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Disclosure: The following represents my opinions only. I am long VLE.TO and TNZ.TO (Image credit to Harry Shelton on Unsplash)
As I watched Valeura Energy (VLE.TO, last at $1.58) soar 125% yesterday on the news of its >20,000 bopd acquisition in Thailand, something really crystallized for me. The concept of larger companies divesting of oil assets for ESG or portfolio rationalization reasons is well-established, but finding quality teams, capable of optimizing, running, and eventually decommissioning those assets is a different animal altogether. Any quality asset seller will want to sell to a quality buyer in order to minimize the risk of, in the future, being accused of laying off assets just to get them off the sheets. It’s the seller’s responsibility to ensure that the buyers are qualified and capable, both financially and organizationally, to carry on the business to the same or better standards. As a result, sometimes divestitures may be less about the headline sales price and more about simply finding good homes for non-core holdings.
When I first read VLE’s news, I have to admit that disbelief was my first reaction. I understood that there must have been some decommissioning liability that came with the asset, but it was clear there was going to be a lot of torque to the equity. As it turns out, the decommissioning liability in VLE’s deal is about US$214 million, but that’s where things start getting interesting.
