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Valeura Energy Set to Explore Banarli License in 2015
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Valeura Energy Inc. has announced a new strategy for its 100% owned and operated Banarli licence in the Thrace Basin of Turkey and to report highlights of its unaudited financial and operating results for the three and nine month periods ended September 30, 2014 and an update on subsequent developments.
Jim McFarland, President and Chief Executive Officer said: "As we announced on October 7, three new conventional natural gas discoveries in the Osmanli area on the TBNG JV lands promise a significant boost to production in Turkey.
The largest discovery was in the Gurgen-1 well, which has been on production for six days and has produced at an average restricted rate of 3.1 MMcf/d (gross) on a 18/64 inch choke at an average flowing tubing pressure of 1,560 psi. The two other discoveries tested in aggregate 3.5 MMcf/d (gross) and should also be on-stream by the end of November. In addition, two other wells in this Osmanli program finished drilling in October and are cased and awaiting completion of testing and tie-in. The drilling rig is currently drilling a shallow well for a third party in the Thrace Basin but is expected to return in late November to spud at least one additional follow-up well on the Gurgen structure."
McFarland said: "We are also excited to advise that these most recent Osmanli results have been decisive in building our confidence to shape a new strategy for our 100% owned and operated Banarli licence, which we want to advance as quickly as possible in 2015. The initial 2015 program is expected to cost approximately US$6.0 million, including up to 140 square kilometres of new 3D seismic and at least one exploration commitment well targeting the Osmancik and Mezardere formations at a depth of approximately 2,500 metres.
We have identified more than 15 leads on the existing 2D seismic and expect that the 3D seismic will enable us to mature and high grade a number of these leads to drillable prospects and also expand the lead and prospect inventory on both shallow and deep targets on Banarli. We are also pursuing options to accelerate and expand the Banarli program, including the ongoing effort to attract a farm-in partner to explore the deeper horizons only, while we pursue the shallower horizons on a 100% basis."
Q3 2014 Results
- Drilled three new conventional gas discoveries
- Net sales 997 boe/d
- Funds flow from operations $3.0 million
- Working capital surplus $9.9 million
- Natural gas price realizations $9.66 per Mcf
- Natural gas reference prices in Turkey (priced in Turkish Lira) increased by 9% effective October 1
- Operating netback $43.85 per boe
- Net capital expenditures $2.5 million
- Spudded five exploration and development wells
- Completed two re-entry fracs and six recompletion workovers
- Completed sale of Canadian assets
Operational Highlights
Net petroleum and natural gas sales in Turkey in the third quarter of 2014 averaged 997 barrels of oil equivalent per day (boe/d), including 5.9 million cubic feet per day (MMcf/d) of natural gas and 7 barrels of oil per day, which were 3% higher than the third quarter of 2013. Net petroleum and natural gas sales in the first nine months of 2014 averaged 1,131 boe/d, which was up 32% from the same period in 2013.
Net capital expenditures of $2.5 million in the third quarter and $8.5 million in the first nine months of 2014 are down 69% and 60%, respectively, from same periods in 2013. This reflects the current focus on the more cost effective exploration and development program in the Thrace Basin and our strategy to deliver production growth while funding capital expenditures from cash flow and cash on hand only.
The Turkish government announced a 9% increase in domestic natural gas prices, which are priced in Turkish Lira (TL), effective October 1, 2014. The Corporation expects this increase to flow through to all of its natural gas sales contracts and increase its average natural gas price realizations in Turkey from $9.66 per thousand cubic feet (Mcf) in the third quarter to approximately $10.20 per Mcf in the fourth quarter at the current exchange rate of 2.0 TL/Cdn$.
Thrace Basin - TBNG JV (Valeura 40%)
Discovered natural gas in three new exploration wells drilled and completed in the third quarter on joint venture lands acquired from Thrace Basin Natural Gas (Turkiye) Corporation (TBNG) and Pinnacle Turkey Inc. (PTI) (the TBNG JV) (Valeura 40%), as disclosed on October 7, 2014. The wells Gurgen-1, Tavanli-1 and Biyikali-2 were drilled on new 3D seismic acquired in late 2013 in the Osmanli area located just south of Valeura's 100% Banarli exploration licence. The three wells tested 7.5 MMcf/d (gross), in aggregate, on short term flow tests.
Subsequent to the end of the third quarter, two additional wells were drilled and cased in the Osmanli area, including Guney Osmanli-3 and Dogu Osmanli-1.
Gurgen-1
The Gurgen-1 exploration well was drilled and cased to a depth of 2,100 metres into the Osmancik formation and was tested at an initial rate of 4.0 MMcf/d (gross). The cost to drill, complete and tie-in the well was approximately US$1.2 million (gross). The well was tied-in to the closest sales line with a 3.5 kilometre, six inch lateral and was put on-stream on November 5. The line was sized to handle additional wells on the Gurgen structure.
The well has been on production for six days and has produced at an average restricted rate of 3.1 MMcf/d (gross) on a 18/64 inch choke at an average flowing tubing pressure of 1,560 pounds per square inch (psi).
At least one follow-up well is expected to spud on the Gurgen structure before the end of November and be completed before year-end.
Tavanli-1
The Tavanli-1 exploration well was drilled and cased to a depth of 1,300 metres into the Osmancik formation and was tested at an initial rate of 2.0 MMcf/d (gross). The estimated final cost to drill, complete and tie-in the well is approximately US$0.8 million (gross). The well is being tied-in to the gathering system with a 1.8 kilometre lateral and is expected to be on-stream by the end of November.
Biyikali-2 Sidetrack
The Byikali-2 sidetrack exploration well was drilled and cased to a depth of 900 metres into the Osmancik formation and was tested at an initial rate of 1.5 MMcf/d (gross). The estimated final cost to drill, complete and tie-in the well is approximately US$0.7 million (gross). The well is being tied-in to the gathering system with a 2.9 kilometre lateral and is expected to be on-stream by the end of November.
Guney Osmanli-3
The Guney Osmanli-3 development well was drilled and cased to a depth of 1,080 metres into the Osmancik formation and was tested at an initial rate of 0.5 MMcf/d (gross). The estimated cost to drill, complete and tie-in the well with a 0.5 kilometre lateral is approximately US$0.8 million (gross). The well is expected to be tied-in to the gathering system in December.
Dogu Osmanli-1
The Dogu Osmanli-1 exploration well was spudded on October 16 and was drilled by the TBNG JV partners to a depth of 2,100 metres into the Mezardere formation at a cost of approximately US$0.8 million (gross). Log analysis indicated gas bearing pay in the Mezardere formation only. Valeura elected to case the well as an independent operation and plans to proceed with a strategically important completion and test of the Mezardere formation in late November. The estimated cost of the independent operation to case, complete and test the well is approximately US$0.3 million (Valeura 100%). If the test confirms commercial rates, it is expected that Valeura will work with TransAtlantic Petroleum Ltd., the operator of the TBNG JV, to tie-in the well into the TBNG JV facilities.
(Note that the initial test rates stated in this press release for the three new discovery wells and the new development well may not be indicative of stabilized on-stream production rates).
Other Programs
Drilled and fracked the TDR-5H horizontal well. The well was drilled at a record pace of 12 days to a vertical depth of 992 metres into the Teslimkoy formation with a horizontal section of 569 metres and was completed with an 8-stage frac. The cost to drill, complete, frac and tie-in the well was approximately US$2.45 million (gross). The well is tied-in to the gathering system and over the initial 30 days following tie-in, flowed at an average rate of 1.3 MMcf/d (gross) (IP30).
Completed two well re-entry fracs in the Teslimkoy formation at the DTD-7 and DTD-11 wells. The average per well IP30 rate was approximately 0.5 MMcf/d.
An additional six shallow gas recompletion workovers were also carried out in the quarter.
Thrace Basin - Banarli Licence (Valeura 100%)
The Corporation continued to make progress with the General Directorate of Petroleum Affairs (GDPA) and offsetting licence holders to convert the 100% owned and operated Banarli exploration licence 5104 to the new licencing regime adopted by the Turkish government in May 2013. Valeura expects this process to continue to successfully unfold, with the conversion of the Banarli exploration licence potentially achievable by early in the first quarter of 2015, if not sooner. There is no certainty that such a conversion can be achieved and timing remains uncertain. (See the Corporation's 2013 AIF for a detailed description of the old and new licencing terms in Turkey).
Outlook
New Banarli Strategy
Valeura has developed a new strategy for the 100% owned and operated Banarli licence in the Thrace Basin to explore the Osmancik and Mezardere formations down to a depth of approximately 2,500 metres, commencing in 2015. The Banarli licence covers an area of 480 square kilometres (185 square miles or 185 sections). This new strategy is primarily driven by the recent success of the Osmanli area exploration drilling program on new 3D seismic on the TBNG JV lands immediately south of the Banarli licence. The Osmanli program reinforced the value of 3D seismic in exploring for traps along the extensive fault systems in the Thrace Basin, including the ability to image trap types that had not been pursued in the past on the TBNG JV lands.
Having regard to the value of 3D seismic and the improved cash position of the Corporation, Valeura has developed a preliminary work program and budget for 2015 at Banarli that includes approximately 140 square kilometres of new 3D seismic as a first step in the planned exploration program, which will complement the existing 2D seismic coverage of more than 300 kilometres on the licence, including 92 kilometres of new 2D seismic shot by Valeura in 2013. Estimated costs to acquire, process and interpret such a seismic program are approximately US$4.0 million based on the recent experience at Osmanli.
The preliminary 2015 work program also includes the drilling of at least one commitment exploration well in the third or fourth quarter under the assumption that a number of independent drillable prospects will be matured and high graded from more than 15 leads that have been mapped on the 2D seismic. The costs to drill, complete and test a 2,500 metre well is estimated to be approximately US$1.9 million. This drilling program could be expanded in late 2015, depending on the Corporation's cash position at the time.
Valeura continues to believe that there is also significant upside potential for a basin-centred gas play in the deeper horizons at Banarli below about 3,000 metres. At this depth and associated temperature, the source rock shales and reservoir sands could be in an active hydrocarbon-generating "kitchen" forming a basin-centered gas accumulation, with regionally pervasive, low permeability, gas-saturated sandstone reservoirs exhibiting abnormally high pressures. The Corporation has an active process underway to seek a joint venture partner to participate in funding such a potential high impact deep exploration program and a number of companies remain engaged in this process. However, based on the recent exploration success in the adjacent Osmanli area and its new strategy for Banarli, the Corporation now intends to exploit the shallow and medium depth horizons on a 100% basis and is seeking a farm-out partner for the deeper horizons only. The Corporation expects that the 3D seismic to be shot in 2015 will also prove to be valuable asset in this farm-out strategy.
Capital Expenditure Outlook
The Corporation expects to complete a final net capital expenditure program in Turkey of approximately $11 to 12 million (net) in 2014, focused almost entirely on natural gas development on the TBNG JV lands.
The final work program on the TBNG JV lands in 2014 is expected to include nine to 10 wells (gross) including three horizontal wells and four vertical wells spudded in the first nine months of the year and two to three vertical wells in the fourth quarter, of which one is already drilled and completed. This includes one or two follow-up wells (gross) on the Gurgen structure.
Six well re-entry fracs (gross) were completed in the first nine months of 2014, which completes the program for year. Up to 21 recompletion workovers (gross) in shallow gas formations are also expected to be completed in 2014, of which 18 had been completed in the first nine months of the year.
Joint venture technical and operating committee meetings are planned for December 2014 to develop the planned work program and budget for the TBNG JV, Edirne and Gaziantep assets in Turkey in 2015.