Valeura Energy Inc. (TSX:VLE, OTCQX:VLERF) (“Valeura” or the “Company”) reports its unaudited financial and operating results for the three and nine month periods ended September 30, 2024.
Q3 2024 Highlights
- Nong Yao C field development online in August 2024, resulting in a 66% increase in greater Nong Yao production, exceeding management’s expectations(1)(2);
- Strong drilling performance, with Nong Yao C drilling programme executed faster than planned and 25% below budget, giving rise to more 2024 drilling than originally expected;
Wassana field mobile offshore production unit (“MOPU”) inspection completed and the field resumed production in early August 2024;
- Excellent safety performance with no incidents or spills;
- Revenue of US$139 million, with an average price realisation of approximately US$79/bbl;
- Adjusted EBITDAX of US$71 million(3), and adjusted cashflow from operations of US$50 million(3); and
- Cash of US$156 million(3), after having paid US$30 million in petroleum taxes related to H1 2024.
Recent Achievements
- Record aggregate production in both September and October 2024, averaging 26.4 mbbls/d(1);
- Guidance assumptions re-affirmed, with expectation for Q4 production of approximately 26 mbbls/d, resulting in the mid-point full year production range estimate;
- Higher crude oil inventory at the end of Q3 and higher Q4 production expected to yield record sales in Q4 2024;
- Corporate restructuring fully completed on November 1, 2024, resulting in the pooling of US$397 million in cumulative tax losses(4) across the Manora, Nong Yao, and Wassana fields, effective November 1, 2024; and
- Approval of a share buyback programme to commence on November 14, 2024.
(1) Working interest share production, before royalties.
(2) 11.6 mbbls/d (last seven days of Q3), compared to 7.0 mbbls/d (the week just prior to starting Nong Yao C).
(3) Non-IFRS financial measure – see “Non-IFRS Financial Measures and Ratios” section in the Company’s management discussion & analysis for the three and nine month period ended September 30, 2024 (the “MD&A”).
(4) Unaudited internal management estimate as at September 30, 2024, based on Thai baht exchange rate as of November 1, 2024, subject to review by tax advisors and auditors.
Dr. Sean Guest, President and CEO commented:
“I am pleased with our recent operational and financial delivery. We are delivering on all aspects of our business including production and cashflow, while also adding reserves and resources across our portfolio. Our team demonstrated a top-notch performance at our Nong Yao C field development, executing the project safely, and delivering oil production rates at the top end of our expectations. With ongoing smooth production at Nong Yao, and across all of our assets, we have achieved record production rates in both September and October, with our working interest share oil production before royalties averaging 26.4 mbbls/d. We are poised to achieve all of our guidance estimates for the year while at the same time having reduced our capex and delivering more wells than originally planned.
The consolidation of all our Thai III assets into a single subsidiary is a milestone for our business. All steps are now completed for us to pool our forward costs and apply our substantial tax loss carry-forwards to the combined income generated from the Nong Yao, Manora, and Wassana fields from November 1, 2024 on. This will immediately increase the Company’s cash flow generation and further enhance our ability to extend the producing life of our fields in Thailand.
At the same time, the combined effects of higher production and more-than-usual oil in inventory at the end of Q3 create the potential for strong financial performance in Q4 2024. Given the strength of our balance sheet and expected cash flows in the near term, we have substantial optionality in our approach to capital allocation. We are well-positioned to continue pursuing value through growth, both organically in our current portfolio and with M&A, while also providing returns to shareholders. As such we have recently announced the approval of a share buyback programme to commence on November 14, 2024.
Financial Update
The Company’s Q3 2024 financial performance was characterised by ongoing strong production volumes, influenced by the effect of lower oil sales due both to the timing of liftings and lower prevailing oil prices, as compared to the previous quarter.
Oil production was up, averaging 22.2 mbbls/d during Q3 2024 (Valeura’s working interest share, before royalties), an increase of 5% from the prior quarter. Rates were buoyed by an increase in output from the Nong Yao C development coming online near the end of the quarter, but were offset by a precautionary suspension of production operations at the Company’s Wassana field throughout July 2024. At the end of Q3, with Nong Yao C fully online and all assets running smoothly, the average working interest share oil production rate before royalties over the months of September and October 2024 averaged 26.4 mbbls/d.
Oil sales / liftings totalled 1.8 million bbls during Q3 2024, 6% below the prior quarter. At the end of the Q3, Valeura held crude oil inventory of 1.2 million bbls, which was approximately 30% higher than the inventory at the start of Q3. 0.51 million bbls of this quarter-end inventory were lifted on October 1, 2024, and will be recorded as revenue in Q4 2024. As a result of the higher-than-usual inventory position at end Q3, the Company expects for Q4 sales to exceed production.
Price realisations averaged $78.9/bbl during Q3 2024. equating to an approximate $0.6/bbl premium to the monthly average Dubai crude oil during the period. Dubai crude is the key oil benchmark used for selling crude oil in the Gulf of Thailand. All the Company’s crudes realised a premium to Dubai crude benchmark at every lifting during Q3. A large proportion of the Company’s sales occurred at the tail end of Q3, which corresponded to a relatively lower commodity price environment at the time, as compared to the average over the full period. In addition, a widening of the Dubai crude discount to Brent resulted in a discount to the average monthly Brent price. The Company continues to anticipate full year price realisations approximately on par with the Brent benchmark, in keeping with its guidance estimates.
The resulting oil revenue during Q3 2024 was US$139.3 million, down 17% from Q2 2024 due to both lower volumes lifted (resulting in increased inventory) and lower oil prices. One of the Company’s crude oil liftings (0.18 million bbls) occurred just prior to the end of Q3, as a result of the settlement delay between the lifting of crude oil (i.e. recorded as sales) and receipt of the proceeds, the approximately US$14 million value of this lifting (Valeura’s working interest share, before royalties) was received in October 2024 and are recorded as a receivable as at September 30, 2024. In addition, two further cargos were lifted and sold in the first week of Q4 2024.
Operating expenses during Q3 2024 were US$47.3 million, opposed to US$41.7 million in Q2 2024. Adjusted opex during Q3 was US$53.8 million, approximately on par with adjusted opex of US$54.2 in the prior quarter. When expressed on a per unit of production basis, adjusted opex in Q3 2024 was US$26.3/bbl, approximately 7% lower than US$28.3/bbl in Q2 2024.
Valeura generated adjusted EBITDAX of US$70.6 million in Q3 2024, approximately 29% lower than in Q2 2024, largely as a result of lower revenue.
During Q3 2024, the Company paid petroleum taxes of US$30.1 million, reflecting the first half-year instalment of petroleum income taxes due in respect of its Nong Yao and Manora fields. No tax was due on the Wassana field given the existing tax losses in the subsidiary company that held the Wassana asset at end of the quarter.
After accounting for the impact of ongoing capital spending and operating expenses (which includes certain one-off items relating to underwater inspection work at the Wassana field), as at September 30, 2024, the Company had a cash position of US$155.9 million, which includes US$22.5 million held as restricted cash. Valeura remains debt free.
Valeura’s adjusted net working capital surplus increased to US$166.3 million at September 30, 2024.
Operations Update
During Q3 2024, the Company had ongoing production operations on all of its Gulf of Thailand fields, comprised of the Jasmine, Nong Yao, Manora, and Wassana fields. One drilling rig and one workover rig were under contract during the quarter, with the workover rig released in August 2024.
Valeura’s aggregate working interest share of production before royalties averaged 22.2 mbbls/d during Q3 2024. Rates toward the end of the quarter were higher, and the Company expects to maintain production at approximately 26 mbbls/d through the remainder of the year.
Jasmine/Ban Yen
Oil production before royalties from the Jasmine/Ban Yen field, in Licence B5/27 (100% operated interest) averaged 7.6 mbbls/d during Q3 2024, an increase of 3% from Q2 2024. Increased production rates reflect the start-up of two horizontal infill wells which were drilled on the Jasmine A platform in Q3 2024, and together delivered oil at an initial (three-day average) rate of 1,050 bbls/d (before royalties). In addition, Valeura finished work on the final four wells of a six-well workover campaign, which was in progress at the beginning of the quarter.
As of mid-September, following completion of the two Jasmine A infill development wells, the Company’s contracted drilling rig went off contract for scheduled inspection and maintenance work in dry dock. In early Q4 2024 the rig returned to the Jasmine field where it is currently conducting an infill drilling campaign on the Jasmine D platform, which is expected to be completed in mid-November 2024.
Nong Yao
At the Nong Yao field, in Licence G11/48 (90% operated working interest), production increased primarily due to the Nong Yao C development, which came online August 15, 2024. Following full ramp-up of rates from Nong Yao C, aggregate production from the licence achieved rates averaging 11.6 mbbls/d during the last seven days of the quarter (Valeura working interest share before royalties) and has remained stable to date. This is an increase of 84% from Q2 2024.
Developing the Nong Yao C accumulation included drilling seven producer wells and one water injection well, all which were completed during Q3 2024. In addition, the Company drilled a successful appraisal well, and appraised additional targets with an expanded scope of some of the development wells, which have created an inventory of future infill drilling targets within the Nong Yao C accumulation. Overall drilling performance has exceeded management’s expectations, with the Nong Yao C drilling programme being executed faster than planned, and 25% below budget.
The Nong Yao field is now the Company’s largest source of production. In addition, it also has the Company’s lowest per unit adjusted opex and its oil typically fetches a premium to the Brent benchmark. As a result, Nong Yao is the Company’s most cash generative asset, a characteristic which will be significantly increased going forward as a result of the corporate restructuring announced on November 5, 2024.
Wassana
Oil production at the Wassana field, in Licence G10/48 (100% operated interest), averaged 2.7 mbbls/d (before royalties), a decrease of 42% from Q2 2024 due to the impact of a suspension of production operations lasting throughout the month of July 2024, while the Company conducted underwater inspection work. Subsequent to the inspection, which affirmed the structural integrity of the facility, production at the Wassana field resumed on August 5, 2024, and production rates increased to pre-suspension levels in the days thereafter.
During Q3, 2024, Valeura progressed front end engineering and design work for the potential redevelopment of the Wassana field. The Company is targeting to be ready for a final investment decision on the project in late Q1 2025, with an ultimate goal of more fully commercialising the Wassana field’s reserves and resources and extending the economic life of the field well beyond 2030.
Manora
At the Manora field, in Licence G1/48 (70% operated working interest), Valeura’s working interest share of oil production before royalties averaged 2.5 mbbls/d, a decrease of 7% from Q2 2024. No wells were drilled or worked over during Q3 2024.
Valeura intends to start a drilling campaign on the Manora asset shortly, comprised of three infill development wells plus two appraisal wells.
Türkiye: West Thrace Deep Gas Play
The Company had no active operations in Türkiye during Q3 2024 as it continued its search for a farm-in partner to pursue the next phase of work on the deep gas play, where it holds interests ranging from 63% to 100%. The third extension period of the Banarli and West Thrace Exploration Licences, extending the term of such licences until June 27, 2025, has been successfully completed and officially gazetted. The Company intends to apply for further extensions in the future.
Guidance Update
On August 8, 2024, the Company announced updated guidance estimates for the full year 2024, including a narrowed production guidance range and lowered capex estimate. All other guidance estimates were unchanged.
While oil production performance for the nine months ended September 30, 2024 averaged below the updated guidance range, more recent rates were higher, averaging 26.4 mbbls/d through September and October 2024, and supports a forecast full year production outcome at the mid point of the guidance range. The Company continues to expect all other metrics to be within the forecast guidance estimates, with capex potentially on the lower end of the range.
The Company intends to announce guidance estimates for the full year 2025 at approximately end of 2024.
Corporate Restructuring
Effective November 1, 2024, Valeura completed an internal restructuring such that its working interests in the Nong Yao, Manora, and Wassana fields are now held by a single wholly-owned subsidiary. As a result, Valeura will immediately pool all future costs and historical petroleum income tax loss carry-forwards associated with these assets. Notably, this includes estimated available cumulative tax loss carry-forwards of US$397 million, at September 30, 2024(1). With a petroleum tax rate of 50%, Valeura expects to realise value as a result of immediate and near-term additional cash flow from this restructuring.
Valeura has previously indicated that the tax obligations relating to the previous subsidiary companies’ arrangement are required to be assessed immediately and settled within the next 30 days. The Company can now say that the assessment and settlement will only occur in March 2025. Taxation arrangements for the Jasmine field, which is governed by a different vintage of fiscal terms (known as Thai I), and held in a separate subsidiary entity, will continue unchanged.
(1) Unaudited internal management estimate as at September 30, 2024, based on Thai baht exchange rate as of November 1, 2024, subject to review by tax advisors and auditors.
Share Buyback Programme
Given the Company’s strong cash position and outlook for enhanced near-term cash flow, Valeura believes it has the financial capacity to support both inorganic growth opportunities as well as shareholder returns. Valeura’s management believes shareholder returns in the near-term are best achieved through share buybacks.
The Company received approval from the Toronto Stock Exchange (“TSX”) to undertake a share buyback programme via the TSX’s established regime for normal course issuer bids (“NCIB”). This programme has been approved for a one-year period commencing on November 14, 2024 and ending on November 13, 2025, or such earlier date as the Company may determine, or upon completion of purchases pursuant to the NCIB.
The Company will employ an automatic share purchase plan with a designated broker, enabling the share buyback programme to continue during applicable regulatory restrictions or internal trading black-out periods. Notwithstanding, Valeura intends to utilise the NCIB judiciously, executing buybacks on an opportunistic basis, reflecting management’s belief that the prevailing market price of the shares may not, from time to time, reflect the Company’s intrinsic value and future prospects.
