VLE Valeura Energy

CALGARY, Feb. 9 /CNW/ -- NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S. CALGARY, Feb. 9 /CNW/ - Valeura Energy Inc. ("Valeura" or the "Corporation") (TSX-V: "VLE") is pleased to announce that it has executed a conditional offer (the "Offer") with TransAtlantic Worldwide Ltd. ("TransAtlantic"), a wholly-owned affiliate of TransAtlantic Petroleum Ltd., to acquire (the "Acquisition") natural gas production of approximately 10.0 mmcfd (net before royalties), 546,030 net acres of land in the Thrace and Anatolian basins of Turkey (the "Assets") and exposure to a world-class unconventional tight gas opportunity in the Thrace Basin for a purchase price of approximately US$61.5 million in cash. If completed, the Acquisition will provide immediate cash flow to the Corporation from sales of conventional shallow gas production in the Thrace Basin that historically have realized prices of approximately US$8.00 per mcf and netbacks of almost US$6.00 per mcf after royalties and operating costs. The Assets complement Valeura's existing operations in Turkey acquired in two earlier transactions announced in September and December 2010 and provide exposure to a significant unconventional tight gas opportunity in the Thrace Basin. The Acquisition is expected to increase the Corporation's working interest production in Turkey to approximately 12.0 mmcfd and net acreage holdings to more than 836,000 acres. Total production in Turkey and Canada would be expected to grow to approximately 2,200 boepd upon completion of the proposed acquisition. "This proposed transaction is a great fit with our announced growth strategy, providing immediate cash flow, a meaningful production base in Turkey and a rich portfolio of exploitation and exploration opportunities in both conventional and unconventional gas plays in a premium-priced gas market and diversity to complement our oil focus in southeast Turkey," said Jim McFarland, President and CEO of Valeura. "We are also very pleased to be expanding our relationship with TransAtlantic, which has established a strong upstream business and a large oil and gas services division in Turkey that can provide specialized equipment, particularly in pursuit of the tight gas opportunities." The Corporation is also pleased to announce that it has entered into an agreement with a syndicate of underwriters co-led by Canaccord Genuity Corp. and Cormark Securities Inc. and including National Bank Financial Inc., FirstEnergy Capital Corp. and GMP Securities L.P. (collectively the "Underwriters") for an offering of subscription receipts on a bought deal private placement basis for aggregate gross proceeds of $75 million (which may be increased by 15% if an underwriters' option is exercised), the details of which are included under the heading "Bought Deal Financing" below. The net proceeds of the offering will be used to fund the purchase price for the Acquisition, for certain expenditures under the exploration and development program for the Assets and for general corporate purposes. THE PROPOSED TRANSACTION The Assets proposed to be acquired by Valeura pursuant to the Acquisition are currently owned by Thrace Basin Natural Gas Turkiye Corporation ("TBNG") and Pinnacle Turkey, Inc. ("PTI"). Under an option agreement dated November 8, 2010 (the "Option Agreement") previously announced by TransAtlantic, TransAtlantic has the option to acquire all of the shares of TBNG and PTI for consideration of US$100 million in cash and 18.5 million common shares of TransAtlantic Petroleum Ltd. The Option Agreement must be exercised by February 11, 2011 and the deal has an effective date of October 1, 2010. The vendors will retain a small overriding royalty ranging from 1% to 2.5% on the lands. Under the terms of the Offer between Valeura and TransAtlantic, TransAtlantic is to exercise its option under the Option Agreement, and Valeura would fund 61.5% of the TransAtlantic cash component of the aggregate purchase consideration, or approximately US$61.5 million, to effectively acquire 40.0% of the total production of TBNG and PTI and working interests ranging from 15.38% to 40.0% in 19 acquired leases and licences. SUMMARY OF KEY TERMS OF OFFER AND ASSETS -- The Valeura purchase price of approximately US$61.5 million is subject to certain tax adjustments to be made at and after closing. The Acquisition will have an effective date of October 1, 2010. -- The Assets include interests in four production leases and 15 exploration licences (1,832,894 acres (gross) or 546,030 acres (net)) in the Thrace Basin in northwest Turkey and the Anatolian Basin in southeast Turkey (collectively the "Lands"). -- Natural gas is currently produced from onshore leases and licences in the Thrace Basin in which Valeura would have a 40.0% interest. Gas production in the first nine months of 2010 averaged approximately 25 mmcfd (gross) or 10.0 mmcfd (net 40%). -- Proved plus probable reserves on the Lands as at October 1, 2010 were estimated to be 25.1 bcf (gross before royalty) or 10.1 bcf (net 40.0% before royalty) as independently assessed in accordance with National Instrument 51-101 guidelines and the COGE Handbook by W.D. Von Gonten & Co. Petroleum Engineering based in Houston, Texas (the "Von Gonten Report"). This evaluation excludes any upside associated with possible reserves in discovered conventional reservoirs or any prospective resources associated with exploration targets in the conventional shallow gas play or the deeper, unconventional tight gas play on the large land base in the Thrace Basin. -- Revenues from gas production and sales in the first nine months of 2010 were approximately US$51 million (gross) or US$20.4 million (net 40.0%), at an average realized price of US$7.99 per mcf. Operating cash flow after royalties and operating costs was approximately US$38 million (gross) or US$15.2 million (net 40.0%) for the nine-month period. -- TransAtlantic will be the designated operator of the lands under Joint Operating Agreement(s) to be negotiated and will retain ownership of the services division of TBNG. -- Closing of the Acquisition is expected to occur by the end of April 2011, subject to the exercise by TransAtlantic of the option set forth in the Option Agreement and completion of the acquisition described therein, execution of mutually acceptable definitive agreements, and satisfaction or waiver of certain closing conditions, including but not limited to the waiver or expiration of all rights of first refusal applicable to the Assets and the receipt of certain necessary government and stock exchange approvals. The funds from the bought deal financing (the terms of which are described herein) will be required to complete the Acquisition and satisfy Valeura's obligations under the Offer. -- If there is a material breach of the Offer by one of the parties, the other party shall be liable for all direct damages up to a maximum amount of US$9.2 million. Valeura has paid a deposit of US$3.25 million to TransAtlantic under the Offer. The deposit will be applied towards TransAtlantic's damages in the case of a material breach by Valeura of the Offer or the definitive agreements and will otherwise be applied toward the purchase price or returned to Valeura. THE LANDS The Lands proposed to be acquired under the Offer are described more fully below. Thrace Basin The lands located in the Thrace Basin include four production leases and 10 exploration licences, of which two licences are entirely on land, three licences have a portion in the shallow waters (up to 200 m water depth) of the Marmara Sea and five licenses are in deeper water (200 to 1,200 m water depth). Post-Acquisition, Valeura would have net acreage in the onshore areas of 203,140 acres and 202,142 acres offshore. The lands are located approximately 70 km south of the Edirne Licence in which Valeura expects to acquire a 35% interest under a previously announced transaction with Otto Energy Ltd that is expected to close by the end of February 2011. Conventional Gas Natural gas is currently produced in the Thrace Basin from approximately 169 wells, all located onshore, that are completed primarily in Tertiary-aged stacked sands in the Danismen and Osmancik formations at relatively shallow depths of approximately 500 to 1,500 m.  The gas is processed and compressed in TBNG facilities and is distributed on TNBG's pipeline network directly to more than 80 commercial and end-user customers. It is contemplated that TransAtlantic will take over responsibilities for the marketing arrangements on behalf of the parties. Opportunities exist on the Thrace Basin lands to continue to pursue exploration and development drilling, well workovers and wellhead compression to mitigate natural declines in existing production from conventional shallow gas reservoirs. In 2010, for example, 50 exploration and development wells were drilled by TBNG in the Thrace Basin.  Approximately 5,100 km of legacy 2D seismic is available on the lands in the Thrace Basin and it is expected that additional 2D and 3D seismic will be acquired to support the Corporation's anticipated exploration and development drilling program. Unconventional Gas The Corporation believes there is upside potential associated with applying North American well completion technology to exploit deeper tight gas sand reservoirs in the Mezardere, Ceylan and Hamitabat formations at depths to the top of these formations from 1,000 to 3,500 m. Selective deep drilling in the past indicates the presence of relatively low porosity (3 to 15%), stacked sandstone reservoirs in these formations that are gas-charged. TBNG and TPAO, the Turkish national oil company, have carried out fracture treatments on a number of deeper wells in the past 20 years in the Hamitabat and Mezardere formations in the Thrace Basin and have achieved post fracture rates up to 3 to 4 mmcfd. The Hamitabat field operated by TPAO is producing from the Hamitabat formation at a depth of approximately 2,850 m and has produced approximately 100 bcf to date. There are many other analogies of tight gas reservoirs around the world in similar basins that have benefited from the application of modern drilling and completion technologies and robust capital investment. The Montney formation in the Western Canada Sedimentary Basin is currently being developed with horizontal wells and multi-stage fracture treatments with considerable success. In parts of the Thrace Basin, there are up to 9,000 m of Tertiary-aged sediments with a number of tight gas and other unconventional gas targets that are expected to benefit from multi-stage fracture treatments in vertical wells, given the relatively thick nature of the stacked sandstone reservoirs.  On a preliminary basis, the Corporation has mapped five closures under existing shallow gas fields on the Thrace Basin onshore Lands at the Mezardere horizon, alone, which could be prospective for tight gas development. Exploration and development of these and other unconventional targets is expected to be an important focus of the Corporation's go forward capital program. Equipment for this purpose is becoming increasingly available in Turkey at competitive costs, including equipment from a service company affiliated with TransAtlantic. A new work program and budget for 2011 on the Thrace Basin onshore Lands is currently under development by the operator. Offshore Lands in Marmara Sea The offshore areas of the Thrace Basin Lands are in a joint venture with a third party, which is the operator and has a right of first refusal with respect to any transfer of interests on the joint venture lands. Of the 202,142 net acres located offshore that form part of the Assets, approximately 17,919 acres are in near-shore, shelf areas in water depths up to 200 m. The Corporation is in the very early stages of evaluating the potential of the offshore acreage in the Marmara Sea and in developing a go-forward strategy. Anatolian Basin The lands in the Anatolian Basin are all located around the city of Gaziantep and include five exploration licences in which Valeura would acquire a 23.08% working interest or 140,748 net acres. These licences are all in their initial four-year term and are in the early stages of exploration. The Gaziantep Lands are approximately 40 km southwest of the Kahta heavy oil field in which Valeura has a re-development study underway as part of the Phase I earning program under the previously announced AME-GYP farm-in. The first well drilled by TBNG on the Gaziantep Lands was in 2010 at Kinali Keklik-1 in Licence 4607. The well recovered small amounts of oil on testing from a carbonate section in the Bozova formation at a depth of approximately 1,700 m. A proposed work program and budget for the Gaziantep Lands is currently being confirmed by the operator to reflect seismic and drilling commitments under the licence terms. It is expected that up to 550 km (gross) of 2D seismic would need to be acquired and up to 3.0 gross (0.6 net) additional wells would need to be spudded in 2011 to meet the district and licence drilling requirements for all five licences. ESTIMATES OF RESERVES AND FUTURE NET REVENUE W.D. Von Gonten & Co. Petroleum Engineering has prepared estimates as set forth in the Von Gonten Report of reserves and future net revenue attributable to the Assets proposed to be acquired by the Corporation. The Von Gonten Report is dated February 2, 2011 with an effective date of the October 1, 2010. The Von Gonten Report has been prepared using assumptions and methodology 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. The following Table 1 sets forth the estimates of reserves and future net revenue in US$ attributable to the Assets proposed to be acquired by the Corporation pursuant to the Acquisition based on the Von Gonten Report. The reserve and future net revenue estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered or future net revenues will be earned. Actual reserves and revenues may be greater than or less than the estimates provided herein. Table 1. Summary of Oil and Gas Reserves as of October 1, 2010 - US$ (Forecast Prices and Costs) RESERVES NET PRESENT VALUES OF FUTURE NET REVENUE (US$) LIGHT AND MEDIUM BEFORE INCOME TAXES RESERVES OIL NATURAL GAS DISCOUNTED AT UNIT VALUE BEFORE INCOME CATEGORY (%/year) TAX DISCOUNTED AT 10%/year Gross Net Gross Net 0 5 10 15 20 $/Mcf (Mbbl) (Mbbl) (Mcf) (Mcf) (M$) (M$) (M$) (M$) (M$) PROVED Developed Producing - - 4,962 4,292 26,986 25,212 23,758 22,541 21,505 5.54 Developed Non-Producing - - 1,943 1,681 9,001 7,474 6,322 5,429 4,721 3.76 Undeveloped - - 1,418 1,227 6,783 6,016 5,382 4,853 4,405 4.39 TOTAL PROVED - - 8,323 7,199 42,771 38,702 35,463 32,823 30,630 4.93 PROBABLE 0.2 0.2 1,732 1,498 4,615 4,062 3,595 3,195 2,851 2.40 TOTAL PROVED PLUS PROBABLE 0.2 0.2 10,055 8,698 47,385 42,764 39,057 36,018 33,481 4.49 Notes: 1. Due to rounding errors the numbers may not sum exactly. 2. Unit values are based on net reserve volumes. 3. "Gross Reserves" are the Corporation's working interest (operating or non-operating) share before deducting royalties and without including any royalty interests of the Corporation. "Net Reserves" are the Corporation's working interest (operating or non-operating) share after deduction of royalty obligations, plus the Corporation's royalty interests in reserves. 4. "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. 5. "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. 6. "Developed Producing" reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty. 7. "Developed Non-Producing" reserves are those reserves that either have not been on production, or have previously been on production, but are shut in, and the date of resumption of production is unknown. 8. "Undeveloped" reserves are those reserves expected to be recovered from know accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (proved, probable, possible) to which they are assigned. 9. Forecast prices and costs as at October 1, 2010 are based on pricing assumptions used in the Von Gonten Report with respect to values of future net revenue (forecast) as well as the inflation rates used for operating and capital costs are set forth below. 10. The forecast price deck is as follows: US$7.99 per mcf in the 4 (th) quarter of 2010; US$8.15 per mcf in 2011; and, escalated 2% per year thereafter. Costs are escalated at 2% per year. BOUGHT DEAL PRIVATE PLACEMENT FINANCING The Corporation is also pleased to announce that it has entered into an agreement with a syndicate of underwriters co-led by Canaccord Genuity Corp. and Cormark Securities Inc. and including National Bank Financial Inc., FirstEnergy Capital Corp. and GMP Securities L.P. for an offering of subscription receipts ("Subscription Receipts") of the Corporation on a bought deal private placement basis in certain jurisdictions in Canada, the United States and Europe pursuant to applicable prospectus exemptions (the "Offering").  A total of 230,769,000 Subscription Receipts will be offered at a price of $0.325 per Subscription Receipt for aggregate gross proceeds of $75 million. In addition, Valeura has granted the Underwriters an option to increase the size of the Offering by 15% (up to an additional 34,615,350  Subscription Receipts) at the same price and terms as the Offering, exercisable at any time up to 48 hours prior to the closing of the Offering. If the Underwriters' option is exercised in full, the total gross proceeds under the Offering will be $86.25 million.  The Underwriters will receive a fee equal to 5% of the gross proceeds raised under the Offering, including any proceeds raised as a result of the exercise of the Underwriters' option. Each Subscription Receipt will represent the right to automatically receive one common shares in the capital of the Corporation ("Common Share") and one-half of one common share purchase warrant of the Corporation (a "Warrant").  Each Warrant entitles the holder thereof to acquire one Common Share at a price of $0.55 per Common Share for a period of 60 months from the closing date of the Offering. The Corporation will have the right to accelerate the expiry date of the Warrants to 30 days from the date of notice once the 20 day volume weighted average price of the Corporation's Common Shares on the TSXV has become equal to, or greater than, $1.10 per Common Share.  The Corporation intends to use the net proceeds of the Offering to fund the purchase price for the Acquisition, for certain expenditures under the exploration and development program for the Assets and for general corporate purposes.  Upon exchange of the Subscription Receipts for Common Shares and Warrants, and assuming the Underwriters' option is exercised in full, the Corporation will have approximately 464 million Common Shares issued and outstanding (approximately 635.4 million Common Shares on a fully diluted basis). The Subscription Receipts will be issued pursuant to the terms of a subscription receipt agreement and the gross proceeds of the Offering will be held in escrow by an escrow agent.  Each Subscription Receipt will automatically be exchanged, without payment of any additional consideration or further action on the part of the holder thereof, into one Common Share and one half of one Warrant upon delivery of a notice to the escrow agent that the escrow release conditions have been satisfied, including the receipt of all necessary approvals. Provided that the notice is delivered to the escrow agent pursuant to the terms of the subscription receipt agreement, the net proceeds of the Offering shall be released from escrow to Valeura.  If the notice is not provided to the escrow agent pursuant to the terms of the subscription receipt agreement, the definitive agreement for the acquisition of the Assets is terminated or Valeura advises the Underwriters or announces to the public that it does not intend to proceed with the acquisition of the Assets, each Subscription Receipt shall be cancelled and each holder of Subscription Receipts shall be entitled to receive its investment plus interest.  Closing of the Offering is expected to occur in late February 2011, and is subject to receipt of all necessary regulatory approvals, including the approval of the TSX Venture Exchange.  As the Subscription Receipts will be issued on a private placement basis, the Subscription Receipts (and the Common Shares and Warrants into which they convert upon closing of the Asset acquisition) will have a four month and one day restricted hold period, which starts to run from the date of issuance of the Subscription Receipts.  If the Acquisition does not close by July 11, 2011, the escrowed funds from the Subscription Receipts, plus interest earned thereon, will be returned to the investors. In addition to acting as co-lead and sole bookrunner on the Offering, Canaccord Genuity Corp. is providing financial advisory services to Valeura with respect to the Offer. ABOUT THE CORPORATION Valeura Energy Inc. is a Canada-based public company currently engaged in the exploration, development and production of petroleum and natural gas in Turkey and Western Canada. The Corporation is continuing to pursue a strategy to expand internationally in Turkey and to other selected countries in the Middle East and North Africa region, the Mediterranean Basin and Latin America. FORWARD LOOKING INFORMATION This news release contains certain forward‐looking statements relating, but not limited, to the ability of the Corporation to close the necessary financing to fund the Acquisition purchase price; the exercise of the Option Agreement by TransAtlantic to acquire all of the shares of TBNG and PTI; the anticipated closing date of the Acquisition; anticipated timing for transfer of legal title to the Assets to the Corporation; future work to determine the types of plays available on the Lands; potential upside associated with prospective resources including, without limitation, an unconventional tight gas play underlying the Thrace Basin lands and associated with applying modern completion technology to exploit deeper tight gas sand reservoirs; future transaction and operational plans and the timing associated therewith. Forward‐looking information typically contains statements with words such as "anticipate", "estimate", "expect", "potential", "could", or similar words suggesting future outcomes. The Corporation cautions readers and prospective investors in the Corporation's securities not to place undue reliance on forward‐looking information as, by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those currently anticipated by the Corporation. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. Forward looking information is based on management's current expectations and assumptions regarding, among other things: the Corporation's growth strategies; plans for and results of future transactions; results of future seismic programs; future drilling activity; future capital and other expenditures (including the amount, nature and sources of funding thereof); future economic conditions; future currency and exchange rates; continued political stability of the areas in which the Corporation is anticipating completing transactions; the Corporation's continued ability to obtain and retain qualified staff and equipment in a timely and cost efficient manner; and, the receipt of all necessary approvals for transactions. In addition, budgets are based upon the Corporation's current acquisition plans and exploration plans and anticipated costs both of which are subject to change based on, among other things, the actual results of acquisitions, drilling activity, unexpected delays and changes in market conditions. Although the Corporation 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. A number of factors could cause actual results to differ materially from those anticipated by the Corporation including, but not limited to, risks associated with the oil and gas industry (e.g. operational risks in exploration; inherent uncertainties in interpreting geological data; changes in plans with respect to exploration or capital expenditures; the uncertainty of estimates and projections in relation to costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with negotiating with third parties in countries other than Canada, the uncertainty regarding government and other approvals 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. The forward‐looking information included herein is made as of the date hereof and Valeura assumes no obligation to update or revise any forward‐looking information to reflect new events or circumstances, except as required by law. BASIS OF PRESENTATION AND CAUTIONARY STATEMENT Information in this press release expressed in boes is derived by converting natural gas to oil in the ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. ABBREVIATIONS AND CURRENCY The following abbreviations used in this press release have the following meanings: mcf thousand cubic feet mmcfd million cubic feet per day boepd barrels of oil equivalent per day bcf billion cubic feet Unless otherwise stated, all dollar amounts set forth herein are in Canadian dollars. Additional information relating to Valeura is also available on SEDAR at www.sedar.com. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release. To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/February2011/09/c9152.html pJim McFarland, President and CEObr/ Valeura Energy Inc.br/ (403) 930-1150br/ a href="mailto:jmcfarland@valeuraenergy.com"jmcfarland@valeuraenergy.com/a/p p align="justify"Steve Bjornson, CFObr/ Valeura Energy Inc.br/ (403) 930-1151br/ a href="mailto:sbjornson@valeuraenergy.com"sbjornson@valeuraenergy.com/a/p p align="justify"a href="http://www.valeuraenergy.com"www.valeuraenergy.com/a/p

Copyright