Mr. Jim McFarland reports

VALEURA ANNOUNCES TURKISH GOVERNMENT APPROVAL OF TRANSFORMATIONAL TRANSACTIONS

The Ministry of Energy and Natural Resources of the Republic of Turkey has approved a number of recently announced transformational transactions (each as defined below), including Valeura Energy Inc.'s Banarli farm-in, the West Thrace deep rights sale and the TBNG (Thrace Basin Natural Gas (Turkiye) Corp.) acquisition.

Next steps

Turkish government approvals of the Banarli farm-in and West Thrace deep rights sale satisfy certain condition precedents to close these transactions, which will trigger respective payments of $6-million (U.S.) and $12-million (U.S.) from Statoil to Valeura promptly upon completion of all necessary consents for closing expected by mid-January, 2017.

The Turkish government approval of the TBNG acquisition and the receipt of the above payments from Statoil will pave the way to releasing gross proceeds of approximately $11-million raised under the corporation's underwritten private placement offering of subscription receipts.

Closing of the TBNG acquisition will require a payment of approximately $18.5-million (U.S.), after closing adjustments. This payment will be made from a combination of funds flow from the Statoil transactions and the offering. Closing is currently expected in February, 2017.

Following the closing of the TBNG acquisition, TBNG will proceed with the subsequent West Thrace deep rights sale (defined below), contingent on Turkish government approval for the associated licence interest transfers. Closing of this transaction is expected early in the second quarter of 2017 and will provide an additional $3-million (U.S.) in proceeds to Valeura.

Operational update

Banarli deep program

The work program under the Banarli farm-in consists of several phases, where the first includes the drilling of an exploration well to at least a depth of 4,000 metres. Financing has been secured from Statoil to purchase long lead equipment, including a high-pressure wellhead, casing and other drilling related equipment for this first deep well, which is expected to spud in the first quarter of 2017.

TBNG JV (joint venture) and Banarli shallow program

Valeura's preliminary 2017 capital expenditure program on the shallow gas business as disclosed on Nov. 10, 2016, was based on a year-end 2016 closing of the transactions and the availability of the associated funds flow to Valeura. Closing of the transactions has now been delayed to various times in the first quarter of 2017 due to longer than expected timelines to secure Turkish government approvals. As a result, start-up of the 2017 program will be delayed, but the plan remains to execute a one drilling rig program in 2017 focussed entirely on the shallow gas business on the TBNG JV and Banarli licences (less than 2,500 metres depth). The corporation will confirm the program later in the first quarter of 2017 when the transactions have closed and, in the meantime, will continue with all the necessary preparations for an expeditious ramp-up in shallow drilling.

The current outlook for annual average net sales in 2016 remains at approximately 800 barrels of oil equivalent per day as advised on Nov. 10, 2016.

Organization

Closing of the transactions will result in a significant transformation of the corporation. Not only will Valeura become the operator of the TBNG JV, and the shallow gas program on the TBNG JV lands and Banarli licences, but it will also be the operator of the deep farm-in program on the Banarli licences during the earning phase financed by Statoil.

In acquiring TBNG, Valeura will take onboard an operating organization of 52 full-time employees located in the Tekirdag area of the Thrace basin. TBNG operates the wells and extensive gathering system, central dehydration and compression facilities, two sales gas lines and connections to 55 individual customers in the area, and manages the associated marketing licence.

Valeura has developed a near-term transition plan for TBNG that involves deploying existing management resources to provide in-country operational leadership. Valeura also plans to hire a high-potential individual as chief operating officer to be based initially in Turkey post the near-term transition period, and, at the same time, review its management structure and overall go-forward staffing plan for the business.

Background on the transactions and offering

Farm-in with Statoil

As announced on Aug. 19, 2016, Valeura's wholly owned affiliate, Corporate Resources BV, executed definitive agreements with Statoil Banarli Turkey BV, a wholly owned affiliate of Statoil ASA, for a farm-in agreement for the exploration of the deeper formations below approximately 2,500 metres on Valeura's 100-per-cent-owned-and-operated Banarli licences targeting a potential basin-centred gas accumulation play.

Under the terms of the Banarli farm-in, Statoil has the option to earn a 50-per-cent participating interest in the deep formations on the Banarli licences by investing in an exploration program that includes payments and carried costs of at least $36-million (U.S.), including a payment of $6-million (U.S.) at closing of the transaction as a contribution to back costs incurred on the Banarli licences, and two deep exploration wells and 3-D seismic over the next two to three years. Valeura retains a 100-per-cent participating interest in the shallow rights and a 50-per-cent participating interest in the deeper formations, post Statoil earning, thereby preserving a significant position in the potential upside.

West Thrace deep rights sale

As announced on Oct. 13, 2016, CRBV executed a sale and purchase agreement with Statoil to initially sell CRBV's current 40-per-cent participating interest in the deep formations below approximately 2,500 metres on certain TBNG JV lands for a cash payment (covering a portion of past exploration costs and asset acquisition) of $12-million (U.S.) and, upon closing of the TBNG acquisition, to cause TBNG to sell an additional 10-per-cent participating interest to Statoil in the same deep rights for $3-million (U.S.).

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

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.

TBNG acquisition

As announced on Oct. 13, 2016, Valeura Energy Netherlands BV executed a share purchase agreement with TransAtlantic Worldwide Ltd. to acquire 100 per cent of the shares of TWL's wholly owned affiliate, Thrace Basin Natural Gas (Turkiye), for $22-million (U.S.), effective on March 31, 2016, which, after closing adjustments, is expected to be reduced to approximately $18.5-million (U.S.) at the targeted closing in February, 2017.

TBNG is party to a joint venture with CRBV and Pinnacle Turkey Inc. whereby TBNG is the operator and holds a 41.5-per-cent participating interest in the TBNG JV lands, with CRBV and PTI holding the remaining 40-per-cent and 18.5-per-cent participating interests, respectively. Valeura (through CRBV) acquired its 40-per-cent interest in the TBNG JV in 2011, and the TBNG acquisition will increase Valeura's participating interest in the TBNG JV to 81.5 per cent (subject to the West Thrace deep rights sale) and establish Valeura as the operator. PTI has provided its consent to the TBNG acquisition and will retain its 18.5-per-cent participating interest in the TBNG JV.

Underwritten private placement offering

As announced on Oct. 13 and Oct. 14, 2016, Valeura entered into an agreement with Cormark Securities Inc. as lead underwriter, and on behalf of a syndicate of underwriters including GMP FirstEnergy, pursuant to which the corporation sold and the underwriters purchased, on an underwritten private placement basis, 14,629,000 subscription receipts of the corporation at a price of 75 cents per subscription receipt for total gross proceeds of approximately $11-million. The offering closed on Nov. 3, 2016, and the gross proceeds are currently being held in escrow pending satisfaction of the escrow release conditions (defined below).

Each subscription receipt represents 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). If: (i) the TBNG acquisition is not completed on or before March 3, 2017, (ii) the TBNG 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 return of the cash payment equal to the offering price per subscription receipt and any interest earned thereon during the term of the escrow.

Valeura will use the net proceeds, once released from escrow, to partially finance the TBNG acquisition, and to ramp up the planned shallow gas drilling program on the TBNG JV lands and Banarli licences in 2017.

About the corporation

Valeura Energy is a Canada-based public company currently engaged in the exploration, development and production of petroleum and natural gas in Turkey.

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