Valeura Energy Inc. (VLE) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to Valeura Energy's 2023 AGM. This event is being recorded and is being broadcast live today, June 20. I'm going to hand the podium over in a moment to our Chairman, Tim Marchant. Before we get started, just a couple of housekeeping events -- housekeeping items rather. For those of you in the room, no fire drills planned today. If we hear an alarm, it's the real deal. We'll exit through the conference entrance, down the escalators, out the doors and across the street towards [ Metro Can. ] [Operator Instructions] So with that, I will hand over to Tim.

Good afternoon, everyone. It's now 4 p.m. Calgary time, a little after, and I will ask that this meeting come to order. My name is Tim Marchant, I'm the Chairman of the Board of Valeura, and I will act as Chair for today's meeting. On behalf of Valeura, I'd like to welcome everybody to today's meeting, both in person and online. I'd also like to welcome people who are listening to the live webcast. I don't know, I hope that you could find out a good way to participate. Before we proceed with the formal business of today's meeting, I'd like to introduce the directors and management who are present today, and I would like each to stand momentarily when I call their name, Jim McFarland, Director; and Robin Martin, VP Communications, who you've already met. The rest of our directors are connected remotely. And in addition, the executive team who are joining us from Asia include Sean Guest, who is a Director, also the President and CEO of the company; and Yacine Ben-Meriem, who is the new Chief Financial Officer of our company. For this meeting, [ Stephanie Simpson ] from Torys LLP, will act as secretary. And I appoint the representatives of Computershare Trust Company of Canada to act as the scrutineers. The notice calling this meeting, the information circular, a former proxy and a mailing request form were mailed to all registered shareholders on May 16, 2023. The declaration of mailing is available for inspection by any shareholder, and I would ask that the secretary file a copy of such with the minutes. I've been advised by the scrutineers that a quorum has been set for the meeting. The scrutineers' report is available for inspection by any shareholder, and I would ask that the secretary similarly file a copy of such with the minutes. With that said, I declare that the meeting is regularly called and properly constituted for the transaction of business today. For convenience, we've divided the meeting into 2 parts. The first part will deal with the formal business of this meeting, the second part will consist of a presentation by Sean Guest, our President and CEO, on the operations of Valeura, which will be followed by questions from registered shareholders and proxy holders. To facilitate the timely completion of the exciting formal business, arrangements have been made with certain shareholders to move and second the resolutions to be considered. Votes will be conducted by way of a ballot, except for the appointment of auditors who will be voted on by a way of show-of-hands vote. If you are a registered shareholder and have not submitted a form of proxy, or a proxy holder and you have not received a ballot, please identify yourself to the scrutineers and the ballot will be [indiscernible] you. The first item of business is the presentation of the 2022 audited financial statements of Valeura and the auditor's report thereon. The financial statements are available on SEDAR and have been sent to those shareholders who have requested copies. The next item of business is the appointment of the auditors. May I please have a motion for such business?

Mr. Chair, I move that KPMG LLP be appointed as the auditors of Valeura to hold office until the close of the next annual meeting or until their successors are appointed and sets remuneration as may be determined by the Board.

Is there a seconder?

Mr. Chair, I second the motion.

Any discussion? All those in favor of this resolution, please signify by raising your hand. Contrary? [Voting]

I declare the motion is carried. The next item of business is the election of the directors. Valeura has nominated 7 directors for election, and did not receive any nominations from shareholders in accordance with our bylaws. Accordingly, I will now receive the corporation's director nomination.

Chair, I nominate the following for election as directors of Valeura: William Sean Guest; Timothy R. Marchant; James D. McFarland; Ronald W. Royal; Russell J. Hiscock; Kimberley K. Wood; and Timothy Chapman.

May I now have a motion for such business?

Chair, I move that the corporation's director nominees be elected as directors of Valeura to hold office until the close of the next annual meeting or until their successors are elected or appointed.

Is there a seconder?

Mr. Chair, I second the motion.

In accordance with Valeura's majority voting policy, the directors will be elected individually by way of ballot. For a nominee to be elected as a director, he or she must receive a majority of the votes cast in favor of his or her election. If you have not received a ballot, please identify yourself to the scrutineers. I'm advised by the scrutineers that each director nominee has received greater than 50% of the votes cast in favor of his or her election as required by a majority voting policy. Accordingly, I declare the motion carried, and that each nominee is elected as a director. The next item of business is the approval of all unallocated options under the stock option plan of Valeura. May I please have a motion for such business?

Chair, I move that the resolution on [ Page 7 ] [indiscernible]

Is there a seconder?

Mr. Chair, I second the motion.

Any discussion? As previously stated, the approval of all unallocated options under the stock option plan of the corporation will be voted on by way of ballot. If you have not received a ballot, please identify yourself to the scrutineers. I'm advised by the scrutineers that the motion has been carried by the necessary majority. Accordingly, I declare the motion carried. The last item of business is the approval of all unallocated performance share units and restricted share units under the performance and restricted share unit plan of Valeura. May I please have a motion for such business?

Chair, I move that [ Page 18 of ]...

Is there a seconder?

Mr. Chair, I second the motion.

Any discussion? As previously stated, the approval of all unallocated performance share units and restricted share units under the performance and restricted share unit plan of the corporation will be voted on by way of ballot. If you have not received a ballot, please identify yourself to the scrutineers. I'm advised by the scrutineers that the motion has been carried by the necessary majority. Accordingly, I declare the motion carried. That now concludes the formal business of the meeting. I declare the formal part of the meeting terminated, and thank you all for attending. Now that the formalities are completed, Sean Guest, our President and CEO, will give an update on Valeura's operations. If you have any questions at the end of the presentation, we ask that you raise your hand and wait to be acknowledged and to be handed a microphone and then begin your question by identifying yourself and indicating whether you are a registered shareholder or a proxy holder. [Operator Instructions] So please bear with us for a minute while we connect Sean to the meeting.

Sean, if you could mute your microphone now.

Yes, I'm unmuted, Robin.

Perfect. Go ahead.

Okay. Thank you very much, Robin, and thank you, everyone, for joining us here today. I'm currently in Bangkok in our office here over in Thailand; also with the CFO, Yacine Ben-Meriem. So it has been an interesting year since really the last time that we were together for an AGM. And if I just step forward, a couple of slides, Robin, to first one. From that time, we've really changed from the company where we were just starting. We just started to do our first acquisition in Thailand. But in the end, in 2022, we ended up completing 2 acquisitions in Thailand. That really left us for TSX and TSXV as one of the top-performing companies there with a significant share rise. What was also nice for us was that, that growth that we demonstrated in that change in the company was really appreciated over here in Asia where, 2 weeks ago, we were awarded kind of the Best New Entrant Company of the Year by the Energy Council meeting over here in Singapore. We also received nominations and were shortlisted for several other awards like Deal of the Year and Executive of the Year. It's really vaulted us from a position of working in Turkey to really an established independent over here in Thailand. The other key aspect is the focus is not on the upside from a large exploration plays we had in Turkey. We're a cash-generating business with prices that are linked to Brent oil pricing. So we currently now have 4 fields that we're operating. All of those fields are performing well and delivering the cash flow into the business. The other point we want to make is that while we've been able to make this very significant growth, but we see more growth as we move ahead. We have the team and we have the experience in this area to actually deliver more deals. Next slide, Robin. So we've also changed the team during that time. And really, it was through a move of the executive over to Southeast Asia, and recognizing it's just too difficult to really run a Southeast Asian business, a significant Southeast Asian business, from over in Calgary. Most of my career and experience has actually been in Southeast Asia and Australia in this region. For me, it was really coming back home to this region. But with some of the changes we've made in moving the executive over here. Yacine Ben-Meriem has been brought on as the CFO. Yacine's background is in investment banking. Almost all of his career has been here in Singapore, and he's been involved in a number of significant M&A deals in the region over the past number of years. Kelvin Tang has joined us as EVP Corporate, and our General Counsel and Corporate Secretary. So Kelvin has been involved with the assets that we've acquired actually back to the original picking up the blocks, discovery of the assets and development. He's got a strong experience, again, working in Thailand, working in this region and as well as he's been very involved in new business throughout the region, both commercially and legally. And finally, I point to Dr. Ian Warrilow that we brought on to run our Thai country business. The key point here is that Ian and I crossed paths in Shell and Woodside in our careers. But Ian was really #2 in Thailand for Mubadala on the same assets we've now acquired, and had other roles like Mubadala's country manager for Indonesia, developing a gas field there, as well as executive roles back in Mubadala's office in Abu Dhabi. So Ian is well known to the staff, well known to the regulator, and has really moved in. It's the only position that was changed in the organization when we acquired Mubadala here. Next slide. So just summarizing the 2 acquisitions, which really took us from having no position in Thailand to now being the second largest oil producer in Thailand after the national oil company, PTTEP. The KrisEnergy acquisition was out of receivership where we bought 2 assets, one was a suspended oil field and one was an oil field capable of development. And then we went in and also bought out of another receivership, the production unit. Now we have got that suspended oil field Wassana back on production now, and we've got that producing. So that's really the fourth of our assets there. The second more significant acquisition is buying all of Mubadala Energy's, the sovereign wealth fund of Abu Dhabi, their energy company, buying all of their oil production in the Gulf of Thailand. And really for a very low headline price, considering at the time we were buying approximately 21,000 barrels a day of production. But in this case, we really took advantage of pressure on the major companies around the world to transition their portfolio and exit from oil production. And therefore, we're able to acquire these assets at very low cost where we still see a lot more potential in them with getting a focus back on the team. So you can see the assets we acquired there. Jasmine was acquired from Mubadala, largest field. Nong Yao, still significant growth in that asset. Manora, interesting field that was due to be abandoned last year but is still producing extremely well. And then the Wassana field that we bought on production. So that's really a summary of the asset base. Next slide. And then just really highlighting, in the bottom left, the change that we went through from going after the new business in Southeast Asia, where we started with cash of $35 million to $40 million, and what we've actually achieved in the end. So we're looking at between 23,000 to 24,000 barrels a day of net production. The revenue now, based on current pricing, is going to come in at about $600 million a year. When we closed the deal, there was about USD 270 million in cash in the accounts. Now we have since made a large tax payment, but still have significant cash in the company and jumping up that asset base. So again, when we look at this, we've got that large bump in price to that Mubadala acquisition. However, what we have not seen is really a true value related to these assets. We're currently trading at just over half of what is our reserves value, which we believe is lean and there's more potential there, and not really much above cash at this point in time, and yet we have 4 assets that are producing extremely well and producing as we expected. Yes. Next slide. I'm just going to show a quick slide on each one of the assets to give you some background. The Jasmine field has been online for the longest. The key point we really want to make here is in that center box is a history of reserve renewal. Where you can see there that this field, they took the investment decision in 2005. It was supposed to recover 7 million barrels. A couple of weeks ago, we did an announcement that the field had produced 90 million barrels. And this is a great thing with Thailand is you can find that initial pool of oil, develop it, get cash flow and then continue to extend out. So what would have been an initial 1 platform development, in the upper right, you can now see 7 platforms tied back to the FPSO. Now this is a mid- to late-life asset. We're still seeing activity. We're still able to add to the production and the reserves in this case. But you can see that it really has gone from about 20,000 barrels a day to now it's come down to around 10,000 barrels a day. And our objective here in this asset is really to maintain that stable production. It will slowly decline as we go forward, but just let it slowly decline, but it still has more life in it. And we completed a very successful drilling program on it in the first 4 months of the year to bring the production up to even higher than it was last year, but now that's likely going to slowly decline as we move forward. Next slide. Nong Yao field. This is a field where we still see growth, and it's just in the early days, right? We have 90% working interest here and again, are operated. It reiterates that point that we saw for the Gulf of Thailand, where you've got that history of reserve renewal. This field was supposed to have 3 million barrels when they took investment decision with a single platform. It's now done. As you can see, we've done -- we've produced 25 million, but added 34 million, so there's still 12 million barrels of reserves at year-end last year. Right now, you can see the production for this year is planned to be slightly lower than last year, but that's because we still have growth in this asset. In Q4 this year, we'll be installing a new platform, platform C. We'll then drill 9 wells on that. And then we anticipate to bring those on to production next year around late Q1. And that will jump up the production of this field. The average for next year, we're looking at around 11,000 barrels a day. So this is still a growth asset. And when you look at it compared to Jasmine, we're at the stage here of 2 platforms. We're installing that third one this year, and we're already looking at putting on the sequence for next year, what is called Nong Yao D. It's really a test of the next step out to see where the next development would go. So we still see much more growth in this asset. We're able to push it out further. Next slide. The Manora field is the smallest and our working [ industry ] is 70%. But the most interesting thing about Manora was that when we are looking to acquire these assets starting in 2021 and into '22, this field was supposed to have been abandoned a year ago, right? Now with slightly higher oil prices, better production, instead the venture drilled 2 wells last year that were successful at maintaining the production, and we currently have the rig back on site drilling 3 more infill wells this year. So you're getting production in this field. Now that's still above the level you were looking at a year before it was due to be abandoned. And that's really the key thing here is to take what was an abandonment that was planned for 2022. Last year, we moved that to 2025. And with successful drilling this year, we'll see if it can even be pushed out further. So that's really the success of these fields, and to be able to do this, not just on Manora, but on the other fields. Next slide. The Wassana oil field, the one we bought from KrisEnergy. So we have got the FSO out there. It's installed, and the field has now been on production for a couple of months. It's producing slightly less than we would have liked. We've had a couple of wells that have had pumps go down. However, it has got stable production, and the rig will move. After Manora, we'll move here, to first get those pumps fixed and get the production up from those wells. And then it will actually drill 5 horizontal wells, long reach wells, to try and look at developing that 2 reservoirs that was not fully developed prior to the field being shut in. So really looking ahead to 2024. We see that production should be averaging around 5,000 barrels a day. And again, a growth story still here. Okay? And look, this is one of the key components when we put this story out and we put the guidance out a couple of months ago. The CapEx we have for this year is high in the $180 million to $200 million range. And historically, that is above what these assets would have. Generally, the KrisEnergy -- sorry, pardon me, the Mubadala Energy, the 3 fields there would have had CapEx numbers to maintain the production in the $70 million to $85 million at year-end. Adding on another field, we had expectations you should be looking at $105 million to $110 million type of CapEx per year. As we've noted, this year is high because we're looking at 2 growth projects. Bringing on Wassana, those 5 horizontal wells to look at least at 50% and even looking from where it's at now, probably more than doubling production, and then the building of the Nong Yao C facility, which should come on in Q1. And that's really when we see those projects and we look out to Q2 in 2024. So about 12 months from now, we expect that we should be producing above 25,000 barrels a day at that time, right. A few other projects this year is obviously bringing the 2 companies together and really starting to look for the synergies, both financial and in people and in operations that we can start to look at for saving costs. Next slide. So just to point as we look at the production going forward. And the key thing here is we do see production growth for next year, given those 2 projects. But our objective for these assets is really to look at trying to maintain that production in a relatively stable level and to keep pushing the fields out. And that's the issue. When you look at our reserve value now, which is, I think, USD 267 million, it's about that point that each year, we're able to replace reserves and push those fields out. Robin, next slide. And we've shown this slide before, but these are the data we've taken from the government website. And again, the blue bars are from the government site, the proven reserve number, not the probable, the proven reserve number at the end of each year, gross for just Mubadala fields. The red numbers are the actual production for that year, right? And what you can see, as you look back for the past 6 years, is that every year, the reserves have remained largely stable at year-end, even though each year, you're producing half of the 1P, half of about half of the proven. And what that's saying is that every year, going back to 2017, you've been able to pretty well fully replace the reserves. And we see that trend continuing further into the future. So when you look at a value of $270 million for the reserves, well, that value has largely not changed as you step back through time because the reserves have remained largely stable as you're getting full reserve additions in that case. And that's what, as we push that out further, able to continue that stable production going forward and take the cash flow from these assets. And that's really one of the key points here is that these assets we see, they've got strong cash flow now. And we see that the geology, the system and the growth we can still achieve will deliver that cash flow as we continue to go forward. Okay. Next slide. So those are the asset base that we have. And then we start to look at what else we can do with the deals that we did last year to get ourselves into Thailand, we're really now recognized as a significant independent player in the region, and we're seeing more opportunities start to come to us. When we did these deals, we took advantage of energy transition that was going on in the industry, and we targeted oil specifically and significant oil assets. That will be a little bit harder as we go forward because we've now seen the likes of Shell and BP starting to back away from this, removing oil from their assets, and in recognition that oil is going to continue to be a major component as we go forward. Now we will be looking to transition. We do like gas. My background mostly has been in gas assets, and we like to get into that. But for the moment, it's about where we can deliver the most value to shareholders. So again then, why Southeast Asia? Why are we focused here? Well, obviously, the key thing is this is where the team's background is, experience are, in context. Proven hydrocarbon basin, so the geology is good, and experience in myself and the team is we've developed assets and produced assets in this region. But importantly, though, where we sit over here in Bangkok right now, within 5 hours' flight, we've got half the world's population. When you're over here, the energy, the growth that is coming out of Asia, you can see that this is an area that will be driving the world economy as we move forward. And they're energy starved. This is where the demand is for energy. We've worked around the region and have the skill sets to really add more deals into this region. Robin? Just a final point on that is that the Mubadala team, the assets that we acquired, and we acquired that full business unit. They have excellent environmental experience in the area. The team works very well in the communities in which we're working. We have not really made changes in that team. They're continuing to do what they've done through the past number of years, which is operating in a safe, sustainable way with the same team. As I noted before, the only thing we've done is we replaced the country manager, right? So we're very proud of that team. And as we kind of nest the other KrisEnergy team in there, we'll look at the synergies that we get there. We will, though, start to look at now. These are producing oil assets. This year, we'll get our full baseline measured, understand what are our missions, and then we'll produce our first sustainability report in 2024, and we'll look for ways that we can reduce the emissions from these fields beyond the natural declines that will take place over the next 10 years on these assets. Okay. Next slide. So a final note because many of you have been involved in the company since we had the Turkish tight gas play. We still have those assets in Turkey. We still hold a significant position of it. We have ideas as to where we will drill the next well. But for the past few years, we've been looking at a farm-in as we would rather not be drilling here at 100% level in this area. Our plans going forward are we have submitted to the government applications for extension for another 2 years, and those are in processing by the government currently. We have -- I've mentioned, we've been looking to farm it out. And obviously, it's been a time that it should have been a good time to farm out things in Turkey. We haven't really seen any formal offers come to us that would be acceptable. We believe part of it is it's still viewed as expiration and still kind of viewed as unconventional. Neither of which are very vogue at the moment. However, the new deals that we've got, what it does give us, is actually the commercial flexibility now to talk to people about how we would go forward together, whereas most -- up until now, we've been looking for a full carry by someone, whereas now we could be looking at even carrying a portion of the well ourself to get someone in for larger carriers going forward. But we still have the asset. We've submitted the extension applications for another 2 years to the government, which should take it up to June 2025. Robin, next slide. So looking back recently, we announced the KrisEnergy deal last year and got that closed last year. We announced Mubadala at the end of the year and closed that in March. We got our guidance numbers out, which really pointed to the amount of cash that was even in the company. We've got the production started on Wassana. We've got 2 infill programs completed on Jasmine and Nong Yao, and we got the Q1 results out back in May. Now the one thing about the Q1 results is it really was a balance sheet matter. You could see, obviously, the asset base, it increased up to about $900 million. But what was not there was any real revenue in the company. There was no production really for the quarter because the deal closed right at the quarter. And we believe this might be something that the market is still looking for. While we can point the production from these assets, we don't have any of this revenue in our books. And we see that as really an important upcoming event is in the second week of August after that Board meeting is to get the Q2 financials out to show the production numbers and to show the cash flows that these things are generating. Other events that are key is, in Q4, we will have the installation of the Nong Yao facility and start the drilling there. And then we'll also get on to Wassana probably in about a month from now as we start that 5-well program, which is really looking to jump the production from Wassana up significantly. And then moving forward, again, that important time to focus on for us is Q2 next year where we believe we'll have highest production, over 25,000, could even be towards 30,000 barrels a day for a short period within that quarter in Q2 is a high point once we get these projects on. Next slide. So the final slide is really pushing out. We talked about we have the cash flow, and we have the cash flow going forward, which is really forming the foundation to the business. We will see other growth projects like we've done a couple of small equity deals recently, but we are looking at other projects in the region that can still be highly accretive to our shareholders. The main thing that we see is the share price we're at right now is not right, given that we're at a very significant discount to their 2P reserves value. And when you compare us to how we trade to our peers, we're trading well below this. So we're looking at activities to try and get out there, get the story out there further. But really, a lot of it, we believe, seems to be hinged around getting the actual revenue introduced into our financials so we're able to speak to it. So with that, I'll conclude the presentation. Thank you all for joining today, and we'll take any questions. Robin?

Great. Thanks, Sean. Questions from the room? Any takers? No questions. Okay. Think about it. There's a couple that have come in online. I'll just liaise them for you, Sean. First question is on taxes. And the question is, is our corporate restructuring still on track such that we can eventually take advantage of the KrisEnergy tax losses? And if so, can you please give an approximate time line?

Yes, we see that, obviously, we need to be restructuring the companies over here as we've talked about, and that's on track. So I think we stated before, this is a process that goes on. It will take 6 to 9 months, but we really need to get that restructuring together to bring these companies together all into one tax-efficient structure.

Okay. And next question, when do you expect you'll do your next operational update? Everyone is aware that August is when we report our Q2 results. Is there any opportunity for us to announce something earlier than that?

Yes. Well, 2 things. I think we're probably at the -- right at the end of the quarter, we can obviously speak to what the production was for the quarter and some of the finance numbers that are set immediately at that point in time. We do also have another announcement here where we have an intent to announce a COO for the company, which we'll do that shortly having just come to arrangements. So we have a couple of announcements kind of coming. But to us, really, the main focus has to be on those August results. So we've been delivering operational results. On Nong Yao, we're currently drilling on Manora. Results have been coming in very well. But at this point, it hasn't seemed to [ got ] any traction. So we really believe it has to get down to the financial numbers.

Okay. And a follow-up question online here as well. Your cash position, will you announce that with an operational update? Or will you make us wait until August?

I think we can probably announce cash. That's a number that we can sweep through the bank accounts and say, "This is how much is in there."

Okay. Okay. Next question is on future inorganic growth. What sort of magnitude of opportunities are you seeing? Is there anything that's as large as the Mubadala Energy in Thailand or in the region?

Yes. We're seeing a number of things that are as large as that in the region. So no, we still see there is good deal space in the region. Now maybe strategically, it's changed a little bit because, as I pointed out, it's no longer the majors looking to shed these oil assets at the same pace. However, there are still different strategies going on as major companies look at their global distribution, decide where we're moving out of this company, changing our position here. And there has been a bit of a retreat from Asia believing a lack of materiality for those companies over here. And we'll look at a number of opportunities that could be related to that strategy.

Okay. Great. That's it for our online questions. Any questions from the room? [ All right, group. ] All right then, just a reminder for anyone online. If you do have any follow-up questions after the fact, feel free to e-mail us on [email protected]. A replay of this call will be made available on the website later today. And Sean, over to you for concluding remarks.

Yes. Just it was obviously a very exciting year for us in the past 12 months, and the transformation of the company has been very significant. And I think what's been really interesting to be over here and to be part of that is the way that we've really always been welcomed into the region. And that's just by not only the government of Thailand and the regulator here, but the NOC. They obviously looked to us coming in as a significant player. What we can see is, as we talked about with some of the majors leaving, there's a recognition over here that there is a change going on as to how the industry is likely going to work as we go forward. And they now see us as a part of that and that we could be filling the gap that is kind of left by these other players. So it's really very exciting, going to meetings, going here to meet the government officials, other companies. It's great to be back in the region.

Thanks, everyone. That concludes our call.