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

Hello, everyone. Thanks for joining this Valeura Energy webcast where we'll discuss today's announcement, our 2024 reserves and resources update, which was published earlier today. I'm Robin Martin. Also on this call is Sean Guest, our CEO; Yacine Ben-Meriem, CFO; and Greg Kulawski, our COO. We're recording call today, February 13, 2025, and we'll make a recording available via our website later today. Running order for the day. We'll start off by having Sean, Yacine and Greg take us through a few slides. And after that, we'll get into a Q&A session. [Operator Instructions] Before we get started, I will just draw your attention to our disclaimers and advisories, which should be showing on your screen now, paying, in particular, attention the cautionary language here on forward-looking information as there are forward-looking statements in this presentation. So with that, I will ask Sean to go ahead and unmute your line, and you can go ahead.

Thank you very much, Robin. If you'd go to the next slide. Thank you, everyone, for joining us here today. I'm very pleased with the result that we got out today on the reserves with the reserve increase. But what I wanted to do is first kind of look back to just under 2 years ago. We closed the acquisition of Mubadala's oil assets in Thailand. And at that time, we bought about 20,000 barrels a day of production for just over $10 million. And I know kind of a lot of the view was that's a great deal, but really how can you do that? And kind of the criticism that people had was well, if you look at the reserves, there's a short reserve life index here. Yes, there's a few years of good cash flow, but then you've got a decommissioning coming at you. And this has been an area since taking over operations that we've been very much focused on. In doing that deal originally, in moving into the Gulf of Thailand, we recognized that there is significant more oil, significant more upside in these fields that was being represented in the reserve reports. And that's why this, for us, is very exciting because we've focused the team on the reserves and the abandonment for the past couple of years, and we're really seeing the results. Last year, we actually ended up with a 219% reserve replacement ratio, and we're also able to reduce the asset restoration, really the abandonment liability by about 30%. So a good result. And a lot of the question a year ago was, well, can you do that again with these assets? Look, there's been a lot of work by the team in Thailand in 2 different areas. One was the continual drilling program, which we've been doing, which is really identifying new reserves, new oil pools, additional production. Been very successful with that continual drilling program. But the other thing the team has done is really go back to the details of the subsurface of the oil fields, and look through them in detail because a lot of these fields have been producing for quite a long time, and there's a lot of data there. And it was the time to go back and challenge some of the assumptions that were being used in coming up with the reserves. And in that way, the team was very successful identifying gaps in certain areas as to whether it was oil saturation, the recovery factors that were being used and really to focus our efforts on that. And the result of that is really what we're talking about here today. We added 20.5 million barrels of 2P reserves. And when you look at producing 8.4 million last year, that was a 245% reserve replacement ratio. So up on last year, but up even more when you consider that we increased production last year as well. And the other point I'd like to note is that in the 2 years since we've been operating these fields, we've actually added more reserves than we actually acquired initially when we went into these blocks. In each case, we've extended the field life again for all of the fields this year. And what's great to see is all of the fields now have an end of field life out into the '30s, and with some of them, we know with further work, we're going to be pushing them well beyond that level. Increase the reserve life index. Now when you look at the reserve life index of 5.6 years, people would recognize for an oil and gas company, that is actually on the low side. But what we really want to point out is that we've been able to increase this year-on-year. So if you look at the production we currently have planned for this year, the reserve life index when we took over these assets would be under 3.5 years. Even last year, with the good news, it would be just under 4.5 years. And now, we've increased these to 5.6 years. We're continuing to increase it. And building on that is actually the increase in the contingent resource where our 2C number is now more than double to 48 million barrels which, if you put that together with the 2P reserves, you're talking about 100 million barrels. Please. Moving on in value, a really, obviously, significant jump in value of about 75% to CAD 752 million. And then when you put that together with the cash that we've generated since taking over these assets, it puts us at a net asset value of just over USD 1 billion. So a very pleasing result. And the final comment there kind of leads us to the next slide, which is linking it to share price, where we still see significant upside to that share price. Robin? So on the left side is really the NAV buildup for the past 3 years of end 2022, '23. The light blue area at the top is our cash. And obviously, at end '22, we pretty well had 0 cash. We'd built it up through '23, also increased the NPV associated with the 2P, and you can now see that we're just over $1 billion with that. Recognize even stepping back forward 1 year, just before we were doing these acquisitions, we were sitting at about $60 million NAV for the company. Now on the right side, you then see the share price increase through this time. And what I try and emphasize here and have a number of times is when we did this deal back in December '22, the Mubadala deal and announced it, I know when talking to people in Q1 '23, there was a lot of, I've missed it. You guys are up 400% in the past quarter and that. And then again, when we are marketing in Q1 '24, you can see again, the share price has gone up again and doubled, and you still hear the same comment. But we've continued to drive value into the share price, and really emphasizing this isn't as much about the deals that we did. Yes, we did a great deal, but it was recognizing that these assets had a lot to deliver and then getting the team to deliver those. And that's where we've delivered the value increase in share price. So with that, I'll now hand over to Greg, who'll take you through some more details on actually the reserves abandonment liabilities. Greg?

Thank you, Sean, and hello, everybody. So just, first of all, the basic numbers. So as of end of '24, we've got 32.3 million barrels proved working interest reserves on Valeura; 50 million proved plus probable; and then 60 million 3P. If you look at this split across the assets, over 90% comes from the 3 bigger fields, Nong Yao, Jasmine and Wassana, split about equally and then just around 7% organic from Manora. If you go to the next one, so let's look at the key movements in the 2P reserves between end of '23 and end of '24. As Sean already flagged, we are very pleased with the overall reserves replacement ratio of 245% for the asset portfolio in total at the 2P level. We have replaced more than 100% in every single field. And also in every single field, we have extended field life significantly by about 3 years for Jasmine, Manora and Wassana; and about 5 years, actually for Nong Yao, which is our most valuable field. What I also want to point out here is that for Wassana, at the moment, the reserves you are seeing are pre-FID on the redevelopment project. So the basis for this estimation is a conservative concept where we effectively just replace the existing MOPU and keep drilling from the MOPUs. The concept that we are now maturing towards FID allows us to do a much more comprehensive development of Wassana reservoir and access more volumes that would not have been accessible from the MOPU. So as a result, we expect a material increase in Wassana reserves after we take FID, which we are targeting for Q2 of this year. If we go to the next slide, Robin. So again, just reemphasizing the point shown by earlier. We had a really good year in '23 with reserves additions and in '24, we've managed to do even better than this. And again, a huge credit to our technical teams in Thailand working it very professionally for the last couple of years. And indeed, these additions now mean that in the 2 years under Valeura operatorship, we have added more reserves than we initially bought from Kris and Mubadala. If you go to the next one. So just again, looking at these reserves additions in a bit more detail. We added reserves in every single field. And I think it's worth just saying a few words about the levers behind these additions and what work brought us this result. So we've now had a dedicated drilling rig operating for us in the Gulf of Thailand portfolio on a full year basis. And actually, in '25, we will continue with that approach. This gave us a lot of successful infill drilling wells. And I would also just highlight the Nong Yao C development that we brought on stream in Q3 of last year, which has been performing really well and since then. So I think the reserve additions come, if you like, from sort of 2 big buckets. One is increased activity set for future infill that's come about through successful appraisal drilling as we go along with the development drilling as well. But also, as Sean pointed out, from a fundamental review of field performance using all of the data that we have, static and dynamic, and being able to identify more targets and more areas we can unlock oil economically. And that also comes then from, if you like, the sort of second bucket is improved recovery factor in most areas where we operate. Again, maximizing the insights from the performance data, but also continuously improving in the way we are designing and completing the wells using new technology to again being able to unlock more oil economically. If we then go to the next one. So with the end-of-field-life extensions that we have seen across oil fields, we now see that we expect our production from the Thailand portfolio to stay in the range of 20,000 to 25,000 barrels a day at least to 2030, again, bringing a lot more cash, which was reflected in the NPV numbers Sean mentioned. And again, I would point out here Wassana, that with the field development plan, we are actually now maturing towards FID, this life extension for Wassana will go quite a bit further towards 2040 or so. Now then switching focus to the contingent resources on the next slide, Robin. Thank you. So we see that the unrisked 2C resources as of the year-end '24 is 48.4 million. And I would point out that actually, just in '24, we have added more 2P reserves by year-end than the totality of unrisked 2C we had at the beginning of the year, right? And so I think that really points out to the fact that in the past, also these contingent estimates were very conservative. And so as our teams have increased the focus also to give more visibility to the contingent resources portfolio, we are seeing significant growth in there, which over time we expect then will convert into additional reserves as well. Okay. And then next one, Robin, please? Sean also plugged the importance of decommissioning liabilities for the overall value of Valeura. And so this has been an area of focus for our teams. And we have really, particularly this year, focused on fundamental engineering work to understand the decommissioning plant and wanted to make sure that these results are benchmarked to the real industry practice and cost performance that we are seeing in the Gulf of Thailand. I mean, Gulf of Thailand has got a lot of decommissioning activity going on every single year, hundreds of wells, multiple platforms. And so there's a lot of live industry data that we have now embedded in our revised estimates. We've been using third-party engineering firms in these estimates to make sure our work is well calibrated. And so there is a significant reduction in the underlying cost. And also, with the additional life extension of the fields, there is a further discounting improvement, which translates into a significant reduction in the ARO, so about 50% compared to the situation at the beginning of '23. Now with this, let me hand over to Yacine to take us further through the story.

Thank you very much. Thank you, Sean. Thanks, Greg. Greetings, everyone. I guess what we'd like to do now is just walk you -- try to translate those reserves in terms of volume. And what you have in front of you is the NASI numbers associated with the 2P, 1P and 3P reserves as well. I'm sure that Greg has mentioned. So as you can see from the graph, this year, we've seen another significant increase in value across all the reserves categories. For the year-end 2024, the NSAI NPV10 after tax stands at around $752 million, as Sean mentioned as well early on, which represents an impressive 76% uplift compared to last year. And if we look back 2 years, when we took operatorship of these assets, we have achieved an outstanding close to 190% uplift in those volume. Now as you can see from the graph, this is a theme that's -- this theme was significant and on value uplift plays out across the 1P and indeed, even the 3P as well. Now you will note from the uplift in value that it's higher than the uplift in the reserves. For example, if you look at the 2P case, our uplift in reserves year-on-year was around 32%, whereas what you can see from the graph here, the corresponding one from an NPV perspective is around 76% increase in volume. Now this uplift in value has predominantly been driven by additional value-accretive barrels, as Greg mentioned earlier on. These additional, for example, accretive value for the 2P case, if we take it, accounts for around 75% of that uplift in value. In addition to the additional accretive barrels, we also benefited from the tax consolidation, which, if you recall, we got approved in Q4 last year. This has also will enhance the cash flow over the next few years. Notwithstanding that, we also have -- our NPVs that you have in front of you also include all the decommissioning. And Greg mentioned earlier on the decommissioning and the reduction we've seen in decommissioning. On absolute terms, we have around 28% reduction in the cost on a real bid-time basis. But with the extension of the field life and on discounting basis, that equates to around 35%, which again, Greg has mentioned earlier on. So the combination of these 3 have led to this increase in value. And it's worth highlighting as well that the oil price that NSAI use this year is actually lower than which we had last year. Robert, sorry, do you mind going to the next slide? Thank you. Now looking at the split of the NSAI NPVs by asset -- 2P assets, you will note in a small graph in the donut there that Nong Yao represent around 55% of the value. And that's quite -- and that's really reflecting the fact that it's the most profitable assets we have, and also with the associated increase in reserves in that field. And this is followed by Wassana and Jasmine as well. And Manora, Greg again, Sean flagged earlier on is our smallest asset even from an NPV perspective. Now looking at the individual assets in terms of value step change compared to last year, Jasmine NPVs after tax have doubled; Nong Yao has increased about around 125%; and Manora has increased around 90%. You will note that the NSAI -- the Wassana NSAI NPV have declined by around 10%. And this is really reflected -- this really reflects the fact that we've seen the reallocation of those tax losses away from Wassana for this year. Again, for last year, assessment in terms of value for NSAI, all of the tax losses were associated with Wassana, whereas in this year, those tax losses will be shared by the Thai 3 assets, which are Nong Yao, Manora and Wassana. Now again, if you look at it over the past 2 years, we've achieved significant volume from across all the assets. And just this is, again, kind of mirroring what Greg was saying earlier on and Sean, it just highlights the strength of the assets and how value can be extracted from them. Next slide, please, Sean. Now moving on to the NAV. Again, as Sean mentioned earlier on, our NAV now currently stands at over USD 1 billion, which equates to around $13.6 per share. If you look at the split there on the graph, around $3.5 per share is baked in the cash at the year-end in 2024 and $10.1 is of the NPV turn of the assets. And I think what's most important as well worth highlighting is really just the value step change that we've delivered since we took over these assets. And on the compounded annual growth rate, we -- on a NAV basis, it's over 80%. I guess, maybe just as a closing remark here before I hand over to Sean, I mean these numbers speak volumes for themselves. And you just reinforce the thesis that we have communicated since we took over these assets, that there is life in these assets that goes beyond what -- at least on the face of it -- we chose on the face of it. And again, from our perspective, we continue -- we will continue on executing on that strategy. And I guess with that, I'll hand over back to Sean.

Thanks, Yacine. Thanks, Greg. Yes. So we've talked a lot about '24. So looking ahead, what's coming this year? Can we replicate that sort of work as we look at 2025? When you look at the program we've got for this year, just reemphasizing that we have the drill rig available to us, and it will be working full time for the year as it was last year. The primary focus will be drilling on Jasmine and Nong Yao on the infill drilling there. The rig is actually just completing now work on Manora that's been going on since early December at that field. So that's really looking to replace some of the reserves that are being produced, some of this infill drilling. Additionally, nested in there, are some exploration wells. We see the Ratree exploration well near Jasmine. And currently, we have some Nong Yao exploration, but that's later in the year. But we really are looking to actually start to nest in there a few exploration wells as well. They don't go right into reserves generally, but that starts to build up your 2C. And that's what we saw last year, and we did 3 successful exploration wells. Those rolled into our contingent resource. And finally, probably the most important thing from a reserves number there, still planning for that FID on Wassana redevelopment, which Greg noted in Q2, and we will then look to redo the reserves at that point in time to show the full reserves and how far that will push that field out which we believe will be quite exciting, and again, just look to extend the life as we have there. So we believe we're setting ourselves up for another good year. Will we get up to 245%? Not sure. But look, the team has done an excellent job in Thailand. So next slide. And I just really want to point out here because this slide on strategy is really from our corporate presentations where we've talked about these 3 pillars of organic growth, operational excellence and inorganic growth. And obviously, when we took over the assets from Mubadala, the focus was very much on Valeura and what we're doing inorganically. But that was really just a step-up that we had there. What's happened since then is really focused on delivering from the organic growth, focus on the assets, the drilling program, increase reserves, increase production, maximize cash flow from that. So it doesn't mean that we're not looking at inorganic opportunities. We are. We're out there looking at some of them. But what it means is we've been adding huge shareholder value by delivering on these assets. We will be looking at doing further transformational deals, but we can do it on our terms. We want to make sure we do the right accretive deal because right now, these assets are really performing for us and performing for all of our shareholders. Next slide. So with that, just really summarizing the point of the press release today. Added 20.5 million barrels of 2P reserves, 245% reserve replacement; extended the field life of all the fields by a further 3 years; and the value now we're really looking at a NAV of the company of just over $1 billion based on the just over $0.25 billion in cash and $0.75 billion in the asset value. So at that point, I thank you all for joining us, and we can take questions. Robin?

Thanks, Sean. Yes, we'll go ahead with the Q&A session now. [Operator Instructions] So maybe while we wait for people to express their interest, there's been just a couple of questions that have come in through email and other means. First question, do you already have results from the Manora infill appraisal drilling campaign? And if not, when can we expect those?

They're still actually just completing the drilling campaign on Manora now. And once that's kind of done, then it's getting all the wells hooked up, running in there. So we expect we should be able to release some results on that in the coming weeks once we've tried seeing the results from how all those new wells are performing. So probably in a few weeks.

Okay. Another question that came in by email. With your significant increase in cash to year-end and obviously, now demonstrated increase in value, any thought toward deploying your normal course issuer bid share buybacks more fully?

I suspect the question is whether we're going to be increasing the -- because unfortunately, we are set in terms of what we can do this year. We've gone upper limit. And over the past few weeks or past few months we've been acquiring, I guess if the question is about whether we'll increase the velocity of the buyback, it's something that we keep an eye on it almost on a day-to-day basis. And also, we talk to our brokers who actually help us with this.

Okay. Very good. [Operator Instructions] We've got one coming from David Round. David, just bear with me a moment. I'll make your microphone available.

Robin, I think you have to remind people that when you make it available, they still have to unmute it. Most people just need that extra reminder.

I think that's worked. Can you hear me?

We can. Yes. Go ahead, David.

Perfect. I think you just seem to have to press the unmute button twice. But anyway, a couple of quick ones. The first one, just on the last year program. Obviously, there have been good results because we can see that in the reserves numbers. But are you able to just break that down into -- and talk about the sort of drilling success rates you saw last year? Any particular wells that stand out? Just a bit of color there would be useful. There was also the second question, there was an interesting slide on the field life extensions. Obviously, great to see those come through. But does the fact that I presume you are getting closer to license expiries cause you any concern that you may not be able to recover everything that's in the ground or might you be able to extend some of those licenses?

Yes. I'll maybe address the license one and then let Greg talk a bit about the wells and that. So on the license, you're right. A couple of the licenses are coming up to the end, but they're all in their primary, their first term. And there is -- you have your option, an extension for up to 10 years. In all cases, when you look at the Gulf of Thailand and working with the regulator, their people have received their first 10-year extension, and it is kind of worded in there that it is at your option, right? So while the reserve auditor is still working towards that end of the primary period, we don't see a risk here because we've got that 10-year extension. So the earliest one would be Jasmine in '31, which then with 10 years, would go out to '41.

Okay. And just picking up on your question regarding drilling results in '24. So the prime focus was development drilling, and then we have brought in new wells on stream in Wassana, in Nong Yao and in various parts of the Jasmine field. All of those have come in successfully on or above expectations overall. In Manora, as Sean highlighted, we started drilling in December. And so those wells will be coming in actually now on stream in the coming few weeks. So that's development drilling. We are overall very successful on our expectation. But we also had exploration drilling in the Nong Yao, the area and in Wassana North. And those also have been successful and brought in additional contingent resources into the portfolio. Yes.

David, I think what might have been a nice outcome though, was when they drilled Nong Yao C, which was the development we had, we did end up doing 1 extra well there that actually had an appraisal objective and that worked out well as well as a couple of the wells were lengthened with appraisal objectives, and both of those worked out. And that's probably something that's also feeding into the increase in the Nong Yao reserves. So that development really, I think, helped us out there.

Okay. We'll go to another question that's coming in by email. Can you give a little bit more color on what to expect for the Wassana redevelopment, realizing that none of the potential volumes from that development are included in your 2P at the moment? What should we expect?

Yes. So I would say as we said earlier, right? A demand of -- we've got 12.9 million barrels 2P reserves in Wassana. And that is on the basis of a so-called MOPU replacement concept, right? Just basically continuing drilling from the same location from a new facility that's certainly a like-for-like replacement for the current one. Now the redevelopment with a fixed platform, which is what we are working on, will allow us to access wider area of the field and volumes that are not accessible from the MOPU, right? So effectively, the redevelopment will give us at least everything we've got now in the 12.9 million barrels 2P and a significant portion of the volumes that are currently now in 2C, right? So if you look at further in the press release, we've got something in the range of 12 million barrels contingent resources 2C in Wassana and a significant portion of it should give an additional bump into 2P FID.

Okay. Thanks for that. We'll go to another live question now. We've got a hand raised by [ Pranshu ].

I just have a question. Is there any consideration of special dividend, given that you are already capped at the max buyback? And if there's no other acquisition materialize in near term?

So as we -- kind of recapping the past couple of years, we talked about as we went into 2024, that again, we were focused on looking for deals, and a lot of it was to make sure we had the cash capable of doing a transformational deal. However, we did say that if we kind of got into the latter half of the year without a deal being done, we'd look at our cash position and cash flow and look at some sort of return to shareholders, which we implemented. If we now look ahead at this year, again, we remain very much focused on having that cash available for a transformational deal. But again, if we get towards the latter half of the year and we're still building cash and there's no deal that we see that's accretive enough, then we will look for ways that we could return some of that cash to shareholders. But the focus does remain on that we have the ability to do what we see as a good accretive transformational deal.

Okay. Maybe shifting to a couple of more finance-related questions. What are your expectations for free cash flow generation for 2025? The million dollar question.

Look, I think what the consensus is today, if you look at our guidance for the market, it's very easy to kind of work out what the cash flow is and the question is just what oil parts do you want to implement. But if I look at the consensus in the market, we feel very comfortable with that consensus.

Okay. And next question, given the increased market cap, is the company making efforts to expand analyst coverage of Valeura to new brokerage firms?

Of course, we always welcome having a relationship with new brokers.

Good. I'm just going to check a couple of sources and see if we've got any other questions. [Operator Instructions] At this time, it looks like we don't. Oh, there's one more. Let's give the microphone to Robert. Just bear with me a moment. We may have lost you. If so, feel free to email us. If there's anything else that you'd like us to respond to, you can use our general email address, which is [email protected]. Happy to answer questions any time. And with that, I'll hand it back to you, Sean. Looks like there's no further questions at this time.

Yes. Thank you very much again for joining us here. And appreciate the support from all the shareholders on this, and I do really want to also give special recognition out to our team in Thailand. They know these assets well, and they've really put an effort in this year, the drilling results and really picked up the ball and run with it. They've done just an excellent job on the work there, really quality technical work to assure we get the delivery. Next step, Wassana redevelopment. Thank you very much.

Thanks, everyone. That concludes the call.

Thank you.