TIDMVLU
RNS Number : 4903Y
Valeura Energy Inc.
09 May 2019
VALEURA ANNOUNCES FIRST QUARTER 2019
FINANCIAL AND OPERATING RESULTS
Calgary, May 9, 2019: Valeura Energy Inc. (TSX:VLE, LSE:VLU)
("Valeura" or the "Company"), the upstream natural gas producer
focused on appraising and developing an unconventional gas
accumulation play in the Thrace Basin of Turkey in partnership with
Equinor, is pleased to report its financial and operating results
for the three month period ended March 31, 2019.
The complete quarterly reporting package for the Company,
including financial statements and associated management's
discussion and analysis ("MD&A"), have been filed on SEDAR at
www.sedar.com and posted on the Company's website at
www.valeuraenergy.com. All dollar amounts are in CDN$ unless
otherwise stated.
Highlights from Q1 2019 and Subsequent Events
-- Average realised gas price of $9.20/Mcf, up 1.5% from Q4 2018;
-- Average production of 768 boe/d, increased 23.3% from Q4 2018;
-- Operating netback of $33.64/boe, up 3.6% from Q4 2018;
-- Net working capital surplus of $56.1 million at March 31, 2019;
-- Significant progress drilling to de-risk 10 Tcfe of gas resource, net to Valeura:
-- Completed drilling the Inanli-1 appraisal well in January 2019 down to 4,885 metres encountering a 1,615 metre
column of indicated over-pressured gas;
-- Drilled the Devepinar-1 appraisal well to a total depth of 4,796 metres in April 2019 after drilling a 1,066
metre gross column of indicated over-pressured gas; and
-- Completed an additional listing of the Company's common shares in the United Kingdom, with trading having
commenced on the London Stock Exchange on April 25, 2019, under the ticker symbol VLU.
The Company's focus for Q2 and Q3 2019 activities will be on
testing the flow potential of the long indicated gas columns
intersected in its new wells as part of a process to de-risk the
commerciality of its 10 Tcfe (286 BCM) of gas resource including
236 MMbbl (32 MMTonnes) condensate, net to Valeura. The stimulation
and production testing will be conducted on a zone by zone basis to
provide more definitive flow characteristics and to measure gas and
condensate properties. Identifying the zones that yield sustained
gas flow will be critical to demonstrate the commerciality of the
Company's Basin Centred Gas Accumulation (the "BCGA") play and will
underpin the next stage of appraisal and the forward work
program.
Sean Guest, President and CEO commented:
"Our first quarter results from ongoing conventional operations
were very strong, including realised prices above $9/Mcf and
operating netbacks above $33/BOE. These metrics underscore the
value of gas in Turkey and bolster our view of the significant
value of our unrisked 10 Tcfe unconventional gas resource in the
Thrace Basin, where we are partnered with Equinor.
We continued to build on our understanding of the geology of the
BCGA play by appraisal drilling which substantiated our belief that
the highly over-pressured sandstone interval extends vertically
down to nearly 5,000 metres and laterally out to the far western
flank of the play fairway. Our confidence in our ability to map and
predict the gas in place has greatly increased, and we now fully
turn our focus to a detailed production testing programme to
identify the flow properties of the many different zones we have
encountered.
Financially, we remain in an excellent position and we expect to
exit the year with approximately $40 million in working capital
after the significant 2019 work programme. Furthermore, we enter Q2
2019 with a clear forward plan to evaluate the commerciality of the
play together with our partner Equinor."
Financial and Operating Results Summary
Table 1 Financial and Operating Results Summary
Three Months Three Months Three Months
Ended Ended Ended
March 31, December March 31,
2019 31, 2018 2018
Financial
(thousands $ except share
and per share amounts)
------------- ------------- -------------
Petroleum and natural gas
revenues 3,880 3,150 3,469
------------- ------------- -------------
Adjusted funds flow (used)
(1) 454 3,078 545
------------- ------------- -------------
Net loss from operations (3,070) (634) (2,435)
------------- ------------- -------------
Exploration and development
capital 5,682 3,282 874
------------- ------------- -------------
Banarli Farm-in (1,930) - -
------------- ------------- -------------
Net working capital surplus 56,060 59,520 58,824
------------- ------------- -------------
Cash 63,847 62,380 56,899
------------- ------------- -------------
Common shares outstanding
Basic 86,584,989 86,232,988 83,675,321
Diluted 92,406,655 90,831,655 90,973,321
------------- ------------- -------------
Share trading (TSX:VLE)
High 3.99 4.81 8.27
Low 2.25 2.34 3.30
Close 2.59 3.21 4.14
------------- ------------- -------------
Operations
------------- ------------- -------------
Production
------------- ------------- -------------
Crude oil (barrels ("bbl")/d) 20 8 15
------------- ------------- -------------
Natural Gas (one thousand
cubib feet ("Mcf")/d) 4,488 3,689 5,066
------------- ------------- -------------
BOE/d (@ 6:1) 768 623 859
------------- ------------- -------------
Average reference price
Brent ($ per bbl) 83.89 89.56 84.56
BOTAS Reference ($ per Mcf)
(2) 9.45 9.18 7.49
------------- ------------- -------------
Average realised price
Crude oil ($ per bbl) 92.48 104.41 82.61
Natural gas ($ per Mcf) 9.20 9.06 7.37
------------- ------------- -------------
Average Operating Netback
($ per BOE @ 6:1) (1) 33.64 32.48 25.34
------------- ------------- -------------
Notes:
See the MD&A filed on SEDAR for further discussion.
(1) The above table includes non-IFRS measures, which may not be
comparable to other companies. Adjusted funds flow is calculated as
net income (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.
(2) Boru Hatlari ile Petrol Tasima Anonim Sirketi ("BOTAS") owns
and operates the national crude oil and natural gas pipeline grids
in Turkey and purchases the majority of Turkey's natural gas
imports. BOTAS regularly posts prices and its Level-2 Wholesale
Tariff benchmark is shown herein as a reference price. See the
Company's 2018 annual information form (the "2018 AIF") filed on
SEDAR for further discussion.
Net petroleum and natural gas sales in Q1 2019 averaged 768
boe/d, which was 23% higher than Q4 2018. This reflects strong
ongoing performance from the Company's recent workover programme on
wells producing from conventional reservoirs.
Production revenue in Q1 2019 was $3.9 million, an increase of
23% over Q4 2018. This is primarily the result of higher production
during the quarter combined with continuing strong prices. Turkey's
BOTAS Reference Price for gas increased by 2.9% over the prior
quarter, and average operating netbacks were $33.64/boe, an
increase of 3.6% over the prior quarter.
Exploration and development capital spending increased to $5.7
million in Q1 2019 as Valeura started paying its working interest
share for the Devepinar-1 well. Capital spending was offset by a
$1.9 million payment received from Equinor in relation to the final
tabulated cost for the Karaca 3D seismic programme, compared to the
commitment under the Banarli Farm-in.
As of March 31, 2019, the Company had a net working capital
surplus of $56.1 million.
2019 Outlook
The Company has built a strong understanding of the geology of
its BCGA play and has demonstrated the presence of high-pressure
gas across the basin down to circa 5,000 metres. There are now 11
wells around the basin that have all intersected high pressure gas
at depth, with the most recent being Yamalik-1, Inanli-1, and
Devepinar-1, drilled by Valeura and its partners. The drilling
results from Inanli-1 and Devepinar-1 this year have increased the
Company's confidence in its ability to predict reservoir, gas, and
stratigraphic intervals that may be more naturally fractured. At
the same time, uncertainty related to the amount of in-place gas
volumes across Valeura's lands has been reduced. The next, and
critical, step will be stimulation and production testing many of
the different zones that have been intersected to demonstrate that
the gas will flow at sustainable, commercial rates.
In Q2 2019, the Company will commence a zone by zone stimulation
and production testing programme across the two new wells. Inanli-1
intersected a gross gas column of 1,615 metres and the Company has
just completed two separate Diagnostic Fracture Integrity Tests
("DFITs") that have indicated the gas is at very high pressure at
depth. Devepinar-1 encountered a 1,066 metre gross gas column and
is interpreted to have better porosity than previous wells. There
are significant variations in the reservoir and gas properties
encountered, owing to the very long vertical sections penetrated
and the substantial separation between the two wells, of
approximately 20 kilometres. Therefore individual zone by zone
testing is critical to understand how each interval will behave
under flow conditions. Additionally, the Company has reviewed the
production logging test (the "PLT") data from the Yamalik-1 well
with Equinor and is now developing a plan to re-enter the well,
with a view to isolating a portion of the column to conduct further
selective zonal flow testing. These operations are expected to
commence within the next month and will continue through Q2 and Q3
2019.
The objective of testing these wells is to attain sustainable
gas production rates and to ascertain the properties of the gas and
condensate from each of the target zones. The Company intends to
stimulate and test a minimum of eight separate intervals in the new
wells, but this could increase to 12 with success. For such testing
in the vertical wells, initial production rates are less critical,
as the Company believes that future initial production rates and
ultimate recoveries per well will be greatly increased with
horizontal drilling and multi-stage stimulation. Demonstrating
sustained flow from a single zone will greatly increase the chance
of a commercial development of the Company's BCGA resource, which
has been evaluated by DeGolyer and MacNaughton, effective December
31, 2018, at 10.1 Tcfe estimated working interest unrisked mean
prospective resources of natural gas, which includes 236 MMbbl of
condensate.
Valeura remains very well positioned to finance its ongoing BCGA
appraisal and all corporate activities through to 2020. The
Company's working capital position is more than adequate to fund
its working interest share of the stimulation and testing
programme, and the Company expects to exit the year with
approximately $40 million of positive working capital. In all its
activities, the Company remains committed to continuing its safe
and environmentally responsible operations and ensuring that
operational and administrative functions are conducted in the most
cost-efficient way.
Annual Meeting
Valeura will hold its annual meeting of shareholders today, May
9, 2019 at 09:00 (Calgary time) in the Northcote Room at the Bow
Valley Square Conference Centre, Level 3, Bow Valley Square 2,
202-6(th) Ave. S.W., Calgary, Alberta, Canada.
Please visit the following link to view a live webcast of the
proceedings, including a presentation by Sean Guest, President and
Chief Executive Officer. The meeting will start at 09:00 (Calgary)
/ 11:00 (Toronto) / 16:00 (London) on Thursday, May 9, 2019.
https://event.on24.com/wcc/r/1961675/E121886CA3B09AA1B89AD7220123A9A2
About Valeura Energy
Valeura Energy Inc. is a Canada-based public company engaged in
the exploration, development and production of petroleum and
natural gas in Turkey.
Since Valeura was established in 2010, the Company has executed
a number of transactions and currently holds interests in 20
production leases and exploration licences in the Thrace Basin of
Turkey totalling 0.46 MM acres (gross) or on a net basis 0.37 MM
acres of shallow rights and 0.26 MM net acres of deep rights.
Valeura is appraising an unconventional BCGA play in the Thrace
Basin on its deep rights, which has been evaluated by DeGolyer and
MacNaughton to hold, effective December 31, 2018, 10.1 Tcfe of
estimated working interest unrisked mean prospective resources of
natural gas, which includes 236 MMbbl of condensate. By applying 3D
seismic, modern reservoir stimulation technology and horizontal and
deeper vertical well drilling, Valeura is aiming to achieve
commercial scale operations from this tight gas resource.
In addition, the Company owns an extensive network of gas
gathering and sales infrastructure to support direct marketing of
natural gas to end users, and in 2018, produced an average of 4.3
MMcf/d of natural gas from conventional gas accumulations in its
shallower rights.
The Company is listed on both the TSX Exchange under VLE and on
the Main Market of the London Stock Exchange under VLU.
Additional information relating to Valeura is also available on
SEDAR at www.sedar.com and on the Company's corporate website at
www.valeuraenergy.com.
For further information please contact:
Valeura Energy Inc. (General and Investor Enquiries) +1 403 237 7102
Sean Guest, President and CEO
Steve Bjornson, CFO
Robin Martin, Investor Relations Manager
Contact@valeuraenergy.com, IR@valeuraenergy.com
GMP First Energy (Financial Adviser and Corporate Broker) +44 (0) 20 7448 0200
Jonathan Wright, Hugh Sanderson
Canaccord Genuity Limited (Joint Corporate Broker) +44 (0) 20 7523 8000
Henry Fitzgerald-O'Connor, James Asensio
CAMARCO (Public Relations, Media Adviser) +44 (0) 20 3757 4980
Owen Roberts, Billy Clegg, Monique Perks, Thayson Pinedo
Valeura@camarco.co.uk
Oil and Gas Advisories
Boes
A boe is determined by converting a volume of natural gas to
barrels using the ratio of 6 Mcf to one barrel. boes may be
misleading, particularly if used in isolation. A boe conversion
ratio of 6 Mcf:1 boe is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. Further, a
conversion ratio of 6 Mcf:1 boe assumes that the gas is very dry
without significant natural gas liquids. Given that the value ratio
based on the current price of oil as compared to natural gas is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
Use of Unrisked Estimates
The unrisked estimates of prospective resources referred to in
this news release 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. See
the 2018 AIF for details regarding risked estimates. 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.
Short Production Test Rates
The short production test rates disclosed in this news release
are preliminary in nature and may not be indicative of stabilised
on-stream production rates. Initial on-stream production rates are
typically disclosed with reference to the number of days in which
production has been measured. Initial on-stream production rates
are not necessarily indicative of long-term performance or ultimate
recovery. To date, Valeura's shallow gas conventional wells and
stimulated unconventional tight gas wells have exhibited relatively
high decline rates at more than 50% and 75%, respectively, in their
first year of production.
There is currently no long-term flow information for the deep,
unconventional BCGA. While the same geological formations that are
producing gas in the shallow are being targeted in the deep,
unconventional play, they are in a different depth and pressure
environment and the type curves are not expected to be indicative
of deep, unconventional well production rates. A pressure transient
analysis or well-test interpretation has not been carried out in
respect of the production tests on the Yamalik-1 well. All natural
gas rates and volumes are presented net of any load fluids.
Prospective Resources
Prospective resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from
undiscovered accumulations by application of future development
projects. Prospective resources have both an associated chance of
discovery and a chance of development.
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.
Please see the 2018 AIF, which is available under Valeura's
issuer profile on SEDAR at www.sedar.com, for more information with
respect to the Company's prospective resources, including details
regarding risked estimates.
Forward-Looking Statements and Cautionary Statements
This news release contains certain forward-looking statements
and information (collectively referred to herein as
"forward-looking information") including, but not limited to: the
characteristics and objectives of the Inanli-1, Devepinar-1 and
Yamalik-1 (re)completion programmes; Valeura's intention to
stimulate and production test the Inanli-1 and Devepinar-1 well;
the timing to commence reservoir stimulation and testing and/or
recompletion operations; the number of well tests Valeura intends
to conduct; the expectation that future initial production rates
and ultimate recoveries per well will increase with horizontal
drilling and multi-stage reservoir stimulation; the expectation
that sustained flow will increase the change of commercial
development; Valeura's expectations with respect to working capital
at the end of 2019; the assessment of the resources in the test
formations; the potential of the Company's unconventional
basin-centered gas accumulation play in the Thrace Basin; and the
Company's intention to achieve commercial scale operations.
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 Company cautions readers and prospective
investors in the Company'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
Company.
Statements related to "prospective resources" are deemed
forward-looking statements as they involve the implied assessment,
based on certain estimates and assumptions, that the prospective
resources can be profitably produced in the future. Specifically,
forward-looking information contained herein regarding "prospective
resources" include volumes of prospective resources and the ability
to finance future development and, the conversion of a portion of
prospective resources into reserves.
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 Company is
operating; continued safety of operations and ability to proceed in
a timely manner; continued operations of and approvals forthcoming
from the Turkish government and regulators in a manner consistent
with past conduct; future seismic and drilling activity on the
expected timelines; the continued favourable pricing and operating
netbacks in Turkey; future production rates and associated
operating netbacks and cash flow; decline rates; future sources of
funding; future economic conditions; future currency exchange
rates; the ability to meet drilling deadlines and other
requirements under licenses and leases; and the Company's continued
ability to obtain and retain qualified staff and equipment in a
timely and cost efficient manner. In addition, the Company's work
programmes and budgets are in part based upon expected agreement
among joint venture partners and associated exploration,
development and marketing plans and anticipated costs and sales
prices, which are subject to change based on, among other things,
the actual results of drilling and related activity, availability
of drilling, reservoir stimulation and other specialised oilfield
equipment and service providers, changes in partners' plans and
unexpected delays and changes in market conditions. Although the
Company believes the expectations and assumptions reflected in such
forward-looking information are reasonable, they may prove to be
incorrect.
Forward-looking information involves significant known and
unknown risks and uncertainties. Exploration, appraisal, and
development of oil and natural gas reserves are speculative
activities and involve a degree of risk. A number of factors could
cause actual results to differ materially from those anticipated by
the Company including, but not limited to: the risks of currency
fluctuations; changes in gas prices and netbacks in Turkey;
uncertainty regarding the contemplated timelines and costs for the
deep evaluation; 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 or civil
unrest in Turkey; 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 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 the AIF for a
detailed discussion of the risk factors.
Any financial outlook or future oriented financial information
in this news release, as defined by applicable securities
legislation, has been approved by management of Valeura, including,
but not limited to, Valeura's expectations with respect to working
capital at the end of 2019. Such financial outlook or future
oriented financial information is prfovided for the purpose of
providing information about 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.
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 Financial Statements as at March
31, 2019 and for the three months ended March 31, 2019 and 2018
Condensed Interim Consolidated Statements of Financial
Position
(thousands of Canadian Dollars, March 31, December 31,
unaudited) 2019 2018
--------------------------------- ----------------- -----------------
Assets
Current Assets
Cash $ 63,847 $ 62,380
Accounts receivable 8,603 9,242
Prepaid expenses and deposits 1,399 2,090
Inventory 221 195
74,070 73,907
Licence deposits (note 3) 119 127
Restricted cash (note 3) 224 274
Right of use lease asset (note
8) 131 -
Exploration and evaluation
assets (note 4) 11,453 9,385
Property, plant and equipment
(note 5) 38,700 44,630
$ 124,697 $ 128,323
--------------------------------- ----------------- -----------------
Liabilities and Shareholders'
Equity
Current Liabilities
Accounts payable and accrued
liabilities $ 18,010 $ 14,387
Lease liability (note 8) 126 -
Decommissioning obligations
(note 6) 12,929 15,821
Deferred taxes 1,822 1,896
Shareholders' Equity
Share capital (note 7) 205,762 205,320
Contributed surplus 20,692 20,123
Accumulated other comprehensive
loss (44,911) (42,561)
Deficit (89,733) (86,663)
---------------------------------- ----------------- -----------------
91,810 96,219
--------------------------------- ----------------- -----------------
$ 124,697 $ 128,323
--------------------------------- ----------------- -----------------
See accompanying notes to the condensed interim consolidated
financial statements
Approved by the Board
("Tim Marchant") ("Russell Hiscock")
Tim Marchant, Chairman, Director Russell Hiscock, Director
Condensed Interim Consolidated Statements of Loss and
Comprehensive Loss
For the three months ended March 31, 2019 and 2018
March 31,
(thousands of Canadian Dollars, unaudited) 2019 March 31, 2018
--------------------------------------------------
Revenue (note 9)
Petroleum and natural gas sales $ 3,880 $ 3,469
Royalties (516) (460)
Other Income 826 365
-------------------------------------------------- ---------------
4,190 3,374
-------------------------------------------------- ---------------
Expenses
Production 1,041 1,049
General and administrative 1,408 1,335
Transaction costs 1,072 287
Accretion on decommissioning liabilities
(note 6) 504 521
Interest expense 9 -
Foreign exchange loss 464 215
Share-based compensation (note 7) 715 176
Depletion and depreciation (notes 5 and
8) 1,857 2,023
7,070 5,606
--------------------------------------------------
Loss for the period before income taxes (2,880) (2,232)
Income taxes
Current tax expense 144 83
Deferred tax expense 46 120
-------------------------------------------------- ---------------
Net loss (3,070) (2,435)
-------------------------------------------------- ---------------
Other comprehensive loss
Currency translation adjustments (2,350) (780)
-------------------------------------------------- ---------------
Comprehensive loss (5,420) (3,215)
-------------------------------------------------- ------------ ---------------
Net loss per share
Basic and diluted $ (0.04) $ (0.03)
Weighted average number of shares outstanding
(thousands) 86,491 76,657
-------------------------------------------------- ------------ ---------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Cash Flows
For the three months ended March 31, 2019 and 2018
(thousands of Canadian Dollars, unaudited) March 31, 2019 March 31, 2018
Cash was provided by (used in):
Operating activities:
Net loss for the period $ (3,070) $ (2,435)
Depletion and depreciation (note 5 and
8) 1,857 2,023
Share-based compensation (note 7) 715 176
Accretion on decommissioning liabilities
(note 6) 504 521
Unrealised foreign exchange loss 402 140
Deferred tax expense 46 120
Decommissioning costs incurred (note
6) (11) (25)
Change in non-cash working capital (note
10) (844) (4,455)
-------------------------------------------- ---------------
Cash (used in) provided by operating
activities (401) (3,935)
-------------------------------------------- ---------------
Financing activities:
Principal payments on lease liability (31) -
(note 8)
Share issuance - 60,004
Share issuance costs - (4,602)
Proceeds from stock option exercises 267 -
-------------------------------------------- ---------------
Cash provided by financing activities 236 55,402
-------------------------------------------- ---------------
Investing activities:
Property and equipment expenditures (note
5) (1,088) (581)
Exploration and evaluation expenditures
(note 4) (4,594) (293)
Banarli Farm-in (note 4) 1,930 -
Change in restricted cash 50 91
Change in non-cash working capital (note
10) 5,919 (4,972)
-------------------------------------------- ---------------
Cash (used in) provided by investing
activities 2,217 (5,755)
-------------------------------------------- ---------------
Foreign exchange gain (loss) on cash
held in foreign currencies (585) 79
-------------------------------------------- ---------------
Net change in cash 1,467 45,791
Cash, beginning of period 62,380 11,108
-------------------------------------------- ---------------
Cash, end of period $ 63,847 $ 56,899
-------------------------------------------- --------------- ---------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Changes in
Shareholders' Equity
For the three months ended March 31, 2019 and 2018
(thousands of
Canadian
Dollars Number Accumulated
and thousands of Contributed Other Comp. Total Shareholders'
of shares) Shares Share Capital Surplus Deficit Loss Equity
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
Balance,
January
1, 2019 86,233 $ 205,320 $ 20,123 $ (86,663) $ (42,561) $ 96,219
Net loss for
the
year - - - (3,070) - (3,070)
Shares issued 352 442 (175) - - 267
Shares -
issuance
costs - - - - -
Currency
translation
adjustments - - - - (2,350) (2,350)
Share-based
Compensation - - 744 - - 744
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
March 31, 2019 86,585 $ 205,762 $ 20,692 $ (89,733) $ (44,911) $ 91,810
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
(thousands of
Canadian
Dollars Number Accumulated
and thousands of Contributed Other Comp. Total Shareholders'
of shares) Shares Share Capital Surplus Deficit Loss Equity
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
Balance,
January
1, 2018 73,148 $ 146,694 $ 19,857 $ (79,543) $ (32,183) $ 54,825
Net loss for
the
year - - - (2,435) - (2,435)
Shares issued 10,527 60,004 - - 60,004
Shares
issuance
costs - (4,602) - - - (4,602)
Currency
translation
adjustments - - - - (780) (780)
Share-based
Compensation - - 176 - - 176
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
March 31, 2018 83,675 $ 202,096 $ 20,033 $ (81,978) $ (32,963) $ 107,188
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
See accompanying notes to the condensed interim consolidated
financial statements.
Notes to the Condensed Interim Consolidated Financial
Statements
Three months ended March 31, 2019 and 2018
(tabular amounts in thousands of Canadian Dollars, except share
or per share amounts, unaudited)
1. Reporting Entity
Valeura Energy Inc. ("Valeura" or the "Company") and its
subsidiaries are currently engaged in the exploration, development
and production of petroleum and natural gas in Turkey. Valeura is
incorporated in Alberta, Canada and has subsidiaries in the
Netherlands, British Virgin Islands and Turkey. Valeura's shares
are traded on the Toronto Stock Exchange ("TSX") under the trading
symbol VLE. On April 25, 2019, Valeura's shares also commenced
trading on 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 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, 2018, 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, in addition to the adoption
of IFRS 16 - Leases. 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, 2018.
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, 2018 financial statements.
The unaudited condensed interim consolidated financial
statements were authorised for issue by the Board of Directors on
May 8, 2019.
(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, 2018
audited consolidated financial statements.
The Company's unaudited condensed interim consolidated financial
statements include the accounts of Valeura and its subsidiaries and
are expressed in thousands of Canadian Dollars, unless otherwise
stated.
(c) Functional and presentation currency
The condensed interim consolidated financial statements are
presented in Canadian Dollars which is Valeura's reporting
currency. Valeura's foreign subsidiaries transact in currencies
other than the Canadian Dollar and have a functional currency of
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 net
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
realised foreign exchange gain or loss which is recorded in net
earnings.
(d) Changes in Significant Accounting Policies
(i) IFRS 16 Leases
Valeura adopted IFRS 16, Leases, on January 1, 2019 on a
modified retrospective basis.
In January 2016, the IASB issued the complete IFRS 16 Leases
("IFRS 16") which replaces IAS 17, Leases. Under IFRS 16, a single
recognition and measurement model applies for lessees which will
require recognition of assets and liabilities for most leases.
Valeura has elected to use the modified retrospective approach upon
adoption and therefore the comparative information has not been
restated. The Company has elected to apply the optional exemptions
for short-term and low-value leases. The lease payments associated
with these leases are recognised as expenses as incurred over the
lease term.
The Company recognises a right-of-use asset ("ROU") and a lease
liability at the lease commencement date. The ROU asset is
initially measured at cost based on the initial amount of the lease
liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is located,
less any lease incentives received. The assets are depreciated to
the earlier of the end of the useful life of the ROU asset or the
lease term using the straight-line method as this most closely
reflects the expected pattern of consumption of the future economic
benefits. Valeura presents ROU as its own line item on the
consolidated statement of financial position. The lease term
includes periods covered by an option to extend if the Company is
reasonably certain to exercise that option. In addition, the ROU is
periodically reduced by impairment losses, if any, and adjusted for
certain re-measurements of the lease liability. The average
depreciation term is 1.5 to 2 years.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Company's incremental
borrowing rate. Generally, the Company uses its incremental
borrowing rate as the discount rate.
The lease liability is measured at amortised cost using the
effective interest method. It is re-measured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Company's estimate of the amount
expected to be payable under a residual value guarantee, or if the
Company changes its assessment of whether it will exercise a
purchase, extension or termination option. When the lease liability
is re-measured in this way, a corresponding adjustment is made to
the carrying amount of the ROU asset, or is recorded in profit or
loss if the carrying amount of the ROU asset has been reduced to
zero. Lease payments are applied against the lease obligation, with
a portion reflected as interest expense using the effective
interest rate method. Valeura presents the lease liability as its
own line item on the consolidated statement of financial
position.
The effect of initially applying the standard was a $0.2 million
increase to the lease liability, with a corresponding ROU asset
recorded. The ROU asset was measured at the amount equal to the
lease liability on January 1, 2019 with no impact on deficit. The
lease liability was measured at the present value of the remaining
lease payments, discounted using Valeura's incremental borrowing
rate as at January 1, 2019. The weighted average incremental
borrowing rate used to determine the lease obligation on adoption
was approximately 28% percent. The ROU assets and lease liabilities
recognised relate to leases on the Company's offices and facilities
in Turkey.
The preparation of the condensed interim consolidated financial
statements in accordance with IFRS requires management to make
judgments, estimates, and assumptions that affect the reported
amount of assets, liabilities, income, and expenses. Actual results
could differ significantly from these estimates. Key areas where
management has made judgments, estimates, and assumptions related
to the application of IFRS 16 include:
Incremental borrowing rate: The incremental borrowing rates are
based on judgments including economic environment, term, currency,
and the underlying risk inherent to the asset. The carrying balance
of the ROU assets, lease obligations, and the resulting interest
and depletion and depreciation expense, may differ due to changes
in the market conditions and lease term.
Lease term: Lease terms are based on assumptions regarding
extension terms that allow for operational flexibility and future
market conditions.
The table below shows the impact on the consolidated statement
of loss upon adoption of IFRS 16 for the three months ended March
31, 2019 is a reduction to earnings as follows:
Cost Total
------------------------------
Depreciation of right of use
asset $ (23)
Interest Expense (9)
Lease principal payments 21
Balance, March 31, 2019 $ (11)
--------------------------------
Cash flow from financing activities for the three months ended
March 31, 2019 was $0.03 million lower due to the deduction of the
lease payments reflected in this section while cash flow from
operating activities increased $0.03 million.
(e) Turkey operational update
Turkey went through a period of political change and uncertainty
from 2016 to 2018. However, with the successful passing of the
referendum on constitutional change, and the successful election in
mid-2018, the incumbent, President Erdogan remains in office.
Recent geopolitical events have resulted in a continued downward
slide in the value of the TL, and at times these drops have been
very sharp. This has also had the effect of sharply increasing
inflation to more than 20% in 2018 and continuing at that level for
the first quarter of 2019, after well over a decade of strong
growth and relatively stable inflation. The resulting negative
sentiment toward Turkey has at times resulted in a decrease in the
value of Valeura shares.
To date, the above events have not impacted the Company's
ability to conduct drilling and production operations in the Thrace
Basin and no significant delays or security issues have been
experienced in these operations. All of the Company's current
operations are in the Thrace Basin of northwest Turkey, more than
1,000 kilometres from the Syrian border.
The Company will continue to monitor conditions, including the
safety of personnel and operations, the security situation
generally, impact on the TL and banking facilities, impact on our
joint venture partners and any changes in offtakes by the Company's
natural gas customers.
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 complicated when the political,
economic and security situation is uncertain. 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. The situation in Turkey remains uncertain and
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 and Licence Deposits
The Company has restricted cash in the amount of $0.2 million
(2018 - $.0.3 million) that is securing licence deposits with the
General Directorate of Mining and Petroleum Affairs of the Republic
of Turkey ("GDMPA"), and a further $0.1 million (2018 - $0.1
million) on deposit with the GDMPA. This restricted cash and
deposit is security for decommissioning or abandonment obligations
and ongoing work programmes on the Company's Turkish licences.
These deposits and restricted cash equal the amount to satisfy the
underlying commitments with the GDMPA and there are no other
outstanding commitments. As the expected abandonment date and work
programmes for these assets is more than one year from March 31,
2019, this restricted cash and deposit have been classified as
non-current in the Company's financial statements.
Effective April 10, 2019, the Company renewed its Account
Performance Security Guarantee ("APSG") facility with Export
Development Canada ("EDC"). The APSG, which was issued to National
Bank of Canada ("NBC") allows the Company to use the APSG as
collateral for certain letters of credit issued by NBC. The
facility is effective from April 10, 2019 to March 31, 2020 with a
limit of US$4.5 million and can be renewed on an annual basis. The
Company has issued approximately US$2.5 million in letters of
credit under the APSG facility at current exchange rates.
4. Exploration and Evaluation Assets
Cost Total
Balance, December 31, 2018 $ 9,385
Banarli Farm-in (1,930)
Additions 4,594
Capitalised share-based compensation 29
Effects of movements in exchange rates (625)
----------------------------------------- --------------------------
Balance, March 31, 2019 $ 11,453
----------------------------------------- --------------------------
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.
Phase 2 of the Banarli Farm-in was a commitment to complete a 3D
seismic programme with a minimum cost of at least US$10 million.
The final cost total for the Karaca 3D seismic programme, agreed by
partners in Q1 2019 totaled US$8.5 million, requiring an additional
payment from Equinor to Valeura of US$1.5 million ($1.9 million),
which is recorded as an additional farm-in payment against
exploration and evaluation assets.
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 recognises 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 recognised 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.
5. Property, Plant and Equipment
Cost Total
----------------------------------
Balance, December 31, 2018 $ 86,515
Additions 1,088
Change in decommissioning
obligations (note 6) (2,382)
Effects of movements in exchange
rates (5,465)
Balance, March 31, 2019 $ 79,756
------------------------------------
Accumulated depletion and Total
depreciation
----------------------------------
Balance, December 31, 2018 $ 41,885
Depletion and depreciation
expense 1,834
Effects of movements in exchange
rates (2,663)
Balance, March 31, 2019 $ 41,056
------------------------------------
Net book value Total
----------------------------
Balance, December 31, 2018 $ 44,630
Balance, March 31, 2019 $ 38,700
------------------------------ ------------------
(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.
(b) Depletion - future development costs
For the purposes of calculating depletion, petroleum and natural
gas properties in Turkey include estimated future development costs
of $152.9 million (December 31, 2018 - $155.0 million) associated
with development of the Company's proved plus probable
reserves.
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.
6. Decommissioning Obligations
March 31, 2019
Decommissioning obligations, beginning of period $ 15,821
Obligations incurred -
Obligations settled (11)
Change in estimates (2,382)
Accretion of decommissioning obligations 504
Effects of movements in exchange rates (1,003)
-------------------------------------------------- -------------------
Balance, March 31, 2019 $ 12,929
-------------------------------------------------- -------------------
The Company's decommissioning obligations result from its
ownership interest in oil and natural gas assets including well
sites and gathering systems. The total decommissioning obligation
is estimated based on the Company's net ownership interest in all
wells and facilities, 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
an increase in the risk free interest rate in Turkey.
7. Share Capital
(a) Issued
Common shares Number of Shares Amount
Balance, December 31, 2018 86,232,988 $ 205,320
Shares issued pursuant to exercise of
stock options 352,001 442
Balance, March 31, 2019 86,584,989 $ 205,762
(b) Per share amounts
Per share amounts have been calculated using the weighted
average number of common shares outstanding. The weighted average
number of common shares outstanding for the three months ended
March 31, 2019 is 86,491,203 (March 31, 2018 - 76,657,321; December
31, 2018 - 86,221,509). 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 programme 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:
Weighted average
Number of Options exercise price
Balance outstanding, December 31, 2018 4,598,667 $ 1.57
Granted 1,575,000 3.07
Exercised (352,001) 0.76
Balance outstanding, March 31, 2019 5,821,666 2.03
Exercisable at March 31, 2019 2,781,673 $ 1.10
---------------------------------------- ------------------ -------------------------------
The following table summarises information about the stock
options outstanding and exercisable at March 31, 2019:
Weighted
average
Outstanding remaining Exercisable
Exercise at March life Weighted average at March Weighted average
prices 31, 2019 (years) exercise price 31, 2019 exercise price
$0.57 -
$0.66 1,152,500 2.56 $ 0.60 1,152,500 $ 0.60
$0.67 -
$0.74 738,333 4.70 0.72 498,336 0.72
$0.75 -
$2.01 1,343,333 4.08 0.80 843,333 0.82
$2.02 -
$3.26 1,425,000 6.86 3.02 - -
$3.27 -
$4.62 1,162,500 6.11 4.47 287,504 4.62
5,821,666 4.94 $ 2.03 2,781,673 $ 1.10
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:
March 31, 2019 December 31,
Assumptions 2018
-------------------------
Risk free interest rate
(%) 1.8 2.1
Expected life (years) 4.5 4.5
Expected volatility (%) 87.01 83.7
Forfeiture rate (%) 4.5 3.4
Weighted average fair
value per option $ 2.15 $ 2.96
--------------------------- --------------- -------------
8. Leases
Right of use asset leases - real estate March 31, 2019
Balance, January 1, 2019 $ 153
Depreciation (22)
Balance, March 31, 2019 $ 131
Lease liability - real estate March 31, 2019
Balance, January 1, 2019 $ 153
Interest 9
Principal payments (31)
Effect of movement in exchange rates (5)
Balance, March 31, 2019 $ 126
All leases have terms between 14 and 18 months.
In addition to the leases disclosed above the Company has a
number of leases with terms of 12 months or less. Total commitments
under these short term leases at March 31, 2019 are $0.7 million.
Total lease expenses included in the financial statements related
to these contracts are as follows:
Lease payments for contracts 12 months or less in March 31, 2019
duration
Operating expenses $ 125
General and administrative expenses 2
Exploration and evaluation costs 31
Property, plant and equipment costs 17
Total, March 31, 2019 $ 175
Total cash outflow, leases March 31, 2019
Principal payments $ 31
Interest payments 9
Payments under short term leases 175
Balance, March 31, 2019 $ 215
9. Revenue
The Company sells its production pursuant to fixed price sales
contracts in the country of Turkey, in which natural gas prices for
all of the Company's production are linked to the BOTAS benchmark
price in TL. Tracking of the BOTAS price, converted to US$,
suggests that the price trends similar to the EU natural gas price.
This is expected, as the gas sources are similar for both BOTAS and
the EU. The Company is paid for its Turkish natural gas production
in Turkish Lira. The BOTAS price is a reference price fixed by the
Ministry of Energy and Natural Resources.
Under the contracts, the Company is required to deliver a
variable volume of natural gas to the contract counter party.
Revenue is recognised when a unit of production is delivered to the
contract counterparty. The amount of revenue recognised is based on
the agreed transaction price, whereby any variability in revenue
relates specifically to the Company's efforts to transfer
production or the customer's demand for natural gas, and therefore
the resulting revenue is allocated to the production delivered in
the period during which the variability occurs. As a result, none
of the variable revenue is considered constrained.
The Company's contracts have a term of one year or less, whereby
delivery takes place throughout the contract period. Revenues are
typically collected between the 12(th) and 25(th) day of the month
following production.
The Company produces a small amount of crude oil that is sold on
a spot basis as volumes warrant. Oil is delivered by truck to
customers and revenue is recognised in the period in which the
delivery occurs.
In addition to selling natural gas that the Company produces,
the Company sells natural gas that it purchases from other
producers in the area. This purchased natural gas is sold to the
same customers, using the same contracts, through the same
distribution network as natural gas the Company produces. The
Company purchases natural gas from other producers under contracts
that are typically one year or less in length at a discount of
between 12.5% and 15% to the BOTAS price. These contracts require
the Company to deliver the purchased natural gas to customers. The
Company does not have the right, nor the ability, to store the
purchased natural gas. Since the Company does not have the ability
to influence the decision making process for the purchased natural
gas volumes or the discretion to set prices, does not experience
any inventory risk, does not perform any processing of the product
and does not remit royalties to the Turkish government for the
product, it considers itself an agent in these transactions.
Revenue for this purchased gas is 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 is sold in Turkey, in the
Thrace Basin, which is the same area in which it is produced.
Three months ended March 31, 2019 March 31, 2018
Natural gas $ 3,717 $ 3,360
Crude oil 163 109
Petroleum and natural gas sales $ 3,880 $ 3,469
Three months ended March 31, 2019 March 31,3018
Royalties - natural gas $ 465 $ 420
Crude oil 13 5
Gross overriding royalty 38 35
Royalties $ 516 $ 460
Three months ended March 31, 2019 March 31, 2018
Third party natural gas sales net of
costs $ 332 $ 215
Interest and other revenue 494 150
Other income $ 826 $ 365
10. Supplemental Cash Flow Information
Three months ended March 31, March 31,
2019 2018
----------------------------------------
Change in non-cash working
capital:
Accounts receivable $ 640 $ (1,656)
Prepaid expenses and deposits 692 (92)
Inventory (26) 5
Deposits (non-current) 8 (3)
Accounts payable and accrued
liabilities 3,623 (7,569)
Movements in exchange
rates 138 (112)
------------------------------------------ ------------- -------------
5,075 (9,427)
---------------------------------------- ------------- -------------
The change in non-cash working capital has been allocated to the
following activities:
------------------------------------------------------------------------
Operating (844) (4,445)
Investing 5,919 (4,972)
------------------------------------------ ------------- -------------
$ 5,075 $ (9,427)
---------------------------------------- ------------- -------------
11. 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 condensed interim 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 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 at
year-end is as follows:
March 31, December
As at 2019 31, 2018
------------------------------- ----
Joint venture receivable from
Equinor $ 2,120 $ 3,486
Joint venture receivable from
other partners - 313
Revenue receivables from
customers 4,526 3,485
Taxes receivable 1,907 1,958
Other receivables 50 -
Accounts receivable $ 8,603 $ 9,242
--------------------------------------
Accounts receivable:
Substantially all of the Company's petroleum and natural gas
production is marketed under standard industry terms that are
specific by country. The Company's policy to mitigate credit risk
associated with the balances is to establish marketing
relationships with credit worthy purchasers. The Company
historically has not experienced any collection issues with its
petroleum and natural gas marketers. Joint venture receivables are
typically collected within one to three months of the joint venture
invoice being issued to the partner. The Company attempts to
mitigate the risk from joint venture receivables by obtaining
partner approval of significant capital expenditures.
Receivables from participants in the petroleum and natural gas
sector, and collection of the outstanding balances can be impacted
by industry factors such as commodity price fluctuations, limited
capital availability and unsuccessful drilling programmes. The
Company does not typically obtain collateral from petroleum and
natural gas marketers or joint venture partners; however the
Company can cash call for major projects and does have the ability,
in most cases, to withhold production from joint venture partners
in the event of non-payment, or withhold accounts payable
remittances.
(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.
Foreign currency exchange rate risk:
Foreign currency exchange rate risk is the risk that the fair
value of future cash flows will fluctuate as a result of changes in
foreign exchange rates. World oil prices are quoted in US Dollars
(USD) and the price received by the Company's Turkish branches can
be affected by the Turkish Lira (TL)/USD exchange rate, which
fluctuates over time. The Company's petroleum and natural gas sales
are conducted in Turkey and are denominated in TL. As such, the
Company is exposed to any fluctuations in the TL to Canadian Dollar
(CAD) exchange rate. A decrease in the value of the TL against CAD
will result in a decrease in revenue and a decrease in operating
costs in the Company's consolidated financial statements.
Correspondingly, an increase in the value of the TL against the CAD
will result in an increase in revenue and an increase in operating
costs.
The Company's seismic and drilling operations and related
contracts in Turkey are partially based in USD. Material increases
in the value of the USD against the TL or CAD will negatively
impact the Company's costs of drilling and completions activities.
Future CAD/USD and CAD/TL exchange rates could accordingly impact
the future value of the Company's reserves as determined by
independent evaluators.
The recent volatility and weakness in the value of the TL may
impair the ability of the Company to effectively manage foreign
exchange exposure. Continued devaluation of the TL, without a
corresponding increase in the natural gas reference price, will
have a negative impact on funds flow from operations and could
affect the ability of the Company to fund its capital programme in
the future.
Changes to the TL/CAD exchange rate would have had the following
impact on revenues, royalties and production costs for the three
months ended March 31, 2019:
Petroleum
+/- 1 percent change in realised and natural Production
TL/CAD exchange rate gas revenues Royalties costs
------------------------------------
Three months ended March 31, 2019 $ 42 $ 5 $ 10
------------------------------------ ---------- -----------
The Company's drilling and seismic operations and related
contracts in Turkey are predominantly based in USD. Material
changes in the value of the USD against the TL or CAD will impact
the Company's capital costs.
Changes to the TL/USD exchange rate, which are impacted by the
TL/CAD exchange rate upon conversion to the Company's Canadian
Dollar presentation currency, would have had the following impact
on capital expenditures for the three months ended March 31,
2019:
+/- 1 percent change in realised TL/USD exchange rate, Capital
upon conversion to presentation currency expenditures
----------------------------------------------------------
Three months ended March 31, 2019 $ 43
----------------------------------------------------------
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.
Commodity price risk:
Commodity price risk is the risk that future cash flows will
fluctuate as a result of changes in commodity prices. Commodity
prices for petroleum and natural gas are impacted by the
relationship between the Canadian Dollar and Turkish Lira, the
Canadian Dollar and United States Dollar, global economic events
and Turkish government policies.
The natural gas reference price in Turkey is in part correlated
to contract prices for natural gas imports into Turkey and also
government policy with respect to subsidies to consumers. Natural
gas sales for Valeura are under direct sales contracts to
industrial buyers and power generation companies in the area and
each contract is at a negotiated discount or premium to the BOTAS
benchmark price.
The government has continued to increase the BOTAS reference
price thereby offsetting the decline in the value of the TL and
reflecting the increase in regional gas prices. Effective January
1, 2018, April 1, 2018, August 1, 2018, September 1, 2018 and
October 1, 2018 the price was increased by 14%, 10%, 14%, 14% and
18.5% respectively. The Company's average realised natural gas
price in Turkey for 2019 was $9.20/mcf which represents a 2.5%
discount to the BOTAS price.
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 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.
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 while it maintains operatorship over all the lands in
the Thrace Basin. An exception to this statement could occur at the
end of 2019 if Equinor elects to complete Phase 3 under the Banarli
O-in and thereby earns a 50 percent working interest in the deep
rights at Banarli. Phase 3 of the Banarli Farm-in can be completed
by the drilling and testing of the Inanli-1, which spud on October
8, 2018 and completed drilling in January 2019. The completion and
testing programme is anticipated to begin in Q2 2019. Once drilling
and testing of Inanli-1 is complete, Equinor may exercise its
option under the Banarli Farm-in to take operatorship of the deep
rights and propose a more significant drilling programme including
a more extensive pilot project, for which the Company would have to
contribute its 50 percent participating interest. The Company has
working capital of $56.1 million at March 31, 2019 in order to meet
commitments of the current capital programme. If a more significant
programme is proposed, the Company will be required to assess
alternatives including the availability of equity and debt capital
to fund the programme.
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, lower production volumes and associated revenues or
default under the Company's joint operating agreements. Valeura has
not utilised bank loans or debt capital to finance capital
expenditures to date.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
QRFEALSNESPNEEF
(END) Dow Jones Newswires
May 09, 2019 02:00 ET (06:00 GMT)
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