(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long VLE.TO)
On Thursday after the market close, Valeura put out an operational update, which you can view by clicking here. To sum it up, the three previously announced wells are on stream at a combined rate of 5.3 mmcf/d (gross), 2 additional wells are planned at Gurgen, and VLE's focus is shifting towards Banarli, where they have a 100%-operated interest. The plan for 2015 on the company's Banarli block includes 1) a 3D seismic program to firm up the ~15 "Gurgen-type" prospects/leads already identified, and 2) drilling of at least one exploration well. It could be a pivotal year for VLE if there are Gurgen look-alikes on the Banarli acreage.
For those interested in doing a deeper dive on the 12-month outlook for VLE, I would highly recommend contacting David Dudlyke at Dundee Capital Markets. David has an excellent grasp on the company's business and plans with respect to VLE as well as a number of other international players.
The text below is cut directly from the VLE press release:
"The Gurgen-1 well is the most productive well and has been on-stream for 28 days at an average restricted rate of 3.2 MMcf/d at choke sizes ranging from 18/64 to 20/64 inches. Only 12 metres of the 47 metres of net pay measured in the well have been perforated to date, providing the opportunity to recomplete additional behind-pipe net pay in the future.
A fourth development well in the program, Guney Osmanli-3, is currently being completed. A fifth exploration well, Dogu Osmanli-1, is expected to be completed and tested on a sole risk basis by Valeura in mid-December targeting indicated net gas pay in the Mezardere formation as identified on the electrical logs.
TWO-WELL APPRAISAL DRILLING PROGRAM UNDERWAY ON GURGEN DISCOVERY
The TBNG JV partners have approved two follow-up appraisal wells on the Gurgen discovery, the first of which, Gurgen-2, was spudded on November 30. Gurgen-3 is expected to spud in the third week of December. The target depth of both wells is approximately 2,000 metres in the Osmancik formation. The estimated cost to drill, complete and tie-in each vertical well is approximately US$1.5 million (success case).
The Gurgen-1 discovery well is located 500 metres south of the boundary of Valeura's 100% owned and operated Banarli licence where new 3D seismic and at least one exploration commitment well are planned for 2015 targeting similar play types in the Osmancik and deeper Mezardere formations.
Q4 2014 PROJECTED SALES OF 1,160 BOE/D UP 16% FROM Q3 2014
Net petroleum and natural gas sales in Turkey in October and November of 2014 averaged 1,119 boe/d, including 6.7 MMcf/d of natural gas and 7 barrels of oil per day. The outlook for average net sales for the full fourth quarter is approximately 1,160 boe/d, which is an increase of 16% from average sales of 997 boe/d in the third quarter of 2014. "
It's hard to paint the picture any clearer. Once in a while, inflection points come in corporations… for VLE, I think that inflection could come within the next 12 months. If there are more Gurgen-type discoveries on Banarli, VLE's growth could accelerate significantly, which would bring the big-hit BCGA potential even more into focus. VLE's upcoming sole-risk Mezardere test in the Dogu Osmanli-1 well will provide good information with respect to the reservoir properties of that formation, which obviously has read-through to the adjacent Banarli license. I've noticed that it looks like VLE has the ability to image slope channels and fans in the Mezardere with 3D seismic, which could allow them to target "sweet spots" (i.e., better reservoir) as the Gurgen-type targets lead them deeper into the Banarli block. To me, it seems that the market is completely discounting the potential for a successful farm-out of the BCGA play at Banarli, which is usually the case until it isn't...
Interesting times for a little company that has a clean balance sheet and trades with an EV/CF multiple of only ~1.2x. Success on one or both Gurgen appraisal wells could make for a nice Christmas present for VLE holders and I think 2015 is going to be a big year for them. Time will tell.