Share Name Share Symbol Market Type Share ISIN Share Description
Valeura Energy Inc LSE:VLU London Ordinary Share CA9191444020 COM SHS NPV (DI)
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.0% 23.00 22.00 24.00 23.00 23.00 23.00 0.00 00:00:00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Oil & Gas Producers 7.9 -3.3 -4.5 - 20


12/08/2020 7:00am

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RNS Number : 8921V

Valeura Energy Inc.

12 August 2020


Calgary, August 12, 2020: Valeura Energy Inc. (TSX:VLE, LSE:VLU) ("Valeura" or the "Company"), the upstream natural gas company focused on the Thrace Basin of Turkey, reports its financial and operating results for the three and six month periods ended June 30, 2020.

Highlights from Q2 2020

-- A safe quarter, with no serious incidents and no reported cases of COVID-19 among Valeura personnel or contractors;

-- Resumption of normal office work and preparations underway to resume field operations in Q3, as pandemic-related restrictions are eased, but the Company remains vigilant to the COVID-19 situation;

-- A strong financial position, with net working capital surplus of US$33.2 million at June 30, 2020 (including US$30.5 million cash), and no debt;

   --    Average Q2 2020 production of 561 boe/d which increased to at exit rate of 672 boe/d; 
   --    Realised prices unchanged on a Turkish Lira basis, equating to US$6.24/Mcf; 

-- Revenue of US$1.9 million and average operating netbacks of US$18.33 per boe (excluding one-off costs for testing Devepinar-1 from operating costs);

-- Completion of a thorough desktop study of opportunities in the Company's conventional gas production business, with a development drilling programme expected to commence late 2020/early 2021; and

-- Extension of Valeura's three exploration licences at Banarli and West Thrace until June 27, 2022, and the engagement of Stellar Energy Advisors Limited with a mandate to secure a partner for the deep tight gas play.

Sean Guest, President and CEO commented:

"I am pleased to report a quarter that demonstrates the resilience of our business. We exited Q2 with our conventional gas production business ramping back up to volumes in the range of 672 Mcf/d, a continuing strong financial position, and fresh extensions to our key exploration licenses.

Despite the challenging circumstances the global oil and gas industry has faced during the last several months, our strategy remains intact and poised to deliver value for shareholders. We are resuming activities to improve the efficiency of our conventional gas business and are focused on increasing production to maximise value. We have a unique opportunity to layer inorganic growth into our strategy and are actively pursuing opportunities to build production growth from new sources. We continue to see our deep tight gas play as a key part of our long-term value story and have started our search for a new partner, while preparing in the background to resume appraisal activities, with new well locations selected, and extensions granted for our key exploration licences."

Financial and Operating Results Summary

                                         Three          Three        Six Months       Three        Six Months 
                                         Months         Months          Ended         Months          Ended 
                                          Ended          Ended        June 30,         Ended        June 30, 
                                        June 30,         March          2020         June 30,         2019 
                                          2020         31, 2020                        2019 
  (thousands of US$ except 
  share amounts) 
                                     -------------  -------------  -------------  -------------  ------------- 
 Petroleum and natural 
  gas revenues                               1,918          2,808          4,726          2,440          5,358 
                                     -------------  -------------  -------------  -------------  ------------- 
 Adjusted funds flow (1)                       339             52            391            774          1,115 
                                     -------------  -------------  -------------  -------------  ------------- 
 Net loss from operations                  (1,899)          (192)        (2,901)        (1,603)        (3,913) 
                                     -------------  -------------  -------------  -------------  ------------- 
 Exploration and development 
  capital                                    1,734          1,882          3,616          3,050          7,323 
                                     -------------  -------------  -------------  -------------  ------------- 
 Net working capital surplus                33,231         34,054         33,231         39,825         39,825 
                                     -------------  -------------  -------------  -------------  ------------- 
 Cash                                       30,469         32,554         30,469         38,536         38,536 
                                     -------------  -------------  -------------  -------------  ------------- 
     Common shares outstanding 
      Basic                             86,584,989     86,584,989     86,584,989     86,584,989     86,584,989 
      Diluted                           94,988,323     94,988,323     94,988,323     92,406,655     92,406,655 
                                     -------------  -------------  -------------  -------------  ------------- 
     Share trading (CDN$) 
      High                                    0.44           0.65           0.65           3.16           3.99 
      Low                                     0.23           0.20           0.20           2.09           2.09 
      Close                                   0.32           0.23           0.32           2.32           2.32 
                                     -------------  -------------  -------------  -------------  ------------- 
                                     -------------  -------------  -------------  -------------  ------------- 
                                     -------------  -------------  -------------  -------------  ------------- 
     Crude oil (barrels ("bbl")/d)              18             17             17              -             10 
                                     -------------  -------------  -------------  -------------  ------------- 
     Natural Gas (one thousand 
      cubic feet ("Mcf")/d)                  3,260          4,200          3,730          4,202          4,344 
                                     -------------  -------------  -------------  -------------  ------------- 
     boe/d                                     561            716            639            700            734 
                                     -------------  -------------  -------------  -------------  ------------- 
       Average reference price 
        Brent ($ per bbl)                    29.70          50.44          40.24              -          66.07 
        BOTAS Reference ($ per 
         Mcf) (2)                             6.37           7.17           6.76           6.49           6.79 
                                     -------------  -------------  -------------  -------------  ------------- 
     Average realised price 
      Crude oil ($ per bbl)                  41.65          65.22          53.25              -          69.56 
      Natural gas ($ per Mcf)                 6.24           7.08           6.71           6.38           6.65 
                                     -------------  -------------  -------------  -------------  ------------- 
 Average Operating Netback 
  ($ per boe) (1)                            15.27          24.95          20.70          21.34          23.40 
                                     -------------  -------------  -------------  -------------  ------------- 


See the Company's Management's Discussion and Analysis for the three and six months ended June 30, 2020 and 2019 filed on SEDAR for further discussion.

(1) The above table includes non- GAAP measures, which may not be comparable to other companies. Adjusted funds flow is calculated as net income (loss) for the period adjusted for non-cash items in the statement of cash flows. Operating netback is calculated as petroleum and natural gas sales less royalties, production expenses and transportation.

(2) BOTAS regularly posts prices and its Level-2 Wholesale Tariff benchmark is shown herein as a reference price. See the Company's Annual Information Form for the year ended December 31, 2019 (the " AIF") filed on SEDAR for further discussion .

Net petroleum and natural gas sales in Q2 2020 averaged 561 boe/d, approximately 7% higher than the preliminary production figure disclosed in the Company's July 13, 2020 trading update announcement. Q2 production was 20% lower than Q2 2019, and 22% lower than Q1 2020 as a result of reduced customer demand for natural gas due to lower industrial activity caused by the COVID-19 pandemic and Turkish national holidays during the period. Production volumes have since recovered as industrial activity in Turkey normalises, resulting in an exit rate for Q2 of 672 boe/d.

Price realisations in Q2 2020 were effectively unchanged from Q1 2020 on a Turkish Lira basis. When expressed in US dollars this equates to US$6.24/Mcf, which is 2% lower than in Q2 2019, and 12% lower than the first quarter of 2020. Subsequent to the end of the quarter, BOTAS lowered Turkey's natural gas reference price (Turkish lira basis) by 10%, effective July 1, 2020.

Production revenue in Q2 2020 was US$1.9 million, a decrease of 21% relative to Q2 2019, and a decrease of 32% from Q1 2020. The decrease reflects the combined impact of lower production during the quarter and reduced gas price realisations, when expressed in US dollars.

Exploration and development capital spending was US$1.7 million in Q2 2020 comprised primarily of costs associated with drilling two shallow exploration commitment wells, Kuzey Atakoy-4 and Bati Sariyer-1 resulting in spending which was 8% less than the prior quarter.

Valeura's reported average operating netback in Q2 2020 was US$15.27/boe, which reflects the inclusion of one-off costs for production testing of the Devepinar-1 well as an operating expense (a requirement due to the well having associated proved plus probable (2P) reserves). If the one-off costs for testing Devepinar-1 were removed from operating costs, the Q2 2020 average operating netback would have been US$18.33/boe, which is 14% lower than Q2 of 2019, and 27% lower than Q1 2020, largely driven by the reduction in the realised price.

As of June 30, 2020, the Company had a net working capital surplus of US$33.2 million compared to US$34.1 million at March 31, 2020 primarily due to capital expenditure incurred in connection with drilling two shallow exploration commitment wells.

Strategy Update

Valeura is pursuing a three-pronged strategy intended to leverage the Company's assets, financial strength, and differentiated capabilities, toward delivering shareholder value. This strategy is crafted to provide immediate stability through the conventional gas production business, near- and mid-term growth through inorganic opportunities, and exposure to substantial long-term upside through the Company's tight gas play.

Conventional gas production business

Valeura intends to maximise the efficiency and near-term value of its producing conventional gas business through operations focused at converting reserves into production.

The Company's efforts to maintain gas production over the last two years has been both technically and commercially successful. Prior to the impact of COVID-19 related restrictions, Valeura's programme of well workovers and reperforations more than offset natural declines and generated an increase in production. Individual investments have generally delivered payback in the order of a few weeks or months. With most personnel now returning to normal work, the Company will resume this programme starting in Q3 2020 and will also conduct production testing to confirm the commerciality of its two recently drilled exploration wells.

The Company sees potential for further activity as it continues to commercialise its 7.9 million boe of 2P reserves, the majority of which relate to its conventional gas production business, and which were valued at US$66.1 million (net present value of future net revenue discounted at 10% after deducted taxes) as of December 31, 2019 by its external, independent reserves evaluator. During Q2 2020, Valeura completed a thorough desktop study of existing opportunities in its conventional gas business, which confirmed an inventory of 12 higher priority drilling locations that could be drilled in the near term. Several of these near-term locations will be submitted shortly to regulators for permitting, and the Company anticipates resuming an active development drilling programme around the end of 2020 or early 2021, subject to permits and procurement of requisite equipment and services.

Inorganic growth

Valeura is actively seeking opportunities to grow its business through the mergers and acquisitions market.

With an enviable financial position including US$33.2 million in working capital and no debt, the Company has capacity to layer in inorganic growth as part of its forward strategy. Valeura has engaged RBC Capital Markets to support certain deal opportunities and continues to believe conditions are favourable for the current environment to continue generating a flow of potential M&A targets.

In keeping with the management team's international expertise, the Company is focusing on the greater Mediterranean region, and has a strong preference for assets that generate near-term cash flow and provide opportunities for further development to ensure follow-on organic growth.

Deep gas upside

Valeura is continuing to pursue appraisal of its very large deep tight gas play.

Management regards the tight gas play as a core constituent of the Company's portfolio, and a material upside value proposition for shareholders. The government has recently approved extensions to its key exploration licences through to June 27, 2022, which offers ample time for the next phase of appraisal that in turn could position additional licence extensions of four years.

Valeura has a clear vision for how to execute the next phase of appraisal after having now integrated the significant learnings from the drilling and testing of the Inanli-1 and Devepinar-1 wells. The Company has observed that the best reservoir quality in all wells is encountered in the upper few hundred metres of the Kesan Formation. However, the best gas flow results have been achieved deeper in the wells, where the gas is very dry and flows without condensate and minimal water - as seen in the first production test in Inanli-1 at approximately 4,275 metres. The next appraisal wells will target sweet spots which have both of these characteristics; in particular, locations that are closer to the centre of the basin where the high quality reservoir at the top of the Kesan Formation is deeper, and therefore within the dry gas maturity window. Final well locations within this broader area will then focus on regions of more intense natural fracturing, as interpreted on 3D seismic data.

Well locations are currently being prepared for submission to the government for environmental approval to allow for drilling in the first half of 2021, along with joint venture partners.

Valeura intends to farm out a portion of its interest in the deep gas play, and has engaged Stellar Energy Advisors Limited, with a mandate to secure a partner with technical and commercial expertise suited to a tight gas appraisal play of this magnitude. The Company anticipates this process will run from late Q3 through at least Q4 2020. With the addition of a new partner, Valeura will be poised to resume appraisal activities rapidly.

Organisation Structure and COO Retirement

Valuera has adjusted its corporate organisation and reporting structure to enhance the efficiency of its production operations by delegating more autonomy to the in-country team. These changes are intended to free up senior management resources and reduce costs at the corporate centre, while equipping the local team to be nimble and decisive in executing day-to-day operations. This adjustment also creates a distributed organisational model which can be replicated for other potential assets in the future.

In connection with these changes, the Company has appointed a new Turkey Country Manager, and Valeura's Chief Operating Officer ("COO") Peter Sider, has opted to retire. Mr. Sider assumed the role of COO in Q4 2019 in order to ensure smooth ongoing operations during a busy phase of operations, after having previously held other senior roles with the Company. His contribution has led to a safe and reliable performance on both conventional production enhancement activities as well as the technically challenging deep unconventional testing programme. The directors and management team are all greatly appreciative for Mr. Sider's tireless efforts.

Annual Meeting

Valeura will hold an annual and special meeting of shareholders (the "Meeting") today, August 12, 2020 at 09:00 (Calgary time) in the Calgary Petroleum Club, 319-5th Ave. S.W., Calgary, Alberta, Canada. The meeting will include a business update presentation by Sean Guest, President and Chief Executive Officer.

The Company will be following all public health recommendations, including social distancing requirements at the Meeting due to the ongoing COVID-19 pandemic. Physical access will be restricted to registered shareholders and formally appointed proxyholders and any others will not be permitted to attend (including beneficial shareholders that hold their common shares through a broker or other intermediary).

Rather than attending in person, shareholders are strongly encouraged to listen to the Meeting proceedings via live webcast using the following link:

For further information, please contact:

   Valeura Energy Inc. (General and Investor Enquiries)                     +1 403 237 7102 

Sean Guest, President and CEO

Heather Campbell, CFO

Robin Martin, Investor Relations Manager ,

   Canaccord Genuity Limited (Corporate Broker)                             +44 (0) 20 7523 8000 

Henry Fitzgerald-O'Connor, James Asensio

   CAMARCO (Public Relations, Media Adviser)                                +44 (0) 20 3757 4980 

Owen Roberts, Monique Perks, Hugo Liddy, Billy Clegg

Oil and Gas Advisories

A boe is determined by converting a volume of natural gas to barrels using the ratio of 6 Mcf to one barrel. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Further, a conversion ratio of 6 Mcf:1 boe assumes that the gas is very dry without significant natural gas liquids. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilising a conversion on a 6:1 basis may be misleading as an indication of value


Reserves disclosure in this announcement is based on an independent reserves evaluation as at December 31, 2019 conducted by DeGolyer and MacNaughton ("D&M") in its report dated February 25, 2020, 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 ("NI 51-101"). The forecast prices used to calculate reserves value are $7.53/Mcf for natural gas and $65.77/bbl for light and medium crude in 2020, and these prices both escalate at 2% per year going forward. This natural gas price forecast is for the TBNG assets, and the realised price for the Banarli assets is approximately 97% of this price. Additional reserves and pricing information, as required under NI 51-101, is included in the AIF.

The estimated future net revenues contained in this news release do not necessarily represent the fair market value of the Company's reserves.

Advisory and Caution Regarding Forward-Looking Information

Certain information included in this new 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 new release includes, but is not limited to: statements with respect to the Company's conventional gas production business strategy, including its ability to maximise the efficiency and near-term value of its producing conventional gas business, the resumption of its workovers and reperforation programme and the timing thereof, the production testing of its most recently drilled exploration wells and the resumption of its drilling programme and the timing thereof, statements with respect to the Company's inorganic growth strategy, including its ability to identify M&A targets and the geographic area of focus, statements with respect to the Company's deep tight gas play strategy, including management's belief that the play represents a material value proposition for shareholders, the sweet spots of the play, its ability to target these sweet spots with the next appraisal well, and its ability to find another partner for the play and the timing thereof, and management's belief that its three-pronged strategy has the potential to deliver shareholder value . In addition, statements related to "reserves" are deemed to be forward-looking information as they involve the implied assessment, based on certain estimates and assumptions, that the reserves can be profitably produced in the future.

Forward-looking information is based on management's current expectations and assumptions regarding, among other things: the resumption of operations following the COVID-19 pandemic; political stability of the areas in which the Company is operating and completing transactions; continued safety of operations and ability to proceed in a timely manner; continued operations of and 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 potential; the continued favourable pricing and operating netbacks in Turkey; future production rates and associated operating netbacks and cash flow; decline rates; future sources of funding; future economic conditions; future currency exchange rates; the ability to meet drilling deadlines and other requirements under licences and leases; the ability to attract a new partner in the deep play; the ability to identify attractive merger and acquisition opportunities to support growth; and the Company's continued ability to obtain and retain qualified staff and equipment in a timely and cost efficient manner. In addition, the Company's work programmes and budgets are in part based upon expected agreement among joint venture partners and associated exploration, development and marketing plans and anticipated costs and sales prices, which are subject to change based on, among other things, the actual results of drilling and related activity, availability of drilling, high-pressure stimulation and other specialised oilfield equipment and service providers, changes in partners' plans and unexpected delays and changes in market conditions. 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: the risks of further disruptions from the COVID-19 pandemic; the risks of currency fluctuations; changes in gas prices and netbacks in Turkey; potential changes in joint venture partner strategies and participation in work programmes; uncertainty regarding the contemplated timelines and costs for the deep evaluation; the risks of disruption to operations and access to worksites; potential changes in laws and regulations, the uncertainty regarding government and other approvals; counterparty risk; risks associated with weather delays and natural disasters; and the risk associated with international activity. The forward-looking information included in this new 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 new 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 new release is expressly qualified by this cautionary statement.

Additional information relating to Valeura is also available on SEDAR at .

This Announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 ("MAR"). Upon the publication of this Announcement, this inside information is now considered to be in the public domain.

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.

Condensed Interim Consolidated Statements of Financial Position

 (thousands of US Dollars,                                December 31, 
  unaudited)                           June 30, 2020              2019 
---------------------------------   ----------------  ---------------- 
 Current Assets 
 Cash and cash equivalents                  $ 30,469          $ 36,111 
 Accounts receivable (note 
  10)                                          5,265             5,590 
 Prepaid expenses and deposits                 1,021             1,123 
 Inventory                                       204               214 
                                              36,959            43,038 
 Restricted cash (note 3)                        273               258 
 Right of use lease asset                         84                78 
 Exploration and evaluation 
  assets (note 4)                              4,894             4,006 
 Property, plant and equipment 
  (note 5)                                    31,046            34,283 
                                            $ 73,256          $ 81,663 
 ---------------------------------  ----------------  ---------------- 
 Liabilities and Shareholders' 
 Current Liabilities 
 Accounts payable and accrued 
  liabilities                                $ 3,728           $ 5,393 
 Lease liability                                  75                69 
 Decommissioning obligations 
  (note 6)                                     9,328             8,181 
 Deferred taxes                                1,482             1,702 
 Shareholders' Equity 
 Share capital (note 7)                      179,717           179,717 
 Contributed surplus                          21,726            21,229 
 Accumulated other comprehensive 
  loss                                      (55,354)          (49,273) 
 Deficit                                    (87,446)          (85,355) 
----------------------------------  ----------------  ---------------- 
 Total Shareholders' Equity                   58,643            66,318 
----------------------------------  ----------------  ---------------- 
                                            $ 73,256          $ 81,663 
 ---------------------------------  ----------------  ---------------- 

See accompanying notes to the condensed interim consolidated financial statements.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

For the three and six months ended June 30, 2020 and 2019

                                          Three Months Ended        Six Months Ended 
------------------------------------  ----------------------  ---------------------- 
 (thousands of US Dollars,              June 30,    June 30,    June 30,    June 30, 
  except share and per share                2020    2019 (1)        2020    2019 (1) 
  amounts, unaudited) 
------------------------------------  ----------  ----------  ----------  ---------- 
 Revenue (note 8) 
 Petroleum and natural gas 
  sales                                  $ 1,918     $ 2,440     $ 4,726     $ 5,358 
 Royalties                                 (258)       (329)       (636)       (717) 
 Other Income                                101         344         369         965 
------------------------------------  ----------  ----------  ----------  ---------- 
                                           1,761       2,455       4,459       5,606 
------------------------------------  ----------  ----------  ----------  ---------- 
 Expenses and other items 
 Production                                  881         750       1,682       1,533 
 General and administrative                  911         461       2,141       1,527 
 Severance                                     -           -         450           - 
 Transaction costs                             -         129           -         935 
 Accretion on decommissioning 
  liabilities (note 6)                       241         398         459         777 
 Foreign exchange loss (gain)                815         543       (502)         892 
 Settlement income (note 
  5)                                       (332)           -       (332)           - 
 Share-based compensation 
  (note 7)                                   254         506         411       1,044 
 Depletion and depreciation 
  (notes 5)                                  944       1,229       2,222       2,626 
                                           3,714       4,016       6,531       9,334 
 Loss for the period before 
  income taxes                           (1,953)     (1,561)     (2,072)     (3,728) 
 Income taxes 
 Current tax expense (recovery)                -        (93)           -          15 
 Deferred tax expense (recovery)            (54)         135          19         170 
 Net loss                                (1,899)     (1,603)     (2,091)     (3,913) 
------------------------------------  ----------  ----------  ----------  ---------- 
 Other comprehensive loss 
 Currency translation adjustments          (236)       (664)     (6,081)     (1,326) 
------------------------------------  ----------  ----------  ----------  ---------- 
 Comprehensive loss                    $ (2,135)   $ (2,267)   $ (8,172)   $ (5,239) 
------------------------------------  ----------  ----------  ----------  ---------- 
 Net loss per share 
 Basic and diluted                      $ (0.02)    $ (0.02)    $ (0.02)    $ (0.05) 
 Weighted average number 
  of shares outstanding (thousands)       86,585      86,585      86,585      86,515 
------------------------------------  ----------  ----------  ----------  ---------- 

(1) Presented in US Dollars to conform with current period presentation (note 2b)

See accompanying notes to the condensed interim consolidated financial statements

Condensed Interim Consolidated Statements of Cash Flows

For the three and six months ended June 30, 2020 and 2019

                                                Three Months Ended            Six Months Ended 
--------------------------------------  --------------------------  -------------------------- 
                                            June 30,      June 30,      June 30,      June 30, 
 (thousands of US Dollars, unaudited)           2020       2019(1)          2020       2019(1) 
 Cash was provided by (used 
 Operating activities: 
 Net loss for the period                   $ (1,899)     $ (1,603)     $ (2,091)     $ (3,913) 
 Depletion and depreciation 
  (notes 5)                                      944         1,229         2,222         2,626 
 Share-based compensation                        254           506           411         1,044 
 Accretion on decommissioning 
  liabilities (note 6)                           241           398           459           777 
 Unrealized foreign exchange 
  loss (gain)                                    853           109         (629)           411 
 Deferred tax expense (recovery)                (54)           135            19           170 
 Decommissioning costs incurred 
  (note 6)                                       (1)         (111)          (17)         (119) 
 Change in non-cash working 
  capital (note 9)                               854       (1,670)         1,629       (2,310) 
--------------------------------------  ------------  ------------  ------------  ------------ 
 Cash provided by (used in) 
  operating activities                         1,192       (1,007)         2,003       (1,314) 
--------------------------------------  ------------  ------------  ------------  ------------ 
 Financing activities: 
 Payments on lease liability                    (17)          (23)          (41)          (46) 
 Proceeds from stock options 
  exercised                                        -             -             -           201 
 Cash provided by (used in) 
  financing activities                          (17)          (23)          (41)           155 
 Investing activities: 
 Exploration and evaluation 
  expenditures (note 4)                      (1,050)       (2,020)       (1,471)       (5,475) 
 Property and equipment expenditures 
  (note 5)                                     (684)       (1,030)       (2,145)       (1,848) 
 Banarli Farm-in                                   -             -             -         1,452 
 Change in restricted cash                       (1)         (110)          (15)          (60) 
 Change in non-cash working 
  capital (note 9)                           (1,596)       (5,298)       (2,642)         (854) 
--------------------------------------  ------------  ------------  ------------  ------------ 
 Cash used in investing activities           (3,331)       (8,458)       (6,273)       (6,785) 
--------------------------------------  ------------  ------------  ------------  ------------ 
 Foreign exchange gain (loss) 
  on cash held in foreign currencies              71           225       (1,331)           487 
 Net change in cash and cash 
  equivalents                                (2,085)       (9,263)       (5,642)       (7,457) 
 Cash and cash equivalents, 
  beginning of period                         32,554        47,799        36,111        45,993 
--------------------------------------  ------------  ------------  ------------  ------------ 
 Cash and cash equivalents, 
  end of period                             $ 30,469      $ 38,536      $ 30,469      $ 38,536 
--------------------------------------  ------------  ------------  ------------  ------------ 

(1) Presented in US Dollars to conform with current period presentation (note 2b)

See accompanying notes to the condensed interim consolidated financial statements

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity

For the six months ended June 30, 2020 and 2019

 (thousands of 
 US Dollars and 
 thousands of                                                                                                                Accumulated 
 shares or        Number                                                                                                           Other 
 warrants,            of                           Share                    Contributed                                            Comp.             Total Shareholders' 
 unaudited)       Shares                         Capital                        Surplus                            Deficit          Loss                          Equity 
---------------  -------  ------------------------------  -----------------------------  ---------------------------------  ------------  ------------------------------ 
  1, 2020         86,585                       $ 179,717                       $ 21,229                         $ (85,355)    $ (49,273)                        $ 66,318 
 Net loss for 
  the period           -                 -                              -                                          (2,091)        -                              (2,091) 
  adjustments          -                 -                              -                                -                       (6,081)                         (6,081) 
  compensation         -                 -                                          497                  -                        -                                  497 
---------------  -------  ------------------------------  -----------------------------  ---------------------------------  ------------  ------------------------------ 
 June 30, 2020    86,585                       $ 179,717                       $ 21,726                         $ (87,466)    $ (55,354)                        $ 58,643 
---------------  -------  ------------------------------  -----------------------------  ---------------------------------  ------------  ------------------------------ 
 (thousands of 
  US Dollars and                                                                   Accumulated 
  thousands of                                                                           Other 
  shares or warrants,            Number        Share   Contributed                       Comp.   Total Shareholders' 
  unaudited)                  of Shares      Capital       Surplus       Deficit          Loss                Equity 
--------------------------  -----------  -----------  ------------  ------------  ------------  -------------------- 
 Balance, January 
  1, 2019                        86,233    $ 179,384      $ 19,488    $ (80,540)    $ (47,389)              $ 70,943 
 Net loss for 
  the period                          -            -             -       (3,913)             -               (3,913) 
 Shares issued                  352          333             (132)             -             -           201 
 Currency translation 
  adjustments                         -            -             -             -       (1,326)               (1,326) 
 Share-based compensation             -            -         1,093             -             -                 1,093 
--------------------------  -----------  -----------  ------------  ------------  ------------  -------------------- 
 June 30, 2019 
  (1)                            86,585    $ 179,717      $ 20,449    $ (84,453)    $ (48,715)              $ 66,998 
--------------------------  -----------  -----------  ------------  ------------  ------------  -------------------- 

(1) Presented in US Dollars to conform with current period presentation (note 2b)

See accompanying notes to the condensed interim 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, development and production of petroleum and natural gas in Turkey. Valeura is incorporated in Alberta, Canada and has subsidiaries in the Netherlands, British Virgin Islands 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 

These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting of the International Financial Reporting Standards ("IFRS"). The attached unaudited condensed interim consolidated financial statements should be read in conjunction with Valeura's audited consolidated financial statements and MD&A for the year ended December 31, 2019. The unaudited condensed interim consolidated financial statements have been prepared in accordance with IFRS accounting policies and methods of computation as set forth in Valeura's audited consolidated financial statements for the year ended December 31, 2019, with the exception as noted below of certain disclosures that are normally required to be included in annual consolidated financial statements which have been condensed or omitted in the interim statements, and the new accounting standard described in (e) below.

Operating, transportation and marketing expenses in profit or loss are presented as a combination of function and nature in conformity with industry practices. Depletion and depreciation and finance expenses are presented in a separate line by their nature, while net administrative expenses are presented on a functional basis. The use of estimates and judgements is also consistent with the December 31, 2019 financial statements.

The unaudited condensed interim consolidated financial statements were authorised for issue by the Board of Directors on August 11, 2020.

   (b)   Basis of measurement 

These unaudited condensed interim consolidated financial statements have been prepared on 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 consistent with the Company's December 31, 2019 audited consolidated financial statements.

Effective December 31, 2019, the Company changed its presentation currency from Canadian Dollars to US Dollars to better reflect the Company's business activities, the needs of investors and comparability to peers in the oil and gas industry. All comparative amounts have been presented in US Dollars to conform with current period presentation .

Subsequent to December 31, 2019, the global impact of the COVID-19 pandemic as well as recent declines in spot prices for oil and gas have resulted in significant declines in global stock markets and has created a great deal of uncertainty as to the health of the global economy. As a result, oil and gas companies are subject to liquidity risks in maintaining their revenues and earnings as well as ongoing and future development and operating expenditure requirements. These factors are likely to have a negative impact on the Company's ability to raise equity, if required, in the near future or on terms favorable to the Company.

The economic activity in Turkey in Q2 2020 slowed down resulting in reduced gas demand from some of Valeura's light industrial customers but towards the end of the quarter, economic activity and gas demand started to ramp up as Turkey's lockdown restrictions reduced. Valeura is adhering to advice provided by local and international health authorities regarding social distancing and increased hygiene practices. As a result, most of the Company's production operations were able to proceed normally, however the Company did suspend non-critical field work, including workovers and redevelopment of existing wells, and implemented work-from-home arrangements wherever possible during Q2 2020. Operations in Turkey are returning to normal with COVID-19 related restrictions being eased. Any shutdowns requested or mandated by government authorities in response to the outbreak of COVID-19 may have a material impact to the Company's planned operating activities, however, no mandated shutdowns have affected operations to date.

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.

Estimates and judgments made by management in the preparation of these condensed interim consolidated financial statements are subject to a higher degree of measurement uncertainty during this volatile period.

The Company's unaudited condensed interim consolidated financial statements include the accounts of Valeura and its subsidiaries and are expressed in thousands of 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 
 Valeura Energy (Netherlands)       Turkish Lira 
  Cooperatief UA 
 Valeura Energy (Netherlands)       Turkish Lira 
 Corporate Resources BV             Turkish Lira 
 Thrace Basin Natural Gas Turkiye   Turkish Lira 

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 loss 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 

The preparation of 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. The ability to make reliable estimates is further influenced by political and economic factors. Management has based its estimates with respect to the Company's operations in Turkey based on information available up to the date these condensed interim consolidated financial statements were approved by the Board of Directors. Significant changes could occur which could materially impact the assumptions and estimates made in these consolidated financial statements. Changes in assumptions are recognised in the financial statements prospectively .

   (e)   New accounting standard 

The following amendment as issued by the IASB has been adopted by the Company effective January 1, 2020 (see note 5).

IFRS 3 - Business Combinations sets out the principles in accounting for the acquisition of a business. The amendments to this standard include a change in the definition of a business and the addition of an optional concentration test to determine if the acquisition is a business.

The definition of a business under the amendment to IFRS 3 is now that a business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. The three elements of a business are defined as follows:

-- Input: any economic resource that creates outputs, or has the ability to contribute to the creation of outputs, when one or more processes are applied to it.

-- Process: any system, standard, protocol, convention or rule that, when applied to an input or inputs, creates outputs or has the ability to contribute to the creation of outputs.

-- Output: the result of inputs and processes applied to those inputs that provide goods or services to customers, generate investment income or generate other income from ordinary activities.

The optional concentration test permits a simplified assessment of whether an acquired set of activities and assets is in fact a business. An entity may elect to apply, or not apply, the test. An entity may make such an election separately for each transaction or other event. If the concentration test is met, the set of activities and assets is determined not be a business and no further assessment is needed.

   3.       Restricted Cash 

The Company has restricted cash in the amount of $0.3 million (2019 - $0.3 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 National Bank of Canada ("NBC") as security, along with the Account Performance Security Guarantee ("APSG") facility described below, for decommissioning or abandonment obligations and ongoing work programmes on the Company's Turkish licences and as security for third party gas purchase, as described in Note 8 - Revenue. As the expected abandonment date and work programmes for these assets is more than one year from June 30, 2020, this restricted cash and deposit have been classified as non-current in the Company's financial statements .

Effective March 17, 2020, the Company renewed its APSG facility with Export Development Canada ("EDC"). 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. The facility is effective from March 17, 2020 to May 31, 2021 with a limit of US$4.5 million and can be renewed on an annual basis. The Company has issued approximately US$2.9 million in letters of credit under the APSG facility at current exchange rates .

   4.       Exploration and Evaluation Assets 
 Cost                                                           Total 
 Balance, December 31, 2019                                   $ 4,006 
 Additions                                                      1,471 
 Capitalised share-based compensation                              86 
 Effects of movements in exchange rates                         (669) 
-----------------------------------------  -------------------------- 
 Balance, June 30, 2020                                       $ 4,894 
-----------------------------------------  -------------------------- 

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.

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 recognises 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 recognised 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 .

   5.       Property, Plant and Equipment 
 Cost                                              Total 
 Balance, December 31, 2019                     $ 66,126 
 Additions                                         2,145 
 Change in decommissioning 
  obligations (note 6)                             1,323 
 Effects of movements in exchange 
  rates                                          (8,986) 
 Balance, June 30, 2020                         $ 60,608 
 Accumulated depletion and                         Total 
 Balance, December 31, 2019                     $ 31,843 
 Depletion and depreciation 
  expense                                          2,178 
 Effects of movements in exchange 
  rates                                          (4,459) 
 Balance, June 30, 2020                         $ 29,562 
 Net book value                              Total 
 Balance, December 31, 2019               $ 34,283 
 Balance, June 30, 2020                   $ 31,046 
------------------------------  ------------------ 
   (a)   Contingencies 

Although the Company believes that it has title to its oil and natural gas properties, it cannot control or completely protect itself against the risk of title disputes or challenges.

   (b)   Depletion - future development costs 

For the purposes of calculating depletion, petroleum and natural gas properties in Turkey include estimated future development costs of $115.1 million (December 31, 2019 - $114.6 million) associated with development of the Company's proved plus probable reserves.

The ultimate recovery of property, plant and equipment and exploration and evaluation costs in Turkey is dependent upon the Company obtaining government approvals, obtaining and maintaining licences in good standing, the existence and commercial exploitation of petroleum and natural gas reserves and undeveloped lands, and other uncertainties.

   (c)    Equinor Exit 

Effective April 2, 2020 the government of Turkey provided notice that it had approved the transfer of Equinor's working interest and rights to Valeura and Pinnacle Turkey ("PTI"). In the Banarli exploration licences, Valeura now holds a 100% working interest, and in the West Thrace Exploration Licence and production leases, the Company's holdings increase to 63% working interest in the deep rights. Valeura remains operator of all the blocks.

On April 2, 2020, when the licenses reverted back to Valeura an election was made to apply the optional concentration test (note 2e) in relation to the assets acquired from Equinor which resulted in the acquired assets being accounted for as an asset acquisition. The acquisition resulted in an increase in PP&E of approximately $0.4 million.

In June 2020 Valeura and Equinor negotiated a settlement whereby the Company agreed to release Equinor of their future obligation to fund their share of decommissioning obligations. This settlement resulted in income of approximately US$0.3 million.

   6.       Decommissioning Obligations 
 Cost                                                          Total 
 Decommissioning obligations, December 31, 2019              $ 8,181 
 Acquired - Equinor exit (note 5)                                830 
 Obligations settled                                            (17) 
 Change in estimates                                             953 
 Accretion of decommissioning obligations                        459 
 Effects of movements in exchange rates                      (1,078) 
------------------------------------------------  ------------------ 
 Balance, June 30, 2020                                      $ 9,328 
------------------------------------------------  ------------------ 

The Company's decommissioning obligations result from its ownership interest in oil and natural gas assets including well sites and gathering systems. The total decommissioning obligation is estimated based on the Company's net ownership interest in all wells and facilities, estimated costs to reclaim and abandon these wells and facilities and the estimated timing of the costs to be incurred in future years.

The following significant assumptions were used to estimate the decommissioning obligations:

                                       June 30, 2019           December 31, 
 Undiscounted cash flows                    $ 25,487               $ 23,432 
 Risk free rate - Turkey                       11.5%                  12.0% 
 Inflation rate - Turkey                       12.6%                  11.8% 
 Timing of cash flows                     1-14 years             1-14 years 
-------------------------  -------------------------  --------------------- 
   7.       Share Capital 
   (a)   Issued 
 Common shares                              Number of Shares                Amount 
 Balance, December 31, 2019 and June 30, 
  2020                                            86,584,989             $ 179,717 
-----------------------------------------  -----------------  -------------------- 
   (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 three and six months ended June 30, 2020 is 86,584,989 (June 30, 2019 - 86,584,989 and 86,514,649 respectively). 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 options outstanding that entitles officers, directors, and employees to purchase shares in the Company. Options have been 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 outstanding, December 31, 2019            5,836,667                          $ 1.97 
 Granted                                           3,045,000                            0.27 
 Expired                                           (240,000)                            1.00 
 Forfeited/cancelled                               (238,333)                            2.99 
 Balance outstanding, June 30, 2020                8,403,334                            1.36 
 Exercisable at June 30, 2020                      3,937,509                          $ 1.54 
----------------------------------------  ------------------  ------------------------------ 

The following table summarises information about the stock options outstanding and exercisable at June 30, 2020:

                Outstanding    remaining             Weighted average   Exercisable                   Weighted average 
 Exercise           at June         life               exercise price       at June                     exercise price 
 prices (CAD)      30, 2020      (years)                        (CAD)      30, 2020                              (CAD) 
 $0.25 - 
  $0.40           2,795,000         6.71                       $ 0.25             -                                $ - 
 $0.41 - 
  $0.66           1,402,500         2.24                         0.59     1,152,500                               0.60 
 $0.67 - 
  $0.78           1,621,667         3.44                         0.74     1,621,667                               0.74 
 $0.79 - 
  $3.81           1,685,000         5.60                         2.69       545,004                               2.38 
 $3.82 - 
  $4.62             899,167         4.76                         4.62       618,338                               4.62 
                  8,403,334         4.90                       $ 1.36     3,937,509                             $ 1.54 

The fair value, at the grant date during the period, of the stock options issued was estimated using the Black-Scholes model with the following weighted average inputs (weighted average fair value per option in CAD):

                              June 30, 2020   December 31, 
 Assumptions                                          2019 
 Risk free interest rate 
  (%)                                   1.2            1.6 
 Expected life (years)                  4.5            4.5 
 Expected volatility (%)              99.43          86.09 
 Forfeiture rate (%)                    6.2            4.5 
 Weighted average fair 
  value per option               $ 0.20             $ 1.84 
---------------------------  --------------  ------------- 
   8.       Revenue 

Under the contracts, the Company is required to deliver a variable volume of natural gas to the contract counter party. Revenue is recognised when a unit of production is delivered to the contract counterparty. The amount of revenue recognised is based on the agreed transaction price, whereby any variability in revenue relates specifically to the Company's efforts to transfer production or the customer's demand for natural gas, and therefore the resulting revenue is allocated to the production delivered in the period during which the variability occurs. As a result, none of the variable revenue is considered constrained.

The Company's contracts have a term of one year or less, whereby delivery takes place throughout the contract period. Revenues are typically collected between the 12(th) and 25(th) day of the month following production.

The Company produces a small amount of crude oil that is sold on a spot basis as volumes warrant. Oil is delivered by truck to customers and revenue is recognised in the period in which the delivery occurs.

In addition to selling natural gas that the Company produces, the Company sells natural gas that it purchases from other producers in the area. This purchased natural gas is sold to the same customers, using the same contracts, through the same distribution network as natural gas the Company produces. The Company purchases natural gas from other producers under contracts that are typically one year or less in length at a discount of between 12.5% and 15% to the BOTAS price. These contracts require the Company to deliver the purchased natural gas to customers. The Company does not have the right, nor the ability, to store the purchased natural gas. Since the Company does not have the ability to influence the decision making process for the purchased natural gas volumes or the discretion to set prices, does not experience any inventory risk, does not perform any processing of the product and does not remit royalties to the Turkish government for the product, it considers itself an agent in these transactions. Revenue for this purchased gas is 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 is sold in Turkey, in the Thrace Basin, which is the same area in which it is produced.

                              Three Months ended      Six Months Ended 
                             June 30,   June 30,   June 30,   June 30, 
                                 2020       2019       2020       2019 
-----------------------    ----------  ---------  ---------  --------- 
 Natural Gas                  $ 1,851    $ 2,440    $ 4,557    $ 5,235 
 Crude Oil                         67          -        169        123 
 Petroleum and natural 
  gas sales                   $ 1,918      2,440    $ 4,726   $ 5,358 
                                 Three Months ended      Six Months Ended 
                                June 30,   June 30,   June 30,   June 30, 
                                    2020       2019       2020       2019 
--------------------------    ----------  ---------  ---------  --------- 
 Royalties - natural gas           $ 231      $ 305      $ 569      $ 654 
 Crude oil                             8          -         20         10 
 Gross overriding royalty             19         24         47         53 
 Royalties                         $ 258        329      $ 636   $ 717 
                                   Three Months ended      Six Months Ended 
                                  June 30,   June 30,   June 30,   June 30, 
                                      2020       2019       2020       2019 
----------------------------    ----------  ---------  ---------  --------- 
 Third party natural gas 
  sales net of costs                  $ 24      $ 154      $ 125      $ 404 
 Interest and other revenue             77        190        244        561 
 Other income                        $ 101        344      $ 369   $ 965 
   9.       Supplemental Cash Flow Information 
                                           Three Months ended         Six Months Ended 
                                        June 30,     June 30,     June 30,    June 30, 
                                            2020         2019         2020        2019 
----------------------------------    ----------  -----------  -----------  ---------- 
 Change in non-cash working 
 Accounts receivable                     $ (727)        $ 746        $ 785     $ 1,120 
 Prepaid expenses and deposits              (33)        (210)          102         284 
 Inventory                                    13         (22)           10        (43) 
 Deposits (non-current)                        -            4            -           9 
 Accounts payable and accrued 
  liabilities                               (54)      (7,633)      (1,665)     (4,758) 
 Movements in exchange 
  rates                                       59          147        (245)         224 
------------------------------------  ----------  -----------  -----------  ---------- 
                                         $ (742)      (6,968)    $ (1,013)   $ (3,164) 
  ----------------------------------  ----------  -----------  -----------  ---------- 
 The change in non-cash working capital has been allocated to the following 
 Operating                                   854      (1,670)        1,629     (2,310) 
 Investing                               (1,596)      (5,298)      (2,642)       (854) 
------------------------------------  ----------  -----------  -----------  ---------- 
                                         $ (742)    $ (6,968)    $ (1,013)   $ (3,164) 
  ----------------------------------  ----------  -----------  -----------  ---------- 
   10.     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.

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 analyse 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 is as follows:

                                         June 30,    December 
                                             2020    31, 2019 
-------------------------------  ---- 
 Joint venture receivable from 
  partners                                $ 1,513     $ 1,334 
 Revenue receivables from 
  customers                                 2,347       2,155 
 Taxes receivable                           1,405       2,101 
 Accounts receivable                      $ 5,265     $ 5,590 

Trade and other receivables:

Substantially all of the Company's petroleum and natural gas production is marketed under standard industry terms that are specific by country. The Company's policy to mitigate credit risk associated with the balances is to establish marketing relationships with credit worthy purchasers. The Company historically has not experienced any collection issues with its petroleum and natural gas purchasers. Joint venture receivables are typically collected within one to three months of the joint venture invoice being issued to the partner. The Company mitigates the risk from joint venture receivables by obtaining partner approval of significant capital expenditures.

Receivables from participants in the petroleum and natural gas sector, and collection of the outstanding balances can be impacted by industry factors such as commodity price fluctuations, limited capital availability and unsuccessful drilling programmmes. The Company does not typically obtain collateral from petroleum and natural gas purchasers or joint venture partners; however the Company can cash call for major projects and does have the ability, in most cases, to withhold production from joint venture partners in the event of non-payment, or withhold accounts payable remittances.

   (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 maximizing the Company's return.

Foreign currency exchange rate risk:

Foreign currency exchange rate risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. Historically, any devaluation in the TL has been followed by an increase in the posted BOTAS Reference Price for natural gas. However, devaluation of the TL without a corresponding increase in the natural gas reference price will have a negative impact on adjusted funds flow and could affect the ability of the Company to fund its capital programme in the future. Devaluation of the TL will also result in decreases in royalties, and operating expenses, all other things being equal.

The Company's seismic and drilling operations and related contracts in Turkey are predominantly based in USD for Deep Unconventional Gas Play operations. Material increases in the value of the USD against the TL will negatively impact the Company's costs of drilling and completions activities. Future USD/TL exchange rates could accordingly impact the future value of the Company's reserves as determined by independent evaluators.

Changes to the TL/USD exchange rate would have had the following impact on revenues, royalties and production costs for the three and six months ended June 30, 2020:

   +/- 5 percent change in realized      and natural               Production 
   TL/USD exchange rate                 gas revenues   Royalties        costs 
 Three months ended June 30, 2020      $ 97            $ 13              $ 44 
 Six months ended June 30, 2020        $ 243           $ 32              $ 84 
------------------------------------                  ----------  ----------- 

The Company's drilling and seismic operations and related contracts in Turkey are predominantly based in US Dollars. Material changes in the value of the US Dollar against the Turkish Lira will impact the Company's capital costs.

Changes to the TL/USD exchange rate, would have had the following impact on capital expenditures for the three and six months ended June 30, 2020:

   +/- 5 percent change in realized TL/USD exchange rate,          Capital 
   upon conversion to presentation currency                   expenditures 
 Three months ended June 30, 2020                                     $ 18 
 Six months ended June 30, 2020                                       $ 78 

Interest rate risk:

Interest rate risk is 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. Market interest rates currently affect the present value of the Company's decommissioning liability.

Commodity price risk:

Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by the relationship between the Canadian Dollar and Turkish Lira, the Canadian Dollar and United States Dollar, global economic events and Turkish government policies.

The natural gas reference price in Turkey is in part correlated to contract prices for natural gas imports into Turkey and also government policy with respect to subsidies to consumers. Natural gas sales for Valeura are under direct sales contracts to industrial buyers and power generation companies in the area and each contract is at a negotiated discount or premium to the BOTAS benchmark price.

In the past two years, the government increased the BOTAS reference price thereby offsetting the decline in the value of the TL and reflecting the increase in regional gas prices, resulting in five price increases since the beginning of 2018. The Company's average realised natural gas price in Turkey for the three months ended June 30, 2020 was $6.24/mcf which represents a 2.0% discount to the BOTAS price. Effective July 1, 2020 the Government of Turkey lowered the natural gas reference price by 10% (in TL).

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 budgeted and approved operating and capital expenditures.

Capital management:

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, lower production volumes and associated revenues or default under the Company's joint operating agreements. Valeura has not utilised bank loans or debt capital to finance capital expenditures to date.

As a result of Equinor's withdrawal on April 2, 2020, Valeura retained operatorship and continues to have control and flexibility in planning its capital spend. This also doubles Valeura's interest in the Deep Gas play but may result in operation delays as the Company searches for another partner to participate in the deep unconventional gas appraisal programme.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact or visit



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