Valeura Energy Inc. said that it has entered into a Sale and Purchase Agreement with KrisEnergy to acquire all of the shares of KrisEnergy International (Thailand) Holdings Ltd.  SPA, which holds an interest in two operated licences offshore Thailand for total initial cash consideration of US$3.1 million, plus certain contingent payments of up to a further US$7.0 million relating to future development milestones. Separately, Valeura has agreed to purchase an onsite Mobile Offshore Production Unit (MOPU) from Nora Limited, for consideration of US$9.2 million (the MOPU Purchase) which will be phased over approximately 14 months. Valeura expects to fund both the SPA and the MOPU Purchase (together the “Acquisition”) from cash on hand and from initial cash flows generated by the assets.

Acquisition

The Seller’s assets are being acquired out of a receivership where, after an extended period of low oil prices, the Seller filed a winding up petition in June 2021. The SPA effects the purchase of certain of the Seller’s assets in Thailand, which are being re-organised by the receiver into a single corporate entity for purchase.

To facilitate the Acquisition, Valeura has formed Panthera Resources Pte. Ltd., a Singapore-domiciled special purpose vehicle company (“SPV”) to serve as the buyer entity under the SPA and for the MOPU Purchase. Valeura will hold an 85% interest in the SPV, with the remainder held by Panthera Thailand Pte. Ltd. (“Panthera”). The relationship between Valeura and Panthera as shareholders of the SPV is governed by a shareholder agreement which includes, among other things, provisions for the funding of the SPA and MOPU Purchase on a 100% basis by Valeura, and the ongoing engagement of certain Panthera individuals as part of Valeura’s regional leadership team (the “Panthera Agreement”). Panthera’s indirect interests will thereafter be identified by Valeura as a minority shareholder interest, in accordance with International Financial Reporting Standards. The Panthera individuals expected to be employed by the SPV comprise a senior leadership team with multiple decades of experience in the Southeast Asia region, and a direct history with the acquired assets.

The SPA has an effective date of January 1, 2022 and is subject to Valeura lodging a parent company guarantee with the Thailand regulator relating to performance of licence obligations. Valeura anticipates the Acquisition will close in Q2 2022.

Valeura has paid initial cash consideration of US$3.1 million which includes the purchase price and compensation for maintenance and administrative costs incurred since the effective date, as adjusted for working capital. Valeura will pay contingent consideration of US$2.0 million 90 days after first oil has been delivered from the next infill development drilling programme on the Wassana field, notionally planned for Q2 2023. Further contingent consideration of US$5.0 million will become due 90 days after first production through a permanent production facility on the Rossukon field.

Through the MOPU Purchase, also out of receivership, the SPV will acquire the MOPU Ingenium for a total consideration of US$9.2 million, which is expected to be paid in installments over 14 months.

Valeura intends to fund the Acquisition entirely from cash resources on hand and, insofar as contingent consideration and deferred payments for the MOPU Purchase are concerned, through cash flows generated from the assets.

Licence G10/48: Production Reactivation Asset

The SPV will acquire operatorship and an 89% WI in block G10/48, which is located in the Gulf of Thailand, approximately 115 km offshore in 48 metres of water depth. The block contains the developed Wassana oil field and several undeveloped discoveries. The Wassana field was developed by way of production wells drilled from the MOPU and started production in 2015. Peak oil production was 7,700 bbls/d (gross) in 2016. The field was shut-in temporarily in 2020 amidst a challenging economic climate due to low benchmark oil prices. At that time, the leased Floating Storage and Offloading vessel (“FSO”) went off contract and departed the field, while the wells and MOPU production facility were actively maintained in a dormant state and remain in good working order.

Based on the Company’s internal assessment effective December 31, 2021, block G10/48 contains approximately 4.0 mmbbls of 2P oil reserves and 7.4 mmbbls of 2C contingent (unrisked) oil resources net to the SPV. See “Oil & Gas Advisories” below.

Valeura intends to restart production operations as soon as practicable after the Acquisition closes. Oil production is expected approximately six months after close and the Company anticipates production rates of approximately 3,000 bbls/d, net to the SPV, based on the existing production at the time the field was temporarily shut in. Oil will be offloaded to an FSO and then exported by shuttle tanker.  

The primary scope of work involved in restarting Wassana production is to complete a recertification of the MOPU and to bring an FSO on site, under the terms of a long-term lease. Planning for the MOPU recertification is underway and a new FSO has already been identified via tendering, with commercial agreements to be executed once the Acquisition closes. Thereafter, the Company anticipates that production operations can be restarted without any need for service rig interventions.

Valeura anticipates that the combination of owning, rather than leasing, the MOPU and establishing more favourable FSO lease rates will result in a materially lower cost base for the Wassana field than under the previous operator. The Company expects field operating costs to be approximately US$10 million per quarter net to the SPV, equating to approximately US$36/bbl.  Wassana’s production is medium gravity, sweet crude oil, which has historically sold at a discount of approximately US$6/bbl to Brent crude oil benchmark prices. At current Brent benchmark prices of approximately US$100/bbl, Wassana’s near-term production is expected to generate net cash flows of approximately US$9 million per quarter.

Valeura’s 2P reserves estimate for the Wassana field includes drilling of five horizontal infill wells into additional oil-bearing reservoir sands that were identified on 3D seismic, drilled, and shown to be productive prior to the field being shut-in, but have not been fully developed. The Company envisages an initial five-well infill drilling campaign in the field in 2023 at an estimated cost of US$30 million to access these sands, with details and timing to be finalised in due course. In its 2C resource estimate, the Company has identified 10 further infill wellsto be drilled in subsequent years at similar costs to further increase recovery from the Wassana field reservoirs. The Company’s 2C resource estimate also includes two discovered but undeveloped fields which are well-imaged on 3D seismic but are unclarified and non-commercial at this time.  In addition to the resource estimates, the Company has identified several exploration prospects which are well-imaged on 3D seismic and will be reviewed further. The Company believes that collectively, these provide further value upside opportunities.

Reserves and resources associated with block G10/48 are in the process of being updated by the incumbent independent petroleum engineering firm, Netherland, Sewell & Associates, Inc. (“NSAI”) and will be published by the Company in due course.

Licence G6/48 Development Asset

The SPV will also acquire the G6/48 block located approximately 195 km offshore in the Gulf of Thailand in 53 metres water depth. This includes operatorship and a 43% WI in the fully-appraised Rossukon oil field with recoverable 2C resources of 5.0 mmbbl of oil, net to the SPV as of December 31, 2021, as estimated by management.

The Rossukon oil field has a regulator-approved development plan which contemplates peak oil production rates of 12,000 bbls/d gross (5,160 bbls/d net to the SPV) and sets a first-oil requirement by November 2023. Once the SPV assumes operatorship of the block, Valeura will commence discussions with partners and regulators to agree the development scenario that best meets stakeholder objectives with regard to timing and resource delivery. As an alternative to the approved development plan, a reduced scope early development plan is under review which could yield production sooner and with lower capex in 2023, but with a lower and flatter production profile.

Until such time as the final development plan has been mutually agreed, Valeura regards the Rossukon field as a source of potential upside, with recoverable volumes, classed as 2C contingent (unrisked) resources, comprised of 5.0 mmbbls of oil and 5.7 bcf of gas, based on the development scenario contemplated in the regulator-approved development plan.  See “Oil & Gas Advisories” below. Resources associated with block G6/48 are in the process of being updated by NSAI and will be published by the Company in due course.