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Valeura Energy signs at least $8.8m joint venture in Turkey; shares up 31%

Petroleum and natural gas production company Valeura Energy (TSX-V: VLE) has executed an US $8.8 million farmout agreement with Aladdin Middle East (AME) and Guney Yildizi Petrol Uretim Sondaj, Muteahhitlik ve Ticaret A.S. (GYP), two affiliated oil and gas exploration and production companies operating in Turkey and controlled by the Turkey-based Sayer Group.

The joint venture deal has sent Valeura`s stock up nearly 31% today, to $0.36 as of 12:45pm ET on the TSX-Venture Exchange on Thursday.

Under the terms of the agreement, Valeura will farm-in to one production lease containing the Kahta heavy oil field, and eight exploration licences operated by the two Turkish companies, located in southeastern Turkey within the Zagros fold belt. The belt extends into Turkey from Iraq and Syria and encompasses one of the most prolific hydrocarbon basins in the world.

Valeura expects to invest a minimum of US$ 8.8 million (Phase I) over the next four months, split among the Kahta reservoir study, the recompletion of two indicated oil discovery wells to establish producibility, 2D seismic acquisition and the drilling of one exploration well.

The completion of these expenditures will earn Valeura a 25% stake in the Kahta production lease, which totals 17,446 gross acres, 25% in three Karakalise exploration licenses (Group A), which total 303,799 gross acres, and 12.45% in five Rubai exploration licenses (Group B), which total 419,098 gross acres.

Valeura also 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, as well as potential re-development work at Kahta to increase its interests on a sliding scale basis up to 50% in Kahta, 50% in the Group A Licences and 29.9% in the Group B Licences.

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, it said.

The current term of the production lease expires on March 26 2012, but can be extended for 10 years on application.

In the case of the Group A Licences, the  term of each of the three licences expires on November 30, 2010, unless production can be established from an existing discovery well or from a new exploration well by this date, in which case the exploration term on that particular licence can be extended for three years.

In the case of the Group B Licences, four of the licences expire on June 26, 2011, and one on November 30, 2011.

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 president and CEO of Valeura Jim McFarland.

"The assets are located near existing infrastructure and have development, exploitation and exploration potential through the application of modern technology and new ideas. 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 Kahta heavy oil 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.

The Group A Licences are located in southeast Turkey near the city of Diyarbakir on the Tigris River, while the Group B Licences are also in southeast Turkey near the juncture of the Turkey, Iraq and Syria borders.

Valeura Energy is a Calgary, Alberta-based company  engaged in the exploitation, development and production of petroleum and natural gas in Western Canada.

The company is pursuing its previously announced strategy to expand internationally to selected countries in Latin America, the Middle East and North Africa region and the Mediterranean basin.