Can you give us an overview of Valeura's operations in the Thrace Basin, and how the basin's distinct geology impacts exploration?
There has been oil and gas production from the Thrace Basin for a number of decades now. It has been heavily explored and developed, so there is a long history there. Valeura came in with a partnership with Transatlantic when we purchased Thrace Basin Natural Gas in 2011. At the time, we recognized that the reservoirs there were quite tight with low permeability, and we thought that by drilling horizontal wells and stimulating them we could increase production in the existing fields. For the first three or four years, there was a lot of activity to work our way toward gas production in the area. While we were doing drilling and research on these reservoirs, we found the potential for a deep unconventional gas play. In 2017, we brought in Statoil, which is now known as Equinor, as a partner to help the company fund and explore for that deeper unconventional gas play. Once we drilled the discovery well, Yamalik-1, in 2017 we then brought in our reserves auditor DeGolyer & MacNaughton, which conducted an evaluation and came up with a prospective resource estimate ranging between 3 and 20 trillion cubic feet of recoverable gas. It really speaks to a potential world-class gas opportunity, though we still have work to prove this and demonstrate that we can flow this gas commercially.
Beyond funding, what role does Equinor play in the operations at Trace Basin?
It is a funding partnership, though Equinor also puts in a great deal of technical work. We recognized the potential for this play but also understood that we needed large amounts of capital to drill these deep wells and stimulate and test them, which is when we looked to bring in a partner. There were several companies who put offers on the table, but Equinor was the best at the time. Once it has fully earned its interest, Equinor has the right to request Valeura to transfer the operatorship of the deep unconventional play to it. If it does so, Valeura will retain a working relationship with approximately a 50-50 split with Equinor and maintain operatorship of all the shallower sections and production facilities, while Equinor would have operatorship of the wells that are drilling deep into the unconventional play.
What pricing risks do you face here due to the volatility of the Turkish lira?
Pricing is extremely important. Currently, the prices are set by BOTAŞ and are in lira. For foreign investors in different sectors this might create uncertainty given the volatility around the lira, but when converted to dollars, the BOTAŞ price has historically closely tracked the euro gas price in the region. One positive step in 2018 was a new monthly review and update of the price by the government. We have been pleased with the new Minister of Energy and Mining and how he has communicated with the entire oil and gas industry. He sat down and listened to the issues the industry is facing and the list of things we need to support it.
Does Valeura have plans to export?
If we look at upscaling this project and its potential to be extremely large, exporting is an option. Having a pipeline like TANAP that will run into Europe creates that opportunity. However, we tend to run all our economic and development scenarios assuming the gas is going into the Turkish market, which is a captive market with great fiscal terms where 98% of gas is currently imported.