Valeura Energy Inc., an upstream natural gas company with assets in the Thrace Basin of Turkey, has executed a Share Purchase Agreement to sell its producing shallow conventional gas business to TBNG Limited for a cash consideration of US$15.5 million, plus royalty payments of up to an additional US$2.5 million.
Proceeds from the deal will add to Valeura’s strong net cash position, which as of September 30, 2020 was approximately US$31 million. Upon completion of this transaction, the incremental cash will bolster the Company’s ability to execute its growth strategy through mergers and acquisitions and further appraisal of its deep gas play. This value-driven M&A strategy aims to add near-term/mid-term production growth and cash flow by focusing on cash flow-generating opportunities, with follow-on growth potential. Valeura remains debt free and in a strong position to negotiate future opportunities.
The Company’s interest in its 20 Tcfe unrisked mean prospective resource deep, tight gas play in the Thrace Basin will be unaffected by this transaction, and Valeura will remain the operator of record for all subject leases and licences. Valeura will also retain access to local gas markets via the existing gas transportation and processing infrastructure under the Agreement, for use in its ongoing deep gas appraisal activities.
Sean Guest, President and CEO commented:
“I am pleased to announce the pending sale of our mature, conventional gas business as a way to strengthen our balance sheet and increase our cash to pursue higher-value growth opportunities. Our objective has been to maximise the value of these mature assets, and today’s monetisation agreement is a key step towards accomplishing that goal. We have re-tooled Valeura into a lean, shrewd, debt-free machine, focused on value growth. To that end, the other pillars of our strategy remain unchanged. We are pursuing near/mid-term opportunities through the mergers and acquisition market intended to add significant growth potential and at the same time, we are continuing in our commitment to Turkey, as we appraise our 20 Tcfe unrisked mean prospective resource deep tight gas play. In all instances, our priority is to add cash-flow generation to the portfolio, along with opportunities for smart re-investment to generate incremental value for shareholders.”
Overview of the Transaction
The Agreement includes headline cash consideration of US$15.5 million, to be paid to Valeura upon closing, subject to normal closing adjustments and based on an economic effective date of July 1, 2020. In addition, Valeura will be entitled to royalty payments over a five-year period, tied to local gas prices, and ranging in total from a minimum of US$1.0 million and capped at US$2.5 million.
The transaction is structured as a sale of the shares of Thrace Basin Natural Gas (Turkiye) Corporation and Corporate Resources B.V., both wholly owned subsidiaries of Valeura which, following a recent internal re-organisation, are the entities which collectively hold the Company’s conventional, gas producing business. Deal completion is subject to customary termination rights and a number of closing conditions including, but not limited to, regulatory approvals and other governmental authorisations. Valeura anticipates closing the deal in Q1 2021.
The sale price, including royalty payment ranges represents a multiple of 1.1x to 1.2x the assets’ proved developed reserves value, as evaluated at December 31, 2019, and based on the higher gas prices prevailing at that time. Valeura also anticipates forward general and administrative cost savings of at least US$1.0 million per year as a result of this sale. In accordance with Turkish regulations, all decommissioning and abandonment liabilities associated with the conventional gas business will be assumed by the Buyer.
Valeura remains committed to its ongoing business in Turkey and continues to hold its long-standing relationships with Turkish authorities in the highest regard. This transaction is another example of Valeura bringing new foreign investment into Turkey’s upstream sector and places the conventional producing assets in capable hands, while maintaining its position within the country. The Buyer, TBNG Limited, is a private UK registered company whose shareholders are Mr. Ian Hannam and its management team. Mr. Hannam is the founder of Hannam & Partners, a leading investment bank with extensive expertise in the global natural resource sector, including Turkey. He is financing TBNG Limited through a UK holding company.