Update: Valeura Energy, Metro Mining, Illumin and Ensign Energy Services
HUGE update
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4 companies BIG update. I have written about each of these companies and it’s time to do an update. I like how these investments theses are developing. The stocks are doing fine in terms of price action, but I think each one is going higher based on some of the things I will be covering in this article.
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Valeura Energy
Let’s see what’s going on with my favorite. Valeura gets to go first because it’s my favorite.
Source: Google
Valeura should be up way more because we finally got the tax restructuring. Which was one of the big catalysts I talked about in my original write-up.
Valeura had a lot of tax loss carry-forwards, but they were only being used for 20% of their production meaning the benefit was being realized slowly. Money now is more valuable than money in the future so the faster they can utilize those tax losses the more value the market will attribute to them.
Source: ceo.ca
According to this PR, they have 397m USD of tax losses as of September 30th.
Note that Jasmine field is excluded from this arrangement which is around 30% of the production. But going from 20% to 70% of production being able to take advantage of these tax losses is a huge benefit because Thailand has a 50% tax rate on profits for oil companies.
These percentages of production are rough numbers.
Let’s do some math. I’ll use this year’s cost guidance higher range because we have higher production now and current oil production and current oil price to count the next 12 months with these tax benefits
73,8$(current brent)*26 000*365=700 362 000
“Royalties for Thai I licences are a flat 12.5%, and for Thai III licences are a sliding scale between 5% and 15% based on sales volumes” I did not find more details so let’s say royalties 10%=70 036 200
opex=235m
Capex=155m
SG&A=30m
Exploration=8m
Pre-tax profit=202 329 800 USD
70% of it has no taxes=141 630 860 USD
30% has 50% tax=60 698 940*0,5=30 349 470 USD
171 980 330m USD After-tax profit rough estimate for the next 12 months using the current Brent oil price and they would have 194 670 200 USD of tax losses left after this. So basically another year.
This is how I understand it would work, but no promises and they have not given all the details yet.
This company has a 406m USD market cap and 250m USD EV. (156m cash and no debt according to Q3 operations update) EV to after-tax profit based on that calculation=1,45
Also, the Nong Yao C production increase was another catalyst that was achieved.
Source: https://ceo.ca/@accesswire/valeura-energy-inc-announces-nong-yao-c-production
Source:https://ceo.ca/@accesswire/valeura-energy-inc-announces-q3-2024-operations-and
Nong Yao is now their biggest and it always was their most profitable field and now has access to the tax losses.
This is from my original write-up Link to the Original write-up
So they have achieved both of these catalysts Nong Yao and Tax thing. The one factor that is out of their control is the oil price which has gone down from 90$ Brent to 73,8$.
The stock performance is +48,4% from when I first bought, +29,7% from my cost basis, and -4,45% from my original write-up. The last one only reason for it is the oil price, but as I went over in my calculation the cash flow is very strong even at the current oil price.
The other 2 catalysts for Valeura are reserve replacement and capital allocation. Reserve replacement results will come out early next year. I’m expecting strong results like last time. And capital allocation is the 1 catalyst we are still waiting for as Valeura has been hoarding cash.
They are obviously working on an acquisition which is their speciality. They did the best acquisition I have ever seen. This was the Mumbadaalalalala acquisition. The Kris acquisition was very good as well. They got those tax losses from the Kris acquisition and are applying them now to Mumbadala fields. Very nice synergy there. Usually, I don’t want the companies I invest in to do acquisitions, because so many times they are not good or they take a long time to pay off, but with Valuera I want them to do acquisitions because of their track record.
From their new presentation, we can get some ideas for what they are planning on that side.
Source: https://www.valeuraenergy.com/wp-content/uploads/2024/10/2024-10-corporate-update-VF.pdf
They are showing all the fields and different operators in the region. Then later they say this when they are talking about the oil and gas sector in Thailand.
“Reduced # of operators ▪ Major companies exiting due to materiality ▪ Very few operators of Valeura’s scale and capability ▪ Governments seeking proven operators Shallower buyer pool ▪ Diminishing pool of credible buyers ▪ Difficult to raise capital for new entrants ▪ Competitive pricing and unique structures possible”
Major companies exiting. From the companies shown in the picture, Only oil major is Chevron. Mecdo(Indonesian company) and PTTEP(Thai national oil company) are pretty big as well, with revenue in billions so it could be one of those as well.
I would guess it’s Chevron becau😴😴😴
They also mention the usual methods for returning capital
“▪ Potential shareholder returns - Capacity for share buybacks in the short to mid terms - Future growth will support sustainable dividend”
I guess these are 2nd to acquisitions when it comes to management preference. If they can’t get anything done on the acquisition front they will do buybacks and dividends. This has also been my impression from their other presentations and earnings calls. They think of growth as a priority.
Source: https://www.valeuraenergy.com/wp-content/uploads/2024/10/2024-10-corporate-update-VF.pdf
This is our new timeline. A lot of organic growth plans. I’m optimistic about those based on their track record with these assets. They mention maintaining production at the current assets until 2030’s.
“Capital / Organic Investment ▪ Capex: Maintain production 20 mbbl/d to 25 mbbl/d into the 2030’s(1) ▪ Expex: Selectively target organic resource growth”
The whole Valeura bear thesis has been their lack of reserves, but they have shown and are showing that if you invest in these assets there is still a lot left. Now they are saying they will maintain 20-25k BPD into the 2030’s which is a huge statement.
I wonder if they will be able to get the production from these assets above 30k BPD before 2030’s. The amount of organic growth initiatives they are doing makes me think that is their goal.
Source: https://www.valeuraenergy.com/wp-content/uploads/2024/10/2024-10-corporate-update-VF.pdf
Another valuation reminder at the end. The sector is cheap and Valeura is the cheapest one in the cheap sector.
update to the update
The next day after this article was released Valeura finally announced a stock buyback
Source: https://ceo.ca/@accesswire/valeura-implements-share-buyback-programme
10% of the float is easy for them to do. I think this is about keeping the shareholders happy while they work on their acquisition. Regardless, this is a very positive development.
Another update to the update 28.11.2024
Source: https://ceo.ca/@accesswire/valeura-energy-inc-announces-jasmine-development-drilling
-26% increase in production in the Jasmine field from before the new wells were added.
-Another five-well drilling program started in Manora, because of the strong performance of Nong Yao and Jasmine I'm also optimistic about Manora. Although it is their smallest field, but this means potentially a much higher increase.
-"We expect the results of these wells, and the recent production rates to be considered as part of our year-end reserves assessment, and to support our target of achieving more than a 100% reserves replacement ratio." This will be a big catalyst next year if they overdeliver on reserve replacement. Which I predict they will.
Valuera also announced a CEO interview on the same day and I made some notes.
-200m extra near-term cash flow from tax losses "supercharging" the company
-This is why the company can do buybacks at the same time as pursuing organic and inorganic growth
-Q4 production 26k BPD and even higher going into 2025
-Expectation for 2025 production above analyst guidance
-"looking at a really good number" talking about the 2024 reserve replacement number
-"Early in January we'll actually release our year-end or quarter-end results watch for the cash flow the cash numbers there we think it's going to be a very good quarter for us"
-Wassana redevelopment to extend production to mid-2030s even potentially to 2040s. Decision on this redevelopment likely in Q1
Source: https://www.valeuraenergy.com/wp-content/uploads/2024/11/2024-11-corporate-update-V3.pdf
As I look at this new timeline I’m quite optimistic as operationally everything except the tax loss restructuring has happened on time. And in that case, they were working with regulators so a lot of it is out of their hands. But in terms of organic growth and reserve replacement, they consistently outperform and are on time and under budget.
The Wassana redevelopment, Jasmine more infill drilling, and new exploration target and Manora infill drilling. I think these will provide positive smaller catalysts paired with stock buybacks while we wait for the acquisitions.
Source: Google
The stock because of its strong performance is not far away from the highs despite the oil price weakness. And I do not think oil prices can go down a lot from here without a black swan event. OPEC+ has already delayed their production increase twice and now there are rumors they are delaying them even further. They clearly don’t want to raise production in this oil pricing environment and I don’t think the US producers will “drill, baby, drill” either at this oil price despite what the new admin does. We have heard this from many big companies in the US. Well, I could go on about the oil price, but my point is the risk from the weak oil price is in my opinion mostly priced in while the reward from potentially rising oil price is not.
If you keep doing DD on Valeura and put it all together you will find it difficult to pass it.
This was around 1/4 of this article. The next 3/4 is for the paid subs which includes the Metro Mining, Ensign Energy Services, and Illumin updates. Going over what is happening with the companies and the sectors they are in Bauxite, Adtech, and O&G drilling. Speculating what the US election result could mean for Ensign. All of these companies have posted Q3 results which I’m also covering in this post.
Here are links to my original write-ups: Metro, Ensign video, Illumin, Valeura