TIDMVLU
RNS Number : 6803G
Valeura Energy Inc.
31 March 2022
VALEURA ENERGY
FOURTH QUARTER 2021 RESULTS
Calgary, March 31, 2022 : Valeura Energy Inc. (TSX:VLE, LSE:VLU)
(the "Company" or "Valeura"), an upstream oil and gas company with
assets in the Thrace Basin of Turkey, reports its financial and
operating results for the three month period ended December 31,
2021 and the year ended December 31, 2021.
The complete quarterly reporting package for the Company,
including the audited financial statements and associated
management's discussion and analysis ("MD&A") and the 2021
Annual Information Form ("AIF"), are being
filed on SEDAR at www.sedar.com and posted on the Company's website at www.valeuraenergy.com .
HIGHLIGHTS
-- Financial position - Cash position of US$40.8 million at December 31, 2021;
-- Royalties - Valeura began receiving royalty payments in
connection with the sale of its conventional gas producing business
in Turkey, amounting to US$0.8 million being invoiced up to
December 31, 2021; and
-- Strategy - The Company continues to pursue near-term
inorganic international growth opportunities and is seeking a
suitable partner to farm in to the Company's 20 Tcfe unrisked mean
prospective resource deep, tight gas play in Turkey.
FINANCIAL POSITION AND ROYALTY
As of the end of Q4 2021, Valeura had cash and cash equivalent
resources totalling US$40.8 million and no debt.
Associated with the sale of its conventional gas producing
business in Turkey which closed in Q2 2021, Valeura became entitled
to a royalty for up to the next five years of a total amount
between US$1.0 and US$2.5 million, tied to local Turkish gas
prices. As of December 31, 2021, the Company had invoiced total
royalty payments of US$0.8 million. Given the continued strong gas
prices in Europe and Turkey, Valeura expects to receive the maximum
outstanding royalties for the period of US$1.7 million in Q1 2022
with these royalties recorded in accounts receivable.
STRATEGY
Valeura's 20 Tcfe(1) tight gas appraisal play in Turkey remains
a core part of the Company's portfolio and represents a significant
source of potential long-term value. Valeura is continuing its
search for a suitable farm-in partner for the tight gas appraisal
play and is working with a London-based advisor to assist in the
search. The Company believes securing a partner is the most prudent
first step before committing significant capital to the next phase
of appraisal drilling. Valeura is poised to resume deep drilling
operations rapidly upon securing a partner, with several locations
already in the advanced permitting stage.
Valeura's exploration licences remain in good standing and are
scheduled to expire on June 27, 2023 (after receiving a one-year
extension from their original expiration date of June 27, 2022 from
the Turkish Government as a result of COVID-19), after which the
Company has the option to apply for two additional two-year
exploration periods, giving the Company the ability to maintain
these licences for up to approximately five more years through work
programme commitments. During the current extension period, the
Company is required to drill one exploration well on each of the
three exploration licences. The one-year extension Valeura received
on the exploration licences provides additional flexibility with
respect to Valeura's obligations to drill two Banarli exploration
wells and one West Thrace exploration well to maintain its deep gas
rights, meaning the Company will have no material capital
commitments relating to its Turkey assets until mid 2023.
In the nearer-term, Valeura intends to leverage its strong
financial position toward growing by way of mergers and
acquisitions (" M&A "). The collective international experience
of the Company's management and board defines a broad focus area,
including jurisdictions with significant deal flow and expected
relatively low competition for assets. Valeura is actively pursuing
several M&A opportunities, targeting near-term production and
cash flow, plus follow-on investment opportunities to enable
mid-term growth. The company remains in discussion on several
opportunities and will disclose further details in due course as
appropriate. The company remains squarely focussed on only
executing transactions that will generate material value for
shareholders.
(1) Unrisked mean prospective resource
ANNUAL AND SPECIAL MEETING
Valeura has tentatively scheduled its annual and special meeting
of shareholders for June 23, 2022. Meeting materials will be mailed
in April 2022.
ABOUT THE COMPANY
Valeura Energy Inc. is a Canada-based public company currently
engaged in the exploration, development and production of petroleum
and natural gas in Turkey.
RESOURCE DISCLOSURE
Resource disclosure in this announcement is based on an
independent resources evaluation as at December 31, 2018 conducted
by DeGolyer and MacNaughton in its report dated March 13, 2019,
which was prepared using guidelines outlined in the Canadian Oil
and Gas Evaluation Handbook and in accordance with National
Instrument 51-101 - Standards of Disclosure for Oil and Gas
Activities, as adjusted to reflect Equinor's withdrawal in Q1 2020.
Prospective resources are those quantities of petroleum estimated,
as of a given date, to be potentially recoverable from undiscovered
accumulations by application of future development projects.
Prospective resources have both an associated chance of discovery
and a chance of development. The unrisked estimates of prospective
resources referred to in this announcement have not been risked for
either the chance of discovery or the chance of development. There
is no certainty that any portion of the prospective resources will
be discovered. If a discovery is made, there is no certainty that
it will be developed or, if it is developed, there is no certainty
as to the timing of such development or that it will be
commercially viable to produce any portion of the prospective
resources. Additional resources information is included in the
Company's annual information form for the year ended December 31,
2018.
ADVISORY AND CAUTION REGARDING FORWARD-LOOKING INFORMATION
Certain information included in this news release constitutes
forward-looking information under applicable securities
legislation. Such forward-looking information is for the purpose of
explaining 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",
"target" or similar words suggesting future outcomes or statements
regarding an outlook. Forward-looking information in this news
release includes, but is not limited to: the Company's expectations
regarding the anticipated amount and timing of royalty payments;
statements with respect to the Company's deep tight gas play
strategy, including management's belief that the play represents a
material value proposition, its ability to find another farm- in
partner for the play, and its ability to resume appraisal drilling
rapidly upon securing a partner; and statements with respect to the
Company's inorganic growth strategy, including its ability to
leverage its strong financial position and identify and execute on
M&A opportunities. In addition, statements related to
"resources" are deemed to be forward-looking information as they
involve the implied assessment, based on certain estimates and
assumptions, that the resources can be discovered and profitably
produced in the future.
Forward-looking information is based on management's current
expectations and assumptions regarding, among other things:
stability of gas prices and production from the shallow assets used
to determine the amount of the royalty payments; approvals
forthcoming from the Turkish government in a manner consistent with
past conduct; future drilling activity on the required/expected
timelines; the prospectivity of the Company's lands, including the
deep play; future economic conditions; the ability to meet drilling
deadlines and other requirements under licences and leases; and the
ability to attract a new partner in the deep play; the ability to
identify and execute on attractive merger and acquisition
opportunities to support growth. Although the Company believes the
expectations and assumptions reflected in such forward-looking
information are reasonable, they may prove to be incorrect.
Forward-looking information involves significant known and
unknown risks and uncertainties. Exploration, appraisal, and
development of oil and natural gas reserves are speculative
activities and involve a degree of risk. A number of factors could
cause actual results to differ materially from those anticipated by
the Company including, but not limited to: reduction in gas prices
or production from the shallow assets that impacts the amount of
the royalty payments; the potential extension of the Company's
exploration licences; inability to secure a new partner for the
deep play and execute potential M&A transactions; inability to
meet drilling deadlines to hold licences; the risks of further
disruptions from the COVID-19 pandemic; uncertainty regarding the
contemplated timelines and costs for the deep evaluation; potential
changes in laws and regulations, the uncertainty regarding
government and other approvals; counterparty risk or payment risk
for the royalty; and the risk associated with international
activity. The forward-looking information included in this news
release is expressly qualified in its entirety by this cautionary
statement. See the AIF for a detailed discussion of the risk
factors.
The forward-looking information contained in this news release
is made as of the date hereof and the Company undertakes no
obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events
or otherwise, unless required by applicable securities laws. The
forward-looking information contained in this news release is
expressly qualified by this cautionary statement.
Additional information relating to Valeura is also available on
SEDAR at www.sedar.com .
This announcement contains inside information as defined in EU
Regulation No. 596/2014, part of UK law by virtue of the European
Union (Withdrawal) Act 2018, and is in accordance with the
Company's obligations under Article 17 of that Regulation.
This announcement does not constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction,
including where such offer would be unlawful. This announcement is
not for distribution or release, directly or indirectly, in or into
the United States, Ireland, the Republic of South Africa or Japan
or any other jurisdiction in which its publication or distribution
would be unlawful.
Neither the Toronto Stock Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the Toronto
Stock Exchange) accepts responsibility for the adequacy or accuracy
of this news release.
For further information, please contact:
Valeura Energy Inc. (General Corporate Enquiries) +1 403 237
7102
Sean Guest, President and CEO
Heather Campbell, CFO
Contact@valeuraenergy.com
Valeura Energy Inc. (Capital Markets / Investor Enquiries) +1 403 975 6752
Robin James Martin, Investor Relations Manager +44 7392 940495
IR@valeuraenergy.com
Auctus Advisors LLP (Corporate Broker to Valeura) +44 (0) 7711
627 449
Jonathan Wright
Valeura@auctusadvisors.co.uk
CAMARCO (Public Relations, Media Adviser to Valeura) +44 (0) 20 3757 4980
Owen Roberts, Monique Perks, Hugo Liddy, Billy Clegg
Valeura@camarco.co.uk
MANAGEMENT'S REPORT
The management of Valeura Energy Inc. is responsible for the
preparation of all information included in the consolidated
financial statements and Management's Discussion & Analysis
("MD&A"). The consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB"). Financial information that is presented
in the MD&A is consistent with the consolidated financial
statements.
In preparation of the consolidated financial statements,
estimates are sometimes necessary because a precise determination
of certain assets and liabilities is dependent on future events.
Management believes such estimates have been based on careful
judgments and have been presented fairly in all material
respects.
Management maintains appropriate systems of internal control
that provide reasonable assurance that transactions are
appropriately authorized, assets are safeguarded from loss or
unauthorized use and financial records provide reliable and
accurate information for the presentation of the consolidated
financial statements.
KPMG LLP, an independent firm of chartered professional
accountants, was appointed by the shareholders to audit the
consolidated financial statements of Valeura Energy Inc. and
provide an independent professional opinion. Their report is
presented with the consolidated financial statements herein.
The Board of Directors, through its Audit Committee, has
reviewed the consolidated financial statements including notes
thereto with management and KPMG LLP. The Audit Committee is
composed of independent directors. Valeura Energy Inc.'s Board of
Directors has approved the consolidated financial statements based
on the recommendation of the Audit Committee.
(signed) "Sean Guest" (signed) "Heather Campbell"
President and CEO CFO
March 30, 2022
INDEPENT AUDITORS' REPORT
To the Shareholders of Valeura Energy Inc.
Opinion
We have audited the consolidated financial statements of Valeura
Energy Inc. (the Entity), which comprise:
-- the consolidated statements of financial position as at
December 31, 2021 and December 31, 2020
-- the consolidated statements of loss and comprehensive income (loss) for the years then ended
-- the consolidated statements of changes in shareholders' equity for the years then ended
-- the consolidated statements of cash flows for the years then ended
-- and notes to the consolidated financial statements, including
a summary of significant accounting policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present
fairly, in all material respects, the consolidated financial
position of the Entity as at December 31, 2021 and December 31,
2020, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally
accepted auditing standards. Our responsibilities under those
standards are further described in the "Auditors' Responsibilities
for the Audit of the Financial Statements" section of our auditors'
report.
We are independent of the Entity in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in Canada and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements for the year ended December 31, 2021. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
We have determined the matter described below to be the key
audit matter to be communicated in our auditors' report.
Evaluation of indicators of impairment for exploration and
evaluation assets
Description of the matter
We draw attention to note 2(d), note 3(d) and note 7 to the
financial statements. At December 31, 2021, the Entity had
exploration and evaluation ("E&E") assets of $1.172 million,
which are assessed for impairment if facts and circumstances
indicate that the carrying amount may exceed its recoverable
amount. Judgement is required to assess whether internal or
external indicators of impairment exist. Indicators of impairment
include, but are not limited to:
-- The right to explore in the specific area has expired during
the period or will expire in the near future, and is not expected
to be renewed
-- Substantive expenditure on further exploration for and
evaluation of mineral resources in the specific area is neither
planned or budgeted
At December 31, 2021, the Entity determined that no indicators
of impairment existed with respect to the Entity's E&E
assets.
Why the matter is a key audit matter
We identified the evaluation of indicators of impairment for
exploration and evaluation assets as a key audit matter. This
matter represented an area of significant auditor judgement
required in evaluating the internal and external factors included
in the Entity's indicators of impairment analysis.
How the matter was addressed in the audit
The following are the primary procedures we performed to address
this key audit matter:
-- Assessed the status of the Entity's rights to explore by
discussing with management if any rights were not expected to be
renewed and inspecting exploratory licenses and renewals
-- Assessed if substantive expenditures on further exploration
for and evaluation of oil and natural gas resources in each area of
interest are planned or discontinued by inspecting internal
communications and external correspondence.
Other Information
Management is responsible for the other information. Other
information comprises:
-- the information included in the Management's Discussion and
Analysis filed with the relevant Canadian Securities
Commissions.
Our opinion on the financial statements does not cover the other
information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit and remain alert for indications
that the other information appears to be materially misstated.
We obtained the information, included in Management's Discussion
and Analysis filed with the relevant Canadian Securities
Commissions as at the date of this auditors' report.
If, based on the work we have performed on this other
information, we conclude that there is a material misstatement of
this other information, we are required to report that fact in the
auditors' report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance
for the Financial Statements
Management is responsible for the preparation and fair
presentation of the financial statements in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB), and for such
internal control as management determines is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible
for assessing the Entity's ability to continue as a going concern,
disclosing as applicable, matters related to going concern and
using the going concern basis of accounting unless management
either intends to liquidate the Entity or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Entity's financial reporting process.
Auditors' Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
As part of an audit in accordance with Canadian generally
accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit.
We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion.
The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Entity's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by management.
-- Conclude on the appropriateness of management's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Entity's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditors' report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditors' report. However, future events or
conditions may cause the Entity to cease to continue as a going
concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
-- Communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
-- Provide those charged with governance with a statement that
we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group Entity to express an opinion on the financial statements.
We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit
opinion.
-- Determine, from the matters communicated with those charged
with governance, those matters that were of most significance in
the audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our
auditors' report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our auditors' report because the adverse
consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
The engagement partner on the audit resulting in this auditors'
report is Jason Stuart Brown.
Chartered Professional Accountants
Calgary, Canada
March 30, 2022
Consolidated Statements of Financial Position
December 31, December 31,
(thousands of US Dollars) 2021 2020
------------------------------------------ ----------------
Assets
Current Assets
Cash and cash equivalents $ 40,826 $ 30,143
Restricted cash (note 5) 16 232
Accounts receivable (note 6 and 16) 586 199
Royalty receivable (note 6 and 16) 2,315 -
Prepaid expenses and deposits 260 330
Assets held for sale (note 6) - 22,032
------------------------------------------ ----------------
44,003 52,936
------------------------------------------ ----------------
Exploration and evaluation assets (note
7) 1,174 1,643
Property, plant and equipment (note
8) 46 278
$ 45,223 $ 54,857
------------------------------------------ ----------------------------- ----------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 341 $ 506
Liabilities directly associated with
the assets held for sale (note 6) - 10,240
------------------------------------------ ----------------
341 10,746
Decommissioning obligations (note 9) 1,752 2,161
2,093 12,907
Shareholders' Equity
Share capital (note 13) 179,717 179,717
Contributed surplus 22,706 22,410
Accumulated other comprehensive gain
(loss) 10,146 (55,288)
Deficit (169,439) (104,889)
------------------------------------------ ----------------
43,130 41,950
------------------------------------------ ----------------
$ 45,223 $ 54,857
------------------------------------------ ----------------------------- ----------------
See accompanying notes to the consolidated financial
statements.
Approved by the Board
("Tim Marchant") ("Russell Hiscock")
Tim Marchant, Chairman, Director Russell Hiscock, Director
Consolidated Statements of Loss and Comprehensive Income
(Loss)
For the years ended December 31, 2021 and 2020
December 31, December 31,
(thousands of US Dollars) 2021 2020
Revenue (note 10)
Petroleum and natural gas sales $ 3,126 $ 8,547
Royalties (423) (1,152)
Other Income 291 615
----------------------------------------------- ------------- --------------------
2,994 8,010
----------------------------------------------- ------------- --------------------
Expenses and other items
Production 1,337 3,343
General and administrative (note 12) 4,793 4,417
Severance 206 580
Transaction costs 74 223
Accretion on decommissioning liabilities 554 913
Foreign exchange (gain) loss (443) 901
Settlement income - (332)
Share-based compensation (note 12 and
13) 246 1,032
Impairment - 13,445
Change in estimate on decommissioning 143 -
liabilities
Depletion and depreciation (notes 8) 188 3,649
7,098 28,171
Gain (loss) for the period before other
items (4,104) (20,161)
Gain on sale (note 6) 6,134 -
Gain on deferred consideration (note 1,459 -
6)
Currency translation on subsidiaries (67,764) -
disposed and liquidated (note 6)
----------------------------------------------- ------------- --------------------
(60,171) -
----------------------------------------------- ------------- --------------------
Gain (loss) for the period before income
taxes (64,275) (20,161)
Income taxes (note 11)
Current tax expense 41 265
Deferred tax expense (recovery) 234 (892)
Net loss (64,550) (19,534)
Other comprehensive income (loss)
Currency translation on subsidiaries 67,764 -
disposed and liquidated (note 6)
Currency translation adjustments (2,330) (6,015)
----------------------------------------------- ------------- --------------------
65,434 (6,015)
----------------------------------------------- ------------- --------------------
Comprehensive income (loss) $ 884 $ (25,549)
----------------------------------------------- ------------- --------------------
Net income (loss) per share (note 13)
Basic and diluted $ (0.75) $ (0.23)
Weighted average number of shares outstanding
(thousands) 86,585 86,585
----------------------------------------------- ------------- --------------------
See accompanying notes to the consolidated financial
statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 2021 and 2020
December 31, December 31,
(thousands of US Dollars) 2021 2020
---------------------------------------------------
Cash was provided by (used in):
Operating activities:
Net income (loss) for the period $ (64,550) $ (19,534)
Depletion and depreciation (note 8) 188 3,649
Impairment - 13,445
Share-based compensation (note 13) 246 1,032
Accretion on decommissioning liabilities 554 913
Gain on deferred consideration (note 6) (1,459) -
Change in estimate on decommissioning liabilities 143 -
(note 9)
Disposition (note 6) 60,871 -
Currency translation on subsidiary liquidated 759 -
(note 6)
Unrealised foreign exchange loss (gain) (112) 233
Deferred tax expense (recovery) 234 (892)
Decommissioning costs incurred - (121)
Change in restricted cash - (232)
Change in non-cash working capital (note
15) (37) 1,362
--------------------------------------------------- ---------------
Cash used in operating activities (3,163) (145)
--------------------------------------------------- ---------------
Financing activities:
Principal payments on lease liability (28) (68)
Cash used in financing activities (28) (68)
---------------------------------------------------
Investing activities:
Property and equipment expenditures (note
8) (37) (3,130)
Exploration and evaluation expenditures
(note 7) (225) (1,715)
Assets held for sale expenditures (163) -
Net cash received on disposition (note 6) 14,358 -
Royalty receivable (note 6) 185 -
Change in restricted cash 216 258
Change in non-cash working capital (note
15) (282) (447)
--------------------------------------------------- ---------------
Cash provided by (used in) investing activities 14,052 (5,034)
--------------------------------------------------- ---------------
Foreign exchange gain (loss) on cash held
in foreign currencies (178) (721)
--------------------------------------------------- ---------------
Net change in cash and cash equivalents 10,683 (5,968)
Cash and cash equivalents, beginning of
period 30,143 36,111
--------------------------------------------------- ---------------
Cash and cash equivalents, end of period $ 40,826 $ 30,143
--------------------------------------------------- ------------- ---------------
See accompanying notes to the consolidated financial
statements.
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 2021 and 2020
(thousands of Number
US Dollars and of Accumulated
thousands of common Contributed Other Comp. Total Shareholders'
shares) shares Share Capital Surplus Income/(loss) Deficit Equity
--------------- --------- ----------------------------- ------------------------ ------------------------------------------- ----------------------- ---------------------------------
Balance,
January
1, 2021 86,585 $ 179,717 $ 22,410 $ (55,288) $ (104,889) $ 41,950
Net loss for
the
period - - - - (64,550) (64,550)
Currency
translation
adjustments - - - 65,434 - 65,434
Share-based
Compensation - - 296 - - 296
--------------- --------- ----------------------------- ------------------------ ------------------------------------------- ----------------------- ---------------------------------
December 31,
2021 86,585 $ 179,717 $ 22,706 $ 10,146 $ (169,439) $ 43,130
--------------- --------- ----------------------------- ------------------------ ------------------------------------------- ----------------------- ---------------------------------
(thousands of Number
US Dollars and of Accumulated
thousands of common Contributed Other Comp. Total Shareholders'
shares) shares Share Capital Surplus Loss Deficit Equity
--------------- --------- ----------------------------- ---------------------------- ------------------------ ------------- ---------------------------------
Balance,
January
1, 2020 86,585 $ 179,717 $ 21,229 $ (49,273) $ (85,355) $ 66,318
Net loss for
the
period - - - - (19,534) (19,534)
Stock options
cancellation - - (14) - - (14)
Currency
translation
adjustments - - - (6,015) - (6,015)
Share-based
Compensation - - 1,195 - - 1,195
--------------- --------- ----------------------------- ---------------------------- ------------------------ ------------- ---------------------------------
December 31,
2020 86,585 $ 179,717 $ 22,410 $ (55,288) $ (104,899) $ 41,950
--------------- --------- ----------------------------- ---------------------------- ------------------------ ------------- ---------------------------------
See accompanying notes to the consolidated financial
statements.
1. Reporting Entity
Valeura Energy Inc. ("Valeura" or the "Company") and its
subsidiaries (refer to note 2c) are currently engaged in the
exploration and development of petroleum and natural gas in Turkey.
Valeura is incorporated in Alberta, Canada and has subsidiaries in
the Netherlands and Turkey. Valeura's shares are traded on the
Toronto Stock Exchange ("TSX") under the trading symbol VLE and the
Main Market of the London Stock Exchange ("LSE"), under the trading
symbol "VLU". Valeura's head office address is 1200, 202 - 6 Avenue
SW, Calgary, AB, Canada.
2. Basis of Preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board
("IASB") as at and for the years ended December 31, 2021 and 2020
and have been prepared in accordance with the accounting policies
and methods of computation as set forth in note 3 below.
Operating, transportation and marketing expenses in the
statement of loss and comprehensive loss are presented as a
combination of function and nature in conformity with industry
practices. Depletion, depreciation and finance expenses are
presented in separate lines by their nature, while net
administrative expenses are presented on a functional basis.
Significant expenses such as salaries and benefits and share-based
compensation are presented by their nature in the notes to the
consolidated financial statements.
The consolidated financial statements were authorized for issue
by the Board of Directors on March 30, 2022.
(b) Basis of measurement
The consolidated financial statements have been prepared using
the historical cost basis except for certain financial and
non-financial assets and liabilities, which have been measured at
fair value. The methods used to measure fair value are discussed in
note 4.
The COVID-19 pandemic is an evolving situation that may continue
to have widespread implications for the Company's business
environment, operations, and financial conditions. Management
cannot reasonably estimate the length or severity of this pandemic
and will continue to monitor the situation closely.
The Company's consolidated financial statements include the
accounts of Valeura and its subsidiaries and are expressed in US
Dollars, unless otherwise stated.
(c) Functional and presentation currency
The consolidated financial statements are presented in US
Dollars which is Valeura's reporting currency. Valeura's and its
foreign subsidiaries transact in currencies other than the US
Dollar and have a functional currency of Turkish Lira and Canadian
dollars as follows:
Company Functional Currency
Valeura Energy Inc. Canadian Dollars
--------------------
Northern Hunter Energy Inc. Canadian Dollars
--------------------
Valeura Energy (Netherlands) Turkish Lira
BV
--------------------
The functional currency of a subsidiary is the currency of the
primary economic environment in which the subsidiary operates.
Transactions denominated in a currency other than the functional
currency are translated at the prevailing rates on the date of the
transaction. Any monetary items held in a currency which is not the
functional currency of the subsidiary are translated to the
functional currency at the prevailing rate as at the date of the
statement of financial position. All exchange differences arising
as a result of the translation to the functional currency of the
subsidiary are recorded in earnings.
Translation of all assets and liabilities from the respective
functional currencies to the reporting currency are performed using
the rates prevailing at the statement of financial position date.
The differences arising upon translation from the functional
currency to the reporting currency are recorded as currency
translation adjustments in other comprehensive income or loss
("OCI") and are held within accumulated other comprehensive income
or loss ("AOCI") until a disposal or partial disposal of a
subsidiary. A disposal or partial disposal will then give rise to a
realized foreign exchange gain or loss which is recorded in
earnings.
(d) Use of estimates and judgments
The preparation of consolidated financial statements in
conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the year
in which the estimates are revised and in any future years
affected.
Critical judgments in applying accounting policies:
The following are the critical judgments that management has
made in the process of applying the Company's accounting policies
and that have the most significant effect on the amounts recognized
in the consolidated financial statements:
-- Valeura's assets are aggregated into cash-generating units
for the purpose of calculating impairment. Cash generating units
("CGU" or "CGUs") are based on an assessment of the unit's ability
to generate independent cash inflows. The determination of these
CGUs was based on management's judgment in regard to shared
infrastructure, geographical proximity, petroleum type and similar
exposure to market risk and materiality.
-- Judgments are required to assess when internal or external
indicators of impairment exist and impairment testing is required.
In determining the recoverable amount of assets or CGUs, in the
absence of quoted market prices, impairment tests are based on
estimates of proved and probable reserves which are dependent upon
variables including forecasted oil and natural gas prices,
operating costs, royalties, production volumes, future development
costs, and other relevant assumptions all of which are subject to
many uncertainties and interpretations.
-- Costs associated with acquiring oil and natural gas licenses,
carrying out seismic surveys and other technical studies and
exploratory drilling are accumulated as exploration and evaluation
("E&E") assets pending determination of technical feasibility
and commercial viability. Establishment of technical feasibility
and commercial viability is subject to judgment and involves
management's review of project economics, resource quantities,
expected production techniques, production costs and required
capital expenditures to confirm continued intent to develop and
extract the underlying resources. Management uses the establishment
of commercial reserves within the exploration area as the basis for
determining technical feasibility and commercial viability.
Judgment is required in determining whether indicators of
impairment exist, including factors such as but not limited to, the
right to explore in the specific area has expired during the period
or will expire in the near future and is not expected to be renewed
and determination of whether substantive expenditures on further
exploration for and evaluation of mineral resources in specific
areas will not be planned or budgeted. Upon determination of
commercial reserves, E&E assets attributable to those reserves
are tested for impairment and reclassified from E&E assets to a
separate category within property, plant and equipment referred to
as oil and natural gas properties.
Key sources of estimation uncertainty:
The following are key estimates and their assumptions made by
management affecting the measurement of balances and transactions
in the consolidated financial statements:
-- Management's assumptions and estimates of future cash flows
used in the Company's impairment assessment of exploration and
evaluation properties are subject to risk and uncertainties,
particularly in market conditions where higher volatility exists,
and may be partially or totally outside of the Company's control.
If an indication of impairment exists, or if an exploration and
evaluation asset is determined to not be technically feasible and
commercially viable, an estimate of a CGU's recoverable amount is
calculated. The recoverable amount is based on the higher of fair
value less costs of disposal and value in use, using a discounted
cash flow methodology. The impairment analysis requires the use of
estimates and assumptions, such as long-term commodity prices,
discount rates, future capital expenditures, exploration potential
and operating costs. Fair value of exploration and evaluation
assets is generally determined as the present value of estimated
future cash flows arising from the continued use of the asset,
which includes estimates such as the cost of future expansion plans
and eventual disposal, using assumptions that an independent
market participant may take into account. Cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessment of the time value of money
and risks to the asset. If the Company does not have sufficient
information about a particular mineral resource property to
meaningfully estimate future cash flows, the fair value is
estimated by management through comparison to similar market assets
and, where available, industry benchmarks.
-- The Company estimates the decommissioning obligations for oil
and natural gas wells and their associated production facilities
and pipelines. In most instances, removal of assets and remediation
occurs many years into the future. Amounts recorded for the
decommissioning obligations and related accretion expense require
assumptions regarding removal date, future environmental
legislation, the extent of reclamation activities required, the
engineering methodology for estimating cost, inflation estimates,
future removal technologies in determining the removal cost, and
the estimate of the liability specific discount rates to determine
the present value of these cash flows.
-- The Company's estimate of share-based compensation is based
upon estimates of volatility and forfeiture rates.
-- The deferred tax liability is based on estimates as to the
timing of the reversal of temporary differences, substantively
enacted tax rates and the likelihood of assets being realized.
3. Significant Accounting Policies
The accounting policies set out below have been applied
consistently to all years presented in the consolidated financial
statements and have been applied consistently by the Company and
its subsidiaries, except as described below.
(a) Basis of consolidation
(i) Subsidiaries:
Subsidiaries are entities controlled by the Company. Control
exists when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, substantive potential voting
rights are taken into account. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control
ceases.
The acquisition method of accounting is used to account for
acquisitions of subsidiaries and assets that meet the definition of
a business under IFRS. The cost of an acquisition is measured as
the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The excess
of the cost of acquisition over the fair value of the identifiable
assets, liabilities and contingent liabilities acquired is recorded
as goodwill. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference is
recognized immediately in earnings.
(ii) Jointly controlled operations and jointly controlled assets:
A portion of the Company's exploration and development
activities are conducted jointly with others. The joint interests
are accounted for on a proportionate consolidation basis and as a
result the financial statements reflect only the Company's
proportionate share of the assets, liabilities, revenues, expenses
and cash flows from these activities.
Valeura's has one joint venture arrangements as follows:
Name of the joint Nature of the Principal place Proportion of
arrangement relationship of business participating
with the joint of joint arrangement share
arrangement
West Thrace Deep Operator Turkey 63% (all rights)
Joint Venture
---------------- ---------------------- -----------------
(iii) Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized
income and expenses arising from intercompany transactions, are
eliminated in preparing the consolidated financial statements.
(b) Financial instruments
(j) Non-derivative financial instruments:
Financial assets are classified in three principal
classification categories: measured at amortized cost, fair value
through other comprehensive income ("FVOCI"), or fair value through
profit or loss ("FVTPL"). Financial liabilities are classified and
measured at amortized cost or FVTPL. Financial instruments are
recognized initially at fair value, net of any directly
attributable transactions costs.
Where the fair value option is applied to financial liabilities,
any change in fair value resulting from an entity's own credit
risks is recorded through other comprehensive income or loss rather
than net income or loss. The classification of financial assets is
generally based on the business model in which a financial asset is
managed and the characteristics of its contractual cash flows.
A financial asset is measured at amortized cost if it meets both
of the following conditions: (a) the asset is held with a business
model whose objective is to hold assets to collect contractual cash
flows; and (b) the contractual terms of the financial assets give
rise to cash flows on specified dates that are solely payments of
principal and interest on principal amounts outstanding.
Financial assets that meet criteria (b) above that are held
within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets is
subsequently measured at FVOCI. All other financial assets and
liabilities are subsequently measured at FVTPL.
Accounts receivable, prepaid expenses and deposits, accounts
payable and accrued liabilities are measured at amortized cost.
Valeura does not currently have financial instrument contracts
to which it applies hedge accounting.
(ii) Share capital:
Common shares are classified as equity. Incremental costs
directly attributable to the issue of common shares and share
options are recognized as a deduction from equity, net of any tax
effects.
(c) Property, plant and equipment and exploration and evaluation assets
(i) Recognition and measurement:
Exploration and evaluation expenditures:
Pre-licence costs are recognized in earnings as incurred.
Exploration and evaluation ("E&E") costs, including the costs
of acquiring licences and directly attributable general and
administrative costs, are initially capitalized as exploration and
evaluation assets. The costs are accumulated in cost centres by
well, field or exploration area pending determination of technical
feasibility and commercial viability.
Exploration and evaluation assets are assessed for impairment if
sufficient data exists to determine technical feasibility and
commercial viability, and facts and circumstances suggest that the
carrying amount exceeds the recoverable amount. For purposes of
impairment testing, exploration and evaluation assets are allocated
to cash-generating units. The technical feasibility and commercial
viability of extracting a mineral resource is considered to be
determinable when proved and/or probable reserves are determined to
exist. A review of each exploration CGU is conducted, at least
annually, to ascertain whether proved and/or probable reserves have
been discovered. Upon determination of proved and/or probable
reserves, the CGU within which the intangible exploration and
evaluation assets attributable to those reserves is first tested
for impairment and then the applicable value is reclassified from
exploration and evaluation assets to property, plant and equipment.
Proceeds on E&E assets are recorded against the recognized
E&E balance, and no gain or loss is recognized.
Development and production costs:
Items of property, plant and equipment ("PP&E"), which
include oil and gas development and production assets, are measured
at cost less accumulated depletion and depreciation and accumulated
impairment losses. Development and production assets are grouped
into CGUs for impairment testing. When significant parts of an item
of PP&E, including oil and natural gas interests, have
different useful lives, they are accounted for as separate items
(components).
Gains and losses on disposal of an item of property, plant and
equipment, including oil and natural gas interests, are determined
by comparing the proceeds from disposal with the carrying amount of
PP&E and are recognized in earnings.
(ii) Subsequent costs:
Costs incurred subsequent to the determination of technical
feasibility and commercial viability and the costs of replacing
parts of PP&E are recognized as oil and natural gas interests
only when they increase the future economic benefits embodied in
the specific asset to which they relate. All other expenditures are
recognized in earnings as incurred. Such capitalized oil and
natural gas interests generally represent costs incurred in
developing proved and/or probable reserves and bringing in or
enhancing production from such proved and probable reserves, and
are accumulated on a field or geotechnical area basis. The carrying
amount of any replaced or sold component is derecognized. The costs
of the day-to-day servicing of property, plant and equipment are
recognized in earnings as incurred.
(iii) Depletion and depreciation:
The net carrying value of development or production assets is
depleted using the unit of production method by reference to the
ratio of production in the year to the related proved and probable
reserves, taking into account estimated future development costs
necessary to bring those proved and probable reserves into
production. Future development costs are estimated taking into
account the level of development required to produce the proved and
probable reserves. These estimates are reviewed by independent
reserve engineers at least annually.
Other corporate assets are recorded at cost on acquisition and
amortized on a declining-balance basis at rates of 20 percent to 50
percent per year.
(iv) Exploration and evaluation expense:
Upon determination that an exploration and evaluation CGU is
impaired, the Company will transfer costs associated with the
applicable CGU to exploration and evaluation expense in the
period.
(v) Farm-in arrangements:
In circumstances where the Company has entered into farm-in
arrangements whereby the farm-in partner ("partner") will earn a
working interest on certain properties through payment of a
pre-determined portion of the costs of exploration or development
activities, Valeura recognizes a disposal of the partner's working
interest once the commitment has been met and the difference
between the proceeds received and the carrying amount of the asset
are recognized as a gain or loss in earnings for Property, Plant
and Equipment assets and as a reduction of Exploration and
Evaluation Assets for instances where the farm in is on undeveloped
land.
(d) Impairment
(i) Financial assets:
Loss allowances are recognized for expected credit losses
("ECL's) on its financial assets measured at amortized cost. Due to
the nature of the financial assets, loss allowances are measured at
an amount equal to expected lifetime ECLs. Lifetime ECLs are the
anticipated ECLs that result from all possible default events over
the expected life of a financial asset. ECLs are a
probability-weighted estimate of credit loss and are discounted at
the effective interest rate of the related financial asset.
(ii) Non-financial assets:
The carrying amounts of the Company's non-financial assets are
reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, the
asset's recoverable amount is estimated through an impairment test.
The recoverable amount of an asset or a CGU is the greater of its
value-in-use and its fair value less costs to sell. Fair value less
costs to sell is determined as the amount that would be obtained
from the sale of the assets in an arm's length transaction between
knowledgeable and willing parties.
E&E assets are assessed for impairment when they are
reclassified to property, plant and equipment, and also if facts
and circumstances suggest that the carrying amount exceeds the
recoverable amount. For the purpose of impairment testing, assets
are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of
assets, or CGUs.
In assessing value-in-use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset or CGU. Value-in-use is
generally computed by reference to the present value of the future
cash flows expected to be derived from production of proved and
probable reserves. E&E assets are allocated to related CGUs
when they are assessed for impairment, both at the time of any
triggering facts and circumstances as well as upon their eventual
reclassification to PP&E.
An impairment loss is recognized if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in earnings. Impairment losses
recognized in respect of CGUs are allocated to reduce the carrying
amounts of the assets in the unit (group of units) on a pro-rata
basis.
An impairment loss in respect of PP&E and E&E assets,
recognized in prior years, is assessed at each reporting date for
any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been
determined, net of depletion and depreciation or amortization, if
no impairment loss had been recognized.
(e) Share based payments
The grant date fair value of options granted to employees is
recognized as compensation expense, with a corresponding increase
in contributed surplus over the vesting period. A forfeiture rate
is estimated on the grant date and is subsequently adjusted to
reflect the actual number of options that vest.
(f) Provisions
A provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. Provisions
are not recognized for future operating losses.
(i) Decommissioning obligations:
The Company's activities give rise to dismantling,
decommissioning and site disturbance re-mediation activities.
Provision is made for the estimated cost of site restoration and
capitalized in the relevant asset category. Decommissioning
obligations are measured at the present value of management's best
estimate of expenditure required to settle the present obligation
at the statement of financial position date. Subsequent to the
initial measurement, the obligation is adjusted at the end of each
period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The increase in the
provision due to the passage of time is recognized as finance costs
whereas increases/decreases due to changes in the estimated future
cash flows are capitalized. Actual costs incurred upon settlement
of the decommissioning obligations are charged against the
provision to the extent the provision was established.
(g) Revenue from contracts with customers
Valeura's petroleum and natural gas revenues from the sale of
natural gas and crude oil are based on the consideration specified
in the contracts with customers. For natural gas, pricing is linked
to BOTAS benchmark pricing, while crude oil pricing is linked to
Brent benchmark pricing. Valeura recognizes revenue when it
transfers control of the product to the customer, which is
generally when legal title passes to the customer and collection is
reasonably assured.
Valeura evaluates its arrangements with third parties and
partners to determine if Valeura is acting as the principal or as
the agent. Valeura is considered the principal in a transaction
when it has primary responsibility for the transaction. If Valeura
acts in the capacity of an agent rather than as a principal in a
transaction, then the revenue is recognized on a net basis, only
reflecting the fee, if any realized by Valeura from the
transaction.
(h) Finance income and expenses
Finance expense comprises interest expense on any borrowings,
accretion of the discount on provisions and impairment losses
recognized on financial assets.
Borrowing costs incurred for the construction of qualifying
assets are capitalized during the period of time that is required
to complete and prepare the assets for their intended use or sale.
All other borrowing costs are recognized in earnings using the
effective interest method. The capitalization rate used to
determine the amount of borrowing costs to be capitalized is the
weighted average interest rate applicable to the Company's
outstanding borrowings during the period.
Interest income is recognized as it accrues in earnings, using
the effective interest method.
(i) Income tax
Income tax expense comprises current and deferred tax. Income
tax expense is recognized in earnings except to the extent that it
relates to items recognized directly in equity, in which case it is
recognized in equity.
Current tax is the expected taxes payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to taxes payable in respect
of previous years.
Deferred tax is recognized using the statement of financial
position method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax
is not recognized on the initial recognition of assets or
liabilities in a transaction that is not a business
combination.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, based on the
laws that have been enacted or substantively enacted by the
reporting date. Deferred tax assets and liabilities are offset if
there is a legally enforceable right to offset, and they relate to
income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but they intend to settle
current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilized. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be
realized.
(j) Earnings per share
Basic per share amounts are calculated by dividing the net
income or loss attributable to common shareholders of the Company
by the weighted average number of common shares outstanding during
the period. Diluted per share amounts are determined by adjusting
the net income or loss attributable to common shareholders and the
weighted average number of common shares outstanding for the
effects of dilutive instruments such as options granted to
employees.
(k) Assets held for sale
Non-current assets or disposal groups comprising assets and
liabilities, are classified as held for sale if it is highly
probably that they will be recovered primarily through sale rather
than through continuing use.
Such assets, or disposal groups, are generally measured at the
lower of their carrying amount and fair value less costs to sell.
Any impairment loss on a disposal group is allocated first to
goodwill, and then to the remaining assets and liabilities on a pro
rata basis, except that no loss is allocated to inventories,
financial assets, deferred tax assets, which continue to be
measured in accordance with the Company's other accounting
policies. Impairment losses on initial classification as asset held
for sale and subsequent gains and losses on remeasurement are
recognized in profit and loss. Once classified as held for sale,
property, plant and equipment are no longer amortised or
depreciated.
4. Determination of Fair Values
A number of the Company's accounting policies and disclosures
require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been
determined for measurement and/or disclosure purposes based on the
methods described below. When applicable, further information about
the assumptions made in determining fair values is disclosed in the
notes specific to that asset or liability.
(i) Cash, deposits, accounts receivable, royalty receivable,
accounts payable and accrued liabilities:
The fair value of cash, deposits, accounts receivable, accounts
payable and accrued liabilities are estimated as the present value
of future cash flows, discounted at the market rate of interest at
the reporting date. At December 31, 2021 and December 31, 2020, the
fair value of these balances approximated their carrying values due
to their short term to maturity.
(ii) Stock options:
The fair value of employee stock options is measured using a
Black Scholes option pricing model. Measurement inputs include
share price on measurement date, exercise price of the instrument,
expected volatility based on the weighted average historic
volatility adjusted for changes expected due to publicly available
information, weighted average expected life of the instruments
based on historical experience and general option holder behavior,
expected dividends, the risk-free interest rate based on government
bonds, and an estimated forfeiture rate.
5. Restricted Cash
The Company has restricted cash in the amount of $0.02 million
(2020 - $0.23 million) that is securing licence deposits with the
General Directorate of Mining and Petroleum Affairs of the Republic
of Turkey ("GDMPA"). This restricted cash is held with the National
Bank of Canada ("NBC") as security, along with the Account
Performance Security Guarantee ("APSG") facility described in Note
9, for decommissioning or abandonment obligations and ongoing work
programmes on the Company's Turkish licences.
6. Disposition
On May 26, 2021, the Company closed the sale of its shallow
conventional gas assets for cash consideration (including closing
working capital and effective date adjustments) of $16.85 million,
and deferred consideration initially valued at $1.0 million, with
an economic effective date of July 1, 2020 ("the Disposition"). The
Disposition was structured as a sale of shares of Thrace Basin
Natural Gas (Turkiye) Corporation ("TBNG") and Corporate Resources
B.V. ("CRBV"), both of which were wholly owned subsidiaries of
Valeura. The deferred consideration is in the form of a cash
royalty payable over 5 years, referenced to local Turkish gas
prices, with a minimum payment of $1 million and a maximum of $2.5
million.
Upon closing of the Disposition, the Company estimated the
deferred consideration to be approximately $1.0 million. Subsequent
to the closing of the sale and during the year ended December 31,
2021 the Company recorded a gain on the deferred consideration of
$1.5 million as the maximum payment of $2.5 million is now expected
to be received due to overall increases in Turkish natural gas
prices. The total payment is expected to be received during the
year ended December 31, 2022. Upon closing of the Disposition, $0.3
million of the purchase price is being held in escrow for a period
of one year from the closing date of the Disposition. This amount
is recorded within accounts receivable.
The disposition resulted in a gain on disposal of $6.1 million
and a currency translation loss of $67.0 million. Per note 2 (c),
accumulated other comprehensive income or loss in disposed
subsidiaries, due to currency translation losses, must be
transferred to retained earnings through the statement of profit
and loss.
As at December 31, 2020, the disposed assets were classified as
assets held for sale.
Recognised amounts of identifiable assets and liabilities
disposed of were as follows:
Net assets disposed
Cash and cash equivalents $ 2,185
Accounts receivable 2,418
Inventory 117
Prepaid expenses and deposits 273
Right of use asset 340
Exploration and evaluation assets 1,232
Property and equipment 13,914
AccAccounts payable and accrued liabilities (2,096)
Lease liability (279)
Deferred income taxes (589)
Asset retirement obligation (5,755)
--------------------------------------------- ---------------
Total net assets disposed $ 11,760
--------------------------------------------- ---------------
Consideration
--------------------------------------------- ---------------
Cash proceeds 16,543
Retention receivable 310
Royalty receivable 1,041
---------------
Total consideration $ 17,894
---------------
Gain on disposition $ 6,134
Currency translation loss on subsidiaries disposed (67,005)
---------------------------------------------------- -------------------------------------
Total loss on disposition $ (60,871)
---------------------------------------------------- -------------------------------------
On December 30, 2021, the Company liquidated the Valeura Energy
(Netherlands) Cooperatief UA foreign subsidiary. All remaining
assets and liabilities, at the time of liquidation, were
transferred to Valeura Energy Inc. The liquidation resulted in a
currency translation loss of $0.8 million as a result of
transferring accumulated other comprehensive income to retained
earnings through the statement of profit and loss.
7. Exploration and Evaluation Assets
Cost Total
--------------------------------------------
Balance, December 31, 2019 $ 4,006
Additions 1,715
Transfers to property, plant and equipment
(note 8) (1,918)
Capitalized share-based compensation 167
Effects of movements in exchange rates (988)
Transfer to assets held for sale (1,339)
--------------------------------------------- -----------------------------------
Balance, December 31, 2020 $ 1,643
--------------------------------------------- -----------------------------------
Additions 225
Capitalized share-based compensation 54
Effects of movements in exchange rates (748)
Balance, December 31, 2021 $ 1,174
---------------------------------------------
Exploration and evaluation ("E&E") assets consist of the
Company's exploration projects which are pending the determination
of proved or probable reserves. Additions represent the Company's
share of costs incurred on E&E assets during the period.
Recoverability of exploration and evaluation assets
The Company assesses the recoverability of exploration and
evaluation assets, before and at the moment of reclassification to
property, plant and equipment, by allocating the E&E assets to
appropriate CGUs. At December 31, 2021 and 2020, Valeura determined
that no indicators of impairment existed with respect to the
Company's E&E assets.
Impairment of exploration and evaluation assets is recognized in
earnings.
8. Property, Plant and Equipment
Cost Total
------------------------------------------
Balance, December 31, 2019 $ 66,126
Additions 3,130
Transfer from exploration and evaluation
assets (note 7) 1,918
Change in decommissioning
obligations (note 9) 2,021
Effects of movements in exchange
rates (13,048)
Transfer to assets held for
sale (45,039)
Balance, December 31, 2020 $ 15,108
-------------------------------------------------
Additions 37
Effects of movements in exchange
rates (6,321)
Balance, December 31, 2021 $ 8,824
-------------------------------------------------
Accumulated depletion and Total
depreciation
----------------------------------
Balance, December 31, 2019 $ 31,843
Depletion and depreciation
expense 3,566
Impairment 13,445
Effects of movements in exchange
rates (6,338)
Transfer to assets held for
sale (27,686)
------------------------------------ ------------------
Balance, December 31, 2020 $ 14,830
------------------------------------ ------------------
Depletion and depreciation
expense 188
Effects of movements in exchange
rates (6,240)
Balance, December 31, 2021 $ 8,778
------------------------------------
Net book value Total
----------------------------
Balance, December 31, 2020 $ 278
Balance, December 31, 2021 $ 46
------------------------------ ---------------
The majority of the property, plant and equipment as at December
31, 2021, is furniture and fixtures and computer hardware and
software.
The Company conducted an assessment of impairment triggers and
concluded there were no indicators of impairment with respect to
the Company's property plant and equipment as at December 31,
2021.
9. Decommissioning Obligations
December 31, December 31,
2021 2020
Decommissioning obligations, beginning
of year $ 2,161 $ 8,181
Obligations incurred - 871
Obligations settled - (121)
Change in estimates 143 1,610
Accretion of decommissioning obligations 197 913
Effects of movements in exchange rates (749) (1,759)
Transfer to liabilities directly associated
with assets held for sale - (7,534)
--------------------------------------------- ------------------------ ---------------------
Decommissioning obligations, end of
year $ 1,752 $ 2,161
--------------------------------------------- ------------------------ ---------------------
The Company's decommissioning obligations result from its
ownership interest in oil and natural gas assets. The total
decommissioning obligation of $1.8 million at December 31, 2021 is
estimated based on the Company's net ownership interest in three
deep wells, estimated costs to reclaim and abandon these wells and
facilities and the estimated timing of the costs to be incurred in
future years. The change in estimates amount of $0.1 million at
December 31, 2021 reflects the combined effect of a revision in the
cost estimates for abandonment and reclamation, an increase in the
risk-free interest rate in Turkey (December 31, 2021 - 23.1%;
December 31, 2020 - 12.5%) and an increase in the inflation rate in
Turkey (December 31, 2021 - 36.1%; December 31, 2020 - 14.6%). The
change in estimates has been recorded on the statement of loss and
comprehensive income (loss) as the Company has no corresponding
asset recorded related to the decommissioning liability.
December 31, December 31,
2021 2020
Undiscounted cash flows $ 5,161 $ 8,084
Undiscounted cash flows associated with
assets held for sale $ - $ 20,130
Risk free rate - Turkey 23.1% 12.5%
Inflation rate - Turkey 36.1% 14.6%
Timing of cash flows 4-5 years 2-13 years
----------------------------------------- ------------------------ ---------------------
10. Revenue
Petroleum and natural gas sales, royalties and third-party
natural gas sales recorded in 2021 are from the shallow
conventional assets prior to their sale on May 26, 2021 (see note
6). After the close of the Disposition, the Company's only revenue
for the period is interest.
For revenue earned until May 26, 2021, under the contracts, the
Company was required to deliver a variable volume of natural gas to
the contract counter party. Revenue was recognised when a unit of
production was delivered to the contract counterparty. The amount
of revenue recognised was based on the agreed transaction price,
whereby any variability in revenue related specifically to the
Company's efforts to transfer production or the customer's demand
for natural gas, and therefore the resulting revenue was allocated
to the production delivered in the period during which the
variability occurs. As a result, none of the variable revenue was
considered constrained.
The Company's contracts had a term of one year or less, whereby
delivery took place throughout the contract period. Revenues were
typically collected between the 12th and 25th day of the month
following production.
The Company produced a small amount of crude oil prior to May
26, 2021, that was sold on a spot basis as volumes warranted. Oil
was delivered by truck to customers and revenue was recognised in
the period in which the delivery occurred.
In addition to selling natural gas that the Company produced
prior to May 26, 2021, the Company sold natural gas that it
purchased from other producers in the area. This purchased natural
gas was sold to the same customers, using the same contracts,
through the same distribution network as natural gas the Company
produced. The Company purchased natural gas from other producers
under contracts that were typically one year or less in length at a
discount of between 12.5% and 15% to the BOTAS price. These
contracts required the Company to deliver the purchased natural gas
to customers. The Company did not have the right, nor the ability,
to store the purchased natural gas. Since the Company did not have
the ability to influence the decision-making process for the
purchased natural gas volumes or the discretion to set prices, did
not experience any inventory risk, did not perform any processing
of the product and did not remit royalties to the Turkish
government for the product, it considered itself an agent in these
transactions. Revenue for this purchased gas was included net of
purchase cost in other income.
Interest and other revenue is comprised mainly of interest on
cash in hand.
All of the Company's natural gas was sold in Turkey, in the
Thrace Basin, which is the same area in which it was produced.
December 31, December 31,
2021 2020
Natural gas $ 3,031 $ 8,315
Crude oil 95 232
Petroleum and natural gas sales $ 3,126 $ 8,547
December 31, December 31,
2021 2020
Royalties - natural gas $ 379 $ 1,039
Crude oil 14 28
Gross overriding royalty 30 85
Royalties $ 423 $ 1,152
December 31, December 31,
2021 2020
-------------------------------------- ---------------- ------------------
Third party natural gas sales net of
costs $ 152 $ 303
Interest and other revenue 139 312
Other income $ 291 $ 615
11. Income Taxes
A reconciliation of the expected tax expense to the actual
provision for current and deferred taxes is as follows:
December 31, December 31,
2021 2020
-----------------------------------------
Loss before taxes $ (64,275) $ (20,161)
Combined federal and provincial tax
rate 23.00% 24.00%
----------------------------------------- ------------------------
Expected income tax recovery (14,783) (4,840)
Change in tax rates (538) 1,662
Non-taxable items and other 7,104 764
Foreign tax rate differential 43 277
Change in unrecognized deferred tax
assets 8,449 1,510
Income tax (recovery) expense - current
and deferred $ 275 $ (627)
-----------------------------------------
The deferred income tax rate applied to the temporary
differences in 2021 was 23.0 percent (2020 - 24.0 percent). The
Turkish tax rate for 2021 was 25.0 percent (2020 - 22.0
percent).
The components of the deferred tax balances are as follows:
December 31, December 31,
2021 2020
-----------------------------------------------
Property, plant and equipment and exploration
and evaluation assets $ - $ (3,215)
Decommissioning obligations - 1,657
Non-capital losses and other - 538
Foreign Exchange - 590
Transferred to assets held for sale - 430
$ - $ -
The temporary differences that determine the unrecognized
deferred tax assets are as follows:
December 31, December 31,
2021 2020
-----------------------------------------------
Property, plant and equipment and exploration
and evaluation assets $ 6,739 $ 7,880
Share issuance costs 856 1,769
Non-capital losses and other 61,912 57,957
Foreign Exchange 6,065 5,206
$ 75,572 $ 72,812
-----------------------------------------------
The Company has tax assets of approximately $69.0 million at
December 31, 2021 (2020 - $73.2 million) available for deduction
against future taxable income. Cumulative non-capital loss
carry-forwards in the amount of $60.2 million at December 31, 2021
(2020 - $58.3 million) expire between 2021 and 2038.
12. Administrative Expenses
The components of administrative expenses are as follows:
For the years ended December 31, December 31,
2021 2020
Cash:
Salaries and benefits (1) $ 2,447 $ 2,777
Other (2) 2,669 3,212
--------------------------------------- --------------------------------------- -----------------------------------
5,116 5,989
Capitalized overhead and recoveries
(3) (323) (1,572)
--------------------------------------- --------------------------------------- -----------------------------------
General and administrative 4,793 4,417
--------------------------------------- --------------------------------------- -----------------------------------
Non-cash:
Share-based compensation 300 1,199
Capitalized share-based compensation
(3) (54) (167)
--------------------------------------- --------------------------------------- -----------------------------------
Share-based compensation $ 246 $ 1,032
--------------------------------------- --------------------------------------- -----------------------------------
(1) Includes salaries, benefits and bonuses earned by all
Directors, Officers and employees of the Company.
(2) Includes costs such as rent, professional fees, insurance,
travel, office, and other business expenses incurred by the
Company.
(3) Includes a portion of salaries, benefits, share-based
compensation and other G&A directly attributable to the
exploration and development activities of the Company. The
reduction in recoveries in 2021 reflects the reduction in capital
expenditures on the deep gas play.
Compensation for Executive Officers and Directors are comprised
of the following:
For the years ended December 31, December 31,
2021 2020
Salaries and benefits (1) $ 1,089 $ 1,468
Share-based compensation (2) 250 832
Executive Officers and Directors compensation $ 1,339 $ 2,300
(1) Includes salaries, benefits and bonuses earned by Executive
Officers and Directors comprised of: Chairman of the Board,
President and Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer (2020 only), Vice President - Commercial
and other independent Directors.
(2) Represents the amortization of share-based compensation
expense in the year associated with options granted to Executive
Officers and Directors participating in the Company's Stock Option
Plan.
The Company recorded other severance and transaction costs for
the year ended December 31, 2021 of $0.2 million and $0.1 million
respectively. The 2021 transaction costs are fees related to the
transaction described in Note 6.
13. Share Capital
(a) Authorized
Unlimited number of common shares
Unlimited number of preferred shares, issuable in series
(b) Per share amounts
Per share amounts have been calculated using the weighted
average number of common shares outstanding. The weighted average
number of common shares outstanding for the year ended December 31,
2021 is 86,584,989 (2020 - 86,584,989). As a result of the company
incurring a net loss during each of the last two years, the average
number of common shares outstanding was not increased for
outstanding stock options as the effect would be anti-dilutive.
(c) Stock options
Valeura has an option program that entitles officers, directors,
and employees to purchase shares in the Company. Options are
granted at the market price of the shares at the date of grant,
have a 7 year term and vest over 3 years.
The number and weighted average exercise prices of share options
are as follows:
Weighted average
exercise price
Number of Options (CAD)
Balance, December 31, 2019 5,836,667 $ 1.97
Granted 3,195,000 0.28
Expired (240,000) 1.00
Forfeited (3,154,834) 2.85
Balance, December 31, 2020 5,636,833 $ 0.57
Granted 2,312,500 0.52
Expired (373,334) 0.63
Forfeited (908,333) 1.06
Balance, December 31, 2021 6,667,666 $ 0.48
Exercisable at December 31, 2021 2,681,842 $ 0.57
---------------------------------- ------------------ ---------------------
The following table summarizes information about the stock
options outstanding at December 31, 2021:
Weighted
average
Exercise Outstanding remaining Weighted average Exercisable Weighted average
prices at December life exercise price at December exercise price
(CAD) 31, 2021 (years) (CAD) 31, 2021 (CAD)
$0.25 -
$0.37 2,260,000 5.2 $ 0.25 753,342 $ 0.25
$0.38 -
$0.51 50,000 6.2 0.49 - -
$0.52 -
$0.53 2,262,500 6.2 0.52 - -
$0.54 -
$0.74 1,141,833 1.8 0.62 975,167 0.62
$0.75 -
$0.80 953,333 2.1 0.76 953,333 0.76
---------- ------------ ---------- ------------------------------- ------------ ----------------------------------
6,667,666 4.5 $ 0.48 2,681,842 $ 0.57
---------- ------------ ---------- ------------------------------- ------------ ----------------------------------
The fair value, at the grant date during the year, of the stock
options issued was estimated using the Black-Scholes model with the
following weighted average inputs:
December 31, December 31,
Assumptions 2021 2020
--------------------------------
Risk free interest rate (%) 0.8 0.8
Expected life (years) 4.5 4.5
Expected volatility (%) 99.0 99.6
Forfeiture rate (%) 11.0 6.8
Weighted average fair value of
options granted (CAD) $ 0.37 $ 0.20
---------------------------------- ------------- -------------
14. Credit Facilities
The Company's APSG facility with Export Development Canada
("EDC") is effective from June 16, 2021 to May 31, 2022 with a
limit of $0.25 million and can be renewed on an annual basis. The
APSG facility, which was issued to NBC allows the Company to use
the facility as collateral for certain letters of credit issued by
NBC, with a limit of $0.25 million and can be renewed on an annual
basis. The Company has issued approximately $0.15 million in
letters of credit under the APSG facility at current exchange
rates.
15. Supplemental Cash Flow Information
December 31, December 31,
2021 2020
------------------------------------
Change in non-cash working
capital:
Accounts receivable $ (387) $ 5,850
Prepaid expenses and deposits 70 793
Inventory - 214
Deposits (non-current) - -
Accounts payable and accrued
liabilities 165 (509)
Movements in exchange
rates (167) 6
Transfer to assets held
for sale - (5,439)
-------------------------------------- --------------- ---------------
(319) 915
------------------------------------ --------------- ---------------
The change in non-cash working capital has been allocated to the
following activities:
------------------------------------------------------------------------
Operating (37) 1,362
Investing (282) (447)
-------------------------------------- --------------- ---------------
$ (319) $ 915
------------------------------------ --------------- ---------------
16. Financial Risk Management
The Company's activities expose it to a variety of financial
risks that arise as a result of its exploration, development,
production, and financing activities such as:
-- Credit risk
-- Market risk
-- Liquidity risk
This note presents information about the Company's exposure to
each of the above risks, the Company's objectives, policies and
processes for measuring and managing risk, and the Company's
management of capital. Further quantitative disclosures are
included throughout the consolidated financial statements.
The Board of Directors oversees managements' establishment and
execution of the Company's risk management framework. Management
has implemented and monitors compliance with risk management
policies. The Company's risk management policies are established to
identify and analyze the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and
adherence to market conditions and the Company's activities.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Company's receivables from joint venture partners and oil and
natural gas marketers. The maximum exposure to credit risk at
year-end is as follows:
December 31, December 31,
2021 2020
------------------------------- ----
Joint venture receivable from
partners $ 25 $ 89
Revenue receivables from
customers - 1,688
Retention receivable (note
6) 310 -
Taxes receivable 205 1,248
Other 46 -
Accounts receivable $ 586 $ 3,025
--------------------------------------
Royalty receivable (note
6) $ 2,315 $ -
-------------------------------------- ------------- -------------
Trade and other receivables:
The Company's accounts receivables consist of a retention
receivable amount related to the Disposition (note 6) which is a
portion of the purchase price held in escrow for one year and taxes
receivable from the Turkish Government (VAT receivable). The
royalty receivable relates to the Disposition discussed in note 6.
As a December 31, 2021, $0.2 million of the $2.5 million royalty
receivable has been collected. As at March 30, 2022, the Company
has collected an additional $1.5 million.
(b) Market risk
Market risk is the risk that changes in market conditions, such
as commodity prices, foreign exchange rates and interest rates will
affect the Company's income or the value of financial instruments.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while
maximising the Company's return.
Interest rate risk:
Interest rate risk i s the risk that future cash flows or
valuations of assets or liabilities will fluctuate as a result of
changes in market interest rates. The Company currently has limited
exposure to interest rate risk as it has no debt and interest rates
on cash balances are at historic lows. Market interest rates
currently affect the present value of the Company's decommissioning
liability.
Liquidity risk:
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with the financial
liabilities. The Company's financial liabilities consist of
accounts payable. Accounts payable consists of invoices payable to
trade suppliers for office, field operating activities and capital
expenditures. The Company processes invoices within a normal
payment period. Accounts payable have contractual maturities of
less than one year. The Company maintains and monitors a certain
level of cash which is used to finance all operating and capital
expenditures.
Capital management:
The Company's capital structure includes working capital and
shareholders' equity. Currently, total capital resources available
are working capital and the Company has a significant cash and cash
equivalents balance of $40.8 million. The Company's objective when
managing capital is to maintain a flexible capital structure which
allows it to execute its growth strategy through expenditures on
exploration and development activities while maintaining a strong
financial position. The Company's capital structure includes
working capital and shareholders' equity. Currently, total capital
resources available include working capital and funds flow from
operations.
The Company's capital expenditures include expenditures in oil
and gas activities which may or may not be successful. The Company
makes adjustments to the capital structure in light of changes in
economic conditions and the risk characteristics of the underlying
petroleum and natural gas assets. In order to maintain or adjust
the capital structure, the Company may, from time to time, issue
shares, adjust its capital spending or issue debt instruments. The
Company is not currently subject to any externally imposed capital
requirements as it maintains operatorship over all of its lands in
the Thrace Basin.
The successful future operations of the Company are dependent on
the ability of the Company to secure sufficient funds through
operations, bank financing, equity offerings or other sources and
there are no assurances that such funding will be available when
needed. Failure to obtain such funding on a timely basis could
cause the Company to reduce capital spending and could lead to the
loss of exploration licences due to failure to meet drilling
deadlines. Valeura has not utilised bank loans or debt capital to
finance capital expenditures to date.
Fair value of financial assets and liabilities:
The Company's fair value measurements are classified as one of
the following levels of the fair value hierarchy:
Level 1 - inputs represent unadjusted quoted prices in active
markets for identical assets and liabilities. An active market is
characterized by a high volume of transactions that provides
pricing information on an ongoing basis.
Level 2 - inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly. These valuations are based on inputs that can be
observed or corroborated in the marketplace, such as market
interest rates or forecasted commodity prices.
Level 3 - inputs for the asset or liability are not based on
observable market data.
The Company aims to maximise the use of observable inputs when
preparing calculations of fair value. Classification of each
measurement into the fair value hierarchy is based on the lowest
level of input that is significant to the fair value
calculation.
The fair value of cash and cash equivalents, accounts
receivable, royalty receivable, and accounts payable and accrued
liabilities approximate their carrying amounts due to their short
terms to maturity.
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END
FR DBGDXLGXDGDG
(END) Dow Jones Newswires
March 31, 2022 02:01 ET (06:01 GMT)
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