REG - Valeura Energy Inc. - THIRD QUARTER 2021 RESULTS
12/11/2021 07:05
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RNS Number : 1603S Valeura Energy Inc. 12 November 2021
VALEURA ENERGY
THIRD QUARTER 2021 RESULTS
Calgary, November 12, 2021: 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 unaudited financial and operating results
for the three month period ended September 30, 2021.
Highlights
• Financial position - Cash position of US$41.7 million at September
30, 2021;
• Royalties - Valeura is now due royalty payments in connection with
the sale of its conventional gas producing business. Given current gas
prices, these are now expected to reach the capped total of US$2.5 million
within the coming year; and
• Strategy - Continuing to pursue near-term inorganic growth
opportunities and seeking a suitable partner to farm in to the Company's 20
Tcfe unrisked mean prospective resource deep, tight gas play.
Sean Guest, President and CEO commented:
"Our third quarter results demonstrate the stability of our financial position
as we continue to pursue our strategy from a position of strength. With no
debt, a cash position of US$41.7 million, and a lean organisation, we are
aggressively evaluating new business opportunities without putting strain on
our balance sheet.
"During the third quarter we have experienced a strengthening in the business
environment for global upstream oil and gas investments, with stronger
benchmark oil and gas prices. This reinforces our view on the ability for
mergers and acquisitions-led growth to contribute meaningful near-term cash
flow, and we remain especially focused on those opportunities which also
provide the potential for follow-on investment in the medium term.
"We are encouraged by the substantial improvement in European gas market
fundamentals, as well. This underscores the inherent long-term value of our
20 Tcfe unrisked mean prospective resource gas play. We also stand to
benefit directly from increased gas prices in the near term by the start of
royalty payments from the shallow gas producing business we sold earlier this
year. We anticipate receiving the full capped maximum royalty payment of
$2.5 million within the coming year."
Financial position and Royalty
As of the end of Q3, Valuera had cash and cash equivalent resources totalling
US$41.7 million, and no debt.
Associated with the sale of its conventional gas producing business which
closed in Q2 2021, Valeura is due a royalty over the next five years of
between US$1.0 and $2.5 million, related to gas prices. The Company has
received confirmation that a royalty payment is due for September and, given
the continued positive environment for gas prices, the royalty payment is
expected to increase for Q4 2021. Under the current gas price outlook,
Valeura expects to receive the full US$2.5 million in royalty payments within
the coming year and this has been recorded as an increase in the accounts
receivable.
The Company's near and mid-term financial obligations are minimal, comprised
only of G&A associated with its small and lean organisation, and modest
licence commitments required to keep its Turkish land holdings in good
standing.
Strategy
With its strong financial position and internationally experienced team,
Valeura is well positioned to grow by way of mergers and acquisitions in a
number of international jurisdictions including the Mediterranean basin and
other areas where the management and board have experience. The Company is
evaluating several targets that could provide near-term cashflow plus the
opportunity for medium-term re-investment to generate further value through
growth. Valeura is squarely focussed on only executing transactions that
will generate material value for shareholders.
In the longer term, Valeura intends to deliver value from its deep,
unconventional tight gas play in the Thrace Basin (the "Deep Gas Play"). Its
three exploration licences in the core of the Deep Gas Play are valid up to
June 27, 2022 and, under Turkey's licence terms, the Company has the ability
to maintain these assets for up to approximately five more years through work
programme commitments, which do not require material near term cost outlays.
Given recent gas price increases and the focus on gas supply to Europe, the
Company is continuing with its plan to farm out a portion of its interest in
the Deep Gas Play in order to jointly pursue the next phase of appraisal
work.
Additional information and commentary on the three months ended September 30,
2021 is included in the Company's management's discussion and analysis, which
is available on the Company's website and on www.sedar.com
(http://www.sedar.com) .
For further information please contact:
Valeura Energy Inc. (General and Investor
Enquiries) +1 403 237 7102
Sean Guest, President and CEO
Heather Campbell, CFO
Robin Martin, Investor Relations Manager
Contact@valeuraenergy.com, IR@valeuraenergy.com
Auctus Advisors LLP (Corporate
Broker)
+44 (0) 7711 627 449
Jonathan Wright
Valeura@auctusadvisors.co.uk
CAMARCO (Public Relations, Media
Adviser) +44 (0) 20 3757
4980
Owen Roberts, Billy Clegg, Monique Perks, Hugo Liddy
Valeura@camarco.co.uk
Resources
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 ang 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 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 Company's
entitlement to royalty payments over a five-year period; statements with
respect to the Company's inorganic growth strategy, including its ability to
identify M&A targets; statements with respect to the Company's deep tight
gas play strategy, including management's belief that the play represents a
material value proposition for shareholders, and its ability to find another
partner for the play. 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: the resumption of operations
following the COVID-19 pandemic; political stability of the areas in which the
Company is operating and completing transactions; continued safety of
operations and ability to proceed in a timely manner; continued operations of
and approvals forthcoming from the Turkish government in a manner consistent
with past conduct; future drilling activity on the required/expected
timelines; the prospectivity of the Company's lands, including the deep
potential; the continued favourable pricing and operating netbacks in Turkey;
future sources of funding; future economic conditions; future currency
exchange rates; the ability to meet drilling deadlines and other requirements
under licences and leases; the ability to attract a new partner in the deep
play; the ability to identify attractive merger and acquisition opportunities
to support growth; and the Company's continued ability to obtain and retain
qualified staff and equipment in a timely and cost efficient manner. In
addition, the Company's work programmes and budgets are in part based upon
expected agreement among joint venture partners and associated exploration,
development and marketing plans and anticipated costs and sales prices, which
are subject to change based on, among other things, the actual results of
drilling and related activity, availability of drilling, high-pressure
hydraulic stimulation and other specialised oilfield equipment and service
providers, changes in partners' plans and unexpected delays and changes in
market conditions. Although the Company believes the expectations and
assumptions reflected in such forward-looking information are reasonable, they
may prove to be incorrect.
Forward-looking information involves significant known and unknown risks and
uncertainties. Exploration, appraisal, and development of oil and natural gas
reserves are speculative activities and involve a degree of risk. A number of
factors could cause actual results to differ materially from those anticipated
by the Company including, but not limited to: the Company's ability to secure
a new partner for the deep play; the timing and quantum of future royalty
payments, the ability to execute potential M&A transactions and add
material value for shareholders including through near-term cash flow; the
risks of further disruptions from the COVID-19 pandemic; the risks of currency
fluctuations; changes in gas prices and netbacks in Turkey; potential changes
in joint venture partner strategies and participation in work programmes;
uncertainty regarding the contemplated timelines and costs for the deep
evaluation; the risks of disruption to operations and access to worksites;
potential changes in laws and regulations, the uncertainty regarding
government and other approvals; counterparty risk; risks associated with
weather delays and natural disasters; and the risk associated with
international activity. The forward-looking information included in this new
release is expressly qualified in its entirety by this cautionary statement.
See the AIF for a detailed discussion of the risk factors.
The forward-looking information contained in this new release is made as of
the date hereof and the Company undertakes no obligation to update publicly or
revise any forward-looking information, whether as a result of new
information, future events or otherwise, unless required by applicable
securities laws. The forward-looking information contained in this new release
is expressly qualified by this cautionary statement.
Additional information relating to Valeura is also available on SEDAR at
www.sedar.com (http://www.sedar.com) .
This Announcement contains inside information as defined in EU 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.
Condensed Interim Consolidated Statements of Financial
Position
(thousands of US Dollars, unaudited) September 30, 2021 December 31, 2020
Assets
Current Assets
Cash and cash equivalents $ 41,683 $ 30,143
Restricted cash (note 3) 16 232
Accounts receivable (note 4 and 12) 809 199
Royalty receivable (note 4 and 12) 2,500 -
Prepaid expenses and deposits 400 330
Assets held for sale (note 4) - 22,032
45,408 52,936
Exploration and evaluation assets (note 5) 1,654 1,643
Property, plant and equipment (note 6) 272 278
$ 47,334 $ 54,857
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 484 $ 506
Liabilities directly associated with the assets held for sale (note 4) - 10,240
484 10,746
Decommissioning obligations (note 7) 1,483 2,161
1,967 12,907
Shareholders' Equity
Share capital (note 8) 179,717 179,717
Contributed surplus 22,577 22,410
Accumulated other comprehensive gain (loss) (note 4) 9,322 (55,288)
Deficit (166,249) (104,889)
45,367 41,950
$ 47,334 $ 54,857
See accompanying notes to the condensed interim consolidated financial
statements.
Condensed Interim Consolidated Statements of Loss and Comprehensive Income
(Loss)
For the three and nine months ended September 30, 2021 and 2020
Three Months Ended Nine Months Ended
(thousands of US Dollars, unaudited) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Revenue (note 10)
Petroleum and natural gas sales $ - $ 1,843 $ 3,126 $ 6,569
Royalties - (249) (423) (885)
Other Income 32 141 264 510
32 1,735 2,967 6,194
Expenses and other items
Production 50 936 1,264 2,618
General and administrative 966 1,214 3,613 3,355
Severance - - 206 450
Transaction costs 5 - 74 -
Accretion on decommissioning liabilities 51 212 517 671
(notes 7)
Foreign exchange (gain) loss (1,087) 335 (675) (167)
Settlement income - - - (332)
Share-based compensation (note 8) 110 138 129 549
Change in estimate on decommissioning liabilities (note 7) 155 - (509) -
Depletion and depreciation (notes 6) 7 1,085 21 3,307
257 3,920 4,640 10,451
Gain (loss) for the period before other items (225) (2,185) (1,673) (4,257)
Gain on sale (note 4) - - 6,134 -
Gain on deferred consideration (note 4) 1,459 - 1,459 -
Currency translation on subsidiaries disposed (note 4) - - (67,005) -
- - (59,412) -
Gain (loss) for the period before income taxes 1,234 (2,185) (61,085) (4,257)
Income taxes
Current tax expense - 207 41 207
Deferred tax expense (recovery) - (243) 234 (224)
Net income (loss) 1,234 (2,149) (61,360) (4,240)
Other comprehensive income (loss)
Currency translation on subsidiaries disposed (note 4) - - 67,005 -
Currency translation adjustments (1,007) (2,720) (2,395) (8,801)
(1,007) (2,720) 64,610 (8,801)
Comprehensive income (loss) $ 227 $ (4,869) $ 3,250 $ (13,041)
Net income (loss) per share (note 8)
Basic $ 0.01 $ (0.02) $ (0.71) $ (0.05)
Diluted $ 0.01 $ (0.02) $ (0.71) $ (0.05)
Weighted average number of shares outstanding (thousands)
Basic 86,585 86,585 86,585 86,585
Diluted 87,610 86,585 86,585 86,585
See accompanying notes to the condensed interim consolidated financial
statements.
Condensed Interim Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2021 and
2020
Three Months Ended Nine Months Ended
(thousands of US Dollars, unaudited) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Cash was provided by (used in):
Operating activities:
Net income (loss) for the period $ 1,234 $ (2,149) $ (61,360) $ (4,240)
Depletion and depreciation (note 6) 7 1,085 21 3,307
Share-based compensation (note 8) 110 138 129 549
Accretion on decommissioning liabilities (note7) 51 212 517 671
Gain on deferred consideration (note 4) (1,459) - (1,459) -
Change in estimate on decommissioning liabilities (note7) 155 - (509) -
Disposition (note 4) - - 60,871 -
Unrealised foreign exchange loss (gain) (1,085) (253) (643) (882)
Deferred tax expense (recovery) - (243) 234 (224)
Decommissioning costs incurred - (4) - (21)
Change in non-cash working capital (note 11) (164) 101 (292) 1,730
Cash (used in) provided by operating activities (1,151) (1,113) (2,491) 890
Financing activities:
Principal payments on lease liability - (17) (28) (58)
Cash used in financing activities - (17) (28) (58)
Investing activities:
Property and equipment expenditures (note 6) (27) (148) (29) (2,293)
Exploration and evaluation expenditures (note 5) (96) (147) (250) (1,618)
Assets held for sale expenditures - - (163) -
Net cash received on disposition (note 4) - - 14,358 -
Royalty receivable (note 4) 2,500 - 2,500 -
Change in restricted cash 1 (108) 216 (123)
Change in non-cash working capital (note 11) (1,999) 2,121 (2,583) (521)
Cash used in investing activities 379 1,718 14,049 (4,555)
Foreign exchange gain (loss) on cash held in foreign currencies (171) 240 10 (1,091)
Net change in cash and cash equivalents (943) 828 11,540 (4,814)
Cash and cash equivalents, beginning of period 42,626 30,469 30,143 36,111
Cash and cash equivalents, end of period $ 41,683 $ 31,297 $ 41,683 $ 31,297
See accompanying notes to the condensed interim consolidated financial
statements.
Condensed Interim Consolidated Statements of Changes in Shareholders' Equity
For the nine months ended September 30, 2021 and
2020
(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, 2021 $ 179,717 $ 22,410 $ (104,889)
86,585 $ (55,288) $ 41,950
Net loss for the period - - - (61,360) - (61,360)
Currency translation adjustments - - -
- 64,610 64,610
Share-based - 167 - - 167
Compensation -
September 30, 2021 86,585 $ 179,717 $ 22,577 $ (166,249) $ 9,322 $ 45,367
(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, 2020 $ 179,717 $ 21,229 $ (85,355)
86,585 $ (49,273) $ 66,318
Net loss for the period - - - (4,240) - (4,240)
Currency translation adjustments - - -
- (8,801) (8,081)
Share-based - 664 - - 664
Compensation -
September 30, 2020 86,585 $ 179,717 $ 21,893 $ (89,595) $ (58,074) $ 53,941
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, 2020. 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, 2020, 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, 2020 financial statements.
The unaudited condensed interim consolidated financial statements were
authorised for issue by the Board of Directors on November 10, 2021.
(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, 2020 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'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 Inc. Canadian Dollars
Valeura Energy (Netherlands) Cooperatief UA Turkish Lira
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. 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 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.
4. 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 valued at $1.0
million, with an economic effective date of July 1, 2020 ("the
Transaction"). The Transaction 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,
tied to local gas prices, with a minimum payment of $1 million and a maximum
of $2.5 million.
Upon closing of the Transaction, the Company estimated the deferred
consideration to be approximately $1.0 million. During the three months ended
September 30, 2021, the Company recorded a gain on the deferred consideration
of $1.5 million as the maximum payment of $2.5 million is expected due to
overall increases in Turkish natural gas prices. The $2.5 million royalty
payment is recorded in accounts receivable as the full balance is expected to
be paid within one year. Upon closing of the Transaction, $0.3 million of the
purchase price is being held in escrow for a period of one year from the
closing date of the transaction. This amount is being held 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.
Recognised amounts of identifiable assets and liabilities disposed of were as
follows:
Net assets disposed
Cash $ 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
Accounts 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)
5. Exploration and Evaluation Assets
Cost Total
Balance, December 31, 2020 $ 1,643
Additions 250
Capitalised share-based compensation 41
Effects of movements in exchange rates (280)
Balance, September 30, 2021 $ 1,654
6. Property, Plant and Equipment
Cost Total
Balance, December 31, 2020 $ 15,108
Additions 29
Effects of movements in exchange rates (2,455)
Balance, September 30, 2021 $ 12,682
Accumulated depletion and depreciation Total
Balance, December 31, 2020 $ 14,830
Depreciation expense 21
Effects of movements in exchange rates (2,441)
Balance, September 30, 2021 $ 12,410
Net book value Total
Balance, December 31, 2020 $ 278
Balance, September 30, 2021 $ 272
The depreciation expense recorded in 2021 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.
7. Decommissioning Obligations
September 30, 2021
Decommissioning obligations, beginning of period $ 2,161
Change in estimates (509)
Accretion of decommissioning obligations 159
Effects of movements in exchange rates (328)
Balance, September 30, 2021 $ 1,483
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 revision in the cost estimates for abandonment and
reclamation, an increase in the risk-free interest rate in Turkey (September
30, 2021 - 18.5%; December 31, 2020 - 12.5%) and an increase in the inflation
rate in Turkey (September 30, 2021 - 19.6%; December 31, 2020 - 14.6%). 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.
8. Share Capital
(a) Issued
Common shares Number of Shares Amount
Balance, September 30, 2021 and December 31, 2020 86,584,989 $ 179,717
(b) Per share amounts
Per share amounts have been calculated using the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding for the three months and the year ended September 30, 2021 is
86,584,989 (September 30, 2020 and December 31, 2020 - 86,584,989). The
Company recorded net income for the three months ended September 30, 2021, and
the average number of common shares outstanding was increased by 1,024,767 for
the outstanding in the money stock options which resulted in a diluted
weighted average number of common shares outstanding of 87,609,756. The
weighted average number of common shares outstanding was not increased for the
year ended September 30, 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, 2020 5,636,833 $ 0.57
Granted 2,312,500 0.52
Expired (360,000) 0.64
Forfeited (908,333) 1.06
Balance outstanding, September 30, 2021 6,681,000 0.48
Exercisable at September 30, 2021 2,695,176 $ 0.57
The following table summarises information about the stock options outstanding
and exercisable at September 30, 2021:
Exercise prices (CAD) Outstanding at September 30, 2021 Weighted average remaining life (years) Weighted average exercise price Exercisable at September 30, 2021 Weighted average exercise price
(CAD) (CAD)
$0.25 - $0.37 2,266,667 5.44 $ 0.25 760,009 $ 0.25
$0.38 - $0.53 2,312,500 6.49 0.52 - -
$0.54 - $0.74 1,148,500 2.08 0.62 981,834 0.63
$0.75 - $0.80 953,333 2.39 0.76 953,333 0.76
6,681,000 4.79 $ 0.48 2,695,176 $ 0.57
The fair value, at the grant date during the period, of the stock options
issued was estimated using the Black-Scholes model with the following weighted
average inputs (weighted average fair value per option in CAD):
Assumptions September 30, 2021 December 31, 2020
Risk free interest rate (%) 0.8 0.8
Expected life (years) 4.4 4.5
Expected volatility (%) 99.0 99.6
Forfeiture rate (%) 11.0 6.8
Weighted average fair value per option $ 0.37 $ 0.20
9. 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 $0.14 million in letters
of credit under the APSG facility at current exchange rates.
10. Revenue
Petroleum and natural gas sales, royalties and third party natural gas sales
recorded in the nine months ended September 30, 2021 are from the shallow
conventional assets which were sold on May 26, 2021. After the close of the
Transaction, 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.
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.
Three Months ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Natural Gas $ - $ 1,843 $ 3,031 $ 6,400
Crude Oil - - 95 169
Petroleum and natural gas sales $ - 1,843 $ 3,126 $ 6,569
Three Months ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Royalties - natural gas $ - $ 231 $ 379 $ 800
Crude oil - - 14 20
Gross overriding royalty - 18 30 65
Royalties $ - 249 $ 423 $ 885
Three Months ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Third party natural gas sales net of costs $ - $ 107 $ 152 $ 232
Interest and other revenue 32 34 112 278
Other income $ 32 141 $ 264 $ 510
11. Supplemental Cash Flow Information
Three Months ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Change in non-cash working capital:
Accounts receivable $ (2,584) $ 2,492 $ (3,110) $ 3,277
Prepaid expenses and deposits 196 153 (70) 255
Inventory - - - 10
Accounts payable and accrued liabilities 14 (768) 22 (2,433)
Movements in exchange rates 211 345 283 100
$ (2,163) $ 2,222 $ (2,875) $ 1,209
The change in non-cash working capital has been allocated to the following
activities:
Operating (164) 101 (292) 1,730
Investing (1,999) 2,121 (2,583) (521)
$ (2,163) $ 2,222 $ (2,875) $ 1,209
12. 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:
September 30, 2021 December 31, 2020
Joint venture receivable from partners $ 99 $ 89
Revenue receivables from customers - 1,688
Retention receivable (note 4) 310 -
Taxes receivable 262 1,248
Other 138 -
Accounts receivable $ 809 $ 3,025
Royalty receivable (note 4) $ 2,500 $ -
Trade and other receivables:
The Company's receivables consist of a royalty receivable related to the
Transaction (note 4), taxes receivable from the Turkish Government (VAT
receivable) and a retention receivable amount related to the Transaction (note
4) which is a portion of the purchase price held in escrow for one year.
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 will fluctuate as a
result of changes in market interest rates. The Company is not currently
exposed to interest rate risk as it has no debt.
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 balance of $41.7 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, prepaid
expenses and deposits, and accounts payable and accrued liabilities
approximate their carrying amounts due to their short terms to maturity.
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