TIDMVLU
RNS Number : 1603S
Valeura Energy Inc.
12 November 2021
VALEURA ENERGY
THIRD QUARTER 2021 RESULTS
Calgary, November 12, 2021 : Valeura Energy Inc. (TSX:VLE,
LSE:VLU) (the "Company" or "Valeura"), an upstream oil and gas
company with assets in the Thrace Basin of Turkey, reports its
unaudited financial and operating results for the three month
period ended September 30, 2021.
Highlights
-- Financial position - Cash position of US$41.7 million at September 30, 2021;
-- Royalties - Valeura is now due royalty payments in connection
with the sale of its conventional gas producing business. Given
current gas prices, these are now expected to reach the capped
total of US$2.5 million within the coming year; and
-- Strategy - Continuing to pursue near-term inorganic growth
opportunities and seeking a suitable partner to farm in to the
Company's 20 Tcfe unrisked mean prospective resource deep, tight
gas play.
Sean Guest, President and CEO commented:
"Our third quarter results demonstrate the stability of our
financial position as we continue to pursue our strategy from a
position of strength. With no debt, a cash position of US$41.7
million, and a lean organisation, we are aggressively evaluating
new business opportunities without putting strain on our balance
sheet.
"During the third quarter we have experienced a strengthening in
the business environment for global upstream oil and gas
investments, with stronger benchmark oil and gas prices. This
reinforces our view on the ability for mergers and acquisitions-led
growth to contribute meaningful near-term cash flow, and we remain
especially focused on those opportunities which also provide the
potential for follow-on investment in the medium term.
"We are encouraged by the substantial improvement in European
gas market fundamentals, as well. This underscores the inherent
long-term value of our 20 Tcfe unrisked mean prospective resource
gas play. We also stand to benefit directly from increased gas
prices in the near term by the start of royalty payments from the
shallow gas producing business we sold earlier this year. We
anticipate receiving the full capped maximum royalty payment of
$2.5 million within the coming year. "
Financial position and Royalty
As of the end of Q3, Valuera had cash and cash equivalent
resources totalling US$41.7 million, and no debt.
Associated with the sale of its conventional gas producing
business which closed in Q2 2021, Valeura is due a royalty over the
next five years of between US$1.0 and $2.5 million, related to gas
prices. The Company has received confirmation that a royalty
payment is due for September and, given the continued positive
environment for gas prices, the royalty payment is expected to
increase for Q4 2021. Under the current gas price outlook, Valeura
expects to receive the full US$2.5 million in royalty payments
within the coming year and this has been recorded as an increase in
the accounts receivable.
The Company's near and mid-term financial obligations are
minimal, comprised only of G&A associated with its small and
lean organisation, and modest licence commitments required to keep
its Turkish land holdings in good standing.
Strategy
With its strong financial position and internationally
experienced team, Valeura is well positioned to grow by way of
mergers and acquisitions in a number of international jurisdictions
including the Mediterranean basin and other areas where the
management and board have experience. The Company is evaluating
several targets that could provide near-term cashflow plus the
opportunity for medium-term re-investment to generate further value
through growth. Valeura is squarely focussed on only executing
transactions that will generate material value for
shareholders.
In the longer term, Valeura intends to deliver value from its
deep, unconventional tight gas play in the Thrace Basin (the "Deep
Gas Play"). Its three exploration licences in the core of the Deep
Gas Play are valid up to June 27, 2022 and, under Turkey's licence
terms, the Company has the ability to maintain these assets for up
to approximately five more years through work programme
commitments, which do not require material near term cost outlays.
Given recent gas price increases and the focus on gas supply to
Europe, the Company is continuing with its plan to farm out a
portion of its interest in the Deep Gas Play in order to jointly
pursue the next phase of appraisal work.
Additional information and commentary on the three months ended
September 30, 2021 is included in the Company's management's
discussion and analysis, which is available on the Company's
website and on www.sedar.com .
For further information please contact:
Valeura Energy Inc. (General and Investor Enquiries) +1 403 237 7102
Sean Guest, President and CEO
Heather Campbell, CFO
Robin Martin, Investor Relations Manager
Contact@valeuraenergy.com , IR@valeuraenergy.com
Auctus Advisors LLP (Corporate Broker) +44 (0) 7711 627 449
Jonathan Wright
Valeura@auctusadvisors.co.uk
CAMARCO (Public Relations, Media Adviser) +44 (0) 20 3757 4980
Owen Roberts, Billy Clegg, Monique Perks, Hugo Liddy
Valeura@camarco.co.uk
Resources
Resource disclosure in this announcement is based on an
independent resources evaluation as at December 31, 2018 conducted
by DeGolyer and MacNaughton in its report dated March 13, 2019,
which was prepared using guidelines outlined in the Canadian Oil
and Gas Evaluation Handbook and in accordance with National
Instrument 51-101, Standards of Disclosure for Oil ang Gas
Activities, as adjusted to reflect Equinor's withdrawal in Q1 2020.
Prospective resources are those quantities of petroleum estimated,
as of a given date, to be potentially recoverable from undiscovered
accumulations by application of future development projects.
Prospective resources have both an associated chance of discovery
and a chance of development. The unrisked estimates of prospective
resources referred to in this announcement have not been risked for
either the chance of discovery or the chance of development. There
is no certainty that any portion of the prospective resources will
be discovered. If a discovery is made, there is no certainty that
it will be developed or, if it is developed, there is no certainty
as to the timing of such development or that it will be
commercially viable to produce any portion of the prospective
resources. Additional resources information is included in the
Company's annual information form for the year ended December 31,
2018.
Advisory and Caution Regarding Forward-Looking Information
Certain information included in this new release constitutes
forward-looking information under applicable securities
legislation. Such forward-looking information is for the purpose of
explaining management's current expectations and plans relating to
the future. Readers are cautioned that reliance on such information
may not be appropriate for other purposes, such as making
investment decisions. Forward- looking information typically
contains statements with words such as "anticipate", "believe",
"expect", "plan", "intend", "estimate", "propose", "project",
"target" or similar words suggesting future outcomes or statements
regarding an outlook. Forward-looking information in this new
release includes, but is not limited to: the Company's entitlement
to royalty payments over a five-year period; statements with
respect to the Company's inorganic growth strategy, including its
ability to identify M&A targets; statements with respect to the
Company's deep tight gas play strategy, including management's
belief that the play represents a material value proposition for
shareholders, and its ability to find another partner for the play.
In addition, statements related to "resources" are deemed to be
forward-looking information as they involve the implied assessment,
based on certain estimates and assumptions, that the resources can
be discovered and profitably produced in the future.
Forward-looking information is based on management's current
expectations and assumptions regarding, among other things: the
resumption of operations following the COVID-19 pandemic; political
stability of the areas in which the Company is operating and
completing transactions; continued safety of operations and ability
to proceed in a timely manner; continued operations of and
approvals forthcoming from the Turkish government in a manner
consistent with past conduct; future drilling activity on the
required/expected timelines; the prospectivity of the Company's
lands, including the deep potential; the continued favourable
pricing and operating netbacks in Turkey; future sources of
funding; future economic conditions; future currency exchange
rates; the ability to meet drilling deadlines and other
requirements under licences and leases; the ability to attract a
new partner in the deep play; the ability to identify attractive
merger and acquisition opportunities to support growth; and the
Company's continued ability to obtain and retain qualified staff
and equipment in a timely and cost efficient manner. In addition,
the Company's work programmes and budgets are in part based upon
expected agreement among joint venture partners and associated
exploration, development and marketing plans and anticipated costs
and sales prices, which are subject to change based on, among other
things, the actual results of drilling and related activity,
availability of drilling, high-pressure hydraulic stimulation and
other specialised oilfield equipment and service providers, changes
in partners' plans and unexpected delays and changes in market
conditions. Although the Company believes the expectations and
assumptions reflected in such forward-looking information are
reasonable, they may prove to be incorrect.
Forward-looking information involves significant known and
unknown risks and uncertainties. Exploration, appraisal, and
development of oil and natural gas reserves are speculative
activities and involve a degree of risk. A number of factors could
cause actual results to differ materially from those anticipated by
the Company including, but not limited to: the Company's ability to
secure a new partner for the deep play; the timing and quantum of
future royalty payments, the ability to execute potential M&A
transactions and add material value for shareholders including
through near-term cash flow; the risks of further disruptions from
the COVID-19 pandemic; the risks of currency fluctuations; changes
in gas prices and netbacks in Turkey; potential changes in joint
venture partner strategies and participation in work programmes;
uncertainty regarding the contemplated timelines and costs for the
deep evaluation; the risks of disruption to operations and access
to worksites; potential changes in laws and regulations, the
uncertainty regarding government and other approvals; counterparty
risk; risks associated with weather delays and natural disasters;
and the risk associated with international activity. The
forward-looking information included in this new release is
expressly qualified in its entirety by this cautionary statement.
See the AIF for a detailed discussion of the risk factors.
The forward-looking information contained in this new release is
made as of the date hereof and the Company undertakes no obligation
to update publicly or revise any forward-looking information,
whether as a result of new information, future events or otherwise,
unless required by applicable securities laws. The forward-looking
information contained in this new release is expressly qualified by
this cautionary statement.
Additional information relating to Valeura is also available on
SEDAR at www.sedar.com .
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
September 30, December 31,
(thousands of US Dollars, unaudited) 2021 2020
------------------------------------------ ----------------
Assets
Current Assets
Cash and cash equivalents $ 41,683 $ 30,143
Restricted cash (note 3) 16 232
Accounts receivable (note 4 and
12) 809 199
Royalty receivable (note 4 and 12) 2,500 -
Prepaid expenses and deposits 400 330
Assets held for sale (note 4) - 22,032
------------------------------------------ ----------------
45,408 52,936
------------------------------------------ ----------------
Exploration and evaluation assets
(note 5) 1,654 1,643
Property, plant and equipment (note
6) 272 278
$ 47,334 $ 54,857
------------------------------------------ ----------------------------- ----------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 484 $ 506
Liabilities directly associated
with the assets held for sale (note
4) - 10,240
------------------------------------------ ----------------
484 10,746
Decommissioning obligations (note
7) 1,483 2,161
1,967 12,907
Shareholders' Equity
Share capital (note 8) 179,717 179,717
Contributed surplus 22,577 22,410
Accumulated other comprehensive
gain (loss) (note 4) 9,322 (55,288)
Deficit (166,249) (104,889)
------------------------------------------ ----------------
45,367 41,950
------------------------------------------ ----------------
$ 47,334 $ 54,857
------------------------------------------ ----------------------------- ----------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Loss and
Comprehensive Income (Loss)
For the three and nine months ended September 30, 2021 and
2020
Three Months Ended Nine Months Ended
--------------------------------------- ---------------------- --------------------------------------
September September September September
(thousands of US Dollars, unaudited) 30, 2021 30, 2020 30, 2021 30, 2020
--------------------------------------- ---------- ---------- ------------------ ------------------
Revenue (note 10)
Petroleum and natural gas sales $ - $ 1,843 $ 3,126 $ 6,569
Royalties - (249) (423) (885)
Other Income 32 141 264 510
--------------------------------------- ---------- ---------- ------------------ ------------------
32 1,735 2,967 6,194
--------------------------------------- ---------- ---------- ------------------ ------------------
Expenses and other items
Production 50 936 1,264 2,618
General and administrative 966 1,214 3,613 3,355
Severance - - 206 450
Transaction costs 5 - 74 -
Accretion on decommissioning
liabilities
(notes 7) 51 212 517 671
Foreign exchange (gain) loss (1,087) 335 (675) (167)
Settlement income - - - (332)
Share-based compensation (note
8) 110 138 129 549
Change in estimate on decommissioning
liabilities (note 7) 155 - (509) -
Depletion and depreciation (notes
6) 7 1,085 21 3,307
257 3,920 4,640 10,451
Gain (loss) for the period before
other items (225) (2,185) (1,673) (4,257)
Gain on sale (note 4) - - 6,134 -
Gain on deferred consideration
(note 4) 1,459 - 1,459 -
Currency translation on subsidiaries - - (67,005) -
disposed (note 4)
--------------------------------------- ---------- ---------- ------------------ ------------------
- - (59,412) -
--------------------------------------- ---------- ---------- ------------------ ------------------
Gain (loss) for the period before
income taxes 1,234 (2,185) (61,085) (4,257)
Income taxes
Current tax expense - 207 41 207
Deferred tax expense (recovery) - (243) 234 (224)
Net income (loss) 1,234 (2,149) (61,360) (4,240)
Other comprehensive income (loss)
Currency translation on subsidiaries - - 67,005 -
disposed (note 4)
Currency translation adjustments (1,007) (2,720) (2,395) (8,801)
--------------------------------------- ---------- ---------- ------------------ ------------------
(1,007) (2,720) 64,610 (8,801)
--------------------------------------- ---------- ---------- ------------------ ------------------
Comprehensive income (loss) $ 227 $ (4,869) $ 3,250 $ (13,041)
--------------------------------------- ---------- ---------- ------------------ ------------------
Net income (loss) per share (note
8)
Basic $ 0.01 $ (0.02) $ (0.71) $ (0.05)
Diluted $ 0.01 $ (0.02) $ (0.71) $ (0.05)
Weighted average number of shares
outstanding (thousands)
Basic 86,585 86,585 86,585 86,585
Diluted 87,610 86,585 86,585 86,585
--------------------------------------- ---------- ---------- ------------------ ------------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2021 and
2020
Three Months Ended Nine Months Ended
--------------------------------------- ------------------------------------------
(thousands of US Dollars, September September September September
unaudited) 30, 2021 30, 2020 30, 2021 30, 2020
--------------------------------------- ------------- ------------- ---------------------------
Cash was provided by (used
in):
Operating activities:
Net income (loss) for the
period $ 1,234 $ (2,149) $ (61,360) $ (4,240)
Depletion and depreciation
(note 6) 7 1,085 21 3,307
Share-based compensation (note
8) 110 138 129 549
Accretion on decommissioning
liabilities (note7) 51 212 517 671
Gain on deferred consideration
(note 4) (1,459) - (1,459) -
Change in estimate on decommissioning
liabilities (note7) 155 - (509) -
Disposition (note 4) - - 60,871 -
Unrealised foreign exchange
loss (gain) (1,085) (253) (643) (882)
Deferred tax expense (recovery) - (243) 234 (224)
Decommissioning costs incurred - (4) - (21)
Change in non-cash working
capital (note 11) (164) 101 (292) 1,730
--------------------------------------- ------------- ------------- ---------------------------
Cash (used in) provided by
operating activities (1,151) (1,113) (2,491) 890
--------------------------------------- ------------- ------------- ---------------------------
Financing activities:
Principal payments on lease
liability - (17) (28) (58)
Cash used in financing activities - (17) (28) (58)
---------------------------------------
Investing activities:
Property and equipment expenditures
(note 6) (27) (148) (29) (2,293)
Exploration and evaluation
expenditures (note 5) (96) (147) (250) (1,618)
Assets held for sale expenditures - - (163) -
Net cash received on disposition
(note 4) - - 14,358 -
Royalty receivable (note 4) 2,500 - 2,500 -
Change in restricted cash 1 (108) 216 (123)
Change in non-cash working
capital (note 11) (1,999) 2,121 (2,583) (521)
--------------------------------------- ------------- ------------- ---------------------------
Cash used in investing activities 379 1,718 14,049 (4,555)
--------------------------------------- ------------- ------------- ---------------------------
Foreign exchange gain (loss)
on cash held in foreign currencies (171) 240 10 (1,091)
--------------------------------------- ------------- ------------- ---------------------------
Net change in cash and cash
equivalents (943) 828 11,540 (4,814)
Cash and cash equivalents,
beginning of period 42,626 30,469 30,143 36,111
--------------------------------------- ------------- ------------- ---------------------------
Cash and cash equivalents,
end of period $ 41,683 $ 31,297 $ 41,683 $ 31,297
--------------------------------------- ------------ ------------- ------------- ---------------------------
See accompanying notes to the condensed interim consolidated
financial statements.
Condensed Interim Consolidated Statements of Changes in
Shareholders' Equity
For the nine months ended September 30, 2021 and 2020
(thousands of
US Dollars and Number
thousands of of Accumulated
shares, common Contributed Other Comp. Total Shareholders'
unaudited) shares Share Capital Surplus Deficit Income/(loss) Equity
--------------- --------- ----------------------------- ----------------------------- ---------------------------------- -------------- ---------------------------------
Balance,
January
1, 2021 86,585 $ 179,717 $ 22,410 $ (104,889) $ (55,288) $ 41,950
Net loss for
the
period - - - (61,360) - (61,360)
Currency
translation
adjustments - - - - 64,610 64,610
Share-based
Compensation - - 167 - - 167
--------------- --------- ----------------------------- ----------------------------- ---------------------------------- -------------- ---------------------------------
September 30,
2021 86,585 $ 179,717 $ 22,577 $ (166,249) $ 9,322 $ 45,367
--------------- --------- ----------------------------- ----------------------------- ---------------------------------- -------------- ---------------------------------
(thousands of
US Dollars and Number
thousands of of Accumulated
shares, 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 - - - (4,240) - (4,240)
Currency
translation
adjustments - - - - (8,801) (8,081)
Share-based
Compensation - - 664 - - 664
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
September 30,
2020 86,585 $ 179,717 $ 21,893 $ (89,595) $ (58,074) $ 53,941
--------------- --------- ----------------------------- ----------------------------- --------------------------------- ------------- ---------------------------------
See accompanying notes to the condensed interim consolidated
financial statements.
1. Reporting Entity
Valeura Energy Inc. ("Valeura" or the "Company") and its
subsidiaries (refer to note 2c) are currently engaged in the
exploration and development of petroleum and natural gas in Turkey.
Valeura is incorporated in Alberta, Canada and has subsidiaries in
the Netherlands and Turkey. Valeura's shares are traded on the
Toronto Stock Exchange ("TSX") under the trading symbol VLE and the
Main Market of the London Stock Exchange ("LSE"), under the trading
symbol "VLU". Valeura's head office address is 1200, 202 - 6 Avenue
SW, Calgary, AB, Canada.
2. Basis of Preparation
(a) Statement of compliance
These unaudited condensed interim consolidated financial
statements have been prepared in accordance with IAS 34 - Interim
Financial Reporting of the International Financial Reporting
Standards ("IFRS"). The attached unaudited condensed interim
consolidated financial statements should be read in conjunction
with Valeura's audited consolidated financial statements and
MD&A for the year ended December 31, 2020. The unaudited
condensed interim consolidated financial statements have been
prepared in accordance with IFRS accounting policies and methods of
computation as set forth in Valeura's audited consolidated
financial statements for the year ended December 31, 2020, with the
exception as noted below of certain disclosures that are normally
required to be included in annual consolidated financial statements
which have been condensed or omitted in the interim statements.
Operating, transportation and marketing expenses in profit or
loss are presented as a combination of function and nature in
conformity with industry practices. Depletion and depreciation and
finance expenses are presented in a separate line by their nature,
while net administrative expenses are presented on a functional
basis. The use of estimates and judgements is also consistent with
the December 31, 2020 financial statements.
The unaudited condensed interim consolidated financial
statements were authorised for issue by the Board of Directors on
November 10, 2021.
(b) Basis of measurement
These unaudited condensed interim consolidated financial
statements have been prepared on the historical cost basis except
for certain financial and non-financial assets and liabilities,
which have been measured at fair value. The methods used to measure
fair value are consistent with the Company's December 31, 2020
audited consolidated financial statements.
The COVID-19 pandemic is an evolving situation that may continue
to have widespread implications for the Company's business
environment, operations, and financial conditions. Management
cannot reasonably estimate the length or severity of this pandemic
and will continue to monitor the situation closely.
The Company's unaudited condensed interim consolidated financial
statements include the accounts of Valeura and its subsidiaries and
are expressed in thousands of US Dollars, unless otherwise
stated.
(c) Functional and presentation currency
The consolidated financial statements are presented in US
Dollars which is Valeura's reporting currency. Valeura's and its
foreign subsidiaries transact in currencies other than the US
Dollar and have a functional currency of Turkish Lira and Canadian
dollars as follows:
Company Functional Currency
Valeura Energy Inc. Canadian Dollars
--------------------
Northern Hunter Inc. Canadian Dollars
--------------------
Valeura Energy (Netherlands) Turkish Lira
Cooperatief UA
--------------------
Valeura Energy (Netherlands) Turkish Lira
BV
--------------------
The functional currency of a subsidiary is the currency of the
primary economic environment in which the subsidiary operates.
Transactions denominated in a currency other than the functional
currency are translated at the prevailing rates on the date of the
transaction. Any monetary items held in a currency which is not the
functional currency of the subsidiary are translated to the
functional currency at the prevailing rate as at the date of the
statement of financial position. All exchange differences arising
as a result of the translation to the functional currency of the
subsidiary are recorded in earnings.
Translation of all assets and liabilities from the respective
functional currencies to the reporting currency are performed using
the rates prevailing at the statement of financial position date.
The differences arising upon translation from the functional
currency to the reporting currency are recorded as currency
translation adjustments in other comprehensive income or loss
("OCI") and are held within accumulated other comprehensive loss
until a disposal or partial disposal of a subsidiary. A disposal or
partial disposal will then give rise to a realised foreign exchange
gain or loss which is recorded in earnings.
(d) Use of estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. The ability to
make reliable estimates is further influenced by political and
economic factors. Management has based its estimates with respect
to the Company's operations in Turkey based on information
available up to the date these condensed interim consolidated
financial statements were approved by the Board of Directors.
Significant changes could occur which could materially impact the
assumptions and estimates made in these consolidated financial
statements. Changes in assumptions are recognised in the financial
statements prospectively.
3. Restricted Cash
The Company has restricted cash in the amount of $0.02 million
(2020 - $0.23 million) that is securing licence deposits with the
General Directorate of Mining and Petroleum Affairs of the Republic
of Turkey ("GDMPA"). This restricted cash is held with National
Bank of Canada ("NBC") as security, along with the Account
Performance Security Guarantee ("APSG") facility described in Note
9, for decommissioning or abandonment obligations and ongoing work
programmes on the Company's Turkish licences.
4. Disposition
On May 26, 2021, the Company closed the sale of its shallow
conventional gas assets for cash consideration (including closing
working capital and effective date adjustments) of $16.85 million,
and deferred consideration valued at $1.0 million, with an economic
effective date of July 1, 2020 ("the Transaction"). The Transaction
was structured as a sale of shares of Thrace Basin Natural Gas
(Turkiye) Corporation ("TBNG") and Corporate Resources B.V.
("CRBV"), both of which were wholly owned subsidiaries of Valeura.
The deferred consideration is in the form of a cash royalty payable
over 5 years, tied to local gas prices, with a minimum payment of
$1 million and a maximum of $2.5 million.
Upon closing of the Transaction, the Company estimated the
deferred consideration to be approximately $1.0 million. During the
three months ended September 30, 2021, the Company recorded a gain
on the deferred consideration of $1.5 million as the maximum
payment of $2.5 million is expected due to overall increases in
Turkish natural gas prices. The $2.5 million royalty payment is
recorded in accounts receivable as the full balance is expected to
be paid within one year. Upon closing of the Transaction, $0.3
million of the purchase price is being held in escrow for a period
of one year from the closing date of the transaction. This amount
is being held within accounts receivable.
The disposition resulted in a gain on disposal of $6.1 million
and a currency translation loss of $67.0 million. Per note 2 (c),
accumulated other comprehensive income or loss in disposed
subsidiaries, due to currency translation losses, must be
transferred to retained earnings through the statement of profit
and loss.
Recognised amounts of identifiable assets and liabilities
disposed of were as follows:
Net assets disposed
------------------------------------------
Cash $ 2,185
Accounts receivable 2,418
Inventory 117
Prepaid expenses and deposits 273
Right of use asset 340
Exploration and evaluation assets 1,232
Property and equipment 13,914
Accounts payable and accrued liabilities (2,096)
Lease liability (279)
Deferred income taxes (589)
Asset retirement obligation (5,755)
------------------------------------------- ---------------
Total net assets disposed $ 11,760
------------------------------------------- ---------------
Consideration
------------------------------------------ ---------------
Cash proceeds 16,543
Retention receivable 310
Royalty receivable 1,041
Total consideration $ 17,894
-------------------------------------------
Gain on disposition $ 6,134
--------------------------------------------
Currency translation loss on subsidiaries
disposed (67,005)
-------------------------------------------- ------------------------------
Total loss on disposition $ (60,871)
-------------------------------------------- ------------------------------
5. Exploration and Evaluation Assets
Cost Total
Balance, December 31, 2020 $ 1,643
Additions 250
Capitalised share-based compensation 41
Effects of movements in exchange rates (280)
Balance, September 30, 2021 $ 1,654
-----------------------------------------
6. Property, Plant and Equipment
Cost Total
----------------------------------
Balance, December 31, 2020 $ 15,108
Additions 29
Effects of movements in exchange
rates (2,455)
Balance, September 30, 2021 $ 12,682
------------------------------------
Accumulated depletion and Total
depreciation
----------------------------------
Balance, December 31, 2020 $ 14,830
Depreciation expense 21
Effects of movements in exchange
rates (2,441)
Balance, September 30, 2021 $ 12,410
------------------------------------
Net book value Total
-----------------------------
Balance, December 31, 2020 $ 278
Balance, September 30, 2021 $ 272
------------------------------- ---------------
The depreciation expense recorded in 2021 relates to the
Company's corporate assets.
(a) Contingencies
Although the Company believes that it has title to its oil and
natural gas properties, it cannot control or completely protect
itself against the risk of title disputes or challenges.
The ultimate recovery of property, plant and equipment and
exploration and evaluation costs in Turkey is dependent upon the
Company obtaining government approvals, obtaining and maintaining
licences in good standing, the existence and commercial
exploitation of petroleum and natural gas reserves and undeveloped
lands, and other uncertainties.
7. Decommissioning Obligations
September 30,
2021
Decommissioning obligations, beginning of period $ 2,161
Change in estimates (509)
Accretion of decommissioning obligations 159
Effects of movements in exchange rates (328)
-------------------------------------------------- ------------------
Balance, September 30, 2021 $ 1,483
-------------------------------------------------- ------------------
The Company's decommissioning obligations result from its
ownership interest in oil and natural gas assets. The total
decommissioning obligation is estimated based on the Company's net
ownership interest in all wells, estimated costs to reclaim and
abandon these wells and facilities and the estimated timing of the
costs to be incurred in future years. The change in estimate is
mainly due to a revision in the cost estimates for abandonment and
reclamation, an increase in the risk-free interest rate in Turkey
(September 30, 2021 - 18.5%; December 31, 2020 - 12.5%) and an
increase in the inflation rate in Turkey (September 30, 2021 -
19.6%; December 31, 2020 - 14.6%). The change in estimate has been
recorded on the statement of loss and comprehensive loss as the
Company has no asset related to the decommissioning liability.
8. Share Capital
(a) Issued
Common shares Number of Shares Amount
Balance, September 30, 2021 and December
31, 2020 86,584,989 $ 179,717
------------------------------------------ ----------------- --------------------
(b) Per share amounts
Per share amounts have been calculated using the weighted
average number of common shares outstanding. The weighted average
number of common shares outstanding for the three months and the
year ended September 30, 2021 is 86,584,989 (September 30, 2020 and
December 31, 2020 - 86,584,989). The Company recorded net income
for the three months ended September 30, 2021, and the average
number of common shares outstanding was increased by 1,024,767 for
the outstanding in the money stock options which resulted in a
diluted weighted average number of common shares outstanding of
87,609,756. The weighted average number of common shares
outstanding was not increased for the year ended September 30,
2021, for outstanding stock options, as the effect would be
anti-dilutive.
(c) Stock options
Valeura has an option programme that entitles officers,
directors, employees and consultants to purchase shares in the
Company. Options are granted at the market price of the shares at
the date of grant, have a seven-year term and vest in thirds over
three years.
The number and weighted average exercise prices of share options
are as follows:
Weighted average
exercise price
Number of Options (CAD)
Balance outstanding, December 31, 2020 5,636,833 $ 0.57
Granted 2,312,500 0.52
Expired (360,000) 0.64
Forfeited (908,333) 1.06
Balance outstanding, September 30, 2021 6,681,000 0.48
Exercisable at September 30, 2021 2,695,176 $ 0.57
----------------------------------------- ------------------ ------------------------------
The following table summarises information about the stock
options outstanding and exercisable at September 30, 2021:
Weighted
Outstanding average Exercisable
Exercise at remaining Weighted average at Weighted average
prices September life exercise price September exercise price
(CAD) 30, 2021 (years) (CAD) 30, 2021 (CAD)
$0.25 -
$0.37 2,266,667 5.44 $ 0.25 760,009 $ 0.25
$0.38 -
$0.53 2,312,500 6.49 0.52 - -
$0.54 -
$0.74 1,148,500 2.08 0.62 981,834 0.63
$0.75 -
$0.80 953,333 2.39 0.76 953,333 0.76
6,681,000 4.79 $ 0.48 2,695,176 $ 0.57
The fair value, at the grant date during the period, of the
stock options issued was estimated using the Black-Scholes model
with the following weighted average inputs (weighted average fair
value per option in CAD):
September 30, December 31,
Assumptions 2021 2020
-------------------------
Risk free interest rate
(%) 0.8 0.8
Expected life (years) 4.4 4.5
Expected volatility (%) 99.0 99.6
Forfeiture rate (%) 11.0 6.8
Weighted average fair
value per option $ 0.37 $ 0.20
--------------------------- -------------- -------------
9. Credit Facilities
The Company's APSG facility with Export Development Canada
("EDC") is effective from June 16, 2021 to May 31, 2022 with a
limit of $0.25 million and can be renewed on an annual basis. The
APSG facility, which was issued to NBC allows the Company to use
the facility as collateral for certain letters of credit issued by
NBC, with a limit of $0.25 million and can be renewed on an annual
basis. The Company has issued approximately $0.14 million in
letters of credit under the APSG facility at current exchange
rates.
10. Revenue
Petroleum and natural gas sales, royalties and third party
natural gas sales recorded in the nine months ended September 30,
2021 are from the shallow conventional assets which were sold on
May 26, 2021. After the close of the Transaction, the Company's
only revenue for the period is interest.
For revenue earned until May 26, 2021, under the contracts, the
Company was required to deliver a variable volume of natural gas to
the contract counter party. Revenue was recognised when a unit of
production was delivered to the contract counterparty. The amount
of revenue recognised was based on the agreed transaction price,
whereby any variability in revenue related specifically to the
Company's efforts to transfer production or the customer's demand
for natural gas, and therefore the resulting revenue was allocated
to the production delivered in the period during which the
variability occurs. As a result, none of the variable revenue was
considered constrained.
The Company's contracts had a term of one year or less, whereby
delivery took place throughout the contract period. Revenues were
typically collected between the 12th and 25th day of the month
following production.
The Company produced a small amount of crude oil prior to May
26, 2021, that was sold on a spot basis as volumes warranted. Oil
was delivered by truck to customers and revenue was recognised in
the period in which the delivery occurred.
In addition to selling natural gas that the Company produced
prior to May 26, 2021, the Company sold natural gas that it
purchased from other producers in the area. This purchased natural
gas was sold to the same customers, using the same contracts,
through the same distribution network as natural gas the Company
produced. The Company purchased natural gas from other producers
under contracts that were typically one year or less in length at a
discount of between 12.5% and 15% to the BOTAS price. These
contracts required the Company to deliver the purchased natural gas
to customers. The Company did not have the right, nor the ability,
to store the purchased natural gas. Since the Company did not have
the ability to influence the decision-making process for the
purchased natural gas volumes or the discretion to set prices, did
not experience any inventory risk, did not perform any processing
of the product and did not remit royalties to the Turkish
government for the product, it considered itself an agent in these
transactions. Revenue for this purchased gas was included net of
purchase cost in other income.
All of the Company's natural gas was sold in Turkey, in the
Thrace Basin, which is the same area in which it was produced.
Three Months ended Nine Months Ended
-----------------------
September September September September
30, 2021 30, 2020 30, 2021 30, 2020
----------------------- ----------- ---------- ---------- ----------
Natural Gas $ - $ 1,843 $ 3,031 $ 6,400
Crude Oil - - 95 169
Petroleum and natural
gas sales $ - 1,843 $ 3,126 $ 6,569
-------------------------
Three Months ended Nine Months Ended
--------------------------
September September September September
30, 2021 30, 2020 30, 2021 30, 2020
-------------------------- ----------- ---------- ---------- ----------
Royalties - natural gas $ - $ 231 $ 379 $ 800
Crude oil - - 14 20
Gross overriding royalty - 18 30 65
Royalties $ - 249 $ 423 $ 885
----------------------------
Three Months ended Nine Months Ended
----------------------------
September September September September
30, 2021 30, 2020 30, 2021 30, 2020
---------------------------- ---------- ---------- ---------- ----------
Third party natural gas
sales net of costs $ - $ 107 $ 152 $ 232
Interest and other revenue 32 34 112 278
Other income $ 32 141 $ 264 $ 510
------------------------------
11. Supplemental Cash Flow Information
Three Months ended Nine Months Ended
-------------------------------
September September September September
30, 2021 30, 2020 30, 2021 30, 2020
------------------------------- ---------- ---------- ---------- ----------------
Change in non-cash working
capital:
Accounts receivable $ (2,584) $ 2,492 $ (3,110) $ 3,277
Prepaid expenses and deposits 196 153 (70) 255
Inventory - - - 10
Accounts payable and accrued
liabilities 14 (768) 22 (2,433)
Movements in exchange
rates 211 345 283 100
--------------------------------------- ---------- ---------- ---------- ----------------
$ (2,163) $ 2,222 $ (2,875) $ 1,209
------------------------------------- ---------- ---------- ---------- ----------------
The change in non-cash working capital has been allocated to the following
activities:
-------------------------------------------------------------------------------------------
Operating (164) 101 (292) 1,730
Investing (1,999) 2,121 (2,583) (521)
--------------------------------------- ---------- ---------- ---------- --------------
$ (2,163) $ 2,222 $ (2,875) $ 1,209
------------------------------------- ---------- ---------- ---------- --------------
12. Financial Risk Management
The Company's activities expose it to a variety of financial
risks that arise as a result of its exploration, development,
production, and financing activities such as:
-- Credit risk
-- Market risk
-- Liquidity risk
This note presents information about the Company's exposure to
each of the above risks, the Company's objectives, policies and
processes for measuring and managing risk, and the Company's
management of capital.
The Board of Directors oversees managements' establishment and
execution of the Company's risk management framework. Management
has implemented and monitors compliance with risk management
policies. The Company's risk management policies are established to
identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and
adherence to market conditions and the Company's activities.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the
Company's receivables from joint venture partners and oil and
natural gas marketers. The maximum exposure to credit risk is as
follows:
September December
30, 2021 31, 2020
---------------------------- -------------
Joint venture receivable from
partners $ 99 $ 89
Revenue receivables from
customers - 1,688
Retention receivable (note
4) 310 -
Taxes receivable 262 1,248
Other 138 -
Accounts receivable $ 809 $ 3,025
--------------------------------------------------------
Royalty receivable (note
4) $ 2,500 $ -
-------------------------------------------------------- ----------- -----------
Trade and other receivables:
The Company's receivables consist of a royalty receivable
related to the Transaction (note 4), taxes receivable from the
Turkish Government (VAT receivable) and a retention receivable
amount related to the Transaction (note 4) which is a portion of
the purchase price held in escrow for one year.
Receivables from partners are related to the Company's remaining
licences in Turkey. Other receivables are related to an insurance
premium refund.
(b) Market risk
Market risk is the risk that changes in market conditions, such
as commodity prices, foreign exchange rates and interest rates will
affect the Company's income or the value of financial instruments.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while
maximising the Company's return.
Interest rate risk:
Interest rate risk is the risk that future cash flows will
fluctuate as a result of changes in market interest rates. The
Company is not currently exposed to interest rate risk as it has no
debt.
Liquidity risk:
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with the financial
liabilities. The Company's financial liabilities consist of
accounts payable. Accounts payable consists of invoices payable to
trade suppliers for office, field operating activities and capital
expenditures. The Company processes invoices within a normal
payment period. Accounts payable have contractual maturities of
less than one year. The Company maintains and monitors a certain
level of cash which is used to finance all operating and capital
expenditures.
Capital management:
The Company's capital structure includes working capital and
shareholders' equity. Currently, total capital resources available
are working capital and the Company has a significant cash balance
of $41.7 million. The Company's objective when managing capital is
to maintain a flexible capital structure which allows it to execute
its
growth strategy through expenditures on exploration and
development activities while maintaining a strong financial
position. The Company's capital structure includes working
capital and shareholders' equity. Currently, total capital
resources available include working capital and funds flow from
operations.
The Company's capital expenditures include expenditures in oil
and gas activities which may or may not be successful. The Company
makes adjustments to the capital structure in light of changes in
economic conditions and the risk characteristics of the underlying
petroleum and natural gas assets. In order to maintain or adjust
the capital structure, the Company may, from time to time, issue
shares, adjust its capital spending or issue debt instruments. The
Company is not currently subject to any externally imposed capital
requirements as it maintains operatorship over all of its lands in
the Thrace Basin.
The successful future operations of the Company are dependent on
the ability of the Company to secure sufficient funds through
operations, bank financing, equity offerings or other sources and
there are no assurances that such funding will be available when
needed. Failure to obtain such funding on a timely basis could
cause the Company to reduce capital spending and could lead to the
loss of exploration licences due to failure to meet drilling
deadlines. Valeura has not utilised bank loans or debt capital to
finance capital expenditures to date.
Fair value of financial assets and liabilities:
The Company's fair value measurements are classified as one of
the following levels of the fair value hierarchy:
Level 1 - inputs represent unadjusted quoted prices in active
markets for identical assets and liabilities. An active market is
characterized by a high volume of transactions that provides
pricing information on an ongoing basis.
Level 2 - inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly. These valuations are based on inputs that can be
observed or corroborated in the marketplace, such as market
interest rates or forecasted commodity prices.
Level 3 - inputs for the asset or liability are not based on
observable market data.
The Company aims to maximise the use of observable inputs when
preparing calculations of fair value. Classification of each
measurement into the fair value hierarchy is based on the lowest
level of input that is significant to the fair value
calculation.
The fair value of cash and cash equivalents, accounts
receivable, prepaid expenses and deposits, and accounts payable and
accrued liabilities approximate their carrying amounts due to their
short terms to maturity.
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END
QRTFFLLFFFLBFBX
(END) Dow Jones Newswires
November 12, 2021 02:00 ET (07:00 GMT)
Valeura Energy (LSE:VLU)
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