Mr. Jim McFarland reports

VALEURA ANNOUNCES EXECUTION OF TRANSFORMATIONAL TRANSACTION AGREEMENTS IN TURKEY AND UNDERWRITTEN PRIVATE PLACEMENT OF SUBSCRIPTION RECEIPTS

Valeura Energy Inc. has executed definitive agreements for three concurrent transactions, which advance the corporation's strategy to expand its high-netback natural gas business in the Thrace basin of northwest Turkey. These transactions, upon completion, are expected to be transformational for Valeura in terms of increased business scale, operational control, financial capability, drilling activity and production, and include:

• Acquisition of its joint venture partner, Thrace Basin Natural Gas (Turkiye) Corp. (TBNG), for $22-million (U.S.) in cash, effective March 31, 2016, which after closing adjustments are expected to be reduced to approximately $18.5-million (U.S.) at closing;
• Sale of deep rights on certain joint venture lands to Statoil Banarli Turkey BV for $15-million (U.S.) in two tranches of $12-million (U.S.) and $3-million (U.S.);
• Underwritten $7.5-million private placement financing of subscription receipts of the corporation, to be issued at a price of 75 cents per subscription receipt (see financing of the TBNG acquisition section herein).

The closing of the acquisition of TBNG and of the sale of deep rights on certain joint venture lands to Statoil is subject to customary closing conditions, including obtaining customary Turkish government approvals with respect to the change of control of TBNG and the various licence interest transfers.

"The acquisition of TBNG has been a long-standing strategic objective of Valeura, which provides operational control and doubles our participating interest to 81.5 per cent in a core producing asset in the Thrace basin," said Jim McFarland, president and chief executive officer of Valeura. "The combination of the acquisition of Valeura's joint venture partner, the sale of the deep rights to Statoil and the financing is expected to be highly accretive to Valeura shareholders, with pro forma cash flow per share accretion of 62 per cent based on Q2 2016 actual results.

"The funds flow from Statoil and concurrent financing provide the opportunity to ramp up exploration and development drilling activity in the shallow conventional gas and tight gas formations on the TBNG JV lands to complement the 100-per-cent-controlled shallow program on the Banarli licences, which together will be the main focus of Valeura's near-term business plan. We look forward to working with TransAtlantic Petroleum to ensure a smooth transition of operatorship of the TBNG JV and welcoming the TBNG operational team in Turkey to the Valeura group.

"We are also delighted with the opportunity to expand the joint venture activities with Statoil under the sale of a portion of the West Thrace deep rights, which will build on the recently executed Banarli farm-in. Not only is this sale a crucial source of non-dilutive financing for the TBNG acquisition, but it is also an important measure of Statoil's level of interest and commitment to testing the basin-centred gas play concept in the Thrace basin and the potential option value of Valeura's position in the play," added Mr. McFarland.

Details of the transactions are outlined herein.

Thrace Basin Natural Gas (Turkiye) acquisition

Valeura's wholly owned affiliate, Valeura Energy Netherlands BV, has entered into a share purchase agreement with TransAtlantic Worldwide Ltd. to acquire 100 per cent of the shares of its wholly owned affiliate, TBNG, for cash consideration at closing of approximately $18.5-million (U.S.) (estimate after closing adjustments). TBNG currently holds a 41.5-per-cent participating interest in the joint venture lands acquired from TBNG and Pinnacle Turkey Inc. (PTI) in 2011. Upon the closing of the TBNG acquisition, Valeura's participating interest in the shallow rights on the TBNG JV will increase to 81.5 per cent, and Valeura will become the operator. Certain consents for the TBNG acquisition have been received from PTI, which holds an 18.5-per-cent participating interest in the TBNG JV and will remain a joint venture partner.

Cormark Securities Inc. acted as financial adviser to Valeura with respect to the TBNG acquisition.

Key transaction highlights and benefits

Management of Valeura believes the following to be the key transaction highlights and benefits of the TBNG acquisition:

• Per-share accretion metrics for the TBNG acquisition, based on a 17-per-cent increase in the shares outstanding at completion of the financing, are expected to be strong given the significant non-dilutive financing from Statoil:

Per-share accretion (1):

Cash flow (2):  62 per cent

Production (3):  35 per cent

Proven plus probable reserves (4):  58 per cent

• Increases Valeura's participating interest in the shallow rights on the TBNG JV from 40 per cent to 81.5 per cent and establishes Valeura as the operator;
• Increases Valeura's corporate production by 59 per cent (3) and 2P reserves by 85 per cent (4);
• Provides control of key upstream and marketing infrastructure and a retail marketing licence held by TBNG;
• Capitalizes on Valeura's five-year experience with the assets and proven operational capabilities;
• Acquiring operatorship allows Valeura to accelerate the early ramp-up of exploration and development activities on the TBNG JV lands, with the initial priority on spudding four shallow commitment wells on the West Thrace lands by late June, 2017;
• Expands Valeura's interest in a robust portfolio of exploratory prospects and leads and development opportunities identified by Valeura on the TBNG JV lands in both conventional shallow gas formations and normally pressured tight gas formations and complements the 100-per-cent-controlled shallow program on the Banarli licences, which are in the early exploration phase;
• Acquiring key infrastructure provides significant operational synergies for the development of the adjacent Banarli licences and producing wells, which are tied into the TBNG JV facilities, with the related production currently being sold to TBNG and marketed to TBNG's local customer base;
• Acquisition metrics, based on the adjusted cash purchase price of approximately $18.5-million (U.S.) (estimate after closing adjustments), are expected to be as follows:
  • Three-point-two cash flow multiple (2);
  • $43,360 per producing barrel of oil equivalent per day (3);
  • $15.08 per boe (proven reserves); $5.08 per boe (proven plus probable reserves) (4).

Notes:

(1) Based on 58.5 million shares prefinancing and 68.5 million shares postfinancing.

(2) Based on annualized second quarter 2016 cash flow. Cash flow herein is defined as revenue less royalties, operating costs, and general and administrative expenses, including an allocation of existing Valeura corporate G&A to the TBNG JV and an estimated incremental G&A burden of $1.0-million associated with the TBNG acquisition.

(3) Based on annualized second quarter 2016 sales from TBNG's 41.5-per-cent working interest in TBNG JV.

(4) Based on allocation of DeGolyer and MacNaughton's estimate of Valeura's reserves for the TBNG JV lands at Dec. 31, 2015, in its report prepared for Valeura dated March 8, 2016.

Deep rights sale to Statoil

Valeura's wholly owned affiliate, Corporate Resources BV (CRBV), has entered into a sale and purchase agreement with Statoil, a wholly owned affiliate of Statoil ASA, to sell Valeura's current 40-per-cent participating interest in the deep formations below an approximately 2,500-metre depth on certain TBNG JV lands, including two exploration licences and three production leases (the West Thrace lands), for cash consideration of $12-million (U.S.) (the West Thrace deep rights sale). The deep rights sale agreement also provides that upon the closing of the West Thrace deep rights sale and the TBNG acquisition, CRBV will cause TBNG to enter into a sale and purchase agreement with Statoil to sell an additional 10-per-cent participating interest in the deep formations below an approximately 2,500-metre depth on the West Thrace lands, for cash consideration of $3-million (U.S.) (the subsequent West Thrace deep rights sale).

Upon the closing of the West Thrace deep rights sale and the subsequent West Thrace deep rights sale, Valeura retains a 31.5-per-cent participating interest, and Statoil acquires a 50-per-cent participating interest in the deep formations on the West Thrace lands. Valeura will retain an 81.5-per-cent participating interest in the shallow formations and an 81.5-per-cent participating interest in all formations on other TBNG JV lands.

Key transaction highlights and benefits

Management of Valeura believes the following to be the key transaction highlights and benefits of the West Thrace deep rights sale and the subsequent West Thrace deep rights sale:

• Proceeds from the sale provide a key source of non-dilutive financing for the TBNG acquisition.
• Valeura retains all existing production and reserves on the TBNG JV lands, given the current undeveloped nature of the deep formations.
• They further validate the potential of Valeura's assets with respect to the potential for a basin-centred gas play.
• Valeura retains a meaningful 31.5-per-cent participating interest in the deep formations on the West Thrace lands to complement its retained 50-per-cent participating interest in the deep formations on the Banarli licences, thereby preserving significant option value, should the basin-centred gas play be successful.
• Valeura retains operatorship and an 81.5-per-cent participating interest in shallow formations in all TBNG JV lands and all formations outside the West Thrace lands.
• Valeura retains its 81.5-per-cent ownership of all existing facilities and wells on the TBNG JV lands, with the exception of deep rights that would accrue to the existing suspended deep wells Hayrabolu-10 and Kazanci-5.
• Valeura will also initially operate the deep rights program, subject to Statoil having a one-time right to become operator of the deep rights, provided it has first earned its 50-per-cent participating interest in the Banarli exploration licences under the Banarli farm-in announced on May 16, 2016.
• Any deep drilling on the West Thrace lands prior to Statoil completing the earning under the Banarli farm-in would require the unanimous approval of the parties holding participating interests in the deep formations.
• They align Statoil's 50-per-cent participating interest in the deep formations on the West Thrace lands with its potential after-earning 50-per-cent participating interest in the deep formations under the Banarli farm-in.

Closing of the TBNG acquisition and of the West Thrace deep rights sale is expected to occur before year-end 2016 and is subject to customary closing conditions, including obtaining customary Turkish government approvals with respect to the change of control of TBNG and the various licence interest transfers. Furthermore, closing of the TBNG acquisition is conditional on the closing of the West Thrace deep rights sale, and the deep rights sale agreement provides for the return of the initial proceeds of $12-million (U.S.) to Statoil in the event the acquisition agreement is terminated or the TBNG acquisition fails to close. Closing of the subsequent West Thrace deep rights sale is expected to occur in early 2017, subject to obtaining customary Turkish government approvals.

Financing of the TBNG acquisition

Consideration for the TBNG acquisition will consist of a cash payment at closing of approximately $18.5-million (U.S.), after estimated closing adjustments. Valeura has developed a robust financing mechanism to ensure the timely closing of the TBNG acquisition having regard to the flow of funds from Statoil to affiliates of Valeura, the Turkish government approvals required and the expected timing thereof.

Valeura expects to partially finance the TBNG acquisition with the initial proceeds of $12-million (U.S.) from Statoil under the West Thrace deep rights sale and the expected proceeds from the concurrent $7.5-million ($5.7-million (U.S.)) underwritten private placement financing.

Other expected payments from Statoil, which are not directly linked to the TBNG acquisition, but which can provide additional financing for the TBNG acquisition and/or working capital to finance the 2017 shallow drilling program, include the following: the $6-million (U.S.) payment to be received by Valeura at the closing of the Banarli farm-in, which could occur in advance of the closing of the TBNG acquisition and thereby also partially finance the TBNG acquisition; and the second payment of $3-million (U.S.) to be received at the closing of the subsequent West Thrace deep rights sale expected in early 2017.

Underwritten private placement offering

The corporation has entered into an agreement with Cormark Securities as lead underwriter, and on behalf of a syndicate of underwriters, in respect of the offering, pursuant to which the corporation will sell and the underwriters will purchase, on an underwritten private placement basis, 10 million subscription receipts of the corporation at a price of 75 cents per subscription receipt for total gross proceeds of $7.5-million.

Each subscription receipt will represent the right to receive one common share of the corporation without the payment of any additional consideration or further action, upon satisfaction of certain conditions, including that all conditions to the completion of the TBNG acquisition have been satisfied (but for the payment of the purchase price). The gross proceeds of the offering will be deposited in escrow pending the closing of the TBNG acquisition.

The corporation will use the net proceeds of the offering to partially finance the TBNG acquisition.

If: (i) the TBNG acquisition is not completed on or before the date that is 120 days following the closing date of the offering, (ii) the acquisition agreement is terminated in accordance with its terms at an earlier time, or (iii) Valeura advises the underwriters or the public that it does not intend to proceed with the TBNG acquisition, holders of subscription receipts will receive, for each subscription receipt held, a cash payment equal to the offering price per subscription receipt and any interest earned thereon during the term of the escrow.

The subscription receipts will be offered by way of private placement exemptions to accredited investors in all provinces of Canada, and in the United States on a private placement basis, pursuant to exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended, and in such other jurisdictions as the corporation and the underwriters may determine. The subscription receipts (and the underlying common shares) will be subject to a four-month hold period, under applicable securities laws in Canada. The offering is expected to close on or about Nov. 3, 2016. Completion of the offering is subject to certain conditions, including, without limitation, the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange.

Preliminary 2017 outlook

The corporation is targeting to close the Banarli farm-in, the TBNG acquisition and the West Thrace deep rights sale by year-end 2016 and the subsequent West Thrace deep rights sale by early 2017. Based on the funds flow associated with these transactions, the corporation expects to be in a position, on a preliminary basis, to execute a capital expenditure program of approximately $30-million (net) in 2017 focused on ramping up drilling and production in the shallow formations on the TBNG JV lands and Banarli licences. The corporation also expects that the Banarli farm-in program, fully financed by Statoil and operated by Valeura, will commence by early 2017.

The preliminary 2017 work program and spending outlook aims to achieve the following key objectives in 2017:

Shallow gas business:

• Execute a one-rig drilling program to drill 12 to 14 shallow wells on the TBNG JV lands (Valeura 81.5-per-cent working interest) and Banarli licences (Valeura 100-per-cent WI);
• Achieve corporate average sales volumes in the range of 2,000 to 2,200 barrels of oil equivalent per day (net);
• Target annual average operating netbacks of approximately $35 per boe, reflecting the recently announced 10-per-cent reduction in the Botas reference price in Turkey, effective Oct. 1, 2016 (priced in Turkish lire), which is equivalent to approximately $8.48 per thousand cubic feet at current exchange rates;
• Seek resolution of outstanding exploration licence and production lease applications submitted by Valeura and the TBNG JV to the General Directorate of Petroleum Affairs (GDPA) of the Republic of Turkey in 2015.

Statoil Banarli farm-in:

• Work closely with Statoil to design and execute the Banarli farm-in program in a safe, environmentally responsible, cost-effective and timely way;
• Spud the first deep well (4,000 metres) under phase 1 of the Banarli farm-in by early 2017;
• Commence the 3-D seismic program under phase 2 of the Banarli farm-in in May, 2017.

We seek Safe Harbor.