities are estimated as the present value of future cash flows,
discounted at the market rate of interest at the reporting date. At December
31, 2021 and December 31, 2020, the fair value of these balances approximated
their carrying values due to their short term to maturity.
(ii) Stock options:
The fair value of employee stock options is measured using a Black Scholes
option pricing model. Measurement inputs include share price on measurement
date, exercise price of the instrument, expected volatility based on the
weighted average historic volatility adjusted for changes expected due to
publicly available information, weighted average expected life of the
instruments based on historical experience and general option holder behavior,
expected dividends, the risk-free interest rate based on government bonds, and
an estimated forfeiture rate.
5. Restricted Cash
The Company has restricted cash in the amount of $0.02 million (2020 - $0.23
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 the National Bank of Canada ("NBC") as security,
along with the Account Performance Security Guarantee ("APSG") facility
described in Note 9, for decommissioning or abandonment obligations and
ongoing work programmes on the Company's Turkish licences.
6. Disposition
On May 26, 2021, the Company closed the sale of its shallow conventional gas
assets for cash consideration (including closing working capital and effective
date adjustments) of $16.85 million, and deferred consideration initially
valued at $1.0 million, with an economic effective date of July 1, 2020 ("the
Disposition"). The Disposition was structured as a sale of shares of Thrace
Basin Natural Gas (Turkiye) Corporation ("TBNG") and Corporate Resources B.V.
("CRBV"), both of which were wholly owned subsidiaries of Valeura. The
deferred consideration is in the form of a cash royalty payable over 5 years,
referenced to local Turkish gas prices, with a minimum payment of $1 million
and a maximum of $2.5 million.
Upon closing of the Disposition, the Company estimated the deferred
consideration to be approximately $1.0 million. Subsequent to the closing of
the sale and during the year ended December 31, 2021 the Company recorded a
gain on the deferred consideration of $1.5 million as the maximum payment of
$2.5 million is now expected to be received due to overall increases in
Turkish natural gas prices. The total payment is expected to be received
during the year ended December 31, 2022. Upon closing of the Disposition, $0.3
million of the purchase price is being held in escrow for a period of one year
from the closing date of the Disposition. This amount is recorded within
accounts receivable.
The disposition resulted in a gain on disposal of $6.1 million and a currency
translation loss of $67.0 million. Per note 2 (c), accumulated other
comprehensive income or loss in disposed subsidiaries, due to currency
translation losses, must be transferred to retained earnings through the
statement of profit and loss.
As at December 31, 2020, the disposed assets were classified as assets held
for sale.
Recognised amounts of identifiable assets and liabilities disposed of were as
follows:
Net assets disposed
Cash and cash equivalents $ 2,185
Accounts receivable 2,418
Inventory 117
Prepaid expenses and deposits 273
Right of use asset 340
Exploration and evaluation assets 1,232
Property and equipment 13,914
AccAccounts payable and accrued liabilities (2,096)
Lease liability (279)
Deferred income taxes (589)
Asset retirement obligation (5,755)
Total net assets disposed $ 11,760
Consideration
Cash proceeds 16,543
Retention receivable 310
Royalty receivable 1,041
Total consideration $ 17,894
Gain on disposition $ 6,134
Currency translation loss on subsidiaries disposed (67,005)
Total loss on disposition $ (60,871)
On December 30, 2021, the Company liquidated the Valeura Energy (Netherlands)
Cooperatief UA foreign subsidiary. All remaining assets and liabilities, at
the time of liquidation, were transferred to Valeura Energy Inc. The
liquidation resulted in a currency translation loss of $0.8 million as a
result of transferring accumulated other comprehensive income to retained
earnings through the statement of profit and loss.
7. Exploration and Evaluation Assets
Cost Total
Balance, December 31, 2019 $ 4,006
Additions 1,715
Transfers to property, plant and equipment (note 8) (1,918)
Capitalized share-based compensation 167
Effects of movements in exchange rates (988)
Transfer to assets held for sale (1,339)
Balance, December 31, 2020 $ 1,643
Additions 225
Capitalized share-based compensation 54
Effects of movements in exchange rates (748)
Balance, December 31, 2021 $ 1,174
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.
Recoverability of exploration and evaluation assets
The Company assesses the recoverability of exploration and evaluation assets,
before and at the moment of reclassification to property, plant and equipment,
by allocating the E&E assets to appropriate CGUs. At December 31, 2021
and 2020, Valeura determined that no indicators of impairment existed with
respect to the Company's E&E assets.
Impairment of exploration and evaluation assets is recognized in earnings.
8. Property, Plant and Equipment
Cost Total
Balance, December 31, 2019 $ 66,126
Additions 3,130
Transfer from exploration and evaluation assets (note 7) 1,918
Change in decommissioning obligations (note 9) 2,021
Effects of movements in exchange rates (13,048)
Transfer to assets held for sale (45,039)
Balance, December 31, 2020 $ 15,108
Additions 37
Effects of movements in exchange rates (6,321)
Balance, December 31, 2021 $ 8,824
Accumulated depletion and depreciation Total
Balance, December 31, 2019 $ 31,843
Depletion and depreciation expense 3,566
Impairment 13,445
Effects of movements in exchange rates (6,338)
Transfer to assets held for sale (27,686)
Balance, December 31, 2020 $ 14,830
Depletion and depreciation expense 188
Effects of movements in exchange rates (6,240)
Balance, December 31, 2021 $ 8,778
Net book value Total
Balance, December 31, 2020 $ 278
Balance, December 31, 2021 $ 46
The majority of the property, plant and equipment as at December 31, 2021, is
furniture and fixtures and computer hardware and software.
The Company conducted an assessment of impairment triggers and concluded there
were no indicators of impairment with respect to the Company's property plant
and equipment as at December 31, 2021.
9. Decommissioning Obligations
December 31, 2021 December 31, 2020
Decommissioning obligations, beginning of year $ 2,161 $ 8,181
Obligations incurred - 871
Obligations settled - (121)
Change in estimates 143 1,610
Accretion of decommissioning obligations 197 913
Effects of movements in exchange rates (749) (1,759)
Transfer to liabilities directly associated with assets held for sale - (7,534)
Decommissioning obligations, end of year $ 1,752 $ 2,161
The Company's decommissioning obligations result from its ownership interest
in oil and natural gas assets. The total decommissioning obligation of
$1.8 million at December 31, 2021 is estimated based on the Company's net
ownership interest in three deep 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 estimates amount of $0.1 million at
December 31, 2021 reflects the combined effect of a revision in the cost
estimates for abandonment and reclamation, an increase in the risk-free
interest rate in Turkey (December 31, 2021 - 23.1%; December 31, 2020 - 12.5%)
and an increase in the inflation rate in Turkey (December 31, 2021 - 36.1%;
December 31, 2020 - 14.6%). The change in estimates has been recorded on the
statement of loss and comprehensive income (loss) as the Company has no
corresponding asset recorded related to the decommissioning liability.
December 31, 2021 December 31, 2020
Undiscounted cash flows $ 5,161 $ 8,084
Undiscounted cash flows associated with assets held for sale $ - $ 20,130
Risk free rate - Turkey 23.1% 12.5%
Inflation rate - Turkey 36.1% 14.6%
Timing of cash flows 4-5 years 2-13 years
10. Revenue
Petroleum and natural gas sales, royalties and third-party natural gas sales
recorded in 2021 are from the shallow conventional assets prior to their sale
on May 26, 2021 (see note 6). After the close of the Disposition, the
Company's only revenue for the period is interest.
For revenue earned until May 26, 2021, under the contracts, the Company was
required to deliver a variable volume of natural gas to the contract counter
party. Revenue was recognised when a unit of production was delivered to the
contract counterparty. The amount of revenue recognised was based on the
agreed transaction price, whereby any variability in revenue related
specifically to the Company's efforts to transfer production or the customer's
demand for natural gas, and therefore the resulting revenue was allocated to
the production delivered in the period during which the variability occurs.
As a result, none of the variable revenue was considered constrained.
The Company's contracts had a term of one year or less, whereby delivery took
place throughout the contract period. Revenues were typically collected
between the 12th and 25th day of the month following production.
The Company produced a small amount of crude oil prior to May 26, 2021, that
was sold on a spot basis as volumes warranted. Oil was delivered by truck to
customers and revenue was recognised in the period in which the delivery
occurred.
In addition to selling natural gas that the Company produced prior to May 26,
2021, the Company sold natural gas that it purchased from other producers in
the area. This purchased natural gas was sold to the same customers, using
the same contracts, through the same distribution network as natural gas the
Company produced. The Company purchased natural gas from other producers
under contracts that were typically one year or less in length at a discount
of between 12.5% and 15% to the BOTAS price. These contracts required the
Company to deliver the purchased natural gas to customers. The Company did
not have the right, nor the ability, to store the purchased natural gas.
Since the Company did not have the ability to influence the decision-making
process for the purchased natural gas volumes or the discretion to set prices,
did not experience any inventory risk, did not perform any processing of the
product and did not remit royalties to the Turkish government for the product,
it considered itself an agent in these transactions. Revenue for this
purchased gas was 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 was sold in Turkey, in the Thrace Basin,
which is the same area in which it was produced.
December 31, 2021 December 31, 2020
Natural gas $ 3,031 $ 8,315
Crude oil 95 232
Petroleum and natural gas sales $ 3,126 $ 8,547
December 31, 2021 December 31, 2020
Royalties - natural gas $ 379 $ 1,039
Crude oil 14 28
Gross overriding royalty 30 85
Royalties $ 423 $ 1,152
December 31, 2021 December 31, 2020
Third party natural gas sales net of costs $ 152 $ 303
Interest and other revenue 139 312
Other income $ 291 $ 615
11. Income Taxes
A reconciliation of the expected tax expense to the actual provision for
current and deferred taxes is as follows:
December 31, 2021 December 31, 2020
Loss before taxes $ (64,275) $ (20,161)
Combined federal and provincial tax rate 23.00% 24.00%
Expected income tax recovery (14,783) (4,840)
Change in tax rates (538) 1,662
Non-taxable items and other 7,104 764
Foreign tax rate differential 43 277
Change in unrecognized deferred tax assets 8,449 1,510
Income tax (recovery) expense - current and deferred $ 275 $ (627)
The deferred income tax rate applied to the temporary differences in 2021 was
23.0 percent (2020 - 24.0 percent). The Turkish tax rate for 2021 was 25.0
percent (2020 - 22.0 percent).
The components of the deferred tax balances are as follows:
December 31, 2021 December 31, 2020
Property, plant and equipment and exploration $ (3,215)
$ -
and evaluation assets
Decommissioning obligations - 1,657
Non-capital losses and other - 538
Foreign Exchange - 590
Transferred to assets held for sale - 430
$ $ -
-
The temporary differences that determine the unrecognized deferred tax assets
are as follows:
December 31, 2021 December 31, 2020
Property, plant and equipment and exploration $ 6,739 $ 7,880
and evaluation assets
Share issuance costs 856 1,769
Non-capital losses and other 61,912 57,957
Foreign Exchange 6,065 5,206
$ 75,572 $ 72,812
The Company has tax assets of approximately $69.0 million at December 31, 2021
(2020 - $73.2 million) available for deduction against future taxable
income. Cumulative non-capital loss carry-forwards in the amount of $60.2
million at December 31, 2021 (2020 - $58.3 million) expire between 2021 and
2038.
12. Administrative Expenses
The components of administrative expenses are as follows:
For the years ended December 31, 2021 December 31, 2020
Cash:
Salaries and benefits ((1)) $ 2,447 $ 2,777
Other ((2)) 2,669 3,212
5,116 5,989
Capitalized overhead and recoveries ((3)) (323) (1,572)
General and administrative 4,793 4,417
Non-cash:
Share-based compensation 300 1,199
Capitalized share-based compensation ((3)) (54) (167)
Share-based compensation $ 246 $ 1,032
((1) )Includes salaries, benefits and bonuses earned by all
Directors, Officers and employees of the Company.
((2) )Includes costs such as rent, professional fees, insurance,
travel, office, and other business expenses incurred by the Company.
((3) )Includes a portion of salaries, benefits, share-based
compensation and other G&A directly attributable to the exploration and
development activities of the Company. The reduction in recoveries in 2021
reflects the reduction in capital expenditures on the deep gas play.
Compensation for Executive Officers and Directors are comprised of the
following:
For the years ended December 31, 2021 December 31, 2020
Salaries and benefits ((1)) $ 1,089 $ 1,468
Share-based compensation ((2)) 250 832
Executive Officers and Directors compensation $ 1,339 $ 2,300
((1) )Includes salaries, benefits and bonuses earned by
Executive Officers and Directors comprised of: Chairman of the Board,
President and Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer (2020 only), Vice President - Commercial and other
independent Directors.
((2) )Represents the amortization of share-based compensation
expense in the year associated with options granted to Executive Officers and
Directors participating in the Company's Stock Option Plan.
The Company recorded other severance and transaction costs for the year ended
December 31, 2021 of $0.2 million and $0.1 million respectively. The 2021
transaction costs are fees related to the transaction described in Note 6.
13. Share Capital
(a) Authorized
Unlimited number of common shares
Unlimited number of preferred shares, issuable in series
(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 year ended December 31, 2021 is 86,584,989 (2020 -
86,584,989). As a result of the company incurring a net loss during each of
the last two years, 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 an option program that entitles officers, directors, and employees
to purchase shares in the Company. Options are 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:
Number of Options Weighted average exercise price
(CAD)
Balance, December 31, 2019 5,836,667 $ 1.97
Granted 3,195,000 0.28
Expired (240,000) 1.00
Forfeited (3,154,834) 2.85
Balance, December 31, 2020 5,636,833 $ 0.57
Granted 2,312,500 0.52
Expired (373,334) 0.63
Forfeited (908,333) 1.06
Balance, December 31, 2021 6,667,666 $ 0.48
Exercisable at December 31, 2021 2,681,842 $ 0.57
The following table summarizes information about the stock options outstanding
at December 31, 2021:
Exercise prices (CAD) Outstanding at December 31, 2021 Weighted average remaining life (years) Weighted average exercise price (CAD) Exercisable at December 31, 2021 Weighted average exercise price
(CAD)
$0.25 - $0.37 2,260,000 5.2 $ 0.25 753,342 $ 0.25
$0.38 - $0.51 50,000 6.2 0.49 - -
$0.52 - $0.53 2,262,500 6.2 0.52 - -
$0.54 - $0.74 1,141,833 1.8 0.62 975,167 0.62
$0.75 - $0.80 953,333 2.1 0.76 953,333 0.76
6,667,666 4.5 $ 0.48 2,681,842 $ 0.57
The fair value, at the grant date during the year, of the stock options issued
was estimated using the Black-Scholes model with the following weighted
average inputs:
Assumptions December 31, 2021 December 31, 2020
Risk free interest rate (%) 0.8 0.8
Expected life (years) 4.5 4.5
Expected volatility (%) 99.0 99.6
Forfeiture rate (%) 11.0 6.8
Weighted average fair value of options granted (CAD) $ 0.37 $ 0.20
14. 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.
15. Supplemental Cash Flow Information
December 31, 2021 December 31, 2020
Change in non-cash working capital:
Accounts receivable $ (387) $ 5,850
Prepaid expenses and deposits 70 793
Inventory - 214
Deposits (non-current) - -
Accounts payable and accrued liabilities 165 (509)
Movements in exchange rates (167) 6
Transfer to assets held for sale - (5,439)
(319) 915
The change in non-cash working capital has been allocated to the following
activities:
Operating (37) 1,362
Investing (282) (447)
$ (319) $ 915
16. 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. Further
quantitative disclosures are included throughout the consolidated financial
statements.
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 analyze 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 at year-end is as follows:
December 31, 2021 December 31, 2020
Joint venture receivable from partners $ 25 $ 89
Revenue receivables from customers - 1,688
Retention receivable (note 6) 310 -
Taxes receivable 205 1,248
Other 46 -
Accounts receivable $ 586 $ 3,025
Royalty receivable (note 6) $ 2,315 $ -
Trade and other receivables:
The Company's accounts receivables consist of a retention receivable amount
related to the Disposition (note 6) 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 Disposition discussed
in note 6. As a December 31, 2021, $0.2 million of the $2.5 million royalty
receivable has been collected. As at March 30, 2022, the Company has
collected an additional $1.5 million.
(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 $40.8
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.
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