What question or industry issue are you looking forward to hearing about at the World Energy Capital Assembly?
After four very challenging years in our industry, in the past year we have witnessed an increase in global energy prices. This is leading to increased interest and spending across all areas of exploration and development, and M&A activity is showing an uptick with companies able to access capital. It is an exciting time again, and I look forward to spending several days with industry peers and the supporting financial community discussing their areas of focus and expectations for the near future. Specifically, with Valeura’s recent gas discovery in NW Turkey we are very focused on the European gas market and regional influences on that market.
In your tenure at Valeura Energy so far, what has been the greatest challenge you have faced?
Our gas-condensate discovery in Turkey created a very significant increase in our share price. It was a very exciting time as we tested the well and then were able to raise all of the capital required for our appraisal program. However, during the past 6 months, Turkey has been forefront in the global news, first for their national election and then with the recent fall in the value of the Turkish Lira. While we anticipated growing stability following the election results in Q2, the emerging market currency issue has created a lot of perceived uncertainty. Correcting the market’s misconceptions about our business in Turkey and its long-term value is an ongoing challenge. While we are currently paid for our gas in Lira, the government has increased the price of gas 63% in 2018, fully offsetting any currency depreciation.
In my view, the negative sentiment around Turkey has created an opportunity for investors to get into the Valeura story prior to us releasing drilling and testing information from our appraisal campaign of our Basin-centered Gas Accumulation (BCGA).
How could your recent gas discovery impact the future of Turkey and their economy?
Turkey has been increasing their gas consumption for several decades averaging just under 10% per year. Last year consumption increased 20% to approximately 2 Tcf per year. More importantly, more than 99% of this gas is imported. Our gas project will not solve Turkey’s energy needs and they will continue to require imports. However, it will allow them to reduce their dependence on foreign suppliers, such as Russia, and it will be a large step towards Turkey’s strategy of becoming an energy hub between the European consumers and the Middle Eastern suppliers.
It may also become a source of supply Western Europe as our gas is just tens of kms away from the new TANAP pipeline which transports gas through Turkey, into Greece, and ultimately is planned to access points in Europe. Logical first customers will be the domestic Turkish market, but we are not prohibited from exporting, so see this as a longer-term option.
What are Valeura Energy’s goals for the rest of 2018?
We are very much focused on the appraisal and the demonstration of commerciality of our BCGA with 10.1 Tcfe of unrisked prospective resource net to Valeura. This appraisal campaign has commenced and will provide continuous newsflow from drilling and testing operations until mid 2019.
Our first step is to demonstrate long-term flow from our discovery well, Yamalik-1, which has just been recompleted and brought online through our owned infrastructure.
Three new deep wells will then being drilled to prove the play is pervasive across the basin and also test for a reservoir floor down to 5000m. A key objective of the that campaign will also be demonstrating our ability to identify sweet spots of greater natural fracturing.
While Valeura is the operator of this campaign, we have a great partner in Equinor and a commercial arrangement with them whereby they have carried the cost of our discovery well, and will carry the first of our 3 appraisal wells.
We are also considering a London listing of Valeura Energy and hope to have more news on that shortly. We have seen strong interest from the UK investor community, including taking the lion’s share of new equity we placed earlier this year. We see further benefits in being among a peer group of international E&Ps, and in close proximity to the community of international E&P analysts.
What is Valeura Energy’s Investment Outlook for the Industry in 2019?
As a person who has worked globally for my whole career, I have been bullish on energy prices for several years and I continue to take this view going forward. Global demand has continued to rise. On the supply side, in the wake of the 2014 price drop, there was a significant reduction in major capital expenditures by the majors and the NOCs. The downward effect of this reduced capex on supply is never immediate and takes a number of years to be realised. We are seeing those effects right now.
From Valeura’s point of view, I can only re-emphasise that we are working in a country where 99% of the gas is imported. There is no supply-demand balance to worry about and we expect Turkey to continue to be a “price taker” and for our gas prices to behave like EU prices. Longer term, having access to the European gas market is increasingly important, particularly as nations prioritise cleaner fuels like natural gas and contemplate reducing reliance on nuclear.
What are three things still left on your bucket list?
1) From an operational perspective, I’d like to find the bottom of the BCGA! We weren’t able to get there in Yamalik-1 due to the amount of overpressureing in the gas. We’re designing our wells to accommodate that pressure point forward.
2) We would also like to be more aggressive with frac’ing our wells, and see what sort of flow rates is really possible. It’s a balance though, as at this stage, we want to understand the play as much as possible and it is about information gathering. This means we may have to be very selective in which intervals we’ll frac.
3) From a personal point of view, I want to backcountry ski in Turkey…….seems novel
Find out more about Sean Guest
World Energy Capital Assembly
The World Energy Capital Assembly, an anchor event on the industry calendar, brings together the oil & gas and finance & investment worlds to discuss emerging and re-emerging energy investment opportunities, to review deals done and to chart E&P activity globally. It provides unrivalled access to what is now the world’s most influential network of senior executives from across the energy, finance and investment worlds. Closing two packed days, the largest energy Awards Dinner in Europe offers the ideal setting for celebrating the industry’s achievements alongside 650 senior executives in the most glamorous of settings.