VALEURA ANNOUNCES JOINT VENTURE IN TURKEY
CALGARY, Sept. 2 /CNW/ - Valeura Energy Inc. ("Valeura" or the "Corporation") (TSX-V: "VLE") is pleased to announce that it has executed a farmout agreement (the "Agreement") with Aladdin Middle East Ltd. ("AME") and Guney Yildizi Petrol Uretim Sondaj, Muteahhitlik ve Ticaret A.S. ("GYP") (collectively "AME-GYP"), two affiliated oil and gas exploration and production companies operating in Turkey and controlled by the Turkey-based Sayer Group.
Under terms of the Agreement, Valeura will farm-in to one production lease containing the Kahta heavy oil field and eight exploration licences operated by AME-GYP and located in southeastern Turkey within the Zagros fold belt, which extends into Turkey from Iraq and Syria and encompasses one of the most prolific hydrocarbon basins in the world.
SUMMARY OF KEY TERMS
- Valeura expects to invest a minimum of US$ 8.8 million (Phase I) over
the next four months split approximately along the following lines:
Kahta reservoir study (US$ 0.5 million); recompletion of two indicated
oil discovery wells to establish producibility (US$ 0.9 million); 2D
seismic acquisition (US$ 3.4 million); and, drilling of one
exploration well (US$ 4.0 million).
- Completion of Phase I expenditures will earn Valeura the following
beneficial interests:
- 25 % in the Kahta production lease ("Kahta") (17,446 gross acres);
- 25% in three Karakalise exploration licences (the "Group A
Licences") (303,799 gross acres); and
- 12.45% in five Rubai exploration licences (the "Group B Licences")
(419,098 gross acres).
- Valeura has the option to increase its earning expenditures up to a
total of US$ 17.6 million (Phase II) prior to the end of 2011 in a
flexible mix of additional seismic, exploration and appraisal drilling
and potential re-development work at Kahta to increase its beneficial
interests on a sliding scale basis up to 50% in Kahta, 50% in the
Group A Licences and 29.9% in the Group B Licences.
- For earning purposes, Valeura's expenditures are treated as aggregate
amounts and can be transferred between the asset groups (Kahta, Group
A Licences and Group B Licences).
- Valeura intends to complete a comprehensive reservoir study on Kahta
in Phase I to determine the potential to increase production and
reserves through the application of 3D seismic, modern drilling and
completion technologies such as horizontal drilling and multi-stage
hydraulic fracturing, well recompletions, step-out delineation and
exploration drilling and secondary recovery techniques that could be
partially funded with Phase II earning expenditures. The current term
of the production lease expires on March 26, 2012 but can be extended
for 10 years on application.
- Valeura's Phase I and potential Phase II earning expenditures on the
exploration licences are aimed at maximizing retention of prospective
licences prior to expiry. In the case of the Group A Licences, the
term of each of the three licences expires on November 30, 2010,
unless for each licence production can be established from an existing
discovery well or from a new exploration well that is spudded by this
date and ultimately results in a discovery, in which case the
exploration term on that particular licence can be extended for three
years. In the case of the Group B Licences, four of the licences
expire on June 26, 2011 and one on November 30, 2011.
- AME-GYP will operate the joint venture under industry-standard joint
operating agreements with close technical and operational consultation
with Valeura.
- AME-GYP is one of the largest acreage holders in Turkey, is an
experienced E&P operator in the country and the region and owns and
operates 11 drilling and workover rigs, which provides the joint
venture with immediate access to drilling and completion equipment at
competitive costs.
- Valeura expects to fund the Phase I expenditures and any potential
future Phase II earning expenditures from existing cash reserves.
"This is an exciting opportunity for Valeura which provides us with a strategic toe-hold in Turkey and the MENA region/Mediterranean basin, a key focus area in our previously announced international growth plan, and is a foundation we can build on," said Jim McFarland, President and CEO. "The assets are located near existing infrastructure and have development, exploitation and exploration potential through the application of modern technology and new ideas."
"Turkey has one of the most attractive fiscal and royalty regimes in the world, with a flat 12.5% royalty rate and a 20% corporate tax rate. The country is an important energy supply corridor for Europe and is itself heavily dependent on energy imports and, as a result, domestic and international markets are available for production at world prices."
"Kahta is a technology play that is right up our alley and could set up a number of other opportunities in heavy oil reservoirs in Turkey. The exploration component of the farm-in has a range of moderate and high impact opportunities in underexplored areas near world-class oil fields in Iraq and Syria. The approaching expiries on the licences provided us with a window of opportunity to negotiate this agreement in a way that included a diversified mix of opportunities at a competitive price."
Ecvet Sayer, Chairman of GYP and Executive Vice President of AME said, "We are pleased to be working with Valeura in a strategic E&P partnership that with success has the potential to grow in Turkey and the region."
Valeura was assisted in securing the Agreement by ONOC Inc. ("ONOC"), an arm's length Calgary-based company with extensive business relationships in Turkey. Under the consulting services agreement with ONOC, a 1.5% success fee on the deal value will be payable in shares (subject to TSX-V approval). Based on a deal value of US$ 8.8 million, the fee will be US$ 132,000, which would double if the full optional earning expenditures are implemented.
DESCRIPTION OF ASSETS AND POTENTIAL WORK PROGRAMS
The farm-in assets are summarized in Table 1 and described more fully below.
Table 1. Farm-In Lands in Turkey
Lease/Licence No. Gross Area Expiry Participating Interests
(acres) Date(2) (Acres)(1)
Valeura AME-GYP Others
Production Lease
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Kahta Oil Field 658 17,446 03/2012(3) 8,723 8,723 -
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Exploration Licences
- Group A
Karakilise 2674 119,265 11/2010 59,632 59,633 -
Karakilise 2677 122,997 11/2010 61,498 61,499 -
Karakilise 2678 61,537 11/2010 30,768 30,769 -
Exploration Licences
- Group B(4)
Rubai 2598 123,266 06/2011 36,856 43,267 43,143
Rubai 2599 121,331 06/2011 36,278 42,587 42,466
Rubai 2600 119,970 06/2011 35,871 42,109 41,990
Rubai 2601 27,137 06/2011 8,114 9,525 9,498
Rubai 2759 27,394 11/2011 8,191 9,615 9,588
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Total Turkey 740,343 285,931 307,727 146,685
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(1) Assuming maximum potential earning under Valeura and third party
farm-in agreements.
(2) Under Turkish Petroleum Law, the term of each of these exploration
licences, all of which are in their eighth and final year, can be
extended on a licence by licence basis for an additional three years
if a producible discovery is confirmed on that particular licence by
that time or an exploration well is spudded by that time which
ultimately proves to be a discovery.
(3) Under Turkish Petroleum Law, the term of the Kahta production lease
can be extended for an additional 10 years to March 26, 2022 on
application.
(4) Under the overarching drilling requirements of the petroleum
district, a well must be spudded in one of the five Group B Licences
by January 25, 2011, which includes a 90-day grace period from
October 25, 2010 that may be granted under the regulations, and every
six months thereafter to maintain all of the licences in good
standing during the remaining exploration term.
Kahta Heavy Oil Field
The Kahta heavy oil field is owned and operated by AME-GYP and is located on production lease No. 658. The field was discovered in 1957 and produces 11 degrees API gravity oil from a Cretaceous-aged carbonate reservoir at a depth of about 3,100 feet. Approximately 4.9 million barrels of oil have been produced to date under primary recovery operations. Thirty six wells have been drilled in the field, of which only eight wells are currently active, producing a total of less than 40 barrels of oil per day at a high water cut.
As part of the Phase I earning program, Valeura will lead and fund a comprehensive geological and reservoir engineering study at a cost of approximately US$ 0.5 million to determine the potential to increase production rates and oil recovery through various means including: 1) more effective primary recovery operations through application of 3D seismic, recompletions, new vertical and horizontal drilling, multi-stage hydraulic fracture stimulation and fluid pumping enhancements; 2) the potential for step out drilling to extend the limits of the field or to add satellite fields; and 3) the potential to implement secondary recovery operations.
This study will not only be helpful in determining the re-development potential at Kahta but should also be useful in evaluating other potential heavy oil opportunities in analogue reservoirs in Turkey.
Group A Licences
The Group A Licences include three contiguous exploration licences collectively referred to as the Karakilise licenses (No. 2674, 2677 and 2678) which are held 100% by AME-GYP. In aggregate, the licences cover an area of 1,229 km(2) (303,799 acres) in southeast Turkey near the city of Diyarbakir on the Tigris River.
Licence 2674
In Licence No. 2674, Valeura intends to fully fund approximately 250 km of new 2D seismic to expand the prospect and lead inventory and to high-grade a potential drilling location to be spudded by November 30, 2010. A seismic crew will begin shooting seismic in early September 2010. Estimated cost of the seismic is approximately US$ 3.1 million (gross) which would be funded by Valeura on a 100% basis in Phase I.
An AME-GYP drilling rig is in the area and available to drill such a well. The exploration target would be in the Ordovician-aged Bedinan formation at a depth of approximately 8,200 feet. Estimated cost of a well is US$4.0 million (gross) which would be funded by Valeura on a 100% basis in Phase I.
Valeura is encouraged by AME-GYP's success on the adjoining licence to the east, where light oil was discovered in Ordovician sandstones in the Arpatepe-1 well drilled in 2008. This discovery established a new play concept and potential play fairway extending into Licence No. 2674. Two additional successful wells have been drilled at Arpatepe.
Licence 2677 & 2678
In Licence No. 2677, AME-GYP drilled the Karakilise-1 well in 2003 which produced 50,000 barrels of light oil (33 degrees API gravity) from Cretaceous-aged Mardin carbonates from a depth of approximately 8,100 feet before production was suspended in 2006 and the well deepened to 10,100 feet to test the Ordovician-aged Bedinan formation. This deep test was unsuccessful but the well was cased with a 7" liner and is currently suspended. The current plan is to re-establish production in the Mardin carbonates by carrying out a recompletion program in September 2010 to perforate additional indicated Mardin pay. If production is re-established, it is expected that the exploration term for that licence can be extended for three years. Estimated cost of the recompletion program is approximately US$ 0.6 million (gross), which Valeura expects to fund on a 100% basis in Phase I.
Seismic control on the adjacent Licence No. 2678 is very limited. A few lines in the planned 2D seismic program on Licence No. 2674 will be extended onto Licence No. 2678. This may identify a viable prospect or justify additional seismic acquisition to define a potential drilling location.
Group B Licences
The Group B Licences include five contiguous exploration licences collectively referred to as the Rubai licenses (No. 2598, 2599, 2600, 2601 and 2759). In aggregate, the licences cover an area of 1,696 km(2) (419,098 acres) in southeast Turkey near the juncture of the Turkey, Iraq and Syria borders.
AME-GYP had held these licenses on a 100% basis but in July 2010 announced a farm-out of up to 35% on a staged basis in the Group B Licences to a third party, which had the effect of limiting the extent of earning available to Valeura.
Licence 2598 & 2599
AME-GYP drilled an indicated heavy oil discovery at the NE Ogunduk-1 well on Licence No. 2599 in August 2009 in Cretaceous-aged Mardin carbonates at a depth of approximately 6,670 feet. Drill stem tests yielded 19 degrees API gravity oil but the well was not completed at the time. Under the Phase I earning program, Valeura is obligated to fund 50% of the cost (estimated US$ 0.3 million net) to re-enter and deepen the well, log the open hole, run casing and perforate, acidize and production test the well. This program commenced in mid-August 2010. If the recompletion program confirms a producible discovery, it is expected that the exploration term on Licence No. 2599 can be extended for three years.
Assuming a successful production test at NE Ogunduk-1, a small 40 km 2D seismic survey will likely be carried out in Licence No. 2598 and 2599 to identify an appraisal drilling location. Such a seismic program would likely be funded on a 50% basis by Valeura as a Phase I earning expenditure (US$ 0.3 million net).
Estimated cost to drill a well is US$ 4.0 million (gross). Valeura has the option to fund 50% of such a well as a potential Phase II earning expenditure. Spudding of such a well by January 25, 2011 would satisfy the petroleum district drilling requirement (see Note 4, Table 1).
Licence 2600
Licence No. 2600 holds two potential high impact prospects. The Bostanci prospect underlies a large undrilled surface anticline which extends onto an adjoining licence to the east and partly into Iraq and Syria and is located only 39 kilometres west of the large Tawke oil field in Iraq. Tawke is a recent 2006 discovery underlying a large surface anticline. Target drilling depth at Bostanci would be about 9,000 feet.
Some 2D seismic acquisition and/or geochemical sampling would likely be required to mature a drillable location at Bostanci which Valeura may fund on a 50% basis as a Phase I earning expenditure (US$ 0.04 million net).
A large Cretaceous-aged carbonate reef prospect named Cizre is also of interest on Licence No. 2600 and is located approximately 20 kilometers north of Bostanci. Additional seismic would likely be required to locate a potential drilling location on this prospect.
Valeura has the option to fund a portion of any drilling costs in Licence No. 2600 as a Phase II earning expenditure. An exploration well would need to be spudded by June 26, 2011 and prove successful to extend the licence term by three years.
Licence 2601 & 2759
Additional seismic would be required on Licences No. 2601 and 2759 to determine whether a drillable prospect can be identified before June 26, 2011 or November 30, 2011, respectively.
ABOUT THE CORPORATION
Valeura Energy Inc. is a Calgary, Alberta based public company currently engaged in the exploitation, development and production of petroleum and natural gas in Western Canada. The Corporation is pursuing its previously announced strategy to expand internationally to selected countries in Latin America, the Middle East and North Africa region and the Mediterranean basin.
FORWARD LOOKING STATEMENTS
Certain information included in this press release constitutes forward-looking information under applicable securities legislation. Such forward-looking information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. Forward-looking information typically contains statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project" or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information in this press release is in respect of planned exploitation activities and expenditures for Phase I and Phase II of the Corporation's farm-in on the Kahta production lease and eight exploration licenses in Turkey and the sources of funding and timing in respect thereof and specifically includes but is not limited to the Corporation's plans to: conduct geological and reservoir engineering studies on the Kahta oil field to establish a potential re-development plan; to recomplete the Karakilise-1 well to re-establish production in License No. 2677 and the extension of the exploration term as a result of such production; acquire 2D seismic in Licence No. 2674 (and to a lesser extent License No. 2678) and, depending on the results thereof, spud an exploration well on Licence No. 2674 prior to licence expiry; to recomplete the NE Ogunduk-1 well on Licence No. 2599 to establish production and, depending on the success thereof, to acquire additional seismic and potentially spud an appraisal well on License No. 2599 or No. 2598 prior to licence expiry; to acquire seismic and/or carry out geochemical studies in Licence No. 2600 and, depending on the results thereof, spud an exploration well before licence expiry; and the estimated costs of such studies, seismic, drilling and operations in Turkey and expected capital expenditures.
Forward looking information is based on management's expectations regarding future growth, results of operations, production, future commodity prices and foreign exchange rates, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities and future economic conditions. Forward looking information is also based on management's assumptions that the oil and gas regulatory framework and political situation in Turkey will continue to be stable and operate in its current state and that the Corporation will obtain all necessary regulatory approvals to complete the transactions described in this press release. Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the uncertainty associated with negotiating with foreign governments and third parties located in foreign jurisdictions and the risk associated with international activity, the risk associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of geological interpretations, the uncertainty of estimates and projections relating to production, costs and expenses), the risk of commodity price and foreign exchange rate fluctuations and the risk that the required regulatory approvals will not be obtained and, accordingly, there can be no assurance that the foregoing actions by the Corporation will be completed as contemplated.
Additional risks and uncertainties affecting Valeura and its business and affairs are described in further detail in Valeura's Annual Information Form for the year ended December 31, 2009, which is available at www.sedar.com. Although the Corporation believes that the expectations in such forward looking information are reasonable, there can be no assurance that such expectations shall prove to be correct. The forward looking information included in this press release is expressly qualified in its entirety by this cautionary statement. The forward looking information included herein is made as of the date of this press release and the Corporation assumes no obligation to update or revise any forward looking information to reflect new events or circumstances, except as required by law.
Additional information relating to Valeura is also available on SEDAR at www.sedar.com.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.
For further information: Jim McFarland, President and CEO, Valeura Energy Inc., (403) 930-1150, [email protected]; Steve Bjornson, CFO, Valeura Energy Inc., (403) 930-1151, [email protected], www.valeuraenergy.com
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