Valeura to Farm-In to Turkish Licenses
Valeura has executed a farmout agreement with Aladdin Middle East and Guney Yildizi Petrol Uretim Sondaj, Muteahhitlik ve Ticaret (collectively "AME-GYP"), two affiliated oil and gas exploration and production companies operating in Turkey and controlled by the Turkey-based Sayer Group.
Under terms of the Agreement, Valeura will farm-in to one production lease containing the Kahta heavy oil field and eight exploration licenses operated by AME-GYP and located in southeastern Turkey within the Zagros fold belt, which extends into Turkey from Iraq and Syria and encompasses one of the most prolific hydrocarbon basins in the world.
SUMMARY OF KEY TERMS
- Valeura expects to invest a minimum of US $8.8 million (Phase I) over the next four months split approximately along the following lines: Kahta reservoir study (US $0.5 million); recompletion of two indicated oil discovery wells to establish producibility (US $0.9 million); 2D seismic acquisition (US $3.4 million); and, drilling of one exploration well (US $4.0 million).
- Completion of Phase I expenditures will earn Valeura the following beneficial interests:
- 25 % in the Kahta production lease ("Kahta") (17,446 gross acres);
- 25% in three Karakalise exploration licenses (the "Group A Licenses") (303,799 gross acres); and
- 12.45% in five Rubai exploration licenses (the "Group B Licenses") (419,098 gross acres).
- Valeura has the option to increase its earning expenditures up to a total of US $17.6 million (Phase II) prior to the end of 2011 in a flexible mix of additional seismic, exploration and appraisal drilling and potential re-development work at Kahta to increase its beneficial interests on a sliding scale basis up to 50% in Kahta, 50% in the Group A Licenses and 29.9% in the Group B Licenses.
- For earning purposes, Valeura's expenditures are treated as aggregate amounts and can be transferred between the asset groups (Kahta, Group A Licenses and Group B Licenses).
- Valeura intends to complete a comprehensive reservoir study on Kahta in Phase I to determine the potential to increase production and reserves through the application of 3D seismic, modern drilling and completion technologies such as horizontal drilling and multi-stage hydraulic fracturing, well recompletions, step-out delineation and exploration drilling and secondary recovery techniques that could be partially funded with Phase II earning expenditures. The current term of the production lease expires on March 26, 2012 but can be extended for 10 years on application.
- Valeura's Phase I and potential Phase II earning expenditures on the exploration licenses are aimed at maximizing retention of prospective licenses prior to expiry. In the case of the Group A Licenses, the term of each of the three licenses expires on November 30, 2010, unless for each license production can be established from an existing discovery well or from a new exploration well that is spudded by this date and ultimately results in a discovery, in which case the exploration term on that particular license can be extended for three years. In the case of the Group B Licenses, four of the licenses expire on June 26, 2011 and one on November 30, 2011.
- AME-GYP will operate the joint venture under industry-standard joint operating agreements with close technical and operational consultation with Valeura.
- AME-GYP is one of the largest acreage holders in Turkey, is an experienced E&P operator in the country and the region and owns and operates 11 drilling and workover rigs, which provides the joint venture with immediate access to drilling and completion equipment at competitive costs.
- Valeura expects to fund the Phase I expenditures and any potential future Phase II earning expenditures from existing cash reserves.
"This is an exciting opportunity for Valeura which provides us with a strategic toe-hold in Turkey and the MENA region/Mediterranean basin, a key focus area in our previously announced international growth plan, and is a foundation we can build on," said Jim McFarland, President and CEO. "The assets are located near existing infrastructure and have development, exploitation and exploration potential through the application of modern technology and new ideas."
"Turkey has one of the most attractive fiscal and royalty regimes in the world, with a flat 12.5% royalty rate and a 20% corporate tax rate. The country is an important energy supply corridor for Europe and is itself heavily dependent on energy imports and, as a result, domestic and international markets are available for production at world prices."
"Kahta is a technology play that is right up our alley and could set up a number of other opportunities in heavy oil reservoirs in Turkey. The exploration component of the farm-in has a range of moderate and high impact opportunities in underexplored areas near world-class oil fields in Iraq and Syria. The approaching expires on the licenses provided us with a window of opportunity to negotiate this agreement in a way that included a diversified mix of opportunities at a competitive price."
Ecvet Sayer, Chairman of GYP and Executive Vice President of AME said, "We are pleased to be working with Valeura in a strategic E&P partnership that with success has the potential to grow in Turkey and the region."
Valeura was assisted in securing the Agreement by ONOC Inc. ("ONOC"), an arm's length Calgary-based company with extensive business relationships in Turkey. Under the consulting services agreement with ONOC, a 1.5% success fee on the deal value will be payable in shares (subject to TSX-V approval). Based on a deal value of US $8.8 million, the fee will be US $132,000, which would double if the full optional earning expenditures are implemented.
Kahta Heavy Oil Field
The Kahta heavy oil field is owned and operated by AME-GYP and is located on production lease No. 658. The field was discovered in 1957 and produces 11 degrees API gravity oil from a Cretaceous-aged carbonate reservoir at a depth of about 3,100 feet. Approximately 4.9 million barrels of oil have been produced to date under primary recovery operations. Thirty six wells have been drilled in the field, of which only eight wells are currently active, producing a total of less than 40 barrels of oil per day at a high water cut.
As part of the Phase I earning program, Valeura will lead and fund a comprehensive geological and reservoir engineering study at a cost of approximately US $0.5 million to determine the potential to increase production rates and oil recovery through various means including: 1) more effective primary recovery operations through application of 3D seismic, recompletions, new vertical and horizontal drilling, multi-stage hydraulic fracture stimulation and fluid pumping enhancements; 2) the potential for step out drilling to extend the limits of the field or to add satellite fields; and 3) the potential to implement secondary recovery operations.
This study will not only be helpful in determining the re-development potential at Kahta but should also be useful in evaluating other potential heavy oil opportunities in analogue reservoirs in Turkey.
Group A Licenses
The Group A Licenses include three contiguous exploration licenses collectively referred to as the Karakilise licenses (No. 2674, 2677 and 2678) which are held 100% by AME-GYP. In aggregate, the licenses cover an area of 1,229 km(2) (303,799 acres) in southeast Turkey near the city of Diyarbakir on the Tigris River.
In License No. 2674, Valeura intends to fully fund approximately 250 km of new 2D seismic to expand the prospect and lead inventory and to high-grade a potential drilling location to be spudded by November 30, 2010. A seismic crew will begin shooting seismic in early September 2010. Estimated cost of the seismic is approximately US$ 3.1 million (gross) which would be funded by Valeura on a 100% basis in Phase I.
An AME-GYP drilling rig is in the area and available to drill such a well. The exploration target would be in the Ordovician-aged Bedinan formation at a depth of approximately 8,200 feet. Estimated cost of a well is US $4.0 million (gross) which would be funded by Valeura on a 100% basis in Phase I.
Valeura is encouraged by AME-GYP's success on the adjoining license to the east, where light oil was discovered in Ordovician sandstones in the Arpatepe-1 well drilled in 2008. This discovery established a new play concept and potential play fairway extending into License No. 2674. Two additional successful wells have been drilled at Arpatepe.
License 2677 & 2678
In License No. 2677, AME-GYP drilled the Karakilise-1 well in 2003 which produced 50,000 barrels of light oil (33 degrees API gravity) from Cretaceous-aged Mardin carbonates from a depth of approximately 8,100 feet before production was suspended in 2006 and the well deepened to 10,100 feet to test the Ordovician-aged Bedinan formation. This deep test was unsuccessful but the well was cased with a 7" liner and is currently suspended. The current plan is to re-establish production in the Mardin carbonates by carrying out a recompletion program in September 2010 to perforate additional indicated Mardin pay. If production is re-established, it is expected that the exploration term for that license can be extended for three years. Estimated cost of the recompletion program is approximately US $0.6 million (gross), which Valeura expects to fund on a 100% basis in Phase I.
Seismic control on the adjacent License No. 2678 is very limited. A few lines in the planned 2D seismic program on License No. 2674 will be extended onto License No. 2678. This may identify a viable prospect or justify additional seismic acquisition to define a potential drilling location.
Group B Licenses
The Group B Licenses include five contiguous exploration licenses collectively referred to as the Rubai licenses (No. 2598, 2599, 2600, 2601 and 2759). In aggregate, the licenses cover an area of 1,696 km(2) (419,098 acres) in southeast Turkey near the juncture of the Turkey, Iraq and Syria borders.
AME-GYP had held these licenses on a 100% basis but in July 2010 announced a farm-out of up to 35% on a staged basis in the Group B Licenses to a third party, which had the effect of limiting the extent of earning available to Valeura.
License 2598 & 2599
AME-GYP drilled an indicated heavy oil discovery at the NE Ogunduk-1 well on License No. 2599 in August 2009 in Cretaceous-aged Mardin carbonates at a depth of approximately 6,670 feet. Drill stem tests yielded 19 degrees API gravity oil but the well was not completed at the time. Under the Phase I earning program, Valeura is obligated to fund 50% of the cost (estimated US $0.3 million net) to re-enter and deepen the well, log the open hole, run casing and perforate, acidize and production test the well. This program commenced in mid-August 2010. If the recompletion program confirms a producible discovery, it is expected that the exploration term on License No. 2599 can be extended for three years.
Assuming a successful production test at NE Ogunduk-1, a small 40 km 2D seismic survey will likely be carried out in Licence No. 2598 and 2599 to identify an appraisal drilling location. Such a seismic program would likely be funded on a 50% basis by Valeura as a Phase I earning expenditure (US $0.3 million net).
Estimated cost to drill a well is US $4.0 million (gross). Valeura has the option to fund 50% of such a well as a potential Phase II earning expenditure. Spudding of such a well by January 25, 2011 would satisfy the petroleum district drilling requirement.
License No. 2600 holds two potential high impact prospects. The Bostanci prospect underlies a large undrilled surface anticline which extends onto an adjoining license to the east and partly into Iraq and Syria and is located only 39 kilometers west of the large Tawke oil field in Iraq. Tawke is a recent 2006 discovery underlying a large surface anticline. Target drilling depth at Bostanci would be about 9,000 feet.
Some 2D seismic acquisition and/or geochemical sampling would likely be required to mature a drillable location at Bostanci which Valeura may fund on a 50% basis as a Phase I earning expenditure (US $0.04 million net).
A large Cretaceous-aged carbonate reef prospect named Cizre is also of interest on License No. 2600 and is located approximately 20 kilometers north of Bostanci. Additional seismic would likely be required to locate a potential drilling location on this prospect.
Valeura has the option to fund a portion of any drilling costs in License No. 2600 as a Phase II earning expenditure. An exploration well would need to be spudded by June 26, 2011 and prove successful to extend the license term by three years.
Licence 2601 & 2759
Additional seismic would be required on Licenses No. 2601 and 2759 to determine whether a drillable prospect can be identified before June 26, 2011 or November 30, 2011, respectively.