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Press release from CNW Group

Valeura announces fourth quarter 2012 financial and operating results

Thursday, March 14, 2013

Valeura announces fourth quarter 2012 financial and operating results05:00 EDT Thursday, March 14, 2013CALGARY, March 14, 2013 /CNW/ - Valeura Energy Inc. ("Valeura" or the "Corporation") (TSX: VLE) is pleased to report highlights of its unaudited financial and operating results for the three month period ended December 31, 2012, audited results for the year ended December 31, 2012 and an update on subsequent developments. The complete quarterly reporting package for the Corporation, including the audited annual financial statements and associated management's discussion and analysis ("MD&A") and the 2012 Annual Information Form ("2012 AIF"), have been filed on SEDAR at www.sedar.com and posted on the Corporation's website at www.valeuraenergy.com.OPERATIONAL HIGHLIGHTSAs disclosed in a separate press release on March 13, 2013, the Corporation has been successful in growing corporate year-end 2012 proved plus probable reserves (2P) by 107% to 5.0 million barrels of oil equivalent ("MMboe") (net) in Turkey and Canada, and best estimate contingent resources (2C) by 302% to 109 MMboe (net) in Turkey. The 2P reserves value has been boosted to $93 million (discounted at 10% before tax) or $1.61 per share. These reserves and resources evaluations are effective December 31, 2012 and were conducted by DeGolyer and MacNaughton for the Corporation's properties in Turkey, and GLJ Petroleum Consultants Ltd. for the Corporation's Canadian properties. Details of these evaluations, prepared in accordance with National Instrument NI 51-101 and the Canadian Oil and Gas Evaluation Handbook, are more fully described in the March 13, 2013 press release and the 2012 AIF, including associated oil and gas advisories and reserves classifications.The reserves and resources reports for Turkey highlight the significant tight gas potential in the Thrace Basin and have positioned the Corporation to move forward with a phased delineation and development program in 2013 aimed at converting probable and possible reserves into proved reserves, and moving additional contingent resources to reserves.Corporate petroleum and natural gas sales in 2012 averaged 1,264 barrels of oil equivalent per day ("boe/d"), up 16% from 2011, reflecting a full year of production in 2012 from the lands acquired from Thrace Basin Natural Gas (Turkiye) Corporation ("TBNG") and Pinnacle Turkey Inc. ("PTI") (Valeura 40%) in June 2011. Sales in the fourth quarter of 2012 averaged 1,008 boe/d (net), down 12% from the third quarter of 2012, reflecting natural declines and a four month gap in the frac program in the Thrace Basin from late August to late December 2012, while the frac spread was contracted elsewhere for longer than expected. Sales in the fourth quarter of 2012 were down 47% from the fourth quarter of 2011 due primarily to natural declines in shallow gas reservoirs in Turkey.Despite an active drilling and frac program in the Thrace Basin in 2012 focused primarily on proving up the tight gas play, production additions from this program have not been sufficient to offset steep natural production declines from existing wells. In part, this reflects the longer timelines required to fully evaluate the frac'd wells, lift associated water on a continuous basis and independently test multiple horizons. Valeura continues to work with its partners to optimize the performance of existing wells and to high-grade drilling locations and frac design for the wells planned in the Tekirdag area delineation and development program, which are aimed at adding both production and proved reserves.Natural gas price realizations in Turkey in 2012 averaged $8.90 per thousand cubic feet ("Mcf"), up 29% from 2011 reflecting increases in benchmark prices of 20% and 10% at April 1 and October 1, 2012, respectively, as posted by Boru Hatlari ile Petrol Tasima Anonim Sirketi ("BOTAS"). Natural gas price realizations in Turkey in the fourth quarter of 2012 averaged $9.70 per Mcf, up 5% from the third quarter of 2012, reflecting the 10% increase in the BOTAS benchmark price at October 1, 2012, partially offset by a prior period adjustment. Natural gas price realizations in the fourth quarter of 2012 were up 32% from the fourth quarter of 2011. Current natural gas price realizations in Turkey are approximately $10 per Mcf.Thrace BasinResumed the tight gas fracing program in late December 2012 with the return of the frac spread to the Thrace Basin. Since the proof-of-concept frac program was initiated in July 2011, 30 wells (gross) were frac'd to the end of 2012 on the TBNG-PTI lands which have provided critical information in assessing the tight gas potential in the Thrace Basin. While the bulk of this program involved small single-stage fracs designed to prove up the play, the results have had some impact in mitigating natural production declines. As at December 31, 2012, these fracs in aggregate were contributing approximately 3.0 MMcf/d (gross) (200 boe/d net), or about 25% of production on the TBNG-PTI lands, after producing cumulative reserves of 2.0 Bcf (gross).Since January 1, 2013, frac'd four additional wells, including two large 5-stage and 4-stage development-type fracs on the DTD-19 and BTD-5 wells in the Tekirdag area. Both wells are flowing gas and frac fluids. The wells will be tied into the gathering system by the end of March, which will enable an assessment of initial stabilized rates.Spudded five wells (gross) in the Thrace Basin in the fourth quarter of 2012, including four wells on the TBNG-PTI lands, which have been cased as potential gas wells (three unconventional deep gas wells and one conventional shallow gas well), and one other shallow gas exploration well, which was plugged and abandoned.Spudded a total of 23 exploration and appraisal wells in the Thrace Basin in 2012, including 20 wells on the TBNG-PTI lands, of which 11 wells were targeting unconventional tight gas and nine were targeting conventional shallow gas. Currently, nine of these 20 wells are on production, two were plugged and abandoned, six remain in various stages of evaluation and completion and three are cased and standing awaiting completion rig work to prepare the wells for fracing.Since January 1, 2013, spudded two deep unconventional wells on the TBNG-PTI lands, of which one is cased as a potential gas well in the Tekirdag area. The second well is a deep exploration well in the northern part of the TBNG-PTI lands with a target depth of 3,750 metres.Ramped up the program to equip selected gas wells in the Thrace Basin with pumping equipment to lift produced water on a continuous basis, which is intended to maximize gas production and ultimate recovery. To date, 13 wells (gross) have been equipped with plunger lift pumps and one well with a rod pump. Additional plunger lift and rod pump equipment is now in Turkey to expand this program.Submitted applications to the General Directorate of Petroleum Affairs of the Republic of Turkey ("GDPA") for five new exploration licences in the Thrace Basin, including four on a 100% Valeura basis and one jointly with the other partners in the TBNG-PTI lands (Valeura 40%). Two of these four 100% Valeura applications are on lands that expired between October 2012 and January 2013 (Licence 3999 and 4187) in which Valeura had held a 24% interest, and two applications are on expired lands that were held by others. There is no certainty that these applications will be successful, and the timing of any licence awards is uncertain. The Corporation also plans to relinquish Licence 4201 (Valeura 100%) in the Thrace Basin in advance of the next district drilling commitment in late March 2013, due to limited prospectivity.Anatolia BasinInitiated the completion of the Alibey-1 horizontal re-entry well in Licence 4607 (Valeura 26%) in the Gaziantep area in December 2012 with an acid squeeze over an interval of approximately 56 metres at the toe of the well. The horizontal section of the well has a total length of 414 metres. The operator, TransAtlantic Petroleum, has disclosed that the initial productivity of the completed interval is approximately 150 barrels of oil per day ("bbl/d") (gross) of heavy oil based on swabbing results. This rate may not be indicative of long term performance or ultimate recovery. It is expected that additional indicated porous sections in the well will also be perforated and tested in the second quarter of 2013, and the well is expected to be placed on production.In the Bostanci Licence 4985, the GDPA and Turkish military have approved a small additional 2D seismic acquisition program of approximately 11 kilometres within a military-controlled buffer area immediately north of the border with northern Iraq. This program will complement earlier seismic acquired in the region in early 2011 and should help to better define the structural prospect which the Corporation believes has potential in Cretaceous, Jurassic and Triassic-aged formations down to a depth of approximately 4,300 metres.Valeura currently holds the Bostanci Licence 4985 on a 100% basis but under a pre-bidding arrangement, Oando Energy Resources Inc. ("Oando"), a Nigeria-based and TSX listed company, has a right to a 50% participating interest. The transfer of a working interest to Oando requires GDPA approval. Valeura and Oando are currently working on the necessary joint venture agreements to affect this transfer and reviewing funding options to meet the licence spudding deadline of early June 2013.FINANCIAL HIGHLIGHTSAs at December 31, 2013, the Corporation had a positive working capital surplus of $24.3 million, including cash and cash equivalents of $29.0 million. This compares to a working capital surplus of $29.4 million as at December 31, 2011.Closed a $14.95 million bought deal financing on October 10, 2012 and issued 11.5 million common shares at a price of $1.30 per common share for net proceeds after fees and expenses of $13.8 million. The number of common shares outstanding increased to approximately 57.9 million.Funds flow from operations of $11.8 million in 2012 was up more than 360% from $2.5 million in 2011 due to increased sales volumes from the TBNG-PTI acquisition, which closed in June 2011. Funds flow from operations of $2.7 million in the fourth quarter of 2012 was down 3% from $2.8 million in the third quarter of 2012 due to lower sales volumes in Turkey, partially offset by higher Turkish gas prices. Funds flow from operations in the fourth quarter of 2012 was down 34% from the fourth quarter of 2011 due to lower sales volumes in Turkey, partially offset by higher Turkish gas prices. (See discussion below regarding non-IFRS measures).Capital expenditures in 2012 of $31.3 million were down by 57% from $72.8 million in 2011 reflecting the impact of the $53.7 million TBNG-PTI acquisition in 2011. Capital expenditures of $6.2 million in the fourth quarter of 2012 were up 10% from $5.6 million in the third quarter of 2012 due primarily to higher fracing expenditures. Capital expenditures in the fourth quarter of 2012 were up 22% from the fourth quarter of 2011 due primarily to higher drilling expenditures.The corporate average operating netback of $37.40 per boe in 2012 was up 39% from $26.88 per boe in 2011 due primarily to higher Turkish gas prices. The corporate average netback of $38.90 per boe in the fourth quarter of 2012 was essentially unchanged from the third quarter of 2012 and is up 27% from the fourth quarter of 2011 due primarily to higher Turkish gas prices. (See discussion below regarding non-IFRS measures).Additional financial and operating results are summarized in the Table 1 below.Table 1 Financial Results Summary Three Months Ended December 31, 2012Three Months EndedSeptember 30, 2012Year EndedDecember 31, 2012Three Months EndedDecember 31, 2011Year EndedDecember 31, 2011Financial (thousands of Canadian Dollars, except share or per share amounts)     Petroleum and natural gas revenues5,4095,85924,9427,61916,725Funds flow from operations (1)2,7002,80311,8164,0852,520Net loss(12,110)(702)(15,905)(3,406)(15,777)Capital expenditures6,2315,64231,2555,11672,808Net working capital surplus24,25713,99224,25729,41929,419Cash and cash equivalents29,03115,57929,03124,10724,107Common shares outstanding     Basic     Diluted57,906,13577,351,10246,406,13565,851,10257,906,13577,351,10246,406,13564,787,96346,406,13564,787,963Share trading     High     Low     Close1.270.700.921.681.201.272.890.700.921.941.201.545.701.201.54Operations     Production          Crude oil & NGLs (bbl/d)6158635659     Natural Gas (Mcf/d)5,6826,4897,20610,8016,192     boe/d (@ 6:1) (2)1,0081,1401,2641,8561,091Average reference price        Edmonton light  ($ per bbl)        BOTAS Reference ($ per Mcf) (3)83.9911.1284.3310.0786.109.9797.358.4795.038.09Average realized price     Crude oil ($ per bbl)     Natural gas - Turkey ($ per Mcf)     Natural gas - consolidated ($ per Mcf)77.989.709.5478.619.279.1279.758.908.77      82.647.337.2576.426.916.72Average Operating Netback($ per boe @ 6:1) (1) (2)38.9039.1437.4030.7426.88Notes:(1)     The above table includes non-IFRS measures, which may not be comparable to other companies.  Funds flow from operations is calculated as net loss for the period adjusted for non-cash items in the statement of cash flows.  Operating netback is calculated as petroleum and natural gas sales less royalties, production expenses and transportation costs.  See MD&A for further discussion.(2)     Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation.  A boe conversion ratio of 6.0 Mcf:1.0 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the well head.(3)     Botas owns and operates the national crude oil and natural gas pipeline grids in Turkey.  BOTAS regularly posts prices and its Industrial Interruptible Tariff benchmark is shown herein as a reference price. See the 2012 AIF for further discussion.OUTLOOKAfter more than 18 months of technical evaluations, new 3D seismic acquisition, deeper drilling and an extensive proof-of-concept frac program, the Corporation has initiated a tight gas delineation and development program in the Tekirdag area, the first area on the TBNG-PTI lands earmarked for the transition from proof-of-concept to development. This program is expected to initially incorporate wells drilled to a depth of 1,600 to 1,800 metres through the target Teslimkoy Formation and top 200 to 300 metres of the Kesan Formation to be completed with multi-stage fracs. Ultimately, it is expected that well spacing may be reduced to approximately 40 acres per well and deeper sands in the Kesan Formation will also be exploited.The front end of the program, as described above, includes several new delineation wells and multi-stage fracs to better define the ultimate scope and pace of this Tekirdag area program, which is expected to be advanced in phases and extend over a number of years and is subject to a number of contingencies including approvals from partners and regulatory authorities, availability of equipment and additional financing in the future.ABOUT THE CORPORATIONValeura Energy Inc. is a Canada-based public company currently engaged in the exploration, development and production of petroleum and natural gas in Turkey and Western Canada.OIL AND GAS ADVISORIESWhen used herein, the term "boe" means barrels of oil equivalent on the basis of one boe being equal to one barrel of oil or NGLs, or 6,000 cubic feet of natural gas. Barrel of oil equivalent may be misleading, particularly if used in isolation. A boe conversion ratio of 6.0 Mcf:1.0 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.The initial production rates stated herein are not necessarily indicative of long term performance or ultimate recovery. To date, shallow gas conventional wells and frac'd unconventional tight gas wells have exhibited relatively high decline rates at more than 50% in their first year of production.ADVISORY AND CAUTION REGARDING FORWARD-LOOKING INFORMATIONThis news release contains certain forward-looking statements including, but not limited to: the anticipated tight gas development program in the Thrace Basin and the ability to finance development; anticipated work programs, budgets and operational plans, including targeted seismic, drilling, workovers, fracs and completions, the program to manage water production, and the timing associated with each of the foregoing. Forward-looking information typically contains statements with words such as "anticipate", "estimate", "expect", "target", "potential", "could", "should", "would" or similar words suggesting future outcomes. The Corporation cautions readers and prospective investors in the Corporation's securities to not place undue reliance on forward-looking information, as by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by the Corporation.Forward looking information is based on management's current expectations and assumptions regarding, among other things: continued political stability of the areas in which the Corporation is operating and completing transactions; continued operations of and approvals forthcoming from the General Directorate of Petroleum Affairs of the Republic of Turkey ("GDPA") in a manner consistent with past conduct; results of future seismic programs; future drilling and fracing activity, including the extent and pace of tight gas development drilling in the Tekirdag area and the funding thereof; the ability to manage water production; future production rates and associated cash flow; future capital and other expenditures (including the amount and nature thereof); the ability to meet drilling deadlines and other requirements under licences and leases (including spudding deadlines under the Bostanci Licence 4985 and the Karakilise Licence 5052); future sources of funding; future economic conditions; future currency and exchange rates; and the Corporation's continued ability to obtain and retain qualified staff and equipment in a timely and cost efficient manner. In addition, budgets are based upon the Corporation's current work programs proposed by partners and associated exploration plans and anticipated costs, which are subject to change based on, among other things, the actual results of drilling and related activity, availability of frac and other oil specialized equipment and service providers, unexpected delays and changes in market conditions. Although the Corporation 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 significant degree of risk. A number of factors could cause actual results to differ materially from those anticipated by the Corporation including, but not limited to: risks associated with the oil and gas industry (e.g. operational risks in exploration, inherent uncertainties in interpreting geological data, and changes in plans with respect to exploration or capital expenditures, the uncertainty of estimates and projections in relation to costs and expenses, and health, safety, and environmental risks); uncertainty regarding the sustainability of initial production rates and decline rates thereafter; uncertainty regarding the ability to address technical drilling challenges and manage water production; uncertainty regarding the state of capital markets and the availability of future financings; the risk of being unable to meet drilling deadlines and the requirements under licences and leases (including Bostanci Licence 4985 and Karakilise Licence 5052); the risks of disruption to operations and access to worksites, threats to security and safety of personnel and potential property damage related to political issues, terrorist attacks, insurgencies or civil unrest (particularly in the southeastern part of Turkey); the risks of increased costs and delays in timing related to protecting the safety and security of Valeura's personnel and property; the risk of commodity and BOTAS pricing and foreign exchange rate fluctuations; the uncertainty associated with negotiating with third parties in countries other than Canada; the risk of partners having different views on work programs and potential disputes among partners; the uncertainty regarding government and other approvals; potential changes in laws and regulations; risks associated with weather delays and natural disasters; 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. The forward-looking information included herein is made as of the date hereof and Valeura assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances, except as required by law.  See Valeura's 2012 AIF for a detailed discussion of the risk factors.Additional information relating to Valeura is also available on SEDAR at www.sedar.comNeither 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.SOURCE: Valeura Energy Inc.For further information: Jim McFarland, President and CEO Valeura Energy Inc. (403) 930-1150 jmcfarland@valeuraenergy.com Steve Bjornson, CFO Valeura Energy Inc. (403) 930-1151 sbjornson@valeuraenergy.com www.valeuraenergy.com