Inventory Shows Oil & Gas Co.'s Assets Nearly Doubling in Value

Valeura Energy Inc. (VLE:TSX; PNWRF:OTCMKTS) announced the results of its year-end 2023 inventory of reserves and resources for its Thailand assets.

The Canadian petroleum and natural gas company said the value of its assets increased from US$261 million at the end of 2022 to US$429 million at the end of 2023.

"During the intervening calendar year, cash flow from the assets' 7.5 MMbbls (million barrels) production has enabled us to fully pay down our debt while also accumulating US$151 million in cash by December 31, 2023," President and Chief Executive Officer Sean Guest said. "Together that creates a net asset value of US$579 million, which, based on our current shares outstanding and foreign exchange rates, equates to approximately (CA)$7.56 per share."

Year-end reserves were estimated at 29.9 MMbbls proven reserves (1P) and 37.9 MMbbls proved and probable reserves (2P), representing a reserve replacement ratio of 219%, the company said.

"The reserves addition is much greater than we expected," Auctus Advisors analyst Stephane Foucaud noted in an updated research note on February 20. "Valeura has booked 7 MMbbl at Wassana (we expected only 5 MMbbls) and has replaced 112-147% of the 2023 production at each of the other fields."

"As we incorporate the new reserves and resources, we have increased our target price from (CA)$6.40 per share to (CA)$8.50 per share," Foucaud continued.

The Catalyst: 'Substantial Increases on All Fronts'

The evaluation showed "substantial increases on all fronts," Guest said.

"We have replaced more than double the oil we produced, extended the anticipated economic life of our portfolio, and recorded a significant uptick in NPV," he noted. "This is an additional year of results that support our thesis that these assets will continue to deliver cashflow well into the future."

The report, dated February 19, was prepared by Netherland, Sewell & Associates Inc. As Valeura's acquisition of some of its Thailand assets from Mubadala Energy closed last March, the new report compares to reserves at the end of 2022 on a proforma asset basis.

Analyst Foucaud with Auctus Advisors said he has increased his production forecast for Valeura to more than 20 MMbbls/d (million barrels per day) in 2026 and more than 17 MMbbls/d in 2027.

The 1P reserves have a net present value at a 10% discount rate (NPV10) before tax of US$301.4 million and US$193.9 million after tax. The 2P reserves have an NPV10 of US$616.4 million before tax and US$428.5 million after tax, according to the report.

The report also noted a best estimate of aggregate unrisked contingent resources (2C) of 19.9 MMbbls on a risked basis, or 8.9 MMbbls on a risked basis.

NPVs for future revenue from oil reserves are based on cost estimates as of the date of the report and forecasted Brent crude oil reference prices.

The company said its performance in 2023 has led to 1P and 2P reserve growth at all of its assets.

"2024 will serve as a proving ground for us to increase output," Guest said. "Our strategy is to continue pursuing value through growth in all its forms. That includes working to unlock contingent resources … and through an active near-field exploration program this year."

Co.'s 'Fundamentals Keep Improving'

For 2024, Fitch Ratings predicted the global oil and gas (O&G) sector will remain broadly in line with 2023.

"Oil prices should remain high and broadly stable year-on-year due to OPEC+'s curtailments, a geopolitical premium and slowing U.S. crude production," the report noted.

"The cumulative EBITDA of Fitch-rated global O&G producers should fall slightly from 2023," the report said. "Only around 20% of companies will increase dividends by more than 10%, with the rest either keeping dividends stable or decreasing them."

However, analyst Foucaud with Auctus Advisors said he has increased his production forecast for Valeura to more than 20 MMbbls/d (million barrels per day) in 2026 and more than 17 MMbbls/d in 2027.

The company's "fundamentals keep improving," wrote analyst Malcolm Shaw of Hydra Capital.

"Valeura has replaced >100% of its production in 2023," Foucaud wrote. "This follows the trend of a very high historical reserve replacement ratio since the fields started production."

The company's "fundamentals keep improving," wrote analyst Malcolm Shaw of Hydra Capital.

"Its infrastructure optimization team helps minimize costs, while the Wassana expansion enhances the longevity of its core fields," Shaw wrote. "As Valeura cements itself as a Southeast Asia producer, its discounted valuation remains compelling."

Analyst Bill Newman of Research Capital Corp. has given Valeura a Buy rating and a CA$8.25 per share target price, which at the time had a return of 164%.

Ownership and Share Structure

Reuters reports that 5.93% of Valeura is held by management and insiders. CFO Yacine Ben-Meriem has the most out of management at 3.92%, with 4.05 million.

About 18% is with institutions. Out of this group, Baillie Gifford & Co. has the largest holding at 16.62%, with 17.17 million shares.

The rest is with retail investors. 

Valeura has a market cap of CA$449.55 million and 103.28 million shares outstanding. It trades in the 52-week range between CA$1.57 and CA$4.47. 

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1. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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