Valeura's back-to-basics gas approach

The Toronto- and London-listed company has the backing of Equinor (formerly named Statoil), which covers its current exploration costs, and also has some cash flow from its existing 700 barrels of oil equivalent per day (boepd) production. 

While liquidity is limited in London, a possible equity raise next year and existing institutional holdings bring it to our attention. 

Valeura’s growth pitch and current market capitalisation of £140m is based on a basin-centred gas accumulation (BCGA) project, which has a 10 trillion cubic feet equivalent net recoverable resource. The company is drilling the Inanli-1 zone at the moment, which at around 4,200m down is the deepest part of the deposit. Valeura said it saw consistent gas flows and is now considering expanding the tests in zone because of the results. 

While exploration and appraisal achievements are one thing, actually getting to production is another. According to Rystad Energy, this year will see $100bn worth of greenfield liquid natural gas projects sanctioned, so there is plenty of competition. 

On top of the incoming supply, prices have plummeted. European gas prices crashed to under $4 (£3.29) per British thermal unit (btu) after hitting over $10 last year. But this doesn’t worry Valeura chief executive Sean Guest. In Turkey, government agency BOTAS sets a monthly price adjusted for the level of the Turkish lira. Dr Guest says this has recently worked in Valeura’s favour. “We don't see those real highs and lows [in the European gas price],” he said. “In actual fact now, we're still very high in our gas prices. With the increase the government put in on August 1, we're getting over $7.50/btu for our gas.” 

He said new projects outside Turkey were immaterial as well, as Turkey’s demand is “way more gas than our project could ever produce”. Valeura has given itself another 18 months for the BCGA final investment decision, although an early production system could see higher production levels sooner. 

The likelihood of BCGA to be commercial is 51 per cent, according to consultants DeGolyer & MacNaughton, although this comes from a 70 per cent and 74 per cent chance of discovery and development respectively. Dr Guest said the downside was “capped” because of the company’s existing cash flow if BCGA was uneconomic.