Hello, and Welcome to Virtual Investor Conferences. On behalf of OTC Markets, we are very pleased you have joined us for the Oil and Gas Conference. The next presentation of the day is from Valeura E nergy. Please note, you may submit questions for the presenter at any time. You can also view a company's availability for a one-on-one meeting by clicking "Book a Meeting." At this point, I am very pleased to welcome Dr. Sean Guest. He is the President and CEO of Valeura Energy, which trades on the OTCQX Best Market under the symbol VLERF, and on the TSX under the symbol VLE. Welcome back, Sean.
Thank you very much, Craig. It is a pleasure to be back with OTC today, and thank you very much to everyone who is joining us. For this presentation, we are going to take you to the other side of the world, over to Thailand. About four years ago, Valeura Energy made a pivot over to Thailand at that time, which has proven highly successful for us. We have delivered significant growth. What I am going to do in the presentation today is really give you a basic introduction to that pivot, how it has worked out, how we have delivered that growth. Then I will go into a bit of the more details on Thailand and a couple of the assets that really demonstrate that growth, before taking you really to the cash flows and the new business to conclude the presentation. Just bring up the next slide now.
This is the disclaimers and that, but I will really leave you to kind of review this on the website. If we go to the next slide. Back in 2022, Valeura actually did two deals to acquire assets in Thailand. We acquired one field from KrisEnergy that was in receivership, but more importantly, we acquired about 20,000 barrels a day of oil production from Mubadala Energy. They were selling that due to ESG pressures. We acquired those fields for about $10 million. Obviously, it was a very significant deal at the time. We bought together a package of assets doing 20,000 barrels a day for, in total, about $30 million, including all of the contingencies. The market saw that as an excellent deal, and we went from about $0.50 up to $2.
But you can see at the level that we are currently trading at, what we have done in that interim period is really deliver on that package of assets, show that there is much more potential there, and that there is much more growth that we can deliver. And you can see we have been rewarded for this. A couple of months ago, we were actually put into the TSX 30, which is the top 30 performing companies in the TSX based on three-year shareholder returns. Last year, we were the number one growing company in Canada across all sectors based on revenue growth over three years, and we received a number of other awards as well. We are getting recognition for the quality of delivery on the assets. Just going forward to the next slide. The key to this is the company has always been focused on growth.
We see a lot more future in oil and gas. We see potential here, and especially working in Asia, where you've got half the world's population and a significant portion of the future energy demand. There is still a lot of future for oil and gas over in this region. Over the past decade, we've seen a number of our peers have moved to be more yield plays. I really want to emphasize to people that with Valeura, what we're doing is really looking at shareholder return and growth. The pillars on that are, one, I talked about the four assets that we acquired. Those assets are highly cash flowing, and we're looking to really extend and build on those, and that's gone extremely well over the past three to four years, and that's what's delivered that shareholder return.
Inorganic growth, we're looking at other assets in the region, and I'll talk more about that at the end. Another thing I really want to bring up is operational excellence. Myself and our Valeura COO both come from major company backgrounds of Shell and Woodside, operating major gas facilities offshore, where operatorship capability is so important in the quality of that. We bring that level of oversight to how we operate the business, and it's not just to protect your license to operate, that you're seen by the regulator, their approvals, that there's no problems in the running of your assets. It's also opening up opportunities for us. I'll talk about a deal we've just done with PTTEP, where they were looking to invite us in on their assets because of the quality of how we operate our oil production. Okay, going to the next slide.
I think this is about the fourth year I've been speaking at the OTC conference, and it really causes to look back and say, "What has the company done in growth over that four-year period?" For all of you out there in the audience, the key thing that you're really looking at is that share price growth. What have the returns been to the shareholder? You can see it's been a very good return over that period, and the numbers here are a weighted average, so that's why you see in 2026 at $13.60, whereas now we're trading in the 16%-17% range. While there's a big jump in the one-year return in the first year, since that time, we've just continued to build on that, a very high rate of return to the shareholders. There are two key things that I believe are influencing that.
One, the growth in cash. You can see how much cash we've continued to put onto the balance sheet over the past three years, and that's really demonstrating the margins that these fields can deliver and that they're continuing to deliver. The next thing is the reserves. When we did the deal, many people were concerned they have a very short reserve life index. You have great cash flow, but you're going to need to use that money to actually abandon the fields in the near term. We knew we could keep replacing those reserves, and we've done over 200% reserve replacement every year, so we've been growing them. When you put the two together of really good cash flow from the assets and extending the future, people can see there's much more potential for growth and continued cash flow coming from just these assets we bought.
I just want to contrast that to really the production, whereas at this point in time, we're not demonstrating production growth. It's all coming from the cash and the reserve life. Now just looking at Thailand and the environment that we have there. I know this is a long way away from the U.S. and the operations that you see there, but the Gulf of Thailand has been a major oil and gas province for many decades. You've had about 7 billion barrels produced to date. Three-quarters of that is actually gas. There is quite a bit of oil still in there. It is a very significant oil and gas province. What that means is you have the contractor base, you have the staff, you have lots of ongoing operations. It actually makes it quite a low-cost operating environment.
When we look around globally, because the whole of the Gulf of Thailand is shallow water, 150 ft on average, it's low-cost environment. It's jack-up rigs. Facilities that you build are all being built cookie-cutter-wise, so you can duplicate them. There's not a lot of variation in water depth or geology. The main thing that's allowed them to do though is get drilling costs very low, and that's where we can see gas wells of about $2 million. We operate more oil, and those oil wells that we operate are $3 million-$5 million, but that's because they're horizontal, long reach. We generally put pumps in the hole. We have downhole separation, so they are more expensive. Still, when you compare that on global average, those are very cheap for offshore wells.
The other key thing to note, and we talked about Valeura having done 200% reserve replacement every year, the whole of the Gulf of Thailand does over 100%, and there's no new fields being delivered. It's just that high activity level. Put in a new platform, extend the field, drill a number of wells, and you're able to replace the reserves with that drilling activity. Just a couple of points to make. One, Gulf of Thailand is a very proven long-term operating environment. The other one is, it is quite normal there that you have a short reserve life index, but you keep replacing those reserves that you produce every year. I'll now just kind of show that specifically the assets that we acquired. The ones in brown, Manora, Jasmine, Nong Yao, those three assets came from Mubadala.
We were doing about 20,000 barrels a day when we took them over. Wassana was a suspended field that we got from KrisEnergy. You'll see we operate all of those oil fields and have a very high working interest in them. The other two, we were invited last year by PTTEP, that's the NOC of Thailand, to come in across all of their exploration acreage in the Gulf of Thailand. Really the question we got from people, why does the NOC and a company of PTTEP size need a small-cap Canadian company to help them drill exploration wells?
The logic that they've made clear is that they see that we're the natural oil operator in the Gulf of Thailand, and they're the natural gas operator, and they're looking to create this partnership of how we work together to maximize at the lowest cost both the oil recovery as well as the gas recovery. For us, we were able to get 20% in those blocks. We came in pretty well at ground floor terms. We just carried them on one piece of seismic for about $2 million. Looking at the oil fields, Manora and Jasmine, when we came in, were what we'd call mid to late-life assets, and we were really looking to extend them out further, but really managing those declines. What we're seeing though is we're finding even much more oil there.
We just had a new oil discovery at Manora that's likely going to push that field well out towards 2040. Nong Yao is still a growth asset. We've installed a new platform there since taking over and have drilled more wells. Wassana, I'm going to go into more detail on that because Wassana's a field we took over that was suspended, but it's really one that demonstrates how you can take this very short reserve life index and push the cash flows out a long way into the future. We'll just have a look at Wassana in more detail now. Okay, as I mentioned, this field was suspended when we took it over.
The previous operator had found the oil field, but assumed it was fairly small, and they put in place a MOPU, which is actually a modified jack-up you put out there for production, and they started to produce the field. More oil was found as they were doing the development, but when we took this field over, there were 6 million barrels of reserves. What we realized was the reserves in the field were actually defined by the life of the MOPU, which has to leave the field at the end of next year, and not by the oil in the ground. This field was only going to recover about 8%, which is very low for an oil field. We did some drilling, proved up more oil, and then we made the decision to install a whole new central processing platform out there and then redevelop the field.
That decision has taken us from 6 million barrels up to about 20 million barrels, and it's taken the end-of-field life from 2027 out to into the early 2040s, right. When we look at this project, it has very good economics because you've got all that proven oil in the ground. Even at a low price, around $60 a barrel, you're looking at very fast payback, 18-month payback on it. The other important thing is the Op Ex cost for the MOPU was in the mid-30s or high 30s. This will bring it down to the teens. So, you're getting much more higher margins from the barrels you're going to produce into the future. On the project delivery, this has gone extremely well for us. It is Valeura's first major project.
Actually, that whole construction and now the installation that is complete offshore was done about two months ahead of schedule. We should get drilling by the end of this year, and that should yield first production about the end of Q1, early Q2, and up to 10,000 barrels a day by the end of Q2 2027, so right at mid-year. We are going to take a field doing 3,000 barrels a day currently up to about 10,000 barrels a day by the middle of next year. While that two months of production, really, we are pleased with showing the quality of the team that has done all the work, it also yields an extra 500,000 barrels of production for us in 2027 and that cash flow. That redevelopment has gone very well. The project has gone very well.
We have also already discovered enough oil to the north, that we call the northern satellite, for a future platform to tie back to this central facility, and we have worked up the southern area where there is discovered oil. We see a lot more potential there, and in the next 12 months, I expect we will go out and prove up a location for a second satellite. We have taken a field with about a three-year reserve life index to 2027, and we have pushed it out into the 2040s. With this new oil we are finding around there, we think this can push it out even much further into the future. Just a really good example of what you can do in Thailand. I will give one other example of that, just looking at one of the exploration blocks that we got with PTTEP.
One, the scale of this block is extremely large. It extends probably 150-200 mi from north to south. When you look at the eastern side, those red blobs are actually two of the biggest producing gas fields in the Gulf of Thailand. The Bongkot gas field shown there, right up against our border, produces about 850 million scf a day of gas. You are very close to that potential. The other key thing about these exploration blocks that we came into is there are already about 15 existing discoveries on the block, and in that way, we can move very quickly from an exploration block to a cash-flowing asset. Right up against the Bongkot field is that area called Bussabong. This was already covered in 3D. There was a couple of exploration discoveries in there already, gas discoveries.
We made another one, and we were able to, right after being welcomed into the block in September, about a week later, we took a FID with PTTEP to do a gas development there, and I will focus on that in a bit more in a minute. Down in the south, that area called Angun, Bodoric, and Montana, that already has gas discoveries. We have covered it in 3D last year, and therefore I expect once that is interpreted, we will go in and look to appraise and explore down in that area to look to do another tie-back down in the south. From a Valeura Energy point of view, when you move up to the north to that area where it says Nong Yao oil field, so that is our operated oil field, and that block we have, G11/48, is completely surrounded by the G3 block.
We see that area to the northeast is a real oil fairway, and that is where we focused a lot of attention on. We have acquired new 3D there in that area because we see the potential for new oil discoveries there that would then tie back to our Nong Yao facility. With the new seismic we have looked at and the interpretation, both ourselves and PTTEP have got excited about the potential there. I expect we are going to have a rig in there doing exploration in Q1 next year, to look at finding new oil to tie back facilities to our producing oil field. Even when you zoom in right next to our Nong Yao field, that field extends into the G3 block, and we could be drilling wells from our platform right into G3.
That will not be our early priority because we will focus on drilling in our block where we are 90% interest rather than over in the G3 block. When you look at the potential of that fairway, that is where we could see we could be looking at new satellite tie-backs. So, in the north, real potential for oil growth tying back to our facilities. We have already taken FID on the Bussabong area in the center, and down in the south, we see that potential for more growth with already having discoveries down in that area. I will just zoom in just a bit to just speak briefly on the Bussabong area. You can see here, we are less than 10 km away from the Bongkot field.
The final investment decision was to put in two platforms and drill up a number of the gas discoveries that can be reached from those two platforms. Again, this will bring on about 40 million scf a day gross, coming in at the end of 2028. Then we are looking at that is what, 16 million scf a day net to Valeura. On its own, it is not completely transformational production, but the key thing here is there are more gas discoveries here, there is more platform potential, and in fact, the application to the government for this production area here spoke to the ability to put in 20 new platforms in that area. You can build up that materiality, you can build up that longevity a step at a time. 20 platforms is going to require exploration success through the whole area.
That is kind of the upper end, but there is still this ability to grow this significantly just looking at the Bussabong area. Okay. Moving on just to the next slide. When you kind of bring that together, the story is this high replacement of the reserves. Looking at the chart on the left, we started this journey three years ago operating 29 million barrels of reserves. Those reserves have all been produced now, and yet we still have 58 as of the end of last year. We believe we are going to have another good year now with the new discovery around the Suraphi discovery. We also see that we have got an FID on the G3 block, and we have been drilling continuously. We expect to have another good number there. The important thing is how that converts to future cash flow.
All of this work is extending the life across all of these fields. This is where the message we gave when we started this journey was, we see we can produce these fields all beyond 2030. I now think with the new oil that we are discovering and the increases we are seeing, that we can likely get all of these fields out to 2040, and that is that continual cash flow delivery. Next slide, just on cash flow. A point of this is just for Q2. Q2 was a very good year, one, because we actually lifted and sold more oil than we produced in that quarter, so the number is a bit higher than normal, and also it was a very high-price quarter.
One point I wanted to make is that really with Valeura, we have some of the greatest exposure to the current high prices you are seeing in oil. We are benchmarked off more international pricing, like Brent. We are recently getting actually bidding premium for our oil that are coming in above the levels we have seen at pre-war, some of the highest bids we are seeing on our oil. We are fully unhedged.
We have cash and no debt. We do not need to be hedged. We are in a tax royalty system, not a production sharing agreement, so we have full exposure to these high prices, whereas sometimes production sharing contracts can cap you as price gets high. Finally, something we have not talked about is KrisEnergy had $400 million in tax losses. We have managed to restructure the company so that three of our four fields are currently not paying taxes.
That gives us that very high exposure. That is where you see the revenue in the end delivered a cash flow from operations of about $154 million. We had about $54 million in CapEx, so you had $100 million in free cash flow going into the bank just for that quarter. So very good cash flow and margins. Now, what are we going to do with that cash flow? I have talked about and showed really the organic assets. We can see we have got exploration there, we have got new satellites we are looking at, we have got exploration. So the cash can actually go to that. But those are really covered from the organic cash flows. They are not needing to tap into the large amount of cash we have been able to build up of $385 million in the bank. We remain very focused on M&A.
While the ESG strategy we deployed of buying oil assets a few years ago has disappeared, people are just not selling those assets, we are still seeing a shift of a lot of companies. We are seeing majors who are actually selling quite transformational packages for us. An example would be, you could look at Chevron Thailand are down to about 50,000 barrels a day. That is not really material for them, whereas for us, that is quite transformative.
So, we are looking at a lot of these deals where really for transformational assets of about 25 up to 50,000 barrels a day of type of production. Finally there, we have in place a share buyback scheme, and we are doing some share purchases, but not on a level. We are really just looking more at trying to create, trying to prevent dilution to the shareholders. Just looking at some of the M&A opportunities.
The key thing we have been able to build up, coming to the next slide, is really with the cash position we have, and we have recently put in place a debt facility, we actually have liquidity there of just over $700 million. That would allow us to do some of these big deals without having to go to the equity market. What we are trying to do is assure we can do a major transformational deal without actually having to dilute the shareholders, get a deal that is as accretive as possible. Okay, next slide. Just a final thing I want to point out is, again, there is still a push on ESG. We have been very focused on operating at a high quality.
When we look at taking these assets over in the first two years, we managed to reduce the greenhouse gas intensity by over 30%, and we are actually seeing more of that that we are doing now. So that is on the right trend. The other thing is we have been able to deliver with no accidents, no spills. As I pointed out, we operate at a very high standard here in Thailand. So, just kind of bringing that around to a conclusion.
Operations are right on track. We really have been delivering exactly as we have wanted to, and focus there has been on the reserves addition, because that is what creates the future of the company. We are delivering those reserves within the producing fields, and as well as finding new oil. Drilling, projects-wise, we are delivering on projects as promised, delivering them actually ahead of schedule and on budget.
Recently, we have actually just entered into a three-year drilling contract where we are seeing rates come down significantly, and we have been able to achieve rates that are more at the level of COVID. So we have the reserves, we have the projects ongoing, which then yields the production. Our production remains on track with our guidance, and that is a key thing, because again, that is delivering then in your cash flow. We have strong price exposure to this upside right now. That is delivering strong cash flow, and you can see the balance sheet is now $385 million in cash, no debt, and in fact, the concerns people had on our actually abandonment obligations, we have reduced those on our balance sheet by more than 50%. That then leaves us with the operatorship capability and the cash position to go after growth.
We have always talked to the market about the M&A opportunities that we are going after, but what we are seeing now is also this organic portfolio group can actually deliver future growth, and we are focused on some of these new oil discoveries. How do we bring those on more quickly to really extend and even grow the life of the assets we have here? So we are very well positioned, really probably some of the strongest cash of any of our peers, and set up really for the next step in the company. Thank you very much for joining me here today. Okay. Now, we have time for a few questions. We have had a few that have come in, so maybe what I will do is I will just kind of read some of those right now.
Yeah, one question is, with the discussion on M&A, what level of debt would you be comfortable to support in inorganic growth? Look, as you can see with our balance sheet, we tend to be quite cautious as a company. We'd be very willing to take on debt to do some of these deals, obviously, instead of going to the equity markets, but we're still looking at trying to be around a, let's say, a one times debt-to-EBITDA ratio in that. One of the things about the assets that we're looking at is that actually they're heavily cash flowing at this point in time, right? That therefore gives you the benefit. You're getting assets at a point of high cash flow, and you can pay down that debt very quickly. A question on Bussabong FID. How does gas pricing work in the Gulf of Thailand?
What price would you expect? Well, look, we have gone through the negotiations on that, and it is a one-off negotiation with the gas buyer. Because you have gas infrastructure that's all going back to Thailand, for power generation and industrial use, you're therefore dealing directly with the people who are selling the gas. So it is a negotiation that you undertake. What we can say is that gas prices in Thailand are quite high because you're competing with it in an international LNG market. So while the price is still confidential on that until we get that finalized, we're looking at really high single figures, US dollar per scf, for the gas price there. So just a question on, do we have the capacity to do more than one deal, or are you really looking at a single transformative deal?
Look, we do have a number of deals that we are exploring that are in the hopper. We see the ability to actually go beyond one deal, but obviously with the size of the deal we are talking about, that would put you in more of a stretch situation. So at that point in time, I'm not saying that we couldn't do it just with debt, but you'd likely be looking at maybe how you rebalance the structure after you go through that as to whether you need some equity in that.
But again, our real focus now is on that key big deal that we do between 25,000- 50,000 barrels a day. Okay. So I think at this point in time, we're probably running short of time. There are a few more questions that come in, and please, you can also put them through to Valeura IR. It's noted there on the slide that's up currently to address that with any people. Thank you very much for your time today.