TIDMVLU
RNS Number : 4585Y
Valeura Energy Inc.
13 May 2021
FIRST QUARTER 2021 RESULTS
Calgary, May 13, 2021 : Valeura Energy Inc. (TSX:VLE, LSE:VLU)
(the "Company" or "Valeura"), an upstream oil and gas company with
assets in the Thrace Basin of Turkey, reports its unaudited
financial and operating results for the three month period ended
March 31, 2021.
Highlights
-- Financial position - Cash position of US$29.4 million at
March 31, 2021, expected to increase to approximately US$44
million, upon completion of the shallow gas business sale;
-- Operations - Average Q1 production of 684 boe/d;
-- Shallow sale - All regulatory approvals have been received
and currently working on final closing matters;
-- Growth - Progress on inorganic growth opportunities is
expected to increase in the near term with the closing of the sale
of the shallow conventional gas business; and
-- Deep play - Continuing efforts to farm out an interest in the
Company's 20 Tcfe unrisked mean prospective resource deep, tight
gas play. No material near term cost outlay required to maintain
the leases in good standing.
Sean Guest, President and CEO commented:
"Having received all regulatory approvals for the sale of our
shallow gas assets, we are now focused on closing matters and we
expect the deal to complete in the coming weeks. With the
anticipated sale proceeds of US$15.5 million, subject to normal
closing adjustments, plus our March 31 cash balance of US$29.4
million, we are in an opportune position to access meaningful
inorganic growth opportunities. Importantly, closing of this sale
will solidify Valeura's cash position and removes uncertainty in
our negotiations with potential counterparties.
"At the same time, our efforts to find a suitable partner for
our deep tight gas appraisal play are continuing, and we believe
the 20 Tcfe unrisked mean prospective resource in this play will
serve to generate value for shareholders in the longer term."
Table 1 Financial and Operating Results Summary
Three Months Three Months Three Months
Ended Ended December Ended
March 31, 31, 2020 March 31,
2021 2020
Financial
(thousands of US$ except share
amounts)
------------- ---------------- -------------
Petroleum and natural gas revenues 2,086 1,978 2,808
------------- ---------------- -------------
Adjusted funds flow (used) (1) (693) (335) 52
------------- ---------------- -------------
Net loss from operations (1,061) (15,294) (192)
------------- ---------------- -------------
Exploration and development
capital 140 934 1,882
------------- ---------------- -------------
Net working capital surplus 39,331 42,190 34,054
------------- ---------------- -------------
Cash 29,384 30,143 32,554
------------- ---------------- -------------
Common shares outstanding
Basic 86,584,989 86,584,989 86,584,989
Diluted 93,584,322 92,221,822 94,988,323
------------- ---------------- -------------
Share trading (CDN$)
High 0.64 0.60 0.65
Low 0.47 0.29 0.20
Close 0.56 0.57 0.23
------------- ---------------- -------------
Operations
------------- ---------------- -------------
Production
------------- ---------------- -------------
Crude oil (barrels ("bbl")/d) 16 16 17
------------- ---------------- -------------
Natural Gas (one thousand cubic
feet ("Mcf")/d) 4,008 4,145 4,200
------------- ---------------- -------------
boe/d 684 707 716
------------- ---------------- -------------
Average reference price
Brent ($ per bbl) 61.04 44.32 50.44
BOTAS Reference ($ per Mcf)
(3) 5.57 5.07 7.17
------------- ---------------- -------------
Average realised price
Crude oil ($ per bbl) 68.41 43.48 65.22
Natural gas ($ per Mcf) 5.52 5.02 7.08
------------- ---------------- -------------
Average Operating Netback
($ per boe) (1) 16.86 15.17 24.95
------------- ---------------- -------------
Notes:
See the Company's 2020 Management's Discussion and Analysis for
the three months ended March 31, 2021 and 2020 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) Proceeds received from Equinor to complete spending
commitment for Phase 2 of the Banarli Farm-in. Recorded in the
financial statements as a reduction of exploration and evaluation
assets.
(3) BOTAS regularly posts prices and its Level-2 Wholesale
Tariff benchmark is shown herein as a reference price. See the
Company's annual information form for the year ended December 31,
2020 filed on SEDAR for further discussion.
Additional information and commentary on the three months ended
March 31, 2021 is included in the Company's management's discussion
and analysis, which is available on the Company's website and on
www.sedar.com .
Strategy Update
Valeura's strategy is progressing as planned, with the Company
pursuing a three-pronged approach described below to leverage the
Company's gas assets, financial strength, and differentiated
capabilities, toward delivering shareholder value.
Conventional Gas Production Business Sale
The Company is in the final stages of monetising its
conventional gas business by its sale to TBNG Limited (the "Sale
Transaction"). All government consents required to complete the
Sale Transaction have now been granted and closing is anticipated
within the coming weeks. Upon closing, Valeura will receive cash
consideration of US$15.5 million, subject to normal closing
adjustments based on the economic effective date of July 1, 2020.
Thereafter, Valeura will be entitled to royalty payments over a
five-year period, tied to local gas prices, and ranging in total
from a minimum of US$1.0 million and a cap of US$2.5 million.
Inorganic Growth
Valeura is in a strong financial position, with US$29.4 million
in cash resources at the end of Q1, expected to grow to
approximately US$44 million upon completion of the Sale
Transaction. Valeura's strong balance sheet, coupled with its
internationally experienced management team and board, orients the
Company well to grow by way of mergers and acquisitions
("M&A"). Valeura and its advisors have observed an improvement
in the overall ability to transact inorganic opportunities in 2021,
with greater stability returning to the upstream industry. The
Company continues to be actively engaged in bidding and negotiating
on inorganic growth opportunities, focusing on deals that will
generate cash flow in the near term coupled with further growth
through reinvestment.
Closing of the Sale Transaction will allow the management team
to focus on progressing negotiations with other companies on
potential M&A deals. It also clarifies Valeura's value, asset
base and ability to fund acquisitions, thereby facilitating
negotiations.
Deep Gas Play Farmout
Valeura views its deep, unconventional tight gas play in the
Thrace Basin (the "Deep Gas Play") as a core constituent of its
portfolio and believes this play to be a material source of
potential long-term value for shareholders. Its three exploration
licences in the core of the Deep Gas Play are valid up to June 27,
2022, and under Turkey's licence terms, the Company has the ability
to maintain these assets for up to approximately five more years
through work programme commitments, which do not require material
near term cost outlays, prior to converting the exploration
licences to longer term production leases.
Valeura is pursuing a plan to farm out a portion of its interest
in the Deep Gas Play. While as of today, no agreement has been
reached, as commodity prices are recovering, the Company
anticipates an increase in appetite for opportunities of this type,
and believes the Thrace Basin presents an appealing proposition,
particularly as more companies are expressing a preference for
gas-oriented opportunities and the potential for material upside.
In the meantime, Valeura has no significant immediate capital
commitments on the Deep Gas Play.
For further information please contact:
Valeura Energy Inc. (General and Investor Enquiries) +1 403 237 7102
Sean Guest, President and CEO
Heather Campbell, CFO
Robin Martin, Investor Relations Manager
Contact@valeuraenergy.com , IR@valeuraenergy.com
Auctus Advisors LLP (Corporate Broker) +44 (0) 7711 627 449
Jonathan Wright
Valeura@auctusadvisors.co.uk
CAMARCO (Public Relations, Media Adviser) +44 (0) 20 3757 4980
Owen Roberts, Billy Clegg, Monique Perks, Hugo Liddy
Valeura@camarco.co.uk
Oil and Gas Advisories
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,
utilising a conversion on a 6:1 basis may be misleading as an
indication of value.
Resources
Resource disclosure in this announcement is based on an
independent resources evaluation as at December 31, 2018 conducted
by DeGolyer and MacNaughton in its report dated March 13, 2019,
which was prepared using guidelines outlined in the Canadian Oil
and Gas Evaluation Handbook and in accordance with National
Instrument 51-101, Standards of Disclosure for Oil ang Gas
Activities, as adjusted to reflect Equinor's withdrawal in Q1 2020.
Prospective resources are those quantities of petroleum estimated,
as of a given date, to be potentially recoverable from undiscovered
accumulations by application of future development projects.
Prospective resources have both an associated chance of discovery
and a chance of development. The unrisked estimates of prospective
resources referred to in this announcement have not been risked for
either the chance of discovery or the chance of development. There
is no certainty that any portion of the prospective resources will
be discovered. If a discovery is made, there is no certainty that
it will be developed or, if it is developed, there is no certainty
as to the timing of such development or that it will be
commercially viable to produce any portion of the prospective
resources. Additional resources information is included in the
Company's annual information form for the year ended December 31,
2018.
Advisory and Caution Regarding Forward-Looking Information
Certain information included in this new release constitutes
forward-looking information under applicable securities
legislation. Such forward-looking information is for the purpose of
explaining management's current expectations and plans relating to
the future. Readers are cautioned that reliance on such information
may not be appropriate for other purposes, such as making
investment decisions. Forward- looking information typically
contains statements with words such as "anticipate", "believe",
"expect", "plan", "intend", "estimate", "propose", "project",
"target" or similar words suggesting future outcomes or statements
regarding an outlook. Forward-looking information in this new
release includes, but is not limited to: the completion of the
shallow sale, the total cash consideration and expected cash
position thereafter, the Company's entitlement to royalty payments
over a five-year period, the anticipated closing time for the Sale
Transaction; statements with respect to the Company's inorganic
growth strategy, including its ability to identify M&A targets;
statements with respect to the Company's deep tight gas play
strategy, including management's belief that the play represents a
material value proposition for shareholders, its ability to find
another partner for the play; and management's belief that its
three-pronged strategy above has the potential to deliver
shareholder value. In addition, statements related to "resources"
are deemed to be forward-looking information as they involve the
implied assessment, based on certain estimates and assumptions,
that the resources can be discovered and profitably produced in the
future.
Forward-looking information is based on management's current
expectations and assumptions regarding, among other things: the
resumption of operations following the COVID-19 pandemic; political
stability of the areas in which the Company is operating and
completing transactions; continued safety of operations and ability
to proceed in a timely manner; continued operations of and
approvals forthcoming from the Turkish government in a manner
consistent with past conduct; future drilling activity on the
required/expected timelines; the prospectivity of the Company's
lands, including the deep potential; the continued favourable
pricing and operating netbacks in Turkey; future 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 licences and leases; the ability to
attract a new partner in the deep play; the ability to identify
attractive merger and acquisition opportunities to support growth;
and the Company's continued ability to obtain and retain qualified
staff and equipment in a timely and cost efficient manner. In
addition, the Company's work programmes and budgets are in part
based upon expected agreement among joint venture partners and
associated exploration, development and marketing plans and
anticipated costs and sales prices, which are subject to change
based on, among other things, the actual results of drilling and
related activity, availability of drilling, high-pressure hydraulic
stimulation and other specialised oilfield equipment and service
providers, changes in partners' plans and unexpected delays and
changes in market conditions. Although the Company believes the
expectations and assumptions reflected in such forward-looking
information are reasonable, they may prove to be incorrect.
Forward-looking information involves significant known and
unknown risks and uncertainties. Exploration, appraisal, and
development of oil and natural gas reserves are speculative
activities and involve a degree of risk. A number of factors could
cause actual results to differ materially from those anticipated by
the Company including, but not limited to: inability to close the
shallow sale; inability to secure a new partner for the deep play
and execute potential M&A transactions; the risks of further
disruptions from the COVID-19 pandemic; the risks of currency
fluctuations; changes in gas prices and netbacks in Turkey;
potential changes in joint venture partner strategies and
participation in work programmes; uncertainty regarding the
contemplated timelines and costs for the deep evaluation; the risks
of disruption to operations and access to worksites; potential
changes in laws and regulations, the uncertainty regarding
government and other approvals; counterparty risk; risks associated
with weather delays and natural disasters; and the risk associated
with international activity. The forward-looking information
included in this new release is expressly qualified in its entirety
by this cautionary statement. See the AIF for a detailed discussion
of the risk factors.
The forward-looking information contained in this new release is
made as of the date hereof and the Company undertakes no obligation
to update publicly or revise any forward-looking information,
whether as a result of new information, future events or otherwise,
unless required by applicable securities laws. The forward-looking
information contained in this new release is expressly qualified by
this cautionary statement.
Additional information relating to Valeura is also available on
SEDAR at www.sedar.com .
This Announcement contains inside information as defined in EU
No. 596/2014, part of UK law by virtue of the European Union
(Withdrawal) Act 2018, and is in accordance with the Company's
obligations under Article 17 of that Regulation.
This announcement does not constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction,
including where such offer would be unlawful. This announcement is
not for distribution or release, directly or indirectly, in or into
the United States, Ireland, the Republic of South Africa or Japan
or any other jurisdiction in which its publication or distribution
would be unlawful.
Neither the Toronto Stock Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the Toronto
Stock Exchange) accepts responsibility for the adequacy or accuracy
of this news release.
Condensed Interim Consolidated Statements of Financial
Position
(thousands of US Dollars, March 31, December 31,
unaudited) 2021 2020
--------------------------------- ------------------------------ ----------------
Assets
Current Assets
Cash and cash equivalents $ 29,384 $ 30,143
Restricted cash (note 3) 234 232
Accounts receivable 87 199
Prepaid expenses and deposits 563 330
Assets held for sale (note
4) 18,607 22,032
48,875 52,936
Exploration and evaluation
assets (note 5) 1,539 1,643
Property, plant and equipment
(note 6) 264 278
$ 50,678 $ 54,857
--------------------------------- ------------------------------ ----------------
Liabilities and Shareholders'
Equity
Current Liabilities
Accounts payable and accrued
liabilities $ 945 $ 506
Liabilities directly associated
with the assets held for sale
(note 4) 8,365 10,240
---------------------------------- ------------------------------ ----------------
9,310 10,746
Decommissioning obligations
(note 7) 1,265 2,161
10,575 12,907
Shareholders' Equity
Share capital (note 8) 179,717 179,717
Contributed surplus 22,351 22,410
Accumulated other comprehensive
loss (56,015) (55,288)
Deficit (105,950) (104,889)
---------------------------------- ------------------------------ ----------------
40,103 41,950
--------------------------------- ------------------------------ ----------------
$ 50,678 $ 54,857
--------------------------------- ------------------------------ ----------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Loss and
Comprehensive Loss
For the three months ended March 31, 2021 and 2020
March 31,
(thousands of US Dollars, unaudited) 2021 March 31, 2020
--------------------------------------------------
Revenue (note 10)
Petroleum and natural gas sales $ 2,086 $ 2,808
Royalties (279) (378)
Other Income 129 268
-------------------------------------------------- ---------------
1,936 2,698
-------------------------------------------------- ---------------
Expenses
Production 770 801
General and administrative 1,658 1,230
Severance 146 450
Transaction costs 44 -
Accretion on decommissioning liabilities
(notes 4 and 7) 277 218
Foreign exchange (gain) loss 744 (1,317)
Share-based compensation (note 8) (76) 157
Change in estimate on decommissioning
liabilities (note 7) (709) -
Depletion and depreciation (note 6) 7 1,278
2,861 2,817
--------------------------------------------------
Loss for the period before income taxes (925) (119)
Income taxes
Current tax expense 22 -
Deferred tax expense 114 73
-------------------------------------------------- ---------------
Net loss (1,061) (192)
-------------------------------------------------- ---------------
Other comprehensive loss
Currency translation adjustments (727) (5,845)
-------------------------------------------------- ---------------
Comprehensive loss (1,788) (6,037)
-------------------------------------------------- ------------ ---------------
Net loss per share
Basic and diluted $ (0.01) $ (0.00)
Weighted average number of shares outstanding
(thousands) 86,585 86,585
-------------------------------------------------- ------------ ---------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Cash Flows
For the three months ended March 31, 2021 and 2020
(thousands of US Dollars, unaudited) March 31, 2021 March 31, 2020
Cash was provided by (used in):
Operating activities:
Net loss for the period $ (1,061) $ (192)
Depletion and depreciation (note 6) 7 1,278
Share-based compensation (note 8) (76) 157
Accretion on decommissioning liabilities
(note7) 277 218
Change in estimate on decommissioning
liabilities (note7) (709) -
Unrealised foreign exchange loss (gain) 755 (1,482)
Deferred tax expense 114 73
Decommissioning costs incurred - (16)
Change in restricted cash (2) -
Change in non-cash working capital (note
11) 247 775
------------------------------------------- ---------------
Cash (used in) provided by operating
activities (448) 811
------------------------------------------- ---------------
Financing activities:
Principal payments on lease liability (28) (24)
Cash used in financing activities (28) (24)
-------------------------------------------
Investing activities:
Property and equipment expenditures (note
6) - (1,461)
Exploration and evaluation expenditures
(note 5) (68) (421)
Assets held for sale expenditures (72) -
Change in restricted cash - (14)
Change in non-cash working capital (note
11) (172) (1,046)
------------------------------------------- ---------------
Cash used in investing activities (312) (2,942)
------------------------------------------- ---------------
Foreign exchange gain (loss) on cash
held in foreign currencies 29 (1,402)
------------------------------------------- ---------------
Net change in cash and cash equivalents (759) (3,557)
Cash and cash equivalents, beginning
of period 30,143 36,111
------------------------------------------- ---------------
Cash and cash equivalents, end of period $ 29,384 $ 32,554
------------------------------------------- --------------- ---------------
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, 2021 and 2020
(thousands of
US Dollars and Number
thousands of of Accumulated Total
shares, common Contributed Other Comp. Shareholders'
unaudited) shares Share Capital Surplus Deficit Loss Equity
--------------- ------- ----------------------- ------------ ------------------------ ------------ --------------
Balance,
January
1, 2021 86,585 $ 179,717 $ 22,410 $ (104,889) $ (55,288) $ 41,950
Net loss for
the
period - - - (1,061) - (1,061)
Currency
translation
adjustments - - - - (727) (727)
Share-based
Compensation - - (59) - - (59)
--------------- ------- ----------------------- ------------ ------------------------ ------------ --------------
March 31, 2021 86,585 $ 179,717 $ 22,351 $ (105,950) $ (56,015) $ 40,103
--------------- ------- ----------------------- ------------ ------------------------ ------------ --------------
(thousands of
US Dollars and Number Accumulated
thousands of shares, of common Contributed Other Comp. Total Shareholders'
unaudited) shares Share Capital Surplus Deficit Loss Equity
----------------------- ----------- -------------- ------------- ------------ ------------- --------------------
Balance, January
1, 2020 86,585 $ 179,717 $ 21,229 $ (85,355) $ (49,273) $ 66,318
Net loss for the
period - - - (192) - (192)
Currency translation
adjustments - - - - (5,845) (5,845)
Share-based
Compensation - - 186 - - 186
----------------------- ----------- -------------- ------------- ------------ ------------- --------------------
March 31, 2020 86,585 $ 179,717 $ 21,415 $ (85,547) $ (55,118) $ 60,467
----------------------- ----------- -------------- ------------- ------------ ------------- --------------------
See accompanying notes to the condensed interim consolidated
financial statements.
1. Reporting Entity
Valeura Energy Inc. ("Valeura" or the "Company") and its
subsidiaries (refer to note 2c) are currently engaged in the
exploration, 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 and the Main Market of the London
Stock Exchange ("LSE"), under the trading symbol "VLU". Valeura's
head office address is 1200, 202 - 6 Avenue SW, Calgary, AB,
Canada.
2. Basis of Preparation
(a) Statement of compliance
These unaudited condensed interim consolidated financial
statements have been prepared in accordance with IAS 34 - Interim
Financial Reporting of the International Financial Reporting
Standards ("IFRS"). The attached unaudited condensed interim
consolidated financial statements should be read in conjunction
with Valeura's audited consolidated financial statements and
MD&A for the year ended December 31, 2020. The unaudited
condensed interim consolidated financial statements have been
prepared in accordance with IFRS accounting policies and methods of
computation as set forth in Valeura's audited consolidated
financial statements for the year ended December 31, 2020, with the
exception as noted below of certain disclosures that are normally
required to be included in annual consolidated financial statements
which have been condensed or omitted in the interim statements.
Operating, transportation and marketing expenses in profit or
loss are presented as a combination of function and nature in
conformity with industry practices. Depletion and depreciation and
finance expenses are presented in a separate line by their nature,
while net administrative expenses are presented on a functional
basis. The use of estimates and judgements is also consistent with
the December 31, 2020 financial statements.
The unaudited condensed interim consolidated financial
statements were authorised for issue by the Board of Directors on
May 12, 2021.
(b) Basis of measurement
These unaudited condensed interim consolidated financial
statements have been prepared on the historical cost basis except
for certain financial and non-financial assets and liabilities,
which have been measured at fair value. The methods used to measure
fair value are consistent with the Company's December 31, 2020
audited consolidated financial statements.
The COVID-19 pandemic over the past year has had a significant
impact on the global economy, reducing the near term demand for oil
and gas and increasing volatility in oil and gas prices. As a
result, oil and gas companies could be subject to increased
liquidity risks given the impact on revenues and challenges in
funding ongoing operating expenditure requirements and future
development expenditures. These factors are likely to have a
negative impact on the Company's ability to raise equity, if
required, in the near future or on terms favourable to the
Company.
In Q1 2021, the Company was able to maintain its gas production
and serve its customers in Turkey during the period of lockdowns
and curfews related to COVID-19. Staffing levels and locations of
work were adjusted and additional safety and health measures were
introduced across all operations. These measures were successful,
and the Company experienced no COVID outbreaks in any of its
operations.
Any restrictions requested or mandated by government authorities
in response to the outbreak of COVID-19 may have a material impact
to the Company's planned operating activities, however, no mandated
lockdowns have affected operations to date. Valeura is adhering to
advice provided by local and international health authorities
regarding social distancing and increased hygiene practices.
The COVID-19 pandemic is an evolving situation that may continue
to have widespread implications for the Company's business
environment, operations, and financial conditions. Management
cannot reasonably estimate the length or severity of this pandemic
and will continue to monitor the situation closely.
The Company's unaudited condensed interim consolidated financial
statements include the accounts of Valeura and its subsidiaries and
are expressed in thousands of US Dollars, unless otherwise
stated.
(c) Functional and presentation currency
The consolidated financial statements are presented in US
Dollars which is Valeura's reporting currency. Valeura's and its
foreign subsidiaries transact in currencies other than the US
Dollar and have a functional currency of Turkish Lira and Canadian
dollars as follows:
Company Functional Currency
Valeura Energy Inc. Canadian Dollars
--------------------
Valeura Energy (Netherlands) Turkish Lira
Cooperatief UA
--------------------
Valeura Energy (Netherlands) Turkish Lira
BV
--------------------
Corporate Resources BV Turkish Lira
--------------------
Thrace Basin Natural Gas Turkiye Turkish Lira
Corporation
--------------------
The functional currency of a subsidiary is the currency of the
primary economic environment in which the subsidiary operates.
Transactions denominated in a currency other than the functional
currency are translated at the prevailing rates on the date of the
transaction. Any monetary items held in a currency which is not the
functional currency of the subsidiary are translated to the
functional currency at the prevailing rate as at the date of the
statement of financial position. All exchange differences arising
as a result of the translation to the functional currency of the
subsidiary are recorded in earnings.
Translation of all assets and liabilities from the respective
functional currencies to the reporting currency are performed using
the rates prevailing at the statement of financial position date.
The differences arising upon translation from the functional
currency to the reporting currency are recorded as currency
translation adjustments in other comprehensive income or loss
("OCI") and are held within accumulated other comprehensive loss
until a disposal or partial disposal of a subsidiary. A disposal or
partial disposal will then give rise to a realized foreign exchange
gain or loss which is recorded in earnings.
(d) Use of estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. The ability to
make reliable estimates is further influenced by political and
economic factors. Management has based its estimates with respect
to the Company's operations in Turkey based on information
available up to the date these condensed interim consolidated
financial statements were approved by the Board of Directors.
Significant changes could occur which could materially impact the
assumptions and estimates made in these consolidated financial
statements. Changes in assumptions are recognised in the financial
statements prospectively.
3. Restricted Cash
The Company has restricted cash in the amount of $0.2 million
(2020 - $0.2 million) that is securing licence deposits with the
General Directorate of Mining and Petroleum Affairs of the Republic
of Turkey ("GDMPA"). This restricted cash is held mostly with
National Bank of Canada ("NBC") as security, along with the Account
Performance Security Guarantee ("APSG") facility described in Note
9, for decommissioning or abandonment obligations and ongoing work
programmes on the Company's Turkish licences and as security for
third party gas purchase, as described in Note 10 - Revenue.
4. Assets Held for Sale
On October 20, 2020, the Company announced the execution of a
Share Purchase Agreement to sell its shallow conventional gas
business for cash consideration of $15.5 million, deferred cash
consideration of $1.0 million and contingent consideration of up to
$1.5 million subject to normal closing adjustments with an economic
effective date of July 1, 2020. The transaction is structured as a
sale of shares of Thrace Basin Natural Gas (Turkiye) Corporation
("TBNG") and Corporate Resources B.V. ("CRBV"), both wholly owned
subsidiaries of Valeura which, following an internal reorganisation
completed during Q3 2020, are the entities which collectively hold
the Company's shallow conventional gas producing business.
In a subsequent development, regulatory approvals for the
transaction were received in early May 2021 and the transaction is
now expected to close Q2 2021.
As at March 31, 2021, assets and liabilities held for sale
include the current and non-current assets and liabilities of TBNG
and CRBV as a disposal group. The following table summarizes the
major classes:
Assets held for Sale March 31, 2021 December 31,
2020
------------------------------------------
Accounts receivable $ 2,696 $ 2,826
Inventory 120 179
Prepaid expenses and deposits 243 245
Right of use asset 340 90
Exploration and evaluation assets 1,194 1,339
Property and Equipment 14,014 17,353
------------------------------------------- --------------- ---------------
Balance, March 31, 2021 $ 18,607 $ 22,032
------------------------------------------- --------------- ---------------
Liabilities directly associated March 31, 2021 December 31,
with the assets held for sale 2020
------------------------------------------ --------------- ---------------
Accounts payable and accrued liabilities 2,102 2,189
Lease liability 279 87
Deferred income taxes 483 430
Asset retirement obligation 5,501 7,534
------------------------------------------- --------------- ---------------
Balance, March 31, 2021 $ 8,365 $ 10,240
------------------------------------------- --------------- ---------------
The decrease in the assets held for sale and the liabilities
associated with the assets held for sale is due primarily to the
weakening of the TL compared to the USD and downward revisions to
the decommissioning obligations as a result of a change in
estimates and an increased discount rate.
5. Exploration and Evaluation Assets
Cost Total
Balance, December 31, 2020 $ 1,643
Additions 68
Capitalised share-based compensation 18
Effects of movements in exchange rates (190)
Balance, March 31, 2021 $ 1,539
-----------------------------------------
6. Property, Plant and Equipment
Cost Total
----------------------------------
Balance, December 31, 2020 $ 15,108
Effects of movements in exchange
rates (1,697)
Balance, March 31, 2021 $ 13,411
------------------------------------
Accumulated depletion and Total
depreciation
----------------------------------
Balance, December 31, 2020 $ 14,830
Depreciation expense 7
Effects of movements in exchange
rates (1,690)
Balance, March 31, 2021 $ 13,147
------------------------------------
Net book value Total
----------------------------
Balance, December 31, 2020 $ 278
Balance, March 31, 2021 $ 264
------------------------------ ---------------
The depreciation expense recorded in Q1 2021 relates to the
Company's corporate assets.
(a) Contingencies
Although the Company believes that it has title to its oil and
natural gas properties, it cannot control or completely protect
itself against the risk of title disputes or challenges.
The ultimate recovery of property, plant and equipment and
exploration and evaluation costs in Turkey is dependent upon the
Company obtaining government approvals, obtaining and maintaining
licences in good standing, the existence and commercial
exploitation of petroleum and natural gas reserves and undeveloped
lands, and other uncertainties.
7. Decommissioning Obligations
March 31, 2021
Decommissioning obligations, beginning of period $ 2,161
Change in estimates (709)
Accretion of decommissioning obligations 59
Effects of movements in exchange rates (246)
-------------------------------------------------- ------------------
Balance, March 31, 2021 $ 1,265
-------------------------------------------------- ------------------
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 a
revision in the cost estimates for abandonment and reclamation, an
increase in the risk-free interest rate in Turkey (March 31, 2021 -
18.08%; December 31, 2020 - 12.5%) and an increase in the inflation
rate in Turkey (March 31, 2021 - 16.19%; December 31, 2020 -
14.6%). The change in estimate has been recorded on the statement
of loss and comprehensive loss as the Company has no asset related
to the decommissioning liability.
8. Share Capital
(a) Issued
Common shares Number of Shares Amount
Balance, March 31, 2021 and December 31,
2020 86,584,989 $ 179,717
------------------------------------------ ----------------- --------------------
(b) Per share amounts
Per share amounts have been calculated using the weighted
average number of common shares outstanding. The weighted average
number of common shares outstanding for the three months ended
March 31, 2021 is 86,584,989 (March 31, 2020 and December 31, 2020
- 86,584,989). 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, employees and consultants to purchase shares in the
Company. Options are granted at the market price of the shares at
the date of grant, have a seven-year term and vest in thirds over 3
years.
The number and weighted average exercise prices of share options
are as follows:
Weighted average
exercise price
Number of Options (CAD)
Balance outstanding, December 31, 2020 5,636,833 $ 0.57
Granted 2,262,500 0.52
Expired (360,000) 0.64
Forfeited/cancelled (540,000) 0.98
Balance outstanding, March 31, 2021 6,999,333 0.52
Exercisable at March 31, 2021 2,873,510 $ 0.66
---------------------------------------- ------------------ ------------------------------
The following table summarises information about the stock
options outstanding and exercisable at March 31, 2021:
Weighted
average
Exercise Outstanding remaining Weighted average Exercisable Weighted average
prices at March life exercise price at March exercise price
(CAD) 31, 2021 (years) (CAD) 31, 2021 (CAD)
$0.25 -
$0.33 2,320,000 5.96 $ 0.25 773,343 $ 0.25
$0.34 -
$0.53 2,412,500 6.94 0.51 - -
$0.54 -
$0.74 1,241,833 2.62 0.63 1,075,167 0.64
$0.75 -
$4.62 1,025,000 2.99 0.99 1,025,000 0.99
6,999,333 5.27 $ 0.52 2,873,510 $ 0.66
The fair value, at the grant date during the period, of the
stock options issued was estimated using the Black-Scholes model
with the following weighted average inputs (weighted average fair
value per option in CAD):
March 31, 2021 December 31,
Assumptions 2020
-------------------------
Risk free interest rate
(%) 0.8 0.8
Expected life (years) 4.5 4.5
Expected volatility (%) 99.0 99.6
Forfeiture rate (%) 10.8 6.8
Weighted average fair
value per option $ 0.37 $ 0.20
--------------------------- --------------- -------------
9. Credit Facilities
Effective March 17, 2020, the Company renewed its APSG facility
with Export Development Canada ("EDC"). The APSG facility, which
was issued to NBC allows the Company to use the facility as
collateral for certain letters of credit issued by NBC. The
facility is effective from March 17, 2020 to May 31, 2021 with a
limit of US$4.5 million and can be renewed on an annual basis. The
Company has issued approximately US$2.9 million in letters of
credit under the APSG facility at current exchange rates.
10. Revenue
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 12th and 25th 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, March 31,2020
2021
Natural gas $ 1,991 $ 2,706
Crude oil 95 102
Petroleum and natural gas sales $ 2,086 $ 2,808
Three months ended March 31, March 31,2020
2021
Royalties - natural gas $ 249 $ 338
Crude oil 9 12
Gross overriding royalty 21 28
Royalties $ 279 $ 378
Three months ended March 31, 2021 March 31, 2020
Third party natural gas sales net of
costs $ 83 $ 101
Interest and other revenue 46 167
Other income $ 129 $ 268
11. Supplemental Cash Flow Information
Three months ended March 31, March 31,
2021 2020
------------------------------------------
Change in non-cash working
capital:
Accounts receivable $ 112 $ 1,512
Prepaid expenses and deposits (233) 135
Inventory - (2)
Accounts payable and accrued
liabilities 439 (1,611)
Assets held for sale 3,425 -
Liabilities directly associated
with the asset held for
held for sale (1,875) -
Movements in exchange
rates (1,793) (305)
-------------------------------------------- ------------ ------------
75 (271)
------------------------------------------ ------------ ------------
The change in non-cash working capital has been allocated to the
following activities:
------------------------------------------------------------------------
Operating 247 775
Investing (172) (1,046)
-------------------------------------------- ------------ ------------
$ 75 $ (271)
------------------------------------------ ------------ ------------
12. Financial Risk Management
The Company's activities expose it to a variety of financial
risks that arise as a result of its exploration, development,
production, and financing activities such as:
-- Credit risk
-- Market risk
-- Liquidity risk
This note presents information about the Company's exposure to
each of the above risks, the Company's objectives, policies and
processes for measuring and managing risk, and the Company's
management of capital.
The Board of Directors oversees managements' establishment and
execution of the Company's risk management framework. Management
has implemented and monitors compliance with risk management
policies. The Company's risk management policies are established to
identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and
adherence to market conditions and the Company's activities.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the
Company's receivables from joint venture partners and oil and
natural gas marketers. The maximum exposure to credit risk is as
follows:
December December
31, 2021 31, 2020
------------------------------- ----
Joint venture receivable from
partners $ - $ 89
Revenue receivables from
customers 1,740 1,688
Taxes receivable 1,043 1,248
Accounts receivable (1) $ 2,783 $ 3,025
--------------------------------------
(1) Accounts receivable balance includes balances in assets held
for sale of $2.7 million
Trade and other receivables:
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 purchasers. Joint venture receivables are
typically collected within one to three months of the joint venture
invoice being issued to the partner. The Company mitigates 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 programmmes. The
Company does not typically obtain collateral from petroleum and
natural gas purchasers 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
maximizing 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. Historically, devaluation in the TL has
typically been followed by a legislated increase in the posted
BOTAS Reference Price for natural gas. However, devaluation of the
TL without a corresponding increase in the natural gas reference
price will have a negative impact on adjusted funds flow and could
affect the ability of the Company to fund its capital programme in
the future. Devaluation of the TL will also result in decreases in
royalties, and operating expenses, all other things being
equal.
The Company's seismic and drilling operations and related
contracts in Turkey are predominantly based in USD for Deep
Unconventional Gas Play operations. Material increases in the value
of the USD against the TL will negatively impact the Company's
costs of drilling and completions activities. Future USD/TL
exchange rates could accordingly impact the future value of the
Company's reserves as determined by independent evaluators.
Changes to the TL/USD exchange rate would have had the following
impact on revenues, royalties and production costs for the three
months ended March 31, 2021:
Petroleum
+/- 5 percent change in realised and natural Production
TL/USD exchange rate gas revenues Royalties costs
------------------------------------
Three months ended March 31, 2021 $ 111 $ 14 $ 39
------------------------------------ ---------- -----------
The Company's drilling and seismic operations and related
contracts in Turkey are predominantly based in US Dollars. Material
changes in the value of the US Dollar against the Turkish Lira will
impact the Company's capital costs.
Changes to the TL/USD exchange rate, would have had the
following impact on capital expenditures for the year ended March
31, 2020:
+/- 5 percent change in realised TL/USD exchange rate, Capital
upon conversion to presentation currency expenditures
----------------------------------------------------------
Three months ended March 31, 2021 $ 1
----------------------------------------------------------
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 Company's average realised natural gas price in Turkey for
the three months ended March 31, 2021 was $5.52/mcf which
represents a 1.0% 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. Currently, total capital
resources available include working capital and funds flow from
operations.
The Company's capital expenditures include expenditures in oil
and gas activities which may or may not be successful. The Company
makes adjustments to the capital structure in light of changes in
economic conditions and the risk characteristics of the underlying
petroleum and natural gas assets. In order to maintain or adjust
the capital structure, the Company may, from time to time, issue
shares, adjust its capital spending or issue debt instruments. The
Company is not currently subject to any externally imposed capital
requirements as it maintains operatorship over all of its lands in
the Thrace Basin.
The successful future operations of the Company are dependent on
the ability of the Company to secure sufficient funds through
operations, bank financing, equity offerings or other sources and
there are no assurances that such funding will be available when
needed. Failure to obtain such funding on a timely basis could
cause the Company to reduce capital spending and could lead to the
loss of exploration licences due to failure to meet drilling
deadlines, 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.
Fair value of financial assets and liabilities:
The Company's fair value measurements are classified as one of
the following levels of the fair value hierarchy:
Level 1 - inputs represent unadjusted quoted prices in active
markets for identical assets and liabilities. An active market is
characterized by a high volume of transactions that provides
pricing information on an ongoing basis.
Level 2 - inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly. These valuations are based on inputs that can be
observed or corroborated in the marketplace, such as market
interest rates or forecasted commodity prices.
Level 3 - inputs for the asset or liability are not based on
observable market data.
The Company aims to maximize the use of observable inputs when
preparing calculations of fair value. Classification of each
measurement into the fair value hierarchy is based on the lowest
level of input that is significant to the fair value
calculation.
The fair value of cash and cash equivalents, accounts
receivable, prepaid expenses and deposits, and accounts payable and
accrued liabilities approximate their carrying amounts due to their
short terms to maturity.
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END
QRFBLLLFFELXBBD
(END) Dow Jones Newswires
May 13, 2021 02:00 ET (06:00 GMT)
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