Valeura Energy Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 3 speakers on the call.

Operator

Hi, everyone. Thank you for joining us for this Valeura Energy webcast, where we'll discuss our Q2 2023 results, which were released yesterday. I'm Robin Martin, Vice President, Communications and Investor Relations. And on the call with me are Sean Guest,

Speaker 1

our

Operator

President and CEO and Yacine Ben Mariam, our CFO. This event is being streamed live and is being recorded today, August 10, 2023. A replay will be made available through our website later today. In a moment, I'll hand over to Sean and Yacine, who will A slide presentation that will be shown on screen if you're joining through MS Teams or can be downloaded from our website if you're joining by dial in. After the prepared remarks, we'll do a Q and A session and questions can be submitted through the Teams app at any time by clicking on the Q and A button at the top of your window, or you can e mail them to us using irvaloraenergy.com.

Operator

Just bear with me as we get the slides going here. Before we get going, I'd like to draw your attention to slide 2, which is our disclaimers and advisories about the materials we'll present today, in particular noting the cautionary statements around forward looking information. So, with that, Sean, I will ask that you unmute your line and you can go ahead.

Speaker 2

Thank you, Robin. And thank you, everyone, for joining us here today. Robin, if you can just go to the next slide. Thank you. Yes.

Speaker 2

So, it was about just 15 months ago that we were really Talking at Filur about growth, the type of deals we're trying to do and how we're trying to transition the Company into really a cash flowing business from the money that we had at that time from just a cash shell. We announced last year the closing of the KrisEnergy acquisition in the Gulf of Thailand in April. We closed that deal in June. And then in December, we announced We announced the Mubadala acquisition much larger and closed that deal in March of this year. Now, immediately after that, we had our Q1, end of Q1.

Speaker 2

And that was really though just a balance sheet issue. We said you could see that the assets were all brought together, you could see The overall assets and liabilities of the company, but at that time, we really were not putting out to people any financial results of the cash flows. We were trying to explain what it was, but Q2 is really about this is the Q1 where we're really demonstrating These assets are real and are producing cash that is coming onto our balance sheet. And that's really what we're going to talk through here today. So, we've gone from where we were 16 months ago as a cash shell.

Speaker 2

We're now looking at just Q2 with the revenue of $174,000,000 that led to a cash flow of $70,000,000 And I'll really let Yacine take you through that in more detail. The other thing we've seen is we've taken over operatorship, continual drilling program on the assets on Jasmine, Nongyao and Menorah. We've seen good cost performance. We've had a few issues on Wassana. But still, when it comes down to the key elements of guidance, We're still extremely pleased that the production guidance that we put out immediately after the acquisition, we still stand by even with the Watsana field currently being down.

Speaker 2

But importantly also, now that we've had a quarter of working with the team there, We're really starting to see that the OpEx numbers we put out, we're going to be able to bring those down slightly. And importantly as well, now that we've brought the Company 2 companies together, we've got this down to a single rig sequence. We're starting to see the CapEx savings becoming real. So for us, This is really the time you're starting to look at us as a really a true strong cash flowing company, and we're Extremely pleased to see Brent starting to rise and the additional value that that will bring into the Company. So, thanks, Robin.

Speaker 2

Can you just have the next slide? And just a couple of things I want to point out currently is that Our market cap is about $181,000,000 But with the cash position that we have, it really gives us an enterprise value of 90 $3,000,000 which is still much lower than we expect that should be. The key element for shareholders though By being involved in the Company is to see that share price accretion that we've seen almost four times in the past year. We still see with the metrics that there's much more we can go on this given the cash flow and the reserves that we've got. But, we really have transitioned the Company now and we're now looking at a strong cash flowing business.

Speaker 2

Thanks, Rob. Maybe just the next slide. So, a bit of a reminder of the assets. Now, again, the map on the right is the Galfus Highlands. We have 2 fields up in the north, which are Jasmine and Menorah.

Speaker 2

And then down in the south, we now have 2 fields in Nong Yao, from Mubadala and then the Wassana asset, which from Chris Energy earlier last year. Jasmine has been the focus of quite an infill drilling campaign this year. A lot of success on those wells, good cost delivery, and really the field has now got to the point it's delivered In the past quarter, we delivered its 90th 1,000,000 barrel, which is always what we'd like to say and point out was this field was commissioned, The FPSO was brought on-site in the first production with an expectation of 7,000,000 barrels. Another point as we look at this year, we do see we'll likely take some more activity on in Jasmine and accelerate some of the wells that were planned for 'twenty four into Q4 of 'twenty three. Nongyao, we completed 2 wells.

Speaker 2

They're both successful and have added additional volumes. Importantly though is the Nongyao C, so the 3rd platform there, that extension project. While we look at the MOPU for that kind of sailing out around the end of this year, work is ongoing on that even now and there's a pipeline vessel there It's out installing the pipeline that will run from the Nongyao B platform over to the new one at Nongyao C. Additionally, this year too, we look at accelerating some of the Infill drilling for 'twenty four into 'twenty three. Menorah, field up in the north, the most northerly field, 3 infill wells were done there.

Speaker 2

It just this quarter on the back of the success of the drilling last year. These have now added to the production or adding to the reserves, and we expect that we'll probably have 3 more wells to drill there in 'twenty four, 'twenty five, that type of period. And again, this is a field that was due to be abandoned in 2022. When we came on board the new drilling and pushed that to 25 and we see the potential now to push that out a bit further. Now, Wessana, while we did get that on in this quarter, Sorry, Robin, can you mute that?

Speaker 2

Thanks. Sorry, Sean, it's good to hear. Yes. So, while we did get LaSona on in the quarter, we obviously had some issues there after the quarter. And I would just jump to the next slide because I do want to talk a bit about Wassana.

Speaker 2

I'll come back to the production in a moment. But, as we brought Wassana into the new team and have really brought the 2 companies together, this has been the focus of a lot of the work of the team in the past few months. We knew that Wassana was developed for a small oilfield, but there was an oilfield to the north that was already discovered and another one to the south. Now, during the development of Wassana over the past number of years, deeper oil was identified. And what this kind of means now is that There's much more oil there than was initially anticipated and the work of the new team has suggested that there could be much more volumes than we're carrying in our reserves.

Speaker 2

For that reason, with the rig currently on-site there, we're drilling a couple of appraisal wells to really test for some of these upside volumes. So, we see drilling 2 to 3 appraisal wells on the field in kind of the next 3 to 4 months To really determine the way forward on that field and how that field should be optimally developed, I think that's been one of the great things to bring the team together So, just going on to the next slide. So, focusing on safety and sustainability. Now, officially Q2 is we had it. We had 0 LTIs.

Speaker 2

It was a very good Order, we had 3 quarters of a 1000000 man hours of operations and went well. However, people will be aware that Kwasana, we had an incident before the quarter, and we had an incident immediately after the quarter. And to us, as we looked at the procedures that were ongoing by our 3rd party Contractors there, they were unacceptable. We had to at that point step in, take a safety intervention and we shut down the production Until we can actually bring up the quality of the contractor to a level that's kind of required. The important thing is that we took that on Ourselves, we just recognized this was unacceptable given the quality of the other assets and how we're offering them would be and just needed, we're going to have to upgrade That contractor.

Speaker 2

And then, the third thing I want to point out is the change that's gone on in the organization. WASSANA has now been brought into the XMO battle organization that we acquired, brought on with all the standards there, The safety oversight and we're really getting much more pleased with how that's operating. Also in the past 3 months, We've beefed up the organization with bringing on a country manager to look after this, and we've just brought on the Chief Operating So, we have the role of looking after all of our operations in this area. So, we're seeing that strength in the organization, that bringing LUSANA Back into the organization that we are much more happy with the procedures, processes and HSE than that. And the final point I'll make here before handing over to Yacine to talk about finances is, we've had the court over here this week.

Speaker 2

We went out to the FPSO, we toured the facilities to get an idea of how these were operating. We're extremely pleased. But also, we had our 1st sustainability health, safety and sustainability committee meeting and really has given us the confidence to move forward on now as we Start to look at measuring our emissions, setting targets for ourselves and getting towards 2024 with our first sustainability report. So, at this point, I'll hand over to Yassine just to take you through really what were the key financials of the quarter. Yassine?

Speaker 1

Thank you, Sean, And hello, everyone. Turning to Slide 8. Thank you, Robin. Just reemphasizing what Sean has been saying so far. The company has performed quite strongly during the quarter.

Speaker 1

I think this slide in front of you, we hope, gives you a snapshot of that strong performance. I guess the numbers speak for themselves with regards to the step change that the company has gone through, but most importantly in terms of how the Underlying assets performance. As a reminder, this is the Q1 where it's under the fully under the Valora's Control, the Q1 Q1, we effectively only have blind days, which can be recorded under our books. Q2 really, we hope, gives the audience a true image of what the performance of the company is. So if you look at it from an operational perspective, as Sean mentioned, the average production during the quarter was around 22,100 barrels per day.

Speaker 1

We've lifted around 2,200,000 at an average realized price of 80.4. We'll talk a little bit more details in the next couple of slides. From an expense, On the other side, in terms of expenses, OpEx came in at around $46,000,000 which equates to around 22.7 $0.07 per barrel. On the CapEx side, it's around $44,000,000 This has led us to, Again, these numbers we hope highlight the strong cash generation capability of the assets. Revenue came in at around 174,000,000 Cash flow from operations came in at around €71,000,000 or €70,400,000 And for on an EBITDAX perspective, Came in at just shy of around $79,000,000 As far as the balance sheet is concerned, again, just highlighting the strength of the current balance sheet of the company.

Speaker 1

Cash attendance is around $121,000,000 outstanding debt is $34,000,000 As a reminder, we started the quarter we started This quarter was around $52,000,000 worth of debt. We have decided during this period to pay down a good third of it. We have repaid 18.5 tonnes per quarter. Robin, maybe the next slide. Thank you.

Speaker 1

So as far as the production is concerned, as you can see, for the quarter, we've averaged around 22 £10.21 per day. This really is a combination of performance from all the assets. This quarter represents the 1st quarter that Wassa has started contributing its production. 1st quarter for Mussa came in around April 28. I think what was what might be helpful for the audience is really to try to make a comparison on a pro form a basis with the Q1, Notwithstanding that the company, Puneera itself, only had 9 days' worth of ownership of these assets.

Speaker 1

So on a pro form a basis, In Q1, the asset generated around 20,500 barrels per day on average. This difference between the 2 quarters around an uplift around 8%. That uplift is really driven by bad performance from jasmine Due to the drilling campaign there and also contribution from Osoano during that period, which we didn't have in the 1st period. As you can see from the bottom graph, you can see the quite flat reduction that you tend to get during the quarters. And that's really a reflection of our type of drilling that exists as we tend to perform during these periods.

Speaker 1

We tend to shift from one asset to another in order to maintain that production. Obviously, from an upside perspective, the contribution from Osana have lifted the promotions from May June, as you can see in the graph there. Next graph, please, Robin. So as it comes to the lifting, I think it's worth just Reminding the obvious that since we are since all of our production comes from offshore, Which we use for floating storage vessels, we only see revenues when we do the listing. This is not a pipe oil.

Speaker 1

So we first have to store the oil and then the oil gets lifted. Usually, in terms of sizes, we can do parcels around 300 1,000 barrels for each parcel. As you can see, lifting for this quarter was around 2,200,000 Contribution was predominantly from Jasmine and Nangia as well. For Sarna, we haven't seen any lifting yet since the production only came in at the middle of the quarter. However, the lifting from Masana just occurred after this quarter, after the end of the quarter, too.

Speaker 1

In terms of comparing pro form a on pro form a basis to the Q1, obviously, from our perspective as Valeura, In Q1, although we have only we only asked for 9 days, there was no lifting during this period. However, from a pro form a perspective, in Q1, Operationally, the company the previous owner lifted around 1,500,000 barrels. This is really due to the fact that in Q1, we have Our lift in Q2 was really due to the fact that we inherited we had an opening inventory balance of around 150,000 barrels. And in the end of the quarter, Q2, we had around 780,000 barrels sitting in the inventory, which will get obviously lifted during Q3. In fact, most of it has already been listed.

Speaker 1

As looking on the in terms of the realized price, As you can see for Q2, our average price was around $80.40 per barrel, higher than what you see in terms of Brent and Dubai. As a reminder to the audience, our price tends to be linked to the buy prices. We came quite slightly above what the expectation was. As you can see from our guidance previously, it's To be more closer today to Brent, but for this quarter, we came higher. On a pro form a basis, in Q1, lifting the average price at that time was around 84.5%.

Speaker 1

That's really just a reflection of a softening of oil prices during the Q2. The price depreciated for us when it comes to the assets have also softened a little bit during this quarter. This is really due to some lower refining margins, especially when it comes to our end clients, which tend to be the higher refineries. Next slide please, Robin. This kind of like leads us to the So how this impact the actual financial performance and the cash generation of the company during this quarter?

Speaker 1

I I think from a strategic perspective, we tend to be driven by cash flows and we hope that this slide just gives you an overview of how that cash flow is generated in the business. Starting from the left hand side, we have our revenues of DKK174 1,000,000. Result from that, DKK 23,000,000 or around 13%, which represent the royalties that we have to pay for the government, effectively giving us a net of revenues of around $151,000,000 OpEx came in at $46,000,000 OpEx is a metric that we tend to use on our side, which we strip away all the non cash items and Also specifically, I guess, for us for this quarter, some of the accounting treatment that had It's stripped away due to the closing of the transaction from Comcast. For people who are more financially minded, we do have a reconciliation at the back end of this presentation from the appendix. OpEx, that $46 equates to around, as we mentioned earlier on, to around $22.7 slightly below our quite below Our guidance, so that's just reflective of the quarterly expenses spent during this quarter.

Speaker 1

SG and A came But then as expected, we are also stripping away some of the what we tend to describe as one off cost, Which is quite small, it's around $700,000 which gives us a pre tax cash flow from operation of around just shy of 100,000,000 That $100,000,000 we do have around accrued taxes and fleet taxes and also fees, which is around 29,000,000 Just again, just as a clarification to our audience, these taxes are accrued. When it comes to taxes in Thailand, they tend to be paid. Half of the year taxes, PIFA taxes tend to be paid in August and the other half tend to be paid in May. That point will be completed in the next slide, but just as a reminder, as far as this obviously says, it's paid only 1 year sorry, at least once In May, in arrears. So 2022 numbers, as I've been PAX, for example, will only get paid in May, Which basically end up with a cash flow from operation of around $70,000,000 which lead us to which well covers Our expenditure when it comes to cash and also gives us room to also repay down the debt and pay for any other cost that comes with it.

Speaker 1

Next slide please, Robin, which ultimately leads us to our cash positions. I think cash is quite important for us, Actually, when it comes to our kind of executing on our strategy in terms of growth. So here on the left hand side, you see our opening balance for In Q2, which was €271,000,000 The €179,000,000 bar there is really the tax That we had to pay in May, reflecting the 20 2 performance. This is something that we inherited as part of our acquisition of Mubadala. So if we strip away that tax payment, Our effectively one way to look at it is our effective cash balance at the beginning, which is really taking away, stripping away that profit was before our acquisition, We effectively started the quarter with a $93,000,000 adding our cash flow from operations.

Speaker 1

During this quarter, we also paid the last Deferred payment when it comes to the MOPU. So now happy to report that we own the MOPU 100%, the MOPU on Wassona. And then taking consideration interest payment and as I mentioned earlier on, the repayment of the debt And also a change in working capital, we end up with a cash balance of around $122,000,000 for this quarter. Now just to Quite something that cash balance from both ends also includes some restricted cash, which is maximum in any case. And I guess with that, I'll hand back to Sean.

Speaker 2

Thanks, Tazeen. Yes. So, just looking at our guidance, again, as I talked about it right at the beginning, we We put our guidance fairly quickly after closing the deal and really we've had now time to really work with the team and understand that a little more as well as bring synergies between the two companies as we bring both of the 2 companies together. The important thing is our production guidance remains unchanged. Again, I know that while Wassana is currently off disappointingly, we're still well within our production guidance that we have there.

Speaker 2

Important ones are really the OpEx. And we really see as we've come in and started to look We've seen some drops in the OpEx, which is good. If you were looking and you would have noticed for this quarter that the OpEx was actually only about was actually only about $46,000,000 I think it was a little bit less than that for Q1. So, with those two numbers So, the first half of the year, it would look like we're going to come in well under that OpEx. However, I have cautioned that normally the way the company works There is a lot of workovers that are done that are coming as operating costs, and those normally take place in the latter half of the year.

Speaker 2

However, right now, we think those would be on the order of maybe on the 50. Those are included in these budget predictions, but those are contingent upon the work being required. So, we're pleased to see the OpEx numbers coming down. And the other one, importantly, as we We're now looking at a range of $155,000,000 to $175,000,000 for CapEx as we go forward. And again, this is the 1st quarter full Operations, we're really looking forward to getting another quarter behind us as we really start to refine these numbers a little more.

Speaker 2

And that will then let us Really step into 2024 and look at how we're going to work on these numbers and add more efficiencies as we go to 2024. But the important thing is even after 1 quarter performance, we're starting to see those savings that are going to come through as cash back to the Company in the end. So, good news on that front. So, Robin, just maybe to the last slide. So, look, bringing it really back to a summary is we have transitioned the company now into a company that has a strong cash flow.

Speaker 2

We've got a good production there and we've shown that we've been able to increase that from Q1 into the second quarter. The important thing that I didn't touch on here, but we have in our other presentations is reserves, finding of new reserves. We've had the rig working full time, drilling on the different fields, and we expect as we work these numbers through with our external reserve audit at the end of the year, This is going to add new reserves in that will replace a lot of the production that we've had. Historically, the Company has always had about 100% reserve replacement for the past 6 years. And we would look for that to continue as we go forward.

Speaker 2

So again, Strong cash flow now and this isn't just for the next couple of years, we see that cash flow continuing into the future And importantly, leverage to a Brent price, again, which we're seeing currently on the rise. And finally, as I pointed out in the last slide, As we bring the companies together, we're really going to start to see synergies, hitting down costs that are even going to improve the financial results of the company even more. And cash flow is extremely important. Growth. Talked a bit about some of the organic projects in this portfolio.

Speaker 2

We're looking That increase in the production for next year, as we bring on the Nang Yaoci project as well as the Wassana Pilot wells, Katie, once we get that back on production. So, we're looking at 2024 as having higher production. But, obviously, as we get closer to doing our Full budget and projections for 2024 will be given guidance towards the end of the year. So, that's just on this portfolio of opportunities. M and A.

Speaker 2

We've demonstrated that we could come over into Asia and we could do these deals, which have been highly accretive to our shareholders. And we did that with about $30,000,000 $35,000,000 cash in the bank and with Valeura not being a known company here. We are now one of the larger independents in the region. We've got strong cash flow. And all of these factors have now made us recognized in the region, So, that we're starting to look at other deals and people are actually starting to talk to us about potential deals.

Speaker 2

And importantly, the cash that we're bringing in It's really going to help us as we look at other deals on a cost of capital basis, right? So, showing we can do deals and we see more deals coming. The other thing I'd like to point out, which I touched on is, and this is something you can look at from any of the analysts or you can do yourself is, We are currently trading at a significant discount to our peers. Even though we've had this large jump in share price, We've now shown the cash flow potential. Currently, we're trading at about US4000 dollars a flowing barrel and of our international peers that we would compare to, They're trading at almost 25,000 of flowing barrel.

Speaker 2

If you just look at reserves, we're trading at about $3 for our 2P reserves, And that's less than half of our peers. And additionally, the point we made was that our enterprise value is currently just under 100,000,000 And now the value from our reserves auditor, so the value of the assets comes in at just under $270,000,000,000 So, it's significant discount to that. So, while we've done well this year, while we're still up in price for year to date, we see this as just the beginning of The value increase we can have and that it's still a good time to buy into the Company. So, with that, I'd like to thank you all. It's been an exciting Q1 and we're very pleased to be able to start to get those numbers out of queue.

Speaker 2

Thank you very much. At this point, I'll hand back to Robin who will go through some questions.

Operator

Thank you. Thanks, guys. Okay. Just bear with me a second. We've had a bunch of questions come in.

Operator

And Just a reminder that if you do have something you'd like to ask, we can use the Q and A feature in Teams or you can drop us an email using irvaloreenergy First question will go to I'll paraphrase most I'm here. With cash building, what's your capital allocation strategy in general for 2024 and beyond?

Speaker 2

Yes. So, first of all, obviously, the key thing that we're looking at is The cash flow from these assets and how much we recycle back into the assets to continue to, as we talked about, having that growth And then, try and maintain the production going forward because these assets still return very good value. It will then be really looking at as we're in 2024 at What's the pricing at? How quickly are we building up cash in the company? And what are the other opportunities that might be available to us As we look at how we're going to utilize that cash.

Speaker 2

So, at this point, we do know we're going to continue to work on these assets. We are looking at other assets where we can see utilizing some of this cash foundation that we're starting to build up. And then, it's a matter of just looking at whether there is any return to capital is considered to shareholders next year. But I would just caution, it's a question that comes up a lot from people. The important thing for us at this point in time is that we actually build up a solid cash foundation That allows us to have the flexibility to choose the best options, whether it's recycling the cash into the assets, Taking on growth or return to capital.

Speaker 2

But, the important thing is to actually make sure we build up that cash foundation first.

Operator

Okay, good. I think you presumed a bunch of the questions that I've got in front of me here, but I'll voice them anyway. With cash building, is there a possibility that you're considering a big acquisition in Southeast Asia? And in particular, Is there any possibility of getting something like a big gas asset into the portfolio?

Speaker 2

Yes. No, definitely. That's really something we're looking at. And I think I've commented before, but a lot of my background with Alan Woodside, that has been in gas assets. With the transition that's going on in energy, it's assets that we'd like to get into.

Speaker 2

And we do see lots to do here in assets that we expect to be coming on the market. So, yes, We'll look at how we utilize that cash as we talked about, how we utilize that to make those deals happen. Yes, we do see going after some significant cash assets.

Operator

Okay. And you'd mentioned returns to shareholders, very specific question here. What do you think about the idea of initiating a buyback authorization and then just using it at some point down the road when it's appropriate? Is that something we would consider?

Speaker 2

Yes. So, first off, I'm trying to figure out there whether the person is actually really asking for immediate Cashback or just to put something in that looks like we're going to do. As we said, the number one priority is the cash build and understanding our financial A situation as we get into next year and then to be reviewing that with the Board as to what we do. What is the best way, if the Board were to consider any returns of capital, what is the best and optimal way to actually achieve that? And at this point in time, we don't have a comment on it.

Operator

Okay. A question on OpEx. And I think you've addressed this in part in your prepared remarks, but The question is, with production being relatively flat quarter on quarter basis, Should investors expect that OpEx and CapEx are also going to be

Speaker 1

flat? Maybe I'll take the maybe I'll start with the CapEx and maybe Sven, back to the OpEx here. I guess, as far as the CapEx is concerned, bulk of our CapEx tend to be on the drilling side. And as Sean mentioned earlier on, we will have a rig basically working every day for the remainder of the year. So directionally speaking, I would say that CapEx It will be the same quarter by quarter in this year.

Speaker 1

And indeed, that's the same kind of observation we see as well when we do a pro form a basis in terms of the last quarter as well. Going back to the OpEx, as Sean mentioned earlier on, Maybe stepping back a little bit here. OpEx tend to be flat operationally, notwithstanding some of the Cost optimization that we have investigated this quarter, which we hope will generate some further we've already seen some positive results And we do hope and expect to see more coming over the quarter on quarter. But we do have some work program that will occur in the 2nd, for the remainder of the year, as Sean mentioned, this relates to workovers and also some maintenance. So from an OpEx perspective, At this point in time and assuming these work orders do occur, which are still contingent on the performance of the wells themselves and some of the production overall, We do see direction that the OpEx will go up compared to this quarter.

Speaker 1

And you can see that I mean, just to give more guidance as well, OpEx for the Q1 on a pro rata basis were very similar to the OpEx for this quarter. So, you can see the delta when it comes to our guidance, Ken.

Operator

Okay. Carrying on Income statement items, question here is cash generation ongoing And a large portion of the non cash charges related to the acquisition now being behind us, Is there a potential that we see positive net income going forward?

Speaker 1

We hope so. The short answer is we hope so. There have been I think it's a good point. It's a good question actually. We've seen quite a lot of one off costs That were basically charged for this quarter.

Speaker 1

I mean, obviously, as we move through the quarters and we go and as we move through the quarters, we'll see this These one off costs kind of disappeared. It's worth highlighting from an accounting perspective, in the Q1, we've booked quite a large earning Due to the bargain price mechanism, it's purely an accounting treatment. And that has I think just as a reminder to everyone, In Q1, we made more than our market cap in terms of profit that quarter. I think going forward, we see That loss reversing, Neil, especially with a better performance in terms of the assets and also higher oil price.

Operator

Okay. Questions on tax as well. While we've got you in the hot seat, you've seen any update on restructuring of the business and potential to apply tax losses going forward?

Speaker 1

I think from our perspective, obviously, the whole restructuring is really driven by operational matters first and foremost. Our ability to achieve that tax restructuring and the benefit of consolidative is really to cherry on top. It's an ongoing process. But as I said, fundamentally, we're more focusing on operationally Putting the 2 companies together. If there is any information, obviously, we'll be communicating to the market in terms of that outcome as well.

Operator

Okay. And speaking of putting companies together, sort of a comment and a question from an investor here. Great to read positive notes on future potential in both Menorah and Wassana, which is obviously related to putting the businesses together. Can you provide more detail on what the upside opportunities looks like for further infill drilling in Menorah and also for the opportunity in Wassa.

Speaker 2

Yes. No, definitely a menorah. I touched on that in the presentation. And the team having now drilled the wells, looked at the numbers they got and the success there. They see probably 3 more wells on Menorah.

Speaker 2

In kind of the 2024, 2025 period, we really haven't got into details on the sequencing, but that's kind of out there. Now, on WASSANA, It really is we're really looking at this as the upside volumes could be quite a bit more than we've actually carried on reserves. But again, you have to get into that appraisal mode. And that's why as we work through with the team on this and they kind of brought back this potential of the field, We wanted to get that information fairly early on to try and look at those results as it will really Guide our decisions that we'll take on facilities for Wassana. In other words, are we looking at something that we need out there for another 2 to 3 years or do we need it for another 8 to 10 years?

Speaker 2

So, that's really why we're trying to get on with those wells. And What's interesting, we have had the question from people as to, oh, what wells should I be looking at closely that you're drilling? And we've kind of said, well, no, most of them are just what we're doing is infill adding production. It's about statistics. We're going to put 20 some wells down And you're going to have a high success ratio and that will add volumes.

Speaker 2

But the Wassa ones will be quite interesting to see because they could open up some real potential. So, we'll release those results once we kind of get them over the next couple of months here.

Operator

Okay. And on the topic of field life, a question related to decommissioning here. I realize the Q2 financials show the present value of decommissioning. Can you give some color on when you would expect to see actual cash payments for decommissioning. So, I think this question is really asking about extension of field life and what we're expecting for the various assets.

Speaker 2

Yes. So, as we've talked about in past, Thailand has a mechanism when you get Near end of field life that you do have to start putting some of that money aside. So, to give you an idea, 75% of the abandonment cost The menorah has already been put aside set aside on a cash basis. And next year, we'll put aside the last 25% on that one. The other fields you constantly do a review of as to where the reserves are at relative to initial reserves, what's the financial capacity to field remaining.

Speaker 2

And those discussions take place every year with the government. And we're obviously looking to, as we do more activity here, that's increasing the potential of the fields, the cash flow from the fields Trying to defer having to think about any of those abandonment. So, we still see the abandonment, as we've said, while the reserves that you see, All we say abandonment is 3 to 6 years out there. Every year, it just keeps deferring. And since, as we've shown in our plots, Since 2017, abandonment has always been 3 to 6 years out there and every year the reserves keep getting replaced.

Speaker 2

So, we really see much More potential here to keep deferring that. And that's kind of the reason you would have seen recently, we just actually renewed the contract on the FPSO on Jasmine field Out until 2028?

Speaker 1

Maybe, Robin, just to add to that point. Prince, we're highlighting that, that commissioning kind of security for the company, actually any company in Thailand Has to provide to the government doesn't have to be in cash. There are other method that satisfies those obligation, The letter of credit from the bank, bank guarantee, obviously, from our side considering we acquired the Mubadala's asset And that decrease sorry, that decommissioned security was required to be submitted earlier on and also to reimburse Effectively, the last the previous owner's own security deposit on that, we had to use cash. Obviously, going forward, we'd like to seek Support from financial institution to effectively use their credit rather than our cash. It's something that as a company, we're working quite hard On it as well.

Speaker 2

Okay. Very good. Final question.

Operator

Is the political situation in Thailand impacting the Company in any way?

Speaker 2

No. Honestly, it's really not a business continues as normal here, and it's fine. We can see that sometimes, given the government is still in a transition mode that Some of the approvals, even related to kind of our corporate restructuring, may take an extra few months in there When you need the approvals, generally, it's been fine. We haven't had any issues.

Operator

Very good. Okay. That completes the questions we've had submitted. Just a reminder to the audience that if there is anything you'd like to follow-up on, feel free to reach out to us using irvalorenergy.com or any of the other contact details that are available on the website. Happy to engage after the call if there's anything we can help with?

Operator

With that, over to you, Sean, to wrap it up.

Speaker 2

Yes. No, again, I'd just like to thank everyone for joining here today. It has been very exciting for us to just get out these first numbers. To be looking at really the magnitude of the business that we're running here, And as we brought the Board over to go down and just meet all of the team, meet the assets, it's a huge transition for the Company that's extremely exciting. And we really just see this as a first step in the region with the new relationships that we've established and with the recognition of Valeura now in Thailand.

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Key Takeaways

  • The company delivered Q2 2023 revenue of $174 million and generated $70.4 million of operating cash flow on average production of 22.1 kbpd.
  • Operating costs were reduced to $22.7 per barrel and CapEx savings are materializing via a single-rig drilling program, while full-year guidance remains unchanged despite Wassana downtime.
  • Valeura ended Q2 with $122 million of cash after repaying $18.5 million of debt, implying an enterprise value of ~$93 million versus a market cap of $181 million and underlying asset value of $270 million.
  • Ongoing infill drilling at Jasmine, Menorah and Nongyao, plus 2–3 appraisal wells at Wassana, aim to extend field lives and potentially boost reserves and production in 2024.
  • Despite a ~4× share-price gain YTD, Valeura trades at a deep discount to peers on both flowing-barrel and 2P-reserve metrics, suggesting room for multiple expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Valeura Energy Q2 2023
00:00 / 00:00