Yet Another Value Podcast - Focus Capital Advisers' Mordechai Yavneh on the greatest acquisition of all time (Valeura Energy)

Episode Date: April 2, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker welcomes back Mordechai, head of Focus Capital Advisers, for his third appearance. They unpack what Mordechai calls the greatest acquisition of all time—Valeura Energy's buyout of Gulf of Thailand oil assets. The two deals, acquired at rock-bottom prices, now generate more than their cost in monthly free cash flow. Mordechai explains theasset's unusual geology, the long-tail economics of its reserves, and why the market still doesn't get it. They also cover decommissioning liabilities, NAV versus market cap, and how management might pull off more high-conviction deals in the future.______________________________________________________________________[00:01:14]Introduction to Mordechai and his advisory work[00:03:18]Overview of Valeura Energy and its asset transformation[00:04:38]Initial acquisition of the Wassana oil field from bankruptcy[00:07:06]Financials and economics of the Wassana deal[00:08:37]Comparison of Thailand offshore to domestic offshore assets[00:12:15] Uniquereserve dynamics in the Gulf of Thailand[00:17:08] Secondacquisition: Mubadala's Gulf assets and deal terms[00:20:00] Whythe Mubadala acquisition defies logic[00:24:14]Background on how Valeura got such a favorable deal[00:27:02] Whydeals done during peak 2022 oil prices still look brilliant[00:30:50] Whythe market hasn’t fully caught on to Valeura’s upside[00:33:49]Variance between reported reserves and economic field life[00:39:13] Datashowing reserve replacement outpaces depletion[00:42:56]Concession expiration and risks around renewal[00:46:56] NAVanalysis and investor skepticism[00:50:26]Updates on decommissioning costs and projections[00:51:50]Operational improvements and field efficiencies[00:53:04]Organic growth through field development and platform expansion[00:57:32]Upcoming catalysts and appraisal-based expansion opportunities Links:Focus CapitalAdvisors: https://focuscapitaladvisers.com/homeSee our legaldisclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

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I'm your host, Andrew Walker. If you like this podcast, we know a lot if you could rate, subscribe, review, wherever you're watching or listening to it with me today. I am happy to have on, I think it's for this. Is it the second or the third time, Artica, do you know? Third. I know we did SMC. Okay, third time. My friend Mordecai, you have name. Mordecai, how's it going? Good. Thank you all. Thank you for having me.

I should have mentioned Mordecai is the head of Focus Capital Advisors and also kind of has the shingle out for the outsource consulting analyst role as well. So people can reach out to Mordecai if they're interested in learning more about either. Mordecai, where can people reach you? You can look me up on Focusedcapitalmanagement.com. is our, excuse me, Focus Capital Advisors.com with an E. Advisors with an E is our website. You can see it all about the way we approach investing and approach analysis. My email's there on the contact page.

Feel free to reach out to me. If you're interested in the fund or if you're interested in outsourced idea generation or outsourcing analysis of specific deals or ideas, it's something we've been doing recently as well. Perfect. And speaking of diving deep into ideas, I think we have a fascinating one today. But before we get into it, I'll just start this podcast the way to do every podcast. Disclaimer, remind everyone, nothing on this podcast is investing in advice.

Please consults a financial advisor, do your own work. That is always true. But, you know, extra disclaimer, this is an international Canadian traded company and their assets are off in the Gulf of Thailand. So Gulf Thailand and some assets in Turkey. So please keep in mind that, boom, heightened risk, kind of risk, kind of risk. So keep all of that in mind, consults that financial advisor. This is an investment advice.

Mordecai, company we're going to talk about today is Valora Energy. The ticker is VLE trades up in Canada, if I'm remembering correctly. And I'd love to just start by tossing over to you. What is Valora Energy and why are they so interesting? Okay. So just for the intro, you know, the ways people often, you know, approach investment ideas, they'll say, are you, do you like, I don't know, asset light growth companies with, um, uh, turn around situation, then this is for you.

Nope. So what I'm going to say is, if you like money, this is the stock for you. Because it is so tremendously undervalued for what it is. It just, it's just all the charts. Um, what is Valour Energy? Vlure Energy is an oil company. Um, it has, um, it has, as basically all its producing assets are in the Gulf of Thailand. It is extremely profitable. It has lots of cash, no debt, and it's set to make, basically, its enterprise value within over the next two to three years, just from gushing cash, even at slightly lower oil prices. Now, obviously, I don't know whether the oil price will go up or down. If it goes down, they'll make less money.

If it goes up, they'll make more money, but they can be profitable even in that sharply. lower prices, less profitable, much higher prices, they'll be through the roof profitable, but as it's set now, they're set to make the entire enterprise value market cap minus cash within two years, and they are just tremendously undervalued. The main reason, I think, for the undervaluation is that they're relatively new to the market in the sense that they used to be a company that was focused on some Turkish gas assets. They sold that law off in 2020 and they were just a pretty much a one asset that was not being developed that was on hold and a bucket of cash that was looking for an acquisition. And to that credit, and they've been very masterful

capital allocators, they didn't let that cash burn a hole in their pocket and like snap up a deal the first deal they could find, but they were patient. It took them a few years until they they finally closed on two transformational deals. And usually the history is not so important, but I think in this case, it is edifying and educational to understand how they got to where they are now. They made two deals in 2020 and totally transformed the company from basically a bucket of cash of $40 million to what it is now,

second largest, the largest independent producer, second largest total in the Gulf of Thailand. And with a set of $40 million cash and now has $260 million cash as of December 31st, no debt, and a highly profitable company. How did they get there from $40 million? It sounds like a great partly. So what they did was like this.

There were two acquisitions. The first acquisition was a very good acquisition. I haven't seen too many acquisitions as good as this acquisition was basically they bought out the bankrupt

Chris Energy had gone bankrupt during the massive oil drops they were highly indebted they had a profitable field but with the debt they couldn't

a service said that they went bankrupt and they basically bought out the wasana field from Chris Energy's bankruptcy they paid a relative relatively low price. They paid about $3 million for the oil field, $9 million for equipment that came with it.

So let's just round the roll together. They paid $12.3 million plus another $7 million of contingent payment. Without getting into details, about two of that million is really relevant. The other $5 million they kind of passed on when they passed on part of the field to someone else. So basically they paid $14.5 million is basically what it boils down to. 14.5 million for the Ossar field, which was already a producing field who was just on halt. It was on halt back when prices had dropped like $30 a barrel. Prices were back up to close to $100. At the time, they were, you know, more like in the 80s, 90s when they were negotiating this deal.

And it was ready to restart at about 3,000 barrels a day, oil. and there was potential to rise to maybe 4,500, 5,000 barrels a day. Apex was relatively low, $36,000 a barrel, so profitable at, you know, 80, 70, 70, it's a profitable field. So that's basically what they bought. They bought there, and they bought a 43% portion

in the Rosucum field, which they sold off afterwards. So basically they bought to a sound of field, It sounds a little complicated. Basically, the bolder was down the field of $14.5 million. That was down the field cash flows about $36 million annually, after royalties, after Apex, after tax. Let me just, let's pause here because the next acquisition, we're like saving the big boy to the end. You know, the next acquisition I've seen your slides I've followed where is what you consider the greatest acquisition of all time and it might be. But I just want to pause here, right?

You've got, they buy for $10 million-ish, they buy a oil field in the Gulf of Thailand. So I have two questions for you. Most of my listeners are domestic. The Gulf of Thailand, you know, you say $35 kind of break-evens, deep wells, 3,000 barrels. Would I be right for my domestic listeners say, hey, offshore in the Gulf of Thailand, obviously its own political risk, but kind of resembles offshore in the Gulf of America or Mexico or whatever we're calling it these days? There are major differences.

First of all, just to talk about the political risk, you mentioned, it's not nearly as political risk as you make it out to be. Thailand has had an oil industry for decades and decades. They have not had any history whatsoever. They have a thriving workforce in the oil and gas industry. It's considered a major contributor to the economy. They support the oil and gas industry. industry. And what I really want to underline is they've never changed deal terms ever. In other words, they've had many different tax regimes for the oil and gas industry. There's a tie one fiscal terms, a tie two fiscal terms, a tie three fiscal terms, etc. But they've always changed it prospectively. Any concession that was already given stays with the terms that was given at the time. They've never changed the deal retroactively. And this has been decades and decades. I don't think the political carest.

for the oil and gas industry in Thailand, is that heightened? I wasn't saying it as there is political. I just meant, like, there is political risk anywhere where you have the government. Obviously, Thailand versus America is different. According to other things in Thailand, I think, would have a heightened political risk. Thailand is not exactly known for being the easiest people to deal with.

The government does not know for being democratic or non-corrupt. It's actually pretty not-democratic and pretty, yes, corrupt. and I don't know how many coups I've had since going independent. Eight, nine. I'm not sure what number they're up to now. So, so, yeah, so Thailand has been pretty insulated from the political upheavals that Thailand has been having. Just the economics of offshore and Gulf Thailand.

Would people be right to think? The next thing is, it's not deep water. It's relatively shallow. Okay. Simple throughout, that 1500 feet at, at the deepest, more or less. So it's not really necessarily the same as many offshore plays, which are far deeper

and have more complicated geology. There is, however, something unique to the geology of the Gulf of Thailand, which I want to get into later, which is that although the reserves appear to, on the surface, be relatively limited, and your life of field only extends out two, three, four years. What actually happens is that reserve kept up being refilled as you go through the,

as you drill well, the info well, the more drilling. You tend to replace all the reserves and you feel that officially started with a three-year life ends up lasting 30 years. And that's something I have to get into because I think in this particular company, a lot of investors look at the company and they see, it's a very short RLI, a life index of how long the, The fields are going to last, and then they're going to have to pay for the abandonment costs and the commissioning, and there's no far future here. And that's really not the way it works in the Gulf of Thailand.

It doesn't have large reserves that you tap into. It has kind of multiple stacked reservoirs. So the reservoir you hit is the one that gets officially counted as reserves. And the next one that you didn't get to yet isn't counted as reserves because you haven't actually proven. beyond doubt that it's there. But about 95% success on every well, do we have to go for the title. I'm not

for a devourer in particular, but in general you dig next well, 95% of the time get more oiled on each well. So you dig 10 wells, nine and a half of them will hit more oil. And you just you produce

2 million barrels from your field. During the production of 2 million batteries, you discover another 2 million barrels. So you produce what you have and just replace it. And you keep on going. And so it's not really the short life that it looks like it has is quite the – So let me ask my second question. So none of these are – like the characteristics of Gulf of Thailand wells refilling are not unknown.

The economics of these wells are not unknown. I think the first thing – and this will be a big question for the second one as well. But the first thing that jumps out to me is, hey, they bought this well for $10 million-ish dollars, $10.15, whatever you want to call it. Mordecai laid out the math. Oil prices were $70. Actually, when they bought it, oil prices were approaching $100. The cost per barrel is $35. Was what they were making. Now with lower oil prices of close to $70, it's only cash flowing $12 million. Okay. So oil prices are, it's cash flowing between, my math was like over $20 million. It's $15 million, whatever.

They buy this thing with great repleting reserves for one-time-time-free cash flow. And I think the question that immediately justifies, why? Who is on the other end? Why are they selling this? Why wasn't there a competitive process? Well, you know. That one was buying out from bankruptcy. Buying from bankruptcy, walking gets you good deals.

That's not exactly surprising to anybody. You know, the creditors have control of the company. They're looking to sell off the assets. They're not looking to operate. There wasn't, aren't that many players that, you know, the majors are not dealing with such a tiny oil field of 3,000 barrels of date, no interest for them. There were not that many regional players that are in place to make bids. There are a couple of regional players that one could say are similar in size and ambition to velour, but a lot of them themselves are were and are indebted, facing operation troubles of their own. And otherwise not really available to make a bid on all the assets available.

There was a bidding process. I believe there were other bidders and they won the process. But just the other bidders, right? Like you've got to process. These guys buy this for one-time's cash flow, right? Like it seems like the other bidders. Like, you know, if you and I were sitting there, be like, oh, man, our bid of half a year's worth of cash flow didn't get accepted. Like, why?

It wasn't actually, the field wasn't producing at the time. The field was on halt. They had to spend a year or so to fix up the equipment and get it running. And then immediately after they got running, they had to halt. There was an issue. And then another issue six months later where they had to hold first because one of the ships that was brought to the area to work on, manage to hit one of the legs of the platform, so they have to deal with that. And then there was a crack found in one of the legs of the platform.

And even now, they are admitting that the platform is nearing end of life. They can have to replace it or more ambitiously start a whole new larger platform, which is what they're considering, talk about that later, to expand the whole development entirely. But it's not exactly buying something that was cash following out the time they bought it. A year and a half later, with more money, money put in is when it started flowing, you know, so not exactly. And it's bankruptcy. I don't think it's so surprising they got a good deal for bankruptcy. I think you'll find a lot of situations like that. I don't know. Why don't we go to the second acquisition? So the first

that brought them to Thailand. Yeah. Now they are a player in Thailand. They have, they have am acid in Thailand, pretty small. And then they came to what I would call the greatest acquisition of all time, where they bought out Mubavala Energy's Gulf of Thailand exits. Mubavala Energy is an arm of one of Abu Dhabi's sovereign wealth funds, and Mbavala Energy decided to exit the Gulf of Thailand oil industry, and they put it on the black, and there was a bidding process. they bought what was basically about 20,000 barrels a day of flowing oil. This oil was on and working.

And when they announced the deal in December 2022, they closed in, excuse me, they announced a deal in December and they closed the deal in March. But, like it's often so when they announced a deal, it was the effective date is not the date of closing. A lot of the time in the oil industry, the effective date is earlier. So in this case, the effective date,

the time that all the economics accrued to the allure was before they signed the deal, was September 1st. So they closed in March, but the previous seven months of production from September 1st to the end of March, all accrued to allure was kept as a lockbox in the company and stayed with the company

and went to the lure's credit. So they're getting this 20,000 barrel of day, enterprise, not just the fields, they bought the field, all the employees, everybody carried over, the only person who didn't come over was the Thailand country manager, which was Mubival Energy's person, that state was Mbabel Energy's person, that state was Mbavala, but the entire enterprise, all the employees, all the staff, all the technical and engineering and layers of management, went over to Villeur, lock, stock, and barrel, 20,000 barrels a day, three different oil fields, Jasmine, Nongwiao,

and Minora, these were making net about $15 million a month. And they bought it for $10.5 million. Okay. Which means, just for the record, that since all the economics from September 1st to March 22nd, accrued to Valura, that on March 22nd, Valour gave Mubavala $10.5 million, and they received 15 times seven, they received $105 million. Let's just pause there, right? Because I think this is the thing that breaks my mind when I watch this, right?

Like the first, when people listen to, they're going to say, oh, my God, Mordecai's right. Like, they sign a deal in December, retroactive economics this September, close it in March. They get paid eight times what they're paying up front for it, right? So right off the bat, they're up, like their IRA. is infinite because they're getting paid for it, and they get an asset that's producing, you know, basically their purchase price and cash flow every month, right? So when I hear that, say again? Much more than the purchase price.

It's in cash revenue per month. Yeah, yeah, exactly, per month. I said per month, yeah. So when I hear that, my first is, yes, Mordecai is right. This is the best acquisition I've ever heard of. I don't think there's anything that even compares. But then my second thing is, why is this not too good to be true? Like, if somebody sent me this email, I had a friend recently who sent me an email and who's like, hey, I know you're in finance.

Somebody brought me this crypto hedge fund. Can you take a look at it? It's got some terms I don't understand. And they were promising 4% annualized per day. And I was like, look, I don't say this lightly and I wouldn't put an email. But that's a fraud, man. Come on. That's a Ponzi scheme.

There's no chance. You just laid out, if somebody put this an email to me and told me the deal terms, I would say, hey, that's absolutely a Ponzi scheme of fraud. There's no chance. So, like, why? I wouldn't want to join this deal either for the deal. for that fear. But, you know, first of all, in this situation, the deal happened already. We're not talking about a future deal. This is in 2002. We're now in 2025. It's done. It happened. Here we are. That's one, obviously. Two, how did it happen? It's mind-blowing.

So there's really two things that go together. One of them, the company kind of hinted at publicly. One of them, they didn't really talk about, but speaking to management, they did explain to me the background. And so first of all, Mubadal Energy was looking to exit the Gulf of Thailand because they wanted to focus on clean energy. So they were getting rid of their oil assets for ESG reasons, which coming from Abu Dhabi, the United Arab Emirates, that they're focusing on getting rid of oil for ESG reasons is on much of what the world has come to. It's mind-boggling. but Mubadal Energy is one of the southern wealth of funds, and they wanted to focus on natural gas and solar and I don't know what, but wanted to drop oil.

Okay, fine. You say, okay, so they want to drop it, they want to sell it. Maybe they're even willing to give a good deal, but there's got to be all the buyers out there. What in the world? Other people should be interested in such a deal. So the real answer is, although this deal was announced in December, and the first deal was announced in April,

this deal was actually negotiated earlier. It was the first deal to be negotiated. But it was only signed months and months later. What happened was that they were working on this deal in 2021. And they won the bidding process at a much higher initial price, much higher than 10-Hensmoney. What then happened was that the sellers went silent. There was no contract.

They had gone through an informal auction process, but nothing was starting yet, and the sellers went silent. And the period of the reasons why the sellers went silent is because the price of oil had gone up a lot to $100 a barrel, and they were having second thoughts about, you know, it was a really profitable asset. They didn't really want to, maybe we should keep it.

Yeah, it's making money. People like money. I also like money. I understand it. People like money. So they said, they were having second thoughts. They went silent for months.

And the valor was thinking themselves, okay, it looks like maybe this is not going to be a deal. Eventually, Mabal has resurfaced, and they said, yeah, they were having cold feet. They were dragging, but the higher-up society, they have to exit, they must exit, but they really feel stupid about all this cash flow that's just been pouring in over these months.

They don't want to give it away. So what they did was, instead of having, signing the contract for the original, let's say, I don't know, I'm making up a number here, $150 million, yeah, and have it effective from the beginning of January or 2022, which would be the norm for when they were negotiating at the time. They said, you know what, we're going to keep the economics over the last months and you'll get the economics for September. but that seems a little unfair to you, right? So therefore, what we'll do is we'll drop the price. We'll drop the price for the amount of money we made from January to September. We'll say instead of $150 million and a half effective from January, they felt from their own way of looking at it that will make it $10.5 million

and effective for September 1st. But this was already after the deal process was concluded. But they didn't reopen the deal process. I understand everything you're saying, but they just, that is a gift, right? I mean, they're gifting hundreds and hundreds of millions of dollars of value to this prison. I have no more background to share with you. I do not, I do not have any friends in Abu Dhabi or on the board of Mbong, I really can't explain the process. I've been involved, like, I've had oil and gas companies in sales process before, and I know, like, oil and gas goes up

$5. The hardest thing is, oil and gas goes up $5, and everyone blows up $5, and everyone blows up the deal terms, right? The sellers want more. Oil and gas goes down $5. The buyers will up the deal terms. Everyone wants more. What you had happened here was a 10-month pause, right, where oil prices go up. The company says, hey, we don't want to sell. We want to keep all this money. And then eventually they come back and say, hey, let's just keep the exact same deal terms and lower the price. Like that cash gush we got, we'll just lower the price for you. Like, it just doesn't make sense. It's the biggest gift I've ever heard to anyone. And I mean, my first thought here when I saw this and heard this was, oh, my God, this is the best thing, but I need to check who their auditors are.

And it's still like reputable auditors, but like that's how incredible of a deal we're talking about here. There's nothing being in there. You know, it's all the, the, you want to know how much oil is produced that's on Thailand government websites. They keep track of the oil being produced from the wells. All this is, you know, you can get monthly reports from Thailand. It's very easy to keep up with. You can get in advance of the quarterly reports, you can find that how much each of the fields are producing. You just have to, you know, some of the fields have 90% interest, 70% interest, you could just do the math yourself.

And you know exactly how much oil that is being produced. The price of oil is public. It really not that much that can be hidden here. So let's, I mean, I get. Yeah, I agree with you. I call it the greatest acquisition all the whole time because I bagel to think that anybody can find a better acquisition. it doesn't really make sense. I don't understand about the energy.

It was a strange process that got it to that deal, but even the original $150 million deal seems like, or whatever the number was, it seems to, I don't know what the $150 million. I don't know what the number originally was, but it seems to have been a decent deal anyway, just for the assets as they are. There are assets that are producing.

At $100 a barrel, which is when it was being negotiated, it was producing $150 more million a year. I guess the last thing, and again, it's just, it's such a good deal. It's one of those things where it's like, it's such a good deal. If the deal economics were worse, I'd almost be like more understanding of it. One last question. It does strike me. I know a lot of companies that did M&A in oil and gas M&A in 2022.

And people can remember, you know, post Russia, Ukraine, oil is 100, Nat gas is nine. I remember I was having a conversation with a Nat gas CEO in June of, 2022. And on that day, he was like, I just keep doing the math and Nat gas is nine. I don't know how we're not going to 15. Like, the demand is just outshipping supply too much. And that day is the day that that big LNG facility in Louisiana had an explosion and took like two BCF per day or something offline. And that was the, that was like literally the absolute top. And I think about that sort of the time. Anyway, reason I mentioned this is they do both of these deals, the greatest deals of all time. Not only are they so great, they're so great that in the oil and gas price

environment of 2022, right, they're such good deals that they look good in hindsight today from 2025. And I would say these are like the only deals I know that are done in 2022 in the energy space where the buyer seems to have come out ahead. And not just come out ahead, like come out ahead kicking like literally gone to the top of the mountain on them. So I guess just like, how could they structure deal so good that even with the energy environment that has developed over the past three years, they're just this far ahead? No comment. I do love the company's patience that they waited, they didn't take the first deal they saw and they waited until they found a good deal. And we'll talk later, but these two deals, which

seemed separate, I actually dovetail very well because the deal that they negotiated second but signed first, smaller one from bankruptcy, actually came with a load of $400 million of tax losses that when they brought the mobile energy assets and after spending a good year and a half on the paperwork and the technical and legal aspects to combine them, they're able to spread the $400 million of tax losses, not over the measly Wasanafil, which was small and wasn't really big enough to use all those tax losses. They're now able to spread it over most of the entire company,

except Wallsdale, which means that that first company that they bought for $14.5 million, not only did they get a producing oil field, they got tax losses that are worth $200 million once they combine it with the other company. Is that unique to Thailand? Because like in the U.S., if you bought a company out of bankruptcy, you wouldn't inherit their tax assets. Is that unique to Thailand? I don't know the legal aspects. It's just another thing. Like, for $10 million, they buy a company and they're buying it for one-x cash flow and they get 40 times their purchase price and tax assets.

Let me ask a separate question. Okay. At this point, this is known, right? So it has been, you and I are talking here, it is approaching mid-2020. It's been three years since the first deal, two and a half years since the second deal. You've got basically two years of full run rate financials. Like I'm staring at their 2024 audits, like 2023 basically have a full year. 2024 definitely have a full year. At this point, it is in the numbers, right? And the numbers are very good.

I'm looking again, $300 million in cash flow from operations. We can talk about the invested capital and everything. But why has the market not picked up on this yet? like why is the opportunity here when hey these were incredible deals maybe you have doubts about them maybe not but it's in the numbers they own the assets now uh this is a 600 million market cap company with i i Bloomberg says 160 million in cash i think you said a little bit higher number but you know we're talking about paying less than two times operating cash flow now there is real cap-fax we'll talk about them a second but we're talking about paying less

than two times operating cash flow for a management team that's proven they can create the greatest deals of all time. What is the market missing here? So I think it's a combination of two things. The stock price definitely skyrocketed on the first deal, on the second deal, it skyrocketed in response to various good pieces of news that came out over time. And the stock is up tremendously. In general, most stocks, stocks that get a huge chunk of good news sometimes are not able to fully incorporate the greatness of the news simply because the people who look into it and are interested

and buyers kind of max out their capabilities. Most people are not willing to go 100% into one stock how every great the deal is. Now I want to go 50%, 20%, they'll go to 5%. Some people are adventurous. They're highly concentrated. They go 10, 15%, and

they'll max out. So you have that I often find that very, very large bad news usually you know, is much easier to get fully incorporated, although even that, and it always happens. But very large good news can max out the people who are aware and interested.

And then the second thing is it's still relatively a small company. It's trading on Canadian Exchange. Highland, sounds weird. It's a 650 million market cap. There are plenty of institutional investors that, not for them. It's oil industry. I'm not an oil expert. There's all sorts of reasons why

It doesn't yet have, listen, the last conference call on YouTube has, I think, last I heard was 20 non-views. I don't think it has as much exposure. I mean, did you hear about it before I mentioned? Did you? No, I did not. It has as much exposure as it deserves, and I think part of the reason is the story has yet to fully percolate through the industry, through all the, all the people. that's part one. And part two, when people open up the financials, there are certain things that don't screen that well, which is you have this decommissioning liability that comes

at the end and it seems rapid. They're telling me that there's a reserve life index of five years. And then in five years, I'm going to have this multi-hundred million liability to decommission. and most people say that an oil and gas company needs to have a reserve life index of 10 years that'll interest me. But when they bought it, they had a reserve life index of two and a half years together with a $200-something million,

$200 million, around decommission liability. If you adjusted the math, you said, okay, they got a good deal, but at the present stock price, if I take their asset value, the oil in the ground, multiply it by how much they'll make from it, take out the decommissioned liability, don't make any money. And I got that pushback from people I push this to. And this ties back into what I said earlier that the Gulf of Thailand works very differently in its geology than many other oil bases, which is that officially reserved life index, two and a half years,

three years, four years, but it lasts for 30 years. You drill and all the oil that you produce, you replace with the drilling having found more oil to replace that. As I said, reservoir space, reservoir space, reservoir space, reservoir, reservoir next to it, reservoir next to it. You move over 10 feet, you know, 10 feet, whatever, you know, whatever it is, and you really get, you got more. Let me pause you there. I think I see actually where the variant view is.

So at this point, it seems like the market has kind of been like, hey, these are great businesses. And I will just use, let's say, for 2024, $150 million in free cash after PP, and we can talk if that P.P. was too high or not. I think the difference that you are seeing versus the market is the market has seen these are high-declined wells, and there's not a lot of life to them, right? So if I said, hey, these wells are all going to be gone within five years, and I'm trading this at four times free cash flow, and there's some decommissioning their liabilities, that actually gets you to about the stock price, right? And what you are saying

is, no, the wells are way, that life is way understated. There's a lot of undeveloped reserve, prove undeveloped reserves that aren't even on the books, whatever it is. I've got 25 years of life here, not five years. So I am buying, and basically the market is giving me that back half 20 years of life for free. And by the way, the decommissioning liability that the market is discounting that they're going to have to pay in five years at the end of the life of these wells, I can be decommissioned. I can do it in 25 years.

So I get 20 years of extra NPB on that plus 20 years of extra free cash flow, and that's the difference between the two. Would you argue with that kind of being the alpha opportunity there? Plus, you know, probably great deal makers here. That is the alpha opportunity. I don't want to overstate the dealmakers, by the way. I mean, because part of it is a patience, but I don't think patients can get you this good deal. This is a good deal needed a confidence of luck.

Yeah, I don't think. You know, I've been skeptical of the deals. You've said that, but they did it twice. They did it twice, right? So once you've done it twice, you've kind of proven that you know how to hang around the hoop. I will say this much. They right now, about 25,000 barrels a day. Their aspirations are to reach 100,000 barrels a day.

And they keep on talking that they want to do more inorganic, more inorganic acquisitions. But they also talk, and they seem to be serious, but they don't want to do any inorganic acquisition. They want to do one. It's cash flow, accretive, maybe not as great as what they got, but a good deal. And I think their history has shown that they're willing to be patient. They had cash burning their pocket for a few years before they started the deal. and then they signed good deals.

Since then, since the end of 2012, they've been talking about doing more deals, talking about doing more deals. Two and a half years have passed, they haven't done another deal yet because they haven't gotten the right deal. So I think we can give, usually acquisitions

is something I found upon. The academics say that it's usually a bad idea. In my experience, like 90% of the time, the acquisitions, big acquisitions, are a tendency for managers to increase the fiefdoms, They're not caring about your holding value, and it's not worth it. It's really worth it all the time.

Again, again, they buy it. I don't know for, I think, you know, just recent news, family dollar and bought the dollar tree, brought family dollar for nine and something for one. This is the story all the time. It's crazy how often it happens. So I usually frame an acquisitions, yeah, but I'm going to give them the benefit of the down here

that their capital allocation has been stelt. Yeah, and they want to continue doing that. We'll see if they're able to come up. You know, I'm not counting any inorganic acquisition in my, in my analysis of how great stock is. But I think if there isn't an organic acquisition, that would be great. Organic growth, however, does have a lot to produce here because there's more exploration in areas where they can expand what they have now beyond just what it is already, which we can talk about as well. I just want to stress. I do believe that the big variance here is on decommissioned liabilities and the reserve life index and the high, well decline.

That's definitely a major part of it. But I don't think there's really a variance you've used if you really look into it. If you look into it, I think it's absolutely clear. There are many slides that the company shares, which are really, really, really gets at the heart of the matter. They really pound the way on this. They show you for the whole Gulf of Thailand how the average reserve replacement, meaning how much are. reserves I find every year replacing the oil I produce. The average reserve replacement for the Hurtigal, not their assets only, is 122%. Meaning you're replacing more than you

produce. Then they show you for these answers in particular, Jasmine, going back years, you can have, wait, let me see, I have my notes here somewhere. Here, this is for Jasmine, one of their large nice field, somewhat later in life, it was started in 2005 with supposed reserves of 7 million barrels. Since then, it produced 95 million barrels and ended 24 with 17 million barrels of reserves. It started with 7. It produced 95 and the 17. So I am looking That are a reliable number You cannot look at that and say

Oh, there's only 17 It's that 17 There's only 17 Don't expect to be a drought more than 17 17 is what is Here's Nangiao Ngao is the most profitable It has Apex of about

$15 a barrel gushing oil, very profitable It started 2014 With $3 million $3 million reserves barrels It's produced 29 and now, at the end of 24, it has 16.9 million in reserves. Far more than what they started with.

This is the story of all their fields. And then we can talk about under their administratorships, when they've gotten it, they have here all the fields combined. The end of 2018, all their fields combined, the Jasmine, Nangiao, Minora, and Wasano altogether. ended in 2018 with 20 million barrels of reserves, produced for three years. The end of 22 was 21 million. Same.

It started with. So you're not actually, you know, using up your reserves when you produce. But I just want to speak out of their own personal, when they run these fields, they put in a little bit more money into, you know, not just using it as a cash cow, but looking towards the future. and I'll just sign my notes to get the exact numbers here. In both 2023 and 2024, the reserve life replacement was not just replaced everything that it produced. It replaced more than twice what it produced.

I have the number here, a number one second. Let me ask two questions on this. And for those of you who are interested in this idea, which I'd be surprised if you weren't at least somewhat interested in this idea after listening to this pitch, You can follow along with a lot of the math, a lot of the numbers Mordecai just gave out at their, I'm just flipping through. It's their March 2025 Capital Markets Day. Like this stuff he just laid out on the reserve replacement is all very nicely and neatly laid out on their asset by asset breakdown, which is like slides 43 or so of the thing.

Let me ask you two questions here. So I understand they drill and, you know, this field that it was supposed to have $7 million. Here we are 20 years later and it's produced $95 million and it's still got. that 16 million of life. I mean, just like there's only so many dinosaurs that have died that has to end at some point, right? So, like, how can you feel part of the reason I'm sure that they are having all this extra success is the technology has just gotten a lot better for extracting oil?

And then I think they've also like, you know, they do the feel. And as you said, they do the well right now to it. But like, when does that end? You know, at some point, there's just no more dinosaurs. It will eventually go away from me to answer you. And the company will never say anything other than the reserves. They're not going to claim, you know, they're not going to get up and say, we are going to tell you this is going to last to 2150.

No one's going to tell you that. They're not going to tell you to last to 2050. Officially? Well, I reserves Peter out in the 2033, yeah, or whatever it is. Yeah, but let's remember that when they bought the company, their fields were supposedly ending, they bought Minora. Minora was supposed to be decommissioned in 2025. Right.

more infill drilling, and no, we pushed it off to mid-2020, to, it was, to mid-20206. Then when they got control of menorah, more drilling, more assessment, more appraisal, they pushed it off in 2023, they pushed off menorah for one and a half years. And then in 2024, with production, they pushed it off another two, three years. So now manure, which was supposedly being decommissioned, and in effect, They already have had to give Thailand regulators $22 million of reserved cash, no restricted cash, to cover the decommissioning. The imminent decommissioning of menorah, which was imminent at the time that the cash had to be given to the Thailand regulators, is now projected to last in mid-2030, Minoro. Now, can I prove to you that in 2025 the appraisal drilling will push Minora out more?

No, I can't prove it to you. But is that the way to bet? Yes. In the market fields, in 2024, the drilling pushed out every single field end of life between two and a half to five years. So now, what originally their latest field was supposed to end in mid-20207, now their fields are going to the end of 2035. Let me ask another question. So if I'm just looking at their slot. Well, last to 2050, I don't know.

If you ask me, I think in 2050 we'll be talking about. Well, is it going to last another two years or another five years? And we'll have the same question then. They have on their slides, and I'm looking slide 10 in their capital markets there. They give their NAV of Canadian $13.60 per share. The stock, as you and I are talking, is $8.35 per share. So that's significant upside, right? More than 50%.

I doubt anyone wouldn't take more than 50%. Not going to upside from future. Just counting the actual reserves on the books. With the decommissioning liability at net present value, et cetera, et cetera, taking out the OPEX and the CAPEX that's necessary to get the oil out of the ground, taking all that account is about $7.59 for the oil, minus all the liabilities, plus the cash on hand after they get to that 1360 number. I'm also just laughing. I hadn't seen this slide before.

It's slide 11 of their investor deck. I guess it's their slide 10, but it's 11 in the PDF. It's their returns versus all of their peers since they kind of started the strategy, and they're up 1,400 percent, and the average peer would be probably flat, and the second best peer is 135. So they're 10x, the second best peer. I'm just laughing at that. Let me ask you another question.

So obviously you think there's a deep life here. I believe the way that the Thailand leases work here is that all of their, what is it, concessions that they have with Thailand. and in the early 2030s for most of their fields. And then they have a 10-year extension on top of that, right? So I do think there is a question of, hey, 2031 comes up and these leases are up, right? A, what happens? Is the extension just boom, you extend it 10-year same terms done?

Or do you have to renegotiate some of the royalties, taxes, all that sort of stuff? And then B, I guess, is there a history when you get to 2040, all the extensions are done? is obviously that's 15 years in the future and I think the stock price in NAV is kind of only incorporating five years or so but I am just curious like what happens when these are all when the extensions are done because you mentioned 2050 earlier and talking about how many years these have left like obviously they would need to rewin the concessions. That's a very great insightful question and I'm going to give a very non-insightful answer which is about the first extension I don't think there has ever been a situation where

Thailand has not given a 10-year extension on a field that had oil to produce. They've always done that. Is it same terms, yes? Is it absolutely simple, or do they need to, like, you know, give guarantee? They probably have to give some guarantees of the amount of money they'll put into working on it, then they'll have to give guarantees, maybe a small bonus sign-up, but nothing major. They're not going to, like, you know, have to fork over the value of the field in cash to Thailand,

to get the extension. It's relatively simple. What happens at the end of the 10-year extension where by law and regulation there isn't an official system of how to get another extension, the answer's have no clue. So, yeah, the fields, I don't know when they'll end.

At that point, that's a little more tricky. Yeah, okay, but as you said, this is at all not being incorporated in the price. We're not, we don't need 2040 oil. to explain, even 2040, certainly not 2050. We don't need that oil to explain the stock price now, even just the oil, as is now without any reserve replacement, with 50% on the value.

And the fact is with reserve replacement, and we could take these fields to 2040, this is not just 50% on the value. It's like a third of what expected NASA value, which, by the way, just we're discounting at 10%. When we say it's worth 1360, we mean that if you pay 1360 for it, you'd be making 10% on your money.

over time, right? It's discounted at a normal discount rate of 10%. It's not like this is what's actually worth, yeah? It's worth 1360 and you'll make money on that. So if you're paying 835, it just rights itself. Look, I think we, I mean, you hit on the Thailand risk. I think we've covered most of my questions here. We're also running up on the end of an hour.

Anything else that, you know, you've, you've spoken about this idea in a few different places. I know you've, anything else people should be thinking about or any other questions people ask that you think we should address here? I'm just going to say two more points. One is that three more points, actually, now that you know about it. One is that when you're, you mentioned this really, I just want to underline it. Not only are you getting reserve replacement and pushing and getting more revenue, you're pushing off the end of life, which means that the, the, the line. liability of decommissioning is not looming large and soon. It's looming far off in the future, which at a discount, the value, is worth much less. In addition to that, they've been putting a lot of effort over the last two years with engineering studies on the decommissioning liability. And they've incorporating the latest technologies, a lot of decommissioning going on of well-by-well and different new ways of doing decommissioning in the Gulf of Thailand, reusing parts and things like that. And they've been able to, able to have these engineering studies that bring down the cost, the ultimate cost of decommissioning,

besides the fact that you're discounting it at a greater rate because it's further off in the future, but simply bring down what the actual cost of decommissioning will be. Between the two pushing off of the future and bringing down the ultimate cost, they brought down the decommissioning liability from the original about 200 million, more than 50%. Now it's about 90 million. That's A. That's on the books. It looks much better now when you only have an $84 million decommission liability instead of what they had before, $200 million, a decommissioned on a million. It looks much better just on a screening basis.

That's one. The second thing I want to point out is we've been talking about the cap allocation. They've been very good operators and very savvy operators and very, they've done a lot of, they have this drill on, on, on, on, they have. have one drill that they're renting to use in their various fields. And they've used it in in very clever ways. When Rassano was taken down, they managed to move around the schedule. They get more drilling done than the amount that they originally expected.

So you're paying some drill for the year. If you're able to drill more wells, then your cost is the same, but you're getting more out of it. And they've been able to do appraisal wells that turned into development wells, get an appraisal and development from the same well. And a lot of other things like that, you could read their capital markets, they have a lot of interesting tidbits of advancements

they've made in the type of steel casing they use and the type of how they do the well and what type of technology they use. They didn't invent any of the technology, but they're using it well and they're operating well. Their optimization around their ship fleet to get to share ships among the various fields, their optimization on how they,

save money on gas by idling engines in certain ways that a little bit non-standard but saves money. They installing, as we speak, BTU generator at Jasmine to use the waste gas as fuel instead of having to pay for fuel so that, I mean, supposedly environment of the federal, I guess, instead of wasting the gas, but also saving money on APEX. So they've been doing things They bought the non, there's not

There's more CAPEX, but they bought the non-gal Floating Storage Facility for $19 million and that has a two-year payback so they're saving money on OPEX that way. They are operating in a very efficient and useful manner for the shareholders. That's

the second point that I wanted to make. And the third point I want to make is we've been spoke the whole time about how undervalued is just what there is even with that was a replacement. and much more so with reserve replacement that's just what you see what you get then is uh maybe they'll do another great acquisition okay nobody to know about that but i want to talk this more organic uh growth here as well you are spending minimal money eight million uh in 2000 and the

24 on on exploration they're expecting 11 million on exploration in 2025 i just look at the some of the Cappex is sustaining, some of the Cappex for the year is about 135 million expected, plus another 11 million for exploration. Maybe about 100 million of that is sustaining Cappex, the rest is growth. I just look all of it as, we'll call it sustaining, and it's still a great deal. You know, I don't have to piece out what's sustaining, what's growth. We'll just call it an expense and you're still coming out nicely ahead. At $75 a barrel, they're still making $150 million a year, even if all that at some cost not getting any good. Yeah, just replacement value.

But there is definitely some, a few areas of organic growth, including an upcoming catalyst that people might mind to keep an eye on. So they have a rat tree exploration in Jasmine that's going to be Doug. Sometimes they see, I believe in order three. I don't remember exactly they have it on the slides exactly when they're digging that well. that's pretty exploratory, but that could really bring up a whole new area of the field. They had Nongau D.

Non-Gal-C was started last year and it's been gushing oil, and they have a few appraisal wells that have already done Nong-Gow-D that have come up positive, and they're doing more this year, and we could probably expect a whole new Nong-Gow-D, which is not on the reserves at all,

and it's not part of the replacement, just a new area of the field that's unrelated to them next to and can share facilities, and you link it via pipeline, but it's really a new section in the field that's up and coming. And then what's really the next catalyst is the wasadam field. The wasatom field now is making about 4,000 barrels a day

from a small platform that's a small mobile platform that's reaching end of life and has to be replaced. Right now, the official reserve support assumes that they're going to replace the mobile platform with another mobile platform, and that's the cost that they take. at the count when they come out with their net acid value of 1360 to share of Canadian. But what they're actually looking at doing is this mobile platform is relatively small,

can't reach as, if they replace it with the same mobile platform, can't reach as much oil as is available throughout the Wasana field. And then there's Wasana North and Wasana South, both of which have appraisal wells and exploratory walls that have covered up at section of the field. So what they're thinking of doing, and really looks like they probably are going to do, but the final investment decision is coming in the beginning of quarter two. So within a very short amount of time, a few months, we should find out what's happening on that. The final investment decision is considering to make a new, more, not a mobile platform,

but a more real platform, move it over to be more in the center of the field and have a larger catchment area. And then later on in time, you'd be able to build, like they did with non-Gow C and maybe non-Gow-D, build smaller platforms to the North and Central that connect. That would be just the final investment decision that we're talking about on building a bigger platform would add to their reserves about 10, 12 million barrels of oil. And then we still have Osang North and South, which we're not counting yet because we haven't made a decision about

expanding. But that expands very real, very likely to happen. It would cost about $150 million to develop that platform for which you'd get $12 million of oil plus all of the reserve replacement that comes with that plus the was on a north later on a time

and the South later on the time that comes to that with the more CAPEX and that would probably come online sometime 2027. They're saying two years from when they start, so quarter to 2027 is when they would get first oil from the larger new platform instead of what they're doing now. They haven't yet officially made the decision on that. They said decisions coming in a few months.

When that comes out, they're going to have a new reserve report to match, a new Cappex guidance to match, et cetera, et cetera. but that's very likely to be add much, much more to the story here. And I just want to underline, they actually speak. Whenever they speak about acquisitions, they say they like acquiring fields that have the opportunity to sink PEPX in at profitable rates. And that's exactly what they got here. They got a small field that has the ability to make into a large field,

that's the ability to make into a mega field. And that's what they're looking for, and that's what they got. And again, decision hasn't been made, but they've been highlighting this again and again, and it does look most likely just running the numbers on paper. It should make sense, as long as it's not a blowout number for how much of course to develop it, and the number is somewhere in the range of where it makes sense, where it should be, then it definitely seems to make sense to go ahead with that development and add hundreds of millions of dollars of value to the company.

Well, we're running quite long at this point. So I think we're going to have to wrap it there. I mean, it's just a fascinating study. And as you called it, I mean, I didn't believe it when I saw the slides. It's, it's, I can't think of another acquisition. People say, oh, Google, Google buying YouTube or Facebook buying Instagram. Yeah, those were multi, multi, multi, multi, multi bagger home runs. But like, here you had a multi bagger from day one, right?

they gave you eight extra purchase price on day one. And then you had these cash flow gushing assets. Like, it's just like nothing I've ever seen before. So Mordecai, this has been great. Again, Mordecai's website mentioned at the open. I'll include a link in the show notes. Go there, find a little bit more about everything. Mordecai does.

And maybe finding deals and stocks are not quite as good as the one that these guys pulled off. But hopefully, 98% of the way there. Mordecai Yavne, thank you so much for coming on fourth, the third time. and looking forward to the fourth time. Okay, great. Thank you for having me. Again, if you like mine, you like Valura. And if you enjoyed hearing about Valoura, then check out my website.

Reach out to me. Love to talk about Valour or any other analysis, research that you like or whatever. My shingles open for outside consulting, analysis, research, what have you. Perfect. Thank you, Matt. Today's episode is brought to you by AlphaSense, the market intelligence platform I rely on for faster, deeper insight. If you've used platforms like Tevious, you'll feel right at home, but Alphiscense takes it further. With over 150,000 expert call transcripts and 450 million plus premium documents,

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